**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C.  20549**





**Form
      10-QSB/A**





(Mark
      One)


**[X]   QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





For
      the
      quarterly period
      ended:                                                                June
      30, 2007





**[  ]   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 of incorporation or organization)
            (IRS
                Employer Identification No.)








17304
      Preston Road, Suite 975, Dallas, TX 75252


(Address
      of principal executive offices)





(972)
      381-4699


Issuer's
      telephone number





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  xNo  o





Indicate
      by check mark whether the
      registrant is a shell company (as defined by Rule 12b-2 of the Exchange
      Act). Yes oNo
x





At
      August 14, 2007, the issuer had
      8,292,002 shares of its common stock outstanding.





Transitional
      Small Business Disclosure
      Format (check one): Yes oNo
x











**PART
      I**





**Item
      1.  Financial Statements**





CISTERA
      NETWORKS, INC. & SUBSIDIARY


CONSOLIDATED
      BALANCE SHEETS








**(Restated)**(Unaudited)
            
            
            **(Restated)**June
                30,
            
            
            March
                31,2007
            
            
            2007Current
                Assets:Cash
            
            $
            1,137,826
            
            
            $
            534,871Accounts
                Receivable
            
            
            630,381
            
            
            
            314,178Other
                Receivable
            
            
            14,821
            
            
            
            23,927Inventory
            
            
            65,303
            
            
            
            75,743Prepaid
                Expenses
            
            
            8,575
            
            
            
            10,143Total
                Current Assets
            
            
            1,856,906
            
            
            
            958,862Fixed
                Assets:Computer
                Equipment
            
            
            152,090
            
            
            
            123,035Trade
                Show Booth & Fixtures
            
            
            10,641
            
            
            
            10,641Office
                Equipment
            
            
            169,788
            
            
            
            129,064Property
                held under capital leases
            
            
            10,205
            
            
            
            10,205Less
                Accumulated Depreciation
            
            
            (163,891
            )
            
            
            (150,899
            )Net
                Fixed Assets
            
            
            178,833
            
            
            
            122,046Intangible
                Assets:Intellectual
                property
            
            
            2,717,755
            
            
            
            2,717,755Software
                development
            
            
            366,040
            
            
            
            366,040Less
                Amortization
            
            
            (856,745
            )
            
            
            (788,802
            )Net
                Intangible Assets
            
            
            2,227,050
            
            
            
            2,294,993Total
                Assets
            
            $
            4,262,789
            
            
            $
            3,375,901








2


CISTERA
      NETWORKS, INC. & SUBSIDIARY


CONSOLIDATED
      BALANCE SHEETS


(continued)








**(Restated)**(Unaudited)
            
            
            **(Restated)**June
                30,
            
            
            March
                31,2007
            
            
            2007Current
                Liabilities:Accounts
                payable
            
            $
            368,051
            
            
            $
            544,796Accrued
                liabilities
            
            
            444,716
            
            
            
            598,023Related
                party payables
            
            
            13,038
            
            
            
            24,038Line
                of credit
            
            
            -
            
            
            
            62,094Convertible
                promissory notes
            
            
            94,000
            
            
            
            144,000Current
                portion of long-term debt
            
            
            1,408
            
            
            
            2,415Current
                portion of deferred income
            
            
            654,996
            
            
            
            465,179Total
                Current Liabilities
            
            
            1,576,209
            
            
            
            1,840,545Long-Term
                LiabilitiesConvertible
                promissory notes
            
            
            3,485,491
            
            
            
            1,900,606Deferred
                income
            
            
            114,912
            
            
            
            84,968Total
                Long-Term Liabilities
            
            
            3,600,403
            
            
            
            1,985,574Total
                Liabilities
            
            
            5,176,612
            
            
            
            3,826,119Stockholders’
                Equity:Common
                Stock, Par Value $.001Authorized
                50,000,000 shares,Issued
                8,292,022 shares at June 30, 2007 andMarch
                31, 2007
            
            
            8,292
            
            
            
            8,292Paid-In
                Capital
            
            
            8,739,970
            
            
            
            8,739,970Retained
                Deficit
            
            
            (9,662,085
            )
            
            
            (9,198,480
            )Total
                Stockholders’ Equity
            
            
            (913,823
            )
            
            
            (450,218
            )Total
                Liabilities and Stockholders’ Equity
            
            $
            4,262,789
            
            
            $
            3,375,901






































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


3


CISTERA
      NETWORKS, INC.& SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF OPERATIONS











(Unaudited)For
                the three months endedJune
                30,2007
            
            
            2006**(Restated)**Revenues
            
            $
            679,787
            
            
            $
            494,737Cost
                of goods sold
            
            
            139,656
            
            
            
            27,974Gross
                Profit
            
            
            540,131
            
            
            
            466,763Expenses:Sales
                and marketing
            
            
            176,092
            
            
            
            55,710Research
                and development
            
            
            129,035
            
            
            
            128,094Software
                consulting
            
            
            300,006
            
            
            
            267,755General
                and administrative
            
            
            250,057
            
            
            
            277,818Total
                Expenses
            
            
            855,190
            
            
            
            730,187Other
                Income (Expense)Interest
                income
            
            
            9,589
            
            
            
            15Interest
                expense
            
            
            (158,135
            )
            
            
            (17,434
            )Total
                Other Income (Expense)
            
            
            (148,546
            )
            
            
            (17,419
            )Net
                Loss
            
            $
            (463,605
            )
            
            $
            (280,843
            )Basic
                & Diluted loss per share
            
            $
            (0.06
            )
            
            $
            (0.03
            )Weighted
                Average Shares
            
            
            8,292,022
            
            
            
            8,077,226















































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


4


CISTERA
      NETWORKS, INC. & SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS








(Unaudited)For
                the three months endedJune
                30,2007
            
            
            2006**(Restated)**CASH
                FLOWS FROM OPERATINGACTIVITIES:Net
                Loss
            
            $
            (463,605
            )
            
            $
            (280,843
            )Adjustments
                used to reconcile net loss to net cashprovided
                by (used in) operating activities:Depreciation
                and amortization
            
            
            80,936
            
            
            
            112,573Deferred
                income
            
            
            219,761
            
            
            
            29,957Decrease
                in other receivable
            
            
            9,106
            
            
            
            -(Increase)
                Decrease in accounts receivable
            
            
            (316,203
            )
            
            
            36,265(Increase)
                Decrease in inventory
            
            
            10,440
            
            
            
            (550
            )(Increase)
                Decrease in prepaid expenses
            
            
            1,568
            
            
            
            (95,088
            )Increase
                (Decrease) in accrued liabilities
            
            
            (153,307
            )
            
            
            250,994(Decrease)
                in accounts payable
            
            
            (176,745
            )
            
            
            (186,837
            )Net
                Cash Used in operating activities
            
            
            (788,049
            )
            
            
            (133,529
            )CASH
                FLOWS FROM INVESTINGACTIVITIES:Cash
                acquired from XBridge
            
            
            -
            
            
            
            -Purchase
                of equipment
            
            
            (69,780
            )
            
            
            (2,598
            )Net
                cash provided by investing activities
            
            
            (69,780
            )
            
            
            (2,598
            )CASH
                FLOWS FROM FINANCINGACTIVITIES:Payments
                on capital lease
            
            
            (1,007
            )
            
            
            (832
            )Cash
                received from convertible debt
            
            
            1,584,885
            
            
            
            154,000Payments
                on line of credit
            
            
            (62,094
            )
            
            
            -Payments
                on loans
            
            
            (61,000
            )
            
            
            (12,500
            )Net
                Cash Provided by Financing Activities
            
            
            1,460,784
            
            
            
            140,668Net
                Increase in cash and cash equivalents
            
            
            602,955
            
            
            
            4,541Cash
                and Cash Equivalents at beginning of period
            
            
            534,871
            
            
            
            60,990Cash
                and Cash Equivalents at end of period
            
            $
            1,137,826
            
            
            $
            65,531





5


CISTERA
      NETWORKS, INC. & SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(continued)








(Unaudited)For
                the three months endedJune
                30,2007
            
            
            2006**(Restated)**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:Cash
                paid during the year for:Interest
            
            $
            9,798
            
            
            $
            658Franchise
                and income taxes
            
            $
            -
            
            
            $
            -SUPPLEMENTAL
                DISCLOSURE OF NON-CASH INVESTING AND FINANCINGACTIVITIES:None.





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.





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 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
      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
      8,000 shares of stock as part of a legal settlement.  The shares had
      been previously issued and were cancelled as part of a court order, but were
      never returned to the Company.  As per the settlement, the 8,000
      outstanding were cancelled and subsequently reissued as unrestricted
      shares.





6


CISTERA
      NETWORKS, INC. & SUBSIDIARY


CONSOLIDATED
      STATEMENTS OF CASH FLOWS


(continued)





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.  The exercise price
      of the warrants was $.46 per share.  The warrants were exercised for
      notes payable totaling $32,594.





On
      August 1, 2006, the Company issued
      4,034 shares of common stock upon conversion of the principal and accrued
      interest on a previously issued convertible note.  The principal
      amount of the note converted was $1,000 and the amount of accrued interest
      converted $3,034.  The notes converted at $1.00 per
      share.





On
      October 25, 2006, the Company issued
      122,028 shares of common stock in connection with the exercise of options issued
      in the merger of the Company with XBridge Software, Inc.  The exercise
      price for these options was $.01 per share.





On
      December 13, 2006, the Company
      issued 17,931 shares of common stock upon conversion of certain outstanding
      notes.  The amount of principal of notes converted was $15,000 and the
      amount of accrued interest converted was $2,391.  These notes were
      converted at $1.00 per share.






























































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


7




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 June 30, 2007, and for the three-month period 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 months.  Operating results for interim
      periods are not necessarily indicative of the results that can be expected
      for
      full years.





Organization
      and Basis of Presentation





CNH
      Holdings Company, 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 that it occupied at June 14, 1998, as if none of the actions that
      had occurred from that time to the date of rescission had
      transpired.












8


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


(continued)





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





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.




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
      August
      31, 2004, as part of a corporate restructuring aimed at simplifying the
      Company’s operating structure, Corvero Networks merged into CNH Holdings and
      began doing business as Cistera Networks.  As a continuation of this
      restructuring, effective May 27, 2005, the Company acquired XBridge in a merger
      of XBridge with a newly formed Company subsidiary.  As consideration
      for the acquisition, we issued an aggregate of 4,150,000 shares of our common
      stock, net of the cancellation of 2,150,000 shares of our common stock held
      by
      XBridge at the time of the acquisition.




On
      September 27, 2005, we changed our name to Cistera Networks, Inc.




Nature
      of Operations





We
      provide IP network-based application appliances and services that add features
      and enhanced functionality to the telecommunications services used by large
      enterprises, small and mid-sized organizations, both in the commercial and
      public sector.  Our software-based and hardware-based solutions are
      delivered on our open-architecture, component-based platform known as the
      Cistera ConvergenceServerTM, which allows administrators to centrally manage
      advanced applications for IP telephony environments across large single-site
      and
      multi-site private voice/data networks.  Although the origins of the
      solution started back in 2000, we began operations in May 2003 as a public
      entity under the name CNH Holdings Company.




Our
      general business plan is to drive
      adoption of the Cistera technology--establishing the Cistera ConvergenceServer
      as the leading platform for advanced IP-based applications, through the
      strategic technology relationships with the IP Telephony equipment
      providers—Cisco, Nortel, Sylantro and Avaya, as well as the leading channel
      resellers—AT&T, Verizon, Bell Canada, Comstor, BT, etc.  The
      Company plans to extend our product and technological leadership in the IP
      communications industry, and to increase our market penetration by continuing
      to
      expand our sales and distribution channels and by capitalizing on new market
      opportunities like two-way radio interoperability mobile/wireless
      devices.





9


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





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 June 30, 2007 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 inter-company balances
      and transactions have been eliminated.





Use
      of
      Estimates





Our
      consolidated financial statements
      are prepared in accordance with accounting principles generally accepted in
      the
      United States.  The preparation of these consolidated financial
      statements requires us to make estimates and assumptions that affect the
      reported amounts of assets, liabilities, revenues, costs and expenses, and
      related disclosures.  On an ongoing basis, we evaluate our estimates
      and assumptions.  Our actual results may differ from these estimates
      under different assumptions or conditions.





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.





Inventory





Inventory
      consists of equipment that has been shipped but not yet installed and 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 for future sales.  The inventory assets are
      recorded at cost.





Revenue
      Recognition





In
      an effort to establish an accounting
      policy that provides shareholders with the most accurate representation of
      the
      company's performance, the company has instated a new policy that only declares
      revenue from software, hardware and services once fully installed and
      implemented. This method of revenue reporting will not reflect all orders
      received and shipped during the reporting period, but only those orders
      received, shipped and completely installed within the reporting
      period.  Prior to the adoption of this policy, the Company recognized
      revenues when orders for our products and solutions were received and
      shipped.




In
      future
      earnings reporting, the Company will continue to provide the "booked" revenue
      figures -- the amount based upon purchase orders (POs) received from customers
      and delivered to resellers -- during the reporting period in addition to the
      new
      recognized revenue reporting policy.




10


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      2
      - SUMMARY OF ACCOUNTING POLICIES (continued)







The
      Company recognizes revenue according to SOP 97-2 (Software Revenue Recognition)
      as defined by paragraphs 07-14 in SOP 97-2 and as amended by SOP 98-9
      (Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
      Transactions).  This SOP provides guidance on when revenue should be
      recognized and in what amounts for licensing, selling, leasing or otherwise
      marketing computer software (including computer hardware and support
      services).




Technical
      support services revenue is deferred and recognized ratably over the period
      during which the services are to be performed, which is typically from one
      to
      three years. Advanced services revenue is recognized upon delivery or completion
      of performance.




We
      make
      sales to distributors and retail partners and recognize revenue based on a
      sell-through method using information provided by them.




Accounting
      for Deferred Commissions




We
      defer
      commission payments to our direct and channel sales force for the professional
      services and support and maintenance portions of our contracts.  These
      commissions are deferred and amortized to sales expense over the life of the
      related contracts, which typically last 12 to 36 months.  The
      commission payments, which are paid the month after the service is delivered
      to
      the customer, are a direct and incremental cost of the revenue
      arrangements.  The deferred commission amounts are recoverable through
      the future revenue streams under the customer support and maintenance
      contracts.  We believe this is the preferable method of accounting as
      the commission charges are so closely related to the revenue from the
      non-cancelable customer support and maintenance contracts that they should
      be
      recorded as an asset and charged to expense over the same period that the
      subscription revenue is recognized.




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 that range from three to seven
      years.  Fixed assets consisted of the following at June 30, 2007 and
      March 31, 2007:





(Unaudited)June
                30,
            
            
            March
                31,2007
            
            
            2007Computer
                Equipment
            
            $
            152,090
            
            
            $
            123,035Trade
                Show Booth & Fixtures
            
            
            10,641
            
            
            
            10,641Office
                Equipment
            
            
            169,788
            
            
            
            129,064Property
                held under capital leases
            
            
            10,205
            
            
            
            10,205Less
                accumulated depreciation
            
            
            (163,891
            )
            
            
            (150,899
            )Total
            
            $
            178,833
            
            
            $
            122,046





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


11


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      2
      - SUMMARY OF ACCOUNTING POLICIES (continued)





property
      and related accumulated depreciation accounts, and any resulting gain or loss
      is
      credited or charged to income.





Total
      depreciation expense for the
      three months ended June 30, 2007 and 2006 was $12,992 and $8,297,
      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.





Intangible
      Assets consisted of the
      following at June 30, 2007 and March 31, 2007:





(Unaudited)June
                30,
            
            
            March
                31,Intangible
                Asset
            
            2007
            
            
            2007
            
            Amortization
                PeriodIntellectual
                Property
            
            $
            2,717,755
            
            
            $
            2,717,755
            
            10
                YearsSoftware
                Development
            
            
            366,040
            
            
            
            366,040
            
            4
                YearsLess
                accumulated amortization
            
            
            (856,745
            )
            
            
            (788,802
            )Total
            
            $
            2,227,050
            
            
            $
            2,294,993





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


12


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      2
      - SUMMARY OF ACCOUNTING POLICIES (continued)





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
      three months ended June 30, 2007 and 2006 was $67,944 and $104,548,
      respectively.





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





2008
            
            $
            271,7762009
            
            
            271,7762010
            
            
            271,7762011
            
            
            271,7762012
            
            
            271,776Total
            
            $
            1,358,880





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
      three months ended June 30, 2007 and 2006 is not presented as it would be
      anti-dilutive.  At June 30, 2007, the total number of potentially
      dilutive common stock equivalents was 10,123,893.  At June 30, 2006,
      the total number of potentially dilutive common stock equivalents was
      3,088,598.





Reclassification





Certain
      reclassifications have been
      made in the 2007 financial statements to conform with the 2008
      presentation.





Deferred
      Income





Deferred
      income represents contracts
      for certain revenue to be received in the future and come from support and
      maintenance contracts as well as product sales and professional services which
      have been shipped and billed but not installed.  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.





13


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
      2
      - SUMMARY OF ACCOUNTING POLICIES (continued)





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 three months ended June 30, 2007
      or
      2006 and accordingly, no compensation expense was recognized under APB No.
      25
      for the three months ended June 30, 2007 or 2006. In addition, no compensation
      expense is required to be recognized under provisions of SFAS No. 123(R) with
      respect to employees.





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 April 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 June 30, 2007, the Company
      receives approximately 33% of its gross revenues from its top three
      re-sellers.  This represents some decrease in concentration of
      business from the 38% reported for the quarter ended June 30,
      2006.  The loss of these re-sellers would adversely impact the
      business of the Company.





14


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      4
      - INCOME TAXES





As
      of March 31, 2007, the Company had a
      net operating loss carry forward for income tax reporting purposes of
      approximately $6,935,000 that may be offset against future taxable income
      through 2027.  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.  Due to the uncertainty with respect to
      ultimate realization, the Company has established a valuation allowance for
      all
      deferred income tax assets.





March
                31,2007
            
            
            2006Net
                Operating Losses
            
            $
            2,357,900
            
            
            $
            1,912,500Valuation
                Allowance
            
            
            (2,357,900
            )
            
            
            (1,912,500
            )$
            -
            
            
            $
            -





The
      provision for income taxes differs
      from the amount computed using the federal US statutory income tax rate as
      follows:





March
                31,2007
            
            
            2006Provision
                (Benefit) at US Statutory Rate
            
            $
            445,400
            
            
            $
            868,576Increase
                (Decrease) in Valuation Allowance
            
            
            (445,400
            )
            
            
            (868,576
            )$
            -
            
            
            $
            -





The
      Company evaluates its valuation
      allowance requirements based on projected future operations.  When
      circumstances change and causes a change in management's judgment about the
      recoverability of deferred tax assets, the impact of the change on the valuation
      is reflected in current income.





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, a successor to CMD Realty
      Fund.  The lease payments are approximately $7,626 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, 2007 - March 31, 2008
            
            $
            92,225April
                1, 2008 - March 31, 2009
            
            
            94,357April
                1, 2009 - March 31, 2010
            
            
            63,852April
                1, 2010 - March 31, 2011
            
            
            -April
                1, 2011 - March 31, 2012
            
            
            -Total
                minimum future lease payments
            
            $
            250,434





15


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 $1.00.  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 three months ended June
      30,
      2007.





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


April
                1, 2007 - March 31, 2008
            
            $
            2,952April
                1, 2008 - March 31, 2009
            
            
            -April
                1, 2009 - March 31, 2010
            
            
            -April
                1, 2010 - March 31, 2011
            
            
            -April
                1, 2011 - March 31, 2012
            
            
            -Total
                minimum lease payments
            
            
            2,952Less:
                Amount representing interest
            
            
            (1,544
            )Present
                value of net minimumlease
                payment
            
            $
            1,408





NOTE
      7
      - COMMON STOCK





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.





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.





On
      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.


16


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      7
      - COMMON STOCK (continued)





On
      March 31, 2006, the Company issued
      8,000 shares of stock as part of a legal settlement.  The shares had
      been previously issued and were cancelled as part of a court order, but were
      never returned to the Company.  As per the settlement, the 8,000
      outstanding were cancelled and subsequently reissued as unrestricted
      shares.





On
      July
      1, 2006, the Company issued 70,803 shares of common stock in connection with
      the
      exercise of warrants issued in the merger of the Company with XBridge Software,
      Inc.  The exercise price of the warrants was $.46 per
      share.  The warrants were exercised for notes payable totaling
      $32,594.




On
      August
      1, 2006, the Company issued 4,034 shares of common stock upon conversion of
      the
      principal and accrued interest on a previously issued convertible
      note.  The principal amount of the note converted was $1,000 and the
      amount of accrued interest converted $3,034.  The notes converted at
      $1.00 per share.




On
      October 25, 2006, the Company issued 122,028 shares of common stock in
      connection with the exercise of options issued in the merger of the Company
      with
      XBridge Software, Inc.  The exercise price for these options was $.01
      per share.




On
      December 13, 2006, the Company issued 17,931 shares of common stock upon
      conversion of certain outstanding notes.  The amount of principal of
      notes converted was $15,000 and the amount of accrued interest converted was
      $2,391.  These notes were converted at $1.00 per share.




NOTE
      8
      - LINE OF CREDIT





On
      September 21, 2006, the Company
      entered into a factoring agreement with Allied Capital Partners, L.P., whereby
      Allied Capital provides a revolving line of credit to the Company up to $750,000
      that is secured by the Company’s accounts receivable.  At March 31,
      2007, the total amount outstanding on this line of credit was
      $62,094.





On
      May 18, 2007, the Company secured a
      line of credit with JPMorgan Chase Bank in the amount of $50,000.  The
      line of credit carries an interest rate of prime plus one
      half-point.  The line of credit is secured with a deposit guarantee of
      $50,000.





NOTE
      9
      - RELATED PARTY TRANSACTIONS





On
      May 31, 2004, the Company received a
      loan of $55,755 from one of its executive officers.  The note carries
      an interest rate of 8% and was at December 31, 2005.  At June 30,
      2007, the total amount of principal and interest due on this note was
      $25,860.





Effective
      May 27, 2005, we acquired XBridge through a merger transaction in exchange
      for
      4,150,000 shares of our common stock (which after the cancellation of the
      2,150,000 originally issued to XBridge resulted in the issuance of only
      2,000,000 new shares) and the elimination of approximately $1.86 million on
      inter-company payables owed to XBridge.  Prior to entering into the
      agreement governing the merger, (a) Ms. Cynthia Garr, the Company's Executive
      Vice President, acting 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.




At
      the time of the merger, Ms. Garr
      owned 451,000 shares of XBridge common stock and held options to purchase
      another 15,426 shares, and Mr. Royal owned 375,000 shares of XBridge common
      stock and held options to purchase another 100,000 shares.  At an
      exchange ratio of 2.71174 shares of our common stock for each share of XBridge
      stock outstanding, post merger, (1) Ms. Garr owned 1,222,997 shares of our
      common stock and held options to purchase another 41,831 shares; (2) Mr. Royal
      owned 1,016,904 shares of our common stock and held options to purchase an
      additional 271,174 shares.  Ms. Garr's options expire April 1, 2009,
      and Mr. Royal’s options expire May 3, 2009. With regard to these stock options
      and all other outstanding options to purchase XBridge shares at the time, the
      original provisions for the XBridge stock options were applied in a
      carry-forward manner to the options to purchase shares of our
      stock.


17


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      9
– RELATED PARTY TRANSACTIONS (continued)





On
      March 31, 2006, the Company received
      a loan of $6,400 from one of its executive officers.  The note carries
      an interest rate of 8% and was due March 31, 2007.  At June 30, 2007,
      the total amount of principal and interest due on this note was $0.





On
      June 30, 2006, the Company received
      a short term loan of $16,434 from one of its executive officers.  At
      March 31, 2007, the balance of the loan was $0.





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.  This agreement was
      mutually terminated by the parties, effective March 31, 2007.





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.  This agreement was
      mutually terminated by the parties, effective April 1, 2006.





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.  This agreement was
      mutually terminated by the parties, effective March 31, 2007.





NOTE
      10 - ACQUISITIONS





On
      May 5, 2003, the Company, Corvero
      Networks, Inc., a Florida corporation our wholly owned subsidiary (Corvero),
      and
      XBridge Software, Inc., a Delaware corporation, entered into a license agreement
      pursuant to which Corvero agreed to license from XBridge Software, Inc. all
      rights, title, and interest of XBridge in and to certain technologies and
      intellectual properties (the “XBridge Technology”).  The exclusive
      license was worldwide in scope and had a term of twenty years, and included,
      but
      was not limited to, the right to make alternations and/or derivative works
      and
      to license, sublicense, cross-license or otherwise transfer the XBridge
      Technology for commercial purposes, and all rights to derivative works would
      be
      the Company’s sole and exclusive property.  This license did not,
      however, give the Company the right to transfer or resell the XBridge Technology
      without the consent of XBridge.  CNH Holdings Company, through
      multiple subsequent amendments to the licensing agreement, ultimately issued
      an
      aggregate of 2,000,000 shares of its common stock to XBridge.





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 of Corvero's
      rights under the License Agreement dated May 5, 2003 passed to Cistera Networks,
      Inc.





Effective
      May 27, 2005, we acquired
      XBridge through a merger transaction in exchange for 4,150,000 shares of our
      common stock (which after the cancellation of the 2,150,000 originally issued
      to
      XBridge resulted in the issuance of only 2,000,000 new shares) and the
      elimination of approximately $1.86 million on inter-company payables owed to
      XBridge. Through this acquisition, the Company acquired net assets valued at
      $782,245 and intellectual property valued at $2,717,755.  Of this
      amount, $2,134,821 was allocated to goodwill and has subsequently been
      expensed.





18


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





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 December 13, 2006 was $196,088.  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.  At
      December 13, 2006, one note holder opted to convert their outstanding
      balance.  There were 17,931 shares issued at $1.00 per shares to
      convert principal of $15,000 and accrued interest of $2,931.  At
      December 13, 2006, two note holders opted to convert their outstanding balance
      to the second private placement.  The total amount converted was
      $56,071.  During the three months ended June 30, 2007, the Company
      paid $50,000 of principal and accrued interest of $9,770 towards these
      notes.  At June 30, 2007, there was $94,000 of principal and $24,121
      of interest due on these notes.





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 note holders, 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.





19


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      11 - CONVERTIBLE DEBT (continued)





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.





The
      Company issued and sold a second
      offering of Senior Unsecured Convertible Promissory Notes.  This
      second offering mirrors 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 June 30, 2007,
      $3,485,491 had been received by the Company from this offering.





NOTE
      12 - STOCK OPTIONS





As
      of June 30, 2007, 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 March 31, 2007.





WeightedOption
                /
            
            
            Average
            
            
            WeightedWarrants
            
            
            Exercise
            
            
            AverageShares
            
            
            Price
            
            
            Fair
                ValueOptions
                and warrants outstanding,March
                31, 2006
            
            
            2,722,584
            
            
            $
            1.29
            
            
            $
            1.43Warrants
                outstanding from Private Placement
            
            
            1,842,690
            
            
            
            1.00
            
            
            
            1.00Granted,
                Exercise price more than fair value
            
            
            -
            
            
            
            -
            
            
            
            -Granted,
                Exercise price less than fair value
            
            
            -
            
            
            
            -
            
            
            
            -Expired
            
            
            (51,814
            )
            
            
            -
            
            
            
            -Exercised
            
            
            (192,831
            )
            
            
            0.18
            
            
            
            -Options
                and warrants outstanding,March
                31, 2007
            
            
            4,320,629
            
            
            $
            1.04





20


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      12 - STOCK OPTIONS (continued)





The
      following table sets forth the
      options outstanding as of June 30, 2007.





WeightedOption
                /
            
            
            Average
            
            
            WeightedWarrants
            
            
            Exercise
            
            
            AverageShares
            
            
            Price
            
            
            Fair
                ValueOptions
                and warrants outstanding,March
                31, 2007
            
            
            4,320,629
            
            
            $
            1.04
            
            
            $
            1.43Warrants
                outstanding from Private Placement
            
            
            1,653,010
            
            
            
            1.00
            
            
            
            1.00Granted,
                Exercise price more than fair value
            
            
            -
            
            
            
            -
            
            
            
            -Granted,
                Exercise price less than fair value
            
            
            -
            
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -
            
            
            
            -Options  and
                warrants outstanding,June
                30, 2007
            
            
            5,973,639
            
            
            $
            1.03





Exercise
      prices for optioned shares
      outstanding as of June 30, 2007 ranged from $1.10 to $2.00. A summary of these
      options by range of exercise prices is shown as follows:





Weighted-
            
            Weighted-Weighted-
            
            Shares/
            
            Average
            
            AverageShares
                /
            
            Average
            
            Warrants
            
            Exercise
                Price
            
            ContractualExercise
            
            Warrants
            
            Exercise
            
            Currently
            
            Currently
            
            RemainingPrice
            
            Outstanding
            
            Price
            
            Exercisable
            
            Exercisable
            
            Life$                  1.10
            
            85,000
            
            $                1.10
            
            63,750
            
            $                      1.10
            
            2
                years1.30
            
            105,000
            
            1.30
            
            78750
            
            1.30
            
            2
                years2.00
            
            700,000
            
            2.00
            
            700,000
            
            2.00
            
            1
                years.23
            
            81,352
            
            .23
            
            81,352
            
            .23
            
            5
                years.46
            
            325,565
            
            .46
            
            325,565
            
            .46
            
            2
                years.46
            
            189,822
            
            .46
            
            189,822
            
            .46
            
            2
                years1.30
            
            990,200
            
            1.30
            
            990,200
            
            1.30
            
            2
                years1.00
            
            1,842,690
            
            1.00
            
            1,842,690
            
            1.00
            
            5
                years1.00
            
            1,653,010
            
            1.00
            
            1,653,010
            
            1.00
            
            5
                years





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.





21


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      13 - CONTINGENCIES





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.  We are currently in the process
      of negotiating definitive settlement agreements.





The
      Company is a defendant in
      litigation pending in Dallas, Texas, styled Collaborative Search Partners,
      Inc.
      vs. XBridge Software, Inc., and Cistera Networks, Inc., Cause No. 07-03189;
      J191st District Court, Dallas County, Texas.  The plaintiff has
      alleged a number of complaints against the defendants, including breach of
      contract, promissory estoppel, and quantum meruitt arising in connection with
      two separate employment search agreements.  In May 2007, the parties
      came to an understanding with respect to the principle elements of a potential
      settlement, and a Rule 11 letter agreement has been filed with the Court,
      however, a definitive settlement agreement is still being negotiated among
      the
      parties.  The Rule 11 letter agreement provides for payment by the
      defendants of $44,000 to the plaintiff over a period of six months, and in
      the
      event the defendants fail to make such payments, a default judgment may be
      rendered against the defendants.





NOTE
      14 – UNCERTAIN TAX POSITIONS





Effective
      April 1, 2007, the company
      adopted the provisions of FASB Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN
      48”). FIN 48 prescribes a recognition threshold and a measurement attribute for
      the financial statement recognition and measurement of tax positions taken
      or
      expected to be taken in a tax return. For those benefits to be recognized,
      a tax
      position must be more-likely-than-not to be sustained upon examination by taxing
      authorities. The adoption of the provisions of FIN 48 did not have a material
      impact on the company’s condensed consolidated financial position and results of
      operations. At April 1, 2007, the company had no liability for unrecognized
      tax
      benefits and no accrual for the payment of related interest.





Interest
      costs related to unrecognized
      tax benefits are classified as “Interest expense, net” in the accompanying
      consolidated statements of operations. Penalties, if any, would be recognized
      as
      a component of “Selling, general and administrative expenses”. The Company
      recognized $0 of interest expense related to unrecognized tax benefits for
      the
      quarter ended June 30, 2007.  In many cases the company’s uncertain
      tax positions are related to tax years that remain subject to examination by
      relevant tax authorities. With few exceptions, the company is generally no
      longer subject to U.S. federal, state, local or non-U.S. income tax examinations
      by tax authorities for years before 2003. The following describes the open
      tax
      years, by major tax jurisdiction, as of April 1, 2007:





United
                States (a)
            
            2003
                – Present





(a)
      Includes federal as well as state
      or similar local jurisdictions, as applicable.





22


CISTERA
      NETWORKS, INC.& SUBSIDIARY


NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS


(continued)





NOTE
      15 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS





We
      have
      restated our balance sheet at March 31, 2007, and statements of operations,
      stockholders’ equity and cash flows for the year ended March 31,
      2007.  The restatement impacts the year ended March 31, 2007, but has
      no effect on the financial statements issued in prior fiscal
      years.  The restatement isrequired because of
      errors
      made in applying the new deferred revenue recognition policy adopted in the
      third quarter of fiscal year 2007.  Under this policy revenues are
      recognized after installation rather than upon shipment.




The
      impact of the restatement on the balance sheet was to increase inventory $3,376
      from $72,367 to $75,743, which in turn increased current assets from $955,486
      to
      $958,862.  The restatements also increased the current portion of
      deferred income $113,481 from $351,698 to $465,179, which in turn increased
      current liabilities from $1,727,064 to $1,840,545.  Retained deficit
      also increased $110,105 from $9,088,375 to $9,198,480.  The impact of
      the restatement on the statements of operations was to decrease recognized
      revenue $113,481 from $2,046,319 to $1,932,838, and decrease cost of goods
      sold
      $3,376 from $316,648 to $313,272, which in turn decreased gross profit $110,105
      from $1,729,671 to $1,619,566.  The impact of the restatement on net
      loss was an increase of $110,105 from $1,174,338 to $1,284,443.  Loss
      per share increased $.02 from $.14 to $.16 per share.





We
      have
      restated our balance sheet at June 30, 2007, and statements of operations and
      cash flows for the three months ended June 30, 2007.  The restatement
      isrequired because
      of errors made in applying the new deferred revenue recognition policy adopted
      in the third quarter of fiscal year 2007.  Under this policy revenues
      are recognized after installation rather than upon shipment.




The
      impact of the restatement on the balance sheet was to decrease inventory $49,978
      from $115,281 to $65,303, which in turn decreased current assets from $1,906,884
      to $1,856,906.  The restatements also increased the current portion of
      deferred income $62,918 from $592,078 to $654,996, which in turn increased
      current liabilities from $1,513,291 to $1,576,209.  Retained deficit
      also increased $112,896 from $9,549,189 to $9,662,085.  The impact of
      the restatement on the statements of operations was to increase recognized
      revenue $50,563 from $629,224 to $679,787, and increase cost of goods sold
      $53,354 from $86,302 to $139,656, which in turn decreased gross profit $2,791
      from $542,922 to $540,131.  The impact of the restatement on net loss
      was an increase of $2,791 from $460,814 to $463,605.  Loss per share
      remained the same.











23


**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 information as defined in Section 21E of
      the
      Securities Exchange Act of 1934.





**Forward
      Looking Statements:**


Forward-looking
      statements include statements concerning plans, objectives, goals, strategies,
      future events or performance and underlying assumptions and other statements,
      which are other than statements of historical facts.  Certain
      statements in this Form 10-QSB are forward-looking statements. Words such as
      “expects”, “believes”, “anticipates”, “may”, “intends”, “projects”, “estimates”
and similar expressions are intended to identify forward-looking
      statements.  The Company’s expectations, beliefs and projections are
      expressed in good faith and are believed by the Company to have a reasonable
      basis, including without limitation, management’s examination of historical
      operating trends, data contained in the Company’s records and other data
      available from third parties, but there can be no assurance that management’s
      expectation, beliefs or projections will be achieved or
      accomplished.  However, forward-looking are subject to risks and
      uncertainties that could cause actual results to differ materially from those
      projected.  Such risks and uncertainties include, but are not limited
      to, limited operating history, historical operating losses and the uncertainty
      of the Company’s profitability in the future, the need to raise additional
      capital to sustain operations and implement its future business plan, and other
      factors that may be beyond the Company’s control  These factors
      include changes in regulations or legislation, adverse determination with
      respect to litigation or other claims, ability to recruit and retain employees,
      availability of mortgage note portfolios at acceptable prices, and increases
      in
      operating costs.  Factors that could cause or contribute to these
      differences have been included throughout the public filings from the
      Company.  The Company has no obligation to publicly update or revise
      these forward-looking statements to reflect the occurrence of future events
      or
      circumstances.





**OVERVIEW**





We
      provide IP network-based application appliances and services that add features
      and enhanced functionality to the telecommunications services used by large
      enterprises, small and mid-sized organizations, both in the commercial and
      public sector.  Our software- and hardware-based solutions are
      delivered on our open-architecture, component-based platform known as the
      Cistera ConvergenceServer, which allows administrators to centrally manage
      advanced applications for IP telephony environments across large single-site
      and
      multi-site private voice/data networks. Because our solutions improve
      productivity and efficiencies for customers using IP telephony systems, we
      believe that our convergence solutions complement the efforts of IP telephony
      solution providers to increase the overall return on investment and value
      contribution associated with IP telephony systems.  This has allowed
      us to establish cooperative relationships with IP telephony solution providers,
      as well as large value added resellers (VARs) and systems integrators (SIs)
      focused on delivering IP telephony systems and services.





Currently,
      we offer new customers a robust IP-based applications platform pre-loaded with
      a
      variety of packaged applications (we refer to them as application
      engines).  We market our software and hardware solutions through a VAR
      channel, and in some cases directly to Fortune 500 customers.  To
      ensure growth scalability, our VAR channel is being trained to deliver
      professional services for standard installations, which we believe will allow
      us
      to focus on advanced professional services for complex
      installations.





Our
      objective is to be the leading provider of IP communications application
      platforms and advanced IP-based applications for businesses
      worldwide.  To address our market opportunity, our management team is
      focused on a number of short and long-term challenges including: strengthening
      and extending our solution offerings; adding new customers and expanding our
      sales efforts into new territories; deepening our relationships with our
      existing customers, VARs, and SIs; and encouraging the development of
      third-party applications on our platform.





In
      order
      to increase our revenues and take advantage of our market opportunity, we will
      need to add substantial numbers of customer installations. We plan to reinvest
      our earnings for the foreseeable future in the following ways: hiring additional
      personnel, particularly in sales and engineering; expanding our domestic and
      international selling and marketing activities; increasing our research and
      development activities to upgrade and extend our solution offerings and to
      develop new solutions and technologies; growing our VAR and systems
      implementation channel; adding to our infrastructure to support our growth;
      and
      expanding our operational and financial systems to manage a growing
      business.





24


**Fiscal
      Year**





Our
      fiscal year ends on March 31.  References to fiscal 2007, for example,
      refer to the fiscal year ended March 31, 2007.





**Restated
      Financial Statements**





On
      November 9, 2007, the Company determined that it needed to restate the financial
      statements that accompanied the Company’s original Quarterly Report for the
      fiscal quarter ended June 30, 2007, filed by the Company with the Commission
      on
      August 14, 2007.  The restatements are required because of errors made
      in applying the Company’s new deferred revenue recognition policy, implemented
      in the third quarter of fiscal year 2007.  Under this policy revenues
      are recognized after installation rather than upon shipment.




The
      restatements did not affect reported cash balances or liquidity.  The
      effect on the first quarter of fiscal year 2008 was an increase in recognized
      revenue of $50,563 from $629,224 to $679,787, as reported below.  In
      addition, reported cost of goods sold was restated to maintain proper matching
      of sales and cost of sales.  Cost of goods sold for the first quarter
      of fiscal year 2008 increased by $53,354 from $86,302 to $139,656, as also
      reported below.




6Rigorous
      new financial and accounting processes and procedures that have been implemented
      as a result of the internal review by management in the second quarter of fiscal
      year 2008 and are intended to ensure consistent application of the revenue
      recognition policy in the future.








**Quarter
      Summary**





While
      the
      Company's reported revenues were insufficient to support operations and it
      reported a net loss of $463,605 in this period, the actual cash flow for the
      period enabled the Company to support operations with a draw of $310,000 from
      the funds raised to date. Operations were supported with financing obtained
      from
      a second Private Placement that closed in April 2007.





Sales
      and
      marketing costs for this quarter totaled $176,093 and represented 25.9 percent
      of revenues, as compared to $55,710 and 11.3 percent for the same quarter last
      year. On an annual basis, we expect marketing and sales costs to continue to
      track higher and will represent a substantial portion of total revenues in
      the
      future as we seek to add and manage more customers, increase 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 Company
      develops support for additional platforms, we anticipate that the Company will
      increase visibility through participation in future industry
      events.  While we also anticipate that the Company will continue to
      leverage some of the marketing programs funded by large technology and VAR
      partners, the Company’s participation will be reflected in increased sales and
      marketing costs.





The
      Company’s sales continue to show diversification across
      industries.  Sales for the quarter ended June 30, 2007 were
      distributed among six primary vertical markets in the following percentages:
      financial services 35.2%, healthcare 5.9%, government 15.6%, education 15.9%,
      manufacturing 8.4%, management and retail 18.8%.  The Company has
      continued to reduce dependency on any single reseller as it has continued to
      expand its VAR relationships.





**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 2008, ENDED JUNE 30,
      2007





The
      Company recognized $679,787 in revenue for the quarter, a 55.8% increase over
      the previous quarter of $436,350, and a 37.3% increase over the same period
      last
      year of $495,000.  The Company received over $1 million dollars in
      orders for the quarter, booking (shipping the system(s) and invoicing the
      customer) revenues for the quarter of $925,000.  The Company only
“recognized” revenues of $679,787 for the quarter, because we only recognize
      revenue from projects that have been fully implemented.  Revenues for
      a number of the projects that were near full completion at the end of the
      quarter have not yet been recognized.





25


With
      the
      recent capital infusion from a private placement of convertible notes and
      warrants to purchase common stock, the Company added a number of resources
      in
      the sales, pre-sales and channel management roles as well as in
      engineering.  These new resources are dedicated to further enabling
      the VAR channel to market, sell and deliver the Company’s
      solutions.  During the quarter, the Company initiated efforts to
      review current channel partner performance and establish a scorecard system
      for
      each reseller partner.  This will allow the Company to better
      determine the allocation of resources to partner sales and marketing
      efforts.  The plan also includes coordinated sales and technical
      training, demonstration kit development, and joint marketing
      programs.





Gross
      profit during the quarter was $540,131, or 79.5% of revenues.  Gross
      profit for the previous quarter was $309,000 or 71% of revenues, and for the
      same period in fiscal year 2007, it was $467,000 or 94% of
      revenues.


The
      Company’s software revenue results in higher margins than hardware
      revenue.  Because a substantial portion of the Company's revenues are
      derived from software, gross margins are positively impacted.


Management
      expects that as sales continue to ramp up, margins will remain above 75
      percent.





As
      expected, the Company's revenues were insufficient to support operations and
      the
      Company sustained a net loss in this period.





**LIQUIDITY
      AND CAPITAL RESOURCES**





At
      June
      30, 2007, the Company had cash, cash equivalents and short-term marketable
      securities of $1,137,826, as compared to $534,871 at June 30,
      2006.  At June 30, 2007, accounts receivable of $630,381, as compared
      to $314,178 for the year ago period, and deferred revenue of $769,908, as
      compared to $550,147 for those same periods respectively.





From
      the
      start of operations in May 2003 through the end of the current quarter,
      operations have been 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 have a bank line of credit with Chase bank for $50,000 and has a funding
      agreement with Allied Capital Group whereby Allied Capital will provide a
      revolving credit line secured by Accounts Receivable.  Last quarter
      the revolving credit line under the Allied Capital agreement was increased
      to
      $750,000.  These agreements, although not heavily used, enable the
      Company to smooth its cash-flow cycles and to expand its capability 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 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, however, may
      not
      be available on terms favorable to the Company or at all.





ITEM
      3.  CONTROLS AND PROCEDURES







As
      of the
      end of the reporting period, June 30, 2007, the Company carried out an
      evaluation, under the supervision and with the participation of management,
      including the Company’s Chief Executive Officer and the Chief Financial Officer,
      of the effectiveness and design and operation of the disclosure controls and
      procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934
      (the “Exchange Act”), which disclosure controls and procedures are designed to
      insure that information required to be disclosed by a company in the reports
      that it files under the Exchange Act is recorded, processed, summarized and
      reported within required time periods specified by the SEC’s rules and
      forms.  Based upon that evaluation, the Chief Executive Officer and
      the Chief Financial Officer concluded that the disclosure controls and
      procedures are effective in timely alerting them to material information
      relating to the Company required to be included in the Company’s period SEC
      filings.  There were no changes in the Company’s internal control over
      financial reporting during the three months ended June 30, 2007 that materially
      affected, or are reasonably likely to materially affect, the Company’s internal
      control over financial reporting.





26


Management,
      including the Chief Executive Officer and Chief Financial Officer, does not
      expect that the disclosure controls or internal controls over financial
      reporting will prevent all errors or all instances of fraud.  A
      control system, no matter how well designed and operated, can provide only
      reasonable, not absolute, assurance that the control system’s objectives will be
      met.  Further, the design of a control system must reflect the fact
      that there are resource constraints, and the benefits of controls must be
      considered relative to their costs.  Because of the inherent
      limitations in all control systems, no evaluation of controls can provide
      absolute assurance that all control issues and instances of fraud, if any,
      within the Company have been detected.  These inherent limitations
      include the realities that judgments in decision-making can be faulty, and
      that
      breakdowns can occur because of simple error or mistake.  Controls can
      also be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the controls.  The design
      of any system of controls is based in part upon certain assumptions about the
      likelihood of future events, and any design may not succeed in achieving its
      stated goals under all potential future conditions.  Over time,
      controls may become inadequate because of changes in conditions or deterioration
      in the degree of compliance with policies or procedures.  Because of
      the inherent limitation of a cost-effective control system, misstatements due
      to
      error or fraud may occur and not be detected.





**PART
      II - OTHER INFORMATION**





**ITEM
      1.  Legal Proceedings**





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.  We are currently in the process
      of negotiating definitive settlement agreements.





The
      Company is a defendant in
      litigation pending in Dallas, Texas, styled Collaborative Search Partners,
      Inc.
      vs. XBridge Software, Inc., and Cistera Networks, Inc., Cause No. 07-03189;
      J191st District Court, Dallas County, Texas.  The plaintiff has
      alleged a number of complaints against the defendants, including breach of
      contract, promissory estoppel, and quantum meruitt arising in connection with
      two separate employment search agreements.  In May 2007, the parties
      came to an understanding with respect to the principle elements of a potential
      settlement, and a Rule 11 letter agreement has been filed with the Court,
      however, a definitive settlement agreement is still being negotiated among
      the
      parties.  The Rule 11 letter agreement provides for payment by the
      defendants of $44,000 to the plaintiff over a period of six months, and in
      the
      event the defendants fail to make such payments, a default judgment may be
      rendered against the defendants.





**ITEM
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds**





Effective
      April 5, 2007, the Company issued and sold an aggregate of $3,625,754.00 in
      principal amount of Senior Unsecured Convertible Promissory Notes, and issued
      warrants to purchase 3,625,754 shares of our common stock, par value $0.001
      per
      share.  Of the $3,625,754.00 in Notes, $2,815,000.00 in principal
      amount of Notes were issued for cash, and $810,754 in principal amount of Notes
      were issued in connection with the cancellation of an equal amount of the
      Company's outstanding obligations.  The warrants have a term of five
      years and are exercisable at an exercise price of $1.00 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 1,815,000 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.  An additional 1,000,000 warrants may be redeemed under the same
      terms if the above conditions are met plus the daily volume for the 20
      consecutive trading days preceding the notice of redemption on the OTCBB or
      the
      principal exchange where the common stock is traded is in excess of 100,000
      shares.  The structure of the note purchase agreement and the issuance
      of the convertible notes and warrants were determined through arm-length
      negotiations between us and the other parties involved and no material
      relationship existed between us and the other parties at that time.







27


**ITEM
      3.  Defaults Upon Senior Securities**





None/Not
      Applicable.








**ITEM
      4.  Submission Of Matters To A Vote Of Securities
      Holders**





None/Not
      Applicable.








**ITEM
      5.  Other Information**





None.








**ITEM
      6.  Exhibits**





(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





4.1
            Form
                of Convertible Note Purchase Agreement dated as of December 13, 2004
                (Incorporated by reference from Exhibit 4.1 to the Company’s Current
                Report on Form 8-K filed with the Commission on December 20,
                2004)





4.2
            Form
                of Senior Unsecured Convertible Note (Incorporated by reference from
                Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the
                Commission on December 20, 2004)





4.3
            Form
                of Warrant (Incorporated by reference from Exhibit 4.3 to the Company’s
                Current Report on Form 8-K filed with the Commission on December
                20,
                2004)





4.4
            Registration
                Rights Agreement dated as of December 13, 2004 (Incorporated by reference
                from Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with
                the Commission on December 20,
                2004)





4.5
            Form
                of Convertible Note Purchase Agreement dated as of April 5, 2007
                (Incorporated by reference from Exhibit 4.1 to the Company’s Current
                Report on Form 8-K filed with the Commission on April 12,
                2007)





4.6
            Form
                of Senior Unsecured Convertible Note (Incorporated by reference from
                Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the
                Commission on April 12, 2007)





4.7
            Form
                of Warrant (Incorporated by reference from Exhibit 4.3 to the Company’s
                Current Report on Form 8-K filed with the Commission on April 12,
                2007)





4.8
            Registration
                Rights Agreement dated as of April 7, 2005 (Incorporated by reference
                from
                Exhibit 4.4 to the Company’s Current Report on Form 8-K filed with the
                Commission on April 12, 2007





6.1
            License
                Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
                Annual Report on Form 10-KSB for the fiscal year ended March 31,
                2004)





10.1
            Employment
                Agreement by and between Derek Downs and Cistera Networks, Inc. dated
                as
                of January 1, 2005 (Incorporated by reference from Exhibit 10.1 to
                the
                Company’s Registration Statement on Form SB-2 filed with the Commission on
                May 23, 2007)





10.2
            Employment
                Agreement by and between Cynthia Garr and Cistera Networks, Inc.
                dated as
                of January 1, 2005 (Incorporated by reference from Exhibit 10.2 to
                the
                Company’s Registration Statement on Form SB-2 filed with the Commission on
                May 23, 2007)





10.3
            Employment
                Agreement between Gregory Royal and Cistera Networks Canada, Inc.
                dated as
                of October 1, 2004(Incorporated by reference from Exhibit 10.3 to
                the
                Company’s Registration Statement on Form SB-2 filed with the Commission on
                May 23, 2007)





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 18 U.S.C. Section 1350, As Adopted Pursuant to Section
                906 of
                The Sarbanes-Oxley Act of 2002





32.2
            Certification
                Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section
                906 of
                The Sarbanes-Oxley Act of 2002








28


**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.**








Date:
                November 19, 2007
            /s/    Derek
                P. DownsDerek
                P. DownsPresident(Principal
                Executive Officer)/s/    Cynthia
                A. GarrCynthia
                A. GarrChief
                Financial Officer,Executive
                Vice-President ofCorporate
                Development, and Director(Principal
                Financial Officer)
























































29