##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 AMENDED FORM 10-Q
 Amendment No. 3
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30th, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-17304
 Cistera Networks, Inc.
  Nevada
    
    91-1944887(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 6509 Windcrest Drive, Suite 160, Plano, Texas
    
    75024(Address of principal executive offices)
    
    (Zip Code)
 972-381-4699
 þ o
   Large accelerated filer o
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company þ o þ




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##### 



CISTERA NETWORKS, INC & SUBSIDIARY
  
 TABLE OF CONTENTS
 PART I: FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Balance Sheets  September 30, 2009 (unaudited) and March 31, 2009
 (audited) (restated)
    
    
    5Consolidated Statements of Operations  For the three months ended September 30, 2009
and 2008 (unaudited) (restated)
    
    
    6Consolidated Statements of Operations  For the six months ended September 30, 2009 and
2008 (unaudited)
    
    
    7Consolidated Statements of Stockholders Deficit  September 30, 2009 (unaudited) and
March 31, 2009 (audited) (restated)
    
    
    8Consolidated Statements of Cash Flows  For the six months ended September 30, 2009 and
2008 (unaudited)
    
    
    9Notes to Consolidated Financial Statements (unaudited)
    
    
    11Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4T.
    
    Controls and Procedures
    
    
    29PART II: OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    30Item 3.
    
    Defaults Upon Senior Securities
    
    
    30Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    31Item 5.
    
    Other Information
    
    
    31Item 6.
    
    Exhibits
    
    
    32SIGNATURES
    
    
    33EX-31.1EX-32.1
  2




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EXPLANATORY NOTES
   th
   ASC FASB 250-10-50-7 Disclosure
  
    
    The total current liabilities have increased from $1,915,020 to $2,891,447 and the
corresponding long term liabilities have decreased from $2,195,835 to $1,219,409.
    
    Sales and marketing has increased from ($2,075) to $53,723.
    
    Software development has increased from ($16,843) to $106,803.
    
    Engineering and Support has increased from $46,763 to $73,122.
    
    General and Administrative has increased from 164,984 to 193.803.
    
    Total operating expenses has increased from $148,582 to $384,867.
    
    Total Income from operations has decreased from $400,088 to $163,803.
    
    Net Income has been reduced from $342,500 to $106,215 and from 2c per share to 1c per
share.
  3




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ASC FASB 250-10-50-8 Disclosure
 th th
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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 RestatedSeptember 30, 2009
    
    
    March 31st, 2009(Unaudited)
    
    
    (Audited)Current assetsCash and cash equivalents
    
    $
    35,378
    
    
    $
    1,493Accounts receivable, net of allowance for doubtful accounts of $-0-
    
    
    70,094
    
    
    
    151,322Inventory
    
    
    91,658
    
    
    
    124,656Prepaid expenses
    
    
    46,307
    
    
    
    37,341Total current assets
    
    
    243,437
    
    
    
    314,812Property and equipment, net
    
    
    252,722
    
    
    
    324,217Intangible assets, net
    
    
    1,615,555
    
    
    
    1,751,442Total long-term assets
    
    
    1,868,277
    
    
    
    2,075,659TOTAL ASSETS
    
    $
    2,111,714
    
    
    $
    2,390,471Current liabilitiesAccounts payable
    
    
    518,058
    
    
    
    517,052Accrued liquidated damages  outside investors
    
    
    
    
    
    
    177,402Accrued liabilities
    
    
    613,446
    
    
    
    1,527,811Deferred revenue
    
    
    783,516
    
    
    
    865,271Convertible promissory notes and other notes payable, net of discount
    
    
    976,427
    
    
    
    976,427Note payable
    
    
    
    
    
    
    7,781Total current liabilities
    
    
    2,891,447
    
    
    
    4,071,743Accrued liquidated damages  outside investors
    
    
    177,402
    
    
    
    Litigation Reserve
    
    
    650,000
    
    
    
    Deferred Revenue
    
    
    
    
    
    
    174,554Other long-term liabilities
    
    
    392,007
    
    
    
    58,031Total long-term liabilities
    
    
    1,219,409
    
    
    
    409,987Total liabilities
    
    
    4,110,856
    
    
    
    4,304,328Commitments and contingencies (Note 4)Stockholders deficit:Preferred stock, $0.01 par value; 1,000,000 shares authorized;
-0- shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 50,000,000 shares authorized; 17,423,410
shares issued and outstanding,
Respectively
    
    
    17,423
    
    
    
    17,423Additional paid-in capital
    
    
    19,291,219
    
    
    
    19,291,219Accumulated deficit
    
    
    (21,307,784
    )
    
    
    (21,222,499
    )Total stockholders deficit
    
    
    (1,999,142
    )
    
    
    (1,913,857
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    2,111,714
    
    
    $
    2,390,471
  5




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CISTERA NETWORKS, INC. & SUBSIDIARY
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three months ended September 30,Restated2009
    
    
    2008RevenuesConvergence solutions
    
    $
    380,403
    
    
    $
    1,013,075Professional services
    
    
    98,018
    
    
    
    45,125Support and maintenance
    
    
    272,488
    
    
    
    230,303Total revenues
    
    
    750,909
    
    
    
    1,288,503Cost of revenuesConvergence solutions
    
    
    123,366
    
    
    
    276,710Professional services
    
    
    56,627
    
    
    
    42,500Support and maintenance
    
    
    22,246
    
    
    
    24,250Total cost of revenues
    
    
    202,239
    
    
    
    343,460Gross Profit
    
    
    548,670
    
    
    
    945,043Operating expensesSales and marketing
    
    
    53,723
    
    
    
    301,043Software development
    
    
    106,803
    
    
    
    226,875Engineering and support
    
    
    73,112
    
    
    
    201,969General and administrative
    
    
    193,803
    
    
    
    422,105Depreciation and amortization
    
    
    (44,247
    )
    
    
    100,674Total operating expenses
    
    
    384,867
    
    
    
    1,252,666Income / (Loss) from operations
    
    
    163,803
    
    
    
    (307,623
    )Other income (expense)Interest income
    
    
    
    
    
    
    Other income
    
    
    7
    
    
    
    86Interest expense
    
    
    (57,595
    )
    
    
    (50,117
    )Abandonment loss
    
    
    
    
    
    
    Charge for inducements related to stock issued to convertible
note holders
    
    
    
    
    
    
    (131,631
    )Amortization of discount on convertible notes  outside investors
    
    
    
    
    
    
    (108,918
    )Amortization of discount on convertible notes  related parties
    
    
    
    
    
    
    Credit (charge) for estimated liquidated damages
    
    
    
    
    
    
    Total other income (expense)
    
    
    (57,588
    )
    
    
    (290,580
    )Net Income / (Loss)
    
    $
    106,215
    
    
    $
    (598,203
    )Basic & diluted net income / (loss) per share
    
    $
    0.01
    
    
    $
    (0.03
    )Weighted average shares outstanding  basic and diluted
    
    
    17,423,410
    
    
    
    17,274,687
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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Six months ended September 30,2009
    
    
    2008RevenuesConvergence solutions
    
    $
    568,481
    
    
    $
    1,535,468Professional services
    
    
    134,586
    
    
    
    105,833Support and maintenance
    
    
    505,808
    
    
    
    447,762Total revenues
    
    
    1,208,875
    
    
    
    2,089,063Cost of revenuesConvergence solutions
    
    
    226,379
    
    
    
    409,742Professional services
    
    
    104,345
    
    
    
    93,000Support and maintenance
    
    
    40,246
    
    
    
    47,434Total cost of revenues
    
    
    370,970
    
    
    
    550,176Gross Profit
    
    
    837,905
    
    
    
    1,538,887Operating expensesSales and marketing
    
    
    113,220
    
    
    
    580,472Software development
    
    
    136,235
    
    
    
    423,333Engineering and support
    
    
    140,905
    
    
    
    406,400General and administrative
    
    
    344,248
    
    
    
    760,617Depreciation and amortization
    
    
    53,413
    
    
    
    198,830Total operating expenses
    
    
    788,021
    
    
    
    2,369,652Income / (loss) from operations
    
    
    49,884
    
    
    
    (830,765
    )Other income (expense)Interest income
    
    
    
    
    
    
    168Other income
    
    
    63Interest expense
    
    
    (124,629
    )
    
    
    (147,809
    )Abandonment loss
    
    
    (15,815
    )
    
    
    Charge for inducements related to stock issued to convertible note holders
    
    
    
    
    
    
    (1,324,444
    )Amortization of discount on convertible notes  outside investors
    
    
    
    
    
    
    (1,188,855
    )Amortization of discount on convertible notes  related parties
    
    
    
    
    
    
    (41,060
    )Credit (charge) for estimated liquidated damages
    
    
    
    
    
    
    11,299Total other income (expense)
    
    
    (140,381
    )
    
    
    (2,690,701
    )Net loss
    
    $
    (90,497
    )
    
    
    (3,521,466
    )Basic & diluted net loss per share
    
    $
    (0.00
    )
    
    $
    (0.26
    )Weighted average shares outstanding  basic and diluted
    
    
    17,423,410
    
    
    
    13,369,365
  7




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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)  RESTATED
 TotalPreferred Stock
    
    
    Common Stock
    
    
    Additional paid-in
    
    
    Accumulated
    
    
    stockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    capital
    
    
    deficit
    
    
    equity (deficit)Balances at June 30, 2009
    
    
    
    
    
    
    
    
    
    
    17,423,410
    
    
    $
    17,423
    
    
    $
    19,291,219
    
    
    $
    (21,415,190
    )
    
    $
    (2,106,548
    )Net income / (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,215
    
    
    
    106,215Balance Adjustment from
June 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,190
    
    
    
    1,190Balances at September
30, 2009
    
    
    
    
    
    $
    
    
    
    
    17,423,410
    
    
    $
    17,423
    
    
    $
    19,291,219
    
    
    $
    (21,307,784
    )
    
    $
    (1,999.142
    )
  8




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##### Table of Contents



CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six months ended September 30,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (90,497
    )
    
    $
    (3,521,466
    )Adjustments used to reconcile net loss to net cash used in operating
activities:Charge for inducement to convert debt to convertible promissory notes
    
    
    
    
    
    
    1,324,444Charge (credit) for liquidated damages
    
    
    
    
    
    
    (11,299
    )Charge for stock issued for waiver of registration rights payments
    
    
    
    
    
    
    1,188,855Amortization of discount on convertible promissory notes
    
    
    
    
    
    
    41,060Abandonment loss
    
    
    15,815
    
    
    
    Gain on disposition of assets
    
    
    3,149
    
    
    
    Depreciation and amortization
    
    
    53,414
    
    
    
    198,830Changes in operating assets and liabilities:Accounts receivable
    
    
    81,228
    
    
    
    118,172Inventory
    
    
    32,998
    
    
    
    (12,488
    )Prepaid expenses
    
    
    8,966
    
    
    
    (17,587
    )Accounts payable
    
    
    1,006
    
    
    
    (100,828
    )Accrued liabilities
    
    
    (231,973
    )
    
    
    25,997Deferred revenue
    
    
    (256,309
    )
    
    
    (46,249
    )Other long-term liabilities
    
    
    333,976
    
    
    
    45,378Net cash provided by (used) in operating activities
    
    
    42,270
    
    
    
    (767,181
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment, net
    
    
    
    
    
    
    (64,261
    )Net cash used in investing activities
    
    
    
    
    
    
    (64,261
    )CASH FLOWS FROM FINANCING ACTIVITIES:Decrease in restricted cash
    
    
    
    
    
    
    50,000Net borrowings (payments) on line of credit
    
    
    
    
    
    
    (17,503
    )Net proceeds from short-term advances
    
    
    Net proceeds from exercise of warrants
    
    
    
    
    
    
    843,604Payments on convertible promissory notes and other loans
    
    
    
    
    
    
    (14,938
    )Payments on other notes payable and capital lease
    
    
    (8,386
    )
    
    
    Net cash provided by (used) financing activities
    
    
    (8,386
    )
    
    
    861,163Net increase in cash and cash equivalents
    
    
    33,884
    
    
    
    29,721Cash and cash equivalents at beginning of period
    
    
    1,493
    
    
    
    125,007Cash and cash equivalents at end of period
    
    $
    35,377
    
    
    $
    154,728
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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)  (Unaudited)
 Six months ended September 302009
    
    2008SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the year for:Interest
    
    $
    8,435
    
    
    $
    38,982Income taxes
    
    
    
    
    
    
    SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Conversion of convertible promissory notes and related accrued interest and
accrued liquidated damages to common stock
    
    $
    
    
    
    $
    3,287,116Conversion of accounts payable and other accrued liabilities to convertible
promissory notesConversion of accrued liabilities to common stock
    
    
    
    
    
    
    53,312Transfer of inventory to equipment
    
    
    
    
    
    
    20,399
  10




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
 NOTE 1  BASIS OF PRESENTATION
  Significant Accounting Policies
  Recently Issued Accounting Pronouncements
     11




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
  Balance Sheet Accounts
  September 30, 2009
    
    
    March 31, 2009Receivables assigned to factor
    
    $
    215,079
    
    
    $
    125,402Advances to (from) factor
    
    
    (186,299
    )
    
    
    (70,570
    )Fees, expenses and charges to reserve
    
    
    (12,810
    )
    
    
    (792
    )Amounts due from reserve account
    
    
    4,293
    
    
    
    Amounts due from factor
    
    
    20,263
    
    
    
    54,040Non-factored Accounts Receivable
    
    
    49,831
    
    
    
    97,282Total accounts receivable
    
    $
    70,094
    
    
    $
    151,322
  September 30, 2009
    
    
    March 31, 2009Accrued expenses
    
    $
    80,350
    
    
    $
    82,924Reserve for litigation contingency
    
    
    
    
    
    
    650,000Accrued compensation and payroll taxes
    
    
    272,767
    
    
    
    545,626Accrued Interest
    
    
    
    
    
    
    225,330Customer Deposits
    
    
    131,286
    
    
    
    Other
    
    
    129,043
    
    
    
    23,931Total Accrued liabilities
    
    $
    613,446
    
    
    $
    1,527,811
  September 30, 2009
    
    
    March 31, 2009Deferred rent
    
    $
    58,982
    
    
    $
    58.031$
    58,982
    
    
    $
    58,031
 Earnings per Share
   12




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
  Accounts receivable and concentration of credit risk
     Reclassifications
  NOTE 2  FINANCIAL CONDITION
   13




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
 SFAS No. 140  Disclosure of Accounting for Factoring
   The transferor has surrendered control over transferred assets if and only if all of the following
conditions are met:
 a) The transferred assets have been isolated from the transferor  put presumptively beyond the
reach of the transferor and it creditors, even in bankruptcy or other receivership.
   Acceptance
of Offer Allied may accept Sellers offer to sell Accounts . . . by either (i)
paying the Purchase Price (less the Reserve). . . (ii) by oral or written notice to Seller
identifying the Accounts which appear on the Schedule that Allied is unwilling to purchase and
paying the Purchase Price (less the Reserve) for the remaining accounts; and (xi) shall be
evidenced by an invoice which has been issued to and received by the Account Debtor, and each such
invoice shall have printed on the face thereof a statement notifying the Account Debtor that the
invoice has been sold and assigned to Allied and is payable only to Allied . . .
 Page 3 item #9 of Agreement Invoice (x) shall be reflected on Sellers books and records as
having been transferred, sold and conveyed to Allied if Allied purchases such Accounts.
  b) Each transferee has the right to pledge or exchange the assets it received, and no condition
both constrains the transferee from taking advantage of its right to pledge or exchange and
provides more than a trivial benefit to the transferor.
 th
 c) The transferor does not maintain effective control over the transferred asset through either (1)
an agreement that both entitles and obligates the transferor to repurchase or redeem them before
their maturity or (2) the ability to unilaterally cause the holder to return specific assets, other
than through a cleanup call.
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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
    NOTE 3  DEBT
  PP1 Notes and Warrants
   PP2 Notes and Warrants
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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
    STIIP
     16




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
   PP1 and PP2 Notes:Principal
    
    $
    976,426Accrued interest
    
    
    333,010Accrued estimated liquidated damages
    
    
    177,402Total
    
    $
    1,486,838
 Registration Payment Arrangements
     Accumulated deficit, April 1, 2007
    
    $
    (10,586,847
    )Adjustments for the cumulative effect of the change in accounting
principle:Contingent liability recorded for estimated liquidated damages
    
    
    (289,518
    )Reclassification of Warrants from derivative liabilities to
equity securities
    
    
    (465,597
    )Total adjustments
    
    
    (755,115
    )Accumulated deficit, April 1, 2007, as adjusted
    
    $
    (11,341,962
    )
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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
 NOTE 4  COMMITMENTS AND CONTINGENCIES
  NOTE 5  RELATED PARTY TRANSACTIONS
    NOTE 6  SUBSEQUENT EVENTS
 Reverse/Forward Split
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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
    19




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
  EXECUTIVE SUMMARY AND RECENT BUSINESS DEVELOPMENTS
 th
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th Zone Speak
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RESULTS OF OPERATIONS
 Selected Consolidated Statements of Operations Data
  Results of Operations for the Three Months Ended September 30, 2008  Compared to the Three Months Ended September 30, 2007
 For the three months ended September 30,%of
    
    
    
    
    
    
    %of2009
    
    
    revenue
    
    
    2008
    
    
    revenueRevenues:Convergence solutions
    
    $
    380,403
    
    
    
    51
    %
    
    $
    1,013,075
    
    
    
    79
    %Professional services
    
    
    98,018
    
    
    
    13
    %
    
    
    45,125
    
    
    
    3
    %Support and maintenance
    
    
    272,488
    
    
    
    36
    %
    
    
    230,303
    
    
    
    18
    %Total revenues
    
    
    750,909
    
    
    
    100
    %
    
    
    1,288,503
    
    
    
    100
    %Cost of revenues:Convergence solutions
    
    
    123,366
    
    
    
    16
    %
    
    
    276,710
    
    
    
    22
    %Professional services
    
    
    56,627
    
    
    
    8
    %
    
    
    42,500
    
    
    
    3
    %Support and maintenance
    
    
    22,246
    
    
    
    3
    %
    
    
    24,250
    
    
    
    2
    %Total cost of revenues
    
    
    202,239
    
    
    
    27
    %
    
    
    343,460
    
    
    
    27
    %Gross Profit
    
    
    548,670
    
    
    
    73
    %
    
    
    945,043
    
    
    
    73
    %Operating expenses:Sales and marketing
    
    
    53,723
    
    
    
    7
    %
    
    
    301,043
    
    
    
    23
    %Software development
    
    
    106,803
    
    
    
    14
    %
    
    
    226,875
    
    
    
    18
    %Engineering and support
    
    
    73,112
    
    
    
    10
    %
    
    
    201,969
    
    
    
    15
    %General and administrative
    
    
    193,476
    
    
    
    26
    %
    
    
    422,105
    
    
    
    36
    %Depreciation and amortization
    
    
    (44,247
    )
    
    
    (5
    %)
    
    
    100,674
    
    
    
    10
    %Total operating expenses
    
    
    384,867
    
    
    
    52
    %
    
    
    1,252,666
    
    
    
    97
    %Profit (loss) from operations
    
    
    163,803
    
    
    
    (22
    %)
    
    
    (307,623
    )
    
    
    (24
    %)Other income (expense)Interest income
    
    
    7
    
    
    
    
    %
    
    
    86
    
    
    
    
    %Interest expense
    
    
    (57,595
    )
    
    
    (8
    %)
    
    
    (50,117
    )
    
    
    (8
    %)Amortization of discount on convertible notes
    
    
    
    
    
    
    
    
    
    
    (108,918
    )
    
    
    (8
    %)Charge for inducements related to stock
issued to convertible note holders
    
    
    
    
    
    
    
    
    
    
    (131,631
    )
    
    
    (10
    %)Total other income (expense)
    
    
    (57,588
    )
    
    
    (8
    %)
    
    
    (209,580
    )
    
    
    (22
    %)Net Profit (loss)
    
    $
    106,215
    
    
    
    14
    %
    
    $
    (598,203
    )
    
    
    (46
    %)
 Revenue
  22




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##### Table of Contents



Gross Profit and Gross Margin
  Operating Expenses
   
    
    Decrease headcount in all departments;
    
    Decrease in payroll taxes as a result of reduced personnel;
    
    Reductions in travel, marketing and sales expenses;
    
    Decrease in software licensing costs;
    
    Elimination of all unnecessary professional services and fees.
       Interest Expense
  23




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##### Table of Contents



Results of Operations for the Six Months Ended September 30, 2009  Compared to the Six Months Ended September 30, 2008
 For the six months ended September 30,% of
    
    
    
    
    
    
    % of2009
    
    
    revenue
    
    
    2008
    
    
    revenueRevenues:Convergence solutions
    
    $
    568,541
    
    
    
    47
    %
    
    $
    1,535,468
    
    
    
    73
    %Professional services
    
    
    134,586
    
    
    
    11
    %
    
    
    105,833
    
    
    
    6
    %Support and maintenance
    
    
    505,808
    
    
    
    42
    %
    
    
    447,762
    
    
    
    21
    %Total revenues
    
    
    1,208,875
    
    
    
    100
    %
    
    
    2,089,063
    
    
    
    100
    %Cost of revenues:Convergence solutions
    
    
    226,379
    
    
    
    19
    %
    
    
    409,742
    
    
    
    20
    %Professional services
    
    
    104,345
    
    
    
    9
    %
    
    
    93,000
    
    
    
    4
    %Support and maintenance
    
    
    40,246
    
    
    
    3
    %
    
    
    47,434
    
    
    
    2
    %Total cost of revenues
    
    
    370,970
    
    
    
    31
    %
    
    
    550,176
    
    
    
    26
    %Gross Profit
    
    
    837,905
    
    
    
    69
    %
    
    
    1,538,887
    
    
    
    74
    %Operating expenses:Sales and marketing
    
    
    113,220
    
    
    
    9
    %
    
    
    580,472
    
    
    
    28
    %Software development
    
    
    136,235
    
    
    
    11
    %
    
    
    423,333
    
    
    
    20
    %Engineering and support
    
    
    140,905
    
    
    
    12
    %
    
    
    406,400
    
    
    
    19
    %General and administrative
    
    
    344,248
    
    
    
    28
    %
    
    
    760,617
    
    
    
    36
    %Depreciation and amortization
    
    
    53,413
    
    
    
    5
    %
    
    
    198,830
    
    
    
    10
    %Total operating expenses
    
    
    788,021
    
    
    
    65
    %
    
    
    2,369,652
    
    
    
    113
    %Profit (Loss) from operations
    
    
    49,884
    
    
    
    4
    %
    
    
    (830,765
    )
    
    
    (40
    %)Other income (expense)Interest income
    
    
    
    
    
    
    
    %
    
    
    168
    
    
    
    
    %Other income
    
    
    63
    
    
    
    
    %Charge for inducements related to stock
Issued to convertible note holders
    
    
    
    
    
    
    
    %
    
    
    (1,324,444
    )
    
    
    (64
    %)Amortization of discount on convertible
Notes
    
    
    
    
    
    
    
    %
    
    
    (1,188,855
    )
    
    
    (57
    %)Abandonment loss
    
    
    (15,815
    )
    
    
    (1
    )%Interest expense
    
    
    (124,629
    )
    
    
    (10
    )%
    
    
    (147,809
    )
    
    
    (7
    %)Credit (charge) for estimated liquidated
Damages
    
    
    
    
    
    
    
    %
    
    
    
    
    
    
    
    %Total other income (expense)
    
    
    (140,381
    )
    
    
    (11
    )%
    
    
    (2,690,701
    )
    
    
    (128
    %)Net Profit (Loss)
    
    $
    (90,497
    )
    
    
    (7
    )%
    
    
    (3,521,466
    )
    
    
    (168
    %)
 24




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##### Table of Contents



Revenue
  Gross Profit and Gross Margin
  Operating Expenses
   
    
    Decrease headcount in all departments;
    
    Decrease in payroll taxes as a result of reduced personnel;
    
    Reductions in travel, marketing and sales expenses;
    
    Decrease in software licensing costs;
    
    Elimination of all unnecessary professional services and fees.
      Interest Expense
  25




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##### Table of Contents



Amortization of Debt Discount
  Charge for Inducements Related to Stock Issued to Convertible Note Holders
  Liquidated Damages
  Liquidity and Capital Resources
    26




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##### Table of Contents



Cash and Cash Flows
  Contractual Obligations
  Critical Accounting Policies
  Research and Development  Software Development
  27




---



##### Table of Contents



th
 Recently Issued Accounting Pronouncements
  28




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##### Table of Contents



Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4(T).
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
    1.
    
    Financial Reporting, including technical accounting surrounding complex
accounting transactions2.
    
    Order Entry Accounting & Reporting3.
    
    Debt/Equity Accounting & Compliance4.
    
    Cash & Other Working Capital Management5.
    
    Compensation Accounting & Administration6.
    
    Other Assets & Liability Account Management
  Inherent Limitations of Internal Controls
  29




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
 We may need to raise additional capital to fund our operations.
   We will need to renegotiate or extend the currently outstanding PP2 Notes and related interest.
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 None
 
 Item 3.
    
    Defaults Upon Senior Securities
 30




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##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  31




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##### Table of Contents



Item 6.
    
    Exhibits
 31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200299.1
    
    Press release dated November 20, 2009*
 
 *
    
    Previously filed 32




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##### Table of Contents



SIGNATURE
  CISTERA NETWORKS, INC.Date: April 5, 2010
    /s/    Gregory T. RoyalGregory T. RoyalChief Executive Officer and interim
Chief Financial Officer
(Principal Executive, Financial and
Accounting Officer) 33