##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 0-17304
 Cistera Networks, Inc.
  Nevada
    
    91-1944887(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification No.)organization)
 6509 Windcrest Drive, Suite 160, Plano, Texas
    
    75024(Address of principal executive offices)
    
    (Zip Code)
 972-381-4699(Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o   
    Accelerated filer o
    Non-accelerated filer o
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



CISTERA NETWORKS, INC & SUBSIDIARY
 TABLE OF CONTENTS
 PART I: FINANCIAL INFORMATIONItem 1. Financial Statements:Consolidated Balance Sheets  December 31, 2009 (unaudited) and March 31, 2009 (audited)
    
    
    3Consolidated Statements of Operations  For the three months ended December 31, 2009
and 2008 (unaudited)
    
    
    4Consolidated Statements of Stockholders Deficit  December 31, 2009 (unaudited) and
March 31, 2009 (audited)
    
    
    6Consolidated Statements of Cash Flows  For the nine months ended December 31, 2009 and
2008 (unaudited)
    
    
    7Notes to Consolidated Financial Statements (unaudited)
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4T. Controls and Procedures
    
    
    25PART II: OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    26Item 1A. Risk Factors
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    29EX-10.1EX-31.1EX-32.1EX-99.1
  2




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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 CISTERA NETWORKS, INC. & SUBSIDIARIES





CONSOLIDATED BALANCE SHEETS
 December 31, 2009
    
    
    March 31st, 2009(Unaudited)
    
    
    (Audited)Current assetsCash and cash equivalents
    
    $
    15,124
    
    
    $
    1,493Accounts receivable, net of allowance for doubtful accounts of $-0-
    
    
    268,413
    
    
    
    151,322Inventory
    
    
    71,376
    
    
    
    124,656Prepaid expenses
    
    
    29,291
    
    
    
    37,341Total current assets
    
    
    384,204
    
    
    
    314,812Property and equipment, net
    
    
    228,418
    
    
    
    324,217Intangible assets, net
    
    
    1,547,611
    
    
    
    1,751,442Total long-term assets
    
    
    1,776,028
    
    
    
    2,075,659TOTAL ASSETS
    
    $
    2,160,232
    
    
    $
    2,390,471Current liabilitiesAccounts payable
    
    
    443,035
    
    
    
    517,052Accrued liquidated damages  outside investors
    
    
    
    
    
    
    177,402Accrued liabilities
    
    
    503,417
    
    
    
    1,527,811Deferred revenue
    
    
    947,862
    
    
    
    865,271Convertible promissory notes and other notes payable, net of
discount
    
    
    976,427
    
    
    
    976,427Note payable
    
    
    
    
    
    
    7,781Total current liabilities
    
    
    2,870,741
    
    
    
    4,071,743Accrued liquidated damages  outside investors
    
    
    177,402
    
    
    
    Litigation Reserve
    
    
    650,000
    
    
    
    Convertible promissory notes and other notes payable, net of
discount
    
    
    
    
    
    
    Deferred Revenue
    
    
    
    
    
    
    174,554Other long-term liabilities
    
    
    423,175
    
    
    
    58,031Total long-term liabilities
    
    
    1,250,577
    
    
    
    409,987Total liabilities
    
    
    4,121,318
    
    
    
    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
    
    
    (21,269,727
    )
    
    
    (21,222,499
    )Total stockholders deficit
    
    
    (1,983,155
    )
    
    
    (1,913,857
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    2,160,232
    
    
    $
    2,390,471
  3




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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three months ended December 31,2009
    
    
    2008RevenuesConvergence solutions
    
    $
    229,725
    
    
    $
    712,340Professional services
    
    
    31,932
    
    
    
    98,514Support and maintenance
    
    
    311,787
    
    
    
    261,633Total revenues
    
    
    573,444
    
    
    
    1,072,487Cost of revenuesConvergence solutions
    
    
    50,608
    
    
    
    254,675Professional services
    
    
    7,035
    
    
    
    55,680Support and maintenance
    
    
    68,685
    
    
    
    24,250Total cost of revenues
    
    
    126,328
    
    
    
    344,605Gross Profit
    
    
    447,116
    
    
    
    737,882Operating expensesSales and marketing
    
    
    5
    
    
    
    319,758Software development
    
    
    88,736
    
    
    
    188,956Engineering and support
    
    
    104,600
    
    
    
    172,923General and administrative
    
    
    144,981
    
    
    
    338,210Depreciation and amortization
    
    
    24,128
    
    
    
    103,538Total operating expenses
    
    
    362,450
    
    
    
    1,123,385Income / (Loss) from operations
    
    
    84,665
    
    
    
    (385,503
    )Other income (expense)Interest income
    
    
    
    
    
    
    158Other income
    
    
    7
    
    
    
    Interest expense
    
    
    (46,541
    )
    
    
    (43,124
    )Abandonment loss
    
    
    
    
    
    
    Charge for inducements related to stock issued to convertible
note holders
    
    
    
    
    
    
    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)
    
    
    (46,534
    )
    
    
    (151,884
    )Net Income / (Loss)
    
    $
    38,131
    
    
    $
    (537,387
    )Basic & diluted net income / (loss) per share
    
    $
    0.00
    
    
    $
    (0.03
    )Weighted average shares outstanding  basic and diluted
    
    
    17,423,410
    
    
    
    17,423,410
 4




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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Nine months ended December 31,2009
    
    
    2008RevenuesConvergence solutions
    
    $
    798,206
    
    
    $
    2,247,809Professional services
    
    
    166,518
    
    
    
    204,347Support and maintenance
    
    
    817,595
    
    
    
    709,394Total revenues
    
    
    1,782,319
    
    
    
    3,161,550Cost of revenuesConvergence solutions
    
    
    276,987
    
    
    
    664,417Professional services
    
    
    111,380
    
    
    
    148,680Support and maintenance
    
    
    108,931
    
    
    
    71,684Total cost of revenues
    
    
    497,298
    
    
    
    884,781Gross Profit
    
    
    1,285,021
    
    
    
    2,276,769Operating expensesSales and marketing
    
    
    113,226
    
    
    
    900,230Software development
    
    
    224,971
    
    
    
    612,289Engineering and support
    
    
    245,505
    
    
    
    579,323General and administrative
    
    
    489,229
    
    
    
    1,098,827Depreciation and amortization
    
    
    77,541
    
    
    
    302,368Total operating expenses
    
    
    1,150,472
    
    
    
    3,493,037Income / (loss) from operations
    
    
    134,549
    
    
    
    (1,216,268
    )Other income (expense)Interest income
    
    
    
    
    
    
    326Other income
    
    
    70Interest expense
    
    
    (171,170
    )
    
    
    (190,933
    )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
    
    
    
    
    
    
    (1,297,773
    )Amortization of discount on convertible notes  related parties
    
    
    
    
    
    
    (41,060
    )Credit (charge) for estimated liquidated damages
    
    
    
    
    
    
    11,299Total other income (expense)
    
    
    (186,915
    )
    
    
    (2,842,585
    )Net Income (loss)
    
    $
    (52,366
    )
    
    
    (4,058,853
    )Basic & diluted net loss per share
    
    $
    0.00
    
    
    $
    (0.28
    )Weighted average shares outstanding  basic and diluted
    
    
    17,423,410
    
    
    
    14,725,627
  5




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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 TotalAdditional
    
    
    Accumulated
    
    
    stockholdersPreferred Stock
    
    
    Common Stock
    
    
    paid-in capital
    
    
    deficit
    
    
    equity (deficit)Shares
    
    
    Amount
    
    
    Shares
    
    
    AmountBalances at March 31, 2009
    
    
    
    
    
    
    
    
    
    
    17,423,410
    
    
    $
    17,423
    
    
    $
    19,291,219
    
    
    $
    (21,307,784
    )
    
    $
    (1,999.142
    )Net income / (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,130
    
    
    
    38,130Balance Adjustment from
September 30, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73
    )
    
    
    (73
    )Balances at December 31, 2009
    
    
    
    
    
    $
    
    
    
    
    17,423,410
    
    
    $
    17,423
    
    
    $
    19,291,219
    
    
    $
    (21,269,727
    )
    
    $
    (1,961,085
    )
  6




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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Nine months ended December 31,2009
    
    
    2008CASH FLOWS FROM OPERATING ACTIVITIES:Net Income (loss)
    
    $
    (52,366
    )
    
    $
    (4,058,853
    )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
    
    
    
    
    
    
    1,297,773Amortization of discount on convertible promissory notes  Outside
Parties
    
    
    
    
    
    
    41,060Amortization of discount on convertible promissory notes  Related
Parties
    
    
    
    
    
    
    26,829Abandonment loss
    
    
    15,815
    
    
    
    Gain on disposition of assets
    
    
    1,717
    
    
    
    Depreciation and amortization
    
    
    77,541
    
    
    
    302,368Changes in operating assets and liabilities:Accounts receivable
    
    
    117,091
    
    
    
    181,775Inventory
    
    
    53,280
    
    
    
    66,829Prepaid expenses
    
    
    (8,050
    )
    
    
    11,209Accounts payable
    
    
    (74,017
    )
    
    
    (34,160
    )Note Payable
    
    
    (7,781
    )
    
    
    Accrued liabilities
    
    
    (374,394
    )
    
    
    172,716Deferred revenue
    
    
    (91,963
    )
    
    
    (207,317
    )Other long-term liabilities
    
    
    365,144
    
    
    
    51,066Net cash provided by (used) in operating activities
    
    
    22,017
    
    
    
    (835,479
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment, net
    
    
    
    
    
    
    (61,422
    )Net cash used in investing activities
    
    
    
    
    
    
    (61,422
    )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
    
    
    
    
    
    
    25,630Net proceeds from exercise of warrants
    
    
    
    
    
    
    843,604Payments on convertible promissory notes and other loans
    
    
    
    
    
    
    (19,153
    )Payments on other notes payable and capital lease
    
    
    (8,386
    )
    
    
    Net cash provided by (used) financing activities
    
    
    (8,386
    )
    
    
    882,578Net increase in cash and cash equivalents
    
    
    13,631
    
    
    
    (14,323
    )Cash and cash equivalents at beginning of period
    
    
    1,493
    
    
    
    125,007Cash and cash equivalents at end of period
    
    $
    15,124
    
    
    $
    110,684
  7




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CISTERA NETWORKS, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
 Nine months ended December 312009
    
    2008SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the year for:Interest
    
    $
    14,853
    
    
    $
    53,740Income 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
    
    
    
    
    
    
    46,989
  8




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




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
  Balance Sheet Accounts
  December 31, 2009
    
    
    March 31, 2009Receivables assigned to factor
    
    $
    0
    
    
    $
    125,402Advances to (from) factor
    
    
    (0
    )
    
    
    (70,570
    )Fees, expenses and charges to
reserve
    
    
    (0
    )
    
    
    (792
    )Amounts due from reserve account
    
    
    0
    
    
    
    Amounts due from factor
    
    
    0
    
    
    
    54,040Non-factored Accounts Receivable
    
    
    268,413
    
    
    
    97,282Total accounts receivable
    
    $
    268,413
    
    
    $
    151,322
  December 31, 2009
    
    
    March 31, 2009Accrued expenses
    
    $
    75,951
    
    
    $
    82,924Reserve for litigation contingency
    
    
    
    
    
    
    650,000Accrued compensation and payroll taxes
    
    
    247,863
    
    
    
    545,626Accrued Interest
    
    
    
    
    
    
    225,330Customer Deposits
    
    
    126,672
    
    
    
    Other
    
    
    52,931
    
    
    
    23,931Total Accrued liabilities
    
    $
    503,417
    
    
    $
    1,527,811
  December 31, 2009
    
    
    March 31, 2009Deferred rent
    
    $
    45,722
    
    
    $
    58.031$
    45,722
    
    
    $
    58,031
 Earnings per Share
   10




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




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




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
    STIIP
     13




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
  PP1 and PP2 Notes:Principal
    
    $
    976,426Accrued interest
    
    
    377,437Accrued estimated liquidated damages
    
    
    177,402Total
    
    $
    1,531,265
 Registration Payment Arrangements
     Accumulated deficit, April 1, 2007
    
    $
    (10,586,847
    )Adjustments for the cumulative effect of the change in accounting principle:Contingent liability recorded for estimated liquidated damages
    
    
    (289,518
    )Reclassification of Warrants from derivative liabilities to equity securities
    
    
    (465,597
    )Total adjustments
    
    
    (755,115
    )Accumulated deficit, April 1, 2007, as adjusted
    
    $
    (11,341,962
    )
 14




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
 NOTE 4  COMMITMENTS AND CONTINGENCIES
  NOTE 5  RELATED PARTY TRANSACTIONS
  st
 NOTE 6  SUBSEQUENT EVENTS
 Reverse/Forward Split
 th
  15




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CISTERA NETWORKS, INC. & SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
   16




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




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th
 th Zone Speak
 th
 th
 18




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RESULTS OF OPERATIONS
 Selected Consolidated Statements of Operations Data
  Results of Operations for the Three Months Ended December 31, 2009  Compared to the Three Months Ended December 31, 2008
 For the three months ended December 31,% of
    
    
    
    
    
    
    % of2009
    
    
    revenue
    
    
    2008
    
    
    revenueRevenues:Convergence solutions
    
    $
    229,725
    
    
    
    40
    %
    
    $
    712,340
    
    
    
    67
    %Professional services
    
    
    31,932
    
    
    
    6
    %
    
    
    98,514
    
    
    
    9
    %Support and maintenance
    
    
    311,787
    
    
    
    54
    %
    
    
    261,633
    
    
    
    24
    %Total revenues
    
    
    573,444
    
    
    
    100
    %
    
    
    1,072,487
    
    
    
    100
    %Cost of revenues:Convergence solutions
    
    
    50,608
    
    
    
    9
    %
    
    
    254,675
    
    
    
    24
    %Professional services
    
    
    7,035
    
    
    
    1
    %
    
    
    55,680
    
    
    
    5
    %Support and maintenance
    
    
    68,685
    
    
    
    12
    %
    
    
    24,250
    
    
    
    2
    %Total cost of revenues
    
    
    126,328
    
    
    
    22
    %
    
    
    334,605
    
    
    
    31
    %Gross Profit
    
    
    447,116
    
    
    
    78
    %
    
    
    737,882
    
    
    
    69
    %Operating expenses:Sales and marketing
    
    
    5
    
    
    
    0
    %
    
    
    319,758
    
    
    
    30
    %Software development
    
    
    88,736
    
    
    
    15
    %
    
    
    188,956
    
    
    
    18
    %Engineering and support
    
    
    104,600
    
    
    
    18
    %
    
    
    172,923
    
    
    
    16
    %General and administrative
    
    
    144,981
    
    
    
    25
    %
    
    
    338,210
    
    
    
    31
    %Depreciation and amortization
    
    
    24,128
    
    
    
    4
    %
    
    
    103,538
    
    
    
    10
    %Total operating expenses
    
    
    362,450
    
    
    
    63
    %
    
    
    1,123,385
    
    
    
    105
    %Loss from operations
    
    
    84,665
    
    
    
    15
    %
    
    
    (385,503
    )
    
    
    (36
    %)Other income (expense)Interest income
    
    
    7
    
    
    
    
    %
    
    
    158
    
    
    
    Interest expense
    
    
    (46,541
    )
    
    
    0
    %
    
    
    (43,124
    )
    
    
    (4
    %)Amortization of discount on convertible notes
    
    
    
    
    
    
    (8
    %)
    
    
    (108,918
    )
    
    
    (10
    %)Charge for inducements related to stock
issued to convertible note holders
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    Total other income (expense)
    
    
    (46,534
    )
    
    
    (8
    %)
    
    
    (151,884
    )
    
    
    (14
    %)Net loss
    
    $
    38,130
    
    
    
    (7
    %)
    
    $
    (537,387
    )
    
    
    (50
    %)
 19




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Revenue
  Gross Profit and Gross Margin
  Operating Expenses
  Interest Expense
  Results of Operations for the Nine Months Ended December 31, 2009  Compared to the Nine Months Ended December 31, 2008
 For the nine months ended December 31,% of
    
    
    
    
    
    
    % of2009
    
    
    revenue
    
    
    2008
    
    
    revenueRevenues:Convergence solutions
    
    $
    798,206
    
    
    
    45
    %
    
    $
    2,247,809
    
    
    
    71
    %Professional services
    
    
    166,518
    
    
    
    9
    %
    
    
    204,347
    
    
    
    7
    %Support and maintenance
    
    
    817,595
    
    
    
    46
    %
    
    
    709,394
    
    
    
    22
    %Total revenues
    
    
    1,782,319
    
    
    
    100
    %
    
    
    3,161,500
    
    
    
    100
    %Cost of revenues:Convergence solutions
    
    
    276,987
    
    
    
    16
    %
    
    
    664,417
    
    
    
    21
    %Professional services
    
    
    111,380
    
    
    
    6
    %
    
    
    148,680
    
    
    
    5
    %Support and maintenance
    
    
    108,931
    
    
    
    6
    %
    
    
    71,684
    
    
    
    2
    %Total cost of revenues
    
    
    497,298
    
    
    
    28
    %
    
    
    884,781
    
    
    
    28
    %Gross Profit
    
    
    1,285,021
    
    
    
    72
    %
    
    
    2,276,769
    
    
    
    72
    %Operating expenses:Sales and marketing
    
    
    113,226
    
    
    
    6
    %
    
    
    900,230
    
    
    
    28
    %Software development
    
    
    224,971
    
    
    
    13
    %
    
    
    612,289
    
    
    
    19
    %Engineering and support
    
    
    245,505
    
    
    
    14
    %
    
    
    579,323
    
    
    
    18
    %General and administrative
    
    
    489,229
    
    
    
    27
    %
    
    
    1,098,827
    
    
    
    35
    %Depreciation and amortization
    
    
    77,541
    
    
    
    4
    %
    
    
    302,368
    
    
    
    10
    %Total operating expenses
    
    
    1,150,472
    
    
    
    64
    %
    
    
    3,493,037
    
    
    
    110
    %
 20




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##### Table of Contents



For the nine months ended December 31,% of
    
    
    
    
    
    
    % of2009
    
    
    revenue
    
    
    2008
    
    
    revenueGain (Loss) from operations
    
    
    134,549
    
    
    
    8
    %
    
    
    (1,216,268
    )
    
    
    (38
    %)Other income (expense)Interest income
    
    
    70
    
    
    
    
    
    
    
    326
    
    
    
    Other income
    
    
    
    
    
    
    
    
    
    
    Charge for inducements related to stock
Issued to convertible note holders
    
    
    
    
    
    
    
    
    
    
    (1,324,444
    )
    
    
    (42
    %)Amortization of discount on convertible
Notes
    
    
    
    
    
    
    
    
    
    
    (1,338,833
    )
    
    
    (57
    %)Abandonment loss
    
    
    (15,815
    )Interest expense
    
    
    (171,170
    )
    
    
    (10
    %)
    
    
    (190,933
    )
    
    
    (6
    %)Credit (charge) for estimated liquidated
Damages
    
    
    
    
    
    
    
    
    
    
    11,299
    
    
    
    Total other income (expense)
    
    
    (186,915
    )
    
    
    0
    %
    
    
    (2,842,585
    )
    
    
    (90
    %)Net Gain (Loss)
    
    
    (52,366
    )
    
    
    (3
    %)
    
    
    (4,058,853
    )
    
    
    (128
    %)
 21




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##### Table of Contents



Revenue
  Gross Profit and Gross Margin
  Operating Expenses
  Interest Expense
  Amortization of Debt Discount
  Charge for Inducements Related to Stock Issued to Convertible Note Holders
  Liquidated Damages
  Liquidity and Capital Resources
  22




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##### Table of Contents



Cash and Cash Flows
  23




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##### Table of Contents



Contractual Obligations
  Critical Accounting Policies
  Research
and Development  Software Development
 st
 Recently Issued Accounting Pronouncements
  24




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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
  25




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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
  26




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  27




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##### Table of Contents



Item 6. Exhibits
 10.1
    
    Professional Services Agreement between Cistera Networks Inc and Blue Kiwi Group Ltd.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 February 16, 2010
 28




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##### Table of Contents



SIGNATURE
  CISTERA NETWORKS, INC.Date: February 16, 2010
    /s/    Gregory T. RoyalGregory T. RoyalChief Executive Officer and interim

Chief Financial Officer(Principal Executive, Financial and
Accounting Officer) 29