Table
of Contents
SIENA
TECHNOLOGIES, INC.
TABLE
OF
CONTENTS
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Page
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Part
I — Financial Information
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3
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Item
1 — Financial Statements
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3
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Consolidated
Balance Sheets as of March 31, 2008 (Unaudited) and December 31,
2007
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3
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Unaudited
Consolidated Statements of Operations for the Three Months Ended
March 31,
2008 and March 31, 2007, as restated
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4
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Unaudited
Consolidated Statements of Cash Flows for the Three Months Ended
March 31,
2008 and March 31, 2007, as restated
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5
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Notes
to Consolidated Financial Statements
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6
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Item
2 — Management’s Discussion and Analysis or Plan of
Operation
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12
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Item
3 — Quantitative and Qualitative Disclosures About Market
Risk
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13
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Item
4 — Controls and Procedures
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13
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Part
II — Other Information
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14
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Item
1 — Legal Proceedings
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14
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Item
2 — Unregistered Sales of Equity Securities and Use of
Proceeds
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14
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Item
3 — Defaults Upon Senior Securities
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14
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Item
4 — Submission of Matters to a Vote of Security Holders
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14
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Item
5 — Other Information
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14
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Item
6 — Exhibits
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14
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Certification
of CEO Pursuant to Section 302
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Certification
of CFO Pursuant to Section 302
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Certification
of Officers Pursuant to Section 906
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PART
I — FINANCIAL INFORMATION
SIENA
TECHNOLOGIES, INC.
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March 31, 2008
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December 31, 2007
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(Unaudited)
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(Restated)
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ASSETS:
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CURRENT
ASSETS
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Cash
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$
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1,835
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|
$
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1,835
|
|
Current
Assets of Discontinued Operations (Note 6)
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3,541,004
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2,850,238
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Prepaid
Expenses
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26,540
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|
|
-
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Total
Current Assets
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3,569,379
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2,852,073
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|
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TOTAL
ASSETS
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$
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3,569,379
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$
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2,852,073
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LIABILITIES
& STOCKHOLDERS’ DEFICIT:
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CURRENT
LIABILITIES
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Accounts
Payable and Accrued Expenses
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$
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109,362
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$
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124,411
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Current
Liabilities of Discontinued Operations (Note 6)
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6,085,546
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4,996,036
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Current
Portion of Notes Payable
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3,747
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9,747
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Current
Portion of Related Party Notes Payable (Note 5)
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360,000
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-
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Fair
Market Value of Derivative Liabilities (Note 4)
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8,532
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8,124
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Total
Current Liabilities
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6,567,187
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5,138,318
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NONCURRENT
LIABILITIES
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Notes
Payable
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377,727
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377,727
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Related
Party Notes Payable (Note 5)
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8,422,570
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8,422,570
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Total
Noncurrent Liabilities
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8,800,297
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8,800,297
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TOTAL
LIABILITIES
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15,367,484
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13,938,615
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COMMITMENTS
& CONTINGENCIES (Note 7)
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STOCKHOLDERS’
DEFICIT:
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Common
Stock, $.001 par value; 100,000,000 shares authorized 42,163,691
shares
issued and outstanding at March 31, 2008 and December 31, 2007,
respectively
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42,163
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42,163
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Additional
Paid-in Capital
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29,623,891
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29,605,537
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Shares
to be Issued
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163
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|
163
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Accumulated
Deficit
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(41,464,322
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)
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(40,734,405
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)
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Total
Stockholders’ Deficit
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(11,798,105
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)
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(11,086,542
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)
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TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
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$
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3,569,379
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$
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2,852,073
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The
accompanying notes are an integral part of these consolidated financial
statements.
(Unaudited)
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Three Months Ended
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March 31,
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2008
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2007
As Restated
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REVENUE
|
|
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Sales
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$
|
-
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|
$
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-
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|
Cost
of Goods Sold
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|
|
-
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|
|
-
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GROSS
PROFIT
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|
-
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-
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OPERATING
EXPENSES
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Investor
Relations
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19,935
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71,692
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Stock
Option Expense
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18,354
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81,137
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Other
Operating Expenses
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107,153
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21,393
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Total
Operating Expenses
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145,442
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174,222
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LOSS
FROM CONTINUING OPERATIONS
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(145,442
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)
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(174,222
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)
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OTHER
INCOME AND EXPENSE
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Interest
Expense
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(67,068
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)
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(119,756
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)
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Change
in Fair Value of Derivatives
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(408
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)
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1,865,372
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Total
Other Income and Expenses
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(67,476
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)
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1,745,616
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LOSS
FROM DISCONTINUED OPERATIONS
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(516,999
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)
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(1,136,240
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)
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Net
Income
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$
|
(729,917
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)
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$
|
435,154
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Basic
Earnings Per Common Share
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$
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(0.02
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)
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$
|
0.01
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|
|
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Diluted
Earnings Per Common Share
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|
$
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(0.02
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)
|
$
|
0.01
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|
|
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Weighted
Average Shares Used to Compute Basic Earnings Per Common
Share
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42,163,691
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39,071,211
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Weighted
Average Shares Used to Compute Diluted Earnings Per Common
Share
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42,163,691
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46,455,168
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|
The
accompanying notes are an integral part of these consolidated financial
statements.
Table
of Contents
(Unaudited)
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Three Months Ended
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March 31,
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2008
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2007 As
Restated
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CASH
USED IN OPERATING ACTIVITIES:
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Net
loss (income)
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$
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(729,917
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)
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$
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435,154
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Adjustments
to reconcile net income to net cash used in operating
activities
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Stock
issued for services
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-
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30,000
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Amortization
of debt discount
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60,000
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|
—
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Change
in fair value of derivative liabilities
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|
408
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(1,865,372
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)
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Stock
option expense
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18,354
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81,137
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Accretion
of notes payable balances
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-
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21,973
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Changes
in operating assets and liabilities
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Decrease
(increase) in assets of discontinued operations
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(690,766
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)
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712,026
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(Increase)
decrease in prepaid expenses
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(26,540
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)
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-
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(Decrease)
increase in accounts payable
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|
(15,049
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)
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(636,872
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)
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Increase
(decrease) in liabilities of discontinued operations, net
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1,089,510
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(1,061,048
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)
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NET
CASH USED IN OPERATING ACTIVITIES
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(294,000
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)
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(2,283,002
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)
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CASH
PROVIDED BY FINANCING ACTIVITIES:
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Proceeds
from related party debt
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300,000
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|
—
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|
Payments
on related party debt
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|
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-
|
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|
(30,000
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)
|
Net
proceeds from issuance of stock
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|
|
-
|
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|
1,132,000
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|
Proceeds
from note payable
|
|
|
-
|
|
|
6,576
|
|
Payments
of notes payable
|
|
|
(6,000
|
)
|
|
(6,000
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)
|
|
|
|
|
|
|
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NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
294,000
|
|
|
1,102,576
|
|
|
|
|
|
|
|
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NET
DECREASE IN CASH & CASH EQUIVALENTS
|
|
|
-
|
|
|
(1,180,426
|
)
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|
|
|
|
|
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|
BEGINNING
CASH & CASH EQUIVALENTS
|
|
|
1,835
|
|
|
1,211,789
|
|
|
|
|
|
|
|
|
|
ENDING
CASH & CASH EQUIVALENTS
|
|
$
|
1,835
|
|
$
|
31,363
|
|
|
|
|
|
|
|
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SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
12,188
|
|
$
|
15,099
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF NON-CASH TRANSACTIONS
|
|
|
|
|
|
|
|
Accrued
commissions in connection with private placement
|
|
$
|
-
|
|
$
|
10,000
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants in connection with private placement
|
|
$
|
-
|
|
$
|
1,045,182
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
FOOTNOTES TO THE FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007
(Unaudited)
NOTE
1 - DESCRIPTION OF BUSINESS
On
October 25, 2006, Network Installation Corp. (“NIC”) changed its name to
Siena Technologies, Inc. (the “Company”). The Company was incorporated on
March 24, 1998 under the laws of the state of Nevada. The Company has three
wholly owned subsidiaries, Kelley Communication Company, Inc. (“Kelley”), Com
Services, Inc. (“COM”) and Network Installation Corporation (“Network”), all of
which have been discontinued.
ACQUISITION
OF KELLEY COMMUNICATION COMPANY, INC.
Pursuant
to an acquisition agreement, the Company acquired 100% of the outstanding
common
stock of Kelley Communication Company, Inc., a Nevada corporation, on
September 22, 2005, in exchange for common stock. The results of Kelley’s
operations have been included in the accompanying consolidated financial
statements since that date. Kelley is a Las Vegas, Nevada-based business
focused
on the design, project management, installation and deployment of data, voice,
video, audio/visual, security and surveillance systems, entertainment and
special effects, and telecom systems.
The
aggregate purchase price was $10,232,101, all of which was paid by issuing
14,016,577 shares of the Company’s common stock. The value of the shares of
common stock was determined based on the average market price of the Company’s
common stock on the ten trading days prior to September 22, 2005. The
purchase price was determined by taking into account many factors including
the
reputation that Kelley had amassed in its industry over the preceding
18 years, the reputation of Kelley’s founder, James Michael Kelley, having
been in the business for over 40 years, Kelley’s estimate of 2005 projected
revenues, and Kelley’s debt obligations at the time of closing.
The
audit
of Kelley as of September 22, 2005 has not been completed. However,
the Company’s preliminary financial analysis and due diligence related to the
acquisition is complete. Kelley’s unaudited balance sheet as of the date of the
acquisition is as follows:
Cash
|
|
$
|
177,495
|
|
Accounts
receivable
|
|
|
1,234,668
|
|
Inventory
|
|
|
965,927
|
|
Costs
in excess of billings
|
|
|
488,370
|
|
Other
assets
|
|
|
5,599
|
|
Fixed
assets
|
|
|
713,220
|
|
Accumulated
depreciation
|
|
|
(407,534
|
)
|
Goodwill
|
|
|
11,144,216
|
|
Accounts
payable
|
|
|
(879,995
|
)
|
Notes
payable
|
|
|
(2,297,227
|
)
|
Billings
in excess of earnings
|
|
|
(912,638
|
)
|
Total
|
|
$
|
10,232,101
|
|
At
December 31, 2007, upon the completion of an impairment review of the
Goodwill related to the acquisition of Kelley, management decided to write
down
goodwill by $7,344,216, resulting primarily from lower than expected gross
margins and the continued significant cash flow challenges faced by Kelley.
The
Company had recorded a $3,700,000 impairment losss on the goodwill recorded
for
the Kelley acquisition in 2005 and therefore will no longer carry goodwill
relating to Kelly as the Company is unable to support the opinion that
operations and cashflow will improve at Kelly.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF
CONSOLIDATION
The
accompanying consolidated financial statements include the accounts of the
Company and its 100% owned subsidiaries. All significant inter-company accounts
and transactions have been eliminated in consolidation. The results of each
of
the company’s subsidiaries have been included in Loss from Discontinued
Operations in the Company’s accompanying consolidated financial
statements.
These
condensed interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States
of
America (“US GAAP”).
The
interim results of operations are not necessarily indicative of the results
to
be expected for the fiscal year ending December 31, 2008. The Company’s
financial statements contained herein are unaudited and, in the opinion of
management, contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of financial position, results
of
operations and cash flows for the period presented. The Company’s accounting
policies and certain other disclosures are set forth in the notes to the
consolidated financial statements contained in the Company’s Annual Report on
Form 10-KSB for the year ended December 31, 2007. These financial statements
should be read in conjunction with the Company’s audited consolidated financial
statements and notes thereto. The preparation of financial statements in
conformity with US GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
USE
OF ESTIMATES
The
preparation of financial statements, in conformity with US GAAP, requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities, and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenue
and
expenses during the reporting period. Significant estimates made in preparing
these financial statements include analysis of the value of goodwill, the
fair
value of derivative financial instruments such as warrants, the issuance
of
common stock for services, and useful lives for depreciable and amortizable
assets. Actual results could differ from those estimates.
STOCK-BASED
COMPENSATION
In
December 2004, the FASB issued SFAS No. 123 (Revised), “Share-Based
Payment” (“SFAS 123(R)”). SFAS 123(R) replaces SFAS 123 and supersedes APB 25.
SFAS 123(R) is effective as of the beginning of the first interim period
or
annual reporting period that begins after December 15, 2005. SFAS 123(R)
requires that the costs resulting from all share-based payments transactions
be
recognized in the financial statements. SFAS 123(R) applied to all awards
granted after the required effective date and shall not apply to awards granted
in periods before the required effective date, except if prior awards are
modified, repurchased, or cancelled after the effective date.
The
following table sets forth the Company’s stock option grants, exercise prices,
stock option grants forfeited and certain vesting periods and amounts vested
at
March 31, 2008.
|
|
Stock
|
|
|
|
Stock
|
|
Stock
|
|
Cliff
|
|
Date(s) of
|
|
Options
|
|
Exercise
|
|
Options
|
|
Options
|
|
Vesting
|
|
Grant
|
|
Granted
|
|
Price
|
|
Forfeited
|
|
Remaining
|
|
Period
|
|
10/20/2005
|
|
|
972,500
|
|
|
0.79
|
|
|
535,000
|
|
|
437,500
|
|
|
23
months
|
|
3/30/2006
|
|
|
1,347,500
|
|
|
0.42
|
|
|
1,192,500
|
|
|
155,000
|
|
|
33
months
|
|
6/2/2006
|
|
|
600,000
|
|
|
0.41
|
|
|
0
|
|
|
600,000
|
|
|
33
months
|
|
8/8/2006
|
|
|
192,500
|
|
|
0.21
|
|
|
80,000
|
|
|
112,500
|
|
|
33
months
|
|
9/1/2006
|
|
|
350,000
|
|
|
0.42
|
|
|
0
|
|
|
350,000
|
|
|
33
months
|
|
9/21/2006
|
|
|
750,000
|
|
|
0.39
|
|
|
750,000
|
|
|
0
|
|
|
27
months
|
|
9/25/06
to 2/1/2007
|
|
|
200,000
|
|
|
0.27 to 0.42
|
|
|
125,000
|
|
|
75,000
|
|
|
33
months
|
|
Balance
at March 31, 2008
|
|
|
4,412,500
|
|
|
|
|
|
2,682,500
|
|
|
1,730,000
|
|
|
|
|
NOTE
3 - GOING CONCERN
The
accompanying consolidated financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of America,
which contemplates continuation of the Company as a going concern. However,
the
Company has an accumulated deficit of ($41,464,322), and is generating losses
from operations. The continuing losses have adversely affected the liquidity
of
the Company. The Company faces continuing significant business risks, including,
but not limited, to its ability to maintain vendor and supplier relationships
by
making timely payments when due.
In
view
of the matters described in the preceding paragraph, recoverability of a
major
portion of the recorded asset amounts shown in the accompanying balance sheet
is
dependent upon continued operations of the Company, which in turn is dependent
upon the Company’s ability to raise additional capital, obtain financing and to
succeed in its future operations. The consolidated financial statements do
not
include any adjustments relating to the recoverability and classification
of
recorded asset amounts or amounts and classification of liabilities that
might
be necessary should the Company be unable to continue as a going concern.
In the
past twelve months, management has taken the following steps to improve its
results of operations and financial condition, which include: (i) completed
the discontinuance of operations of Network and COM, (ii) completed a
second restructuring of all of the Company’s outstanding debt with more
cashflow-sensitive payment terms, (iii) reduced head count (iv) raised an
additional $2.36 million in promissory note advances (v) sold
our investment in Tuscany Broadband for proceeds of approximately $775,000,
reached agreement in principle on the sale of Kelley, which will include
the
disposition of approximately $2.5 million in net liabilities.
The
fair
market value of derivative liabilities consisted of the following:
|
|
March 31,
2008
|
|
December 31,
2007
|
|
Derivative
liability, warrants exchanged for common stock on March 10, 2007,
initial value
|
|
$
|
1,497,416
|
|
$
|
1,497,416
|
|
Cumulative
adjustments to record fair market value of derivative
liability
|
|
|
(1,497,416
|
)
|
|
(1,497,657
|
)
|
Subtotal
|
|
|
-
|
|
|
5,759
|
|
Derivative
liability, warrants related to private placement on November
13, 2006, initial value
|
|
|
729,820
|
|
|
729,820
|
|
Cumulative
adjustments to record fair market value of derivative
liability
|
|
|
(728,933
|
)
|
|
|
)
|
Subtotal
|
|
|
887
|
|
|
722
|
|
Derivative
liability, warrants related to private placement on January 23, 2007,
initial value
|
|
|
1,045,182
|
|
|
|
|
Cumulative
adjustment to record fair market value of derivative
liability
|
|
|
(1,043,189
|
)
|
|
|
)
|
Subtotal
|
|
|
1,993
|
|
|
1,643
|
|
Derivative
liability, warrants related to Dutchess debt financing on July
17, 2007,
initial value
|
|
|
30,000
|
|
|
|
|
Adjustment
to record fair market value of derivative liability
|
|
|
(24,348
|
)
|
|
|
)
|
Subtotal
|
|
|
5,652
|
|
|
-
|
|
Total
|
|
$
|
8,532
|
|
$
|
8,124
|
|
On
July
17, 2007, the Company entered into an Agreement with Dutchess (the “July 2007
Agreement”), providing for, among other things, additional funding from Dutchess
in the amount of $2,000,000 (the “Additional Financing”). The Additional
Financing shall be added to the then outstanding principal amount of the
Note
and such Note shall be modified to reflect all appropriate increases in the
Company’s monthly payments to Dutchess. Further, pursuant to the July 2007
Agreement, Dutchess shall have the right to appoint three (3) members to
the
Company’s Board of Directors, whose total number shall remain at five (5), and
such appointments shall continue until the New Note is repaid in full; during
such time that the New Note is outstanding, Dutchess may remove and replace
any
of its appointed members. The July 2007 Agreement further provided for certain
conditions to closing, all of which have been satisfied.
Pursuant
to the July 2007 Agreement, the Company and Dutchess executed an Addendum
to
Note, dated July 17, 2007 (the “Addendum”) modifying the Note such that the
Additional Financing shall be added to the principal amount of the Note,
totaling in the aggregate approximately $8,384,726 (the “New Note”). As provided
in the Note, the New Note bears interest at a rate of seven percent (7%)
per
annum and is secured by all the assets of the Company, as evidenced by that
certain Amended and Restated Security Agreement between the Company and
Dutchess, dated July 17, 2007 (“Amended Security Agreement”). The New Note is
due and payable on or before January 1, 2012. The Company also issued Dutchess
a
five year warrant to purchase 3,000,000 shares of the Company’s common stock at
four cent ($0.04) per share (the “Warrant”). The Warrant provides for certain
anti-dilution provisions and cashless exercise in the event that the Company
does not have an effective registration statement covering the shares of
common
stock underlying the Warrant on or before one year from the date of issuance
of
the Warrant. The Company also entered into a Negative Pledge, dated July
17, 2007 (the “Negative Pledge”), providing that the Company will not grant, any
lien, charge, security interest, hypothec, mortgage or encumbrance of any
nature
or kind over any of the property stated in the Amended Security
Agreement.
In
connection with the Agreement, the Company paid Dutchess closing costs of
$50,000.
The
Company is obligated to make the following principal and interest payments
for
the years ended March 31 :
2008
|
|
$
|
840,000
|
|
2009
|
|
|
1,800,000
|
|
2010
|
|
|
2,400,000
|
|
2011
|
|
|
3,000,000
|
|
January 1,
2012
|
|
|
2,195,738
|
|
Total
|
|
$
|
10,235,738
|
|
In
the
event of a default on the new promissory note, Dutchess has the right to
declare
the full and unpaid balance of the new note due and payable, and enforce
each of
its rights under the convertible debentures and warrants previously retired
as
of June 30, 2006, including conversion into and/or purchase of shares of
the
Company’s common stock.
On
March
17, 2008, the Company determined it would dispose or sell the assets and
liabilities associated with Kelley. The business was underperforming and
consistent profits derived from the business model did not appear possible
under
the operating structure in place. In conjunction with this decision, the
company
has accrued approximately $100,000 to cover the costs of disposing of the
Kelley
subsidiary.
In
the
second quarter of 2006, the Company finalized its plans to shut down its
operations at its Network and COM subsidiaries. The Company decided to close
down these operations primarily because they were incurring operating losses,
had low gross margins and were experiencing cash flow shortages, in addition
to
the fact that these businesses were not consistent with the core business
of the
Company’s subsidiary, Kelley. In conjunction with this decision, the Company
accrued $150,000 to cover the costs of closing network and com. The
net assets and liabilities of the discontinued operations at March 31, 2008
and
December 31, 2007 consists of the following;
|
|
March 31,
|
|
|
|
Assets of
discontinued operations
|
|
|
|
|
|
|
|
Cash
|
|
$
|
306,788
|
|
$
|
375,959
|
|
Accounts
receivable, net
|
|
|
1,459,205
|
|
|
1,207,544
|
|
Inventory
|
|
|
1,522,710
|
|
|
903,196
|
|
Fixed
assets, net
|
|
|
148,741
|
|
|
167,660
|
|
Other
Assets
|
|
|
103,561
|
|
|
195,879
|
|
Total
assets
|
|
$
|
3,541,005
|
|
$
|
2,850,238
|
|
Liabilities
of discontinued operations
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,840,062
|
|
$
|
1,787,965
|
|
Notes
Payable
|
|
|
1,978,419
|
|
|
1,795,171
|
|
Billings
in excess of costs
|
|
|
2,267,065
|
|
|
1,412,900
|
|
Total
liabilities
|
|
|
6,085,546
|
|
|
4,996,036
|
|
Net
liabilities of discontinued operations
|
|
$
|
2,544,541
|
|
$
|
2,145,798
|
|
The
Company ceased all depreciation of Kelley fixed assets as of March 17, 2008,
in
accordance with Financial Accounting Standards Board No.144. (“FASB
144”)
|
|
Year Ended ended
|
|
|
|
December 31
|
|
|
|
2008
|
|
2007
As Restated
|
|
Sales
|
|
$
|
1,853,011
|
|
$
|
1,261,416
|
|
Cost
of Goods sold
|
|
|
1,710,817,
|
|
|
961,042
|
|
Gross
Profit
|
|
|
142,194
|
|
|
300,374
|
|
Salaries
|
|
|
389,657
|
|
|
961,736
|
|
Rent
|
|
|
54,953
|
|
|
48,248
|
|
Contingency
accrual
|
|
|
100,000
|
|
|
150,000
|
|
Interest
expense
|
|
|
26,062
|
|
|
42,754
|
|
Other
|
|
|
88,521
|
|
|
233,876
|
|
Loss
from Discontinued Operations
|
|
$
|
(516,999
|
)
|
$
|
(1,136,240
|
)
|
OTHER
COMMITMENTS
Kelley
is
obligated to pay rent amounts as follows:
For
the
12 months ended March 31:
Kelley
is
obligated to pay $10,000 per month through December 31, 2010 related to an
exclusive reseller agreement with a software company.
The
Company is obligated to pay its former Chief Executive Officer and its former
Chief Financial Officer the remaining balance of $39,000 as of March 31,
2008 as
a result of separation agreements dated May 25, 2007.
FOOTNOTE
8 - BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Net
loss
per share is calculated in accordance with the Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), “Earnings Per Share”. Basic net loss
per share is based upon the weighted average number of common shares
outstanding. For all periods, all common stock equivalents were excluded
from
the calculation of diluted loss per common share because they were
anti-dilutive, due to our net losses.
Stock
options, which would have had an anti-dilutive effect on the net loss per
common
share once exercised, to purchase 1,730,000 and 3,685,000 shares of common
stock
remained outstanding as of March 31, 2008 and 2007, respectively. These
stock options have various vesting periods between two and three years from
the
date of grant.
Warrants,
which would have an anti-dilutive effect on the net loss per common share
once
exercised, to purchase 23,942,145 and 16,710,895 shares of common stock remained
outstanding as of March 31, 2008 and 2007, respectively, at strike prices
that vary from $0.01 to $0.79 and $0.01 to $0.88 per share,
respectively.
Certain
debts which were restructured by the Company during 2008 and 2007, remained
outstanding as of December 31, 2008 and 2007, respectively. These debts
carry certain provisions allowing for the lenders, namely Dutchess, to void
the
restructuring transactions in the event of default by the Company. In the
event of default and the removal of the restructured terms of the debts,
the
debts would become convertible at the lender's option at any time, at a
conversion price which would be approximately 75% of the fair market value
of
the Company's common stock. The Company currently estimates the shares
these debts would potentially be convertible into would be approximately
731,000,000 shares of the Company's common stock using the fair market value
of
the Company's common stock as of December 31, 2008. There are other
restrictions within the terms of the agreements with these lenders which
might
limit the amount of shares the debts were convertible into, in this scenario,
but the Company cannot be sure those terms would limit a conversion into
a
significant number of shares of the Company's common stock.
FOOTNOTE
9 - SUBSEQUENT EVENTS
On
March
17, 2008, the Board of Directors, believing it to be in the best interests
of
the Company and its shareholders, approved the sale of the assets (the “Asset
Sale”) of the Company’s wholly owned subsidiary, Kelley Communication Company,
Inc., a Nevada corporation (“Kelley Communication”) pursuant to the terms of a
certain Asset Purchase Agreement by and among our Company, Kelley Communication,
Mr. James Michael Kelley, and Kelley II, LLC, a newly formed Nevada limited
liability company (“Kelley II”).
Mr.
Kelley owns 100% of the limited liability company membership interests of
Kelley
II, and is its sole managing member. Additionally, he may be deemed to be
the beneficial owner of approximately 13,816,577 shares of Siena’s capital stock
owned by Kelley II (the “Kelley Shares”). He is also a former director,
who served on our Board from September 22, 2005 until January 2008. Mr. Kelley
transferred the Kelley Shares to Kelley II for purposes of consummating the
transactions contemplated by the Asset Purchase Agreement.
On
April
7, 2008, we entered into the Asset Purchase Agreement with Mr. Kelley, Kelley
II
and Kelley Communication, pursuant to which we have agreed to sell certain
of
Kelley Communication’s assets to Kelley II. Such tangible and intangible
assets of Kelley Communication, include, but are not limited to, all equipment,
all rights of the Kelly Communication against vendors, all customer lists,
files
and related information, all inventory, all rights of the Kelly Communication
under certain contracts, all permits, all intellectual property of Kelly
Communication, including trademarks, service marks, trade names, domain names,
web sites, phone, fax and email addresses, all rights or choses in action
following the closing of the acquisition related to Kelly Communication’s
business, all books and records, all computer software, hardware, data rights
and documentation, all cash and cash equivalents, and all goodwill related
to
these assets. A complete description of the assets sold is set forth
in the Asset Purchase Agreement.
In
exchange for the sale of the assets, Kelley II assumed certain liabilities
of
Kelley Communication, which include, but are not limited to, the liabilities,
if
any, relating to the Obligations and Liabilities (each as defined in the
Asset
Purchase Agreement) of Kelly Communication and Siena with respect to the
sale of
Tuscany Services, LLC, with respect to that certain Settlement Agreement
dated
January 31, 2008, by and between Kelly Communication, Kelley Technologies,
LLC,
Michael Kelley, Siena, Lisa Cox, individually and as Special Administratrix
of
the Estate of Stephen L. Cox, and with respect to that certain Confession
of
Judgment entered into by the District Court, Clark County, Nevada, dated
December 1, 2008, in favor of Technology In Practice, LLC against Kelly
Communication. A complete description of the liabilities assumed is set forth
in
the Asset Purchase Agreement.
Additionally,
in exchange for the acquired assets, Kelley II assigned and transferred to
Siena
all of the Kelley Shares.
The
discussion and financial statements contained herein are for the three months
ended March 31, 2008 and March 31, 2007. The following discussion
should be read in conjunction with our financial statements and notes included
herewith.
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements that involve risks and uncertainties.
We generally use words such as “believe,” “may,” “could,” “will,” “intend,”
“expect,” “anticipate,” “plan,” and similar expressions to identify
forward-looking statements, including statements regarding our ability to
continue to create innovative technology products, our ability to continue
to
generate new business based on our sales and marketing efforts, referrals
and
existing relationships, our financing strategy and ability to access the
capital
markets and other risks discussed in our Risk Factor section included in
our
Form 10-KSB at and for the year ended December 31, 2007. Although we
believe the expectations expressed in the forward-looking statements included
in
this Form 10-Q are based on reasonable assumptions within the bounds of our
knowledge of our business, a number of factors could cause our actual results
to
differ materially from those expressed in any forward-looking statements.
We
cannot assure you that the results or developments expected or anticipated
by us
will be realized or, even if substantially realized, that those results or
developments will result in the expected consequences for us or affect us,
our
business or our operations in the way we expect. We caution readers not to
place
undue reliance on these forward-looking statements, which speak only as of
their
dates. We do not intend to update any of the forward-looking statements after
the date of this document to conform these statements to actual results or
to
changes in our expectations, except as required by law.
RESULTS
OF OPERATIONS
SALES
Sales
for
the three months ended March 31, 2008 were $0 compared to $0 for the three
months ended March 31, 2007. All operations at Kelley, COM and Network have
been discontinued. Therefore, no revenues are presented for the three months
ended March 31, 2008 and 2007. The Company had no operating entities that
were
continuing to generate revenues.
COST
OF GOODS SOLD
Cost
of
goods sold for the three months ended March 31, 2008 were $0 compared to $0
for the three months ended March 31, 2007. All operations at Kelley, COM
and Network have been discontinued. Therefore, no costs of goods sold are
presented for the three months ended March 31, 2008 and 2007. The Company
had no
operating entities that were continuing to generate revenues and costs of
goods
sold.
GROSS
PROFITS
Gross
profits for the three months ended March 31, 2008 were $0 compared to $0
for the three months ended March 31, 2007. All operations at Kelley, COM
and Network have been discontinued. Therefore, no costs of goods sold are
presented for the three months ended March 31, 2008 and 2007. The Company
had no
operating entities that were continuing to generate gross profits.
OPERATING
EXPENSES
Operating
expenses for the three months ended March 31, 2008 amounted to $145,442
compared to $174,222 for the three months ended March 31, 2007. The
decrease was primarily due to a decrease in stock option expense for the
three
months ended March 31, 2008 of $62,783 as compared to the three months
ended March 31, 2007. The Company’s former executives held a significant
number of stock options which were no longer being amortized in
2008.
OTHER
INCOME (EXPENSE)
Other
income for the three months ended March 31, 2008 was $(67,476) compared to
$1,745,616 for the three months ended March 31, 2007. The decrease in other
income is primarily due to decrease in the change in fair market value of
derivatives from $1,865,372 to $(408) for the three months ended March 31,
2008.
NET
INCOME
Net
Income for the three months ended March 31, 2008 was $(729,917) compared to
$435,154 for the three months ended March 31, 2007 due to the reasons set
forth above.
BASIC
AND DILUTED INCOME PER SHARE
Our
basic
and diluted net income per share for the three months ended March 31, 2008
and March 31, 2007 was $(0.02) and $(0.01), respectively.
LIQUIDITY
AND CAPITAL RESOURCES
As
of
March 31, 2008, our current assets were $3,569,379 and current liabilities
were $6,567,187. Cash and cash equivalents were $1,835. Our stockholders’
deficit at March 31, 2008 was ($41,464,322). We had a net usage of cash
from operating activities for the three months ended March 31, 2008 and 2007
of
($294,000) and ($2,283,002), respectively. We had a net usage of cash from
investing activities for the three months ended March 31, 2008 and 2007 of
$0 and $0, respectively. We had net cash provided by financing activities
of
$294,000 and $1,102,576 for the three months ended March 31, 2008 and 2007,
respectively.
Historically,
we have operated from a cash flow deficit funded by outside debt and equity
capital raised including funds provided by Dutchess and Preston Capital
Partners, Inc. without the continued availability of external funding, we
would
have to materially curtail our operations and plans for expansion. Our plan
to
continue operations in relation to our going concern opinion is to continue
to
secure additional equity or debt capital although there can be no guarantee
that
we will be successful in our efforts.
FINANCING
ACTIVITIES
On
January 7, 2008, January 30, 2008 and March 20, 2008, Siena issued Dutchess
promissory notes in the face amount of $126,000, $120,000 and $120,000 for
gross
proceeds of $105,000, $100,000 and $100,000. The promissory notes bear interest
at 12% per annum and mature on March 19, 2008, July 20, 2008 and September
20,
2008.
In
the
event of a default on the promissory notes issued by the Company in 2008
and for
those promissory notes issued in 2007, the holder has the right to declare
the
full and unpaid balance of the new note due and payable, and enforce each
of its
rights to convert the promissory notes into the Company's common stock at
a
discounted rate.
MATERIAL
TRENDS AND UNCERTAINTIES
Additionally,
if our fundraising efforts are unsuccessful, we may default under the terms
of
all of our loan agreements. If we default under the terms of our loan agreements
with Dutchess, James Michael Kelley or Robert Unger, the other party to such
agreement has the right to reinstate the previous terms of our loans with
that
party prior to the debt restructuring. Therefore, if we default under the
terms
of our Debt Restructuring agreements with Dutchess, James Michael Kelley
or
Robert Unger, the 5,954,000 warrants that were cancelled will be reissued,
which, if exercised could cause substantial dilution to our other shareholders.
Additionally, our Loan Restructure Agreement with Dutchess and our Loan
Restructure Agreement with Preston cancelled an aggregate of $7,675,000 face
amount of convertible debentures that had been issued to Dutchess and Preston.
If we default under the terms of these Debt Restructuring agreements, the
other
party to such agreement has the right to reinstate the terms of our loans
with
that party prior to the Debt Restructuring. Therefore, if we default under
our
Debt Restructuring agreements with Dutchess or Preston, the convertible
debentures could be reissued, which could create substantial dilution to
our
shareholders.
It
is our
intention to continue to focus our sales and marketing efforts on our core
competencies in the design and build of low voltage systems and deploy our
expertise in hi-end design, build and project management for our hotel and
casino customers, our high rise MDU customers as well as other commercial
and
residential buildings that are using “smart building technologies” similar to
those that we provide. In addition, we will continue to focus our sales efforts
on exploiting our exclusive rights to sell Techcierge™, a building amenity and
management software and our reseller rights to sell building security hardware
and software to building owners, developers and management companies. However,
there can be no assurance that we will be successful in our sales efforts,
nor
can there be any assurance given that even if we are successful in attracting
new customers, that we will be able to finance our short term capital needs or
that we will be able to deliver our services with sufficient gross margins
and
profits.
SUBSIDIARIES
As
of
March 31, 2008, we had three wholly-owned subsidiaries, Kelley
Communication Company, Inc., Com Services, Inc. and Network Installation
Corporation, all of which have been discontinued.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
applicable
ITEM
4. CONTROLS AND PROCEDURES.
As
of
May 15, 2008, management, including the Interim Chief Executive Officer,
conducted an evaluation of disclosure controls and procedures (as defined
in
Exchange Act Rule 13a-15 (e)) pursuant to Exchange Act Rules 13a-14 and
13a-15 as of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that such disclosure controls and procedures are effective. During
the
three months ended March 31, 2008, there have been no changes in internal
controls, or in factors that have materially affected, or are reasonably
likely
to materially affect, the Company’s internal controls over financial
reporting.
We
may be
involved in litigation, negotiation and settlement matters that may occur
in our
day-to-day operations. Management does not believe the implication of this
type
of litigation willhave a material impact on our financial
statements.
NONE.
NONE.
NONE.
NONE.
Exhibits.
|
|
|
No.
|
|
Description
|
31.1
|
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
31.2
|
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
|
|
|
|
32.1
|
|
Certification
of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
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.
|
SIENA
TECHNOLOGIES, INC.
(Registrant)
|
|
|
|
|
Date:
May 15, 2008
|
By:
|
|
/s/
Anthony Delise
|
|
|
|
Anthony
Delise
Interim
Chief Executive Officer
|