UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
þ |
QUARTERLY
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended June 30, 2008
OR
o |
TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from _________ to _________.
Commission
file number 000-25499
SIENA
TECHNOLOGIES, INC.
(Exact
name of small business issuer as specified in its charter)
Nevada
|
|
88-0390360
|
State
or other jurisdiction of
Incorporation
or organization
|
|
(IRS
Employer
Identification
Number)
|
|
|
|
5625
South Arville Street, Suite E,
Las
Vegas, Nevada
|
|
89118
|
(Address
of principal
executive
offices)
|
|
(Zip
Code)
|
(702)
889-8777
(Issuer’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days.
Yes
þ
No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
Accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting Company þ
|
(Do
not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)
Yes
o
No
þ
As
of
August 13, 2008 there were 42,163,691 shares of common stock issued and
outstanding, $0.001 par value.
Transitional
Small Business Disclosure Format (check one)
|
Yes
o No þ
|
SIENA
TECHNOLOGIES, INC.
TABLE
OF CONTENTS
|
|
|
Page
|
PART
I — FINANCIAL INFORMATION
|
|
1
|
|
|
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
|
1
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESOLUTS OF
OPERATION.
|
|
2
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
|
4
|
ITEM 4T.
|
CONTROLS
AND PROCEDURES
|
|
4
|
|
|
|
PART
II — OTHER INFORMATION
|
|
5
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
|
5
|
ITEM 1A.
|
RISK
FACTORS
|
|
5
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
|
5
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
|
5
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
|
5
|
ITEM
5.
|
OTHER
INFORMATION
|
|
5
|
ITEM
6.
|
EXHIBITS
|
|
6
|
|
|
|
SIGNATURE
|
|
7
|
|
|
|
CERTIFICATION
PURSUANT TO SECTION 302
|
|
|
|
|
|
CERTIFICATION
PURSUANT TO SECTION 906
|
|
|
PART
I — FINANCIAL INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
Index
to Financial Statements
|
|
F-1
|
CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited)
|
|
F-2
|
|
|
F-3
|
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,
2008
AND 2007 (Unaudited)
|
|
F-4
|
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
June
30,
2008
|
|
December
31,
2007
|
|
|
|
(Unaudited)
|
|
(Restated)
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
|
|
$
|
9,471
|
|
$
|
1,835
|
|
Current
Assets of Discontinued Operations (Note 6)
|
|
|
-
|
|
|
2,850,238
|
|
Total
Current Assets
|
|
|
9,471
|
|
|
2,852,073
|
|
TOTAL
ASSETS
|
|
$
|
9,471
|
|
$
|
2,852,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Accounts
Payable and Accrued Expenses
|
|
$
|
32,500
|
|
$
|
134,158
|
|
Current
Liabilities of Discontinued Operations (Note 6)
|
|
|
183,281
|
|
|
4,996,036
|
|
Related
Party Promissory Notes - In Default (Note 5)
|
|
|
275,094
|
|
|
-
|
|
Fair
Value of Derivatives Embedded Within Promissory Notes (Note
4)
|
|
|
835,853
|
|
|
-
|
|
Fair
Value of Derivative Liabilities (Note 4)
|
|
|
4,420
|
|
|
8,124
|
|
Total
Current Liabilities
|
|
|
1,331,148
|
|
|
5,138,318
|
|
|
|
|
|
|
|
|
|
Noncurrent
Liabilities
|
|
|
|
|
|
|
|
Note
Payable - In Default
|
|
|
400,178
|
|
|
377,727
|
|
Related
Party Note Payable - In Default (Note 5)
|
|
|
9,190,386
|
|
|
8,422,570
|
|
Total
Noncurrent Liabilities
|
|
|
9,590,564
|
|
|
8,800,297
|
|
Total
Liabilities
|
|
|
10,921,712
|
|
|
13,938,615
|
|
|
|
|
|
|
|
|
|
Commitments
& Contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
|
|
|
Common
Stock, $.001 par value; 100,000,000 shares authorized 42,163,691
shares
issued and outstanding at June 30, 2008 and December 31, 2007,
respectively
|
|
|
42,163
|
|
|
42,163
|
|
Additional
Paid-in Capital
|
|
|
29,912,212
|
|
|
29,605,537
|
|
Shares
to be Returned
|
|
|
(13,817
|
)
|
|
-
|
|
Shares
to be Issued
|
|
|
163
|
|
|
163
|
|
Accumulated
Deficit
|
|
|
(40,852,962
|
)
|
|
(40,734,405
|
)
|
Total
Stockholders’ Deficit
|
|
|
(10,912,241
|
)
|
|
(11,086,542
|
)
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
9,471
|
|
$
|
2,852,073
|
|
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Six Months Ended
June 30
|
|
Three Months Ended
June 30
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of Sales
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
Relations
|
|
|
8,079
|
|
|
110,182
|
|
|
6,709
|
|
|
38,490
|
|
Stock
Based Compensation
|
|
|
34,675
|
|
|
138,147
|
|
|
16,321
|
|
|
57,010
|
|
Other
Selling, General and Administrative Expenses
|
|
|
181,834
|
|
|
177,278
|
|
|
56,116
|
|
|
155,885
|
|
Total
Operating Expenses
|
|
|
224,588
|
|
|
425,607
|
|
|
79,146
|
|
|
251,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Continuing Operations
|
|
|
(224,588
|
)
|
|
(425,607
|
)
|
|
(79,146
|
)
|
|
(251,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in Fair Value of Derivatives
|
|
|
3,704
|
|
|
2,698,894
|
|
|
4,112
|
|
|
833,522
|
|
Changes
in Fair Value of Embedded Derivatives
|
|
|
(375,167
|
)
|
|
-
|
|
|
(375,167
|
)
|
|
-
|
|
Gain
on Disposal of Subsidiary - Kelley
|
|
|
2,150,133
|
|
|
-
|
|
|
2,150,133
|
|
|
-
|
|
Interest
Expense
|
|
|
(1,472,851
|
)
|
|
(237,450
|
)
|
|
(1,405,783
|
)
|
|
(117,694
|
)
|
Total
Other Income
|
|
|
305,819
|
|
|
2,461,444
|
|
|
373,295
|
|
|
715,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income From Continuing Operations
|
|
|
81,231
|
|
|
2,035,837
|
|
|
294,149
|
|
|
464,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Income from Discontinued Operations
|
|
|
(199,788
|
)
|
|
(2,207,071
|
)
|
|
317,211
|
|
|
(1,070,831
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for Income Taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income
|
|
$
|
(118,557
|
)
|
$
|
(171,234
|
)
|
$
|
611,360
|
|
$
|
(606,388
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Net (Loss) Income Per Common Share
|
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
0.01
|
|
$
|
(0.02
|
)
|
Number
of Common Shares Used to Compute Basic and Diluted Weighted
Average
|
|
|
42,163,691
|
|
|
39,942,075
|
|
|
42,163,691
|
|
|
40,396,633
|
|
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six Months Ended
June 30,
|
|
|
|
2008
|
|
2007
|
|
CASH
USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(118,557
|
)
|
$
|
(171,234
|
)
|
Adjustments
to Reconcile Net Income to Net Cash Used in Operating
Activities
|
|
|
|
|
|
-
|
|
Stock
Issued for Services
|
|
|
-
|
|
|
40,000
|
|
Liquidated
Damages Incurred Upon Default on Promissory Notes
|
|
|
60,196
|
|
|
-
|
|
Beneficial
Conversion Feature
|
|
|
272,000
|
|
|
-
|
|
Amortization
of Debt Discount
|
|
|
167,089
|
|
|
-
|
|
Fair
Value Adjustments of Derivative Liabilities
|
|
|
371,463
|
|
|
(2,698,894
|
)
|
Fair
Value of Derivative Liabilities in Excess of Proceeds,
Expensed
|
|
|
195,686
|
|
|
-
|
|
Stock
Based Compensation
|
|
|
34,675
|
|
|
138,147
|
|
Gain
on Divestiture of Kelley
|
|
|
(2,150,133
|
)
|
|
-
|
|
Accretion
of Notes Payable Balances
|
|
|
838,076
|
|
|
64,623
|
|
Changes
in Operating Assets and Liabilities
|
|
|
|
|
|
-
|
|
(Increase)
Decrease Current Assets of Discontinued Operations
|
|
|
-
|
|
|
508,871
|
|
(Decrease)
Increase in Accounts Payable and Accrued Expenses
|
|
|
72,141
|
|
|
-
|
|
(Decrease)
in Current Liabilities of Discontinued Operations
|
|
|
-
|
|
|
1,052,092
|
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(257,364
|
)
|
|
(1,066,395
|
)
|
|
|
|
|
|
|
|
|
CASH
PROVIDED BY FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
Proceeds from Issuance of Stock
|
|
|
-
|
|
|
1,132,000
|
|
Proceeds
from Promissory Notes
|
|
|
265,000
|
|
|
-
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
265,000
|
|
|
1,132,000
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH & CASH EQUIVALENTS
|
|
|
7,636
|
|
|
65,605
|
|
BEGINNING
CASH & CASH EQUIVALENTS
|
|
|
1,835
|
|
|
7,808
|
|
ENDING
CASH & CASH EQUIVALENTS
|
|
$
|
9,471
|
|
$
|
73,413
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
Cash
Paid for Interest
|
|
$
|
-
|
|
$
|
261,458
|
|
Cash
Paid for Income Taxes
|
|
$
|
-
|
|
$
|
-
|
|
Stock
Issued for Services and Debt Reduction.
|
|
$
|
-
|
|
$
|
40,000
|
|
Accrued
Commissions in Connection with Private Placement
|
|
$
|
-
|
|
$
|
10,000
|
|
Assets
Contributed to Tuscany Services LLC in Exchange for Joint Venture
Interest
|
|
$
|
-
|
|
$
|
375,000
|
|
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
NOTES TO THE FINANCIAL STATEMENTS
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
NOTE
1 - DESCRIPTION OF BUSINESS
On
October 25, 2006, Network Installation Corp. (“NIC”) changed its name to Siena
Technologies, Inc. (together with its two wholly owned subsidiaries, the
“Company”). The Company was incorporated on March 24, 1998 under the laws of the
state of Nevada. The Company has two wholly owned subsidiaries, Com Services,
Inc. (“COM”) and Network Installation Corporation (“Network”), both of which are
no longer operating. The Company’s third subsidiary, Kelley Communication
Company, Inc. (“Kelley”) was sold on March 17, 2008.
Control
by Principal Stockholders
The
Company’s directors, executive officers and their affiliates or related parties,
own beneficially and in the aggregate, the majority of the voting power of
the
outstanding shares of the common stock of the Company. Accordingly, the
directors, executive officers and their affiliates, if they voted their shares
uniformly, would have the ability to control the approval of most corporate
actions, including increasing the authorized capital stock of the Company and
the dissolution, merger or sale of the Company’s assets or
business.
NOTE
2 – BASIS OF PRESENTATION
The
accompanying consolidated financial statements include the accounts of the
Company and its 100% owned subsidiaries, COM and Network. 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, as amended, for the year ended December 31, 2007, filed with the
Securities and Exchange Commission on April 28, 2008. 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.
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS (cont’d)
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
Reclassifications
The
Company has made certain reclassifications to the 2007 financial statements
herein, in order for the 2007 financial results to be comparable to the 2008
financial statements. The reclassifications did not impact total assets, total
liabilities, total stockholders’ deficit or net income for 2007.
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 fair value
of
embedded derivatives, and the fair value of common stock issued for services.
Actual results could differ from those estimates.
NOTE
3 - GOING CONCERN
The
accompanying consolidated financial statements have been prepared in conformity
with US GAAP, which contemplates continuation of the Company as a going concern.
However, the Company has an accumulated deficit of ($40,852,962), 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 continue raising funds
from
Dutchess Private Equities II, LP, or its related entities (collectively,
“Dutchess”). The Company is fully dependent on Dutchess for its financing needs
and does not expect financing from other sources to become available in the
near
future. Dutchess is not under any commitment to continue funding the
Company.
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, 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 and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS (cont’d)
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
NOTE
4 – EMBEDDED DERIVATIVES AND DERIVATIVE LIABILITIES
The
fair
market value of embedded derivative liabilities consisted of the
following:
|
|
June 30,
2008
|
|
December 31,
2007
|
|
Derivatives
embedded within promissory note dated December 19, 2007, initial
value
|
|
$
|
218,400
|
|
$
|
-
|
|
Cumulative
adjustments to record fair market value of embedded
derivative
|
|
|
118,121
|
|
|
-
|
|
Subtotal
|
|
|
336,521
|
|
|
-
|
|
Derivatives
embedded within promissory note dated March 26, 2008, initial
value
|
|
|
160,000
|
|
|
-
|
|
Cumulative
adjustments to record fair market value of embedded
derivative
|
|
|
129,032
|
|
|
-
|
|
Subtotal
|
|
|
289,032
|
|
|
-
|
|
Derivatives
embedded within promissory note dated May 27, 2008, initial
value
|
|
|
82,286
|
|
|
-
|
|
Cumulative
adjustments to record fair market value of embedded
derivative
|
|
|
128,014
|
|
|
-
|
|
Subtotal
|
|
|
210,300
|
|
|
-
|
|
Total
|
|
$
|
835,853
|
|
$
|
-
|
|
The
fair
market value of derivative liabilities consisted of the following:
|
|
June 30,
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
|
)
|
|
(1,491,657
|
)
|
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
|
|
|
(729,351
|
)
|
|
(729,098
|
)
|
Subtotal
|
|
|
469
|
|
|
722
|
|
Derivative
liability, warrants related to private placement on January 23, 2007,
initial value
|
|
|
1,045,182
|
|
|
1,045,182
|
|
Cumulative
adjustment to record fair market value of derivative
liability
|
|
|
(1,044,098
|
)
|
|
(1,043,539
|
)
|
Subtotal
|
|
|
1,084
|
|
|
1,643
|
|
Derivative
liability, warrants related to Dutchess debt financing on July
17, 2007,
initial value
|
|
|
30,000
|
|
|
30,000
|
|
Adjustment
to record fair market value of derivative liability
|
|
|
(27,133
|
)
|
|
(30,000
|
)
|
Subtotal
|
|
|
2,867
|
|
|
-
|
|
Total
|
|
$
|
4,420
|
|
$
|
8,124
|
|
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS (cont’d)
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
NOTE
5 - RELATED PARTY TRANSACTIONS
Note
Payable - Dutchess (In Default)
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 was added to the then outstanding principal amount of the promissory
note dated June 30, 2006, in the principal amount of $6,254,960 (the “Original
Note”). The Original Note was cancelled and a new noted was issued in the
aggregate amount of approximately $8,384,726 (the “New Note”). Further, pursuant
to the July 2007 Agreement, Dutchess has 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 (as defined below) 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.
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 cents ($0.04)
per share (the “Warrant”) (see Note 4 herein). 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”), pursuant to which the Company agreed to 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 July 2007 Agreement, the Company paid Dutchess’ closing
costs of $50,000.
The
New
Note is currently in default and 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.
Promissory
Notes Payable - Dutchess (In Default)
On
December 19, 2007, the Company issued a promissory note to Dutchess for
$126,000. The Company received proceeds from this transaction of $105,000.
The
promissory note bears interest at 12% annually. The promissory note is currently
in default.
On
March
26, 2008, the Company issued a promissory note to Dutchess for $120,000. The
Company received proceeds from this transaction of $100,000. The promissory
note
bears interest at 12% annually. The promissory note is currently in
default.
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS (cont’d)
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
On
May
27, 2008, the Company issued a promissory note to Dutchess for $72,000. The
Company received proceeds from this transaction of $60,000. The promissory
note
bears interest at 12% annually. The promissory note is currently in
default.
NOTE
6 - DISCONTINUED OPERATIONS
On
March
17, 2008, the Company determined it would dispose or sell the assets and
liabilities associated with its subsidiary, 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 Kelley.
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 was experiencing cash flow shortages, in addition
to
the fact that these businesses were not consistent with the core business of
the
Company’s then 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 June 30, 2008 and
December 31, 2007 consist of the following:
|
|
June
30,
2008
|
|
December 31,
2007
|
|
Assets of
discontinued operations
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
$
|
375,959
|
|
Accounts
receivable, net
|
|
|
-
|
|
|
1,207,544
|
|
Inventory
|
|
|
-
|
|
|
903,196
|
|
Fixed
assets, net
|
|
|
-
|
|
|
167,660
|
|
Other
Assets
|
|
|
-
|
|
|
195,879
|
|
Total
assets
|
|
$
|
-
|
|
$
|
2,850,238
|
|
Liabilities
of discontinued operations
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
-
|
|
$
|
1,787,965
|
|
Notes
Payable
|
|
|
-
|
|
|
1,795,171
|
|
Other
Liabilities
|
|
|
183,281
|
|
|
1,412,900
|
|
Total
liabilities
|
|
|
183,281
|
|
|
4,996,036
|
|
Net
liabilities of discontinued operations
|
|
$
|
183,281
|
|
$
|
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”)
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS (cont’d)
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
Loss
from
discontinued operations in the Company’s Statements
of Operations
consists
of:
|
|
Six
Months Ended
June
30
|
|
|
|
2008
|
|
2007
|
|
Sales
|
|
$
|
4,743,704
|
|
$
|
2,793,506
|
|
Cost
of Goods sold
|
|
|
3,347,346
|
|
|
1,882,142
|
|
Gross
Profit
|
|
|
1,369,358
|
|
|
911,364
|
|
Salaries
|
|
|
831,938
|
|
|
1,961,219
|
|
Contingency
accrual
|
|
|
100,000
|
|
|
-
|
|
Interest
expense
|
|
|
52,807
|
|
|
118,614
|
|
Other
|
|
|
584,401
|
|
|
1,038,602
|
|
Loss
from Discontinued Operations
|
|
$
|
(199,788
|
)
|
$
|
(2,207,071
|
)
|
NOTE
7 - COMMITMENTS & CONTINGENCIES
The
Company may be involved in litigation, negotiation and settlement matters that
may occur as part of the Company’s day-to-day operations. However, there are no
pending, nor to Management’s knowledge threatened, legal proceedings against the
Company.
The
Company was obligated to pay its former Chief Executive Officer and its former
Chief Financial Officer severance as a result of separation agreements dated
May
25, 2007. The Company made the final payments under these agreements on July
14,
2008. No further amounts are due to the Company’s former officers.
NOTE
8 - BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Net
income (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 the Company’s net losses.
Warrants,
which will have an anti-dilutive effect on the net loss per common share once
exercised, to purchase 18,110,895 and 16,710,895 shares of common stock
remained outstanding as of June 30, 2008 and 2007, respectively, at strike
prices that vary from $0.01 to $0.60 and $0.01 to $0.88 per share,
respectively.
The
Dutchess and Preston notes payable, which were restructured by the Company
during 2007 and 2006, remained outstanding as of June 30, 2008. The notes
payable carry certain provisions allowing for Dutchess and Preston to void
the
restructured transactions in the event of default by the Company. In the event
of default and the removal of the restructured terms of the notes payable,
the
notes payable 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 these
outstanding debts would potentially be convertible into approximately
1,827,000,000 shares of the Company’s common stock using the fair market value
of the Company’s common stock as of June 30, 2008. There are other restrictions
within the terms of the agreements with Dutchess and Preston which might limit
the amount of shares the outstanding debts are convertible into, in this
scenario, but the Company cannot be sure those terms will limit a conversion
into a significant number of shares of the Company’s common
stock.
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS (cont’d)
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
The
Dutchess promissory notes discussed in Note 5 are in default and potentially
convertible at a 50% discount to the fair market value of the Company's common
stock. As of June 30, 2008, the promissory notes are convertible into
approximately 112,000,000 shares of the Company's common stock.
NOTE
9 – DIVESTITURE OF KELLEY
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 Kelley pursuant to the terms of a certain asset purchase agreement by
and among the Company, Kelley, Mr. James Michael Kelley, and Kelley II, LLC,
a
newly formed Nevada limited liability company (“Kelley II”), which was executed
by the Company on April 7, 2008, and filed as Exhibit 10.1 to the Company’s
Current Report on Form 8-K, filed with the Securities and Exchange Commission
on
April 9, 2008 (the “Asset Purchase Agreement”).
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 the Company’s capital
stock owned by Kelley II (the “Kelley Shares”). He is also a former director,
who served on the Company’s Board of Directors from September 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.
Pursuant
to the Asset Purchase Agreement the Company agreed to sell certain of Kelley’s
assets to Kelley II, including, but not limited to, all equipment, all rights
of
Kelley against vendors, all customer lists, files and related information,
all
inventory, all rights of Kelley under certain contracts, all permits, all
intellectual property of Kelley, 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 Kelley’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, 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 Kelley and the Company with respect to the sale of Tuscany
Services, LLC, with respect to that certain Settlement Agreement dated January
31, 2008, by and between Kelley, Kelley Technologies, LLC, Michael Kelley,
the
Company, 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 Kelley Communication. A complete
description of the liabilities assumed is set forth in the Asset Purchase
Agreement.
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS (cont’d)
FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(Unaudited)
Additionally,
in exchange for the acquired assets, Kelley II assigned and transferred to
the
Company all of the Kelley Shares.
The
sale
of Kelley was completed on June 26, 2008.
ITEM 2. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS FINANCIAL CONDITION AND RESULTS OF
OPERATION.
|
The
discussion and financial statements contained herein are for the six months
ended June 30, 2008 and June 30, 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, as amended, for the year ended December 31, 2007, as filed with
the
Securities and Exchange Commission on April 28, 2008. 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.
SIX
MONTH PERIOD ENDED JUNE 30, 2008 AS COMPARED TO THE SIX MONTH PERIOD ENDED
JUNE
30, 2007, AS RESTATED
RESULTS
OF OPERATIONS
SALES
AND COSTS OF GOODS SOLD
Sales
and
costs of good sold for the six months ended June 30, 2008 were $0 as compared
to
$0 for the six months ended June 30, 2007. All operations at Kelley, COM and
Network have been discontinued. Therefore, no revenues or costs of goods sold
are presented for the six months ended June 30, 2008 and 2007. The results
of
Kelley, COM and Network are included within discontinued operations in the
statement of operations.
OPERATING
EXPENSES
Operating
expenses for the six months ended June 30, 2008 amounted to $224,588 as compared
to $425,607 for the six months ended June 30, 2007. This decrease was primarily
attributable to a decrease in stock option expense for the six months ended
June
30, 2008 of $103,472 as compared to the six months ended June 30, 2007. Our
former executives held a significant number of stock options which were no
longer being amortized in 2008.
OTHER
INCOME (EXPENSE)
Other
income for the six months ended June 30, 2008 was $305,819 as compared to
$2,461,444 for the six months ended June 30, 2007. The decrease in other income
is primarily due to decrease in the fair market value of derivatives from
$2,698,894 to $371,463 for the six months ended June 30, 2008 as compared to
the
six months ended June 30, 2007 period.
NET
INCOME
Net
loss
for the six months ended June 30, 2008 was $118,557 as compared to $171,234
for
the six months ended June 30, 2007 due to the reasons set forth
above.
BASIC
AND DILUTED INCOME PER SHARE
Our
basic
and diluted net income per share was $0.00 for the six months ended June 30,
2008 and June 30, 2007.
LIQUIDITY
AND CAPITAL RESOURCES
As
of
June 30, 2008, our current assets were $9,471 and current liabilities were
$1,331,148. Cash and cash equivalents were $9,471. Our stockholders’ deficit at
June 30, 2008 was $40,852,962. We had a net usage of cash for operating
activities for the six months ended June 30, 2008 and 2007 of $257,634 and
$1,066,395, respectively. We had net cash provided by financing activities
of
$265,000 and $1,132,000 for the six months ended June 30, 2008 and 2007,
respectively.
Historically,
we have operated from a cash flow deficit funded by the issuance of debt and
the
sale of equity, including funding provided by Dutchess. Without the continued
availability of external funding, we would have to materially curtail our
operations and plans for expansion. We intend to continue funding our operations
through the sale of additional equity and/or issuance of debt. Though there
can
be no guarantee that we will be successful in our efforts.
FINANCING
ACTIVITIES
On
December 19, 2007, March 26, 2008 and May 27, 2008, we issued to Dutchess
promissory notes in the amount of $126,000, $120,000 and $72,000 for proceeds
to
us of $105,000, $100,000 and $60,000. The promissory notes bear interest at
12%
per annum and mature on March 19, 2008, September 26, 2008 and December 27,
2008, respectively.
We
are in
a default on the promissory notes issued to Dutchess. Dutchess has the right
to
declare the full and unpaid balance of the December 19, 2007, March 26, 2008
and
May 27, 2008 promissory notes, together with the New Note due and payable,
and
enforce its rights to convert the promissory notes into our common stock at
a
discounted rate.
MATERIAL
TRENDS AND UNCERTAINTIES
We
are
not a shell company. Should our cash flow shortfalls continue, and should we
be
unsuccessful in raising capital, it will have an adverse impact, which will
have
an adverse impact on our financial condition and results of operations. While
we
are actively assessing our cash flow needs and pursuing multiple avenues of
financing and cash flow generation, there can be no assurance that our
activities will be successful. If our fundraising efforts are not successful,
it
is likely that we will not be able to meet our obligations as they come
due.
Additionally,
we are currently in default on a note payable to Dutchess of approximately
$9,200,000, a note payable to Preston of $400,000 and our additional Dutchess
promissory notes, which upon maturity will total over $400,000, including
interest accrued and liquidated damages, assessed and which are likely to
continue to accrue. Dutchess and Preston are now able to reinstate the previous
terms of the debt which was included in the debt restructuring completed as
of
June 30, 2006. As a result of being in default under the terms of our debt
restructuring transaction with Dutchess, the 5,954,000 warrants that were
cancelled on June 30, 2006 may 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. These convertible
debts
could be reissued with the same terms which had been in effect prior to the
restructuring. The convertible debts had substantially different terms than
the
notes payable and could result in a substantial number of common shares being
potentially issuable to Dutchess and Preston, should Dutchess or Preston proceed
to reinstate these convertible debts. Lastly, upon default, the promissory
notes
issued to Dutchess include liquidated damages and also allow for conversion
to
common stock at preferential rates. All shares of our issued and outstanding
common stock are subject to dilution as a result of defaults on our obligations
to Dutchess and Preston.
SUBSIDIARIES
As
of
June 30, 2008, we had two wholly owned subsidiaries, COM and Network, both
of
which are no longer operating.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable
ITEM
4T. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
We
conducted an evaluation under the supervision and with the participation of
our
management, including our Chief Executive Officer (who is also our principal
accounting officer and principal financial officer), of the effectiveness of
the
design and operation of our disclosure controls and procedures. The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”), means controls and other procedures of a company that are
designed to ensure that information required to be disclosed by the company
in
the reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities
and
Exchange Commission’s rules and forms. Disclosure controls and procedures also
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by a company in the reports that it files
or submits under the Exchange Act is accumulated and communicated to the
company’s management, including its principal executive and principal financial
officers, or persons performing similar functions, as appropriate, to allow
timely decisions regarding required disclosure. Based on this evaluation, our
Chief Executive Officer (who is also the principal accounting officer and
principal financial officer) concluded as of June 30, 2008 that there were
no
matters which would result in more than a remote likelihood that a material
misstatement of the quarterly financial statements would not have been prevented
or detected.
Changes
in Internal Control over Financial Reporting
No
change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended
June 30, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II — OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
We
may be
involved in litigation, negotiation and settlement matters that may occur in
our
day-to-day operations. However, there are no pending, nor to our knowledge
threatened, legal proceedings against us.
ITEM
1A. RISK
FACTORS
Not
applicable.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
We
are
currently in default on four promissory notes due to Dutchess, and a note
payable due to Preston (please see Note 5 to our financial
statements).
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5. OTHER
INFORMATION
None.
ITEM
6. EXHIBITS
Exhibits
No.
|
Description
|
31.1
|
Certification
of Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
|
|
|
32.1
|
Certification
of Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|
SIGNATURE
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:
August 14, 2008
|
|
By:
|
|
/s/
Michael Novielli
|
|
|
|
|
Michael
Novielli
Interim
Chief Executive Officer, Principal Financial Officer and Principal
Accounting Officer
|
EXHIBIT
INDEX
Exhibits
No.
|
Description
|
31.1
|
Certification
of Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002, filed herewith.
|
|
|
32.1
|
Certification
of Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed
herewith.
|