UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
o
|
|
QUARTERLY
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2008
o
|
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
OR
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
|
(IRS
Employer
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Incorporation
or organization
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Identification
Number)
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|
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1110
Route 55, Suite 206 LaGrangeville, New York
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12540
|
(Address
of principal executive offices)
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(Zip
Code)
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(845) 575-6670
(Issuer’s
telephone number, including area code)
5625
South Arville Street, Suite E
Las
Vegas, Nevada, 89118
(Former
name, former address and former fiscal year, if changed)
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 R
No
£
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
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£
|
Accelerated
filer
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£
|
|
|
|
|
|
|
Non-accelerated
filer
|
£
|
Smaller
reporting Company
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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
£
No
R
APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate
by check mark whether the registrant filed all documents and reports required
to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes
£
No
£
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
28,347,114
common shares outstanding as of October 3, 2008.
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 September 30, 2008 (Unaudited) and
December 31, 2007
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4
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Unaudited
Consolidated Statements of Operations for the Nine and Three Months
Ended
September 30, 2008 and September 30, 2007, as restated
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5
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Unaudited
Consolidated Statements of Cash Flows for the Nine Months Ended
September
30, 2008 and September 30, 2007.
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6
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Notes
to Consolidated Financial Statements
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7
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Item 2
— Management’s Discussion and Analysis or Plan of
Operation
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16
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Item 3
— Quantitative and Qualitative Disclosures About Market
Risk
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18
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Item
4 --- Controls and Procedures
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18
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Part
II — Other Information
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19
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Item 1
— Legal Proceedings
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Item 2
— Unregistered Sales of Equity Securities and Use of
Proceeds
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Item 3
— Defaults Upon Senior Securities
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Item 4
— Submission of Matters to a Vote of Security Holders
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Item 5
— Other Information
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Item 6
—Exhibits
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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
Index
to Financial Statements
CONSOLIDATED
BALANCE SHEETS
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|
F-4
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CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited)
|
|
F-5
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CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
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F-6
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CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER
30,
2008 AND 2007 (Unaudited)
|
|
F-7
|
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
September
30,
2008
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|
December
31,
2007
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|
|
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(Unaudited)
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(Audited)
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|
ASSETS
|
|
|
|
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Current
Assets
|
|
|
|
|
|
Cash
|
|
$
|
15,818
|
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$
|
1,835
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|
Current
Assets of Discontinued Operations (Note 6)
|
|
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—
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2,850,238
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Total
Current Assets
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2,852,073
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TOTAL
ASSETS
|
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$
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15,818
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$
|
2,852,073
|
|
|
|
|
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Current
Liabilities
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|
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|
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Accounts
Payable and Accrued Expenses
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$
|
81,487
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$
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134,158
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|
Current
Liabilities of Discontinued Operations (Note 6)
|
|
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144,368
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|
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4,996,036
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Related
Party Promissory Notes - In Default (Note 5)
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435,863
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|
|
|
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Fair
Value of Derivatives Embedded Within Promissory Notes (Note
4)
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873,336
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|
|
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Fair
Value of Derivative Liabilities (Note 4)
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|
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2,341
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|
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8,124
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Note
Payable - In Default
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|
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407,222
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377,727
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Related
Party Note Payable (Note 5)
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9,422,066
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8,422,570
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Total
Current Liabilities
|
|
|
11,366,683
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13,938,615
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|
|
|
|
|
|
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Total
Liabilities
|
|
|
11,366,683
|
|
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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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|
|
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Common
Stock, $.001 par value; 100,000,000 shares authorized, 28,347,114
and
42,163,691 shares issued and outstanding at September 30, 2008
and
December 31, 2007, respectively
|
|
|
28,347
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|
|
42,163
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|
Additional
Paid-in Capital
|
|
|
29,987,211
|
|
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29,605,537
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|
Shares
to be Issued
|
|
|
163
|
|
|
163
|
|
Accumulated
Deficit
|
|
|
(41,366,586
|
)
|
|
(40,734,405
|
)
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Total
Stockholders’ Deficit
|
|
|
(11,350,865
|
)
|
|
(11,086,542
|
)
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
15,818
|
|
$
|
2,852,073
|
|
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Nine
Months Ended
September
30
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|
Three
Months Ended
September
30
|
|
|
|
2008
|
|
2007
|
|
2008
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|
2007
|
|
Revenues
|
|
$
|
—
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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Costs
of Sales
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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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|
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Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
Relations
|
|
|
23,491
|
|
|
182,077
|
|
|
5,000
|
|
|
71,895
|
|
Stock
Based Compensation
|
|
|
34,675
|
|
|
172,454
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|
|
|
|
|
34,307
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|
Other
Selling, General and Administrative Expenses
|
|
|
323,151
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|
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339,453
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|
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151,729
|
|
|
162,175
|
|
Total
Operating Expenses
|
|
|
381,317
|
|
|
693,984
|
|
|
156,729
|
|
|
268,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Continuing Operations
|
|
|
(381,317
|
)
|
|
(693,984
|
)
|
|
(156,729
|
)
|
|
(268,377
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other
Income and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in Fair Value of Derivatives
|
|
|
5,783
|
|
|
2,553,030
|
|
|
2,079
|
|
|
(145,864
|
)
|
Changes
in Fair Value of Embedded Derivatives
|
|
|
97,350
|
|
|
|
|
|
472,517
|
|
|
|
|
Gain
on Disposal of Subsidiary - Kelley
|
|
|
2,150,133
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
(2,304,342
|
)
|
|
(363,870
|
)
|
|
(831,491
|
)
|
|
(126,420
|
)
|
Total
Other Income
and Expenses
|
|
|
(51,076
|
)
|
|
2,189,160
|
|
|
(356,895
|
)
|
|
(272,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income From Continuing Operations
|
|
|
(432,393
|
)
|
|
1,495,176
|
|
|
(513,624
|
)
|
|
(540,661
|
)
|
Loss
From Discontinued Operations
|
|
|
(199,788
|
)
|
|
(2,266,398
|
)
|
|
|
|
|
(258,463
|
)
|
Provision
for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(632,181
|
)
|
$
|
(771,222
|
)
|
$
|
(513,624
|
)
|
$
|
(799,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Net (Loss) Income Per Common Share
|
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
Number
of Common Shares Used to Compute Basic and Diluted Weighted
Average
|
|
|
37,625,399
|
|
|
39,942,075
|
|
|
28,647,474
|
|
|
42,636,991
|
|
The
Accompanying Notes Are an Integral Part of these Consolidated Financial
Statements
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended
Sept
30,
|
|
|
|
2008
|
|
2007
|
|
CASH
USED IN OPERATING ACTIVITIES
|
|
|
|
|
|
Net
Loss
|
|
$
|
(632,181
|
)
|
$
|
(771,222
|
)
|
Adjustments
to Reconcile Net Income to Net Cash Used in Operating
Activities
|
|
|
|
|
|
|
|
Stock
Issued for Services
|
|
|
|
|
|
30,000
|
|
Liquidated
Damages Incurred Upon Default on Promissory Notes
|
|
|
103,198
|
|
|
|
|
Beneficial
Conversion Feature
|
|
|
347,000
|
|
|
|
|
Amortization
of Debt
Discount |
|
|
253,032
|
|
|
—
|
|
Fair
Value Adjustments of Derivative Liabilities
|
|
|
(5,783
|
)
|
|
(2,553,030
|
)
|
Fair
Value Adjustments of Embedded Derivative Liabilities
|
|
|
(97,350
|
)
|
|
|
|
Fair
Value of Derivative Liabilities in Excess of Proceeds,
Expensed
|
|
|
595,686
|
|
|
|
|
Stock
Option Expense
|
|
|
34,675
|
|
|
172,454
|
|
Gain
on Divestiture of Kelley
|
|
|
(2,150,133
|
)
|
|
|
|
Accretion
of Notes Payable Balances
|
|
|
1,108,624
|
|
|
262,306
|
|
Changes
in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
(Increase)
Decrease Current Assets of Discontinued Operations
|
|
|
|
|
|
1,045,085
|
|
(Decrease)
Increase in Accounts Payable and Accrued Expenses
|
|
|
82,215
|
|
|
|
|
(Decrease)
in Current Liabilities of Discontinued Operations
|
|
|
|
|
|
(843,891
|
)
|
NET
CASH USED IN OPERATING ACTIVITIES
|
|
|
(361,017
|
)
|
|
(2,658,297
|
)
|
|
|
|
|
|
|
|
|
CASH
PROVIDED BY FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
Proceeds from Issuance of Stock
|
|
|
|
|
|
1,132,000
|
|
Repayment
of Related Party Notes Payable
|
|
|
|
|
|
(597,641
|
)
|
Proceeds
from Related Party Promissory Notes
|
|
|
375,000
|
|
|
|
|
Proceeds
from Related Party Notes Payable
|
|
|
|
|
|
2,155,985
|
|
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
375,000
|
|
|
2,690,344
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH & CASH EQUIVALENTS
|
|
|
13,983
|
|
|
32,047
|
|
BEGINNING
CASH & CASH EQUIVALENTS
|
|
|
1,835
|
|
|
7,808
|
|
ENDING
CASH & CASH EQUIVALENTS
|
|
$
|
15,818
|
|
$
|
39,855
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
Cash
Paid for Interest
|
|
$
|
|
|
$
|
261,458
|
|
Cash
Paid for Income Taxes
|
|
$
|
|
|
$
|
|
|
Stock
Issued for Services and Debt Reduction.
|
|
$
|
|
|
$
|
30,000
|
|
Accrued
Commissions in Connection with Private Placement
|
|
$
|
|
|
$
|
32,500
|
|
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 NINE MONTHS ENDED SEPTEMBER 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 net assets of the Company’s third subsidiary, Kelley
Communication Company, Inc. (“Kelley”) was sold on April 7, 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, if voting
their respective shares uniformly, the directors, executive officers and their
affiliates 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
FOR
THE NINE MONTHS ENDED SEPTEMBER 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 loss 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.
FAIR
VALUE MEASUREMENTS
Effective
January 1, 2008, we adopted SFAS 157, Fair Value Measurements (SFAS 157). SFAS
157 clarifies the definition of fair value, prescribes methods for measuring
fair value, and establishes a fair value hierarchy to classify the inputs used
in measuring fair value as follows:
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets
or
liabilities available at the measurement date.
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities
in
markets that are not active, inputs other then quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing
the
asset or liability based on the best available information.
The
adoption of SFAS No. 157 did not have a material impact on our fair value
measurements.
The
following tables present our assets and liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value hierarchy.
The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value.
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
Description
|
|
September
30, 2008
|
|
Quoted
Prices in Active Markets for Identical Assets (Level 1)
|
|
Significant
Other Observable Inputs (Level 2)
|
|
Significant
Unobservable Inputs (Level 3)
|
|
Liabilities
- Warrants
|
|
$
|
2,341
|
|
$
|
2,341
|
|
$
|
—
|
|
$
|
—
|
|
Liabilities
- Conversion Options
|
|
|
873,336
|
|
|
873,336
|
|
|
—
|
|
|
—
|
|
Total
Liabilities
|
|
$
|
875,677
|
|
$
|
875,677
|
|
$
|
—
|
|
$
|
—
|
|
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
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 ($41,366,586), 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 Fund, Ltd, 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 to provide funding
to
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
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
NOTE
4 - EMBEDDED DERIVATIVES AND DERIVATIVE LIABILITIES
The
fair
market value of embedded derivative liabilities consisted of the
following:
|
|
September
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
|
|
|
60,712
|
|
|
—
|
|
Subtotal
|
|
|
279,112
|
|
|
—
|
|
Derivatives
embedded within promissory note dated March 26, 2008, initial
value
|
|
|
160,000
|
|
|
—
|
|
Cumulative
adjustments to record fair market value of embedded
derivative
|
|
|
80,196
|
|
|
—
|
|
Subtotal
|
|
|
240,196
|
|
|
—
|
|
Derivatives
embedded within promissory note dated May 27, 2008, initial
value
|
|
|
82,286
|
|
|
—
|
|
Cumulative
adjustments to record fair market value of embedded
derivative
|
|
|
50,879
|
|
|
—
|
|
Subtotal
|
|
|
133,165
|
|
|
—
|
|
Derivatives
embedded within promissory note dated August 15, 2008, initial
value
|
|
|
480,000
|
|
|
—
|
|
Cumulative
adjustments to record fair market value of embedded
derivatives
|
|
|
(277,221
|
)
|
|
—
|
|
Subtotal
|
|
|
202,779
|
|
|
—
|
|
Derivatives
embedded within promissory note dated September 16, 2008, initial
value
|
|
|
30,000
|
|
|
—
|
|
Cumulative
adjustments to record fair market value of embedded
derivatives
|
|
|
(11,916
|
)
|
|
—
|
|
Subtotal
|
|
|
18,084
|
|
|
—
|
|
Total
|
|
$
|
873,336
|
|
$
|
—
|
|
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
The
fair
market value of derivative liabilities consisted of the following:
|
|
September
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
|
|
|
(729,615
|
)
|
|
(729,098
|
)
|
Subtotal
|
|
|
205
|
|
|
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,
657
|
)
|
|
(1,043,539
|
)
|
Subtotal
|
|
|
525
|
|
|
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
|
|
|
(28,389
|
)
|
|
(30,000
|
)
|
Subtotal
|
|
|
1,611
|
|
|
—
|
|
Total
|
|
$
|
2,341
|
|
$
|
8,124
|
|
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, the total number of which 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 an aggregate of 3,000,000 shares of the Company’s common stock at a
purchase price of four cent ($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 identified in the Amended Security Agreement.
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
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.
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.
On
August
15, 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.
On
September 16, 2008, the Company issued a promissory note to Dutchess for
$12,000. The Company received proceeds from this transaction of $10,000. 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.
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
The
net
assets and liabilities of the discontinued operations at September 30, 2008
and
December 31, 2007 consist of the following:
|
|
September
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
|
|
|
144,368
|
|
|
1,412,900
|
|
Total
liabilities
|
|
|
144,368
|
|
|
4,996,036
|
|
Net
liabilities of discontinued operations
|
|
$
|
144,368
|
|
$
|
2,145,798
|
|
The
Company ceased all depreciation of Kelley’s fixed assets as of March 17, 2008,
in accordance with Financial Accounting Standards Board No.144. (“FASB
144”)
Loss
from
discontinued operations in the Company’s Statements
of Operations
consists
of:
|
|
Nine
Months Ended
September
30
|
|
|
|
2008
|
|
2007
|
|
Sales
|
|
$
|
4,743,704
|
|
$
|
5,032,524
|
|
Cost
of Goods sold
|
|
|
3,347,346
|
|
|
3,534,070
|
|
Gross
Profit
|
|
|
1,396,358
|
|
|
1,498,454
|
|
Salaries
|
|
|
831,938
|
|
|
2,325,181
|
|
Interest
expense
|
|
|
52,807
|
|
|
205,413
|
|
Other
|
|
|
711,401
|
|
|
1,234,258
|
|
Loss
from Discontinued Operations
|
|
$
|
(199,788
|
)
|
$
|
(2,266,398
|
)
|
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, are there any threatened legal
proceedings against the Company.
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
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 Chief Executive Officer
and Chief Financial Officer.
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 23,942,145 and 16,710,895 shares of common stock remained
outstanding as of September 30, 2008 and 2007, respectively, at strike prices
that vary from $0.01 to $0.79 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 September 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 that these
outstanding debts would potentially be convertible into approximately
2,184,000,000 shares of the Company’s common stock using the fair market value
of the Company’s common stock as of September 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.
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 September 30, 2008, the promissory notes are convertible into
approximately 146,000,000 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
executed on April 7, 2008 by and among the Company, Kelley, Mr. James Michael
Kelley, and Kelley II, LLC, a newly formed Nevada limited liability company
(“Kelley II”), and which 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”).
SIENA
TECHNOLOGIES, INC.
CONSOLIDATED
NOTES TO THE FINANCIAL STATEMENTS
FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
(Unaudited)
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.
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.
The
discussion and financial statements contained herein are for the nine months
ended September 30, 2008 and September 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.
NINE
MONTH PERIOD ENDED SEPTEMBER 30, 2008 AS COMPARED TO THE NINE MONTH PERIOD
ENDED
SEPTEMBER 30, 2007, AS RESTATED
RESULTS
OF OPERATIONS
SALES
AND COSTS OF GOODS SOLD
Sales
and
costs of good sold for the nine months ended September 30, 2008 were $0 as
compared to $0 for the nine months ended September 30, 2007. All operations
at
Kelley, COM and Network have been discontinued. Therefore, no revenues or costs
of goods sold are presented for the nine months ended September 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 nine months ended September 30, 2008 amounted to $381,317
as
compared to $693,984 for the nine months ended September 30, 2007. This decrease
was primarily attributable to a decrease in stock option expense and investor
relation expense for the nine months ended September 30, 2008 of $137,779 and
$158,586 as compared to the nine months ended September 30, 2007. Our former
executives held a significant number of stock options which were no longer
being
amortized in 2008. The Company's management also determined it would have to
decrease expenses relative to investor relations due to cashflow concerns.
OTHER
INCOME (EXPENSE)
Other
income expense for the nine months ended September 30, 2008 was $(51,076) as
compared to $2,189,160 for the nine months ended September 30, 2007. The
decrease in other income is primarily due to the decrease in the change in
fair
market value of derivatives and embedded derivatives from $2,553,030 to $103,133
for the nine months ended September 30, 2008, as compared to the nine months
ended September 30, 2007.
NET
LOSS
Net
loss
for the nine months ended September 30, 2008 was $632,181 as compared to
$771,222 for the nine months ended September 30, 2007 due to the reasons set
forth above.
BASIC
AND DILUTED INCOME PER SHARE
Our
basic
and diluted net loss per share was $(0.02) for the nine and three months ended
September 30, 2008 and September 30, 2007, respectively.
LIQUIDITY
AND CAPITAL RESOURCES
As
of
September 30, 2008, our current assets were $15,818 and current liabilities
were
$11,366,683. Cash and cash equivalents totaled $15,818 as of September 30,
2008.
Our stockholders’ deficit at September 30, 2008 was $41,366,586. We had a net
usage of cash for operating activities for the nine months ended September
30,
2008 and 2007 of $(361,017) and $(2,658,297), respectively. We had net cash
provided by financing activities of $375,000 and $2,155,985 for the nine months
ended September 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 our current 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, May 27, 2008, August 15, 2008 and September
16, 2008, we issued Dutchess promissory notes in the amount of $126,000,
$120,000, $72,000, $120,000 and $12,000 resulting in proceeds to us of $105,000,
$100,000, $60,000, $100,000 and $10,000, respectively. Each of the promissory
notes bear interest at 12% per annum and mature on March 19, 2008, September
26,
2008, December 27, 2008, August 15, 2009 and September 16, 2009,
respectively.
We
are in
a default on all of the promissory notes issued to Dutchess. Under the terms
of
the promissory notes, in the event of default, Dutchess has the right to declare
the full and unpaid balance of the December 19, 2007, March 26, 2008, May 27,
2008, August 15, 2008 and September 16, 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 substantial discounted rate.
MATERIAL
TRENDS AND UNCERTAINTIES
We
are a
shell company. Should our cash flow shortfalls continue, and should we be
unsuccessful in raising capital, it will have an adverse impact on our business,
which in turn 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 in the amount of
approximately $9,422,000, a note payable to Preston in the amount of $407,000
and our additional Dutchess promissory notes, which total $450,000, 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 resulted in the cancellation of an aggregate of $7,675,000 face amount
of convertible debentures that had previously 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. The promissory notes issued to Dutchess also included a default provision
allowing for liquidated damages and also allow for conversion to common stock
at
preferential rates in the event of default. 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.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
applicable
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 the principal
accounting 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 (“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) concluded that as of September 30, 2008,
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 the Company’s 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 September 30, 2008 that has materially affected, or is reasonably
likely to materially affect, the Company’s internal control 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 will have a material impact on our financial
statements.
Not
required.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
NONE.
We
are in
default of all debts owed to Dutchess and Preston, which constitute
approximately $10,279,000 in debts. These debts are all convertible into our
common stock at the option of Dutchess and Preston, individually.
NONE.
NONE.
Exhibits.
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No.
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|
Description
|
31.1
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Certification
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002,
filed herewith.
|
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32.1
|
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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.
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SIENA
TECHNOLOGIES, INC.
(Registrant)
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Date:
November 14, 2008
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By: |
/s/
Michael Novielli
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Michael
Novielli
Interim
Chief Executive Officer
|