UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

x [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~EXCHANGE~~For ~~ACT~~the OFquarterly ~~1934~~period ended March 31, 2009

~~For~~ [ ] ~~the~~TRANSITION ~~quarterly~~REPORT ~~period~~PURSUANT ~~ended~~TO ~~September~~SECTION ~~30,~~13 ~~2007~~OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 000-29423

SIELOX, INC.

(Exact name of registrant as specified in its charter)

Delaware

04-3351937

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)

170 East Ninth Ave., Runnemede, NJ 08078

(Address of principal executive offices - zip code)

(856) 861-4579

(Registrant’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 [ X ] ~~No [ ]~~

~~Indicate~~No by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12-b of the Exchange Act.[ ]

~~Large~~Indicate ~~Accelerated~~by ~~filer~~check [mark ]whether ~~Accelerated~~the registrant is a large accelerated filer, [an ]accelerated ~~Non~~filer, a non-accelerated filer, [or Xa ]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	Accelerated filer

Non-accelerated filer	Smaller Reporting Company	X

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12-b-2 of the Exchange Act).

Yes [ ] ~~No [ X ]~~

~~The~~No [ ~~number~~X ~~of shares outstanding of the registrant’s common stock as of November 13, 2007 was 41,981,386.~~]

The number of shares outstanding of the registrant’s common stock as of May 15, 2009 was 35,720,311

SIELOX, INC. AND SUBSIDIARIES

(formerly known as DYNABAZAAR, INC.)

INDEX

PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of September 30, 2007 (unaudited) and December 31, 2006	1
	Condensed Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2007 and 2006 (unaudited)	2
	Condensed Consolidated Statements of Operations for the three months ended March 31, 2009 (unaudited) and 2008 (unaudited)	2
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2007 and 2006 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2009 (unaudited) and 2008 (unaudited)	3
	Notes to Condensed Consolidated Financial Statements (unaudited)	54
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1512
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
ITEM 4T.	CONTROLS AND PROCEDURES	16
ITEM 4.	CONTROLS AND PROCEDURES	19
PART II.	OTHER INFORMATION	18
PART II.	OTHER INFORMATION	20
ITEM 1.	LEGAL PROCEEDINGS	18
ITEM 1.	LEGAL PROCEEDINGS	20
ITEM 6.	EXHIBITS	19
ITEM 1A.	RISK FACTORS	21
SIGNATURES		19
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	25
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS	25
ITEM 5.	OTHER INFORMATION	25
ITEM 6.	EXHIBITS	26
SIGNATURES		26

ITEM 1. FINANCIAL STATEMENTS

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in thousands except share and per share amounts)

		September 30, 2007 (unaudited)			December 31, 2006 (audited)
		March 31, 2009		December 31, 2008
ASSETS
		(unaudited)
Current assets:
ASSETS
Cash and cash equivalents	$	2,826		$	2,938
Current assets:
Accounts receivable, net of allowance for
Cash and cash equivalents	$	85	$	249
doubtful accounts of $34 and $10
Short-term investments, at fair value		243		305
in 2007 and 2006, respectively		4,270			2,053
Accounts receivable, net of allowance for doubtful accounts of $102 and $79 in 2009 and 2008, respectively		4,250		4,925
Inventory, net		5,531			3,738
Inventory, net of reserve for obsolescence of $220 and $198 in 2009 and 2008, respectively		6,393		5,679
Prepaid expenses		~~579~~499		522	~~496~~
Total current assets		1311,~~206~~470		11,680	~~9,225~~
Fixed assets		388			92
Fixed assets, net		343		319
Trade Name		1,587			1,587
Goodwill		1,229		1,229
Other intangibles, net		2,659			2,933
Trade Name - Costar		1,587		1,587
Goodwill		2,029
Trademark – Sielox, LLC		300		300
Deposits		48			4
Distribution agreement, net		1,266		1,284
Long-term prepaid expenses		631			694
Customer relationships, net		866		932
Total assets	$	20,548		$	14,535
Proprietary technology, net		396		411
LIABILITIES AND STOCKHOLDERS’ EQUITY
Other Assets		66		66
Current liabilities:
Total assets	$	17,523	$	17,808
Accounts payable	$	3,517		$	1,436
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accrued expenses and other current
Current liabilities:
liabilities		356			185
Accounts payable	$	2,642	$	2,917
Line of credit		1,387			729
Accrued expenses and other		384		799
Obligations under capital lease		12
Contingent purchase price, current portion		773		773
Total current liabilities		5,272			2,350
Deferred revenue, current		30		27
LONG TERM LIABILITIES
Line of credit		2,435		1,274
Long term liability		1,683			2,225
Total current liabilities		6,264		5,790
Obligations under capital lease		37
Long- term liability, contingent purchase price		270		270
Total long term liabilities		1,720			2,225
Total liabilities		6,534		6,060
Stockholders’ equity:
Stockholders’ equity: Preferred Stock, $0.001 par value; 10,000,000 shares authorized, and 0 shares issued and outstanding
Common stock, $0.001 par value, 90,000,000
Common stock, $0.001 par value; 90,000,000 shares authorized; 42,016,924 shares issued and outstanding.		42		42
shares authorized, and 41,981,386
Additional paid-in capital		155,803		155,788
and 29,726,385 shares issued
Accumulated other comprehensive income		260		260
as of September 30, 2007 and
Accumulated deficit		(140,592)		(139,818)
December 31, 2006, respectively		42			30
		15,513		16,272
Additional paid-in capital		155,774			151,757
Less: Common stock held in treasury, at cost; 6,296,613 shares at March 31, 2009 and December 31, 2008, respectively		(4,524)		(4,524)
Accumulated other comprehensive income, net		260			260
Total stockholders’ equity		10,989		11,748
Accumulated deficit		(138,050	)		(137,617	)
Total liabilities and stockholders’ equity	$	17,523	$	17,808
		18,026			14,430
Less: Common stock held in treasury, at cost;
6,034,629 shares at September 30, 2007 and
December 31, 2006		(4,470	)		(4,470	)
Total stockholders’ equity		13,556			9,960
Total liabilities and stockholders’ equity	$	20,548		$	14,535

See accompanying notes to condensed consolidated financial statements.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands, except per share amounts, unaudited)

			Three Months Ended						Nine Months Ended
		Three Months Ended March 31,
			September 30,						September 30,
		2009			2008
			2007				2006		2007			2006
Net revenues	$	4,676		$	6,584
Revenues		$	6,431			$	3,614	$	14,614		$	3,614
Cost of revenues		3,307			4,791
Cost of goods sold			4,781				2,856		11,231			2,856
Gross profit		1,369			1,793
Gross profit			1,650				758		3,383			758
Selling, general and administrative expenses		2,110			2,230
Operating expenses, general and
Loss from operations		(741)			(437)
administrative			1,874				615		3,861			1,099
Other Income (expense)
Income (loss) from operations			(224	)			143		(478	)		(341	)
Interest income		3			16
Other Income (expense)
Interest expense		(36)			(32)
Interest income			16				50		98			251
Total other income (expense), net		(33)			(16)
Interest expense			(22	)					(53	)
Net loss	$	(774)		$	(453)
			(6	)			50		45			251
Net loss per share:
Net income (loss)		$	(230	)		$	193	$	(433	)	$	(90	)
Basic and diluted	$	(0.02)		$	(0.01)
Net income (loss) per share:
Weighted average number of common shares outstanding:
Basic		$	(0.01	)		$	0.01	$	(0.02	)	$	(0.00	)
Basic and diluted		35,720			35,901
Diluted		$	(0.01	)		$	0.01	$	(0.02	)	$	(0.00	)
Weighted average number of common shares
outstanding:
Basic			31,796				23,414		26,393			23,412
Diluted			31,796				23,480		26,393			23,412

See accompanying notes to condensed consolidated financial statements.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands,; unaudited)

		Nine Months Ended September 30
		Three Months Ended March 31
		2007				2006
		2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$	(433	)		$	(90	)
Net loss	$	(774)		$	(453)
Adjustments to reconcile net loss
Adjustments to reconcile net loss to net cash used in operating activities Stock based compensation		15			0
to net cash used in operating activities
Depreciation and amortization		156			143
Depreciation and amortization		396
Provision for doubtful accounts		23			10
Provision for doubtful accounts		25
Change in cash attributable to changes in operating assets and liabilities
Change in cash attributable to changes in
Accounts receivable, net		652			(141)
operating assets and liabilities
Inventories, net		(714)			(395)
Accounts receivable		(1,084	)			(75	)
Prepaid expenses		23			(6)
Inventories		(994	)			(555	)
Long- term prepaid expenses		0			83
Prepaid expense		(67	)			59
Accounts payable		(275)			(27)
Long term prepaid expenses		63				156
Accrued expenses and other current liabilities		(412)			(48)
Accounts payable		945				(465	)
Net cash used in operating activities		(1,306)			(834)
Accrued expense and other current liabilities		(103	)			370
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in operating activities		(1,252	)			(600	)
Purchase of fixed assets		(81)			(23)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of short-term investments		62			344
Acquisition of Southern Imaging and Video Solutions net of cash acquired of $240						(3,560	)
Net cash provided by (used in) investing activities		(19)			321
Direct costs of merger		(140	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash acquired through merger activity		1,368
Proceeds from debt		1,161			381
Purchase of fixed assets		(209	)
Deposits		0			(3)
Payment of earn out provision		(542	)
Net cash provided by financing activities		1,161			378
Net cash provided (used in) investing activities		477				(3,560	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(164)			(135)
CASH FLOWS FROM FINANCING ACTIVITIES:
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		249			1,422
Proceeds from (payments for) line of credit, net		658				(1,863	)
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	85		$	1,287
Principal payments on capital lease		(4	)
SUPPLEMENTAL DISCLOSURE CASH FLOW INFORMATION:
Refunded deposit		9
Cash paid during the period for interest	$	21		$	16
Net cash provided by (used in) financing activities		663				(1,863	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(112	)			(6,023	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		2,938				9,125
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,826			$	3,102
SUPPLEMENTAL DISCLOSURE CASH FLOW INFORMATION:
Cash paid for interest	$	53			$

See accompanying notes to condensed consolidated financial statements.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED ~~STATEMENTS~~FINANCIAL ~~OF CASH FLOWS~~STATEMENTS

($ in thousands, except for shares, unaudited)

~~SUPPLEMENTAL~~NOTE ~~DISCLOSURE~~1 OF- ~~NON~~THE ~~CASH INVESTING AND FINANCING ACTIVITIES:~~COMPANY

~~On July 31~~Sielox, ~~2007~~Inc., ~~the~~formerly ~~Company's~~known ~~wholly-owned~~as ~~subsidiary~~Dynabazaar, LInc. Q(the ~~Merger Corp~~“Company”), ~~merged~~was ~~with~~incorporated ~~and~~in ~~into L~~the QState ~~Corporation,~~of ~~with~~Delaware Lin QFebruary ~~Corporation~~1997 under ~~continuing~~the asname “Fairmarket, ~~the surviving~~Inc.” ~~corporation~~The Company develops, designs and distributes a ~~wholly-owned~~range ~~subsidiary~~ of ~~the~~ ~~Company.~~security Insolution ~~conjunction~~products ~~with~~such ~~this~~as ~~merger~~surveillance ~~activity~~cameras, ~~initial~~lenses, ~~consideration~~digital ofvideo $4recorders,~~029 plus~~ ~~direct~~high ~~costs~~speed ofdomes ~~merger~~and ofaccess ~~$140~~control ~~was~~systems. ~~given~~The inCompany ~~the~~also ~~form~~develops, ofdesigns ~~common~~and ~~stock~~distributes ~~and~~industrial ~~stock options.~~vision ~~The~~products ~~consideration~~to ~~given,~~observe ~~assets~~repetitive ~~acquired~~production and ~~liabilities~~assembly ~~assumed~~lines, ~~resulting from~~thereby ~~the~~increasing ~~merger~~efficiency ~~are~~by asdetecting ~~follows:~~faults in the production process.

Fair value of assets acquired resulting from the merger, net of cash acquired of $1,368	$	2,235
Fair value of liabilities assumed resulting from the merger	$	1,463
Fair value of common stock issued resulting from the merger, including $150 issued to Barington Capital Group, LP	$	3,688
Fair value of stock options issued from the merger	$	341

The Company operates through two wholly-owned subsidiaries: Costar Video Systems, LLC (“Costar”) and Sielox, LLC (“Sielox”). Costar runs the Company’s operations relating to its security surveillance and industrial vision products and Sielox runs the Company’s operations relating to its access control systems.

On ~~July~~January 20, ~~2006~~2009, the Company ~~purchased~~announced ~~substantially~~the ~~all~~appointment of James Pritchett as its new President and Chief Executive Officer as well as Mr. Pritchett’s appointment to the ~~assets~~ Company’s Board of ~~Southern~~Directors. Mr. ~~Imaging,~~Pritchett ~~Inc~~replaced Sebastian E. Cassetta, who held the position of President and ~~Video~~CEO ~~Solutions~~on ~~Technology~~a ~~Center~~part-time basis, ~~Inc~~and was a member of the Board until his resignation on January 20, 2009. ~~pursuant~~On January 29, 2009 the Company also announced that it expanded the size of its Board of Directors to six members and appointed James Mitarotonda to the ~~transactions~~ ~~contemplated~~newly bycreated position on the ~~Asset~~Board. Mr. ~~Purchase~~Mitarotonda ~~Agreement~~previously ~~dated~~served as the Company’s President and Chief Executive Officer from May 2006 until April 2007 and from January 2004 until December 2004. Mr. Mitarotonda is Chairman, President, and Chief Executive Officer of ~~June~~Barington 20Capital Group L.P., ~~2006~~(“Barington”), ~~for initial~~and ~~consideration~~also served as the Co-Chief Executive Officer and Co-Chairman of $3LQ Corporation,~~766~~ Inc. Infrom ~~conjunction~~April 2003 until May 2004 and its sole Chief Executive Officer from May 2004 until October 2004. Barington and certain of its affiliates which have joined with Barington in the ~~acquisition~~filing of Schedule 13D, ~~common~~on ~~stock~~December ~~was issued~~16, ~~and~~2008, ~~liabilities~~collectively ~~were~~beneficially ~~assumed~~own asgreater ~~follows,~~than ~~for~~15% of the ~~six~~Company’s ~~months~~outstanding ~~ended~~common ~~June~~stock. ~~30, 2006:~~

Fair value of assets acquired	$	7,263
Cash paid		(3,692	)
Common stock issuable		(74	)
Liabilities assumed *	$	3,497

NOTE 2. LIQUIDITY AND GOING CONCERN CONSIDERATION

*IncludesThe ~~assumption~~Company ofhas ~~revolver~~continued ~~facility~~to incur losses and negative cash flows from operations. For the three month period ended March 31, 2009, the Company incurred a net loss of approximately $774 and negative cash flows from operations of approximately $1,306.~~8 million~~ As of March 31, 2009, the Company had an accumulated deficit of approximately $140,600 and outstanding debt in the amount of $2,435 from a line of credit which expires on December 16, 2009. In addition, the Company has experienced liquidity problems relative to its short-term investments. The Company’s management is aware that its current cash resources may not be adequate to fund its operations over the next year. The Company’s existing and future obligations include expenses associated with developing synergies between the Company’s operating subsidiaries and marketing and growing its customer base and product offerings. The general economic slowdown has impacted the Company’s ability to improve its liquidity through increased sales. Furthermore, due to the current credit crisis, it is uncertain whether the Company’s current line of credit can be renewed when it comes due on acceptable terms. The Company is currently in violation of a certain financial ratio related to its line of credit which violation constitutes a default under the line of credit. In addition, the Company has received a notice from the lender that the Stipulation disclosed in note 6 constitutes a default under the line of credit. The Company disagrees with the lender’s assertion and is currently in discussions with the lender regarding this matter. These conditions, among others, raise substantial doubt as to the Company’s ability to continue as a going concern. No adjustment has been made in the condensed consolidated financial statements of the Company to the amounts and classification of assets and liabilities which could result should the Company be unable to continue as a going concern.

See accompanying notes to condensed consolidated financial statements.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(~~UNAUDITED~~$ in thousands, except for shares, unaudited)

NOTE 12. -LIQUIDITY ~~THE COMPANY~~ AND ~~SUMMARY~~GOING OFCONCERN ~~SIGNIFICANT~~CONSIDERATION ~~ACCOUNTING POLICIES:~~(continued)

~~THE~~Management ~~COMPANY~~recognizes that the Company must generate additional revenue, improve gross profits and reduce expenses in order to achieve profitable operations and generate positive cash flows. Management’s plans to increase revenues include, among other things, the continued development of its customer base and product lines. The Company’s management expects that operations will improve during 2009. Costar has been profitable since it was acquired in 2006. That profitability is expected to continue and during 2009 Costar will begin to benefit from the cost savings associated with the closing of its California facility.

~~OVERVIEW~~It is expected that Sielox’s financial performance will improve during 2009. Sielox’s hardware and software systems have been upgraded and new products, with higher gross margins, are being introduced. Included among these new products is a new controller and an interface that will enable access control products to interface with Costar cameras.

~~Sielox, Inc., formerly known as Dynabazaar, Inc. (the “Company”), was incorporated in the State of Delaware in February 1997 under the name “Fairmarket, Inc.”~~ The ~~Company~~pre-paid ~~develops, designs~~directors and ~~distributes~~officers ainsurance ~~range of security solution products~~policy, ~~comprising~~purchased ofby a range of surveillance cameras, digital video recorders and access control systems and strategic security and business protection solutions and corporate investigations. Through September 3, 2003, the Company’s ~~was~~previous anmanagement ~~online~~team ~~auction~~in ~~and~~2004, ~~promotions~~will ~~technology~~be ~~service provider~~fully ~~that~~expensed ~~enabled~~at ~~marketers to create results-oriented rewards programs and helped commerce companies automate~~ the ~~process~~conclusion of ~~selling their excess inventory online to wholesale and retail buyers. On September 4, 2003,~~ the year ~~Company~~ending ~~sold~~December ~~substantially all of its operating assets to eBay~~31, ~~Inc~~2009. ~~(“eBay”)~~During ~~for consideration of $4.5 million in cash under~~ the ~~terms~~period ~~and~~2004 ~~conditions~~through of2009, ~~an asset purchase agreement~~ the Company ~~entered~~has ~~into~~charged operations with ~~eBay~~approximately on$330 ~~June~~per ~~20,~~year ~~2003.~~to ~~Following~~account ~~the~~for ~~closing~~that ofpre-paid ~~the asset sale, the Company changed its name from “Fairmarket, Inc~~expense.~~” to “Dynabazaar, Inc.”~~

InThere ~~connection~~can ~~with~~be ~~the~~no ~~cessation~~assurance ofthat the Company’s ~~online~~will ~~auction business,~~be ~~the~~successful ~~Company~~in ~~relocated~~building its ~~principal~~customer ~~executive~~base ~~offices~~and asproduct oflines ~~January~~or 1,that ~~2004~~ available capital will be sufficient to ~~888~~fund ~~Seventh~~current ~~Avenue,~~operations ~~17th~~and ~~Floor,~~to ~~New~~meet ~~York,~~the ~~New~~Company’s ~~York~~financial ~~10019,~~obligations anas ~~office~~they ~~maintained~~relate ~~by Barington~~to ~~Capital~~working ~~Group,~~capital ~~L.P.~~requirements ~~(“Barington”),~~and adebt ~~limited~~repayment ~~partnership~~obligations ~~whose general~~until ~~partner~~such istime athat ~~corporation~~revenues ofincrease ~~which~~to ~~James~~the Aextent necessary to cover operating costs. ~~Mitarotonda~~If the Company is ~~Chairman,~~unsuccessful ~~President and~~in ~~Chief~~building ~~Executive~~its ~~Officer.~~customer ~~Mr. Mitarotonda~~base ~~was~~or ~~previously~~is unable to obtain additional financing on terms favorable to the Company~~’s President~~, ~~and~~there ~~Chief~~could ~~Executive~~be ~~Officer~~a ~~and~~material ~~served~~adverse aseffect aon ~~member~~the financial position, results of ~~the~~operations ~~Company’s board~~and cash flows of ~~directors~~the Company.

~~From~~NOTE ~~January~~3. ~~2003~~SUMMARY ~~until~~OF ~~June~~SIGNIFICANT ~~20,~~ACCOUNTING 2006, the Company did not operate any business and was settling its remaining claims and liabilities while reviewing its alternatives for the use or disposition of its remaining assets.POLICIES

OnBASIS ~~July~~OF ~~20,~~PRESENTATION ~~2006,~~AND ~~the~~CONSOLIDATION Company purchased substantially all of the assets of Southern Imaging, Inc. and Video Solutions Technology Center, Inc. pursuant to the transactions contemplated by the asset purchase agreement dated as of June 20, 2006.

~~Effective~~The ~~July~~accompanying ~~31,~~consolidated ~~2007,~~financial ~~pursuant~~statements toinclude the ~~Amended~~accounts ~~and Restated Agreement and Plan~~ of ~~Merger~~Sielox, ~~dated~~Inc. asand ofits ~~February~~wholly-owned 26subsidiaries, ~~2007,~~Costar asVideo ~~amended (the “Merger Agreement”)~~Systems, byLLC and ~~among the Company~~Sielox, ~~L Q Corporation, Inc~~LLC. ~~(“L~~ QAll ~~Corporation”)~~material ~~and~~intercompany LQtransactions ~~Merger~~have ~~Corp~~been ~~(“LMC”),~~eliminated ~~LMC~~in ~~was~~consolidation. ~~merged with~~Certain ~~and~~reclassifications ~~into~~of Lprior Qyear ~~Corporation,~~amounts ~~with L~~have Qbeen ~~Corporation~~made ~~continuing~~to asconform with the ~~surviving~~presentation ~~corporation and a wholly-owned subsidiary~~ of ~~the~~current ~~Company~~year ~~(the “Merger”)~~information. ~~Immediately following the Merger, the Company’s name was changed from “Dynabazaar, Inc.” to “Sielox, Inc.”~~

ByThe ~~virtue~~accompanying condensed consolidated financial statements of the ~~Merger~~Company for the three months ended March 31, L2009 Qand ~~Corporation~~2008 ~~stockholders~~are ~~received~~unaudited ~~3.68 shares~~and ofhave been prepared on a basis substantially consistent with the Company’s ~~common~~audited ~~stock~~consolidated financial statements for the year ended December 31, ~~par~~2008. ~~value~~The $0condensed consolidated financial statements have been prepared in accordance with U.~~001~~S. ~~per~~generally ~~share,~~accepted accounting principles and all relevant SEC accounting rules and regulations for ~~each~~interim ~~share of~~financial Linformation. QConsequently, ~~Corporation~~these ~~common~~statements ~~stock~~do ~~they~~not ~~owned~~include asall ofdisclosures ~~the~~normally ~~effective~~required ~~time~~by ofU.S. ~~the~~generally ~~Merger~~accepted accounting principles for annual financial statements. ~~Cash was~~These ~~paid~~condensed inconsolidated ~~lieu of~~interim ~~common~~financial ~~stock~~statements toshould ~~purchase~~be ~~20.44 fractional~~read ~~shares~~in ofconjunction with the Company’s ~~common~~audited ~~stock.~~consolidated ~~Additionally,~~financial ~~each~~statements ~~outstanding~~for ~~option~~the toyear ~~purchase~~ended LDecember ~~Q Corporation~~31, ~~common~~2008, ~~stock~~which ~~was~~are ~~assumed~~contained byin the Company’s ~~and~~Annual ~~now~~Report ~~represents~~on anForm ~~option~~10-K ~~to acquire~~filed ~~shares~~with the SEC on March 31, 2009. The condensed consolidated interim financial statements, in the opinion of management, reflect all adjustments (including all normal recurring accruals) necessary to present fairly the Company’s ~~common~~financial ~~stock~~position, ~~subject~~results toof operations and cash flows for the ~~applicable conversion~~three ~~ratio~~months ended March 31, on2009 and 2008. The results of operations for the ~~terms~~interim ~~and~~periods ~~conditions~~are ~~set~~not ~~forth~~necessarily inindicative of the ~~Merger Agreement~~results of operations to be expected for the fiscal year.

LQUSE ~~Corporation~~OF ~~owns~~ESTIMATES ~~two~~IN ~~wholly~~THE ~~owned~~PREPARATION ~~subsidiaries,~~OF ~~Seilox,~~CONDENSED ~~LLC~~CONSOLIDATED ~~and~~FINANCIAL SES Resources International, Inc. ("SES"). Sielox, LLC develops, designs, and distributes a complete line of access control software, programmable controllers and related accessories. SES provides strategic security and business protection solutions and corporate investigations. As of September 30, 2007, management has decided to shut down the operations of SES. As of September 30, 2007 SES's assets included accounts receivable of $13 and fixed assets of $4.STATEMENTS

The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of cash placed in an overnight investment account, commercial paper and money market accounts. The Company maintains cash balances in certain financial institutions that may exceed the Federal Deposit Insurance Corporation coverage of $250. At March 31, 2009, and at various times during the quarter ended March 31, 2009, balances of cash at financial institutions exceeded the federally insured limit. The Company has not experienced any losses in such accounts and believes it is not subject to any significant credit risk on cash and cash equivalents.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(~~UNAUDITED~~$ in thousands, except for shares, unaudited)

NOTE 13. ~~- THE COMPANY AND~~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~Effective~~Cash ~~upon the closing of the Merger~~ and incash ~~accordance~~equivalents ~~with~~consist ~~the terms~~ of the ~~Merger Agreement, as of July 31, 2007, Raymond L. Steele and Mr. Mitarotonda each resigned from the Company’s board of directors and the~~ following ~~three members of the board of directors of L Q Corporation were appointed to the Company’s board of directors: Sebastian E. Cassetta, Dianne K. McKeever and Steven Berns.~~

Additionally, in connection with the completion of the Merger, the Company relocated its principal executive offices to 170 East Ninth Avenue, Runnemede, New Jersey 08078, which is an office and warehouse facility leased by the Company.


		March 31, 2009		December 31, 2008
		unaudited
Cash	$	83	$	197
Money market funds		2		52
	$	85	$	249

~~Sebastian~~SHORT E.TERM ~~Cassetta,~~INVESTMENTS who serves as the Company’s President, CEO and a member of the Company's board of directors, is a Senior Managing Director and the Chief Operating Officer of Barington. He also serves as the Chief Executive Officer of Costar. Dianne K. McKeever, a research analyst at Barington, serves as one of the Company’s directors. Barington and certain of its affiliates which have joined with Barington in the filing of a statement on Schedule 13D, collectively beneficially own greater than 10% of the Company’s outstanding common stock.

The Company’s isshort ~~party~~term toinvestments aconsist ~~services~~solely ~~agreement~~of ~~dated~~an asinvestment ofin ~~December~~a ~~17, 2004~~capital reserve fund (the “Fund”) at a financial institution. These securities have been classified as ~~amended,~~“available-for-sale” and are carried at fair value. Management determines the ~~"Services~~appropriate ~~Agreement"),~~classification ~~under~~of ~~which~~its ~~Barington~~short-term ~~performs~~investments ~~certain administrative,~~at ~~legal~~the time of purchase and ~~financial~~evaluates ~~advisory~~such ~~services~~designation as of each balance sheet date. Interest earned on the ~~Company’s~~short-term ~~behalf~~investments is included in interest income. ~~The~~ ~~Company~~Short-term ~~entered~~investments ~~into~~totaled an$243 ~~amendment~~and ~~dated~~$305 asat ofMarch ~~May~~31, 182009 and December 31, ~~2007 to~~2008, ~~the~~respectively. ~~Services Agreement providing~~There ~~that~~were ~~the~~no ~~administrative~~realized ~~services~~or ~~provided~~unrealized bylosses ~~Barington~~incurred on ~~behalf~~ ofthese securities for the ~~Company~~periods ~~under~~ended ~~the~~March ~~Services~~31, ~~Agreement~~2009 ~~(as~~and ~~well~~December as31, ~~the~~2008, ~~monthly~~respectively. ~~payments made~~Due byto the ~~Company~~nature of these investments, we consider it reasonable to ~~Barington~~expect ~~for~~that ~~such~~their ~~services)~~fair ~~terminated~~market ~~immediately~~values ~~following the~~will ~~closing~~not ofbe ~~the Merger~~significantly impacted by a change in interest rates.

~~Notwithstanding~~Distributions ~~the~~from ~~termination of~~ the ~~administrative~~Fund ~~services~~are ~~provided~~ managed by ~~Barington~~BlackRock ~~following~~Investment ~~the~~Management ~~closing~~LLC. ofBlackRock ~~the~~has ~~Merger,~~experienced ~~the~~some ~~Services~~difficulty ~~Agreement~~in ~~continues~~liquidating ~~to run until December 31, 2007, thereby permitting~~ the ~~Company~~Fund. In toJanuary ~~continue~~2009 towe ~~have~~received ~~access to~~approximately ~~legal~~$60. ~~and~~A ~~financial~~further ~~advisory~~distribution ~~services from Barington on an “as requested” basis. There~~ is noexpected ~~requirement~~before ~~under~~ the ~~Services~~end ~~Agreement,~~of ~~however, for~~ the ~~Company~~second toquarter ~~utilize~~in ~~such services of Barington~~2009. ~~Additional~~After ~~information concerning~~receipt ~~the~~of ~~Services~~that ~~Agreement may be found under Part III~~distribution, ~~Item~~the 13Fund ofexpects ~~Amendment No. 1~~ to ~~the~~have ~~Company’s~~liquidated ~~Annual~~approximately ~~Report~~96% onof ~~Form~~net ~~10-K filed with the Securities and Exchange Commission on April 17, 2007, which disclosure is incorporated herein by reference~~assets.

VALUATION OF INVESTMENTS IN SECURITIES AT FAIR VALUE

Effective January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements”, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period (see note 5). SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of a financial asset or liability as of the measurement date. In February 2008, FASB issued FASB Staff Position (“FSP”) No. 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of SFAS 157 for certain non-financial assets and non-financial liabilities to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company adopted SFAS 157 for financial assets and liabilities on January 1, 2008. It did not have any impact on the Company’s results of operations or financial position.

The three levels are defined as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

VALUATION TECHNIQUES

Cash Equivalents-Money Market Mutual Funds

Money market mutual funds are recorded at fair value on a recurring basis and include money market funds classified as Level 1. The fair value of the money market funds, recognized as cash equivalents, is determined through active market, observable and corroborated sources.

FINANCIAL INSTRUMENTS

The Company complies with the accounting and reporting requirements of SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”. Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(~~UNAUDITED~~$ in thousands, except for shares, unaudited)

NOTE 13. ~~- THE COMPANY AND~~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

AsRISKS ~~disclosed~~AND in the Form S-4/A filed by the Company with the SEC on June 20, 2007, both Dynabazaar and L Q Corporation entered into separate letter agreements with Barington on January 5, 2007 providing for the engagement of Barington by each of the Dynabazaar Special Committee and the L Q Corporation Special Committee to provide assistance as such special committees may reasonably request with respect to the Merger. Pursuant to such letter agreements, each of Dynabazaar and L Q Corporation agreed to pay Barington a fee of $100,000 as compensation for its services. At the request of the Company after the closing of the Merger, Barington agreed to reduce its fee from $200,000 to $150,000 and to accept payment in unregistered common stock in lieu of cash.UNCERTAINTIES

OnThe ~~September~~Company ~~24,~~has ~~2007,~~no ~~the~~significant ~~Company~~concentration ~~issued $150,000~~ of ~~the Company’s~~credit ~~common~~risk ~~stock,~~such ~~par~~as ~~value~~foreign ~~$0.001~~exchange contracts, tooption ~~Barington~~contracts ator aother ~~price~~foreign ofhedging $0arrangements.~~325~~ ~~per share,~~Financial ~~the~~instruments ~~closing~~that ~~price~~potentially ofsubject the Company’s ~~common~~to ~~stock~~concentrations onof ~~the~~credit ~~Over-The-Counter Bulletin~~risk ~~Board~~primarily onconsist ~~such~~of ~~date,~~cash orand ancash ~~aggregate of 461~~equivalents,~~538~~ ~~shares~~short-term ofinvestments ~~common~~and ~~stock~~trade inaccounts ~~consideration~~receivable. ofThe ~~services~~Company ~~rendered~~places byits ~~Barington~~cash, ~~to the~~cash ~~Company~~and equivalents and Lshort-term Qinvestments ~~Corporation,~~with ~~Inc.~~what ~~(“L~~the ~~Q Corporation”)~~Company inbelieves ~~connection~~are ~~with~~high ~~the~~credit ~~Merger~~quality financial institutions.

~~SUMMARY~~CONCENTRATION OF ~~SIGNIFICANT ACCOUNTING POLICIES~~CUSTOMERS

~~BASIS~~The OFCompany’s ~~PRESENTATION~~security (surveillance product line customers include traditional “large box” national retailers and distributors. The Company’s industrial vision product line customers include manufacturers that assemble products using automated production lines; they use the Company’s video systems to monitor activity on the production line. The Company’s access control product line is sold through a national network of authorized business partners. For the three months ended March 31, 2009, the Company’s largest customers accounted for approximately $878 INand ~~THOUSANDS)~~18.8% of the Company’s total revenue, compared to $1,987 and 30.3% for the three months ended March 31, 2008. For the three months ended March 31, 2009, those same customers owed $533 and 12.5% of the outstanding receivable balance, compared to $1,054 and 21.3% for the three months ended March 31, 2008.

~~The~~CONCENTRATION ~~accompanying~~OF condensed consolidated financial statements of the Company for the three and nine months ended September 30, 2007 and 2006 are unaudited and have been prepared on a basis substantially consistent with the Company’s audited consolidated financial statements for the year ended December 31, 2006. The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Consequently, these statements do not include all disclosures normally required by generally accepted accounting principles for annualSUPPLIERS

For the three months ended March 31, 2009, the Company made purchases from three major suppliers representing approximately 25.9%, 13.5% and 11.2% respectively of the Company’s total purchases. As of March 31, 2009, amounts owed to these suppliers were approximately 27.0%, 9.2% and 9.0% of the total accounts payable balance, respectively. For the period ended March 31, 2008, the Company purchased, in the aggregate, approximately 35.5% of its products from three major suppliers.

CREDIT LINE

The Company maintains a line of credit with the Bank of Texas. The line has a limit of $5,000 and interest is charged on the outstanding balance. Pursuant to the Amended and Restated Loan Agreement (the “Loan Agreement”), dated as of December 10, 2008, between Costar, Sielox, the Company and the Bank of Texas, interest is charged at the BOKF National Prime Rate Index as determined by BOK Financial Corporation (4.0% at March 31, 2009). The line is secured by accounts receivable and inventories of Costar and Sielox and the Loan Agreement requires the maintenance of a certain financial ratio and monthly payments of accrued interest. As of March 31, 2009, the Company was in violation of certain financial ratios as prescribed in the Loan Agreement. The line of credit is required to be repaid on December 16, 2009. As of March 31, 2009 and December 31, 2008, approximately $2,435 and $1,274 were outstanding under the line of credit, respectively.

A Petition For Appraisal of Stock was filed in the Delaware Court of Chancery against LQ Corporation our wholly owned subsidiary (See note 6). The parties agreed to mediate this in an effort to settle this action. A mediation conference was held on March 19, 2009. At the mediation conference, the parties reached an agreement in principle to settle the action. The parties currently are negotiating an agreement of dismissal and release to be executed by the parties. The Company has received a notice from the Bank of Texas that the Stipulation disclosed in note 6 constitutes a default under the Loan Agreement. The Company disagrees with the Bank of Texas’ assertion and is currently in discussions with the Bank of Texas regarding this matter.

INVENTORIES, NET

Inventories are recorded on the first in first out basis and are stated at the lower of average cost or market. A provision is made to reduce excess or obsolete inventories to their net realizable value. As of March 31, 2009, the Company had $130 in raw materials and $6,263 in finished goods. This compares to $137 in raw materials and $5,542 in finished goods as of December 31, 2008.

GOODWILL AND INTANGIBLE ASSETS

Pursuant to SFAS 142, “Goodwill and Other Intangible Assets”, intangible assets with indefinite lives are not amortized, but instead tested for impairment. Intangible assets are reviewed for impairment annually or whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Impairment losses are recognized if the fair value of the asset is less than its carrying value.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(~~UNAUDITED~~$ in thousands, except for shares, unaudited)

NOTE 13. ~~- THE COMPANY AND~~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~financial~~Intangible ~~statements.~~assets ~~These~~with ~~condensed~~finite ~~consolidated~~useful ~~interim~~lives ~~financial statements~~are ~~should~~amortized beover ~~read~~their inestimated ~~conjunction~~useful ~~with~~lives. ~~the~~The Company’s ~~audited~~reviews ~~consolidated financial statements~~ for ~~the~~possible ~~year~~impairment ~~ended~~whenever ~~December~~circumstances ~~31,~~indicate ~~2006,~~the ~~which~~carrying ~~are~~value ~~contained~~of in the ~~Company’s~~ ~~Annual~~assets ~~Report~~may onnot ~~Form~~be ~~10-K~~recoverable. ~~filed~~A ~~with~~loss ~~the~~is ~~SEC~~recognized on ~~April~~the 4,statements ~~2007~~of ~~and~~operations ~~the Company’s~~if ~~amended~~it ~~Annual~~is ~~Report~~determined onthat ~~Form~~an ~~10-K~~impairment ~~filed~~exists based on ~~April~~expected ~~17,~~future ~~2007~~undiscounted cash flows. The ~~condensed~~ ~~consolidated~~amount ~~interim~~of ~~financial~~the ~~statements,~~impairment inis the ~~opinion~~excess of ~~management, reflect all adjustments (including all normal recurring accruals) necessary to present fairly~~ the ~~Company’s~~carrying ~~financial~~amount ~~position, results~~ of ~~operations and cash flows for~~ the ~~interim~~impaired ~~periods~~asset ~~ended~~over ~~September~~its ~~30,~~fair ~~2007 and 2006~~value. ~~The~~There ~~results~~were ofno ~~operations~~impairments ~~for the~~and ~~interim~~no ~~periods~~impairment ~~are~~loss ~~not~~was ~~necessarily~~recorded ~~indicative~~during of the ~~results~~three ofmonths ~~operations~~ended toMarch ~~be expected~~31, ~~for~~2009 ~~the~~and ~~fiscal year~~2008.

~~CASH~~REVENUE ~~AND CASH EQUIVALENTS~~RECOGNITION

The Company ~~considers~~ships ~~all~~and ~~highly-liquid~~invoices ~~debt~~its ~~instruments~~sales ~~with~~in ~~original maturities~~accordance ofwith ~~three~~signed ~~months~~purchase ororders. ~~less~~In toconformity bewith ~~cash~~the ~~equivalents,~~guidelines ~~including~~provided ~~highly~~in ~~rated~~SEC’s ~~money market~~Staff ~~funds~~Accounting ~~with~~Bulletin ~~daily~~(SAB) ~~liquidity.~~Topic At13 ~~September~~Revenue 30Recognition, ~~2007, and throughout~~ the ~~three month~~Company ~~period,~~only ~~balances~~recognizes ofrevenue ~~cash~~when atit ~~financial~~is ~~institutions~~realized ~~exceeded~~and ~~the federally insured limit~~earned. The Company ~~has~~considers ~~not~~its ~~experienced~~revenues ~~any~~to ~~losses~~have inbeen ~~such~~earned ~~accounts~~when ~~and~~goods ~~believes~~are itshipped ~~is not~~in ~~subject~~accordance towith ~~any~~signed ~~significant~~purchase ~~credit~~orders. ~~risk~~Any onsoftware ~~cash~~imbedded ~~and~~in ~~cash~~the ~~equivalents.~~products ~~The~~sold ~~following schedule~~is ~~summarizes~~considered ~~the~~incidental ~~estimated~~to ~~fair value of~~ the ~~Company’s~~product ~~cash~~being ~~and cash equivalents (in thousands):~~sold.

		September 30, 2007		December 31, 2006
		(unaudited)
Cash and cash equivalents:
Cash	$	175	$	72
Money market funds		2,651		2,866
	$	2,826	$	2,938

The Company accounts for maintenance contracts in accordance with FASB Technical Bulletin No. 90-1, “Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts”. Revenue from separately priced extended warranty and product maintenance contracts is deferred and recognized in income on a straight-line basis over the contract period.

~~INVENTORIES,~~DEFERRED ~~NET~~REVENUE

~~The~~Deferred ~~components~~revenue represents the unrecognized portion of ~~inventories~~the ~~are~~Company’s asseparately ~~follows~~priced (product maintenance contracts. Revenue from these contracts is recognized in ~~thousands):~~income on a straight-line basis over the contract period.

		September 30, 2007		December 31, 2006
Finished goods	$	5,301	$	3,738
Raw materials		230
	$	5,531	$	3,738

RESEARCH AND DEVELOPMENT COSTS

~~CONCENTRATION~~The OFCompany ~~CREDIT~~complies ~~RISK~~with the accounting and reporting requirements of SFAS No. 2, “Accounting For Research and Development Costs”. Expenditures for research, development and engineering of software and hardware products, that are included in selling, general and administrative expenses in the consolidated statements of operations, are expensed as incurred.

~~Financial~~STOCK-BASED ~~instruments~~COMPENSATION that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, short term investments and accounts receivable. Substantially all of the Company’s cash and cash equivalents are invested in highly liquid money market funds.

~~FAIR~~The ~~VALUE~~Company OFcomplies ~~FINANCIAL~~with ~~INSTRUMENTS~~the accounting and reporting requirements of SFAS No. 123(R) “Accounting for Stock-Based Compensation (“SFAS No. 123(R)”)”. SFAS No. 123(R) requires companies to record compensation expense for share-based awards issued to employees in exchange for services provided. The amount of the compensation expense is based on the estimated fair value of the awards on their grant dates and is recognized over the applicable vesting period.

The ~~Company’s~~fair ~~financial~~value ~~instruments,~~of ~~including~~stock ~~cash~~options ~~and~~is ~~cash equivalents,~~determined ~~accounts~~using ~~receivable~~an ~~and~~option-pricing ~~accrued~~model ~~expenses~~that ~~payable~~takes ~~are~~into ~~carried~~account the stock price at ~~cost.~~the ~~The Company’s~~grant ~~financial~~date, ~~instruments~~the ~~approximate~~exercise ~~fair~~price, ~~value~~the ~~due~~expected tolife ~~their~~of ~~relatively short~~the ~~maturities.~~option, ~~The~~the ~~Company~~volatility ~~does~~of ~~not~~the ~~hold~~underlying orstock, expected ~~issue~~dividends, ~~financial~~and ~~instruments~~the ~~for~~risk ~~trading purposes~~free interest rate over the expected life of the option.

~~PRINCIPLES~~The OFCompany ~~CONSOLIDATION~~elected to utilize the modified prospective transition method, which requires the application of the accounting standard to all share-based awards issued on or after January 1, 2006 and any outstanding share-based awards that were issued but not vested as of January 1, 2006.

~~The~~During ~~condensed consolidated financial statements include~~ the ~~accounts~~three ~~of our~~month ~~direct~~period ~~and~~ended ~~indirect~~March ~~wholly-owned subsidiaries Costar~~31, ~~Video Solutions Technology Center~~2009, ~~LLC~~the ~~("VSTC"),~~Company Lrecognized Q$15 ~~Corporation,~~in ~~Sielox,~~stock-based ~~LLC and~~compensation ~~SES.~~expense ~~Significant intercompany~~in ~~transactions~~its ~~and~~consolidated ~~balances~~financial ~~have been eliminated~~statements. During ~~Due to~~ the ~~fact~~three ~~that~~month ~~the~~period ~~closing date~~ended ofMarch ~~the Merger was July~~ 31, ~~2007~~2008, the ~~condensed~~Company ~~consolidated~~recognized ~~financial~~no ~~statements include~~stock-based ~~two~~compensation ~~months~~expense ofin ~~activity~~its ~~for~~consolidated Lfinancial ~~Q and SES. This represents all of the activity for L Q Corporation~~statements, ~~Sielox,~~as ~~LLC~~it ~~and~~issued ~~SES~~no ~~since~~stock-based ~~the~~compensation ~~merger~~to ~~date~~its ~~of July 31, 2007~~employees.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss), which includes foreign currency translation adjustments and unrealized gains and losses on marketable securities classified as available for sale. The Company complies with provisions of SFAS No. 130, “Reporting Comprehensive Income (“SFAS No. 130”)”. SFAS No. 130 establishes standards for disclosure and financial statement presentation for reporting total comprehensive income (loss) and its individual components. Comprehensive income (loss), as defined, includes all changes in equity during a period from non-owner sources.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(~~UNAUDITED~~$ in thousands, except for shares, unaudited)

NOTE 13. ~~- THE COMPANY AND~~ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

~~INCOME~~NEWLY ~~TAXES~~ISSUED AND ADOPTED ACCOUNTING PRONOUNCEMENTS

~~Effective~~On ~~January~~October 110, ~~2007~~2008, the ~~Company~~FASB ~~adopted~~issued ~~the~~FSP ~~provisions~~FAS of157-3 ~~the Financial~~which ~~Accounting~~clarifies ~~Standards~~the ~~Board~~application ~~(“FASB”)~~of ~~Interpretation~~SFAS No. ~~48, “Accounting~~157 ~~for Uncertainty~~ in ~~Income Taxes -~~ an ~~interpretation~~inactive ofmarket ~~FASB~~and ~~Statement No.~~provides ~~109”~~an ~~(“FIN~~example ~~48”).~~to ~~There~~demonstrate ~~were~~how nothe ~~unrecognized tax~~fair ~~benefits~~value as of ~~January~~a 1,financial ~~2007~~asset ~~and~~is asdetermined ofwhen ~~September~~the ~~30,~~market ~~2007. FIN 48 prescribes a recognition threshold and a measurement attribute~~ for ~~the~~that financial ~~statement recognition~~asset ~~and~~is ~~measurement of tax positions taken or expected to be taken in a tax return~~inactive. ~~For~~FSP ~~those~~FAS ~~benefits to be recognized, a tax position must be more~~157-~~likely-than-not~~3 towas beeffective ~~sustained~~ upon ~~examination~~issuance, byincluding ~~taxing~~prior ~~authorities.~~periods ~~The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued~~ for ~~the~~which ~~payment~~financial ofstatements ~~interest~~had ~~and penalties~~not atbeen ~~January 1, 2007~~issued. There was no change to this balance at September 30, 2007. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position. The adoption of ~~the provisions~~ of ~~FIN~~FSP 48FAS 157-3 did not have aan ~~material~~ impact on the Company’s ~~financial~~ ~~position,~~ results of consolidated operations, or cash flows or financial position.

~~GOODWILL~~In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” an Amendment of ARB No. 51, “Consolidated Financial Statement” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This statement is effective as of the beginning of an entity's first fiscal year that begins after December 15, 2008 with retrospective application. The Company has adopted the provisions of SFAS 160 which did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.

~~Pursuant~~In toMarch ~~SFAS 142~~2008, ~~effective~~the ~~December~~FASB ~~31,~~issued ~~2001~~SFAS No. 161, ~~goodwill~~“Disclosures isabout noDerivative ~~longer being~~Instruments ~~amortized.~~and ~~The~~Hedging ~~company~~Activities” ~~tests~~(“FAS ~~goodwill~~161”). ~~for~~FAS ~~impairment~~161 onrequires anenhanced ~~annual~~disclosures ~~basis,~~about ~~relying on~~an aentity’s ~~number~~derivative ofand ~~factors~~hedging ~~including~~activities ~~operating~~and ~~results,~~thereby ~~business~~improves ~~plans~~the ~~and~~transparency ~~future~~of ~~cash flows~~financial reporting. The ~~Recoverability~~objective of ~~goodwill~~the guidance is ~~evaluated~~to ~~using~~provide ausers ~~two-step~~of ~~process.~~financial ~~The~~statements ~~first~~with ~~step involves~~an aenhanced ~~comparison~~understanding of ~~fair~~how ~~value~~and ofwhy ~~the~~an ~~Company~~entity ~~with~~uses isderivative ~~carrying~~instruments; ~~value.~~how Ifderivative ~~the carrying~~instruments ~~value~~and ~~exceeds~~related ~~its~~hedged ~~fair~~items ~~value,~~are ~~the~~accounted ~~second~~for; ~~step~~and ofhow ~~the~~derivative ~~process~~instruments ~~involves~~and ~~a comparison~~related ofhedged ~~the~~items ~~fair~~affect ~~value~~an ~~and~~entity’s ~~carrying~~financial ~~value~~position, offinancial ~~the~~performance, ~~goodwill~~and cash flows. FAS If161 ~~the~~is ~~carrying~~effective ~~value exceeds~~for ~~its~~fiscal ~~fair~~years ~~value,~~beginning anafter ~~impairment~~November ~~loss~~15, 2008. Management is ~~recognized~~currently inevaluating anthe ~~amount~~impact ~~equal~~FAS to161 will have on the ~~excess~~ Company’s consolidated financial statements.

~~STOCK-BASED~~In ~~COMPENSATION~~May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles ($“SFAS inNo. ~~thousands~~162”)”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States. It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles”. The adoption of this statement is not expected to have a material effect on the Company’s consolidated financial statements.

OnIn ~~January~~December 12007, ~~2006,~~ the ~~Company~~FASB ~~adopted~~issued SFAS No.~~123~~ 141 (Rrevised 2007), “~~Accounting for~~Business ~~Stock-Based Compensation~~Combinations” (“~~SFAS~~FAS ~~No. 123(R)~~141R”). ~~Among~~FAS ~~other~~141R ~~items, SFAS~~establishes ~~No.~~principles ~~123(R)~~and ~~requires~~requirements ~~companies~~for tohow ~~record~~the ~~compensation~~acquirer ~~expense~~in ~~for~~a ~~share-based awards~~business ~~issued~~combination torecognizes ~~employees~~ and ~~directors~~measures in ~~exchange~~its ~~for~~financial ~~services~~statements ~~provided.~~the ~~The~~fair ~~amount~~ value of identifiable assets acquired, the ~~compensation~~liabilities ~~expense~~assumed isand ~~based~~any onnoncontrolling interest in the ~~estimated~~acquiree ~~fair~~at ~~value~~the acquisition date. FAS 141R determines what information to disclose to enable users of the ~~awards~~financial onstatements ~~their grant~~to ~~dates~~evaluate the nature and financial effects of the business combination. FAS 141R is ~~recognized~~effective ~~over~~for fiscal years beginning after December 15, 2008. The Company adopted FAS 141R on January 1, 2009, which did not have an impact on the ~~applicable~~Company’s ~~vesting~~consolidated ~~period~~financial position, results of operations or cash flows.

~~The~~In ~~fair~~April ~~value~~2008, ofthe ~~stock~~FASB ~~options~~issued isStaff ~~determined~~Position ~~using~~(FSP) anNo. ~~option~~FAS 142-~~pricing model~~3, ~~that~~“Determination ~~takes~~of ~~into~~the ~~account~~Useful ~~the~~Life ~~stock~~of ~~price~~Intangible atAssets ~~the~~(“FAS ~~grant~~142-3”)”. ~~date,~~The FSP amends the ~~exercise~~factors ~~price,~~ an entity should consider in developing renewal or extension assumptions used to determine the ~~expected~~useful life of ~~the~~a ~~option~~recognized intangible asset under FASB Statement No. 142, ~~the~~“Goodwill ~~volatility~~and Other Intangible Assets”. The new guidance applies to (1) intangible assets that are acquired individually or with a group of ~~the~~other ~~underlying~~assets ~~stock~~and (2) both intangible assets acquired in business combinations and ~~the expected~~asset ~~dividends~~acquisitions. This onFSP itis effective for financial statements issued for fiscal years beginning after December 15, 2008, and ~~the~~interim ~~risk~~periods ~~free~~within ~~interest~~those ~~rate~~fiscal ~~over~~years. Early ~~the~~adoption ~~expected~~is ~~life~~prohibited. The ofCompany does not expect the ~~option~~ adoption of FAS 142-3 will have a material impact on its consolidated financial statements.

~~The~~In ~~Company~~January ~~adopted~~2009, ~~SFAS~~the FASB issued FSP No.~~123(R)~~ ~~using~~EITF 99-20-1, “Amendments to the ~~modified~~Impairment ~~prospective transition~~Guidance ~~method,~~of ~~which~~EITF ~~requires~~Issue No. 99-20”. This FSP amends the ~~application~~impairment guidance in EITF 99-20, “Recognition of ~~the~~Interest ~~accounting~~Income ~~standard~~and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to ~~all share~~be Held by a Transferor in Securitized Financial Assets”, to achieve more consistent determination of whether an other-~~based~~than-temporary ~~awards~~impairment ~~issued~~has onoccurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”, and other related guidance. This FSP is effective for the first reporting period, interim or annual, ending after ~~January~~December 115, ~~2006~~2008, ~~and~~which ~~any~~for ~~outstanding~~the ~~share-based awards~~Company ~~that~~was ~~were~~the ~~issued~~year ~~but~~ended ~~not~~December ~~vested~~31, as2008. The adoption of ~~January~~this 1,FSP ~~2006~~has had no effect on disclosures in our financial statements.

In the nine months ended September 30, 2007 and 2006, the Company recognized stock-based compensation expense of $0 and $19, respectively, in its condensed consolidated financial statements. This amount includes compensation expense for fully vested stock options granted subsequent to January 1, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123(R).

As part of the merger consideration given to holders of L Q Corporation stock options, 2,676,504 options of Sielox, Inc. were issued. Management has determined in accordance with the provisions of SFAS No. 123(R), that these options have a fair value of approximately $341, which has been capitalized as a result of the Merger.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(~~UNAUDITED~~$ in thousands, except for shares, unaudited)

NOTE 4. EARNINGS ~~2 - ACQUISITION~~ ($LOSS) inPER ~~thousands)~~SHARE

OnBasic ~~June~~net ~~20,~~income ~~2006,~~(loss) ~~Costar~~per ~~and~~common ~~VSTC,~~share ~~two~~is ofcomputed using the ~~Company’s~~weighted ~~direct~~average ~~and indirect~~number ~~wholly~~of ~~owned~~common ~~subsidiaries,~~shares ~~completed~~outstanding during the ~~acquisition~~period. Diluted net income (~~the “Acquisition”~~loss) ofper ~~substantially~~common ~~all~~share ofis computed using the ~~assets~~weighted average number of ~~Southern~~common ~~Imaging, Inc.,~~shares aoutstanding ~~Texas~~during ~~corporation~~the ~~("Southern~~period ~~Imaging"),~~plus ~~and~~the ~~Video~~effect ~~Solutions~~of ~~Technology~~any ~~Center Inc.,~~dilutive apotential ~~Nevada~~common ~~corporation~~shares. ~~("Video~~Dilutive ~~Solutions"),~~potential ~~pursuant~~common toequivalent ~~the~~shares ~~transactions contemplated~~consist byof the ~~Asset~~assumed ~~Purchase~~exercise ~~Agreement~~of stock options, ~~dated~~the asproceeds of ~~June~~which ~~20,~~are ~~2006,~~then byassumed ~~and~~to ~~between Southern~~have ~~Imaging,~~been ~~Video~~used ~~Solutions,~~to ~~the~~repurchase ~~shareholders~~outstanding ofstock ~~Southern~~using ~~Imaging,~~the ~~Costar~~treasury ~~and VSTC.~~stock ~~However~~method, and the ~~Acquisition~~assumed isconversion ~~being~~of ~~accounted~~convertible ~~for~~preferred asstock ifand itwarrants. ~~was~~At ~~effectively completed~~March on31, ~~June~~2009 30and 2008, ~~2006.~~the ~~Results~~additional ofshares ~~operations~~ of ~~Southern~~common ~~Imaging~~stock ~~and~~outstanding ~~Video Solutions~~ have been ~~included~~excluded infrom the ~~consolidated~~calculation ~~financial~~of ~~statements~~diluted ~~since~~net ~~June~~loss ~~30, 2006~~per common share because the effect would be anti-dilutive.

~~Costar,~~NOTE 5 ~~the Company’s wholly~~-~~owned~~ ~~subsidiary~~FAIR ~~which~~VALUE acquired Southern Imaging’s assets, designs, sources and distributes video and imaging products for the security and industrial markets. VSTC, a wholly-owned subsidiary of Costar which acquired the assets of Video Solutions, provides product design and development, technical support and repair services for Costar. Estimated total consideration for the Acquisition is up to approximately $9,600, consisting of the issuance at closing of 200,000 shares of our common stock, a cash payment of approximately $3,800 (including a finders fee payment of approximately $154, a payment of $108 to Barington and the payoff of shareholder loans of approximately $612) less the value of the 200,000 shares of the Company’s common stock, the assumption of certain liabilities of approximately $3,500, and deferred consideration of up to $4,000 in cash, contingent upon Costar and VSTC achieving certain levels of sales and EBITDA after the closing through 2009, of which $2,225 was recorded as a long-term liability. On September 29, 2006, the 200,000 shares of the Company’s common stock were issued. During the second quarter of 2007, in accordance with the Asset Purchase Agreement, the Company made the first of four possible annual deferred payments. A payment of $542 was paid pursuant to this provision.MEASUREMENTS

The ~~following~~Company’s ~~proforma~~assets ~~information~~are ~~gives~~recorded ~~effect~~at tofair ~~the~~value ~~acquisition~~have asbeen ~~if it~~categorized ~~had~~based ~~occurred~~upon ona ~~the~~fair ~~first~~value ~~day~~hierarchy ofin ~~each~~accordance ofwith ~~the~~SFAS ~~three~~No. ~~and~~157. ~~nine~~See ~~months~~Note ~~periods~~3 ~~ended September,~~for 30a ~~2006~~discussion of the Company’s accounting policies.

		Three Months Ended September 30,		Nine Months Ended September 30,
		(unaudited)		(unaudited)
Total revenue	$	3,614	$	11,154
Net income (loss)		193		404
Net income (loss) per share
Basic	$	0.01	$	0.02
Diluted	$	0.01	$	0.02

The following tables present information about the Company’s assets, that are measured at fair value as of March 31, 2009, and December 31, 2008.

NOTE 3 – MERGER


Description		March 31, 2009 (unaudited)		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents (money market funds)	$	2	$	2	$	—	$	—
Short-term investments (capital reserve fund)		243		—		243		—
Total	$	245	$	2	$	243	$	—

As discussed previously, the Merger was consummated on July 31, 2007. The Merger was consummated so that both entities can take advantage of synergies which can be developed within the security industry, as well as expected cost savings which would be the result of operating under one Company. The aggregate consideration given by the Company in order to consummate the Merger, including merger expenses of $140, was $4,169. As part of the merger consideration, the Company issued 11,829,001 shares to the former stockholders of L Q Corporation, 461,538 shares to Barington Capital as consideration for merger fees, and 2,676,504 stock options to former L Q Corporation stock option holders.


Description		December 31, 2008 (audited)		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Cash and cash equivalents (money market funds)	$	52	$	52	$	—	$	—
Short-term investments (capital reserve fund)		305		—		305		—
Total	$	357	$	52	$	305	$	—

NOTE 6 - LEGAL PROCEEDINGS

The Company, as well as the Company’s subsidiary, LQ Corporation, are defendants in certain purported class action lawsuits entitled “In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS)” filed by individual shareholders in the U.S. District Court for the Southern District of New York against certain of the Company’s former officers and directors, and various of the underwriters in the Company’s initial public offering (“IPO”) and secondary offering. The lawsuits have been filed by individual shareholders who purport to seek class action status on behalf of all other similarly situated persons who purchased our common stock between July 8, 1999 and December 6, 2000. A consolidated amended class action complaint was filed on April 19, 2002. The complaint alleges that certain underwriters of the IPO solicited and received excessive and undisclosed fees and commissions in connection with that offering. The complaint further alleges that the defendants violated the federal securities laws by issuing a registration statement and prospectus in connection with the Company’s IPO which failed to accurately disclose the amount and nature of the commissions and fees paid to the underwriter defendants. On or about October 8, 2002, the Court entered an Order dismissing the claims asserted against certain individual defendants in the consolidated actions without any payment from these individuals or the Company. On or about February 19, 2003, the Court entered an Order dismissing with prejudice the claims asserted against the Company under Section 10(b) of the Exchange Act. As a result, the only claims that remain against the Company are those arising under Section 11 of the Securities Act. In June 2004, a stipulation of settlement between the plaintiffs and issuer defendants was submitted to the Court (the “Settlement”). In August 2005, the Court granted preliminary approval of the Settlement. In December 2006, the Court of Appeals for the Second Circuit overturned the certification of classes in the six focus cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Neither the Company nor LQ Corporation was a party in one of the six focus cases. Because class certification was a condition of the Settlement, it was unlikely that the Settlement would receive final court approval. On June 25, 2007, the Court entered an order terminating the Settlement based upon a stipulation among the parties to the Settlement. Plaintiffs have filed amended master allegations and amended complaints in the six focus cases. On March 26, 2008, the Court denied in substantial part the motions to dismiss the amended complaints in the six focus cases. Plaintiffs also filed new motions for class certification, which the issuer defendants and the underwriter defendants separately opposed. The plaintiffs have recently voluntarily withdrawn their motion for class certification without prejudice.

SIELOX, INC. ~~(formerly known as DYNABAZAAR, INC.)~~ AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(~~UNAUDITED~~$ in thousands, except for shares, unaudited)

NOTE 6 ~~3 –~~- ~~THE~~LEGAL ~~MERGER~~PROCEEDINGS (continued)

The ~~following~~parties ~~table~~have ~~summarizes~~reached a global settlement of the ~~estimated~~litigation. ~~fair~~Plaintiffs ~~values~~filed their motion for preliminary approval and supporting papers with the Court on April 2, 2009. Under the settlement, which remains subject to Court approval, the insurers would pay the full amount of settlement share, allocated to the ~~assets acquired~~Company, and ~~liabilities~~the ~~assumed~~Company bywould ~~the~~bear no financial liability. The Company, as of well as the ~~date~~officer ofand director defendants who were previously dismissed from the ~~Merger~~action pursuant to tolling agreements, would receive complete dismissals from the case. It is uncertain whether the settlement will receive final Court approval. If the settlement does not receive final Court approval, and litigation against the Company continues, the Company believes that it has meritorious defenses and intends to defend the action vigorously.

JULY 31, 2007 ($ IN THOUSANDS)
Cash	$	1,368
Accounts Receivable		1,158
Inventories		799
Other current assets		16
Property and Equipment		209
Deposits		53
Goodwill		2,029
Total assets		5,632
Accounts Payable		(1,136	)
Other Current liabilities		(327	)
Total liabilities		1,463
Net assets received in transaction	$	4,169

The expense of defending this litigation has been and may continue to be significant. The amount of time to resolve this lawsuit is unpredictable and its defense may divert management's attention from the day-to-day operations of the Company’s business, which could materially affect the Company’s business, results of operations and cash flows. In addition, an unfavorable outcome in such litigation could have a material adverse effect on the Company’s business, results of operations and cash flows.

~~Goodwill~~Berger ~~arose from the Merger~~v. ~~This~~L isQ ~~due to consideration given including merger costs for an aggregate total of approximately $4,200 which exceeded the fair market value of all identifiable assets~~Corp. ~~The Company is in the process of identifying an independent appraiser to conduct an appraisal of all tangible and intangible assets (including~~, ~~but not limited to, inventory, fixed assets, developed software, hardware designs, customer lists, patents, trademarks, and trade names, etc~~C.~~) received as a result of the Merger~~A. ~~Such assets, if appropriate, will be adjusted upon results of an independent appraisal~~No. ~~The~~3363 ~~results of this appraisal may give rise to, among other things, goodwill~~(Del. ~~Goodwill of approximately $2,029 may be adjusted for, or reclassified upon, results of an independent appraisal~~Ch. As the independent appraisal is not yet completed on the intangible assets received, the Company has not made an estimate of amortization. As a result, no amortization related to the goodwill resulting from the Merger was charged to operations for the three months or nine months ended September 30, 2007.)

~~Pro~~A ~~Forma~~Petition ~~Income~~For ~~Statement~~Appraisal of Stock (the “Petition”) under Delaware’s General Corporation Law (the “DGCL”), 8 Del. C. § 262, was filed in the Delaware Court of Chancery on November 19, 2007 against L Q Corporation, our wholly owned subsidiary, by Andrew T. Berger (“Berger”), a purported beneficial owner of 49,014 shares of common stock in L Q Corporation, and by Cede & Co., the purported record owner of the shares beneficially owned by Berger. The Petition demanded appraisal of Berger’s shares in L Q Corporation, the payment of the fair value of such shares to Berger under Section 262 of the DGCL, and an award of fees and costs in connection with the filing and prosecution of the Petition. L Q Corporation moved to dismiss the Petition on December 19, 2007. In response to L Q Corporation’s motion to dismiss, Berger amended the petition for appraisal (the “Amended Petition”) on January 11, 2008. L Q Corporation filed a motion to dismiss the Amended Petition on January 23, 2008. L Q Corporation subsequently withdrew its motion to dismiss the Amended Petition on April 24, 2008, and answered the Amended Petition on May 1, 2008. On February 11, 2009, the parties agreed to mediate this action pursuant to Court of Chancery Rule 174 in an effort to settle this action, and a mediation conference was held on March 19, 2009. At the mediation conference, the parties reached an agreement in principle to settle the action. Thereafter, the partner negotiated an agreement of dismissal and release (the “Agreement”) and the Sgreement was executed by the parties on or about March 25, 2009. After the Agreement was executed by the parties, the parties executed a stipulation of dismissal of the action on March 31, 2009 (the “Stipulation”), submitted the Stipulation to the Court of Chancery and requested that the Court of Chancery enter the Stipulation as an Order of the Court of Chancery, which will dismissed the action with prejudice.

~~The~~Under ~~following~~the ~~unaudited~~terms ~~pro~~of ~~forma~~the ~~information~~settlement, ~~presents~~the ~~results~~Company ~~of operations~~will ofrepurchase ~~the~~approximately ~~Company~~180,000 asshares iffrom ~~the~~Mr. ~~Merger transaction~~Berger ~~had~~at ~~occurred~~approximately as$0.82 ofper ~~January~~share. 1,This ~~2007.~~transaction As resulted in the Company isrepurchasing in the ~~process~~above ofmentioned ~~receiving~~shares ~~an appraisal~~in ona ~~the~~treasury ~~goodwill~~stock ~~acquired~~transaction aswhich awas ~~result~~recorded as of ~~the~~December ~~acquisition~~31, ~~amortization expense~~2008, at ~~can~~the ~~not~~estimated befair ~~estimated~~value atof ~~this~~the ~~time.~~shares ~~Although prepared~~as onof athe ~~basis~~July ~~consistent~~31, 2007 merger date with the ~~Company’s~~ ~~consolidated~~offsetting ~~financial~~amount ~~statements,~~recorded ~~these unaudited~~as ~~pro~~litigation ~~forma~~settlement. ~~results~~The doCompany ~~not~~has ~~purport~~received toa ~~be indicative~~notice offrom the ~~actual~~Bank ~~results~~ of ~~operations~~Texas ofthat the ~~combined~~Stipulation ~~companies~~constitutes ~~which~~a ~~would have~~default ~~been~~under ~~achieved~~the ~~had~~Loan ~~these~~Agreement. The ~~events~~Company ~~occurred~~disagrees at with the ~~beginning~~Bank of ~~the~~Texas’ ~~periods~~assertion ~~presented~~and ~~nor~~is ~~are~~currently ~~they indicative~~in discussions with the “Bank of ~~future~~Texas” ~~results~~regarding this matter.

	Three Months Ended	Nine Months Ended
	September 30, 2007 (unaudited)	September 30, 2007 (unaudited)
Net Sales	$ 7,069	$ 18,411
Cost of goods sold	(5,175)	(13,327)
Gross profit	1,894	5,084
General and administrative expenses	2,262	6,516
Net profit ( loss ) from operations	(368)	(1,432)
Interest income (expense)	22	89
Pro forma adjustment to general and administrative expenses	(58)	(395)
Net profit (loss)	$ (288)	$ (948)
Net income (loss) per share - as reported	$ (0.01)	$ (0.02)
Net income (loss) per share - pro forma	$ (0.01)	$ (0.03)
Weighted-average shares	35,983	35,983

~~SIELOX,~~ITEM ~~INC~~2. MANAGEMENT’S ~~(formerly~~DISCUSSION ~~known~~AND asANALYSIS ~~DYNABAZAAR,~~OF ~~INC.)~~FINANCIAL CONDITION AND ~~SUBSIDIARIES~~ RESULTS OF OPERATIONS

~~NOTES~~OVERVIEW TOAND ~~CONDENSED~~BUSINESS ~~CONSOLIDATED FINANCIAL STATEMENTS~~SUMMARY

~~(UNAUDITED)~~We develop, design and distribute a range of security solution products such as surveillance cameras, lenses, digital video recorders, high speed domes and access control systems. We also develop, design and distribute industrial vision products to observe repetitive production and assembly lines, thereby increasing efficiency by detecting faults in the production process.

~~NOTE~~From 4our organization in 1997 through September 3, 2003, we operated under the name of Fairmarket, Inc. as an online auction and promotions technology service provider that enabled marketers to create results-oriented ~~INTANGIBLE~~rewards ~~ASSETS~~programs and helped commerce companies automate the process of selling their excess inventory online to wholesale and retail buyers. On September 4, ~~NET~~2003, (we sold substantially all of our operating assets to eBay, Inc. for consideration of $4.5 million in ~~thousands):~~cash, and promptly changed our name to Dynabazaar, Inc.

~~The~~From ~~intangible~~January ~~assets~~2003 ~~acquired~~until asJune a20, ~~result of the Acquisition have been adjusted in the prior year as a result of the completion of an independent appraisal~~2006, ~~adjustments~~ towe ~~the~~had ~~estimated~~no ~~fair~~operations ~~values of the assets acquired~~ and ~~post~~were ~~closing adjustments~~settling toour ~~the~~remaining ~~purchase~~claims ~~price.~~and ~~Goodwill~~liabilities ~~was~~while ~~acquired~~reviewing asalternatives afor ~~result of~~ the ~~Merger~~use ~~and is~~or ~~subject~~disposition toof anour ~~independent~~remaining ~~appraisal~~assets.

	September 30,		December 31,
	2007		2006
	(unaudited)
	Gross Carrying	Accumulated	Gross Carrying	Accumulated
	Amount	Amortization	Amount	Amortization
Amortized intangible asset:
Other intangibles, net	$3,066	$407	$3,066	$133
Unamortized intangible assets
Goodwill	2,029
Trade Name	1,587		1,587
Total	$6,682		$4,653

On July 20, 2006, we purchased substantially all of the assets of each of Southern Imaging, Inc., which designed, sourced and distributed video and imaging products for the security and industrial markets, and Video Solutions Technology Center, Inc., which provided product design and development, technical support and repair services support for Southern Imaging.

~~Amortization~~Effective ~~expense~~July ~~for~~31, ~~the~~2007, ~~three~~our ~~and~~wholly-owned ~~nine~~subsidiary, ~~months~~L ~~ended~~Q ~~September~~Merger 30Corp., ~~2007~~ ~~was~~merged ~~$159~~with ~~and~~L ~~$274~~Q Corporation, ~~respectively~~Inc., ~~Estimated~~which ~~amortization~~develops, ~~expense~~designs, ~~applicable~~and ~~to amortizable~~distributes ~~intangible~~a ~~assets~~complete ~~for~~line ~~each~~ of ~~the~~access ~~next~~control 5software, ~~years~~programmable iscontrollers ~~$340.~~and ~~The~~related ~~estimated useful~~accessories ~~life~~through ~~for~~its ~~Existing~~Sielox, ~~Customer~~LLC ~~Relationships~~subsidiary, and ~~Distribution~~provided ~~Agreement~~strategic issecurity 6and business protection solutions and ~~20 years,~~corporate ~~respectively~~investigations through its SES Resources International Inc. ~~The~~subsidiary. ~~weighted~~As ~~average~~a ~~useful~~result ~~life~~of ~~for~~the ~~intangible~~merger, ~~assets~~L ~~subject~~Q ~~to amortization~~Corporation isbecame 13our ~~years~~wholly-owned subsidiary. Immediately following the merger, we changed our name to Sielox, Inc.

~~NOTE 5~~Effective -November ~~NET~~30, ~~INCOME~~2007, ~~(LOSS)~~we ~~PER~~shut ~~SHARE:~~down the operations of SES Resources and sold our equity interest in that company, together with its net fixed assets, to its minority shareholder for $10. In connection with this sale, we recorded certain liabilities for salary and benefits in accordance with the employment contract with Bradley Schnur, President of SES, in the amount of $28. The operations of SES Resources did not have a material impact on our operations or revenues for the year ended December 31, 2007.

~~The~~CRITICAL ~~number~~ACCOUNTING of shares used to compute basic loss per share and diluted loss per share relates to additional shares to be issued upon the assumed exercise of stock options and warrants, net of shares hypothetically repurchased at the average market price with the proceeds of exercise. For the nine and three months ended September 30, 2007 the nine months ended September 30, 2006, basic and diluted net loss per common share is computed based on the weighted average number of common shares outstanding during the period because the effect of potential common equivalent shares would be anti-dilutive.POLICIES

While our significant accounting policies are more fully described in Note 2, Summary of Significant Accounting Policies, to our audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, we believe the following accounting policies to be critical:

Revenue recognition

Allowance for doubtful accounts

Accounting for income taxes

Impairment of long-lived assets

Goodwill and intangible assets

Fair value measurements

Revenue Recognition

The Company ships and invoices its sales in accordance with signed purchase orders. In conformity with the guidelines provided in SEC’s Staff Accounting Bulletin (SAB) Topic 13 Revenue Recognition, the Company only recognizes revenue when it is realized and earned. The Company considers its revenues to have been earned when goods are shipped in accordance with signed purchase orders. Any software imbedded in the products sold is considered incidental to the product being sold.

~~SIELOX~~The Company accounts for maintenance contracts in accordance with FASB Technical Bulletin No. 90-1, ~~INC~~“Accounting for Separately Priced Extended Warranty and Product Maintenance Contracts”. ~~(formerly~~Revenue ~~known~~from asseparately ~~DYNABAZAAR,~~priced ~~INC~~extended warranty and product maintenance contracts is deferred and recognized in income on a straight-line basis over the contract period.) ~~AND SUBSIDIARIES~~In proportion to the costs expected to be incurred in performing services under the contract.

~~NOTES~~Allowance TOfor ~~CONDENSED~~Doubtful ~~CONSOLIDATED FINANCIAL STATEMENTS~~Accounts

~~(UNAUDITED)~~Accounts receivable are recorded at net realizable values. We maintain an allowance for estimated losses resulting from the failure of customers to make the required payments and for anticipated returns. The allowance is based on specific facts and circumstances surrounding individual customers as well as historical experience. Provisions for the losses on receivables and returns are charged to income to maintain the allowance at a level considered adequate to cover losses and future returns. Receivables are charged off against the reserve when they are deemed uncollectible and returns are charged off against the reserve when the actual returns are incurred.

~~NOTE 6~~Accounting -for ~~LEGAL~~Income ~~PROCEEDINGS:~~Taxes

We, ascomply ~~well~~with asSFAS ~~our~~No. ~~newly acquired subsidiary L Q Corporation~~109, ~~are defendants~~“Accounting ~~in certain purported class action lawsuits filed by individual shareholders in the U.S. District Court~~ for ~~the~~Income ~~Southern District of New York against certain of our former officers and directors~~Taxes,” ~~and~~which ~~various~~requires ofan ~~the~~asset ~~underwriters in the Company’s initial public offering (“IPO”)~~ and ~~secondary~~liability ~~offering.~~approach ~~The lawsuits have been filed by individual shareholders who purport~~ to ~~seek~~financial ~~class~~reporting ~~action~~for ~~status~~income ~~on behalf of all other similarly situated persons who purchased our common stock between July 8, 1999 and December 6, 2000~~taxes. ADeferred ~~consolidated~~income ~~amended~~tax ~~class~~assets ~~action complaint was filed on April 19, 2002. The complaint alleges that certain underwriters of the IPO solicited~~ and ~~received~~liabilities ~~excessive~~are ~~and~~computed ~~undisclosed~~for ~~fees~~differences ~~and~~between ~~commissions in connection with that offering. The complaint further alleges that~~ the ~~defendants~~financial ~~violated~~statements ~~the federal securities laws by issuing a registration statement~~ and ~~prospectus~~tax inbases ~~connection with our IPO which failed to accurately disclose the amount and nature~~ of ~~the~~assets ~~commissions~~ and ~~fees~~liabilities ~~paid~~that towill ~~the~~result ~~underwriter defendants. On or about October 8, 2002, the Court entered an Order dismissing the claims asserted against certain individual defendants~~ in ~~the~~future ~~consolidated~~taxable ~~actions without any payment from these individuals~~ or ~~us.~~deductible ~~On or about February 19~~amounts, ~~2003,~~based ~~the~~on ~~Court~~enacted ~~entered~~tax anlaws Order dismissing with prejudice the claims asserted against us under Section 10(b) of the Exchange Act. As a result, the only claims that remain against us are those arising under Section 11 of the Securities Act. In June 2004, a stipulation of settlement between the plaintiffs and ~~issuer defendants~~rates ~~was~~applicable ~~submitted~~ to the ~~Court~~periods ( the “Settlement” ). In August 2005, the Court granted preliminary approval of the Settlement. In December 2006 the Court of Appeals for the Second Circuit overturned the certification of classes in ~~the~~which ~~six focus cases that were selected by~~ the ~~underwriter~~differences ~~defendants~~are ~~and~~expected ~~plaintiffs in the coordinated proceedings. The Court of Appeals, however, later noted that the plaintiffs remained free~~ to ~~ask~~affect ~~the~~taxable District Court to certify classes different from the ones originally proposed which might meet the standards for class certification that the Court of Appeals articulated in its December 2006 decisionincome. ~~Because~~Valuation ~~class~~allowances ~~certification was~~are ~~a condition of the Settlement~~established, itwhen ~~was unlikely that the Settlement would receive final Court approval. On June 25~~necessary, ~~2007,~~to ~~the~~reduce ~~Court~~deferred ~~entered~~income antax ~~order~~assets ~~terminating the Settlement based upon a stipulation among the parties~~ to the ~~Settlement.~~amount ~~Plaintiffs have~~expected filed amended master allegations and amended complaints in the six focus cases. Plaintiffs have also moved the District Court for certification of different classes in the six focus cases, and that motion remains pending. Because any possible future settlement with the plaintiffs, if a settlement were ever to be negotiated and ultimately agreed to, would involve the certification of a class action for settlement purposes, the impact of the Court of Appeals rulings on the possible future settlement of the claims against the Company cannot now be predictedrealized. ~~If no settlement is achieved, the Company believes that it has meritorious defenses and intends to defend the action vigorously.~~

~~The~~On ~~expense~~January of1, ~~defending~~2007, ~~this~~we ~~litigation~~adopted ~~may~~Financial beAccounting ~~significant.~~Standard ~~The~~Board ~~amount of~~Interpretation ~~time~~No to48, ~~resolve~~“Accounting ~~these~~for ~~lawsuits~~Uncertainty isin ~~unpredictable~~Income ~~and~~Taxes ~~defending~~an ~~the~~interpretation ~~Company~~of ~~and~~FASB ~~its subsidiary~~Statement ~~may~~No ~~divert~~109” ~~management's~~(“FIN ~~attention~~48”). ~~from~~FIN ~~the~~48 ~~day-to-day~~prescribes ~~operations~~a ofmeasurement ~~the Company's~~process ~~business,~~for ~~which~~recording ~~could~~in ~~adversely~~financial ~~affect~~statements, ~~the~~uncertain ~~Company's~~tax ~~business~~positions taken, ~~results~~or ~~of operations~~expected ~~and~~to ~~cash~~be ~~flows.~~taken, Inin ~~addition~~a tax return. Additionally, anFIN ~~unfavorable~~48 ~~outcome~~provides inguidance ~~such~~regarding ~~litigation~~uncertain ~~could have~~tax apositions ~~material~~relating ~~adverse~~to ~~effect~~derecognition, onclassification, ~~the~~interest ~~Company's~~and ~~business~~penalties, ~~results~~accounting ofin ~~operations~~interim periods, disclosure and ~~cash~~ ~~flows~~transitions. At December 31, 2008, we had no material uncertain tax positions.

~~NOTE 7~~ Long-lived ~~MAJOR CUSTOMERS AND SUPPLIERS ($ in thousands):~~Assets

~~For~~Pursuant to SFAS No. 144, “Accounting for the ~~three~~Impairment ~~months~~or ~~ended~~Disposal ~~September~~of ~~30,~~Long-lived ~~2007~~Assets,” ~~the~~we ~~Company~~review ~~had~~property ~~three customers~~and equipment for impairment whenever events or changes in circumstances indicated that ~~contributed~~the ~~14.1~~carrying %,amounts ~~13.8%~~of ~~and~~the 10assets may not be recoverable.0% ofA ~~sales~~loss ~~revenue,~~is ~~for~~recognized aon ~~total~~the statements of ~~$907,~~ ~~$888~~operations ~~and~~if ~~$636~~it ~~respectively.~~is ~~These~~determined ~~same~~that ~~three~~an ~~customers~~impairment ~~owed~~exists ~~12.6%,~~based ~~6.4%~~on ~~and~~expected 13future undiscounted cash flows.6% The amount of the ~~outstanding~~impairment ~~accounts~~is ~~receivable~~the ~~balance~~excess ~~for~~of athe ~~total~~carrying amount of ~~$539,~~the ~~$275~~impaired ~~and~~asset ~~$582 respectively~~over its fair value.

~~For~~Intangible the three months ended September 30, 2007, the Company made purchases, from one supplier, of approximately 33.6% of all purchases made, for a total of $1,957. Amounts owed to this same vendor were approximately 33.6% of the total accounts payable balance, for a total of $1,183.Assets

~~For~~Pursuant ~~the~~to ~~nine~~SFAS ~~months~~No. ~~ended~~142 ~~September~~“Goodwill ~~30,~~and ~~2007~~Other Intangible Assets,” ~~the~~intangible ~~Company~~assets ~~had~~with ~~two customers~~indefinite ~~that~~lives ~~contributed~~are ~~14.1~~not %amortized, ~~and~~but 13instead tested for impairment.5% ofIntangible ~~sales~~assets ~~revenue,~~with indefinite lives are reviewed for aimpairment ~~total~~at ofleast ~~$2,067~~annually ~~and $1,969~~or ~~respectively.~~whenever ~~These~~events ~~same~~or ~~two~~changes ~~customers~~in ~~owed~~business ~~12.6%~~combinations ~~and~~indicate ~~6.4%~~the carrying value of the ~~outstanding accounts~~assets ~~receivable~~may ~~balance~~not ~~for~~be arecoverable. ~~total~~Impairment losses are recognized if the fair value of ~~$539~~the ~~and~~intangible ~~$275~~is ~~respectively~~less than its carrying value.

~~For~~Intangible ~~the~~assets ~~nine~~with ~~months~~finite ~~ended~~useful ~~September~~lives ~~30,~~are ~~2007,~~amortized ~~the~~over ~~Company~~their ~~made~~estimated ~~purchases from~~useful ~~two~~lives. ~~suppliers~~These intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts of ~~approximately~~the ~~25.2%~~assets ~~and~~may 1not 1be recoverable.2% ofA ~~all~~loss ~~purchases~~is ~~made,~~recognized ~~for~~in athe ~~total~~ statements of ~~$3,829~~operations ~~and~~if ~~$1,703~~it ~~respectively.~~is ~~Amounts~~determined ~~owed~~that toan ~~these~~impairment ~~same~~exists ~~two~~based ~~vendors~~on ~~was approximately~~expected ~~33.6%~~future ~~and~~undiscounted 5cash flows.1% The amount of the ~~total~~impairment ~~accounts~~is ~~payable~~the ~~balance,~~excess ~~for~~of athe ~~total~~carrying amount of ~~$1,183~~ ~~and~~the ~~$181~~impaired ~~respectively~~asset over its fair value.

Goodwill

Pursuant to SFAS 142 “Goodwill and other Intangible Assets,” goodwill is not amortized but is instead tested for impairment. We test goodwill for impairment on an annual basis, relying on a number of factors including operating results, business plans and future cash flows. Recoverability of goodwill is evaluated using a two-step process. The first step involves a comparison of fair value of our company with its carrying value. If the carrying amount exceeds its fair value, the second step of the process involves a comparison of the fair value and carrying value of the goodwill. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

~~SIELOX,~~VALUATION ~~INC.~~OF ~~(formerly~~INVESTMENTS ~~known~~IN asSECURITIES ~~DYNABAZAAR,~~AND ~~INC.)~~SECURITIES AT FAIR VALUE – DEFINITION AND ~~SUBSIDIARIES~~ HIERARCHY

~~NOTES~~Fair TOValue ~~CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~Measurements

The Company adopted the provisions of SFAS No. 157, “Fair Value Measurements” (~~UNAUDITED~~“SFAS No. 157”), effective January 1, 2008. Under SFAS No. 157, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches. SFAS No. 157 establishes a fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

~~NOTE 8~~Level -1 ~~CREDIT~~– ~~LINE~~Valuations ($based on unadjusted quoted prices in ~~thousands)~~active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since the valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

~~The~~Level ~~Company~~2 ~~maintains~~– aValuations ~~line~~based ofon ~~credit~~quoted ~~with~~prices ~~the~~in ~~Bank~~markets ofthat ~~Texas,~~are ~~renewable on~~not anactive ~~annual~~or ~~basis. The expiration date~~ for the current line of credit is August 16, 2008. The line has a limit of $4,000, this is an increase from the previous limit of $2,500, and $2,613 and $1,771 was available as of September 30, 2007 and December 31, 2006. Interest is charged on the outstanding balance at a variable rate, which ~~was 7.75%~~all atsignificant ~~September~~inputs ~~30,~~are ~~2007. The line is secured by Costar’s accounts receivable and inventories~~observable, ~~and~~either ~~the~~directly ~~agreement~~or ~~requires the maintenance of financial ratios and monthly payments of accrued interest calculated on the outstanding balance~~indirectly. ~~As of September 30, 2007 and December 31, 2006, $1,387 and $729 respectively, were outstanding under the line of credit.~~

~~NOTE 9~~Level -3 ~~PURCHASE~~– ~~COMMITMENT~~Valuations ($based inon ~~thousands)~~inputs that are unobservable.

~~The~~In ~~Company~~February is2008, ~~committed~~the toFinancial ~~make~~FASB ~~purchases~~issued FSP No. 157-2 that delays the effective date of ~~approximately~~SFAS $1No. 157 for nonfinancial assets and liabilities,~~398,~~ ~~from a~~except ~~vendor~~for ~~within~~items anthat 18are ~~month~~recognized ~~period~~or ~~starting~~disclosed ~~July~~at 1,fair ~~2007~~value ~~and~~in ~~ending~~the ~~December~~financial 31statements on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008. The ~~commitment~~delay ~~was~~is ~~entered~~intended ~~into~~to inallow ~~order~~the toFASB ~~obtain~~and ~~more~~constituents ~~favorable~~additional ~~pricing~~time ~~for~~to consider the ~~Company's~~ ~~inventory.~~effect ~~During~~of ~~the~~various ~~period~~implementation ~~ended~~issues ~~September~~that 30have arisen, ~~2007~~or that may arise, from the ~~Company~~application ~~placed orders~~of ~~with~~SFAS ~~this~~No. ~~vendor~~157. ~~totaling~~Further ~~$817,~~information ~~for~~about ~~delivery~~the application of SFAS No. 157 may be found in ~~accordance~~Note ~~with~~2 ~~our~~to ~~scheduled requirements~~the ~~through~~condensed ~~December~~consolidated ~~31,~~financial ~~2008~~statements.

~~ITEM~~SIELOX, 2INC. ~~MANAGEMENT’S~~ ~~DISCUSSION~~ AND ~~ANALYSIS~~SUBSIDIARIES ~~OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

THE COMPANY

OVERVIEW AND RECENT EVENTS

Sielox, Inc., formerly known as Dynabazaar, Inc. (“we,” “us” or the “Company”), was incorporated in the State of Delaware in February 1997 as “Fairmarket, Inc.” The Company develops, designs and distributes a range of security solution products, comprising of a range of surveillance cameras, digital video recorders and access control systems and strategic security and business protection solutions and corporate investigations. Through September 3, 2003, we were an online auction and promotions technology service provider that enabled marketers to create results-oriented rewards programs and helped commerce companies automate the process of selling their excess inventory online to wholesale and retail buyers. On September 4, 2003, we sold substantially all of our operating assets to eBay, Inc. (“eBay”) for consideration of $4.5 million in cash under the terms and conditions of an asset purchase agreement we entered into with eBay on June 20, 2003. Following the closing of the asset sale, we changed our name from “Fairmarket, Inc.” to “Dynabazaar, Inc.”

In connection with the cessation of our online auction business, we relocated our principal executive offices as of January 1, 2004 to 888 Seventh Avenue, 17th Floor, New York, New York 10019, an office maintained by Barington Capital Group, L.P. (“Barington”), a limited partnership whose general partner is a corporation of which James A. Mitarotonda is Chairman, President and Chief Executive Officer. Mr. Mitarotonda was previously our President and Chief Executive Officer and served as a member of our board of directors.

From January 2003 until June 20, 2006, we did not operate any business and were settling our remaining claims and liabilities while reviewing alternatives for the use or disposition of our remaining assets.

On June 20, 2006, Costar Video Systems, LLC (“Costar”) and Video Solutions Technology Center, LLC (“VSTC”), our direct and indirect wholly-owned subsidiaries, completed the acquisition (the “Acquisition”) of substantially all of the assets of Southern Imaging, Inc., a Texas corporation (“Southern Imaging”), and Video Solutions Technology Center, Inc., a Nevada corporation (“Video Solutions”), pursuant to the transactions contemplated by the asset purchase agreement, dated as of June 20, 2006, by and between Southern Imaging, Video Solutions, the shareholders of Southern Imaging, Costar and VSTC. Costar, our wholly-owned subsidiary which acquired Southern Imaging’s assets, designs, sources and distributes video and imaging products for the security and industrial markets. VSTC, a wholly-owned subsidiary of Costar which acquired the assets of Video Solutions, provides product design and development, technical support and repair services for Costar.

As previously disclosed in a Current Report on Form 8-K filed by us on April 23, 2007, Mr. Mitarotonda resigned as our President and Chief Executive Officer, effective as of the close of business on April 20, 2007. Mr. Mitarotonda continued to serve as a member of our board of directors until his resignation from our board of directors on July 31, 2007 in connection with the Merger, as further described below.

On April 20, 2007, our board of directors appointed Sebastian E. Cassetta to serve as our President and Chief Executive Officer, effective as of the close of business on April 20, 2007.

Effective July 31, 2007, pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of February 26, 2007, as amended (the “Merger Agreement”), by and among us, L Q Corporation, Inc. (“L Q Corporation”) and LQ Merger Corp (“LMC”), LMC was merged with and into L Q Corporation, with L Q Corporation continuing as the surviving corporation and a wholly-owned subsidiary of us (the “Merger”). Immediately following the Merger, our name was changed from “Dynabazaar, Inc.” to “Sielox, Inc”.

By virtue of the Merger, L Q Corporation stockholders received 3.68 shares of our common stock, par value $0.001 per share, for each share of L Q Corporation common stock they owned as of the effective time of the Merger. Cash was paid in lieu of common stock to purchase 20.44 fractional shares of our common stock. Additionally, each outstanding option to purchase L Q Corporation common stock has been assumed by us and now represents an option to acquire shares of our common stock, subject to the applicable conversion ratio, on the terms and conditions set forth in the Merger Agreement.

Effective upon the closing of the Merger and in accordance with the terms of the Merger Agreement, as of July 31, 2007, Raymond L. Steele and Mr. Mitarotonda each resigned from our board of directors and the following three members of the board of directors of L Q Corporation were appointed to our board of directors: Mr. Cassetta, Dianne McKeever and Steven Berns.

Additionally, in connection with the completion of the Merger, we relocated our principal executive offices to 170 East Ninth Avenue, Runnemede, New Jersey 08078, which is an office and warehouse facility leased by the Company.

Sebastian E. Cassetta, who serves as our President, CEO and a member of our board of directors, is a Senior Managing Director and the Chief Operating Officer of Barington. He also serves as the Chief Executive Officer of Costar. Dianne K. McKeever, a research analyst at Barington, serves as one of our directors. Barington and certain of its affiliates which have joined with Barington in the filing of a statement on Schedule 13D, collectively own greater than 10% of our outstanding common stock. We are party to a services agreement under which Barington performs certain administrative, legal and financial advisory services on the Company’s behalf. We entered into an amendment as of May 18, 2007 (the “Amendment”) to the services agreement between Barington and the Company dated as of December 17, 2004 (as amended, the “Services Agreement”). The Amendment provides that the administrative services provided by Barington on behalf of the Company under the Services Agreement (as well as the monthly payments made by us to Barington for such services) terminated immediately following the closing of the transactions contemplated by the Merger Agreement.

Notwithstanding the termination of the administrative services provided by Barington following the closing of the Merger, the Services Agreement continues to run until December 31, 2007, therefore permitting us to continue to have access to legal and financial advisory services from Barington on an “as requested” basis. There is no requirement under the Services Agreement, however, for us to utilize such services of Barington. Additional information concerning the Services Agreement may be found under Part III, Item 13 of Amendment No. 1 to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2007, which disclosure is incorporated herein by reference.

BUSINESS ACQUISITION ($ IN THOUSANDS)

As discussed earlier, we consummated the Acquisition on July 20, 2006. Intangible assets arose from the Acquisition. The aggregate of the estimated purchase price including acquisition costs for an aggregate estimated total of $9,600 exceeded the fair market value for all identifiable net assets. An independent appraisal was conducted of all intangible assets (including, but not limited to, distribution agreements, customer lists, patents, trademarks and trade names) received as a result of the Acquisition.

CRITICAL ACCOUNTING POLICIES

In December 2001, the Securities and Exchange Commission (the “SEC”) requested that all registrants discuss their most “critical accounting policies” in management’s discussion and analysis of financial condition and results of operations. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of the company’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Our critical accounting policies are more fully described in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, to our consolidated financial statements included in our Annual Report on Form 10-K and Note 1, The Company and Summary of Significant Accounting Policies, to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

RESULTS OF OPERATIONS

~~THREE~~Three ~~MONTHS~~Months ~~ENDED~~Ended ~~SEPTEMBER~~March 3031, ~~2007~~2009 ~~AND~~and ~~2006~~2008 ($ ~~IN THOUSANDS~~in thousands)

Net income (loss)

For the three months ended September 30, 2007 and September 30, 2006, our net income (loss) was ($230) and $193, respectively. The decrease in net income is primarily due to the Merger. Net loss in 2007 includes the operating activity of the newly merged entities for the months of August and September only. In addition, we incurred all normal, regular expenses that relate to the activities of a public company and non-recurring merger expenses of $379. Non-recurring expenses included legal expenses for obtaining the independent fairness opinion and for drafting, printing and mailing the proxy statement in connection with shareholder approval for the Merger, as well as proxy solicitor fees and transfer agent and accounting fees. Net income in 2006 includes the operating activities of Costar which were consolidated into our results effective July 1, 2006.

Revenue

~~For~~Total ~~the~~revenue ~~three~~was ~~months~~approximately ~~ended~~$4.7 ~~September~~million ~~30,~~for ~~2007~~the ~~and~~period ~~September~~ended 30March 31, ~~2006~~2009, ~~total~~ ~~revenue~~compared ~~was~~to $6~~,431~~.6 ~~and~~million ~~$3,614,~~for ~~respectively~~the same period in 2008. The ~~increase~~decrease in revenue from 2008 to 2009 of $1.9 million, or 28.7%, is ~~primarily~~ due primarily to ~~the~~a ~~Merger.~~general ~~Revenue~~downturn in ~~2007~~the ~~includes~~national ~~the~~economy. ~~operating~~The ~~revenues~~security segment of ~~Costar for~~our business sells into the ~~entire~~general ~~third~~retail ~~quarter~~market which has, among other things, closed locations, scaled back new store openings, and ~~the~~delayed ~~operating~~all ~~revenues~~types of ~~Sielox~~discretionary spending. More specifically, ~~LLC~~revenues ~~and~~in ~~SES~~the ~~for~~first quarter were down by $828 K due to our largest customers using a quarterly versus monthly shipping schedule on the ~~months~~ new contract. The Company’s industrial sales have been impacted by the overall curbing of ~~August~~capital spending in manufacturing and ~~September~~the ~~only~~semiconductor industry. ~~Revenue~~The inCompany’s ~~2006~~access ~~includes~~control ~~the~~sales ~~operating~~have ~~revenue~~experienced ~~for the~~a ~~complete~~slight ~~quarter,~~drop ~~but~~in ~~only~~revenues asdue ~~generated~~to bydelayed ~~Costar~~corporate spending.

~~Operating~~Cost ~~Expenses~~of Revenue

~~For~~Cost ~~the~~of ~~three~~revenue ~~months~~was ~~ended~~approximately ~~September~~$3.3 ~~30,~~million ~~2007,~~for ~~general~~the ~~and administrative~~period ~~expenses~~ended ~~were~~March $131,~~874~~ 2009, compared to $~~615~~4.8 million for the ~~three~~same ~~months~~period ~~ended September~~in ~~30, 2006~~2008. The ~~increase~~decrease in ~~general~~cost ~~and~~of ~~administrative~~revenue ~~expenses~~of ~~was primarily due to the Merger~~$1.5 ~~The three month period ended September 30~~million, ~~2007,~~or ~~includes operating expenses for Costar~~31.2%, ~~Sielox,~~is ~~LLC~~due ~~and~~primarily ~~SES~~to ~~for~~lower ~~August~~sales ~~and~~as ~~September~~a ~~only.~~result ~~General~~of ~~and administrative expenses for~~ the ~~three~~reasons ~~months~~stated ~~ended September 30, 2006, include operating expenses for the Costar subsidiary only~~above.

~~For~~Gross the three months ended September 30, 2007 and September 30, 2006, interest income was $16 and $50, respectively. The decrease in interest income is reflective of a reduction in cash available for investment after the Acquisition.Profit

~~For~~Gross ~~the~~profit ~~three~~was ~~months~~approximately ~~ended~~$1.4 ~~September 30~~million, ~~2007~~or ~~and~~29.8% ~~2006~~of total revenue, ~~interest~~in ~~expense was~~the ~~$22~~three months ended March 31, 2009 and $01.8 million, ~~respectively~~or 27.2%, ~~Interest~~of ~~expense~~total revenue for the same period ~~ended~~in ~~September~~2008. ~~30,~~The ~~2007,~~ improvement in 2009 to 29.2% is ~~for~~primarily ~~the~~due ~~interest~~to ~~charged~~increased margins on the ~~line~~1500 ofcontroller ~~credit~~plus ~~provided by~~ the ~~Bank~~sale of ~~Texas~~maintenance ~~for Costar~~contracts.

~~NINE~~General ~~MONTHS~~and ~~ENDED SEPTEMBER 30, 2007 AND 2006 ($ IN THOUSANDS)~~Administrative

~~Net~~General ~~loss~~and administrative expenses were approximately $2.1 million for the period ended March 31, 2009, compared to approximately $2.2 million for the same period in 2008. The decrease of $0.1 million, or 4.5% is primarily due to the implementation of a company wide effort to reduce expenses. Those efforts include a reduction in staff, reducing the attendees at trade shows, eliminating the accrual for bonus payments at our access control location, and decreasing the use of all utilities and office supplies.

~~For the nine months ended September 30~~Interest, ~~2007, and September 30, 2006, our net loss was ($433) and ($90) respectively. The increase in net loss is primarily due to the Merger.~~ Net loss in 2007 includes all activity for Costar for the entire nine month period and all activity for for Sielox, LLC and SES for August and September only. In addition to general and administrative expenses, we incurred non-recurring merger expenses of $379. Non-recurring merger expenses included legal expenses for obtaining the independent fairness opinion and for drafting, printing and mailing the proxy statement in connection with shareholder approval for the Merger, as well as proxy solicitor fees and transfer agent and accounting fees.

~~Revenue~~Interest expense net, was approximately $33 for the period ended March 31, 2009, compared to interest expense net of approximately $16 for the period ended March 31, 2008. The increase in interest expense net of $17, or 106% from 2009 to 2008 is primarily due to lower average cash balances and the reliance on the line of credit to fund the Company’s activities.

~~For~~Net the nine months ended September 30, 2007, and September 30, 2006, total revenue was $14,614 and $3,614, respectively.The increase in revenue is primarily due to the Merger. Revenue in 2007 includes operating revenue for nine months for Costar and for August and September 2007 only, for Sielox and SES. Revenue in 2006 includes operating revenue of Costar only for the months of July, August and September. Revenue activity during the period includes sales by Costar of approximately $600 to a major supermarket chain and of approximately $400 in mobile DVR's. Sielox, LLC added twenty new dealers in eight states and a major national account. The first systems to these dealers started selling in August.Loss

~~Operating~~For ~~Expenses~~the period ended March 31, 2009, we had a net loss of approximately $774, compared to a net loss of approximately $453 for the period ended March 31, 2008. The increase in our net loss of $321, or 171%, is due to the reasons expressed above. As a percentage of total revenue, net loss was 17.0% for the period ended March 31, 2009 compared to 6.9% for the period ended March 31, 2008.

~~For~~LIQUIDITY ~~the~~AND ~~nine~~CAPITAL ~~months~~RESOURCES ~~ended September 30, 2007, general and administrative expenses were~~ ($~~3,861~~ ~~compared to $1,099 for the nine months ended September 30, 2006. The increase~~ in general and administrative expenses was primarily due to the Merger. The period ended September 30, 2007, includes operating expenses for Sielox and SES for August and September 2007 only, and for Costar for the whole period. Both periods include all normal and regular expenses related to the activities of a public company. General and administrative expenses for the period ended Septemner 30, 2006, includes operating expenses for Costar only for the period July 1, 2006, to September 30, 2006.thousands)

17At March 31, 2009, cash and cash equivalents totaled $85, as compared to $249 at December 31, 2008.

~~LIQUIDITY~~Cash ~~AND~~used ~~CAPITAL~~in ~~RESOURCES~~operating (activities was $1,306 INfor ~~THOUSANDS)~~the three months ended March 31, 2009, compared to cash used of $834 for the three months ended March 31, 2008. Cash used in operating activities for the period ended March 31, 2009 primarily reflects the activities of our operating subsidiaries, Costar and Sielox, and the compliance expenses associated with being a public company. Major changes in operating assets and liabilities reflect a decrease in accounts receivable of $652 and a decrease in accounts payable of $275, offset by depreciation and amortization of $156 and an increase in inventories of $714.

AtCash used ~~September~~in investing 30activities for the three months ended March 31, ~~2007~~2009 was $19, ~~cash~~compared ~~and~~to cash ~~equivalents~~provided ~~totaled~~ of $2321 for the three months ended March 31,~~826~~ 2008. The cash used in the period ended March 31, 2009, primarily represents the sale of short term investments, offset by the purchase of fixed assets. The cash provided for the period ended March 31, 2008 represents the sale of short term investments.

Cash ~~used~~provided inby ~~operating~~financing activities ~~was $1,252~~ for the ~~nine~~three months ended ~~September~~ 30March 31, ~~2007~~2009 was $1,161, compared to ~~cash used of~~ $~~600~~378 for the ~~nine~~three months ended ~~September 30~~March 31, ~~2006~~2008. ~~Cash~~The ~~used~~cash inprovided ~~operating activities~~ for the ~~period~~three months ended ~~September~~March 3031, ~~2007 primarily~~2009, ~~reflects~~and ~~the~~March ~~activities of our operating subsidiaries~~31, ~~Costar~~2008 ~~and~~reflects ~~VSTC.~~a ~~Major changes~~draw inon ~~operating~~the ~~assets~~line ~~and~~of ~~liabilities~~credit ~~reflect~~with anthe ~~increase~~Bank ~~in accounts receivable~~ of ~~$1,084~~Texas. ~~and~~Total anavailability ~~increase~~on inthe ~~accounts~~line ~~payable~~ of credit is $~~945~~5,000. ~~offset~~Unused byavailability ~~depreciation~~as ~~and amortization~~ of ~~$396~~March 31, ~~and~~2009 anwas ~~increase in inventories of~~ $~~994~~2,565.

Cash provided by investing activities for the nine months ended September 30, 2007 was $477 compared to cash used of $3,560 for the nine months ended September 30, 2006. The cash used for the period ended September 30, 2006 represents the completion of the purchase of substantially all of the assets of Southern Imaging, Inc. Cash used for the period ending September 30, 2007 represents the purchase of fixed assets, the payment of an earnout provision, and cash acquired through the merger with L Q Corporation.15

~~Cash~~LIQUIDITY ~~provided~~AND byCAPITAL RESOURCES (~~used~~$ in thousands) ~~financing activities for the nine months ended September 30, 2007 was $663, compared to~~ (~~$1,863~~continued) for the nine months ended September 30, 2006. The cash provided for the nine months ended September 30, 2007 reflects a draw on the line of credit with the Bank of Texas. Total availability on the line of credit is $4,000. Unused availability as of September 30, 2007, was $2,613. The cash used for the nine months ended September 30, 2006, represents the payoff of a revolving line of credit existing at the time of the Acquisition.

AsThe ~~disclosed~~Company’s inshort ~~the~~term ~~Form~~investments ~~S-4/A~~consist ~~filed~~of byan ~~the~~investment ~~Company~~in ~~with~~a capital reserve fund (the ~~SEC~~“Fund”) onat ~~June 20,~~a ~~2007,~~financial ~~both~~institution. ~~Dynabazaar~~These ~~and L~~securities Qhave ~~Corporation~~been ~~entered~~classified ~~into~~as ~~separate~~“available-for-sale” ~~letter~~and ~~agreements~~are ~~with~~carried ~~Barington~~at fair value on ~~January~~the ~~5, 2007~~accompanying ~~providing~~consolidated ~~for~~balance sheets. Management determines the ~~engagement~~appropriate classification of ~~Barington~~its byshort-term ~~each~~investments ofat the ~~Dynabazaar~~time ~~Special Committee~~of purchase and ~~the~~evaluates Lsuch Qdesignation ~~Corporation~~as ~~Special~~of ~~Committee~~each tobalance ~~provide~~sheet ~~assistance~~date. asInterest ~~such special~~earned ~~committees~~on ~~may~~the ~~reasonably~~short-term ~~request~~investments ~~with~~is ~~respect~~included toin ~~the~~interest ~~Merger~~income. ~~Pursuant~~Short-term toinvestments ~~such letter~~totaled ~~agreements,~~$243 ~~each~~and ~~Dynabazaar~~$305 ~~and~~at LMarch Q31, ~~Corporation~~2009 ~~agreed~~and toDecember ~~pay~~31, ~~Barington~~2008, arespectively. ~~fee~~Fair ~~of $100,000~~value asapproximates ~~compensation~~carrying value for ~~its~~short ~~services~~term investments. AtThere ~~the~~were ~~request~~no ofrealized ~~the~~or ~~Company~~unrealized ~~after~~losses ~~the closing~~incurred ofon these securities for the ~~Merger~~years ended December 31, ~~Barington~~2008 ~~agreed~~and 2007, respectively. Due to ~~reduce~~the ~~its~~nature ~~fee~~of ~~from~~these ~~$200~~investments,~~000~~ towe ~~$150,000~~consider ~~and~~ it reasonable to ~~accept~~expect ~~payment~~that intheir ~~unregistered~~fair ~~common~~market ~~stock~~values inwill ~~lieu~~not ofbe ~~cash~~significantly impacted by a change in interest rates.

WeThe ~~believe~~Fund ~~that~~is ~~our~~managed ~~existing~~by ~~cash~~BlackRock ~~and~~Investment ~~cash~~Management ~~equivalents~~LLC. ~~will~~BlackRock ~~be sufficient~~has toexperienced ~~meet~~some ~~our~~difficulty ~~anticipated~~in ~~cash~~liquidating ~~needs~~the ~~for~~Fund. ~~working~~In ~~capital~~January ~~and~~2009, ~~capital expenditures~~we received approximately $60. A further distribution is expected before the end of the second quarter in 2009. After receipt of that distribution, the ~~near~~Fund ~~future~~will have liquidated approximately 96% of net assets.

The Company has continued to incur losses and negative cash flows from operations. For the three month period ended March 31, 2009, the Company incurred a net loss of approximately $774 and negative cash flows from operations of approximately $1,306. As of March 31, 2009, the Company had an accumulated deficit of approximately $140,600 and outstanding debt in the amount of $2,435 from a line of credit which expires on December 16, 2009. In addition, the Company has experienced some liquidity problems relative to its short terms investments. The Company’s management is aware that its current cash resources may not be adequate to fund its operations over the next year. The Company’s existing and future obligations include expenses associated with developing synergies between the Company’s operating subsidiaries and marketing and growing its customer base and product offerings. The general economic slowdown has impacted the Company’s ability to improve its liquidity through increased sales. Furthermore, due to the current credit crisis, it is uncertain whether the Company’s current line of credit can be renewed when it comes due on acceptable terms. In addition, the Company is currently in violation of a certain financial ratio related to its line of credit. The Company has received a notice from the lender that the Stipulation disclosed in note 6 constitutes a default under the line of credit. The Company disagrees with the lender’s assertion and is currently in discussions with the lender regarding this matter. These conditions, among others, raise substantial doubt as to the Company’s ability to continue as a going concern. No adjustment has been made in the consolidated financial statements of the Company to the amounts and classification of assets and liabilities, which could result, should the Company be unable to continue as a going concern.

FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act, of 1934 as amended (the “Exchange Act”). You can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “assume” and other similar expressions which predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Our actual results could differ materially from those set forth in the forward-looking statements.

Some of the factors that might cause these differences include those set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 which is incorporated herein by reference. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. Forward-looking statements herein are based on information, plans and estimates at the date of this Form 10-Q, and we do not promise to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

18ITEM 4T. CONTROLS AND PROCEDURES

~~ITEM~~Disclosure 3.controls ~~QUANTITATIVE~~and ~~AND~~procedures ~~QUALITATIVE~~(as ~~DISCLOSURES~~defined ~~ABOUT~~in ~~MARKET RISK~~Rule 13a-15(e) under the Exchange Act) are controls and other procedures that are designed to provide reasonable assurance that the information that we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

~~INVESTMENT~~In ~~PORTFOLIO~~connection with the preparation of this quarterly Report, our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2009. Management based its assessment on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. Based on its evaluation, the Company identified a material weakness in its disclosure controls namely, that the Company lacked appropriate resources in the accounting and finance department, including a

We do not use derivative financial instruments for investment purposes and only invest in financial instruments that meet high credit quality standards. Due to the conservative nature of our investments, we do not believe that we have a material exposure to interest rate risk.16

~~ITEM~~SIELOX, 4INC. ~~CONTROLS~~ AND ~~PROCEDURES~~SUBSIDIARIES

~~Under~~ITEM ~~the~~4T. ~~supervision~~CONTROLS ~~and~~AND ~~with~~PROCEDURES the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the Company's effectiveness of disclosure controls and procedures (~~as defined in Rule 13a-15(e~~continued) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures have not been operating effectively as of the end of the period covered by this report.

Inlack ~~connection~~of personnel that ~~with~~are appropriately qualified in the ~~preparation~~areas of ~~this~~U.S. ~~Form~~GAAP ~~10-Q,~~and ~~management identified~~SEC areporting. While this material weakness, ~~due~~did tonot have an ~~insufficient~~effect ~~number~~on ofour ~~resources~~reported inresults ~~the accounting~~or ~~and~~any ~~finance~~related ~~department~~disclosures, ~~resulting~~it innevertheless ~~(i)~~constitutes ana ~~ineffective~~deficiency ~~review,~~in ~~monitoring~~ our controls and ~~analysis~~led our ofChief ~~schedules,~~Executive ~~reconciliations~~Officer and ~~financial~~Chief ~~statement~~Financial ~~disclosures~~Officer to ~~and~~conclude ~~(ii) the~~that ~~misapplication~~our ofdisclosure ~~U.S.~~controls ~~GAAP~~ and ~~SEC~~procedures ~~reporting~~continue ~~requirements.~~to ~~Due~~not tobe ~~the~~effective ~~effect~~at of the ~~lack~~reasonable ofassurance ~~resources,~~level ~~including~~as ~~a lack~~ of ~~resources~~March ~~that~~31, ~~are appropriately qualified in the areas of U~~2009.S. Despite ~~GAAP~~this ~~and SEC reporting~~deficiency, ~~and~~management ~~the~~believes ~~potential~~that ~~impact~~there onare ~~the~~no ~~financial statements~~material ~~and~~inaccuracies ~~disclosures~~or ~~and~~omissions ~~the~~of ~~importance~~fact ofin ~~the~~this ~~annual~~quarterly ~~and~~report. Due ~~interim~~to ~~financial closing~~our small size and ~~reporting~~limited ~~process,~~resources init ~~the~~is ~~aggregate,~~difficult ~~there~~for isus ~~more~~to ~~than~~attract aqualified ~~remote~~personnel. As ~~likelihood that~~soon aas ~~material~~finances ~~misstatement~~allow, ofwe ~~the~~will ~~interim~~add orresources ~~annual~~to ~~financial~~our ~~statements~~corporate and ~~would~~finance ~~not have~~department ~~been~~to ~~prevented~~remediate orthis ~~detected~~deficiency.

The period being evaluated included certain non-recurring merger related events, that disproportionately absorbed the Company's current financial and administrative resources.

Remediation Plans

Management is in the process of remediating the above-mentioned weakness in our internal control over financial reporting and is implementing the following steps:

• Establish a detailed timeline for review and completion of financial reports to be included in our Forms 10- Q and 10-K; • Enhance the level of service provided by outside accounting service providers to further support and supplement our internal staff in accounting and related areas; • Employ the use of appropriate supplemental SEC and U.S. GAAP checklists in connection with our closing process and the preparation of our Forms 10-Q and 10-K.

The implementation of these remediation plans has been initiated and will continue during the fourth quarter of fiscal 2007. The material weakness will not be considered remediated until the applicable remedial procedures are tested and management has concluded that the procedures are operating effectively. Management recognizes that use of our financial resources will be required not only for implementation of these measures, but also for testing their effectiveness.

Changes in Internal Control over Financial Reporting

There ~~were~~have been no material changes in our internal control over financial reporting during the quarter ended ~~September 30~~March 31, ~~2007~~2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

1917

SIELOX, INC. AND SUBSIDIARIES

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

WeThe Company, as well as ~~our~~the ~~newly~~Company’s ~~acquired~~ subsidiary, L Q Corporation, are defendants in certain purported class action lawsuits entitled “In re Initial Public Offering Securities Litigation, 21 MC 92 (SAS)” filed by individual shareholders in the U.S. District Court for the Southern District of New York against certain of ~~our~~the Company’s former officers and directors, and various of the underwriters in the Company’s initial public offering (“IPO”) and secondary offering. The lawsuits have been filed by individual shareholders who purport to seek class action status on behalf of all other similarly situated persons who purchased our common stock between July 8, 1999 and December 6, 2000. A consolidated amended class action complaint was filed on April 19, 2002. The complaint alleges that certain underwriters of the IPO solicited and received excessive and undisclosed fees and commissions in connection with that offering. The complaint further alleges that the defendants violated the federal securities laws by issuing a registration statement and prospectus in connection with ~~our~~the Company’s IPO which failed to accurately disclose the amount and nature of the commissions and fees paid to the underwriter defendants. On or about October 8, 2002, the Court entered an Order dismissing the claims asserted against certain individual defendants in the consolidated actions without any payment from these individuals or usthe Company. On or about February 19, 2003, the Court entered an Order dismissing with prejudice the claims asserted against usthe Company under Section 10(b) of the Exchange Act. As a result, the only claims that remain against usthe Company are those arising under Section 11 of the Securities Act. In June 2004, a stipulation of settlement between the plaintiffs and issuer defendants was submitted to the Court ( the “Settlement” ). In August 2005, the Court granted preliminary approval of the Settlement. In December 2006 , the Court of Appeals for the Second Circuit overturned the certification of classes in the six focus cases that were selected by the underwriter defendants and plaintiffs in the coordinated proceedings. Neither ~~The Court of Appeals, however, later noted that~~ the ~~plaintiffs~~ ~~remained~~Company ~~free~~nor toL ~~ask~~Q ~~the~~Corporation ~~District~~was ~~Court~~a toparty ~~certify~~in ~~classes~~one ~~different~~of ~~from~~ the ~~ones~~six ~~originally~~focus ~~proposed which might meet the standards for class certification that the Court of Appeals articulated in its December 2006 decision~~cases. Because class certification was a condition of the Settlement, it was unlikely that the Settlement would receive final ~~Court~~court approval. On June 25, 2007, the Court entered an order terminating the Settlement based upon a stipulation among the parties to the Settlement. Plaintiffs have filed amended master allegations and amended complaints in the six focus cases. ~~Plaintiffs~~On ~~have~~March ~~also~~26, ~~moved~~2008, the ~~District~~ Court ~~for~~denied ~~certification~~in ~~of different~~substantial ~~classes~~part in the ~~six~~motions ~~focus~~to ~~cases,~~dismiss ~~and~~the ~~that~~amended ~~motion~~complaints ~~remains~~in ~~pending. Because any possible future settlement with~~ the ~~plaintiffs,~~six iffocus acases. ~~settlement~~Plaintiffs ~~were~~also ~~ever~~filed tonew ~~be negotiated~~motions ~~and~~for ~~ultimately agreed to, would involve the certification of a~~ class ~~action for settlement purposes~~certification, ~~the~~which ~~impact of~~ the ~~Court~~issuer ofdefendants ~~Appeals~~and ~~rulings on~~ the ~~possible future~~underwriter ~~settlement~~defendants ofseparately ~~the claims against the Company cannot now be predicted~~opposed. IfThe ~~no settlement~~plaintiffs ishave ~~achieved,~~recently ~~the~~voluntarily ~~Company~~withdrawn ~~believes~~their ~~that~~motion itfor ~~has~~class ~~meritorious~~certification ~~defenses~~without ~~and intends to defend the action vigorously~~prejudice.

The ~~expense~~parties ofhave ~~defending~~reached ~~this~~a global settlement of the litigation. ~~may~~Plaintiffs befiled ~~significant~~their motion for preliminary approval and supporting papers with the Court on April 2, 2009.Under ~~The~~the settlement, which remains subject to Court approval, the insurers would pay the full amount of ~~time~~settlement share allocated to ~~resolve~~the ~~these~~Company, ~~lawsuits~~and isthe ~~unpredictable~~Company ~~and~~would ~~defending~~bear ~~the~~no financial liability. The Company, as well as the officer and ~~its subsidiary~~director ~~may~~defendants ~~divert~~who ~~management’s~~were ~~attention~~previously dismissed from the ~~day-to-day~~action ~~operations~~pursuant ~~of the~~to ~~Company’s~~tolling ~~business~~agreements, ~~which~~would ~~could~~receive ~~adversely~~complete ~~affect~~dismissals from the ~~Company’s business,~~case. ~~results~~It ofis ~~operations~~uncertain ~~and~~whether ~~cash~~the ~~flows.~~settlement Inwill ~~addition,~~receive anfinal ~~unfavorable~~Court ~~outcome~~approval. ~~in such~~If ~~litigation~~the ~~could~~settlement ~~have~~does anot ~~material~~receive ~~adverse~~final ~~effect~~Court onapproval, and litigation against the Company’s ~~business~~continues, ~~results~~ ofthe ~~operations~~Company believes that it has meritorious defenses and ~~cash~~intends ~~flows~~to defend the action vigorously.

20The expense of defending this litigation has been and may continue to be significant. The amount of time to resolve this lawsuit is unpredictable and its defense may divert management's attention from the day-to-day operations of the Company’s business, which could materially affect the Company’s business, results of operations and cash flows. In addition, an unfavorable outcome in such litigation could have a material adverse effect on the Company’s business, results of operations and cash flows.

~~ITEM~~Berger 1Av. ~~RISK~~L ~~FACTORS~~Q Corp., C.A. No. 3363 (Del. Ch.)

~~For~~A aPetition ~~summary~~For Appraisal of ~~certain~~Stock ~~risk~~(the ~~factors~~“Petition”) ~~relevant~~under toDelaware’s General Corporation Law (the ~~Company’s operations~~“DGCL”), ~~see~~8 ~~Part~~Del. 1C. § 262, ~~Item~~was 1Afiled in the Delaware Court of Chancery on November 19, ~~“Risk~~2007 ~~Factors~~against L Q Corporation, our wholly owned subsidiary, by Andrew T. Berger (“Berger”), a purported beneficial owner of 49,014 shares of common stock in L Q Corporation, and by Cede & Co., the ~~Company~~purported record owner of the shares beneficially owned by Berger. The Petition demanded appraisal of Berger’s ~~Form~~ ~~10-K~~shares ~~for~~in L Q Corporation, the ~~fiscal~~payment ~~year~~of ~~ended~~the fair value of such shares to Berger under Section 262 of the DGCL, and an award of fees and costs in connection with the filing and prosecution of the Petition. L Q Corporation moved to dismiss the Petition on December 3119, ~~2006~~2007. In ~~addition~~response to L Q Corporation’s motion to dismiss, asBerger amended the petition for appraisal (the “Amended Petition”) on January 11, 2008. L Q Corporation filed a ~~result~~motion to dismiss the Amended Petition on January 23, 2008. L Q Corporation subsequently withdrew its motion to dismiss the Amended Petition on April 24, 2008, and answered the Amended Petition on May 1, 2008. On February 11, 2009, the parties agreed to mediate this action pursuant to Court of Chancery Rule 174 in an effort to settle this action, and a mediation conference was held on March 19, 2009. At the ~~Merger~~ mediation conference, the ~~following~~parties ~~additional~~reached ~~risk~~an ~~factors~~agreement ~~are~~in ~~relevant~~principle to settle the ~~Company’s operations~~action. ~~going~~Thereafter, ~~forward:~~the parties negotiated an agreement of dismissal and release (the “Agreement”) and the Agreement was executed by the parties on or about March 25, 2009. After the Agreement was executed by the parties, the parties executed a stipulation of dismissal of the action on March 31, 2009 (the “Stipulation”), submitted the Stipulation to the Court of Chancery and requested that the Court of Chancery enter the Stipulation as an Order of the Court of Chancery, which would dismiss the action with prejudice. On March 31,2009, the Court of Chancery entered the Stipulation as an Order of the Court of Chancery, which dismissed the action with prejudice.

Our failure to successfully integrate L Q Corporation’s business and operations in the expected time frame may adversely affect our combined businesses’ future results.18

~~We believe that the Merger will result in certain benefits~~SIELOX, ~~including certain cost synergies and operational efficiencies~~INC. ~~However,~~AND ~~our ability~~SUBSIDIARIES to realize these anticipated benefits depends on successfully combining our two businesses. The combined businesses may fail to realize the anticipated benefits of the merger for a variety of reasons, including the following:

•PART ~~revenue~~II. ~~attrition~~OTHER ~~in excess of anticipated levels;~~INFORMATION

•ITEM ~~our~~1. ~~inability~~LEGAL toPROCEEDINGS ~~conduct extensive integration planning with L Q Corporation prior to the completion of the Merger;~~(continued)

•Under ~~failure~~the terms of ~~customers~~the tosettlement, ~~accept~~the ~~new~~Company ~~products~~will orrepurchase toapproximately ~~continue~~180,000 shares from Mr. Berger at approximately $0.82 per share. This transaction resulted in the Company repurchasing the above mentioned shares in a treasury stock transaction which was recorded at the estimated fair value of the shares as ~~customers~~of the Merger date with the offsetting amount recorded as litigation settlement on the accompanying consolidated statement of operations. The Company has received a notice from the ~~combined~~lender ~~businesses;~~that the Stipulation disclosed in note 6 constitutes a default under the line of credit. The Company disagrees with the lender’s assertion and is currently in discussions with the lender regarding this matter.

• failure to successfully manage relationships with original equipment manufacturers, or OEMs, end-users, distributors and suppliers;

• failure to qualify the combined businesses’ products with OEM customers on a timely basis or at all;

• failure to successfully develop interoperability between the products of the two companies;

• failure to leverage the increased scale of the combined businesses quickly and effectively;

• potential difficulties integrating and harmonizing financial reporting systems;

• the loss of key employees;

• failure to effectively coordinate sales and marketing efforts to communicate the capabilities of the combined businesses; and

• failure to combine product offerings and product lines quickly and effectively.

While the actual integration has commenced, there still may be additional and unforeseen expenses or delays. If we are not able to successfully integrate L Q Corporation’s business and operations, or if there are delays in combining the businesses, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

General customer uncertainty related to the merger could harm our post-merger business.

Our existing customers and the customers we obtained as of the Merger may, in response to uncertainty with respect to the merger, delay or defer purchasing decisions. Alternatively, customers may purchase a competitor’s product because of such uncertainty. Further, customer concerns about changes or delays in our product roadmap may negatively affect customer purchasing decisions. Customers could also be reluctant to purchase our products and services due to uncertainty about the direction of their technology, products and services,

and willingness to support and service existing products which may be discontinued. OEMs, resellers, distributors and other third parties of strategic importance may delay or refuse to certify, support or promote our technology, products and services due to uncertainty created by the merger. If our customers delay or defer purchasing decisions, or choose to purchase from a competitor, our revenues could materially decline or any anticipated increases in revenue could be lower than expected.

Integrating L Q Corporation may divert management’s attention away from the combined businesses operations.

Successful integration of L Q Corporation’s operations, products and personnel has and may continue to place a significant burden on our management and internal resources. Challenges of integration include our ability to incorporate acquired products and business technology into its existing product lines, including consolidating technology with duplicative functionality or designed on a different technological architecture and provide for interoperability, and its ability to sell the acquired products through our existing or acquired sales channels. We may also experience difficulty in effectively integrating the different cultures and practices of L Q Corporation, as well as in assimilating L Q Corporation’s broad and geographically dispersed personnel. Further, the difficulties of integrating L Q Corporation could disrupt the combined businesses’ ongoing business, distract its management focus from other opportunities and challenges, and increase the combined businesses’ expenses and working capital requirements. The diversion of management attention and any difficulties encountered in the transition and integration process could harm our business, including our business, financial condition and operating results.

We must overcome pricing competition with respect to Sielox, LLC's products. Competitive pricing pressures can cause profit erosion.

Sielox, LLC's products compete against products sold by an increasing number of competitors on the basis of several factors, including price. In order to compete in the marketplace, Sielox, LLC's products must provide superior technology at competitive prices. Failure to produce cost-effective products could adversely affect customer demand and adversely affect our results of operations. In addition, the competitive business arena could create pricing pressure for the Sielox, LLC's products. A reduction in pricing of Sielox, LLC's products due to competitive pressures could have an adverse effect on our revenues, operating income and results of operations.

We must develop new products and enhancements to existing products to remain competitive. If we fails to develop new products and product enhancements on a timely basis, we may lose market share. Our new products may not realize a return on investment.

The market for Sielox, LLC's products is characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. Accordingly, our future success will depend to a substantial extent on our ability to:

• invest significantly in research and product development;

• develop, introduce and support new products and enhancements on a timely basis; and

• gain and consecutively increase market acceptance of our products.

We are currently developing new products and enhancements to our existing products. We may not be able to successfully complete the development and market introduction of new products or product enhancements. If we fail to develop and deploy new products and product enhancements on a timely basis, or if we fail to gain market acceptance of its new products, revenues will decline and we may lose market share to our competitors. There is no assurance that we will be successful in marketing and selling our new products, that the revenues from the sales of new products will justify the investment, or that the sales of new products will continue to increase.

The availability and pricing of component parts may adversely affect production and profitability.

Our ability to grow earnings will be affected by increases in the cost of component parts, including electronic components and circuit boards. We may not be able to offset fully the effects of higher component parts through price increases, productivity improvements or cost reduction programs.

Future acquisitions may not be found or may not be successfully integrated into our business and could adversely affect our business.

We have pursued, and may continue to pursue, growth opportunities through attempted acquisition of complementary businesses, products and technologies. We are unable to predict whether or when any other prospective acquisition will be completed, if at all. The process of integrating an acquired business may be prolonged due to unforeseen difficulties and may require a disproportionate amount of our resources and management’s attention. There can be no assurances that management will be able to successfully identify suitable acquisition candidates, complete acquisitions, integrate acquired businesses into existing operations, or expand into new markets. Further, once integrated, acquisitions may not achieve levels of revenues, profitability or productivity comparable to our existing business or otherwise perform as expected. The occurrence of any of these events could harm our business, financial condition or results of operations.

In addition, future acquisitions may require substantial capital resources, which may require us to seek additional debt or equity financing. Future acquisitions could result in the following, any of which could seriously harm our results of operations or the price of our stock:

• issuance of equity securities that would dilute current stockholders’ percentages of ownership;

• large one-time write-offs;

• the incurrence of debt and contingent liabilities;

• difficulties in the assimilation and integration of operations, personnel, technologies, products and information systems of the acquired companies;

• diversion of management’s attention from other business concerns; contractual disputes;

• risks of entering geographic and business markets in which we have no or only limited prior experience; and

• potential loss of key employees of acquired organizations.

Sielox, LLC's business has incurred net losses. There is no assurance that it will turn profitable in the future.

L Q Corporation (including the Sielox, LLC operations) has incurred losses in the past and may incur losses in the future. The business incurred net losses of $0.9 million, $1.0 million and $1.4 million in 2006, 2005 and 2004, respectively. Continued or increased net losses could have a material adverse effect on our business, financial condition and results of operations and the value and market price of our common stock.

We rely on licenses with third parties to license software code that is an integral part of our business’s software solution and if we would need to seek alternate licenses, our results of operations could be adversely affected.

We license certain software code from third parties that is an integral part of our software solution. In particular, we obtain from third party licensors certain software code included in our software solution, and the software for our badging products. We would need to seek alternative licensors for the software code if any of the third party licensors terminate or decides not to renew a license. If any of these third party licensors become unable to or refuses to license its code, it could interrupt and delay the development, design and delivery of the Pinnacle software solution and related products. Any such disruption could adversely affect our results of operations.

Cyclical industry and economic conditions may adversely affect our financial condition and results of operations.

Our operating results may be affected adversely by the general cyclical pattern of the industries in which we operates. For example, demand for our products and services is significantly affected by levels of commercial construction and consumer and business discretionary spending. The demand patterns of these markets could impact the revenues and margins in this business.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

See Item 3.02 of the Current Report on Form 8-K filed by the Company on September, 26, 2007.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIY HOLDERS

On July 26, 2007, we held a Special Meeting of Stockholders (the “Special Meeting”). The holders of 21,765,912 shares of our common stock were present in person or represented by proxy at the Special Meeting. At the Special Meeting, our stockholders took the following actions:

1. Our stockholders approved the adoption of the Amended and Restated Agreement and Plan of Merger, dated as of February 26, 2007, by and among the Company, L Q Corporation, Inc. and LQ Merger Corp. Votes were cast as follows:

Votes For	Votes Against	Votes Abstained	Broker Non Votes
14,649,338	9,227	4,423	7,102,924

2. Our stockholders approved an amendment to the Company’s Certificate of Incorporation changing the name of the Company to “Sielox, Inc.” Votes were cast as follows:

Votes For	Votes Against	Votes Abstained	Broker Non Votes
21,755,391	6,813	3,708	0

3. Our stockholders approved an amendment to the Corporation’s Certificate of Incorporation removing the classification of the board of directors. Votes were cast as follows:

Votes For	Votes Against	Votes Abstained	Broker Non Votes
21,613,236	136,478	16,198	0

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

3110.1 ~~Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~Employment ~~Certification~~Agreement ofbetween ~~the~~Sielox, ~~Chief~~Inc. ~~Financial~~and ~~Officer~~James ~~pursuant~~Pritchett, todated ~~Section~~as ~~302~~ of ~~the~~January ~~Sarbanes-Oxley~~1, ~~Act of 2002~~2009.

3231.1 ~~Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~

~~32.2~~ Certification of the Chief ~~Financial~~Executive Officer pursuant to Section ~~906~~302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1

Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

____________

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	SIELOX, INC.
Date: November 19, 2007	By: /s/ Sebastian Cassetta
Date: May 15, 2009	By: /s/ James Pritchett
	Sebastian Cassetta
	James Pritchett
	Chief Executive Officer
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: November 19, 2007	By: /s/ Melvyn Brunt
Date: May 15, 2009	By: /s/ Melvyn Brunt
	Melvyn Brunt
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

2619

Filing Compare · SIELOX INC