UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549




FORM
10-Q




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




For
the quarterly period ended March 31, 2010




 ̈ 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 333-134658





DEFENTECT GROUP,
INC.


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
                  
                  22-393-8509(State
      or Other Jurisdiction of
                    Incorporation
      or Organization)
                  
                  (IRS
      Employer Identification
No.)





535 Connecticut Avenue,
2ndfloor, Norwalk, CT
06854


(Address
of Principal Executive Offices)





Registrant’s
Telephone Number, Including Area Code: (203) 354-9164











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
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes    ̈   No    ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definition of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):


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
12b-2 of the Exchange Act).


Yes  ̈     No  x




As of May
17, 2010, there were 78,705,040 outstanding shares of Common Stock, $.001 par
value.










DEFENTECT
GROUP, INC. AND SUBSIDIARIES


Formally
Known as Splinternet Holdings, Inc.





TABLE
OF CONTENTS





PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                Financial
      Statements.
                3Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                12Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk.
                22Item
      4T.
                Controls
      and Procedures.
                22PART
      II - OTHER INFORMATIONItem
      1.
                Legal
      Proceedings.
                24Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds.
                24Item
      3.
                Default
      upon Senior Securities.
                24Item
      4.
                Submission
      of Matters to a Vote of Security Holders.
                24Item
      5.
                Other
      Information.
                24Item
      6.
                Exhibits.
                25SIGNATURES
                26


2







PART
I – FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements.




Condensed
      Consolidated Balance Sheets at March 31, 2010 (Unaudited) and December 31,
      2009




Condensed
Consolidated Statements of Operations (Unaudited) for the three months ended
March 31, 2010 and 2009




Condensed
Consolidated Statements of Cash Flows (Unaudited) for the three months ended
March 31, 2010 and 2009




Notes to
the Condensed Consolidated Financial Statements (Unaudited)


3





Defentect
Group, Inc. and Subsidiaries


Formerly
Known as Splinternet Holdings, Inc. and Subsidiaries


CONDENSED
CONSOLIDATED BALANCE SHEETS







March
      31,
                                
                                
                                December
      31,2010
                                
                                
                                2009(unaudited)ASSETSAssets:Current
      assetsCash
      and cash equivalents
                                
                                $
                                8,081
                                
                                
                                $
                                24,334Accounts
      receivable
                                
                                
                                28,084
                                
                                
                                
                                104,290Prepaid
      expenses
                                
                                
                                82,723
                                
                                
                                
                                86,021Inventory
                                
                                
                                14,613
                                
                                
                                
                                20,152Note
      receivable
                                
                                
                                77,955
                                
                                
                                
                                77,947Other
      Current Assets
                                
                                
                                22,995
                                
                                
                                
                                22,995Due
      from employees
                                
                                
                                21,337
                                
                                
                                
                                21,337Total
      current assets
                                
                                
                                255,788
                                
                                
                                
                                357,076Property
      and equipment, net
                                
                                
                                26,186
                                
                                
                                
                                27,911Deposit
                                
                                
                                14,394
                                
                                
                                
                                14,394Total
      Assets
                                
                                $
                                296,368
                                
                                
                                $
                                399,381LIABILITIES AND STOCKHOLDERS’
      DEFICIENCYLiabilities:Current
      liabilitiesAccounts
      payable
                                
                                $
                                193,531
                                
                                
                                $
                                183,566Accrued
      expenses
                                
                                
                                88,427
                                
                                
                                
                                98,778Deferred
      Revenue
                                
                                
                                80,000
                                
                                
                                
                                80,000Loans
      from officers
                                
                                
                                939,405
                                
                                
                                
                                874,067Total
      current liabilities
                                
                                
                                1,301,363
                                
                                
                                
                                1,236,411Deferred
      rent
                                
                                
                                10,000
                                
                                
                                
                                10,000Total
      liabilities
                                
                                
                                1,311,363
                                
                                
                                
                                1,246,411CommitmentsStockholders’
      Deficiency:Preferred
      Stock, 10,000,000 shares authorized and none outstandingCommon
      stock, $.001 par value, 250,000,000 shares authorized; 69,980,040 and
      68,360,040 issued and outstanding
                                
                                
                                69,983
                                
                                
                                
                                68,363Additional
      paid-in capital
                                
                                
                                7,270,253
                                
                                
                                
                                7,004,366Accumulated
      deficit
                                
                                
                                (8,354,731
                                )
                                
                                
                                (7,919,759
                                )Total
      Stockholders’ Deficiency
                                
                                
                                (1,014,495
                                )
                                
                                
                                (847,030
                                )Total
      Liabilities and Stockholders’ Deficiency
                                
                                $
                                296,868
                                
                                
                                $
                                399,381





See notes
to consolidated financial statements


4





DEFENTECT
GROUP, INC.  AND SUBSIDIARIES


Formerly
Known as Splinternet Holdings, Inc.


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)







Three
      Months EndedMarch
      31,2010
                    
                    
                    2009Service
      revenue
                    
                    $
                    116,795
                    
                    
                    $
                    78,283Cost
      of revenue
                    
                    
                    111,201
                    
                    
                    
                    76,687Gross
      profit
                    
                    
                    5,594
                    
                    
                    
                    1,596Selling,
      general and administrative expenses
                    
                    
                    398,806
                    
                    
                    
                    255,657Research
      and development costs
                    
                    
                    23,546
                    
                    
                    
                    57,932Loss
      from operations
                    
                    
                    (416,758
                    )
                    
                    
                    (311,993
                    )Interest
      income
                    
                    
                    1,358
                    
                    
                    
                    1,344Interest
      expense
                    
                    
                    (19,572
                    )
                    
                    
                    (6,145
                    )Net
      loss
                    
                    $
                    (434,972
                    )
                    
                    $
                    (316,794
                    )Net
      loss per share:Basic
      and Diluted
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.01
                    )Weighted
      average common shares outstanding:Basic
      and Diluted
                    
                    
                    68,548,929
                    
                    
                    
                    56,715,000





See notes
to condensed consolidated financial statements.


5


Defentect
Group, Inc. and Subsidiaries


Formerly
Known as Splinternet Holdings, Inc. and Subsidiaries


CONDENSED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


(UNADUITED)





Three
      Months Ended March 31,2010
                    
                    
                    2009Cash
      flows from operating activities:Net
      loss
                    
                    $
                    (434,972
                    )
                    
                    $
                    (316,794
                    )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
                    
                    
                    1,725
                    
                    
                    
                    1,723Issuance
      of stock, warrants and options to employees and
consultants
                    
                    
                    242,007
                    
                    
                    
                    109,274Non-cash
      interest expense
                    
                    
                    16,838Changes
      in assets and liabilities:Decrease
      (increase) in accounts receivable
                    
                    
                    76,206
                    
                    
                    
                    (25,904
                    )Decrease
      in prepaid expenses
                    
                    
                    30,342
                    
                    
                    
                    160Decrease
      in inventory
                    
                    
                    5,539
                    
                    
                    
                    -Increase
      in deferred revenue
                    
                    
                    -
                    
                    
                    
                    21,000Increase
      in accounts payable
                    
                    
                    9,965
                    
                    
                    
                    9,916Decrease
      in accrued expenses
                    
                    
                    (10,351
                    )
                    
                    
                    (5,169
                    )Net
      cash used in operating activities
                    
                    
                    (62,701
                    )
                    
                    
                    (205,794
                    )Cash
      flows from financing activities:Loans
      from officer
                    
                    
                    48,500
                    
                    
                    
                    205,645Net
      proceeds from the sale of common stock and warrants
                    
                    
                    25,000Net
      cash provided by financing activities
                    
                    
                    73,500
                    
                    
                    
                    205,645Net
      decrease in cash and cash equivalents
                    
                    
                    (16,253
                    )
                    
                    
                    (149
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    24,334
                    
                    
                    
                    6,407Cash
      and cash equivalents at end of period
                    
                    $
                    8,081
                    
                    
                    $
                    6,258Non-cash
      financing and investing activities:Issuance
      of stock for settlement of accrued compensation
                    
                    $
                    -
                    
                    
                    $
                    255,947





See notes
to consolidated financial statements


6







DEFENTECT GROUP,
INC.AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





1.    PRINCIPAL
BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Defentect
Group, Inc., formerly known as Splinternet Holdings, Inc. (the “Company”) is the
parent company of Splinternet Communications, Inc., originally a provider of
Internet Telephony services, which entered the radiation detection market in
2007, and Vidiation, Inc., a security sales and marketing company which was
acquired on April 30, 2008.





The
Company develops and markets technologies for the security and threat management
industry.  Our products react to the detection of chemical,
biological, radiological or nuclear threats and notify responders and key
administrators immediately. The Company’s unique response technology can be
easily integrated with other manufacturers’ sensors, and serve many different
markets.





The
Company was incorporated in the State of Delaware on March 22, 2006 under the
name Splinternet Holdings, Inc. On April 3, 2006, the Company conducted a share
for share exchange of securities with Splinternet Communications, Inc. whereby
214,002 shares of the common stock, par value $0.001 per share of Splinternet
Communications, Inc. were exchanged for 53,500,500 shares of the common stock,
par value $0.001 per share (the “Common Stock”) of the Company (the “Share
Exchange”), as a result of which Splinternet Communications, Inc. became a
wholly owned subsidiary of the Company.





On April
30, 2008, the Company consummated the transaction contemplated by an Agreement
and Plan of Merger (the “Vidiation Merger Agreement”) dated February 7, 2008
among the Company, Vidiation, Inc., a Delaware corporation and Splinternet
Merger Sub I, Inc. (a wholly owned subsidiary of the Company formed for the
purpose of such transaction) (the “Merger Sub”) pursuant to which the Merger Sub
merged into Vidiation, Inc. resulting in Vidiation, Inc. becoming a wholly-owned
subsidiary of the Company.   Upon closing, the Company issued an
aggregate of 4,788,179 shares of common stock to the shareholders of Vidiation,
Inc. in exchange for the cancellation of the then outstanding shares of common
stock of Vidiation, Inc.





Splinternet
Communications, Inc. was incorporated in the State of Connecticut on January 12,
2000. Since inception, we have been a developer of products, services, and
marketing strategies centered around opportunities in Internet
communications.  From 2000 through 2007 our approach was to develop
products and services that would capitalize on the shift in telecommunications
technologies from traditional telephony to Internet telephony. During this
period the Company experienced disappointing revenue growth in this market.
Because of this, during 2007 we shifted our focus into the development of a new
radiation detection device which launched us into the radiation detection
market. In 2008 our research and development was focused on developing an
Internet Protocol (IP) based management, monitoring and messaging system which
interfaced with our radiation detection devices and other third-party sensors.
In 2009 we successfully completed several pilot programs which utilized
our management, monitoring and messaging system and sensors.





Vidiation,
Inc. was a radiation detection sales and marketing company incorporated in
the State of Delaware on December 10, 2007, which acquired certain assets from
Vidiation LLC.  Vidiation LLC was a radiation detection technology
development company which had extensive sales and marketing experience in the
surveillance and security market space and was actively engaged in that
space.  The progress Vidiation, Inc. had been making in that business was
desired by the Company and precipitated the above-referenced
transaction.





The
Company does not conduct any business or own any assets other than all of the
issued and outstanding shares of Splinternet Communications, Inc. and Vidiation,
Inc.


7







2.    BASIS
OF PREPARATION





Pursuant
to the rules and regulations of the Securities and Exchange Commission for Form
10-Q, the financial statements, footnote disclosures and other information
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed. The financial statements
contained in this report are unaudited but, in the opinion of the Company,
reflect all adjustments, consisting of only normal recurring adjustments
necessary as of March 31, 2010 and the results of operations and cash flows for
the interim periods ended March 31, 2010 and 2009 to fairly present the
financial position presented herein. The results of operations for any interim
period are not necessarily indicative of results for the full year. The balance
sheet at December 31, 2009 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.





Basic
loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the period. Diluted loss per share
is computed by dividing net loss by the weighted average number of shares of
common stock, potential common stock and potentially dilutive securities
outstanding during each period. Options and warrants to purchase 3,905,000
shares of the Company's common stock, as of March 31, 2010, were not included in
the calculation, due to the fact that these options and warrants were
anti-dilutive for the three months ended March 31, 2010.  Options to
purchase 1,217,500 shares of the Company's common stock, as of March 31, 2009,
were not included in the calculation, due to the fact that these options and
warrants were anti-dilutive for the three months ended March 31,
2009.




Fair
Value of Financial Instruments




All
current assets are carried at their cost and current liabilities are recorded at
their contract amount, which approximates fair value because of their short term
nature. The carrying value of short-term financing arrangements and notes
receivable approximates fair value because interest rates over the relative term
of these instruments approximate current market interest rates.





LIQUIDITY





As of
March 31, 2010, the Company had approximately $8,000 in cash and liabilities of
approximately $1,301,000. The Company’s net cash used in operating activities
for the three months ended March 31, 2010 was approximately $63,000; hence, the
Company will require additional funding in order to be adequately funded for the
foreseeable future.





The
Company has a history of substantial operating losses and an accumulated deficit
of $8,354,731 as of March 31, 2010. For the three months ended March 31, 2010,
our net loss was $434,972. The Company has historically
experienced cash flow difficulties primarily because expenses have exceeded
revenues. The Company expects to incur additional operating losses for the
immediate near future. These factors, among others, raise significant doubt
about the Company’s ability to continue as a going concern. For the three months
ended March 31, 2010 James C. Ackerly, the President, and secretary, treasurer
and director to the Company made loans of $48,500, $23,500 of which was repaid
to Mr. Ackerly in April 2010. Additionally, the Company sold 500,000 shares of
its common stock and 250,000 warrants to an accredited investor for total
proceeds of $25,000 in a private placement offering.  If the Company
is unable to generate sufficient revenue from operations to pay expenses or is
unable to obtain additional financing on commercially reasonable terms, our
business, financial condition and results of operations will be materially and
adversely affected.


8







Recent
Accounting Pronouncements





None.





3.   MAJOR
CUSTOMER





During
the three months ended March 31, 2010 and 2009, one customer (BuenaVox LLC)
accounted for 99% and 77% of all revenues, respectively. This customer accounted
for 100% of the Company’s accounts receivable for the respective
periods.





4.   TAXES





Effective
January 1, 2007, the Company adopted the accounting standard on accounting for
uncertainty in income taxes. This standard provides detailed guidance for the
financial statement recognition, measurement and disclosure of uncertain tax
positions recognized in the financial statements. Tax positions must meet a
“more-likely-than-not” recognition threshold at the effective date to be
recognized upon the adoption and in subsequent periods. Upon the adoption, the
Company had no unrecognized tax benefits. During the three months ended March
31, 2010 and 2009, the Company recognized no adjustments for uncertain tax
benefits.




The
Company recognizes interest and penalties, if any, related to uncertain tax
positions in selling, general and administrative expenses.  No
interest and penalties related to uncertain tax positions were accrued at March
31, 2010.




As of
March 31, 2010 the Company has net operating loss carryforwards of approximately
$8,200,000 available to offset taxable income through the year 2029 and may
be limited to Internal Revenue Service (IRS) change in control
provisions.




The
Company recorded a deferred income tax asset for the tax effect of net operating
loss carryforwards and temporary differences, aggregating approximately
$3,280,000 as of March 31, 2010. In recognition of the uncertainty regarding the
ultimate amount of income tax benefits to be derived, the Company has recorded a
valuation allowance of $3,280,000 at March 31, 2010.





5.
STOCKHOLDERS EQUITY





During
the three months ended March 31, 2010 the Company issued an aggregate of 500,000
shares of common stock to a consultant with a value of $40,000 for future
services to be rendered. The Company recorded a non-cash stock compensation
expense of approximately $13,000 for the period ended March 31, 2010. The
remaining non-cash stock compensation expense will be recorded over the term of
the agreement. Pursuant to this consulting agreement the Company is required to
issue an additional 500,000 shares on or before June 1, 2010.





The
Company also has an agreement with another consultant to issue 60,000 shares per
quarter through June 30, 2014 unless the agreement is terminated by either
party. For the three months ended March 31, 2010 the Company recorded a non-cash
stock compensation expense of approximately $21,000.





In
addition the Company issued 125,000 shares of stock to its chairman of the board
and recorded non-cash stock compensation expense of approximately $22,500.
Furthermore the Company issued 315,000 shares of common stock to an employee as
payment for accrued compensation as of December 31, 2009 in the amount of
approximately $57,000.





During
the three months ended March 31, 2010, the Company sold 500,000 shares of its
common stock at $0.05 per share to an accredited investor for total proceeds of
$25,000 in a private placement offering. In connection therewith, the investor
was also issued a total of 250,000 two-year warrants exercisable for one share
of common stock at $0.10 per share.


9







6.   STOCK
OPTION PLAN





On April
22, 2008, the Board of Directors of the Company adopted the Company’s 2008 Stock
Incentive Plan (the “2008 Stock Plan”). Under the 2008 Stock Plan, officers,
other employees and directors of, and consultants to, the Company or its
subsidiaries may be awarded stock options, stock appreciation rights and other
stock awards. The number of shares subject to the 2008 Stock Plan may not exceed
6,000,000 shares in total. Adoption of the 2008 Stock Plan is subject to the
approval by the Company’s shareholders within twelve months of the adoption by
the Board of Directors. The 2008 Stock Plan provides for the grant of (i)
options that are intended to qualify as incentive stock options ("Incentive
Stock Options") within the meaning of Section 422 or 424 of the Internal Revenue
Code to key employees and (ii) options not so intended to qualify ("Nonqualified
Stock Options") to officers, employees of or consultants to the Company or any
non employee director. On April 22 and 30, 2008, the Board of Directors granted
1,265,000 nonqualified stock options to employees and consultants. The Stock
Option Plan is administered by a committee of the Board of Directors (or if
there is no committee, the Board of Directors itself). The committee shall
determine the terms of the options granted, including the exercise price, the
number of shares subject to the option and the terms and conditions of
exercise.  During the three months ended December 31, 2008, 360,000
stock options were forfeited when the individuals stopped working for the
Company. During year ended December 2009, the Board granted 2,135,537 shares and
300,000 options to employees and consultants to the Company.





The
exercise price of Incentive Stock Options granted under the plan must be at
least equal to the fair market value of the shares on the date of the grant. The
maximum term for each Incentive Stock Option granted is five years. Options
shall be exercisable at such times and in such installments as the committee
shall provide in the terms of each individual option. The maximum number of
shares for which options may be granted to any individual in any fiscal year is
2,000,000. The Stock Option Plan also provides for the granting of stock
appreciation rights, restricted stock awards, restricted stock unit awards,
performance awards, qualified performance awards and stock awards. The Board of
Directors has not granted any of these other types of awards.




During
the three months ended March 31, 2010 the Company granted 1,400,000
options.





For the
three months ended March 31, 2010 and 2009 the share-based compensation expense
was approximately $102,000 and $34,000, respectively.




The
Company recognizes stock-based compensation costs on a straight-line basis over
the requisite service period of the award, which is generally the option vesting
term.




As of
March 31, 2010, there was approximately $148,000 of unrecognized compensation
cost related to non-vested stock option awards, which is expected to be
recognized over a remaining weighted-average vesting period of
3.58 years.




7.   SEGMENT
INFORMATION




Effective
January 1, 2010 management determined that it would cease the separate reporting
of two separate businesses and focus the entire organization on the development
and sale of software and services.  All of the company's products are based
on the same basic software system.  In support of the Company’s new focus,
the Company changed its name to Defentect Group, Inc.  The software will be
sold and marketed through its subsidiary Vidiation, Inc.




8.  
LOANS FROM OFFICERS





Mr. James
C. Ackerly, the President and secretary, treasurer and director, made loans to
the Company during the three months ended March 31, 2010 of
$48,500.  The loans are demand loans that are secured by all the
assets of the Company and accrue interest at the rate of 8%.  The
Company accrued $16,839 in interest charges due to loans payable to Mr.
Ackerly.


10







9.  
CONTINGENCY





The
Company recently became involved in a claim described below arising in the
ordinary course of business. Management is of the opinion that the ultimate
outcome of this matter would not have a material adverse impact on the financial
position of the Company or the results of its operations and the Company intends
to vigorously defend itself against this claim.





On April
28, 2009, The Idler Company, Inc. (“Idler”) commenced an action against the
Company, Vidiation, Inc., Vidiation, LLC, Frank O’Connor and James C. Ackerly in
the United States District Court, District of Connecticut pertaining to the
purchase by Idler of shares of Vidiation, LLC for $100,000 in
2007.  Such action alleges various securities law violations, breach
of contract, rescission, fraud and unjust enrichment.  We intend to
vigorously defend this matter. However, we cannot predict or estimate the timing
or ultimate outcome of this matter.





10.  
SUBSEQUENT EVENTS




Subsequent
to the end of the first quarter of 2010, the Company sold an aggregate of
2,125,000 shares of its common stock to certain investors for total gross
proceeds of $200,000.  In connection therewith, the investors shall
receive an aggregate of 2,000,000 warrants exercisable into shares of common
stock at $0.10 per share which shall expire in two years.




In April
2010, the Company issued 6,000,000 shares of common stock to a vendor in
accordance with a consulting agreement between such vendor and the Company dated
January 14, 2009 and a subsequent exchange agreement, in which the parties
agreed to exchange options to purchase 300,000 shares for the subject
issuance in recognition of service provided.





In April
2010, the Company repaid James C. Ackerly, the Company’s President, $23,500 as
partial repayment of loans made by Mr. Ackerly during the first quarter of
2010.   See Note 8.





In May
2010, the Company issued 100,000 shares of common stock to a consultant and
agreed to issue warrants to such consultant to acquire an additional 100,000
shares in full consideration for a one year consulting agreement entered into on
May 1, 2010.


11







Item 2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations





The
following discussion should be read in conjunction with the Financial Statements
included in this report and is qualified in its entirety by the
foregoing.





Forward-Looking
Statements





This
report contains “forward-looking statements”, which involve known and unknown
risks, uncertainties and other factors which could cause actual financial or
operating results, performances or achievements expressed or implied by such
forward-looking statements not to occur or be realized.  These
forward-looking statements generally are based on our best estimates of future
results, performances or achievements, based upon current conditions and
assumptions. Forward-looking statements may be identified by the use of
forward-looking terminology such as “may,” “can,” “could,” “project,” “expect,”
“believe,” “plan,” “predict,” “estimate,” “anticipate,” “intend,” “continue,”
“potential,” “would,” “should,” “aim,” “opportunity” or similar terms,
variations of those terms or the negative of those terms or other variations of
those terms or comparable words or expressions. These risks and uncertainties
include, but are not limited to:





·
            general
      economic conditions in both foreign and domestic
  markets,





·
            Cyclical
      factors affecting our industry,





·
            lack
      of growth in our industry,





·
            our
      ability to comply with government
regulations,





·
            a
      failure to manage our business effectively and
  profitably,





·
            our
      ability to sell both new and existing products and services at profitable
      yet competitive prices, and





·
            other
      risks and uncertainties set forth from time to time in our filings with
      the Securities and Exchange
Commission.





You
should carefully consider these risks, uncertainties and other information,
disclosures and discussions which contain cautionary statements identifying
important factors that could cause actual results to differ materially from
those provided in the forward-looking statements.  Defentect Group,
Inc. undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.





Overview





Defentect
Group, Inc., formerly known as Splinternet Holdings, Inc. (the “Company”) is the
parent company of Splinternet Communications, Inc., originally a provider of
Internet Telephony services, which entered the radiation detection market in
2007, and Vidiation, Inc., a security sales and marketing company which was
acquired on April 30, 2008.





The
Company develops and markets technologies for the security and threat management
industry.  Our products react to the detection of chemical,
biological, radiological or nuclear threats and notify responders and key
administrators immediately. The Company’s unique response technology can be
easily integrated with other manufacturers’ sensors, and serve many different
markets.





The
Company was incorporated in the State of Delaware on March 22, 2006 under the
name Splinternet Holdings, Inc. On April 3, 2006, the Company conducted a share
for share exchange of securities with Splinternet Communications, Inc. whereby
214,002 shares of the common stock, par value $0.001 per share of Splinternet
Communications, Inc. were exchanged for 53,500,500 shares of the common stock,
par value $0.001 per share (the “Common Stock”) of the Company (the “Share
Exchange”), as a result of which Splinternet Communications, Inc. became a
wholly owned subsidiary of the Company.


12







On April
30, 2008, the Company consummated the transaction contemplated by an Agreement
and Plan of Merger (the “Vidiation Merger Agreement”) dated February 7, 2008
among the Company, Vidiation, Inc., a Delaware corporation and Splinternet
Merger Sub I, Inc. (a wholly owned subsidiary of the Company formed for the
purpose of such transaction) (the “Merger Sub”) pursuant to which the Merger Sub
merged into Vidiation, Inc. resulting in Vidiation, Inc. becoming a wholly-owned
subsidiary of the Company.   Upon closing, the Company issued an
aggregate of 4,788,179 shares of common stock to the shareholders of Vidiation,
Inc. in exchange for the cancellation of the then outstanding shares of common
stock of Vidiation, Inc.





Splinternet
Communications, Inc. was incorporated in the State of Connecticut on January 12,
2000. Since inception, we have been a developer of products, services, and
marketing strategies centered around opportunities in Internet
communications.  From 2000 through 2007 our approach was to develop
products and services that would capitalize on the shift in telecommunications
technologies from traditional telephony to Internet telephony. During this
period the Company experienced disappointing revenue growth in this market.
Because of this, during 2007 we shifted our focus into the development of a new
radiation detection device which launched us into the radiation detection
market. In 2008 our research and development was focused on developing an
Internet Protocol (IP) based management, monitoring and messaging system which
interfaced with our radiation detection devices and other third-party sensors.
In 2009 we successfully completed several pilot programs which utilized
our management, monitoring and messaging system and sensors.





Vidiation,
Inc. was a radiation detection sales and marketing company incorporated in
the State of Delaware on December 10, 2007, which acquired certain assets from
Vidiation LLC.  Vidiation LLC was a radiation detection technology
development company which had extensive sales and marketing experience in the
surveillance and security market space and was actively engaged in that
space.  The progress Vidiation, Inc. had been making in that business was
desired by the Company and precipitated the above-referenced
transaction.





The
Company does not conduct any business or own any assets other than all of the
issued and outstanding shares of Splinternet Communications, Inc. and Vidiation,
Inc.





References
herein to “we”, “us” or “our” refer to the Company and its wholly owned
subsidiaries, unless explicitly stated to the contrary.





Recent
Events




Subsequent
to the end of the first quarter of 2010, the Company sold an aggregate of
2,125,000 shares of its common stock to certain investors for total gross
proceeds of $200,000.  In connection therewith, the investors shall
receive an aggregate of 2,000,000 warrants exercisable into shares of common
stock at $0.10 per share which warrants shall expire in two years.




In April
2010, the Company issued 6,000,000 shares of common stock to a vendor in
accordance with a consulting agreement between such vendor and the Company dated
January 14, 2009 and a subsequent exchange agreement, in which the parties
agreed to exchange options to purchase 300,000 shares for the subject
issuance in recognition of service provided.





In April
2010, the Company repaid James C. Ackerly, the Company’s President, $23,500 as
partial repayment of loans made by Mr. Ackerly during the first quarter of
2010.


13







Results
of Operations





SERVICE
REVENUE





Service
revenue for the three months ended March 31, 2010 were $116,795 which is an
increase from $78,283 for the three months ended March 31, 2009.  The
increase is due to higher usage of the Company’s long distance termination by
its customer.





COST OF
REVENUE





The
Company continues to purchase long distance minutes at wholesale prices from
phone companies and then resells them at a markup to its customer. For the three
months ended March 31, 2010, the costs of the wholesale minutes were $111,201
which is an increase from $76,687 for the three months ended March 31, 2009. The
increase is due to higher usage for this service by the Company’s
customer.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





In the
three months ended March 31, 2010, selling, general and administrative costs
were $398,806 which is an increase from $255,657 in the comparable period in
2009.  The increase is due to higher stock compensation expense during
the three months ended March 31, 2010 as compared to the same period in
2009.





RESEARCH
AND DEVELOPMENT





Research
and development decreased to $23,546 in the three months ended March 31, 2010
from $57,932 for the comparable periods in 2009. The decrease is the result of
the completion of the Company’s radiation detection sensors. The Company
continues development of its IP based management, monitoring and messaging
system software.





INTEREST
INCOME





Interest
earned in the three months ended March 31, 2010 was $1,358 compared to $1,344
for the comparable period in 2009. This is primarily due to a lower average
balance invested in 2010 due to the Company using cash to fund
operations.





INTEREST
EXPENSE





Interest
expense in the three months ended March 31, 2010 was $19,572 compared to $6,145
for the comparable period in 2009. The increase is due to the accrual of higher
interest expense which is the result of the additional loans made by the
President to the Company during 2009.





NET
LOSS





We
incurred a net loss of $434,972, during the three months ended March 31, 2010
compared to a net loss of $316,794 during the same period in the prior year for
an overall increase in net loss of $118,178. The increase in the net loss was
primarily the result of the Company’s increase in stock compensation
expenses.





Financial
Condition, Liquidity and Capital Resources





As of
March 31, 2010, we had approximately $8,000 in cash and current liabilities of
approximately $1,301,000; hence, we require additional funding in order to be
adequately funded for the foreseeable future. The Company has primarily supplied
its cash needs through loans from Mr. Ackerly (the Company’s President and Chief
Executive Officer) and stock offerings. The Company’s need to obtain capital
from outside investors is expected to continue until we are able to achieve
profitable operations, if ever.


14







The
Company has a history of substantial operating losses and an accumulated deficit
of $8,354,731 as of March 31, 2010. The Company has historically experienced
cash flow difficulties primarily because expenses have exceeded revenues. The
Company expects to incur additional operating losses for the immediate near
future. These factors, among others, raise significant doubt about ability to
continue as a going concern.





Net cash
used by operating activities for the three months ended March 31, 2010 was
$62,701 which was primarily the result of the net loss of
$434,972.  No net cash was used in investing activities for the three
months ended March 31, 2010 and for the same period in the prior
year.  This is due to the Company eliminating the purchase of property
and equipment to conserve cash.   For the three months ended
March 31, 2010, net cash used in financing activities was $73,500 compared to
$205,645 for the three months ended March 31, 2009. The change in 2010 is due to
the President and Chief Executive Officer of the Company making fewer loans to
the Company during the first three months of 2010 as compared to the same period
in 2009.  If the Company is unable to generate sufficient revenue from
operations to pay expenses or is unable to obtain additional financing on
commercially reasonable terms, our business, financial condition and results of
operations will be materially and adversely affected which may force us to cease
operations.





Risk
Factors





There
are numerous and varied risks, known and unknown, that may prevent us from
achieving our goals, including those described below. The risks described below
are not the only ones we will face. Additional risks not presently known to us
or that the Company currently deems immaterial may also impair our financial
performance and business operations. If any of these risks actually occurs, our
business, financial condition or results of operations may be materially
adversely affected. In such case, the trading price of our Common Stock could
decline, and you may lose all or part of your investment. Before making any
investment decision, you should also review and consider the other information
set forth in this report.





BUSINESS
AND FINANCIAL RISKS





THE
ONGOING ECONOMIC SLOWDOWN MAY HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS AND
FINANCIAL CONDITION THAT WE CURRENTLY CANNOT PREDICT.





The
ongoing global economic slowdown has caused turmoil and upheaval characterized
by extreme volatility and declines in prices of securities, diminished liquidity
and credit availability, inability to access capital markets, the bankruptcy,
failure, collapse or sale of financial institutions and an unprecedented level
of intervention from the United States federal government and other governments.
Unemployment has risen while businesses and consumer confidence have declined
and there are fears of a prolonged recession.  While the ultimate
outcome of these events cannot be predicted, they could materially adversely
affect our business and financial condition, including our ability to raise any
equity or debt financing in the future.





OUR
INDEPENDEENT REGISTERED PUBLIC ACCOUNTING FIRM HAVE ISSUED A GOING CONCERN
OPINION.





Our
auditors have included an explanatory paragraph in their opinion that
accompanies our audited financial statements as of and for the year ended
December 31, 2009, indicating that our recurring losses from operations,
stockholders’ deficiency, and working capital deficiency raise substantial doubt
about our ability to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





WE WILL
NEED ADDITIONAL FINANCING IN ORDER TO CONTINUE OUR OPERATIONS WHICH WE MAY NOT
BE ABLE TO RAISE.





We will
require additional capital to finance our future operations.  We can
provide no assurance that we will obtain additional financing sufficient to meet
our future needs on commercially reasonable terms or otherwise.  If we
are unable to obtain the necessary financing, our business, operating results
and financial condition will be materially and adversely
affected.


15


---

OUR
PERFORMANCE DEPENDS ON MARKET ACCEPTANCE OF OUR PRODUCTS AND WE CANNOT BE SURE
THAT OUR PRODUCTS ARE COMMERCIALLY VIABLE.





We expect
to derive a substantial portion of our future revenues from the sales of
radiation detection equipment and services that is only now entering the initial
marketing phase. Although we believe our products and technologies will be
commercially viable, these are new products.  If markets for our
products fail to develop further, develop more slowly than expected or are
subject to substantial competition, our business, financial condition and
results of operations will be materially and adversely affected.





RAPIDLY
CHANGING TECHNOLOGY AND SUBSTANTIAL COMPETITION MAY ADVERSELY AFFECT OUR
BUSINESS.





Our
business is subject to rapid changes in technology.  We can provide no
assurances that research and development by competitors will not render our
technology obsolete or uncompetitive.  We compete with a number of
companies that have technologies and products similar to those offered by us and
have greater resources, including more extensive research and development,
marketing and capital than we do.  If our technology is rendered
obsolete or we are unable to compete effectively, our business, operating
results and financial condition will be materially and adversely
affected.





DEFECTS
IN OUR PRODUCTS MAY ADVERSELY AFFECT OUR BUSINESS.





Complex
technologies such as the technologies developed by us may contain defects when
introduced and also when updates and new products are released. Our introduction
of technology with defects or quality problems may result in adverse publicity,
product returns, reduced orders, uncollectible or delayed accounts receivable,
product redevelopment costs, loss of or delay in market acceptance of our
products or claims by customers or others against us. Such problems or claims
may have a material and adverse effect on our business, financial condition and
results of operations.





WE HAVE
HAD LIMITED REVENUES THUS FAR.





To date,
we have had limited revenues. Because we are subject to all risks inherent in a
business venture, it is not possible to predict whether we will ever be
profitable.  Even if we succeed with our current business plan, we may
never become profitable, as we will continue to incur operating and capital
expenditures for items such as salary, inventory, data processing equipment,
shipping and other ongoing business activities.





Accordingly,
it is not possible to predict whether or not our current and proposed activities
will be sufficiently profitable. Purchasers of our shares should bear in mind
that, in light of the risks and contingencies involved, no assurance can be
given that we will ever generate enough revenue to offset expenses or to
generate a return on invested capital. There is no guarantee of our successful,
profitable operation. Our failure to achieve or maintain profitability can be
expected to have a material adverse effect on our business, financial condition,
results of operations and future business prospects.





WE MAY
EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR OPERATING RESULTS AND RATE OF GROWTH
AND MAY NOT BE PROFITABLE IN THE FUTURE.





Our
results of operations may fluctuate significantly due to a variety of factors,
many of which are outside of our control and difficult to predict. The following
are some of the factors that may affect us from period to period and may affect
our long-term financial performance:





·
            our
      ability to retain and increase revenues associated with customers and
      satisfy customers’ demands;





·
            our
      ability to be profitable in the
future;





·
            our
      investments in longer-term growth
  opportunities;


16


---

·
            our
      ability to expand our marketing network, and to enter into, maintain,
      renew and amend strategic alliance arrangements on favorable
      terms;





·
            changes
      to service offerings and pricing by us or our
      competitors;





·
            fluctuations
      caused by marketing efforts and competitors’ marketing and pricing
      strategies;





·
            changes
      in the terms, including pricing, of our agreements with our
      telecommunications providers;





·
            the
      effects of commercial agreements and strategic alliances and our ability
      to successfully integrate them into our
  business;





·
            technical
      difficulties, system downtime or
  interruptions;





·
            the
      effects of litigation and the timing of resolutions of
      disputes;





·
            the
      amount and timing of operating costs and capital
      expenditures;





·
            changes
      in governmental regulation and taxation
  policies; and





·
            changes
      in, or the effect of, accounting rules, on our operating
      results.





OUR
HISTORICAL FINANCIAL STATEMENTS MAKE EVALUATION OF OUR BUSINESS BY POTENTIAL
INVESTORS AND OTHERS DIFFICULT.





We
commenced our business operations in January 2000 and began generating
revenue in 2001. However, since we recently refocused our business strategy to
include security and threat management software, our historical financial
statements, which primarily reflect our Internet telephony retail sales, are of
limited usefulness in evaluating our potential future financial
position.





WE MAY
NOT SUCCESSFULLY ENHANCE EXISTING OR DEVELOP NEW PRODUCTS AND SERVICES IN A
COST-EFFECTIVE MANNER TO MEET CUSTOMER DEMAND IN THE RAPIDLY EVOLVING MARKETS IN
WHICH WE ARE ENGAGED.





The
markets in which we are engaged are characterized by rapidly changing
technology, evolving industry standards, changes in customer needs and frequent
new service and product introductions. Our future success will depend, in part,
on our ability to use leading technologies effectively, to continue to develop
our technical expertise, to enhance our existing services and to develop new
services that meet changing customer needs on a timely and cost-effective basis.
We may not be able to adapt quickly enough to changing technology, customer
requirements and industry standards. If we fail to use new technologies
effectively, to develop our technical expertise and new services, or to enhance
existing services on a timely basis, either internally or through arrangements
with third parties, our product and service offerings may fail to meet customer
needs, which would adversely affect our revenues and prospects for
growth.





We have
spent and will continue to spend signification resources enhancing, developing,
implementing and launching our security and threat management products and
services. We believe threat detection products and services represent a
significant growth opportunity. However, losses are expected to result in the
early stages until a sufficient number of customers are added whose recurring
revenues, net of recurring costs, more than offset sales, marketing and other
expenses incurred to add additional customers.





To the
extent we pursue commercial agreements, acquisitions and/or strategic alliances
to facilitate new product or service activities, the agreements, acquisitions
and/or alliances may not be successful. If any of this were to occur, it could
damage our reputation, limit our growth, negatively affect our operating results
and harm our business.


17


---

RELIANCE
UPON THIRD-PARTY SUPPLIERS FOR COMPONENTS MAY PLACE US AT RISK OF INTERRUPTION
OF SUPPLY OR INCREASE IN COSTS.





We rely
on third-party suppliers for the hardware and software necessary for our
services and we do not have any long-term supply agreements. Although we believe
we can secure other suppliers, we expect that the deterioration or cessation of
any relationship would have a material adverse effect, at least temporarily,
until the new relationships are satisfactorily in place.





We also
run the risk of supplier price increases and component shortages. Competition
for materials in short supply can be intense, and we may not be able to compete
effectively against other purchasers who have higher volume requirements or more
established relationships. Even if suppliers have adequate supplies of
components, they may be unreliable in meeting delivery schedules, experience
their own financial difficulties, provide components of inadequate quality or
provide them at prices which reduce our profit. Any problems with our
third-party suppliers can be expected to have a material adverse effect on our
financial condition, business, results of operations and continued growth
prospects.




WE FACE
SIGNIFICANT COMPETITION.




We
compete on the basis of advanced technologies, competent execution of these
technologies, the quality, reliability and price of our services and our prompt
and responsive performance.  For example, in much of the world,
radiation detection activities are conducted by a combination of private
entities and governmental agencies.  In the United States, most of our
competitors are larger, have substantial resources, and have been particularly
active in recent years in soliciting business.  We will also face
substantial competitive pressures from a number of smaller
competitors.




THE
RADIATION DETECTION INDUSTRY IS SUBJECT TO EXTENSIVE DOMESTIC AND FOREIGN
GOVERNMENT REGULATIONS, WHICH COULD INCREASE OUR COSTS, CAUSE US TO INCUR
LIABILITIES AND ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.




The
radiation detection industry is subject to federal, state, and international
governmental regulation. Unknown matters, new laws and regulations, or stricter
interpretations of existing laws or regulations may materially affect our
proposed entry into this business or operations in the future and/or could
increase the cost of compliance.  Our products will have to comply
with various domestic and international standards that are used by regulatory
and accreditation bodies for approving such services and
products.  The failure of the Company to obtain accreditation for its
products and services may adversely affect us and the market perception of the
effectiveness of our proposed products.  In the future, changes in
these standards and accreditation requirements may also result in the Company
having to incur substantial costs to adapt its offerings and
procedures.  Additionally, changes affecting radiation detection
practices, including new understandings of the hazards of radiation exposure and
amended regulations, may impact how the Company’s services are used by its
customers and may, in some circumstances, cause the Company to alter its
products and delivery of its services.





OUR
INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY IN THE RADIATION DETECTION
INDUSTRY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.





With
regard to our radiation detection device, patents will be material to our
operations.  We have initiated the process of patenting our detection
and reporting process.  No assurance can be given that such patent
application will be granted.  Our success will depend in part on our
ability to develop patentable products and obtain and enforce patent protection
for our products both in the United States and in other
countries.   Patents may not be issued for any pending or future
patent applications owned by or licensed to us, and the claims allowed under any
issued patents may not be sufficiently broad to protect our
technology.  Any issued patents owned by or licensed to us may be
challenged, invalidated or circumvented, and the rights under these patents may
not provide us with competitive advantages.  In addition, competitors
may design around our technology or develop competing
technologies.  Intellectual property rights may also be unavailable or
limited in some foreign countries, which could make it easier for competitors to
capture increased market position.  We could incur substantial costs
to defend ourselves in suits brought against us or in suits in which we may
assert our patent rights against others. An unfavorable outcome of any such
litigation could materially adversely affect our business and results of
operations.


18





THERE IS
NO ASSURANCE THAT WE CAN SUCCESSFULLY IMPLEMENT JOINT VENTURES OR FIND PARTNERS
FOR OUR BUSINESS.




With
regard to our radiation detection business, we intend to acquire or joint
venture with security companies that sell or install security systems to various
markets. These markets include and are not limited to hospitals and waste
management. The success of out business plan is predicated on us finding
appropriate partners and introducing the Company’s radiation detection products
to their operations.




There is
no assurance that we will be able to access such companies or to complete their
acquisition or negotiate joint ventures.





ONGOING
SUCCESS AND OUR ABILITY TO COMPETE DEPEND UPON HIRING AND RETENTION OF KEY
PERSONNEL.





Success
willbe dependent
to a significant degree upon the involvement of current management. These
individuals have critical industry experience and relationships upon which we
rely. The loss of services of any of our key personnel could divert time and
resources, delay the development of our business and negatively affect our
ability to sell our services or execute our business. In addition, we will need
to attract and retain additional talented individuals in order to carry out our
business objectives. The competition for such persons is intense and there are
no assurances that these individuals will be available. Such problems might be
expected to have a material adverse impact on our financial condition, results
of current operations and future business prospects.





DIRECTOR
AND OFFICER LIABILITY IS LIMITED.





As
permitted by Delaware law, the certificate of incorporation of the Company
limits the personal liability of directors to the fullest extent permitted by
the provisions of the Delaware General Corporation Law. As a result of our
charter provision and Delaware law, stockholders may have limited rights to
recover against directors for breach of fiduciary duty. In addition, the
certificate of incorporation of the Company provides that it shall indemnify its
directors and officers to the fullest extent permitted by law.




RISKS
RELATING TO THE OUR COMMON STOCK





WE HAVE
HAD IMPAIRMENT OF GOODWILL.





The
Company has significant intangible assets related to goodwill and other acquired
intangibles. In determining the recoverability of goodwill and other
intangibles, assumptions are made regarding estimated future cash flows and
other factors to determine the fair value of the assets. After completing the
impairment testing of goodwill and other intangible assets, the Company
concluded an impairment charge of $2,831,790 should be taken at December 31,
2009 in connection with the recorded goodwill arising from its acquisition made
in 2008, This impairment charge was the result of projected revenue related to
the acquisition has not been achieved and future sales contracts have not been
closed.





THE PRICE
OF OUR COMMON STOCK IS HIGHLY VOLATILE.





The price
of our common stock is highly volatile. Fluctuations in the market price of our
common stock may be a result of any number of factors or a combination of
factors including, but not limited to:





·
            the
      number of shares in the market and the number of shares we may be required
      to issue in the future compared to market demand for our
      shares;





·
            our
      performance and meeting expectations of performance, including the
      development and commercialization of our current and proposed products and
      services;


19


---

·
            market
      conditions for Internet and media companies in the small capitalization
      sector; and





·
            general
      economic and market conditions.





PENNY
STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF THE
COMPANY’S SECURITIES.





Our
common stock relies on the OTC Bulletin Board for the quotations and is subject
to rules pertaining to “penny stocks”. The SEC has adopted regulations which
generally define a “penny stock” to be any equity security that has a market
price (as defined) of less than $5.00 per share or an exercise price of less
than $5.00 per share, subject to certain exceptions. Our shares currently have a
market price of less than $5.00 per share. As a result, the Company’s Common
Stock is subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
clients and “accredited investors”. For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the SEC relating to the
penny stock market. The broker-dealer must also disclose the commission payable
to both the broker-dealer and the registered representative, current quotations
for the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the “penny stock” rules may
restrict the ability of broker/dealers to sell shares of the Company’s Common
Stock and may affect the ability of investors to sell such shares of Common
Stock in the secondary market and the price at which such investors can sell any
of such shares.





Investors
should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Such patterns
include:





·
            control
      of the market for the security by one or a few broker/dealers that are
      often related to the promoter or
issuer;





·
            manipulation
      of prices through prearranged matching of purchases and sales and false
      and misleading press releases;





·
            “boiler
      room” practices involving high pressure sales tactics and unrealistic
      price projections by inexperienced sales
  persons;





·
            excessive
      and undisclosed bid-ask differentials and markups by selling
      broker/dealers; and





·
            the
      wholesale dumping of the same securities by promoters and broker/dealers
      after prices have been manipulated to a desired level, along with the
      inevitable collapse of those prices with consequent investor
      losses.




Section
15(g) of the Exchange Act and Rule 15g-2 of the Securities and Exchange
Commission require broker/dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document before making any
transaction in a penny stock for the investor’s account. You are urged to obtain
and read this disclosure carefully before purchasing any of our
shares.




Rule
15g-9 of the Securities and Exchange Commission requires broker/dealers in penny
stocks to approve the account of any investor for transactions in these stocks
before selling any penny stock to that investor. This procedure requires the
broker/dealer to:




·
            get
      information about the investor’s financial situation, investment
      experience and investment
goals;


20


---

·
            reasonably
      determine, based on that information, that transactions in penny stocks
      are suitable for the investor and that the investor can evaluate the risks
      of penny stock transactions;





·
            provide
      the investor with a written statement setting forth the basis on which the
      broker/dealer made his or her determination;
and





·
            receive
      a signed and dated copy of the statement from the investor, confirming
      that it accurately reflects the investors’ financial situation, investment
      experience and investment goals.




Compliance
with these requirements may make it harder for our stockholders to resell their
shares.





IF WE
RAISE ADDITIONAL FUNDS THROUGH THE ISSUANCE OF EQUITY SECURITIES, OR DETERMINE
IN THE FUTURE TO REGISTER ADDITIONAL COMMON STOCK, YOUR PERCENTAGE OWNERSHIP
WILL BE REDUCED, YOU WILL EXPERIENCE DILUTION WHICH COULD SUBSTANTIALLY DIMINISH
THE VALUE OF YOUR STOCK AND SUCH ISSUANCE MAY CONVEY RIGHTS, PREFERENCES OR
PRIVILEGES SENIOR TO YOUR RIGHTS WHICH COULD SUBSTANTIALLY DIMINISH YOUR RIGHTS
AND THE VALUE OF YOUR STOCK.




The
Company may issue additional shares of Common Stock for various reasons and may
grant stock options to employees, officers, directors and third parties. If the
Company determines to register for sale to the public additional shares of
Common Stock or other debt or equity securities in any future financing or
business combination, a material amount of dilution can be expected to cause the
market price of the Common Stock to decline. One of the factors which generally
affects the market price of publicly traded equity securities is the number of
shares outstanding in relationship to assets, net worth, earnings or anticipated
earnings. Furthermore, the public perception of future dilution can have the
same effect even if actual dilution does not occur.




SINCE WE
DO NOT INTEND TO DECLARE DIVIDENDS IN THE FORESEEABLE FUTURE, THE RETURN ON YOUR
INVESTMENT WILL DEPEND UPON APPRECIATION OF THE MARKET PRICE OF YOUR
SHARES.




We have
never paid any dividends on our common stock. Our board of directors does not
intend to declare any dividends in the foreseeable future, but intends to retain
all earnings, if any, for use in our business operations. As a result, the
return on your investment in us will depend upon any appreciation in the market
price of our common stock. The holders of common stock are entitled to receive
dividends when, as and if declared by the board of directors out of funds
legally available for dividend payments. The payment of dividends, if any, in
the future is within the discretion of our board of directors and will depend
upon our earnings, capital requirements and financial condition, and other
relevant factors.





Critical
Accounting Policies





The following is a discussion of the
accounting policies that the Company believes are critical to its
operations:





Use of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.





Revenue
recognition





The
Company records revenue when persuasive evidence of an arrangement exists,
services have been rendered or product delivery has occurred, the sales price to
the customer is fixed or determinable, and collectability is reasonably
assured.


21


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We
recognize revenue when products have been shipped or services have been
performed. The Company does not offer prepays for termination services. For the
Company’s radiation detection products which require an acceptance period during
which the customer may cancel their contract or purchase order without penalty,
the Company defers the revenue recognition until the end of that acceptance
period. The Company offers a one year warranty on its radiation detection
products and provides for estimated future warranty costs at the time revenue is
recognized. As of this filing date, no warranty obligation has been
recorded.





Impairment
of Goodwill





Goodwill
represents the excess of the purchase price over the fair market value of net
assets acquired. The process of determining goodwill requires judgment. The
Company had recorded Goodwill as a result of its acquisition of Vidiation,
Inc.  Vidiation, Inc. had signed numerous reseller agreements,
established relationships with key corporations in the radiation detection
industry and negotiated pilot programs to test the Defentect technology at the
time of the acquisition.  These were measurable outputs that
Vidiation, Inc. had achieved as a sales and marketing firm in the radiation
technology industry at the time of the acquisition.  The combination
of these outputs with its policies, procedures, management and systems, combined
to allow the Vidiation, Inc. to meet the definition of a business and therefore
was subject to Business Combination accounting.  As a result, after
allocating the purchase price to tangible and intangible assets, the difference
was determined to be Goodwill.  Evaluating goodwill for impairment
involves the fair value of the reporting units. Inherent in such fair value
determinations are certain judgments and estimates, including the interpretation
of current economic indicators and market valuations, and the strategic plans
with regard to the Company’s operations. To the extent additional information
arises or the strategies change, it is possible the conclusion regarding
goodwill impairment could change, which could have a material effect on the
financial position and results of operations. For these reasons, the Company
believes the accounting estimates related to goodwill impairment is a critical
accounting estimate.




The
Company has significant intangible assets related to goodwill and other acquired
intangibles. In determining the recoverability of goodwill and other
intangibles, assumptions are made regarding estimated future cash flows and
other factors to determine the fair value of the assets. After completing the
impairment testing of goodwill and other intangible assets, the Company
concluded an impairment charge should be taken at December 31, 2009 in
connection with the recorded goodwill arising from its acquisition made in 2008
since the projected revenue related to the acquisition has not been achieved and
future revenue sales contracts have not been closed.





Off-Balance
Sheet Arrangements





We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.





Item
      3.
            Quantitative
      and Qualitative Disclosures About Market
Risk





Not
applicable.





Item
      4T.
            Controls
      and Procedures





We
maintain disclosure controls and procedures that are designed to ensure (1) that
information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission’s (“SEC”) rules and forms, and (2)
that this 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.  In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost benefit relationship of
possible controls and procedures.


22


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Prior to
the filing date of this report, under the supervision and review of our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report.  Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded, as of March 31, 2010, that our disclosure controls and procedures
were not effective in alerting them in a timely manner to material information
regarding us that is required to be included in our periodic reports to the SEC
due to the material weakness noted below.





A
material weakness is a significant deficiency, or a combination of significant
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.





At the
end of fiscal year 2009, we decided to change the focus of our business
activities as described elsewhere in this document.  As a result, the
goodwill associated with the acquisition of Vidiation, Inc. in 2008 was
impaired. Due to an oversight in our policies and procedures for the review of
the testing of goodwill impairment, we temporarily overlooked important issues
related to the testing of goodwill impairment. Although this oversight was
discovered before filing of any reports, it did create a reasonable possibility
that a material misstatement of our annual or interim financial statements might
not be prevented or detected on a timely basis in the future. Accordingly, we
determined that this control deficiency constituted a material
weakness.




During
the preparation of our annual report on Form 10-K, the underlying circumstances
of this material weakness were fully communicated to and considered by our
independent registered public accounting firm to ensure that the appropriate
accounting treatment was recorded in the financial statements included in the
Form 10-K.




We have
developed the following remediation plan to address this material weakness and
we are proceeding expeditiously with measures to enhance our internal control
over financial reporting:





·
            Our
      Board of Directors will monitor the accounting policies adopted by the
      Company and will direct additional measures as deemed
      appropriate.




Accordingly,
our management believes that the accounting included in this Form 10-Q fairly
presents in all material respects our financial position, results of operations
and cash flows for the periods presented.





In
addition, there have been no significant changes in our internal controls or in
other factors that could significantly affect those controls that occurred
during the fiscal quarter covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.  We can provide no assurance, however, that our
system of disclosure controls and procedures will always achieve its stated
goals under all future conditions, no matter how remote.


23





PART
II  - OTHER INFORMATION





Item
      1.
            Legal
      Proceedings





Except as
set forth below, we are not a party to any pending legal proceeding, nor is our
property the subject of a pending legal proceeding, that is not in the ordinary
course of business or otherwise material to the financial condition of our
business. None of our directors, officers or affiliates is involved in a
proceeding adverse to our business or has a material interest adverse to our
business.





On April
28, 2009, The Idler Company, Inc. (“Idler”) commenced an action against the
Company, Vidiation, Inc., Vidiation, LLC, Frank O’Connor and James C. Ackerly in
the United States District Court, District of Connecticut pertaining to the
purchase by Idler of shares of Vidiation, LLC for $100,000 in
2007.  Such action alleges various securities law violations, breach
of contract, rescission, fraud and unjust enrichment.  We intend to
defend this matter vigorously. However, we cannot predict or estimate the timing
or ultimate outcome of this matter.





Item
      2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds





In connection with the appointment of Ambassador L. Paul Bremer,
III to serve as a member of the Company’s Board of Directors, effective October
10, 2008, the Board has agreed to issue to Ambassador Bremer, or his designee,
1,000,000 shares of our common stock which will vest quarterly over two years
with acceleration of vesting when authorized by the Board of Directors in
acknowledgement of extraordinary circumstances or success.  As a
result, unless accelerated, 125,000 shares will be issued to Ambassador Bremer
quarterly and the Company will record non-cash compensation expense for the fair
value of shares issued.  Through March 31, 2010, a total of 750,000
shares have been issued.  Of such amount, 125,000 were issued in the
three months ended March 31, 2010.  The issuance of these shares of
common stock are exempt from registration requirements pursuant to Section 4(2)
of the Securities Act of 1933, as amended.





During
the three months ended March 31, 2010 the Company issued an aggregate of 680,000
shares of common stock to two consultants for services rendered and 315,000
shares of common stock to an employee as payment for accrued compensation as of
December 31, 2009.  The issuance of these shares of common stock are
exempt from registration requirements pursuant to Section 4(2) of the Securities
Act of 1933, as amended.





In
addition, during the three months ended March 31, 2010, the Company sold 500,000
shares of its common stock at $0.05 per share to an accredited investor for
total proceeds of $25,000 in a private placement offering. In connection
therewith, the investor was also issued a total of 250,000 two-year warrants
exercisable for share of common stock at $0.10 per share.  The
securities were issued in reliance upon the exemption from registration pursuant
to Section 4(2) of the Securities Act of 1933, as amended, and/or Rule 506
thereunder.





Item
      3.
            Defaults
      Upon Senior Securities





Not
applicable.





Item
      4.
            Submission
      of Matters to a Vote of Security
Holders





Not
applicable.





Item
      5.
            Other
      Information





Not
applicable.


24


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Item
      6.
            Exhibits





31.1
            Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002(Rules 13a-14 and
      15d-14 of the Exchange Act)


31.2
            Certification
      of Principal Financial Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange
      Act)


32.1
            Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002 (18 U.S.C. 1350)


32.2
            Certification
      of Principal Financial Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350)


25


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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.





DEFENTECT
      GROUP, INC.(Registrant)Dated:
      May 19, 2010
              By:
              /s/ James C. AckerlyJames
      C. Ackerly, Chief Executive Officerand
      President (Principal Executive Officer)Dated:
      May 19, 2010
              By:
              /s/ John T. GrippoJohn
      T. Grippo, Chief Financial Officer(Principal
      Financial Officer)


26