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, 2009




 ̈ 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





SPLINTERNET HOLDINGS,
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








Former
Name, Former Address and Former Fiscal Year, if Changed Since Last
Report.





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  xNo   ̈




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
14, 2009, there were 63,498,358 outstanding shares of Common Stock, $.001 par
value.








SPLINTERNET
HOLDINGS, INC. AND SUBSIDIARIES





TABLE
OF CONTENTS





PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                        
                        Financial
      Statements.
                        3Item
      2.
                        
                        Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                        13Item
      3.
                        
                        Quantitative
      and Qualitative Disclosures About Market Risk.
                        22Item
      4T.
                        
                        Controls
      and Procedures.
                        22PART
      II - OTHER INFORMATIONItem
      1.
                        
                        Legal
      Proceedings.
                        23Item
      2.
                        
                        Unregistered
      Sales of Equity Securities and Use of Proceeds.
                        23Item
      3.
                        
                        Default
      upon Senior Securities.
                        23Item
      4.
                        
                        Submission
      of Matters to a Vote of Security Holders.
                        23Item
      5.
                        
                        Other
      Information.
                        23Item
      6.
                        
                        Exhibits.
                        24SIGNATURES
                        25


2




PART
I – FINANCIAL INFORMATION





Item
      1.
            Financial
      Statements.




Condensed
Consolidated Balance Sheets at March 31, 2009 (Unaudited) and December 31,
2008




Condensed
Consolidated Statements of Operations (Unaudited) for the three months ended
March 31, 2009 and 2008




Condensed
Consolidated Statements of Cash Flows (Unaudited) for the three months ended
March 31, 2009 and 2008




Notes to
the Condensed Consolidated Financial Statements (Unaudited)


3





SPLINTERNET
HOLDINGS, INC.  AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


March 31,
                        
                        
                        December 31,2009
                        
                        
                        2008(unaudited)ASSETSCash
      and cash equivalents
                        
                        $
                        6,258
                        
                        
                        $
                        6,407Accounts
      receivable
                        
                        
                        34,654
                        
                        
                        
                        8,750Prepaid
      expenses
                        
                        
                        12,298
                        
                        
                        
                        12,452Note
      receivable
                        
                        
                        77,952
                        
                        
                        
                        77,958Total
      current assets
                        
                        
                        131,162
                        
                        
                        
                        105,567Property
      and equipment, net
                        
                        
                        33,081
                        
                        
                        
                        34,804Goodwill
                        
                        
                        2,831,790
                        
                        
                        
                        2,831,790Security
      deposits
                        
                        
                        14,394
                        
                        
                        
                        14,394Total
      assets
                        
                        $
                        3,010,427
                        
                        
                        $
                        2,986,555LIABILITIES
      AND STOCKHOLDERS’ EQUITYLiabilities:Accounts
      payable
                        
                        $
                        132,537
                        
                        
                        $
                        122,621Accrued
      expenses
                        
                        
                        73,027
                        
                        
                        
                        334,143Deferred
      revenue
                        
                        
                        21,000
                        
                        
                        
                        -Loans
      from officers
                        
                        
                        432,216
                        
                        
                        
                        226,571Total
      current liabilities
                        
                        
                        658,780
                        
                        
                        
                        683,335Total
      liabilities
                        
                        
                        658,780
                        
                        
                        
                        683,335CommitmentsStockholders’
      equity:Capital
      stock:Preferred
      stock, 10,000,000 shares authorized and none outstandingCommon
      stock, $0.001 par value; 90,000,000 shares authorized; 63,014,858 and
      61,940,679 shares issued and outstanding
                        
                        
                        63,015
                        
                        
                        
                        61,941Additional
      paid-in capital
                        
                        
                        6,344,909
                        
                        
                        
                        5,980,762Accumulated
      deficit
                        
                        
                        (
      4,056,277
                        )
                        
                        
                        ( 3,739,483
                        )Total
      stockholders’ equity
                        
                        
                        2,351,647
                        
                        
                        
                        2,303,220Total
      liabilities and stockholders’ equity
                        
                        $
                        3,010,427
                        
                        
                        $
                        2,986,555





See notes
to condensed consolidated financial statements.


4





SPLINTERNET
HOLDINGS, INC.  AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)


Three Months EndedMarch 31,2009
                    
                    
                    2008Service
      revenue
                    
                    $
                    78,283
                    
                    
                    $
                    178,658Cost
      of revenue
                    
                    
                    76,687
                    
                    
                    
                    171,968Gross
      profit
                    
                    
                    1,596
                    
                    
                    
                    6,690Selling,
      general and administrative expenses
                    
                    
                    255,657
                    
                    
                    
                    219,363Research
      and development costs
                    
                    
                    57,932
                    
                    
                    
                    56,925Loss
      from operations
                    
                    
                    (311,993
                    )
                    
                    
                    (269,598
                    )Interest
      income
                    
                    
                    1,344
                    
                    
                    
                    10,697Interest
      expense
                    
                    
                    6,145
                    
                    
                    
                    -Net
      loss
                    
                    $
                    (
      316,794
                    )
                    
                    $
                    ( 258,901
                    )Net
      loss per share:Basic
      and Diluted
                    
                    $
                    (
      0.01
                    )
                    
                    $
                    ( 0.00
                    )Weighted
      average common shares outstanding:Basic
      and Diluted
                    
                    
                    62,131,904
                    
                    
                    
                    56,715,000





See notes
to condensed consolidated financial statements.


5





SPLINTERNET
HOLDINGS, INC.  AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)


Three Months Ended March 31,2009
                          
                          
                          2008Cash
      flow from operating activities:Net
      loss
                          
                          $
                          (
      316,794
                          )
                          
                          $
                          (
      258,901
                          )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
                          
                          
                          1,723
                          
                          
                          
                          1,087Non-cash
      stock compensation expense
                          
                          
                          109,274
                          
                          
                          
                          -Decrease
      in accrued interest
                          
                          
                          
                          
                          
                          
                          30Change
      in assets and liabilitiesDecrease/(increase)
      in accounts receivable
                          
                          
                          (
      25,904
                          )
                          
                          
                          11,908Decrease
      in prepaid expenses and other current assets
                          
                          
                          160
                          
                          
                          
                          11,825Decrease
      in accounts payable
                          
                          
                          9,916
                          
                          
                          
                          -Decrease
      in accrued liabilities
                          
                          
                          (
      5,169
                          )
                          
                          
                          -Increase
      in deferred revenues
                          
                          
                          21,000Decrease
      in loans to Vidiation, Inc.
                          
                          
                          -
                          
                          
                          
                          ( 125,000
                          )Net
      cash used in operating activities
                          
                          
                          (
      205,794
                          )
                          
                          
                          ( 340,800
                          )Cash
      flows from financing activities:Loans
      from officer
                          
                          
                          205,645
                          
                          
                          
                          -Net
      cash provided by financing activities
                          
                          
                          205,645
                          
                          
                          
                          -Net
      decrease in cash and cash equivalents
                          
                          
                          (
      149
                          )
                          
                          
                          (
      340,800
                          )Cash
      and cash equivalents, beginning of period
                          
                          
                          6,407
                          
                          
                          
                          1,105,057Cash
      and cash equivalents, end of period
                          
                          $
                          6,258
                          
                          
                          $
                          764,257Supplemental
      disclosure of cash flow informationNon-cash
      investing and financing activityIssuance
      of common stock  for services
                          
                          $
                          255,947
                          
                          
                          $
                          -





See notes
to condensed consolidated financial statements.


6





SPLINTERNET HOLDINGS,
INC.AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





1.    PRINCIPAL
BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Splinternet
Holdings, Inc., a Company incorporated in the State of Delaware on March 22,
2006, conducted a share for share exchange of securities with Splinternet
Communications, Inc. (“Splinternet”) on April 3, 2006, 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, of Splinternet Holdings, Inc. (the “Share Exchange”), as a result of
which Splinternet Communications, Inc. became a wholly owned subsidiary of
Splinternet Holdings, Inc. (“ the Company”). Splinternet Holdings, Inc. does not
conduct any business or own any assets other than all of the issued and
outstanding shares of Splinternet Communications, Inc.





On April
30, 2008, the Company acquired Vidiation, Inc. (“Vidiation”)a radiation
detection company, for a purchase price of approximately $2.6 million, excluding
transaction costs of approximately $0.01 million. The acquisition was
accounted for as a purchase business combination. The purchase price was
allocated to the net assets and liabilities acquired based on their estimated
fair values as of the acquisition date. The excess of the purchase price over
the estimated fair value of the net assets acquired was allocated to goodwill.
All significant inter-company accounts and transactions have been eliminated in
the condensed consolidated financial statements.





Vidiation,
Inc. is 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.





Splinternet
Communications, Inc. was incorporated in the State of Connecticut in January
2000. Splinternet is a developer of VoIP (Voice over Internet Protocol)
technology and services which enable the customer to make phone calls utilizing
the Internet as an alternative to the traditional Public Switched Telephone
Network.





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, 2009 and the results of operations and cash flows for
the interim periods ended March 31, 2009 and 2008 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, 2008 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.


7





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 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.  There were no stock
options outstanding during the three months ended March 31, 2008.




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, 2009, the Company had approximately $6,200 in cash and liabilities of
approximately $659,000. The Company’s net cash used in operating activities for
the three months ended March 31, 2009 was $205,791; 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 $4,056,277 as of March 31, 2009. For the three months ended March 31, 2009,
our net loss was $316,794. 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. 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.





Recent
Accounting Pronouncements




In
September 2006, the  Financial Accounting Standards Board (“FASB”)
issued Statement of Financial Accounting Standards (“SFAS) No. 157,Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. This statement does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. SFAS
No. 157 is effective for fiscal years beginning after November 15, 2007,
and all interim periods within those fiscal years. In February 2008, the FASB
released FASB Staff Position FSP FAS 157-2 –Effective Date of FASB Statement
No. 157 which delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), to fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years. The implementation of SFAS
No. 157 for financial assets and liabilities, effective January 1,
2008, did not have an impact on the Company’s consolidated financial position
and results of operations.




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure, on an item-by-item basis, specified
financial instruments and certain other items at fair
value.  Unrealized gains and losses on items for which the fair value
option has been elected are required to be reported in earnings at each
reporting date.  SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007, the provisions of which are required to be applied
prospectively.  The Company adopted this
Statement in fiscal year 2008 and the adoption of this Statement did not have a
material effect on the Company’s consolidated financial position, results of
operations, or cash flows.


8





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations”, which replaces SFAS No 141. The statement retains the purchase
method of accounting for acquisitions, but requires a number of changes,
including changes in the way assets and liabilities are recognized in the
purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective
for business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The Company will adopt this Statement in fiscal year 2009 and its
effects on future periods will depend on the nature and significance of any
acquisitions subject to this Statement.





In
December 2007, the FASB issued SFAS No. 160,  Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of ARB No.
51.  SFAS 160 establishes accounting and reporting standards
pertaining to ownership interests in subsidiaries held by parties other than the
parent, the amount of net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of any retained noncontrolling equity investment when a subsidiary is
deconsolidated.  This statement also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.  SFAS 160 is
effective for fiscal years beginning on or after December 15,
2008.  The adoption of SFAS 160 is not currently expected to have a
material effect on the Company’s consolidated financial position, results of
operations, or cash flows.





In April
2009, the Financial Accounting Standards Board, or FASB, issued FASB Staff
Position, or FSP, No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, to amend the other-than-temporary impairment
guidance in debt securities to be based on intent to sell instead of ability to
hold the security and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements.  This pronouncement is effective for periods ending after
June 15, 2009.  We do not expect the adoption of SFAS 115-2 to have a
material impact on our consolidated financial position and results of
operations.





In April
2009, the FASB issued FSP No. 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly, or FSP 157-4. FSP 157-4 provides
additional authoritative guidance to assist both issuers and users of financial
statements in determining whether a market is active or inactive, and whether a
transaction is distressed. The FSP will be effective for us for the quarter
ending June 30, 2009. We do not expect the adoption of FSP 157-4 to have a
material impact on our consolidated financial position and results of
operations.





In April
2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments, or FSP 107-1 and APB 28-1. FSP 107-1 and
APB 28-1 require disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual
financial statements. FSP 107-1 and APB 28-1 will be effective for us for the
quarter ending June 30, 2009. We do not expect the changes associated with
adoption of this FSP to have a material impact our consolidated financial
position and results of operations.





In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP SFAS
141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies, to amend the provisions related to
the initial recognition and measurement, subsequent measurement and disclosure
of assets and liabilities arising from contingencies in a business combination
under SFAS 141(R). Under the new guidance, assets acquired and liabilities
assumed in a business combination that arise from contingencies should be
recognized at fair value on the acquisition date if fair value can be determined
during the measurement period. If fair value cannot be determined, companies
should typically account for the acquired contingencies using existing
guidance.  We do not believe adoption of SFAS 141(R) will have a
material impact to the consolidated financial statements.


9





3.   MAJOR
CUSTOMER





During
the three months ended March 31, 2009 and 2008, one customer (BuenaVox LLC)
accounted for 77% and 96% of all revenues, respectively.





4.   TAXES





Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No.
48 (“FIN 48”), “Accounting for
Uncertainty in Income Taxes— An Interpretation of FASB Statement
No. 109.” FIN 48 provides detailed guidance for the financial statement
recognition, measurement and disclosure of uncertain tax positions recognized in
the financial statements in accordance with SFAS No. 109. Tax positions must
meet a “more-likely-than-not” recognition threshold at the effective date to be
recognized upon the adoption of FIN 48 and in subsequent periods. Upon the
adoption of FIN 48, the Company had no unrecognized tax benefits. During the
three months ended March 31, 2009 and 2008, 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, 2009.




The tax
years 2003 through 2007 remain open to examination by the major taxing
jurisdictions in which the Company operates. The Company expects no material
changes to unrecognized tax positions within the next twelve
months.




As of
March 31, 2009 the Company has net operating loss carryforwards of approximately
$5,840,000 available to offset taxable income through the year
2028.




The
Company recorded a deferred income tax asset for the tax effect of net operating
loss carryforwards and temporary differences, aggregating approximately
$2,330,000 as of March 31, 2009. In recognition of the uncertainty regarding the
ultimate amount of income tax benefits to be derived, the Company has recorded a
valuation allowance of $2,330,000 at March 31, 2009.





5.  
STOCKHOLDERS EQUITY





During
the three months ended March 31, 2009 the Company issued 359,304 shares of
common stock to employees for services rendered and recorded a non-cash stock
compensation expense of  approximately $61,000. 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 $14,000. Furthermore the
Company issued 589,875 shares of common stock to employees as payment for
accrued compensation as of December 31, 2008 in the amount of
approximately  $256,000.





6.   STOCK
OPTION PLAN





On April
22, 2008, the Board of Directors of the Company adopted the Splinternet
Holdings, Inc. 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.


10





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.




Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of SFAS 123(R), using the modified prospective transition method. The
adoption of SFAS 123(R) resulted in share-based compensation expense for
the three months ended March 31, 2009 of approximately $34,000. For the three
months ended March 31, 2008 there were no grants of stock options.




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. The Company has a 100% valuation allowance recorded against its deferred
tax assets; therefore the stock-based compensation has no tax effect on the
Consolidated Statements of Operations.




As of
March 31, 2009, there was approximately $285,000 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
4.33 years.




No
options were granted during the three months ended March 31, 2009.





7.   SEGMENT
INFORMATION





The
Company conducts its operations in two business segments; the Radiation Sensor
and Detection Division and the VoIP Division.  The accounting policies
of the reportable segments are the same as those described in Note 2 of the
Company’s consolidated financial statements included in the Form 10-K for the
year ended December 31, 2008. The Company evaluates the performance of its
operating segments primarily based on revenues and operating income. Corporate
costs are generally allocated to the segments based on a three factor formula
(revenues, payroll and certain assets).





Three Months ended March 31, 2009
                      
                      Radiation
                      
                      
                      VoIP
                      
                      
                      Corporate
                      
                      
                      TotalRevenues
                      
                      $
                      -
                      
                      
                      $
                      78,283
                      
                      
                      $
                      -
                      
                      
                      $
                      78,283Operating
      income (loss)
                      
                      
                      (314,225
                      )
                      
                      
                      2,232
                      
                      
                      
                      -
                      
                      
                      
                      (311,993
                      )Total
      assets
                      
                      
                      2,846,806
                      
                      
                      
                      67,114
                      
                      
                      
                      96,507
                      
                      
                      
                      3,010,427Capital
      expenditures
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Depreciation
                      
                      
                      636
                      
                      
                      
                      1,088
                      
                      
                      
                      
                      
                      
                      
                      1,724





The
Company operated only in the VoIP segment during the period ended March 31,
2008; therefore segment information is only presented for the same period in
2009.





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, 2009 of
$212,000.  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 $6,145 in interest charges due to loans payable to Mr.
Ackerly.


11





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.





In 2008,
Kerrigan & Associates, Inc. (“Kerrigan”) commenced an action against
Vidiation, Inc., Vidiation LLC, Frank O’Connor and others in Fairfax Circuit
Court, Fairfax, Virginia wherein Kerrigan alleges that it is owed $59,000 for
consulting services rendered prior to our acquisition of Vidiation,
Inc.  Splinternet has been added as a defendant wherein Kerrigan
alleges that Splinternet Holdings, Inc. assumed all of the assets and
liabilities of Vidiation, Inc.





On
February 26, 2009, Vidiation, Inc. and Frank O’Connor agreed to settle the
dispute.  Under the terms of the settlement, Vidiation, Inc. paid
$12,000 on February 26, 2009 and agreed to pay $22,000 on or before May 22, 2009
to Kerrigan.  Mr. O’Connor agreed to reimburse Vidiation, Inc. for
both payments.  In the event that Mr. O’Connor does not reimburse
Vidiation, Inc. for either of the two payments to the vendor, Vidiation, Inc. or
the Company may satisfy the obligation by withholding funds otherwise due from
Vidiation, Inc. or the Company.  The Company has reduced the amount it
owes Mr. O’Connor by the amount of the $12,500 payment to Kerrigan.




10.  
SUBSEQUENT EVENTS





On April
3, and 24, 2009 James C. Ackerly, President and Chief Executive Officer, loaned
the Company $25,000 and $15,000 respectively.





In April
2009, The Idler Company, Inc., which was an investor in Vidiation LLC, commenced
an action against Splinternet Holdings, Inc., Vidiation, Inc., Vidiation LLC and
others in United State District Court, District of Connecticut, wherein the
plaintiff is seeking the return of its investment in Vidiation LLC in the amount
of $100,000.  The Company and Vidiation, Inc. have been named as
co-defendants since Vidiation LLC was a predecessor of Vidiation, Inc., which
the Company acquired on April 30, 2008.  Management believes the case
against the Company and Vidiation, Inc. has no merit.  However, the
Company has director and officer insurance which management believes should
cover any potential liability the Company may have in this matter as a successor
company.




Subsequent
to the end of the first quarter of 2009, the Company sold an aggregate of
480,000 shares of its common stock to certain investors for total gross proceeds
of $60,000 in a private placement offering to accredited investors
only.  In connection therewith, the investors shall receive 480,000
warrants exercisable into shares of common stock at $0.10 per share per share
which warrants shall expire in two years. The Company has assessed whether the
warrants should be classified as either a liability or equity in accordance with
EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock” and concluded that the warrants
should be classified as equity.


12


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.  Splinternet
Holdings, Inc. undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.





Overview





Splinternet
Holdings, Inc. (“we”, “us”, “our”, the “Company” or “Splinternet”) was
incorporated in the State of Delaware on March 22, 2006.  On April 3,
2006, Splinternet Holdings, Inc. 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, of Splinternet Holdings, Inc. (the “Share
Exchange”), as a result of which Splinternet Communications, Inc. became a
wholly owned subsidiary of Splinternet Holdings, Inc.





Splinternet
Communications, Inc. was incorporated in the State of Connecticut in January 12,
2000.  Splinternet is a developer of VOIP (Voice over Internet
Protocol) technology and services which enable the customer to make phone calls
utilizing the Internet as an alternative to the traditional Public Switched
Telephone Network.





On April
30, 2008, Splinternet Holdings, Inc. 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 has merged into Vidiation, Inc. resulting in Vidiation, Inc. becoming
a wholly-owned subsidiary of the Company.   Upon closing,
Splinternet Holdings, Inc. 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.


13





Vidiation,
Inc. is 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.





Since our
inception, the Company has generated limited revenues.  We are
presently considering the acquisition of other companies with compatible
products and which can benefit from the Company’s infrastructure under
circumstances where there is a strategic, technology, and marketing fit for
enhancement.  In addition to seeking acquisition candidates, during
the quarter ended June 30, 2007, the Company began purchasing long distance
minutes at wholesale prices from phone companies and then reselling them at a
markup to its customers.  During the quarter ended December 31, 2007,
the Company began its development of a radiation device which signifies our
entry into the radiation detection market.





The
Company believes that over time it will build sales volume sufficient to cover
the costs of operations through this strategy.  There is no guarantee
that the Company will be successful in its efforts to either acquire other
companies or generate service or equipment sales sufficient to cover its costs
of operations.





Recent
Events




Subsequent
to the end of the first quarter of 2009, the Company sold an aggregate of
480,000 shares of its common stock to certain investors for total gross proceeds
of $60,000 in a private placement offering to accredited investors
only.  In connection therewith, the investors shall receive 480,000
warrants exercisable into shares of common stock at $0.10 per share per share
which warrants shall expire in two years. The Company has assessed whether the
warrants should be classified as either a liability or equity in accordance with
EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock” and concluded that the warrants
should be classified as equity.


14





Results
of Operations





SERVICE
REVENUE





Service
revenue for the three months ended March 31, 2009 were $78,283 which is a
decrease from $178,658 for the three months ended March 31, 2008.  The
decrease is due to lower 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 customers. For the
three months ended March 31, 2009, the costs of the wholesale minutes were
$76,687 which is a decrease from $171,968 for the three months ended March 31,
2008. The decrease is due to lower usage for this service by the Company’s
customer.





SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES





In the
three months ended March 31, 2009, selling, general and administrative costs
were $255,657 which is an increase from $219,363 in the comparable period in
2008.  The increases were the result of two events which the Company
undertook during 2008. The first was a change in our business strategy which
moved the Company from an emphasis on VoIP to new radiation detection products
and services. The second was the acquisition of Vidiation, Inc. on April 30,
2008. With this acquisition the Company’s selling, general and administrative
expenses have increased due to our sales and marketing efforts and conference
attendance.





RESEARCH
AND DEVELOPMENT





Research
and development increased to $57,932 in the three months ended March 31, 2009
from $56,925 for the comparable periods in 2008. The increase is the result of
the purchase of components related to product development associated with the
Company’s radiation detection device.





INTEREST
INCOME





Interest
earned in the three months ended March 31, 2009 was $1,344 compared to $10,697
for the comparable period in 2008. This is primarily due to a lower average
balance invested in 2009 due to the Company using cash to fund operations and
lower interest rates.





INTEREST
EXPENSE





Interest
expense in the three months ended March 31, 2009 was $6,145 compared to $0 for
the comparable period in 2008. This is due to the accrual of interest payable on
notes made by the President and Chief Executive Officer to the
Company.





NET
LOSS





We
recognized a net loss of $316,794, during the three months ended March 31, 2009
compared to a net loss of $258,901 during the same period in the prior year for
an overall increase in net loss of $57,893. The increase in the net loss was
primarily the result of the Company’s product development and sales and
marketing efforts.  This is due to an emphasis being placed on
development of new radiation detection products and services.  We
believe the steps being taken in development of our new radiation detection
products and services offerings will allow us to increase revenues and return to
profitability.


15





Financial
Condition, Liquidity and Capital Resources





As of
March 31, 2009, we had approximately $6,200 in cash and liabilities of
approximately $659,000; 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.





The
Company has a history of substantial operating losses and an accumulated deficit
of $4,056,277 as of March 31, 2009. 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, 2009 was
$205,791 which was primarily the result of the net loss of
$316,794.  No net cash was used in investing activities for the three
months ended March 31, 2009 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, 2009, net cash used in financing activities was $205,645 compared to
$0 for the three months ended March 31, 2008. The change in 2009 is due to loans
from the President and Chief Executive Officer of the Company during the first
three months of 2009 versus no financing activities during the same period in
2008.  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.





Subsequent
to March 31, 2009 the President and current CEO loaned the Company $40,000 which
bears interest at 8% per annum and is due on demand.





Capital
Commitments





The
Company currently has no material commitments for capital
expenditures.





Trends





The
radiation detection industry, which the Company has recently entered, 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 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.





The VoIP
industry in which we operate is in a state of dynamic and rapid change. VoIP
services are gaining acceptance in the marketplace and we intend to take
advantage of that trend by attempting to sell into a more willing marketplace,
despite the increased competition.





We have
noted that several VoIP service retailers in the United States are currently
offering services to end users for no charge, as a promotional program to
attract users to their systems. We acknowledge that this may attract users, but
do not believe there is any assurance users acquired in this manner can be
converted into sources of revenue, even if they are part of a subscriber base to
which advertising can be delivered on behalf of third parties. The role of
United States retail services in that environment is unknown.





Seasonal
Fluctuations





There
have been no fluctuations in our business to date which can be attributed to
seasonality.




Employment
Agreements





Currently,
we have no written employment agreements with any of our employees or
officers.





16




Risk
Factors





Our
independent registered public accounting firm has 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, 2008, 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
have a limited operating history and a history of substantial operating losses
and we may not be able to continue our business.





We have a
history of substantial operating losses and an accumulated deficit of $4,056,277
as of March 31, 2009. For the three months ended March 31, 2009, our net loss
was $316,794. We have
historically experienced cash flow difficulties primarily because our expenses
have exceeded our revenues. We expect to incur additional operating losses for
the immediate near future. These factors, among others, raise significant doubt
about our ability to continue as a going concern. If we are unable to generate
sufficient revenue from our operations to pay expenses or we are unable to
obtain additional financing on commercially reasonable terms, our business,
financial condition and results of operations will be materially and adversely
affected and we could be forced to cease operations.





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 and we could
be forced to cease operations.





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 and we could be
forced to cease operations.





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.


17





If
we are unable to successfully integrate acquisitions, our revenue growth and
future profitability may be negatively impacted.




The
process of integrating an acquired business, technology or product may result in
unforeseen operating difficulties and expenditures and may absorb significant
management attention and capital that would otherwise be available for ongoing
development of our business. In addition, we may not be able to maintain the
levels of operating efficiency that any company we may acquire achieved or might
have achieved separately. Additional risks we face include:




·
            the
      need to implement or remediate controls, procedures and policies
      appropriate for a public company in an acquired company that, prior to the
      acquisition, lacked these controls, procedures and
    policies;




·
            cultural
      challenges associated with integrating employees from an acquired company
      or business into our organization;




·
            retaining
      key employees from the businesses we
acquire;




·
            the
      need to integrate an acquired company’s accounting, management
      information, human resource and other administrative systems to permit
      effective management; and




·
            to
      the extent that we engage in strategic transactions outside of the United
      States, we face additional risks, including risks related to integration
      of operations across different cultures and languages, currency risks and
      the particular economic, political and regulatory risks associated with
      specific countries.





Future
acquisitions and investments could involve the issuance of our equity
securities, potentially diluting our existing shareholders, the incurrence of
debt, contingent liabilities or amortization expenses, write-offs of goodwill,
intangibles, or acquired in-process technology, or other increased expenses, any
of which could harm our financial condition. Our shareholders may not have the
opportunity to review, vote on or evaluate future acquisitions or
investments.





Our
stock price can be extremely volatile.





Our
common stock is traded on the OTC Bulletin Board. There can be no assurance that
an active public market will continue for the common stock, or that the market
price for the common stock will not decline below its current price. Such price
may be influenced by many factors, including, but not limited to, investor
perception of us and our industry and general economic and market conditions.
The trading price of the common stock could be subject to wide fluctuations in
response to announcements of our business developments or our competitors,
quarterly variations in operating results, and other events or factors. In
addition, stock markets have experienced extreme price volatility in recent
years. This volatility has had a substantial effect on the market prices of
companies, at times for reasons unrelated to their operating performance. Such
broad market fluctuations may adversely affect the price of our common
stock.





Trading on the OTC Bulletin Board
may be sporadic because it is not a stock exchange, and stockholders may have
difficulty reselling their shares.





Our
common stock is quoted on the OTC Bulletin Board. Trading in stock quoted on the
OTC Bulletin Board is often thin and characterized by wide fluctuations in
trading prices, due to many factors that may have little to do with our
operations or business prospects. Moreover, the OTC Bulletin Board is not a
stock exchange, and trading of securities on the OTC Bulletin Board is often
more sporadic than the trading of securities listed on the NASDAQ
SmallCap.





Our
common stock is subject to the “penny stock” rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our
stock.


18





The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require that a
broker or dealer approve a person's account for transactions in penny stocks and
the broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased.





In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must obtain financial information and investment experience objectives of
the person and make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.





The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form sets forth the basis on which the broker or
dealer made the suitability determination and that the broker or dealer received
a signed, written agreement from the investor prior to the
transaction.





Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.





Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.





We
do not expect to pay dividends on our common stock.





We have
not declared dividends on our common stock since our incorporation and we have
no present intention of paying dividends on our common stock.





MANY
OF THESE RISKS AND UNCERTAINTIES ARE OUTSIDE OF OUR CONTROL AND ARE DIFFICULT
FOR US TO FORECAST.  ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
EXPRESSED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS.





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





We follow
the guidance of the Securities and Exchange Commission’s (“SEC”) Staff
Accounting Bulletin 104 for revenue recognition.  In general, we record
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.


19





We
recognize revenue when products have been shipped or services have been
performed. In cases where a customer prepays a subscription for services to be
performed in a period which extends from one accounting period into a subsequent
period, we only recognize the portion of income due for services performed in
the current reporting period. In cases where there is an acceptance period
during which a subscriber may cancel their agreement without penalty, we defer
the revenue recognition until the end of that acceptance period.





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 Splinternet 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 SFAS 141, Business Combinations
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.




Recent
accounting pronouncements




In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards Board (“SFAS”) No. 157,Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. This statement does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. SFAS
No. 157 is effective for fiscal years beginning after November 15, 2007,
and all interim periods within those fiscal years. In February 2008, the FASB
released FASB Staff Position FSP FAS 157-2 –Effective Date of FASB Statement
No. 157 which delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), to fiscal years beginning after November 15, 2008 and
interim periods within those fiscal years. The implementation of SFAS
No. 157 for financial assets and liabilities, effective January 1,
2008, did not have an impact on our consolidated financial position and results
of operations.




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits
entities to choose to measure, on an item-by-item basis, specified financial
instruments and certain other items at fair value.  Unrealized gains
and losses on items for which the fair value option has been elected are
required to be reported in earnings at each reporting date.  SFAS No.
159 is effective for fiscal years beginning after November 15, 2007, the
provisions of which are required to be applied prospectively.  We  adopted this
Statement in fiscal year 2008  the adoption of this Statement did
not  have a material effect on our consolidated financial position,
results of operations, or cash flows.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which
replaces SFAS No 141. The statement retains the purchase method of accounting
for acquisitions, but requires a number of changes, including changes in the way
assets and liabilities are recognized in the purchase accounting. It also
changes the recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.We will adopt this
Statement in fiscal year 2009 and its effects on future periods will depend on
the nature and significance of any acquisitions subject to this
Statement.


20





In
December 2007, the FASB issued SFAS No. 160,  Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of ARB No.
51.  SFAS 160 establishes accounting and reporting standards
pertaining to ownership interests in subsidiaries held by parties other than the
parent, the amount of net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest, and the
valuation of any retained noncontrolling equity investment when a subsidiary is
deconsolidated.  This statement also establishes disclosure
requirements that clearly identify and distinguish between the interests of the
parent and the interests of the noncontrolling owners.  SFAS 160 is
effective for fiscal years beginning on or after December 15,
2008.  The adoption of SFAS 160 is not currently expected to have a
material effect on our consolidated financial position, results of operations,
or cash flows.





In April
2009, the Financial Accounting Standards Board, or FASB, issued FASB Staff
Position, or FSP, No. FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments, to amend the other-than-temporary impairment
guidance in debt securities to be based on intent to sell instead of ability to
hold the security and to improve the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements.  This pronouncement is effective for periods ending after
June 15, 2009.  We do not expect the adoption of SFAS 115-2 to have a
material impact on our consolidated financial position and results of
operations.





In April
2009, the FASB issued FSP No. 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly, or FSP 157-4. FSP 157-4 provides
additional authoritative guidance to assist both issuers and users of financial
statements in determining whether a market is active or inactive, and whether a
transaction is distressed. The FSP will be effective for us for the quarter
ending June 30, 2009. We do not expect the adoption of FSP 157-4 to have a
material impact on our consolidated financial position and results of
operations.





In April
2009, the FASB issued FSP FAS No. 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments, or FSP 107-1 and APB 28-1. FSP 107-1 and
APB 28-1 require disclosures about fair value of financial instruments for
interim reporting periods of publicly traded companies as well as in annual
financial statements. FSP 107-1 and APB 28-1 will be effective for us for the
quarter ending June 30, 2009. We do not expect the changes associated with
adoption of this FSP to have a material impact our consolidated financial
position and results of operations.





In April
2009, the Financial Accounting Standards Board (“FASB”) issued FSP SFAS
141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business
Combination That Arise from Contingencies, to amend the provisions related to
the initial recognition and measurement, subsequent measurement and disclosure
of assets and liabilities arising from contingencies in a business combination
under SFAS 141(R). Under the new guidance, assets acquired and liabilities
assumed in a business combination that arise from contingencies should be
recognized at fair value on the acquisition date if fair value can be determined
during the measurement period. If fair value cannot be determined, companies
should typically account for the acquired contingencies using existing
guidance.  We do not believe adoption of SFAS 141(R) will have a
material impact to the consolidated financial statements.





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.


21





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.





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 have
concluded that our disclosure controls and procedures are 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.





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.


22


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.





In 2008,
Kerrigan & Associates, Inc. (“Kerrigan”) commenced an action against
Vidiation, Inc., Vidiation LLC, Frank O’Connor and others in Fairfax Circuit
Court, Fairfax, Virginia wherein Kerrigan alleges that it is owed $59,000 for
consulting services rendered prior to our acquisition of Vidiation,
Inc.  Splinternet has been added as a defendant wherein Kerrigan
alleges that Splinternet Holdings, Inc. assumed all of the assets and
liabilities of Vidiation, Inc.





On
February 26, 2009, Vidiation Inc. and Frank O’Connor agreed to settle the
dispute.  Under the terms of the settlement, Vidiation, Inc. paid
$12,000 on February 26, 2009 and agreed to pay $22,000 on or before May 22, 2009
to  Kerrigan.  Mr. O’Connor agreed to reimburse Vidiation,
Inc. for both payments.  In the event that Mr. O’Connor does not
reimburse Vidiation, Inc. for either of the two payments to the vendor,
Vidiation, Inc. or the Company may satisfy the obligation by withholding funds
otherwise due from Vidiation, Inc. or the Company.





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.  No shares have been issued to
date.  However, the financial statements have been prepared as though
250,000 shares were issued.  The issuance of these shares of common
stock will be exempt from registration requirements pursuant to Section 4(2) of
the Securities Act of 1933, as amended.





Subsequent
to the end of the first quarter of 2009, we sold an aggregate of 480,000 shares
of our common stock to certain investors for total gross proceeds of $60,000 in
a private placement offering to accredited investors only.  In
connection therewith, the investors shall receive 480,000 warrants exercisable
into shares of common stock at $0.10 per share at $0.125 per share which
warrants shall expire in two years. These securities were sold directly by the
Company, without engaging in any advertising or general solicitation of any kind
and without payment of underwriting discounts or commissions to any
person.  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.


23





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)


24





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.





SPLINTERNET
      HOLDINGS, INC.(Registrant)Dated:
      May 14, 2009
              By:
              /s/ James C. AckerlyJames
      C. Ackerly, Chief Executive Officerand
      President (Principal Executive Officer)Dated:
      May 14, 2009
              By:
              /s/ John T. GrippoJohn
      T. Grippo, Chief Financial Officer(Principal
      Financial Officer)


25