Defentect (DFTC) 10QSB 2007 Q3 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

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

For the quarterly period ended September 30, 2007

o 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 Small Business Issuer as Specified in Its Charter)

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

535 Connecticut Avenue, 2^nd floor, Norwalk, CT 06854

(Address of Principal Executive Offices)

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

_____________________________________________________________________

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

Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the Issuer’s classes of common equity, as of the latest practicable date: As of November 1, 2007, the Issuer had 53,500,500 outstanding shares of Common Stock, $.001 par value.

Transitional Small Business Disclosure Format (check one): Yes o No x

SPLINTERNET HOLDINGS, INC.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis or Plan of Operation.	10
Item 3.	Controls and Procedures.	14
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	15
Item 3.	Default upon Senior Securities.	15
Item 4.	Submission of Matters to a Vote of Security Holders.	15
Item 5.	Other Information.	15
Item 6.	Exhibits.	15
SIGNATURES		16

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PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets at September 30, 2007 (Unaudited) and December 31, 2006	4
	Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2007 and 2006	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) for nine months ended September 30, 2007 and 2006	6
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	7

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SPLINTERNET HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2007			2006
	(unaudited)
ASSETS
Cash	$	1,389,106		$	2,307,232
Accounts receivable, net		26,283			7,700
Prepaid expenses		47,300			39,466
Deposits		2,500			21,044
Current assets		1,465,189			2,375,442
Property and equipment, net		24,947			16,748
Security deposits		11,044			-
Total assets	$	1,501,180		$	2,392,190
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued expenses	$	86,616		$	53,667
Customer prepayments		200			200
Total current liabilities	$	86,816		$	53,867
Stockholders’ equity:
Capital stock:
Preferred Stock, 10,000,000 shares authorized and none outstanding
Common stock, $0.001 par value; 90,000,000 shares authorized; 53,500,500 shares Issued and outstanding		53,500			53,500
Additional paid-in capital		3,044,090			3,056,590
Accumulated deficit		(1,683,224	)		(771,767	)
Total stockholders’ equity		1,414,364			2,338,323
Total liabilities and stockholders’ equity	$	1,501,180		$	2,392,190

See notes to condensed consolidated financial statements.

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SPLINTERNET HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended September 30,						Nine Months ended September 30,
	2007			2006			2007			2006
Service revenue	$	105,104		$	4,236		$	140,533		$	40,861
Cost of revenue		102,877			-			117,570			-
Gross profit		2,227			4,236			22,963			40,861
Selling, general and administrative expenses		346,466			225,839			999,997			506,704
Interest income		20,162			32,930			65,577			77,186
Interest Expense					487						505
Net (loss)	$	(324,077	)	$	(189,160	)	$	(911,457	)	$	(389,162	)
Net (loss) per share:
Basic:	$	(0.01	)	$	(0.00	)	$	(0.02	)	$	(0.01	)
Diluted:	$	(0.01	)	$	(0.00	)	$	(0.02	)	$	(0.01	)
Weighted average common stock outstanding:
Basic		53,500,500			53,500,500			53,500,500			52,750,222
Diluted		53,500,500			53,500,500			53,500,500			52,750,222

See notes to condensed consolidated financial statements.

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SPLINTERNET HOLDINGS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
	2007			2006
Cash flow from operating activities:
Net (loss)		($ 911,457	)		($ 389,162	)
Adjustments to reconcile net (loss) to net cash used in operating activities:
Depreciation		2,896			1,287
Change in assets and liabilities
(Increase) in accounts receivable		(18,583	)		(22,397	)
(Increase) decrease in prepaid expenses		(7,834	)		2,852
(Increase) in deposits		(2,500	)		-
Decrease (increase) in security deposits		10,000			(17,544	)
Increase in accounts payable and accrued liabilities		32,959			30,484
Increase in customer deposits		-			200
Net cash (used in) operating activities		(894,519	)		(394,280	)
Cash flows from investing activities:
Purchase of property and equipment		(11,107	)		(14,631	)
Net cash used in investing activities		(11,107	)		(14,631	)
Cash flows from financing activities:
Net sales/(return) of common stock proceeds		(12,500	)		740,799
Net cash (used in) provided by financing activities		(12,500	)		740,799
Net (decrease) increase in cash and cash equivalents		(918,126	)		331,888
Cash and cash equivalents, beginning of period		2,307,232			2,199,602
Cash and cash equivalents, end of period	$	1,389,106		$	2,531,490

See notes to condensed consolidated financial statements.

6

SPLINTERNET HOLDINGS, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

On April 3, 2006, 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”) 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. Accordingly, all amounts of common stock and common stock warrants have been retroactively restated throughout these consolidated financial statements to give affect for this capital change.

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.

On November 3, 2005, the Company undertook a stock split for which every share of common stock was converted into approximately 9 shares of common stock outstanding in accordance with the approval of the Company's stockholders. The stock split affected all the Company's common stock outstanding immediately prior to the effective date of the stock split. Any fractional share resulting from the stock split was rounded up to a full share. The stock split increased the number of shares of the Company's common stock outstanding including shares issuable in connection with the exercise of warrants. Accordingly, all amounts of common stock have been retroactively restated throughout these financial statements to give effect to the 9.343 to 1 stock split.

2. BASIS OF PREPARATION

Pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-QSB, 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 to fairly present the financial position as of September 30, 2007 and the results of operations and cash flows for the interim period of the fiscal year ending December 31, 2007 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, 2006 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 unaudited financial statements include all the accounts of the Company.

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

The Company maintains cash in bank deposit accounts which, at times, exceed federally insured limits. The Company has not experienced any losses on these accounts.

Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful life.

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The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates by management. Actual results could differ from these estimates.

The Company follows the guidance of the Securities and Exchange Commission’s (“SEC”) Staff Accounting Bulletin 104 for revenue recognition.  In general, 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.

The Company recognizes income 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, the Company only recognizes 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, the Company defers the revenue recognition until the end of that acceptance period.

In the past, the Company also purchased hardware (for resale) from suppliers who offer a warranty of one year. The Company generally warranted these same hardware products for one year after sale and provided for estimated future warranty costs at the time revenue was recognized. Consequently, our warranty liability is limited to the cost of the logistics involved in accepting returns and shipping replacements. No warranty cost has been recorded for the nine month periods ended September 30, 2007 and 2006, respectively. The Company has not sold hardware since May, 2005. The Company has not experienced any costs for warranty liabilities in 2007 or 2006.

Income taxes are accounted for under the asset and liability method of Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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. As of September 30, 2007, the Company had outstanding warrants to purchase an aggregate of 3,214,500 shares of common stock, which could potentially dilute future earnings per share. Since the impact of the warrants would be antidilutive, the warrants have been excluded from the computation of diluted earnings per share.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

3. COMMITMENT

The Company is obligated under a noncancelable operating lease for office space which commenced on March 15, 2006 and expires March 15, 2009 at an annual rent of approximately $43,000.

4. MAJOR CUSTOMER

During the nine months ended September 30, 2007, one customer (BuenaVox LLC) accounted for 96% of all revenues.

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5. 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 nine months ended September 30, 2007, 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 September 30, 2007.

Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence, it is more likely than not such benefits will be realized. The Company’s deferred tax assets were fully reserved at September 30, 2007 and December 31, 2006.

The tax years 2003 through 2006 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.

The Company has net operating loss carryforwards of approximately $1,680,000 available to offset taxable income through the year 2027.

The Company recorded a deferred income tax asset for the tax effect of net operating loss carryforwards and temporary differences, aggregating approximately $670,000. In recognition of the uncertainty regarding the ultimate amount of income tax benefits to be derived, the Company has recorded a valuation allowance of $670,000 at September 30, 2007.

6. STOCKHOLDERS’ EQUITY

During the period from inception in 2000 to December 31, 2004, the Company issued 44,785,500 shares of common stock and received proceeds of $196,400.

During the year ended December 31, 2005, the Company issued 2,715,000 shares of common stock and received proceeds of $100,000. In connection with these issuances the investors received warrants to purchase 3,214,500 shares of common stock at an exercise price of $.048 per share. The warrants expire in November 2007. 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. During November and December of 2005 the Company commenced selling common stock through a private placement. As of December 31, 2005, the Company had received subscriptions and funds for 4,175,000 shares at a price of $.50 per share, or gross proceeds of $2,087,500, less fees of approximately $14,600. During the nine month period ended September 30, 2006 the Company sold the remainder of the offering (1,825,000 common shares) for an additional gross proceeds of $925,000 and received net proceeds of $740,810 after expenses of which $184,190 was recorded during the nine months ended September 30, 2006.

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Item 2. Management's Discussion and Analysis or Plan of Operation

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, and

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

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 Holdings, Inc. does not conduct any business or own any assets other than all of the issued and outstanding shares of Splinternet Communications, Inc. Accordingly, all amounts of common stock and common stock warrants have been retroactively restated throughout the consolidated financial statements to give affect for this capital change.

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 November 3, 2005, and prior to the share for share exchange of securities with Splinternet Holdings, Inc., Splinternet Communications, Inc. undertook a stock split for which every share of common stock was converted into 9.343 shares of common stock outstanding in accordance with the approval of the Company’s stockholders.

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The stock split affected all the Splinternet Communications, Inc.’s common stock outstanding immediately prior to the effective date of the stock split. Any fractional share resulting from the stock split was rounded up to a full share. The stock split increased the number of shares of the Splinternet Communications, Inc.’s common stock outstanding including shares issuable in connection with the exercise of warrants. Accordingly, all amounts of common stock have been retroactively restated throughout the financial statements to give effect to the 9.343 to 1 stock split.

Since our inception, the Company has generated limited revenues. We are presently considering the acquisition of other companies operating in the VoIP market space or 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 September 30, 2007, the Company implemented a strategy of marketing service and equipment sales to companies. 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.

In addition, we believe our infrastructure is sufficiently flexible to allow the development and deployment of a variety of communications products and services. We continue to develop those products and expect to begin marketing them actively in the third quarter of this year.

Results of Operations

SERVICE REVENUES

Service revenue for the quarter ended September 30, 2007 were $105,104 which is an increase from $4,236 in the quarter ended September 30, 2006. Service revenue for the nine months ended September 30, 2007 were $140,533 which is an increase from $40,861 for the nine months ended September 30, 2006. The Company continues to provide hosting services but new switching and termination services were initiated during the second quarter 2007. This new service contributed to the increase in revenues during the nine months ended September 20, 2007.

COST OF REVENUES

The use of VoIP services requires a combination of hardware and software to convert the electronic signals which would otherwise comprise a traditional telephone call into a packetized data stream and route those packets over a data network, such as the Internet.

In 2007, the Company began purchasing long distance minutes at wholesale prices from phone companies and then resells them at a markup to its customers. For the three months and nine months ended September 30, 2007, the costs of the wholesale minutes were $102,877 and $117,570. In 2006, the services sold were limited to hosting (essentially renting space to others for locating their equipment) and switching (moving communications traffic over our system for others), and these services had no direct incremental cost to us so that the margin on those sales was 100% of sales. The Company did not resell wholesale minutes during the same period in 2006. Therefore, we had no cost of sales for the three and nine months ended September 30, 2006.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

In the third quarter of 2007, selling, general and administrative costs were $346,466 which is an increase from $225,839 in the comparable period in 2006. Selling, general and administrative costs for the nine months ended September 30, 2007 were $999,997 which is an increase from $506,704 in the nine months ended September 30, 2006. This change is primarily a reflection of the emphasis being placed and investments being made in the second and third quarters of 2007 in development and marketing of new products and service offerings while still continuing our efforts in seeking to acquire other companies. The increases were the result of salaries and consulting expenses related to product development associated to our change in emphasis.

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INTEREST INCOME

Interest earned in the three months ended September 30, 2007 were $20,162 compared to $32,930 in the prior year. This was primarily due to a lower average balance invested in 2007. Interest earned in the nine months ended September 30, 2007 were $65,577 compared to $77,186 in the prior year. The average balance was lower in 2007, but was partially offset by higher rates in 2007.

NET LOSS

We recognized a net loss of $324,077, during the three months ended September 30, 2007 compared to net loss of $189,160 during the same period in the prior year for an overall increase in net loss of $134,917. We recognized a net loss of $911,457, during the nine months ended September 30, 2007 compared to net loss of $389,162 during the same period in the prior year for an overall increase in net loss of $522,295. The increase in the net loss was primarily the result of an increase in selling, general and administrative expenses incurred in 2007 compared to the same period of the prior year. This was due to a greater emphasis being placed and investments being made in the second and third quarters of 2007 in new products and service offerings while still continuing our efforts in seeking to acquire other companies. We believe the steps being taken in new products and service offerings will allow us to compete effectively in the future.

Liquidity and Capital Resources

As of September 30, 2007, we had approximately $1,389,000 in cash and liabilities of approximately $86,800. Our net cash used in operating activities for the nine months ended September 30, 2007 was $894,519; hence, we expect to be adequately funded for the next twelve months. Further, with the registration of shares of our Common Stock with the Securities and Exchange Commission and subsequent commencement of trading on the OTC Bulletin Board under the symbol “SLNH” which trading commenced on October 5, 2006, we feel we will have increased access to both private and public capital markets should our capital needs increase within the next twelve months or thereafter.

Net cash used by operating activities for the nine months ended September 30, 2007 was $894,519 which was primarily the result of the net loss of $911,457. This compared to net cash used by operating activities of $394,280 for the nine months ended September 30, 2006 which was primarily the result of net loss of $389,162. Net cash used in investing activities for the nine months ended September 30, 2007 was $11,107 compared to $14,631 for the nine months ended September 30, 2006 which change was due to a decrease in the purchase of property and equipment. For the nine months ended September 30, 2007, net cash used in financing activities was $12,500 compared to $740,799 which was provided by financing activities for the nine months ended September 30, 2006. The change in 2006 was due to completion of the equity financing during the first quarter of 2006 versus a return of an overpayment of equity in 2007. We expect no trends will impact our short-term liquidity, since we have adequate resources to cover our operating costs for at least 12 months.

Capital Commitments

The Company currently has no material commitments for capital expenditures.

Trends

The 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.

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The role of United States retail services in that environment is unknown.

We are developing products suited for retail deployment internationally in countries where there is still a significant premium charged for traditional telecommunications relative to the cost of providing VoIP services.

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.

Additional Employee Benefits: The Company offers medical insurance coverage to its employees.

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.

Income Taxes

The Company accounts for its income taxes using SFAS No. 109, “Accounting for Income Taxes”, which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

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. 

We recognize income 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.

We also purchase hardware (for resale) from suppliers who offer a warranty of one year. We generally warrant these same hardware products for one year after sale and provides for estimated future warranty costs at the time revenue is recognized. Consequently, our warranty liability is limited to the cost of the logistics involved in accepting returns and shipping replacements. Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

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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, results of operations, liquidity or capital expenditures.

Item 3.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.

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PART II - OTHER INFORMATION

Item 1.Legal Proceedings

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.

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

Not applicable

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.

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)

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

		SPLINTERNET HOLDINGS, INC.
		(Registrant)
Dated: November 1, 2007	By:	/s/ James C. Ackerly
		James C. Ackerly, Chief Executive Officer
		and President (Principal Executive Officer)
Dated: November 1, 2007	By:	/s/ John T. Grippo
		John T. Grippo, Chief Financial Officer
		(Principal Financial Officer)

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