Attached files
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EX-31.2 - SPLINTERNET HOLDINGS INC | v174808_ex31-2.htm |
EX-32.2 - SPLINTERNET HOLDINGS INC | v174808_ex32-2.htm |
EX-31.1 - SPLINTERNET HOLDINGS INC | v174808_ex31-1.htm |
EX-32.1 - SPLINTERNET HOLDINGS INC | v174808_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q/A
(Amendment
No. 1)
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the quarterly period ended September 30, 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,
2nd floor, 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 x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definition of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨ No x
As of
February 18, 2010, there were 68,360,040 outstanding shares of Common Stock,
$.001 par value.
SPLINTERNET
HOLDINGS, INC. AND SUBSIDIARIES
TABLE
OF CONTENTS
Page
|
|||
PART
I - FINANCIAL INFORMATION
|
|||
Item
1.
|
Financial
Statements.
|
3
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and
Results of Operations.
|
13
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
21
|
|
Item
4T.
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Controls
and Procedures.
|
21
|
|
PART
II - OTHER INFORMATION
|
|||
Item
1.
|
Legal
Proceedings.
|
23
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
23
|
|
Item
3.
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Default
upon Senior Securities.
|
24
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders.
|
24
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|
Item
5.
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Other
Information.
|
24
|
|
Item
6.
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Exhibits.
|
24
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SIGNATURES
|
25
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2
PART
I – FINANCIAL INFORMATION
Item
1.
|
Financial
Statements.
|
|
Condensed
Consolidated Balance Sheets at September 30, 2009 (Unaudited) and December
31, 2008
|
4
|
|
Condensed
Consolidated Statements of Operations (Unaudited) for the three months and
nine months ended September 30, 2009 and 2008
|
5
|
|
Condensed
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended September 30, 2009 and 2008
|
6
|
|
Notes
to the Condensed Consolidated Financial Statements
(Unaudited)
|
7
|
3
SPLINTERNET
HOLDINGS, INC. AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 52,903 | $ | 6,407 | ||||
Accounts
receivable
|
26,158 | 8,750 | ||||||
Prepaid
expenses
|
108,838 | 12,452 | ||||||
Note
receivable
|
77,961 | 77,958 | ||||||
Due
From Employees
|
22,913 | - | ||||||
Total
current assets
|
288,773 | 105,567 | ||||||
Property
and equipment, net
|
29,634 | 34,804 | ||||||
Goodwill
|
2,831,790 | 2,831,790 | ||||||
Security
deposits
|
14,394 | 14,394 | ||||||
Total
assets
|
$ | 3,164,591 | $ | 2,986,555 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Liabilities:
|
||||||||
Accounts
payable
|
$ | 159,894 | $ | 122,621 | ||||
Accrued
expenses
|
69,177 | 334,143 | ||||||
Loans
from officers
|
706,186 | 226,571 | ||||||
Total
current liabilities
|
935,257 | 683,335 | ||||||
Total
liabilities
|
935,257 | 683,335 | ||||||
Commitments
|
||||||||
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; 66,671,216 and
61,940,679 shares issued and outstanding
|
66,674 | 61,941 | ||||||
Additional
paid-in capital
|
6,777,208 | 5,980,762 | ||||||
Accumulated
deficit
|
(4,614,548 | ) | (3,739,483 | ) | ||||
Total
stockholders’ equity
|
2,229,334 | 2,303,220 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 3,164,591 | $ | 2,986,555 |
See notes
to condensed consolidated financial statements.
4
SPLINTERNET
HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three
Months Ended
|
Nine
Months ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Service
revenue
|
$ | 294,285 | $ | 244,167 | $ | 681,684 | $ | 645,125 | ||||||||
Cost
of revenue
|
331,995 | 239,172 | 656,796 | 619,917 | ||||||||||||
Gross
profit
|
(37,710 | ) | 4,995 | 24,888 | 25,208 | |||||||||||
Selling,
general and administrative expenses
|
187,443 | 462,195 | 747,834 | 1,158,875 | ||||||||||||
Research
and development costs
|
33,233 | 63,688 | 124,336 | 178,847 | ||||||||||||
Loss
from operations
|
(258,386 | ) | (520,888 | ) | (847,282 | ) | (1,312,514 | ) | ||||||||
Interest
income
|
1,350 | 3,449 | 4,053 | 21,847 | ||||||||||||
Interest
expense
|
16,269 | 417 | 31,836 | 417 | ||||||||||||
Net
loss
|
$ | (273,305 | ) | $ | (517,856 | ) | $ | (875,065 | ) | $ | (1,291,084 | ) | ||||
Net
loss per share:
|
||||||||||||||||
Basic
and Diluted
|
$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | ||||
Weighted
average common stock outstanding:
|
||||||||||||||||
Basic
and Diluted
|
65,689,073 | 61,503,179 | 63,820,820 | 59,380,946 |
See notes
to condensed consolidated financial statements.
5
SPLINTERNET
HOLDINGS, INC. AND SUBSIDIARIES
(UNAUDITED)
Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flow from operating activities:
|
||||||||
Net
loss
|
$ | (875,065 | ) | $ | (1,291,084 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
5,171 | 4,812 | ||||||
Non-cash
stock option expense
|
- | 86,217 | ||||||
Non-cash
stock compensation expense
|
711,179 | |||||||
Change
in assets and liabilities, net of acquisition
|
||||||||
Increase/(decrease)
in accounts receivable
|
(17,408 | ) | 3,413 | |||||
Increase/(decrease)
in prepaid expenses
|
(96,388 | ) | 40,305 | |||||
Increase
in advances to employee
|
(22,913 | ) | ||||||
Increase
in notes receivable
|
(3 | ) | (30 | ) | ||||
Increase
in deferred revenue
|
- | 40,000 | ||||||
Increase/(decrease)
in accounts payable and accrued expenses
|
(227,694 | ) | 112,438 | |||||
Net
cash used in operating activities
|
(523,121 | ) | (1,003,928 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Pre
acquisition loans to Vidiation, Inc.
|
- | (165,000 | ) | |||||
Loans
from officer
|
479,615 | 75,417 | ||||||
Proceeds
from sale of common stock
|
90,000 | - | ||||||
Net
cash provided by (used in) financing activities
|
569,615 | (89,583 | ) | |||||
Net
increase in cash and cash equivalents
|
46,496 | (1,093,511 | ) | |||||
Cash
and cash equivalents, beginning of period
|
6,407 | 1,105,057 | ||||||
Cash
and cash equivalents, end of period
|
$ | 52,903 | $ | 11,546 | ||||
Supplemental
disclosure of cash flow information
|
||||||||
Non-cash
investing and financing activity
|
||||||||
Issuance
of stock for the purchase of Vidiation, Inc.
|
$ | - | $ | 2,609,557 | ||||
Issuance
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. and Vidiation,
Inc.
Splinternet
Communications, Inc. was incorporated in the State of Connecticut in January
2000. Splinternet Communications, Inc., which also operates under the name
Defentect in connection with its radiation detection business, is a developer of
Internet Protocol (IP) based management, monitoring and messaging system which
interfaces with Defentect’s radiation detection devices, third-party radiation
detection sensors and other third-party threat-event sensors. The software which
is managed over the Web, utilizing existing network infrastructure, to provide
administrative and configuration services enabling our customers to add these
type of devices to their existing security systems for unmanned detection,
alerts and messaging for a variety of threat-event detection. In addition, Splinternet
continues to resell excess VoIP capacity primarily to traditional international
carriers.
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.
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 September 30, 2009 and the results of operations and
cash flows for the interim periods ended September 30, 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.
7
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Basic
loss per share is computed by dividing net loss by the weighted average number
of shares of common stock outstanding during the period. Diluted loss per share
is computed by dividing net loss by the weighted average number of shares of
common stock, potential common stock and potentially dilutive securities
outstanding during each period. Warrants to purchase 1,032,500 shares of the
Company's common stock, as of September 30, 2009, were not included in the
calculation, due to the fact that these warrants were anti-dilutive for the
three and nine months ended September 30, 2009. 603,393 options
issued in 2008 were excluded as they were not vested. Vested options
to purchase 301,667 shares of the Company's common stock, as of September 30,
2009, were not included in the calculation, due to the fact that these options
were anti-dilutive for the three and nine months ended September 30,
2009.
Fair
Value of Financial Instruments
All
current assets are carried at their cost and current liabilities are recorded at
their contract amount, which approximates fair value because of their short term
nature. The carrying value of short-term financing arrangements and notes
receivable approximates fair value because interest rates over the relative term
of these instruments approximate current market interest rates.
LIQUIDITY
As of
September 30, 2009, the Company had approximately $53,000 in cash and
liabilities of approximately $935,000. The Company’s net cash used in operating
activities for the nine months ended September 30, 2009 was $523,121 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 $4,614,548 as of September 30, 2009. For the nine months ended September 30,
2009, our net loss was $875,065. 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
The FASB
issued ASC 105, Generally Accepted Accounting Principles, which established the
FASB Accounting Standards Codification as the sole source of authoritative
nongovernmental U.S. generally accepted accounting principles (“GAAP”) in
June 2009. The Statement does not change existing GAAP.
3. MAJOR
CUSTOMER
During the three and nine months ended
September 30, 2009 and 2008, one customer (BuenaVox LLC) accounted for
97% of
all revenues, for both these periods.
8
4. TAXES
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. Uncertain tax positions are recognized if they meet
“more likely than not” criteria. 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, 2009. The tax years 2005
through 2008 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
September 30, 2009 the Company has net operating loss carryforwards of
approximately $4,605,000 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
$1,840,000 as of September 30, 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 $1,840,000 at September 30, 2009.
5.
STOCKHOLDERS EQUITY
During
the nine months ended September 30, 2009 the Company issued 4,010,537 shares of
common stock to employees and consultants for services rendered and recorded a
non-cash stock compensation expense of approximately $711,000. Included in that
amount were issuances of 375,000 shares of stock to its chairman of the board
and 1,000,000 shares of stock to an outside consultant for providing marketing,
financial oversight and strategic planning services for twelve months beginning
August 17, 2009 of which approximately $105,000 is included in prepaid
expenses. The Company recorded non-cash stock compensation expense of
approximately $35,000 and $15,000 respectively. The Company also issued to Frank
O’Connor for services rendered 250,000 warrants which are exercisable into
shares of common stock at $0.40 per share and expire in two years.
The
Company also sold 720,000 common shares and 720,000 warrants and received
proceeds of $90,000. The warrants have a strike price of $0.10 per
share and expire in June 2011. Each warrant is exchangeable for one
share of the Company’s common stock.
9
6. STOCK
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 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.
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 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.
The
share-based compensation expense for the three and nine months ended September
30, 2009 was approximately $34,000 and $102,000 respectively. For the three and
nine months ended September 30, 2008 the share-based compensation expense was
approximately $35,000 and $86,200.
The
Company recognizes stock-based compensation costs on a straight-line basis over
the requisite service period of the award, which is generally the option vesting
term. As of September 30, 2009, there was approximately $217,000 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
4.63 years.
10
7. SEGMENT
INFORMATION
The
Company conducts its operations in two business segments; the Radiation Sensor
and Detection Division (Defentect) and the VoIP Division (through Splinternet
Communications, Inc.). 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 September 30,
2009
|
Radiation
|
VoIP
|
Corporate
|
Total
|
||||||||||||
Revenues
|
$ | 7,500 | $ | 286,785 | $ | — | $ | 294,285 | ||||||||
Operating
income (loss)
|
(213,025 | ) | (45,361 | ) | — | (258,386 | ) | |||||||||
Total
assets
|
2,845,533 | 48,549 | 269,659 | 3,163,741 | ||||||||||||
Depreciation
|
636 | 1,088 | — | 1,724 | ||||||||||||
Nine Months ended September 30,
2009
|
||||||||||||||||
Revenues
|
$ | 7,500 | $ | 674,184 | $ | — | $ | 681,684 | ||||||||
Operating
income (loss)
|
(862,344 | ) | 15,063 | — | (847,281 | ) | ||||||||||
Total
assets
|
2,845,533 | 48,549 | 269,659 | 3,163,741 | ||||||||||||
Depreciation
|
1,909 | 3,263 | — | 5,172 |
Three Months ended September 30,
2008
|
Radiation
|
VoIP
|
Corporate
|
Total
|
||||||||||||
Revenues
|
$ | — | $ | 244,167 | $ | — | $ | 244,167 | ||||||||
Operating
income (loss)
|
(525,883 | ) | 4,995 | (220,187 | ) | (520,888 | ) | |||||||||
Total
assets
|
2,847,754 | 55,592 | 179,222 | 3,082,568 | ||||||||||||
Depreciation
|
1062 | 1,088 | — | 2,150 | ||||||||||||
Nine Months ended September 30,
2008
|
||||||||||||||||
Revenues
|
$ | — | $ | 645,125 | $ | — | $ | 645,125 | ||||||||
Operating
income (loss)
|
(1,115,096 | ) | (197,418 | ) | — | (1,312,514 | ) | |||||||||
Total
assets
|
2,847,754 | 55,592 | 179,222 | 3,,082,568 | ||||||||||||
Depreciation
|
1,549 | 3,263 | — | 4,812 |
8.
LOANS FROM OFFICER
Mr. James
C. Ackerly, the President and secretary, treasurer and director, made loans to
the Company during the nine months ended September 30, 2009 of
$465,000. 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 $27,278 in interest charges due to loans payable to Mr.
Ackerly.
9.
CONTINGENCY
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.
11
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 $22,000 on 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 to Mr. O’Connor.
On April
28, 2009, The Idler Company, Inc. (“Idler”) commenced an action against
Splinternet Holdings, Inc., Vidiation, Inc., Vidiation, LLC, Frank O’Connor and
James C. Ackerly in the United States District Court, District of Connecticut
pertaining to the purchase by Idler of shares of Vidiation, LLC for $100,000 in
2007. Such action alleges various securities law violations, breach
of contract, rescission, fraud and unjust enrichment. The Company
intends to vigorously defend this matter. However, the Company cannot predict or
estimate the timing or ultimate outcome of this matter.
10.
SUBSEQUENT EVENTS
During
October, November and December 2009 James C. Ackerly,
President and Chief Executive Officer, loaned the Company
$50,000, $35,000 and $48,000 respectively.
The
Company evaluated subsequent events as of February 18, 2010, the date the
financial statements were issued.
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 Communications, Inc. which operates under the name
Defentect in connection with its radiation detection business is a developer of
Internet Protocol (IP) based management, monitoring and messaging system which
interfaces with Defentect’s radiation detection devices, third-party radiation
detection sensors and other third-party threat-event sensors. The software which
is managed over the Web, utilizing existing network infrastructure, to provide
administrative and configuration services enabling our customers to add these
type of devices to their existing security systems for unmanned detection,
alerts and messaging for a variety of threat-event detection. In addition, Splinternet
continues to resell excess VoIP capacity primarily to traditional international
carriers.
13
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.
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 December 31, 2007, the Company began its development of a
radiation device which signifies our entry into the radiation detection market.
During 2008, we developed Internet Protocol (IP) based management, monitoring
and messaging system which interfaces with our radiation detection devices,
third-party radiation detection sensors and other third-party threat-event
sensors. During the fourth quarter 2008 we began product trials for
our radiation detection device and management, monitoring and messaging system
with a major metropolitan hospital, a major metropolitan police department and a
global transportation and logistics provider. These trials completed during the
second quarter 2009 at which time the Company submitted system proposals to the
hospital and transportation provide for additional product. During the quarter
ended September 30, 2009, the Company began shipping its radiation detection
product. The Company continues purchasing long distance minutes at wholesale
prices from phone companies and then reselling them at a markup to its
customers. 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.
14
Results
of Operations
SERVICE
REVENUE
Service
revenue for the three months and nine months ended September 30, 2009 were
$294,285 and $681,684 which is an increase from $244,167 and $645,125 for the
three months and nine months ended September 30, 2008. The increase is due to
higher usage of the Company’s long distance termination by its customer during
the three and nine months ended September 30, 2009 as compared to the same
period in 2008.
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 and nine months ended September 30, 2009, the costs of the
wholesale minutes were $331,995 and $656,796 which is an increase from $239,172
and $619,917 for the three months and nine months ended September 30, 2008. The
increase is due to higher usage of the Company’s long distance termination by
its customer during the three and nine months ended September 30, 2009 as
compared to the same period in 2008.
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
In the
three and nine months ended September 30, 2009, selling, general and
administrative costs were $187,443 and $747,834 which is a decrease from
$462,195 and $1,158,875 in the comparable period in
2008. The decreases are the result of cost cutting measures the
Company began undertaking since the fourth quarter of 2008.
RESEARCH
AND DEVELOPMENT
Research
and development decreased to $33,233 and $124,336 in the three and nine months
ended September 30, 2009 from $63,688 and $178,847 for the comparable periods in
2008. The decreases are the result of cost cutting measures the Company began
undertaking since the fourth quarter of 2008.
INTEREST
INCOME
Interest
earned in the three and nine months ended September 30, 2009 was $1,350 and
$4,053 compared to $3,449 and $21,847 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 and nine months ended September 30, 2009 was $16,269 and
$31,836 compared to $417 and $417 for the comparable period in 2008. This is due
to the accrual of interest on notes made by the President and Chief Executive
Officer to the Company.
NET
LOSS
We
recognized a net loss of $273,305, during the three months ended September 30,
2009 compared to a net loss of $517,856 during the same period in the prior year
for an overall decrease in net loss of $244,551. We recognized a net loss of
$875,065, during the nine months ended September 30, 2009 compared to a net loss
of $1,291,084, during the same period in the prior year for an overall decrease
in net loss of $416,019. The decrease in the net loss was primarily the result
of the Company’s cost cutting measure which began during the fourth quarter of
2008.
15
Financial
Condition, Liquidity and Capital Resources
As of
September 30, 2009, we had approximately $53,000 in cash and liabilities of
approximately $935,000; 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 $4,614,548 as of September 30, 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 nine months ended September 30, 2009 was
$523,121which was primarily the result of the net loss of $875,065 plus
decreases in accounts payable and accrued expenses of $227,694 offset by
non-cash stock compensation expense of $711,179. This compares to net
cash used by operating activities for the nine months ended September 30, 2008
of $1,003,928 which was primarily the result of the net loss of $1,291,084
offset by an increase in accounts payable and accrued expenses of $112,438, a
decrease in prepaid expenses of $40,305 and a non-cash stock option expense of
$86,217. No net cash was used in investing activities for the nine
months ended September 30, 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 nine months ended
September 30, 2009, net cash provided by (used in) financing activities was
$569,615 compared to a use of $89,583 for the nine months ended September 30,
2008. The change in 2009 is primarily due to loans from the President and Chief
Executive Officer of the Company in the amount of $479,615 during the first nine
months of 2009 compared to $75,417 in the same period of 2008 and the sale of
common stock which generated $90,000 in net proceeds during the first nine
months of 2009 versus the loaning of $165,000 to Vidiation, Inc. 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 September 30, 2009 the President and current CEO loaned the Company $85,000
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.
16
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.
17
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 $4,614,548
as of September 30, 2009. For the nine months ended September 30, 2009, our net
loss was $980,605. 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.
18
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.
19
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.
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.
20
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.
Off-Balance
Sheet Arrangements
We do not
have any off balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues, and results of
operations, liquidity or capital expenditures.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
Not
applicable.
Item
4T.
|
Controls
and Procedures
|
We
maintain disclosure controls and procedures that are designed to ensure (1) that
information required to be disclosed by us in the reports we file or submit
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized, and reported within the time periods specified
in the Securities and Exchange Commission’s (“SEC”) rules and forms, and (2)
that this information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost benefit relationship of
possible controls and procedures.
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.
21
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 $22,000 on 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 to Mr. O’Connor.
On April
28, 2009, The Idler Company, Inc. (“Idler”) commenced an action against
Splinternet Holdings, Inc., Vidiation, Inc., Vidiation, LLC, Frank O’Connor and
James C. Ackerly in the United States District Court, District of Connecticut
pertaining to the purchase by Idler of shares of Vidiation, LLC for $100,000 in
2007. Such action alleges various securities law violations, breach
of contract, rescission, fraud and unjust enrichment. We intend to
vigorously defend this matter. However, we cannot predict or estimate the timing
or ultimate outcome of this matter.
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. A total of 500,000 shares have been issued to
date. Of such amount, 375,000 were issued in 2009. The issuance of
these shares of common stock are exempt from registration requirements pursuant
to Section 4(2) of the Securities Act of 1933, as amended.
During
the second and third quarters of 2009, we sold an aggregate of 720,000 shares of
our common stock to certain investors for total gross proceeds of $90,000 in a
private placement offering to accredited investors only. In
connection therewith, the investors received 720,000 warrants exercisable into
shares of common stock at $0.10 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.
During
the second quarter of 2009, the Company issued to Frank O’Connor for services
rendered 500,000 shares of common stock and 250,000 warrants which are
exercisable into shares of common stock at $0.40 per share and expire in two
years. The issuance of these securities were exempt from registration
requirements pursuant to Section 4(2) of the Securities Act of 1933, as amended.
During
the third quarter of 2009, the Company issued 1,000,000 shares of common stock
to Steven R. Cloyes for certain
consulting services. The issuance of these securities were exempt
from registration requirements pursuant to Section 4(2) of the Securities Act of
1933, as amended.
23
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)
|
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:
February 18, 2010
|
By:
|
/s/ James C. Ackerly
|
|
James
C. Ackerly, Chief Executive Officer
|
|||
and
President (Principal Executive Officer)
|
|||
Dated:
February 18, 2010
|
By:
|
/s/ John T. Grippo
|
|
John
T. Grippo, Chief Financial Officer
|
|||
(Principal
Financial Officer)
|
25