Mail Stop 3561
October 21, 2005
Mr. David LaDuke, President
Sputnik, Inc.
650 Townsend Street, Suite 320
San Francisco, CA 94103
Re: Sputnik, Inc.
Registration Statement on Form SB-2
Amendment No. 1 filed September 13, 2005
File No. 333-126158
Dear Mr. LaDuke:
We have reviewed your amended filing and have the following
comments. Where indicated, we think you should revise your
document
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter. Please note that the page numbers
referred to below refer to the numbering of the non-EDGAR marked
copy.
Registration Statement Facing Page
1. Please include the Commission registration number on this page
in
all future amendments to this registration statement.
2. The last paragraph after the fee calculation belongs on the
prospectus cover, if applicable.
Risk Factors, page 9
3. In risk factor three, regarding intellectual property rights,
please expand the narrative to discuss the risk to the company for
not taking any formal legal action to protect its intellectual
property against third parties.
4. The last risk factor repeats risk factor eight.
Use of Proceeds, page 13
5. Please describe in more detail the use of proceeds if less than
half of the offering is raised. See Item 504 of Regulation S-B.
Dilution, page 15
6. We have reviewed your response to comment 15 and your
disclosure
for the pro forma net tangible book value for 50% of the maximum
offering and the maximum offering and it is unclear how you
determine
the value of $319,579 and $569,479 respectively. The net tangible
book value at June 30, 2005 of $11,658 plus the proceeds of 50%
and
100% of the offering does not appear to reconcile to the amounts
disclosed. Please clarify and revise.
Plan of Distribution, page 17
7. The representations specified in the subscription agreement
requiring subscribers to represent that "Subscriber has...read,
and
understands the Prospectus"
should be deleted, unless the representations are included because
of
state law or other requirement. In that event, a copy of the
requirement should be furnished to us as supplemental information
and
the subscription agreement must be revised to include a statement
in
a prominent place informing the subscribers that by making such
representations they have not waived any right of action they may
have under the applicable federal securities laws. In addition,
it
should be noted that the federal securities laws specifically
provide
that any such waiver would be unenforceable. The subscription
agreement should also note whether the company intends to assert
the
representations as a defense in any subsequent litigation.
Legal Proceedings, page 20
8. Discuss in full hereunder the legal settlement with David Sifry
and Technorati or cross-reference to other appropriate parts of
the
prospectus. Clarify whether the cash and shares have, in fact,
been
paid. Estimate the fair value of the 20,000 shares of Technorati.
See also our comment below concerning the June interim financial
statements.
Security Ownership of Certain Beneficial Owners and Management,
page
21
9. Please update the beneficial ownership table.
Description of Business, page 25
10. We reissue in part our previous comment 25. Please describe
the
business development of the company since inception or at least
the
past three years as required by Item 101(a) of Regulation S-B.
11. We reissue in part our previous comment 26. Please include
the
names of the developers and describe the principal terms of the
agreements between the company and the developers. Please file
the
agreements as exhibits. See Items 101(b)(1) and (7) and
601(b)(10)
of Regulation S-B.
12. Please describe any ongoing services that the company provides
to
purchasers. See Item 101(b)(1) and (2) of Regulation S-B.
13. Please name the principal suppliers. See Item 101(b)(5) of
Regulation S-B.
14. Please describe how the company sells or markets its products
and
services. See Item 101(b)(1) and (2) of Regulation S-B.
15. We note the statement that "Sputnik Wi-Fi networks are
deployed
in businesses and public venues such as hotels, airports, resorts,
RV
parks, commercial and residential real estate, cafes, and
marinas."
Please describe whether the company sells its products directly to
these businesses and whether the company installs the products.
16. Please describe whether the company charges a fee for the
online
and phone based technical support services and both online and in-
person training at your facilities.
17. In this section or the MD&A section, please describe the fees
received from subscriptions, purchases of the software and resales
of
the hardware.
Competition, page 27
18. Please describe the stage of development for the software and
services that enable customers to "charge for Wi-Fi access; enter
into roaming agreements; offer free Wi-Fi services supported by
localized advertising; and offer voice over internet protocol
(VoIP)
telephone service over Wi-Fi."
Other
19. We reissue our previous comment 37. If considered material to
this business, please include a separate section that discusses in
detail the need for any governmental approval of principal
products
or services and the effect of existing or probable governmental
regulation on the business. See Item 101(b)(8) and (9) of
Regulation
S-B.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations
20. We reissue our previous comment 40. Please name the founders
and
consultants that received the 7,704,061 shares of the common stock
and discuss the nature and effect of the transaction. See Note 2
of
the interim financial statements.
Results of Operations, page 31
21. Please describe the profit margins on the resale of the
hardware.
Certain Relationships and Related Transactions, page 38
22. Please significantly revise this section to give the names of
the
persons, their relationship to the issuer, nature of the persons`
interests in the transactions, and the amount of such interests as
required by Item 404(a) of Regulation S-B. Please remove from
this
section most of the information discussing the services to be
provided by GoPublicToday.com. These services should be discussed
and analyzed in the business section, distribution section and/or
MD&A section. In those sections, please describe, without copying
verbatim from the agreement, the work in which GoPublicToday.com
and
its affiliates have or will perform for Sputnik. Please include
all
affiliates such as Public Company Management Corporation and all
of
its lines of business and/or subsidiaries. In addition, please
discuss any work in which M&A Capital Advisers, LLC will perform
for
Sputnik and its affiliates. Please describe all arrangements and
agreements in detail including fees, and any preliminary
agreements,
including the Contract for Services between GoPublicToday.com and
the
company.
23. Please clarify the registrant`s promoter(s). See Item 404(d)
of
Regulation S-B.
24. Update the second-to-last paragraph of this section to the
date
of the prospectus.
Market for Common Equity and Related Stockholder Matters, page 42
Where You Can Find Additional Information, page 44
25. Please include the Commission`s new address: 100 F Street,
N.E.,
Washington, DC 20549.
Executive Compensation, page 45
26. Please disclose all non-cash compensation paid to Mr. LaDuke,
including the shares to Mr. LaDuke that were approved in December
2004. This section of the prospectus must be reconciled with the
financial statements.
Other
27. We reissue our previous comment 58. Please include the
disclosure regarding the determination of the offering price as
required by Item 505 of Regulation S-B.
December 31, 2004 Financial Statements
Statement of Stockholders` Deficit, page 38
28. We have reviewed your response to comment 60; however, we
disagree that the information requested is meaningless and not
required. Rule 3-04 of Regulation S-X and paragraph (10) of APB12
states that the changes in each caption of stockholder`s equity
(i.e., common stock, additional paid in capital, accumulated
deficit)
presented in the balance sheet shall be presented in the form of a
reconciliation from the beginning balance to the ending balance
for
each period for which an income statement is required. We are
reissuing our comment; please revise to present each issuance of
common stock and the related amounts ($) at par value and include
in
a separate column the amounts ($) attributable to additional paid
in
capital.
Statements of Cash Flows, page 39
29. We have reviewed your response to comment 65 and the statement
of
cash flows. It does not appear our comment was addressed.
Therefore, the comment is being reissued in its entirety. We
noted
the $2,700 deposit represents a security deposit for your
operating
lease agreement. Please revise to include the cash flows from
this
transaction as an operating activity.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
General
30. In reviewing the financial statements we noted several
issuances
of equity instruments to employees and non-employees for goods and
services. Please provide disclosure relating to the accounting
method and policy utilized by the company to account for these
transactions. Please refer to the guidance of SFAS 123 (as
amended
by SFAS 148), and EITF 96-18.
Revenue Recognition, page 40
31. We have read your response to comment 66 and it does not
appear
to address our comment as it was issued. Therefore, we are
reissuing
our comment in its entirety. The disclosures on page 20
(Description
of Business) and on your website suggests that you are selling a
suite of products and services which include your software
products,
hardware, installation, services and training. Please revise your
disclosure to provide a detailed description of each of your
significant revenue generating activities. Your disclosure should
address the criteria for revenue recognition as set forth in SOP
97-2
and SOP 98-9. In your response, please explain how you analyzed
the
consensus in concluding when revenue from your products and
services
should be recognized. We may have further comment upon review of
your response.
32. We noted from your disclosure in MD&A (page 23) that a
significant amount of your revenue and cost of revenue is
generated
from computer hardware sales (Wi-Fi access points, antennas, and
accessories). Your disclosure also indicates that you purchase
computer hardware from a third-party which you resell as Sputnik-
branded hardware products. It appears that you are recording
revenue
on a gross basis for these product sales. Please provide to us an
analysis of EITF 99-19, Reporting Revenue Gross as a Principal
versus
Net as an Agent. Your analysis should address each of the
indicators
discussed in the related technical guidance. Please advise or
revise.
Note 4 - Income Taxes, page 41
33. We noted that the financial statements for the year ended
December 31, 2004 have been restated for an additional net loss
amount of $587,739. Please clarify whether the restatement of the
financial statements impacts the amounts reported as net operating
loss carry forward and deferred tax asset at December 31, 2004.
Note 5 - Commitments, page 42
34. We have reviewed your response to comment 68 and your adjusted
disclosure noting that Sputnik has made no cash payments to GPT
and
none of the obligation is recorded at December 31, 2004. It
appears
from review of section three of the agreement (filed as exhibit
10.1), upon execution (December 22, 2004) you were required to pay
GPT a non-refundable retainer of $19,000 resulting in an
obligation
as of December 31, 2004. Accordingly, we would expect the $19,000
to
have been recorded as an obligation at December 31, 2004. Please
revise your financial statements or tell us why this obligation is
not required to be recorded and how your accounting treatment
complies with GAAP.
35. We have reviewed your response to comment 69 and the
disclosure
on page 42 stating the cost of the issuance of the 500,000 shares
to
GPT ($50,000) was included in the December 31, 2004 statement of
operations. It does not appear that this amount was recorded in
stock payable or as an issuance of stock in the statement of
stockholders` deficit at December 31, 2004. Please clarify and
revise.
36. We read your response to comment 74 and your revised
disclosure.
It appears from your response the warrant was never issued to DLA
Piper Rudnick Gray Cary. If this warrant was not issued, it is
unclear why the settlement to cancel the warrant was entered into
in
April 2005. Please clarify the following: if the settlement of
the
obligation to DLA Piper Rudnick Gray Cary occurred; if the company
has a current obligation to DLA Piper Rudnick Gray Cary; and where
the obligation is currently recorded in the financial statements.
Note 8 - Restatement, page 44
37. We noted that the financial statements for the fiscal years
ended
December 31, 2003 and 2004 have been restated. It does not appear
that the nature of the error (or errors) in the previously issued
financial statements was disclosed as required by paragraph (37)
of
APB No. 20. For example, it is unclear why the number of shares
previously reported on page 32 of the SB-2 filed on June 28, 2005
as
shares issued and outstanding has been changed. In addition, the
number of shares previously reported on page 34 of the SB-2 filed
on
June 28, 2005 as shares issued for cash has decreased. Please
clarify and revise.
June 30, 2005 Unaudited Interim Financial Statements
General
38. Please revise the interim financial statements to conform to
any
changes made to the December 31, 2004 financial statements, as
necessary.
39. Considering a significant amount of equity transactions has
occurred, please revise to include a statement of stockholders`
deficit.
Statement of Operations, page 48
40. We noted the disclosure $61,000 for the gain on legal
settlement.
It appears from the review of section 1(b) of the settlement
agreement (filed as exhibit 10-2) that Sputnik was to receive
20,000
shares of Technorati stock as part of the settlement. Please
clarify
if these shares were received and the accounting treatment
utilized
to record the issuance of these shares.
41. Please remove the interim statements of operations for the
three
months ended June 30, 2005 and 2004. Registration statements
require
interim financial statements for the year-to-date periods only, in
this case, the six-months ended June 30, 2005 and 2004.
Note 2 - Equity, page 50
42. We noted that in May 2005, 7,704,061 shares valued at $763,441
were issued to settle the accrued stock payable. This does not
appear to reconcile with 6,394,061 shares value at $632,441 that
were
disclosed on pages 42 and 43 of the December 31, 2004 financial
statements. Please clarify and revise.
Other Regulatory
43. Please provide a current consent of the independent
accountants
in any amendment.
Part II
Exhibits
44. We note that exhibit 10.2, General Release and Settlement
Agreement with former Officer and Director is incomplete. Please
note that agreements are required to be filed in their entirety
unless such portions of agreements are granted a request for
confidential treatment under Rule 406 of Regulation C. Please
either
submit a request for confidential treatment for such portions of
the
agreement or refile the agreement in its entirety.
Staff Legal Bulletin 1 (CF) sets forth the Division`s views
regarding
the proper preparation of a confidential treatment request for
information required to be included in a filing. Information in
the
bulletin should assist you in preparing your amended confidential
treatment request. The Bulletin is available on the SEC Web
Address
http://www.sec.gov. Please select "Staff Legal Bulletins" then
select "SLB 1" and "SLB 1A."
* * * * *
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your response to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Angela Halac at (202) 551-3398 or Hugh West
at
(202) 551-3872 if you have questions regarding comments on the
financial statements and related matters. Please contact Thomas
Kluck at (202) 551-3233 or Don Rinehart who supervised the review
of
your filing, at (202) 551-3235 with any other questions.
Sincerely,
John Reynolds
Assistant Director
cc: Michael Williams
Fax (813) 832-5284
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David LaDuke
Sputnik, Inc.
October 21, 2005
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