Mail Stop 3551
January 13, 2006
Mr. William L. Yde III
Global Traffic Network, Inc.
7521 West Lake Mead Boulevard
Suite 300
Las Vegas, Nevada 89128
Re: Global Traffic Network, Inc.
Registration Statement on Form S-1
Filed December 16, 2005
File No. 333-130417
Dear Mr. Yde:
We have reviewed your filing and have the following
comments.
Please amend the registration statement 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
filings.
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.
General
1. We encourage you to file all exhibits with your next amendment
or
otherwise furnish us drafts of your legality opinion and
underwriting
agreement. We must review these documents before the registration
statement is declared effective, and we may have additional
comments.
2. Please furnish in your response letter a statement as to
whether
or not the amount of compensation to be allowed or paid to the
underwriter has been cleared with the NASD. Prior to the
effectiveness of this registration statement, please provide us
with
a copy of the letter informing that the NASD has no objections.
3. We note that the company is applying to be listed on the
Nasdaq.
Please update us as to the status of this application and any
issues
with respect to listing standards.
Prospectus Summary, page 1
4. The summary section is intended to provide a brief overview of
only the most material aspects of the offering. The summary
section
should not contain or repeat all of the detailed information in
the
prospectus but rather should provide a brief snapshot of the
offering
and your business. In this regard, we believe you should shorten
and
focus your summary to highlight the most relevant information.
For
example, it appears that you can substantially reduce the
disclosure
in the subsections "The Services We Provide...,""Our Sources of
Revenue...," and "The Markets We Serve."
5. The introductory paragraph contains information that is
important
to understanding the company. Please remove this information from
the dense, italicized paragraph and include it in the body of the
summary to the extent it does not repeat information already in
the
summary.
6. Please avoid capitalizing words that you are using for their
plain
meaning. In this regard, is it necessary to capitalize terms such
as
Information Reports, Radio Traffic Reports, Radio News Reports, TV
Reports, Radio Network, TV Network and Affiliates? Similarly, if
your disclosure is clear from its context, it does not appear that
you need to define "we," "us," etc. in the introductory paragraph.
Lastly, if your company and its subsidiaries are not known by
third
parties as GTN, ATN and CTN, we encourage you not to use these
acronyms when referring to the companies.
7. Throughout the prospectus, you indicate that you expect to
begin
providing services in Canada in December 2005. Please update this
disclosure. Please also update the disclosure regarding expected
revenue generation from your Canadian operations beginning in
January
2006.
8. We note that you will exchange 4,000,000 shares for all of the
shares of ATN. We also note that you are issuing $1.4 million in
promissory notes to cover the estimated tax consequences to the
ATN
shareholders in the share exchange. In your response letter,
please
explain why there will be tax consequences to the ATN
shareholders.
9. Disclose that you will repay the $1.4 million in promissory
notes
to the ATN shareholders from the proceeds of the offering.
Summary of Historical Financial Data, page 7
10. Delete the "Pro Forma as Adjusted" information from the table
of
Summary Historical Financial Data. The impact of the anticipated
offering may be presented in the capitalization table at page 20.
Risk Factors, page 8
11. In several of your risk factors subheadings, you allude to a
risk
but do not clearly state the material risk to investors or the
company. Generally, the risk factor subheading should clearly
state
the particular risk and the consequences that may result if that
risk
should occur. Please revise to present the risks you are
addressing
in concrete terms. For example, we note that risk factors one,
four,
five, six, seven, ten, thirteen, fourteen and twenty do not
clearly
state the risks and potential consequences to an investor or your
company and should be revised accordingly.
12. Please avoid the generic conclusion you reach in several of
your
risk factor narratives and subheadings that the risk could
"negatively impact," "adversely affect" and/or "harm" your
business,
financial condition, results of operations or ability to raise
capital or would have a "material adverse affect" on the same.
Instead, replace this language with specific disclosure of how
your
business, financial condition and operations would be affected.
See,
for example, risk factors five, six, eight, nine, thirteen,
fourteen,
sixteen, seventeen, eighteen and twenty-one. Similarly, please
explain what you mean by "success" in risk factors four, five,
six,
seven, and seventeen.
We have incurred operation losses in connection with the
introduction
and expansion of Radio News Reports..., page 8
13. The second paragraph discusses a risk that is distinct from
the
subheading, namely the risks associated with your limited
experience
delivering news information reporting services and with the
television broadcast market. The subheading and narrative should
address the same material risk factors. Please revise by
discussing
your lack of experience in these areas as a separate risk factor.
14. Please quantify the operating losses referenced in the
subheading.
We have incurred operating losses in connection with our expansion
of
operations into Canada..., page 9
15. You state that your radio traffic reports have "generally
operated profitably." Please clarify what you mean.
Our success depends on our ability to compete successfully...,
page 9
16. Please identify the Canadian competitor referenced in risk
factor
five.
Our success is dependent upon the successful performance of the
advertising industry, page 10
17. To provide context to this risk, briefly discuss whether your
markets have experienced a decline in economic conditions that
have
impacted the advertising industry.
If we fail to secure adequate financing in the future..., page 12
18. Please clarify whether you have any financing arrangements in
place to raise additional funds outside of this offering.
If we fail to expand into new markets..., page 12
19. To provide context, please identify the new markets where you
may, or intend to, establish relations with radio and television
stations.
We may be liable for our traffic information, page 13
20. The subheading does not adequately address the risk posed to
the
company or investors as a result of liability incurred for your
traffic information. As a general rule, the subheading and
narrative
should be able to stand alone, meaning that both the subheading
and
its corresponding discussion should fully disclose the material
risk
and possible consequences. As such, please elaborate in the
subheading on the risk posed. To the extent applicable, please
also
address any legal differences that exist in Australia or Canada
that
might make the company more or less liable for its traffic reports
than if you were providing reports in the United States.
Use of Proceeds, page 19
21. We note that you are raising between $17.6 million and $20.4
million in this offering, depending on whether the underwriter
exercises its over-allotment option. This use of proceeds
discussion
allocates only between $7.4 million and $9.4 million. Please
disclose how you intend to allocate the remaining amounts.
22. Please clarify that the holders of the share exchange notes
are
also your existing shareholders, and disclose the amount of the
offering proceeds that each executive officer, director or five
percent beneficial holder will receive.
Selected Financial Data, page 23
23. Given your disclosure in `Use of Proceeds` at page 9
indicating
the Share Exchange Notes will become due and payable on the
closing
date of this offering, your "Pro Forma as Adjusted" information
should include the account repayment.
24. Revise your Selected Financial Data to include pro forma
information for only the most recent interim period and fiscal
year
end. In addition, make similar revisions to your summary
financial
data at page 6.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 25
Overview, page 25
25. We place great emphasis on the MD&A section and direct your
attention to the Commission`s recent interpretative release found
at
http://www.sec.gov/rules/interp/33-8350.htm. This release
provides
guidance designed to improve the quality, flow and organization of
MD&A. In the release, the Commission determined that inclusion of
an
"Overview" section highlighting the matters with which management
is
concerned primarily in evaluating the company`s financial
condition
and operating results would greatly facilitate investor
understanding
of, and appreciation for, a company`s financial condition. The
Commission also noted in the release that, in order for the
Overview
section to facilitate these goals, it should not simply repeat
disclosure located in other parts of the prospectus, but rather
should be used as a means for management to provide insight into
challenges, risks, uncertainties and opportunities which
management
is aware of and discuss any actions being taken to address the
same.
We believe that your Overview section duplicates disclosure
located
in both the Summary and Business sections and we encourage you to
revise the Overview to more adequately discuss the matters
addressed
in the release.
Our Sources of Revenue-Sale of Commercial Airtime Inventory, page
26
26. Throughout the prospectus you disclose that your revenue is
generated by sales of commercial air time received in exchange for
providing radio traffic reporting services and, in certain
circumstances, other consideration. Explain the "other
consideration" and "certain circumstances."
Liquidity and Capital Resources, page 32
27. We note the statement that you believe cash flow provided by
your
Australian operations will be sufficient to fund your on-going
Australian operations for the remainder of fiscal year 2006. We
also
note disclosure in risk factor 12 that you believe your current
capital resources along with the proceeds from this offering will
be
sufficient to fund your operations through at least the 12 months
from completion of this offering. As appropriate, please
reconcile
and/or clarify these statements.
28. Please discuss in more detail your reliance on loans from
shareholders to fund your operations. Disclose the amount of
loans
from shareholders you received in each period discussed. In
addition, disclose the extent to which you intend to rely on loans
from shareholders in the future.
29. You indicate that you have a $1,525 million bank overdraft
line
of credit facility. Please confirm the amount.
30. Please ensure that the liquidity section address all material
notes and loans, including time to maturity, principal amounts
owed,
interest rates, use of the loan proceeds and any other material
terms. In this regard reference is made to Note 6 on page F-21.
31. Revise your liquidity discussion to use the table of
contractual
commitments to address your future cash requirements. Also,
specifically identify and discuss your long-term debt obligations,
as
they represent known commitments which will likely result in a
material change in your liquidity. Expand the disclosure to
address
your liquidity requirements on a long-term basis. Refer to the
guidance in Instructions 3 and 5 of Item 303(a) of Regulation S-K.
32. The operating cash flows that you report for 2003, 2004 and
2005
exhibit significant variation from one year to the next. Please
provide a discussion of the underlying drivers, such as cash
receipts
from the sale of advertising inventory and cash payments related
to
the preparation and transmission of your traffic and news reports.
In your discussion, include the effect on liquidity of the timing
difference between incurring expenses for traffic reports and the
income from the sale of advertising. Please refer to Section IV.B
of
the Commission Guidance Regarding Management`s Discussion and
Analysis of Financial Condition and Results of Operations in
Release
No. 33-8350 and revise your disclosure accordingly.
Contractual Commitments, page 34
33. The last sentence to Item 303(a)(5)(i) indicates that the
tabular
presentation should be accompanied by footnotes describing
provisions
that create, increase or accelerate obligations, or other
pertinent
data to the extent necessary for an understanding of the timing
and
amount of the registrant`s specified contractual obligations. If
appropriate, please provide this information.
Historical and Pro forma Consolidated Financial Data, page 35
34. In the third paragraph at page 35, briefly describe the
transaction and the entities involved, instead of using the term
"Share Exchange" as defined at page 4. Also disclose how you
account
for the share exchange in the pro forma financial information.
Refer
to Rule 11-02(b) of Regulation S-X.
35. Tell us the accounting literature you considered in
determining
the appropriate accounting treatment for the share exchange with
ATN
and issuance of the share exchange notes. In your response,
please
provide the following:
* Provide schedules showing the voting ownership in each company
before the transaction and in the combined company after the stock
exchange.
* If you believe there is a common control group, identify the
shareholders in the common control group and describe the nature
of
any relationships between the shareholders.
* If there are any contractual agreements to vote shares as a
single
unit, summarize the terms of the agreements.
36. Revise the presentation of the pro forma balance sheets and
statements of income to include a column showing the pro forma
adjustments to the historical results of GTN and ATN attributed to
the exchange transaction. Reference each adjustment to notes that
describe the adjustment and the assumptions involved.
37. Pro forma information is appropriate only for the most recent
balance sheet date. Revise the financial information at page 36
to
present only historical and pro forma information as of September
30,
2005. Also, you should only present pro forma statements of
income
for the most recent fiscal year and interim period. Refer to Rule
11-02(c) of Regulation S-X.
Critical Accounting Policies, page 39
38. We note that you have established a $34,000 allowance for
doubtful accounts as of September 30, 2005. Please tell us the
reasons why your accounts receivable are increasing and why you
have
recently established an allowance for doubtful accounts.
Description of the Business, page 41
39. Please include the disclosure required by Item 101(a) of
Regulation S-K regarding the business history for the past 5 years
of
the company and its subsidiaries and predecessors. Please also
include the disclosure required by Item 101(c)(xii) regarding
government regulation and Item 101(g) regarding foreign
operations.
Generating Revenue Through Advertising Sales, page 46
40. The prospectus suggests that you market your air time through
an
in-house advertising sales office. The disclosure at the top of
page
47 states that the majority of your advertising sales are sold
through advertising agencies. Please clarify.
Management, page 51
41. Please disclose when Mr. Yde became Chairman, Chief Executive
Officer and President of the company. In addition, please clarify
if
Mr. Yde continues to work for Milwaukee Traffic Network and
whether
he will devote substantially all of his time to Global Traffic
Network. In this regard, we note the disclosure on page 52 that
Mr.
Yde is compensated by Milwaukee Traffic Network from the
management
fee that Milwaukee Traffic Network receives from ATN. Provide
similar disclosure with respect to Mr. Arfman.
42. Please disclose Mr. Johander`s business activity from 2002-
2005.
43. We note the various entitles where Mr. Benson served. Please
briefly disclose the business for each.
Compensation of Executive Officers of ATN, page 52
44. Please disclose why you are presenting the compensation of
executive officers of ATN rather than the compensation of
executive
officers of the company.
Employment Agreements, page 53
45. Please include the terms of Mr. Cody`s employment agreement,
which we note will be entered into prior to effective date of this
offering. Please also file the agreement as an exhibit.
46. We note that Mr. Yde`s base salary is subject to a "one-time"
increase in the amount of $50,000 if certain conditions are met
and
that the board may grant him up to 500,000 shares if other
conditions
are met. Please disclose the time periods covered by these
provisions. In addition, in the description of the benefits Mr.
Yde
is to receive upon termination without cause, please clarify what
you
mean by "annual increase."
Security Ownership of Certain Beneficial Owners and Management,
page
56
47. To the extent not widely-held, please disclose who has voting
and
investment control over the shares beneficially owned by Metro
Networks Communications, Inc.
Certain Relationships and Related Transactions, page 57
48. Reference is made Note 3 on page F-9 of the financial
statements.
Please include these amounts in the related party transaction
section. See Item 404 of Regulation S-K.
49. We note from page F-11 of the financial statements that
815,397
shares were issued to a shareholder for a nominal amount. Please
identify this shareholder, the monetary value of the shares and
the
reason why they were issued for only a nominal amount.
50. Please disclose the material terms, including payment terms,
of
the Mutual Sales Representation Agreement and the Traffic Data
Agreement between CTN and Metro Networks. In addition, to provide
context to understanding the relationship between the company and
Metro Networks, please disclose the nature of Metro Networks`
business and when Metro Networks acquired its interest in the
company. Furthermore, disclose why CTN entered into the mutual
sales
representation agreement with an affiliate of Metro Networks when
CTN
has no plans to do business in the United States.
51. Please disclose how the exchange ratio was determined for the
exchange of ATN shares for the company`s shares and the aggregate
value of the shares and cash to be issued to ATN shareholders.
Disclose the extent of common ownership between the company and
ATN
prior to the exchange.
Financial Statements
Note 7 - Subsequent Events, page F-11
52. Disclose how you will account for the stock subscription
agreement to issue 815,397 shares for a nominal amount to an
existing
shareholder of ATN. Tell us the literature you considered in
determining the appropriate accounting treatment. Also discuss
this
transaction in MD&A and include the following disclosure:
* Identify the shareholder and disclose the issuance price of the
shares.
* Describe the business reasons for issuing stock at a nominal
price
* Disclose any other transactions with the shareholder.
* Describe how you will account for the stock issuance.
Note 2 - Summary of Significant Accounting Policies
d) Station compensation and reimbursement
53. Revise your disclosure to clarify if contractual station
commitments represent contractual future payments to radio and
television stations, or estimates of all costs to be incurred in
order to perform under these contracts.
h) Intangible assets, page F-19
54. Tell us the nature and amount of costs capitalized for
obtaining
aircraft licenses. Tell us how you applied the guidance in SFAS
142
in determining and evaluating the estimated useful life of the
licenses. Also describe the methodology and significant
assumptions
you use in determining the fair value of licenses for the annual
impairment test.
Back cover page of prospectus
55. We note the graphics that you intend to use on the inside back
cover page of the prospectus. It appears premature to list the
Canadian cities with equal prominence as the Australian cities, or
at
all, as you have not yet commenced operations or received any
revenues from your Canadian operations. Please revise or tell us
in
your response letter why you believe that your current
presentation
is appropriate. See See Item VIII of the March 31, 2001 quarterly
update to the Division of Corporation Finance`s Current Issues and
Rulemaking Projects outline, which is available on our website at
http://www.sec.gov/divisions/corpfin/cfcrq032001.htm.
Part II
Item 15. Recent Sales of Unregistered Securities, page II-2
56. Please disclose any consideration paid for the shares issued
in
May and November 2005.
57. We note that you intend to conduct a share exchange with the
ATN
shareholders while in registration. Supplementally provide us
with a
written legal analysis as to the availability of an exemption from
registration of this private offering, including a discussion of
why
it should not be integrated with this offering. We remind you
that
with limited exception, an issuer risks integration of a private
placement concurrent with a public offering. See Black Box Inc.
(June
26, 1990).
Closing Statement
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 response
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Please submit
the
response letter on EDGAR as correspondence. Detailed response
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
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 David Walz, Staff Accountant, at (202) 551-
3358
or Terry French, Accounting Branch Chief, at (202) 551-3828 if you
have questions regarding comments on the financial statements and
related matters. Please contact William Bennett, Staff Attorney,
at
(202) 551-3389, Kathleen Krebs, Special Counsel, at (202) 551-
3810,
or me at (202) 551-3810 with any other questions.
Sincerely,
Larry Spirgel
Assistant Director
cc: William M. Mower
Fax: (612) 672-8397
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Mr. William L. Yde III
Global Traffic Network, Inc.
January 13, 2006
P. 1