MAIL STOP 3561
February 24, 2006
Mr. Troy Mutter, Chief Executive Officer
Surge Enterprises, Inc.
205-340 Linden Lane
Victoria, British Columbia Canada V8V 4E9
Re: Surge Enterprises, Inc.
Amendment No. 2 to Registration Statement on Form SB-2
File No. 333-128995
Amendment Filed February 8, 2006
Dear Mr. Mutter:
We have reviewed your 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.
Description of Business, page 21
Software Sales, page 22
1. In your revised disclosures you indicate that your product
allows
your clients to use an internet search feature "including a search
on
Google using various keywords". Please explain this disclosure -
i.e., is Google integrated into your product, and if so, does the
company have an agreement with Google to use its services in this
manner?
2. We note that you plan to pay the amount owing Infectious
Communications for development of the second version of the
LinkSurge
software. Please explain how you plan to pay this amount, given
the
limited cash balance and the current allocation of this amount to
the
remaining offering expenses. We may have further comment.
3. We note the disclosure on page 26 regarding the risk that your
software may violate intellectual property rights. Please add a
risk
factor.
Management`s Discussion and Analysis, page 27
4. In the discussion of your results of operation for the six
month
period ended November 30, 2005 we note that you have changed the
reason for the subcontracting expense payable to Infectious
Communications. Previously you reported that the payment to
Infectious was for the development of a website on behalf of your
client, Logwood Development Co. Currently, you report that these
payments were for the development of the second version of your
software. Please advise us of why this change was made, and who
developed the www.westcaicosrserve.com site. In addition, please
report any subcontracting costs associated with this development.
Also, the prior amendment indicated for the three month period
ended
August 31, 2005 $2,811 were payable to Infectious Communications,
while the most recent amendment indicates for the nine months
ended
November 30, 2005 only $2,450 were payable to Infectious
Communications. Please reconcile.
5. We note your supplemental response to prior comment eight from
our
letter dated December 19, 2005 that there was a verbal
modification
to the payment terms of the agreement with Infectious
Communications.
We direct your attention to exhibit 10.5, which indicates that
this
agreement may only be changed or modified in writing and with the
consent of both parties. Please revise the disclosure in this
section to clearly state the terms of exhibit 10.5. Clarify
whether,
in light of this provision, the amount owed is currently
delinquent.
If so, add a risk factor.
Plan of Operations, page 31
6. Please provide a detailed plan of operations, including
milestones. State the time frame for commencing and completing
each
milestone. Disclose the estimated expenses associated with each
milestone and discuss the anticipated source(s) of funding. We
may
have further comment.
Referral Program, page33
7. We note the disclosure that your referral program is through
Share-it and that the terms of the referral arrangement are
disclosed
on page 23. However, it appears that Share-It provides two
separate
services. The disclosure on page 23 refers to Share-It`s
activities
in handling credit card transactions and delivering software to
the
purchaser. This is different from the disclosure on page 33,
which
indicates Share-It "manages the process by which parties enter
into
the referral program and the process of management and payment of
the
referring parties." We therefore reissue prior comment 17 from
our
letter dated December 19, 2005. Please clarify Share-It.com`s
role
in the referral program and disclose any fees payable to share-
it.com
in connection with their listing you as part of their referral
management services.
Capital Expenses and Sources of Funds, page 34
8. We reissue prior comment 27 from our letter dated December 19,
2005. Please explain the basis for the statement that you expect
your cash to satisfy your requirements for the next seven months.
We
note the remaining offering expenses and the amount owed to
Infectious Communications to be paid from the available cash. We
may
have further comment.
May 31, 2005 Year End Financial Statements
Notes to Consolidated Financial Statements
Note 2 - Significant Accounting Policies
g) Revenue Recognition, F-9
9. We have reviewed your response to comment 35 and your analysis
provided in your letter to us dated February 8, 2006. It appears
that you are recognizing the PCS revenue together with the initial
license fee pursuant to paragraph (59) of SOP 97-2. We noted from
your disclosure on pages 32 and 36 that you expect to incur
approximately $5,000 - $10,000 in fees for upgrades and
enhancements
to the software and that Mr. Mutter receives a salary for the
services he provides to the Company (including software support).
It
does not appear that you have accrued the estimated costs of
providing the services, including upgrades and enhancements as
required by paragraph (59) of SOP 97-2. Please clarify and
revise.
10. We have reviewed your response to comment 37 and noted the
change
in your accounting policy for recognizing revenue from website
development contracts. It appears from the disclosure that each
website development agreement contains several deliverable
elements
and you are recognizing revenue related to each deliverable
element
as it is delivered. Please provide an analysis supporting your
accounting treatment and clarify how your accounting is consistent
with EITF 00-21. Please advise and revise if necessary.
Exhibits
11. We reissue prior comment 38 from our letter dated December 19,
2005. Please file validly executed exhibits 10.7, 10.8 and 10.9.
Closing Comments
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 responses 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 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 this action as 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.
Any questions regarding the accounting comments may be
directed
to Angela Halac at (202) 551-3398. Questions on other disclosure
issues may be directed to Jay Williamson at (202) 551-3393.
Sincerely,
John Reynolds
Assistant Director
cc: William MacDonald
Fax: (604) 687-6314
Mr. Troy Mutter
Surge Enterprises, Inc.
February 24, 2006
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