Mail Stop 3561
March 23, 2006
Mr. David LaDuke, President
Sputnik, Inc.
650 Townsend Street, Suite 320
San Francisco, CA 94103
Re: Sputnik, Inc.
Amendment No. 6 to Registration Statement on
Form SB-2
Filed March 3, 2006
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.
Management`s Discussion and Analysis of Financial Condition and
Results of Operations, page 26
1. Please include a brief discussion of any private placements
conducted by the company during the periods presented in the
financial statements.
Liquidity and Capital Resources, page 27
2. On page 28, please explain the legal debt to DLA Piper Rudnick
Gray Cary LLC.
Executive Compensation, page 32
3. Please update the first paragraph.
4. Please discuss any compensation arrangements between the
company
and Mr. LaDuke for the current fiscal year.
December 31, 2005 Financial Statements
Statements of Operations, page 36
5. Your disclosure indicates you had non-cash compensation of
$6,500
for the year ended December 31, 2005; however your statements of
stockholders` equity (deficit) indicates $21,550 as shares issued
for
services. Please revise to clarify where the difference ($15,050)
is
reported (for example, cost of goods sold including non-cash
compensation of $15,050). Please advise and revise.
Statements of Stockholders` Equity (Deficit), page 37
6. We noted from your disclosure on page 47 (Item 26. Recent
Sales
of Unregistered Securities) that you issued 810,000 shares of
common
stock in a private offering in 2005. Please revise to
disaggregate
this transaction from the shares that were issued for the stock
payable. In this regard, revise Note 6 (Equity, page 42) to
provide
a discussion of this transaction.
Statements of Cash Flows, page 38
7. We noted several instances where your current presentation is
not
consistent GAAP (specifically SFAS 95). Please revise to
accurately
reflect the following items:
* It appears that the issuance of stock for services (i.e.
adjustments to reconcile net income to net cash provided by
operating
activities) should be $21,550 and $682,385 for 2005 and 2004,
respectively, considering those amounts appear to represent non-
cash
compensation charges that were reported in your statement of
operations. Please advise or revise.
* It appears the change in stock payable (i.e. the amount shown in
changes in working capital) should be excluded from operating
activities, considering this was a non-cash transaction in a
working
capital account. Please revise to present this activity as a
supplemental disclosure of non-cash financing activities.
* It appears that common stock (in cash flows from financing
activities) should be $81,000 for the year ended December 31,
2005;
representing the value of the common shares issued in your 2005
private offering. Please advise or revise.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
Revenue Recognition, page 39
8. We have read your response to comment 8 and it does not appear
to
address our comment as it was issued in the letter dated February
10,
2006 and previous comment letters. Your response indicates that
each
of the components you sell is recognized individually; however, it
appears to us that the components sold are part of a bundled
package.
It does not appear that your revenue recognition policy is being
recorded in accordance with GAAP (i.e. SOP 97-2, specifically
paragraphs (9) through (14) and paragraph (31)). Accordingly, you
should revise your financial statements and revenue recognition
policy to be consistent with GAAP.
Allowance for Doubtful Accounts, page 39
9. We have reviewed your response to comment 9 and it appears that
historically your refunds range from 3 to 4% related to the 30 day
money back guarantee; however, your policy is is to record these
refunds once they reach a threshold of 5%. Please provide a
detailed
response addressing how you have assessed that this quantitative
threshold range meets the requirements of assessing materiality
under
SAB No. 99. Please advise and revise.
10. In addition, please revise your revenue recognition policy to
clearly disclose your policy for refunds (i.e. threshold of 5%).
Please be sure to clarify if your 5% threshold relates to refunds
that meet and exceed 5% of revenue or 5% of income from
operations,
etc.; your response is not clear to this matter.
11. We have reviewed your response to comment 10 and it does not
appear to address our comment as it was issued. It appears that
your
accounting treatment for money back guarantees (i.e. a component
of
bad debt expense) is inconsistent with GAAP. Your provision for
money back guarantees should be recorded as a reduction to revenue
(see SFAS 48, paragraph 7). Please revise.
Note 6 - Equity, page 42
12. Please revise to include a discussion of the 150,500 shares of
common stock that were issued in April 2005 to seven individuals
in
consideration for consulting services provided, as disclosed on
page
47 (Item 26. Recent Sales of Unregistered Securities).
Item 26. Recent Sales of Unregistered Securities
13. In regards to the 65,000 shares of stock that were issued to
two
consultants in December 2005, please disclose the date in which
the
securities were sold to the consultants. See Item 701 of
Regulation
S-B.
* * * * *
As appropriate, please amend your registration statement in
response to these comments. 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.
March 23, 2006
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