**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-KSB**


þ
            
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
                1934.




**For
      the fiscal year ended December 31, 2006**


o
            
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934.





**Commission
      file number:** **333-126158**




**SPUTNIK,
      INC.**


(Exact
      name of small business issuer as specified in its charter)


**Nevada**
            
            **52-2348956**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Identification No.)





**650
                5****th****Street, Suite 303, San Francisco, CA**
            
            **94107**(Address
                of principal executive offices)
            
            (Zip
                Code)




**(415)
      355-9500**


(Issuer’s
      telephone number, including area code)





Securities
      registered pursuant to Section 12(b) of the Exchange Act:


o




Securities
      registered pursuant to Section 12(g) of the Exchange Act:


Common
      Stock, $0.001 par value


(Title
      of
      Class)





Check
      whether the issuer is not required to file reports pursuant to Section 13
      or Section 15(d) of the Exchange Act. o.





Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
      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 o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB o.





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x





State
      issuer’s revenue for its most recent fiscal year: $489,394





The
      aggregate market value of the Company’s shares of voting and non-voting stock
      held by non-affiliates of the Company at March 15, 2007, computed by reference
      to the $.65 per-share price set in the Company’s most recent prospectus
      terminating February 10, 2007, was $2,934,047. [No established trading market
      for the Company’s common stock has developed and management believes that the
      price of the shares may not accurately reflect the value of the Company.]





The
      number of shares outstanding of the issuer’s common equity as of March 31, 2007
      was 14,763,919.





Documents
      incorporated by reference:


**None**





Transitional
      Small Business Disclosure Format:       o Yes  x No










**TABLE
      OF CONTENTS**


PART
                  I
              
              
              PageITEM
                  1.
              
              DESCRIPTION
                  OF BUSINESS
              2ITEM
                  2.
              
              DESCRIPTION
                  OF PROPERTY
              6ITEM
                  3.
              
              LEGAL
                  PROCEEDINGS
              6ITEM
                  4.
              
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              6PART
                  IIITEM
                  5.
              
              MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
              6ITEM
                  6.
              
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
              8ITEM
                  7.
              
              FINANCIAL
                  STATEMENTS
              13ITEM
                  8.
              
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              14ITEM 8A.
              
              CONTROLS
                  AND PROCEDURES
              14ITEM 8B.
              
              OTHER
                  INFORMATION
              14PART
                  IIIITEM
                  9.
              
              DIRECTORS,
                  EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSON AND CORPORATE GOVERNANCE;
                  COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
              14ITEM
                  10.
              
              EXECUTIVE
                  COMPENSATION
              17ITEM
                  11.
              
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              17ITEM
                  12.
              
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
              19ITEM
                  13.
              
              EXHIBITS
              19ITEM
                  14.
              
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              19SIGNATURES
              
              
              20Certification
                  Pursuant to Rule 13a-14(a) or 15d-14(a)Certification
                  Pursuant to Rule 13a-14(a) or 15d-14(a)Certification
                  Pursuant to Section 906







**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**




Information
      included or incorporated by reference in this filing may contain forward-looking
      statements.  This information may involve known and unknown risks,
      uncertainties and other factors which may cause our actual results, performance
      or achievements to be materially different from the future results, performance
      or achievements expressed or implied by any forward-looking statements.
 Forward-looking statements, which involve assumptions and describe our
      future plans, strategies and expectations, are generally identifiable by use
      of
      the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend” or “project” or the negative of these words or other
      variations on these words or comparable terminology.





This
      filing contains forward-looking statements, including statements regarding,
      among other things, (a) our projected sales and profitability, (b) our growth
      strategies, (c) anticipated trends in our industry, (d) our future financing
      plans and (e) our anticipated needs for working capital.  These statements
      may be found under “Management’s Discussion and Analysis or Plan of Operations”
and “Description of Business,” as well as in this filing generally.  Actual
      events or results may differ materially from those discussed in forward-looking
      statements as a result of various factors, including, without limitation, the
      risks outlined under “Risk
      Factors” and matters described in this filing generally.  In light of these
      risks and uncertainties, there can be no assurance that the forward-looking
      statements contained in this filing will in fact occur.





**ADDITIONAL
      INFORMATION**




We
      are subject to the information and periodic reporting requirements of the
      Securities Exchange Act of 1934, as amended (the “Exchange Act”) and in
      accordance with the Exchange Act, we file annual, quarterly and special reports,
      and other information with the Securities and Exchange Commission. These
      periodic reports, and other information are available for inspection and copying
      at the regional offices, public reference facilities and website of the
      Securities and Exchange Commission referred to above.





Statements
      contained in this report about the contents of any contract or any other
      document that is filed as an exhibit are not necessarily complete, and we refer
      you to the full text of the contract or other document filed as an exhibit.
      A
      copy of annual, quarterly and special reports and related exhibits and schedules
      may be inspected without charge at the Public Reference Room maintained by
      the
      Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C.
      20549, and copies of such reports may be obtained from the Securities and
      Exchange Commission upon payment of the prescribed fee. Information regarding
      the operation of the Public Reference Room may be obtained by calling the
      Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
      Exchange Commission maintains a web site that contains reports, proxy and
      information statements, and other information regarding registrants that file
      electronically with the SEC. The address of the site is www.sec.gov .





1





**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**





**Organization**





Sputnik,
      Inc. was incorporated in Delaware on September 27, 2001.  On February 10,
      2005, we filed Articles of Conversion and new articles of incorporation in
      Nevada and became a Nevada corporation due to lower annual corporate filing
      fees.





There
      have been no reclassifications, mergers, consolidations or purchases or sales
      of
      significant amounts of assets not in the ordinary course of our business in
      the
      past three years. All of our business developments in the past three years
      are
      described below.





Our
      mailing address is 650 5th Street, Suite 303, San Francisco, CA 94107, our
      telephone number is (415) 355-9500, and our fax number is (415) 354-3342.
 Our website is www.sputnik.com ,
      and
      contains information which is not a part of this filing.





**History**





Since
      our
      inception, we have engaged in the following activities:


·
            Development
                of our business plan and fundraising  ·
            Development
                of our software  ·
            Sourcing
                of hardware  ·
            Establishing
                our website, key marketing functions and the company’s on-line
                store  ·
            Establishing
                our customer support services  ·
            Selling
                our product




Under
      our
      agreements with software developers, we have the rights to the software we
      have
      had developed for our business. We are now initiating formal legal steps to
      secure patent rights related to our proprietary software. If we are not
      successful in securing patent rights for our innovations, our competitors could
      copy our technology, which, in turn could result in our revenues being
      reduced.





Our
      customers are service providers and businesses that want to offer their own,
      proprietary wireless internet access services to their customers. These networks
      are commonly referred to as Wi-Fi networks. However, our customers do not want
      to give the general public unrestricted access to these networks. Further,
      they
      want the ability to generate revenues from the operation of their
      networks.





Sputnik
      provides software that gives service providers and businesses the ability to
      control and limit access to their Wi-Fi networks. It also provides them the
      ability to generate revenues from the operation of their networks as follows:


·
            Our
                software can be configured by these service providers and businesses
                to
                require users to pay a fee for wireless internet access.




2


·
            It
                can alternatively be configured to require users to view service
                provider
                or business marketing information or advertising before the users
                can
                obtain free access to the networks.





Our
      software further enables service providers to monitor the status of their
      networks from anywhere over the internet, to remotely control wireless access
      points on their network, and to remotely upgrade software running on these
      access points.





Sputnik
      software has been developed by independent contractors hired by us on a project
      basis, and by Sputnik employees. Based upon our agreements with the contractors
      and employees, intellectual property rights to the software are owned
      exclusively by Sputnik.





The
      principal terms of the contractor agreements are as follows:





·
            The
                contractor is given one or more specific project
                assignments.


·
            The
                contractor is paid a specified fee upon completion of a specific
                project
                assignment.


·
            The
                relationship between the parties is that of an independent contractor,
                and
                contractor will not be entitled to any of the benefits which we may
                make
                available to our employees.


·
            All
                intellectual property rights associated with the project work are
                irrevocably assigned to us.


·
            All
                information obtained from us in working on the project is
                confidential.


·
            During
                the project, the contractor will not accept work, enter into a contract,
                or accept an obligation, inconsistent or incompatible with Contractor’s
                obligations.


·
            Each
                party has certain termination rights, but the agreements survive
                any
                termination.





Sputnik
      additionally provides Wi-Fi access point hardware and accessories, such as
      antennas and power supplies. We purchase standard Wi-Fi hardware components
      from
      original equipment manufacturers, on an as-needed basis. We then configure
      these
      components to work with our software. There are many suppliers of the standard
      Wi-Fi hardware that we use. Our current suppliers include Buffalo Technology;
      Linksys, a division of Cisco Systems, Inc.; ValuePoint Networks; and
      Zcomax Technologies.





Wi-Fi
      access points and related equipment that we resell
      operate in unlicensed radio frequencies.  The wireless access
      points that we resell are subject to Part 15 of Title 47 of the Code
      of Federal Communications Commission regulations that apply to
      the use of low- power, unlicensed wireless devices. We require
      that the equipment we purchase from original equipment
      manufacturers for resale fully complies with these regulations. If at
      some point in the future Sputnik builds proprietary Wi-Fi access
      point  hardware, we will take  all necessary steps to  comply
      with these  regulations. Sputnik software technology works with
      networks operating in both licensed and unlicensed radio frequencies.
      We are not subject to any other federal, state or local regulations, and we
      do not anticipate that any probable changes to these regulations will
      materially affect us.





Based
      on
      recent trends, we believe that there will be increased demand for public-access
      Wi-Fi services, enabling people to wirelessly access the Internet from public
      venues. JiWire, an online hotspot directory (www.jiwire.com), currently lists
      142,355 Wi-Fi “hotspots” in 133 countries. Correspondingly, Wi-Fi hardware sales
      should continue to experience growth. According to Infonetics Research, Inc.
      (“Infonetics”), an international market research and consulting firm covering
      the data networking and telecommunications industries in North America, Europe,
      and Asia (www.infonetics.com), over 84 million Wi-Fi hardware units are forecast
      to ship in 2007,  and Wi-Fi hardware revenue is forecast to top $3.7
      billion in 2007.




3




**Marketing**





Currently,
      Sputnik software and hardware is sold through our  online  store at www.sputnik.com .
      Sputnik
      customers include  Internet service  providers, wireless Internet
      service providers,  network system  integrators, and hotspot
      providers. These  customers purchase and install, at their  expense,
      Sputnik Wi-Fi technology in  businesses and public venues  such as
      hotels, airports, resorts,  RV parks, commercial and  residential real
      estate, cafes, and  marinas. We reach these customers through public
      relations and  paid online advertising on Google. We do not install our
      products ourselves. We do not sell directly to the venues described
      above.





In
      the
      year ending December 31, 2006, we had no customers who accounted for more than
      10% of our revenues. In the year ending December 31, 2005, Didji-WiFi of New
      South Wales, Australia purchased a total of $88,789 worth of products and
      services from Sputnik, and we recognized $ 81,914 in
      revenues. That amount corresponded to 14.7% of our annual revenues for the
      year
      ending December 31, 2005.





We
      license our software on a per wireless access point basis. Software license
      fees
      start at $299 per access point and decline based on volume. For example, the
      per
      wireless access point license fee if purchasing 10 licenses at once is $169.90.
      In addition we license add-on software modules that enhance the capabilities
      of
      our core software on a per-server basis. These add-on software modules cost
      between $299 and $499. There are no volume discounts for add-on software
      modules.





We
      also
      provide ongoing services in the form of monthly and annual software
      subscriptions on a per wireless access point basis. Software subscription fees
      per access point range from $19.95 to $49.95 monthly, or $199 to $499 annually,
      depending upon level of service. Volume discount schedules for software
      subscriptions for up to 10 wireless access points are available.





Our
      hardware ranges from $89 to $539 per access point depending upon the features
      the customer selects, $2,699 for a server pre-loaded with Sputnik software,
      $99
      to $169 for antennas depending upon the features the customer selects, and
      $69
      for power accessories. We do not offer volume discounts on
      hardware.





In
      addition, we offer the following on-going services: online and phone-based
      technical support services, and both online and in-person training at our
      facilities. Sputnik offers three levels of technical support:





·
            **Free
                support**.
                Free installation support is provided for 90 days from date of purchase,
                and is available by email only.






4


·
            **Priority
                support**.
                Each support incident costs $99 for up to 30 initial minutes of
                troubleshooting, and $50 for each additional 15 minutes of support
                or any
                portion thereof.


·
            **Urgent
                support**.
                Each support incident costs $199 for up to 60 initial minutes of
                troubleshooting, and $50 for each additional 15 minutes of support
                or any
                portion thereof.





Competition





Our
      market, business software for Wi-Fi networks, is new and dynamic.  Downward
      price pressure of managed Wi-Fi access software and services due to the increase
      of free, open and unmanaged Wi-Fi networks, competition from Wi-Fi technology
      providers, and competition from cellular broadband alternatives could reduce
      our
      market potential.  Additionally, new products may be developed in the
      future that will supplant Wi-Fi networks and render them obsolete.  If the
      price of, or demand for, managed Wi-Fi access software and services is depressed
      downward, or Wi-Fi networks become obsolete, we could lose client market,
      resulting in insufficient demand for our software.





Many
      of
      our current and potential competitors, including Cisco Systems, Inc. (NASDAQ:
      CSCO), Linksys (a division of Cisco Systems), Netgear Inc. (NASDAQ: NTGR),
      D-Link Corporation, (Taiwan: 2332.tw), and a number of start-up companies
      currently operate in the Wi-Fi market. They have significantly greater name
      recognition, better access to capital, more established distribution networks
      and relationships with customers.





Sputnik
      is a much smaller company than our larger competitors. Our ability to compete
      successfully will depend on a number of factors both within and outside our
      control, including:





·
            product
                innovation;


·
            product
                quality and performance;


·
            customer
                service and support;


·
            the
                experience of our sales, marketing and service professionals;


·
            rapid
                development of new products and features;


·
            price;
                and


·
            product
                and policy decisions announced by competitors.





We
      intend
      to compete by focusing on developing and marketing affordable, easy-to-use
      software and services that enable our customers to:





·
            charge
                for Wi-Fi access; and


·
            offer
                free Wi-Fi services supported by branding or
                advertising.





Our
      software currently allows our customers to provide these services.





Patents,
      Trademarks, Copyrights and Licenses





“Sputnik”
      is our registered trademark in International Class 009, specifically for
      computer hardware and software for use in providing Internet
      access.





5




Research
      and Development





During
      each of our fiscal years ending December 31, 2006 and 2005 we have expensed
      $163,204 and $94,900, respectively, for research and development.





Employees





As
      of
      December 31, 2006 we had seven full-time employees. All other persons who
      provide services to us, for example legal, accounting, public relations, and
      software development, are independent contractors.




**ITEM
      2. DESCRIPTION OF PROPERTIES**





We
      currently rent office space from Townsend Associates, LLC, a California Limited
      Liability Company , at 650 5th Street, Suite 303, San Francisco, CA 94107.
       The rental cost is $2,933 per month.  We signed a three-year lease
      effective January 1, 2007 for the office space.   Our monthly rent
      will increase to $3,227 on January 1, 2008 and to $3,520 on January 1,
      2009.





We
      do not
      anticipate any significant difficulties in renewing any facility leases or
      in
      leasing alternative or additional space, if required.




**ITEM
      3. LEGAL PROCEEDINGS**





There
      are
      no pending or threatened lawsuits against us.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





We
      did
      not conduct any meetings of stockholders during 2006.




**PART
      II**




**ITEM
      5.** **MARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**




Market
      Information





There
      is
      no established public trading market for our securities and a regular trading
      market may not develop, or if developed, may not be sustained.  A
      shareholder in all likelihood, therefore, will not be able to resell his or
      her
      securities should he or she desire to do so when eligible for public resales.
       Furthermore, it is unlikely that a lending institution will accept our
      securities as pledged collateral for loans unless a regular trading market
      develops.  We have no plans, proposals, arrangements, or understandings
      with any person with regard to the development of a trading market in any of
      our
      securities.





6




Our
      stock
      is not currently qualified for quotation on the over-the-counter bulletin
      board.





Penny
      Stock Considerations





Our
      shares will be “penny stocks” as that term is generally defined in the
      Securities Exchange Act of 1934 to mean equity securities with a price of less
      than $5.00.  Our shares thus will be subject to rules that impose sales
      practice and disclosure requirements on broker-dealers who engage in certain
      transactions involving a penny stock.





Under
      the
      penny stock regulations, a broker-dealer selling a penny stock to anyone other
      than an established customer or accredited investor must make a special
      suitability determination regarding the purchaser and must receive the
      purchaser’s written consent to the transaction prior to the sale, unless the
      broker-dealer is otherwise exempt.  Generally, an individual with a net
      worth in excess of $1,000,000, or annual income exceeding $100,000 individually
      or $300,000 together with his or her spouse, is considered an accredited
      investor.  In addition, under the penny stock regulations the broker-dealer
      is required to:




·
            Deliver,
                prior to any transaction involving a penny stock, a disclosure schedule
                prepared by the Securities and Exchange Commissions relating to the
                penny
                stock market, unless the broker-dealer or the transaction is otherwise
                exempt;





·
            Disclose
                commissions payable to the broker-dealer and our registered
                representatives and current bid and offer quotations for the
                securities;





·
            Send
                monthly statements disclosing recent price information pertaining
                to the
                penny stock held in a customer’s account, the account’s value and
                information regarding the limited market in penny stocks;
                and·
            Make
                a special written determination that the penny stock is a suitable
                investment for the purchaser and receive the purchaser’s written agreement
                to the transaction, prior to conducting any penny stock transaction
                in the
                customer’s account.





Because
      of these regulations, broker-dealers may encounter difficulties in their attempt
      to sell shares of our common stock, which may affect the ability of selling
      shareholders or other holders to sell their shares in the secondary market
      and
      have the effect of reducing the level of trading activity in the secondary
      market.  These additional sales practice and disclosure requirements could
      impede the sale of our securities, if our securities become publicly traded.
       In addition, the liquidity for our securities may be decreased, with a
      corresponding decrease in the price of our securities.  Our shares in all
      probability will be subject to such penny stock rules and our shareholders
      will,
      in all likelihood, find it difficult to sell their securities.





Holders





As
      of
      March 15, 2007, we had 96 shareholders of record of our common
      stock.





7




Dividends





We
      have
      not declared any cash dividends on our common stock since our inception and
      do
      not anticipate paying such dividends in the foreseeable future.  We plan to
      retain any future earnings for use in our business.  Any decisions as to
      future payments of dividends will depend on our earnings and financial position
      and such other facts, as the Board of Directors deems relevant.





Reports
      to Shareholders





As
      a
      result of this offering, we will become subject to the information and reporting
      requirements of the Securities Exchange Act of 1934 and will file periodic
      reports, proxy statements, and other information with the Securities and
      Exchange Commission.   We will voluntarily send an annual report to
      shareholders containing audited financial statements.





Where
      You Can Find Additional Information





We
      have
      filed with the Securities and Exchange Commission a registration statement
      on
      Form SB-2 statement.   The registration statement and exhibits may be
      inspected, without charge, and copies may be obtained at prescribed rates,
      at
      the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549.
 The public may obtain information on the operation of the Public Reference
      Room by calling the SEC at 1-800-SEC-0330.  The registration statement and
      other information filed with the SEC are also available at the web site
      maintained by the SEC at http://www.sec.gov.





**ITEM
      6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





*The
      following discussion should be read in conjunction with our Financial
      Statements, including the related notes thereto, and other financial information
      included herein. The information in this report includes forward-looking
      statements. In addition, past operating results are not necessarily indicative
      of the results to be expected for future periods.*





**Overview**





Our
      customers are service providers and businesses that want to offer their own,
      proprietary wireless internet access services to their customers. These networks
      are commonly referred to as Wi-Fi networks. However, our customers do not want
      to give the general public unrestricted access to these networks. Further,
      they
      want the ability to be able to generate revenues from the operation of their
      networks.





Sputnik
      provides software that gives service providers and businesses the ability to
      control and limit access to their Wi-Fi networks. It also provides them the
      ability to generate revenues from the operation of their networks.





8




Sputnik
      additionally provides Wi-Fi access point hardware that is pre-configured to
      work
      with Sputnik software, and accessories such as antennas and power supplies.





**Summary
      of Significant Accounting Policies**





Nature
      of business. Sputnik,
      Inc. was incorporated in Delaware on September 27, 2001. Sputnik provides
      software for public Wi-Fi services.





Use
      of
      Estimates. In
      preparing financial statements, management makes estimates and assumptions
      that
      affect the reported amounts of assets and liabilities in the balance sheet
      and
      revenues and expenses in the statement of operations, and the disclosure of
      contingent assets and liabilities. Actual results could differ from those
      estimates.





Cash
      and Cash Equivalents. For
      purposes of the statement of cash flows, Sputnik considers all highly liquid
      investments purchased with an original maturity of three months or less to
      be
      cash equivalents.





Allowance
      for Doubtful Accounts .
      Bad
      debt expense, which includes expenses for money back guarantees, is recognized
      based on management’s estimate of likely losses per year, past experience and an
      estimate of current year uncollectible amounts. There was no allowance for
      doubtful accounts as of December 31, 2006. The Company’s policy is to establish
      an allowance if and when returns exceed 5% of total revenue.





Inventories .
      Inventory that consists of finished goods to be sold to customers that use
      them
      to build Sputnik wireless networks is stated at the lower of average cost or
      market.





Property
      and Equipment is valued at cost .
      Additions are capitalized and maintenance and repairs are charged to expense
      as
      incurred. Gains and losses on dispositions of equipment are reflected in
      operations. Depreciation is provided using the straight-line method over the
      estimated five-year useful lives of the assets.





Impairment
      of Long-Lived Assets .
      Sputnik
      reviews the carrying value of its long-lived assets annually or whenever events
      or changes in circumstances indicate that the historical cost-carrying value
      of
      an asset may no longer be appropriate. Sputnik assesses recoverability of the
      carrying value of the asset by estimating the future net cash flows expected
      to
      result from the asset, including eventual disposition. If the future net cash
      flows are less than the carrying value of the asset, an impairment loss is
      recorded equal to the difference between the asset’s carrying value and fair
      value.





Stock
      Compensation .
      Sputnik
      has issued stock as compensation to employees and outside consultants for
      services rendered. These shares are recorded at the fair value of the stock
      as
      measured on the date or dates the services were rendered. No shares were issued
      for compensation in 2006.





On
      January 1, 2006, Sputnik adopted SFAS No. 123 (R), “Share-Based Payment.” SFAS
      123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R)
      requires all share-based payments to employees, including grants of employee
      stock options, to be recognized in the financial statements based on their
      fair
      values. The pro forma disclosures previously permitted under SFAS 123 are no
      longer an alternative to financial statement recognition. Sputnik adopted SFAS
      123(R) using the modified prospective method which requires the application
      of
      the accounting standard as of January 1, 2006. The financial statements as
      of
      and for the year ended December 31, 2006 reflect the impact of adopting SFAS
      123(R). In accordance with the modified prospective method, the financial
      statements for prior periods have not been restated to reflect, and do not
      include, the impact of SFAS 123(R). Since Sputnik has not granted options during
      the year ended December 31, 2006 or during any period prior to January 1, 2006,
      the adoption of SFAS 123(R) had no impact.





9




Income
      taxes .
      Sputnik
      recognizes deferred tax assets and liabilities based on differences between
      the
      financial reporting and tax bases of assets and liabilities using the enacted
      tax rates and laws that are expected to be in effect when the differences are
      expected to be recovered. Sputnik provides a valuation allowance for deferred
      tax assets for which it does not consider realization of such assets to be
      more
      likely than not.





Basic
      and diluted net loss per share. Basic
      and
      diluted net loss per share are computed by dividing the net loss by the weighted
      average number of shares of common stock and common stock equivalents
      outstanding during the years. Common stock equivalents consist of common stock
      issuable under Sputnik’s stock compensation plan for its employees and
      consultants. Common stock equivalents are not included in diluted loss per
      share
      calculations because they would be anti-dilutive.





Recently
      issued accounting pronouncements .
      Sputnik
      does not expect the adoption of recently issued accounting pronouncements to
      have a significant impact on its results of operations, financial position
      or
      cash flow.





**Revenue
      Recognition**





Due
      to
      the nature of our business, the majority of Sputnik’s revenue is recognized
      either upon shipping of product or delivery of service. Less
      than
      2% of our overall revenue is deferred, as it is associated with annual software
      subscriptions ,
      recognized over the period of the subscription.





**Results
      of Operations**




**Comparison
      of the Year ended December 31, 2006 to the Year ended December 31,
      2005**





Revenue
      for 2006 was $ 489, 394,
      which was a decrease of $68,121 from our revenue for 2005, which was $557,515.
      Our revenue decreased as a result of lower sales of hardware and software,
      combined with higher sales of software subscriptions which are recognized
      monthly over the period of the subscription. In both years our revenue streams
      included: hardware (Wi-Fi access points, antennas, and accessories), proprietary
      Sputnik software, software subscriptions (SputnikNet setup, monthly, and annual
      fees), and services (training, support incidents, and consulting). In 2006,
      revenues broke down as follows: 45% hardware, 22% software, 32% software
      subscriptions, and 1% services. In 2005, revenues broke down as follows: 70%
      hardware, 20% software, 8% software subscriptions, and 2% services. This shift
      in our revenue mix occurred as we
      put
      more emphasis on selling our software running on third-party Wi-Fi hardware. Profit
      margins on the resale of hardware ranges from 20% for antennas to 40% for Wi-Fi
      access points.




10




Our
      cost
      of goods sold decreased $107,990, to $169,574, for 2006, as compared to cost
      of
      goods sold of $277,564 for 2005.  Our cost of goods sold decreased as a
      direct result of lower sales of our hardware products.





We
      had
      gross profit of $319,820 for 2006, which was an increase of $39,869 when
      compared to our gross profit for 2005, which was $279,951. As a result of our
      focus on selling our software running on third-party Wi-Fi hardware our gross
      margin increased from 50% for 2005 to 65% for 2006.





Our
      operating expenses increased $168,699, to $522,929 for 2006, as compared to
      operating expenses of $354,230 for 2005. Non-cash
      compensation decreased by $21,550 from $21,550 in 2005 to $0 in 2006. The
      decrease in non-cash compensation was due to the fact that we did not issue
      stock to consultants in 2006. Our operating expenses for 2006 included $353,021
      in general and administrative costs, a $96,106 increase over general and
      administrative expense of $256,915 for 2005; research and development expense
      of
      $163,204, an increase of $68,304 over research and development expense of
      $94,900 for 2005; and depreciation and amortization expense of $6,704 which
      was
      an increase of $4,289 over depreciation and amortization expense of $2,415
      for
      2005. Our R&D expenditures are directed at adding new features and
      capabilities to our software products. The increase in operating expenses was
      primarily due to increased expenses related to payroll, but also included
      non-material increases in our rent, increased general office expenses due to
      increases in our staff, hosting fees in connection with the growth of our
      software subscription service, and increases in our advertising and public
      relations expenses. Other income and losses included an increase in interest
      expense of $1,494, to $2,758 for 2006, as compared to interest expense of $1,264
      for 2005; interest income of $187 for 2006, which was an increase of $51 over
      interest income in 2005, which was $136. In 2005 we had income of $61,000 from
      a
      legal settlement; this was not a source of income for us in 2006.





We
      had a
      net loss of $205,680 for 2006, which represented an increase of $191,273 from
      our net loss for 2005, which was $14,407.





**Liquidity
      and Capital Resources**





We
      had
      total assets of $53,685 as of December 31, 2006, which consisted of total
      current assets of $30,480, which included cash of $7,927, accounts receivable
      of
      $4,599, inventory of $10,053 prepaid expenses of $7,901, property and equipment
      of $14,638, and deposit of $8,567.





We
      had
      total liabilities of $65,410 as of December 31, 2006, which consisted solely
      of
      current liabilities and included $45,940 of accounts payable, and $19,470 of
      other current liabilities.  Our bank revolving line of credit had a balance
      of $0 at December 31, 2006 and is personally secured by the assets of our
      Directors, David LaDuke and Arthur Tyde. It has a maximum borrowing amount
      of
      $107,000, bearing interest at a variable annual rate which was 11% as of
      December 31, 2006.




11




We
      had an
      accumulated deficit of $1,100,236, as of December 31, 2006.





We
      had
      net cash used in operating activities of ($195,969) for the year ended December
      31, 2006, which consisted of net loss of ($205,680), depreciation of $6,704,
      changes in accounts receivable of ($2,779), inventory of $9,672, prepaid
      expenses of ($2,823), deposit of ($5,867), and accounts payable and accrued
      liabilities of $4,805.





We
      had
      net cash used by investing activities of ($ 12, 942)
      for
      the year ended December 31, 2006, which consisted of purchase of property and
      equipment of ($12,942).





We
      had
      $190,055 in net cash provided by financing activities for the year ended
      December 31, 2006, which consisted of common stock issued for cash.





From
      August 1, 2006 to December 31, 2006, we sold 292,393 shares of our Common Stock
      in a  best efforts, no minimum, direct public offering, without any
      involvement of underwriters or broker-dealers, to 14 investors in consideration
      for an  aggregate amount of $190,056. The price per share was $.65 in
      this offering. On October 10, 2006 we filed a prospectus supplement to
      extend the offering until February 10, 2007. As of March 15, 2007 these shares
      were not yet issued.





From
      January 1, 2007 to February 10, 2007, we sold 957,607 shares of our Common
      Stock
      in the same offering, without any involvement of underwriters or broker-dealers,
      to 25 investors in consideration for an  aggregate amount of $622,445. The
      offering closed on February 10, 2007. The price per share was $.65 in
      this offering. As of March 31,
      2007,
      all shares have been issued.





Historically
      our cash has been provided by collection of sales revenues and short-term bank
      line of credit bearing an interest rate of 11% at December 31, 2006. Other
      than
      our commitment to pay off our debt for  legal services to DLA Piper Rudnick
      Gray Cary, LLC, Sputnik’s  original law firm, which is $17,337, and is now
      payable, there are no major outstanding cash commitments. As we expand, we
      may
      need to make sizeable cash commitments to secure inventory, and the impact
      of
      this potential trend on our business is uncertain. Our mix of capital resources
      has shifted from short-term debt to equity-based financing as we became a public
      company, which caused dilution of current shareholders. Because Sputnik keeps
      minimal inventories and receivables, the predominant component of our liquidity
      is our cash on hand. We also anticipate that continued growth of our company
      will require a substantial increase in capital needs. We believe that we can
      better serve these future capital requirements by issuing equity.





Our
      ability to continue as a going concern is dependent upon our ability to
      successfully accomplish our business plans and secure additional funding sources
      and attaining profitable operations.  We do not have any commitments or
      identified sources of additional capital from third parties or from our
      officers, directors or majority shareholders. Additional financing may not
      be
      available to us on favorable terms, if at all.





12




Accordingly,
      our accountants have indicated there is substantial doubt about our ability
      to
      continue as a going concern over the next twelve months. Revenues have not
      been
      sufficient to cover operating costs and to allow us to continue as a going
      concern. Our poor financial condition could inhibit our ability to continue
      in
      business or achieve our business plan.




**ITEM
      7. FINANCIAL STATEMENTS**





The
      information required by this Item 7 is incorporated by reference to the Index
      to
      Financial Statements beginning at page F-1 of this Form 10-KSB.





13


**INDEX
      TO FINANCIAL STATEMENTS**




**SPUTNIK,
      INC.**


**INDEX
      TO FINANCIAL STATEMENTS**




Page**REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
            F-2**FINANCIAL
                STATEMENTS**Balance
                Sheet as of December 31, 2006
            F-3Statements
                of Operations for the years ended December 31, 2006 and
                2005
            F-4Statements
                of Stockholders’ Deficit for the years ended December 31, 2006 and
                2005
            F-5Statements
                of Cash Flows for the years ended December 31, 2006 and
                2005
            F-6Notes
                to Financial Statements
            F-7





F-1




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors


Sputnik,
      Inc.


San
      Francisco, California





We
      have
      audited the accompanying balance sheet of Sputnik, Inc. as of December 31,
      2006,
      and the related statements of operations, stockholders’ deficit and of cash
      flows for each of the two years then ended. These financial statements are
      the
      responsibility of the management of Sputnik, Inc. Our responsibility is to
      express an opinion on these financial statements based on our
      audits.





We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of Sputnik, Inc. as of December 31,
      2006, and the results of its operations and its cash flows for each of the
      two
      years then ended in conformity with accounting principles generally accepted
      in
      the United States of America.





The
      accompanying financial statements have been prepared assuming that Sputnik
      will
      continue as a going concern. As shown in the financial statements, Sputnik
      suffered recurring losses from operations and has a working capital deficiency
      at December 31, 2006. These factors and others raise substantial doubt about
      Sputnik’s ability to continue as a going concern. Management’s plans in regard
      to these matters are described in Note 2 to the financial statements. The
      financial statements do not include any adjustments relating to the
      recoverability and classification of recorded assets, or to the amounts and
      classification of liabilities that might be necessary in the event Sputnik
      cannot continue in existence.







MALONE
      & BAILEY, PC


www.malone-bailey.com


Houston,
      Texas





April
      12,
      2007





F-2


SPUTNIK,
      INC.


BALANCE
      SHEET


December
      31, 2006





ASSETSCurrent
                AssetsCash
            
            $
            7,927Accounts
                receivable
            
            
            4,599Inventory
            
            
            10,053Prepaid
                expenses
            
            
            7,901Total
                Current Assets
            
            
            30,480Property
                and equipment, net of accumulated depreciation of $9,386
            
            
            14,638Deposit
            
            
            8,567TOTAL
                ASSETS
            
            $
            53,685LIABILITIES
                AND STOCKHOLDERS’ DEFICITCurrent
                LiabilitiesAccounts
                payable
            
            $
            45,940Accrued
                liabilities
            
            
            19,470Total
                Current Liabilities
            
            
            65,410Stockholders’
                DeficitCommon
                stock, $.001 par value, 50,000,000 shares authorized,13,806,312
                shares issued and outstanding
            
            
            13,806Additional
                paid-in capital
            
            
            1,074,705Retained
                deficit
            
            
            (1,100,236
            )Total
                Stockholders’ Deficit
            
            
            (11,725
            )TOTAL
                LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            53,685




See
      summary of accounting policies and notes to financial statements.




F-3


SPUTNIK,
      INC.


STATEMENTS
      OF OPERATIONS


Years
      Ended December 31, 2006 and 2005




2006
            
            2005Revenue
            
            $
                489,394
            
            $
                557,515Cost
                of goods sold
            
            
            169,574
            
            
            277,564Gross
                profit
            
            
            319,820
            
            
            279,951ExpensesGeneral
                and administrative costs
            
            
            353,021
            
            
            256,915Research
                and development
            
            
            163,204
            
            
            94,900Depreciation
                and amortization
            
            
            6,704
            
            
            2,415Total
                operating expense
            
            
            522,929
            
            
            354,230Operating
                Loss
            
            
            (203,109
            )
            
            (74,279
            )Gain
                on legal settlement
            
            
            -
            
            
            61,000Interest
                income
            
            
            187
            
            
            136Interest
                expense
            
            
            (2,758
            )
            
            (1,264
            )NET
                LOSS
            
            $
            (205,680
            )
            $
            (14,407
            )Basic
                and diluted loss per share
            
            $
            (0.02
            )
            $
            (0.00
            )Weighted
                average shares outstanding
            
            
            13,552,020
            
            
            13,513,919




See
      summary of accounting policies and notes to financial statements.




F-4


SPUTNIK,
      INC.


STATEMENTS
      OF STOCKHOLDERS’ EQUITY (DEFICIT)


Years
      Ended December 31, 2006 and 2005





Common
            
            Additional
                Paid
            
            RetainedShares
            
            Stock
            
            in
                Capital
            
            Deficit
            
            TotalsBalances,
                December 31, 2004
            
            
            6,694,358
            
            $
            6,694
            
            $
            106,770
            
            $
            (880,149
            )
            $
            (766,685
            )Share
                issuances:For
                stock payable
            
            
            6,894,061
            
            
            6,894
            
            
            675,547
            
            
            -
            
            
            682,441For
                cash
            
            
            810,000
            
            
            810
            
            
            80,190
            
            
            -
            
            
            81,000For
                services
            
            
            215,500
            
            
            216
            
            
            21,334
            
            
            -
            
            
            21,550Shares
                returned
            
            
            (1,100,000
            )
            
            (1,100
            )
            
            1,100
            
            
            -
            
            
            -Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (14,407
            )
            
            (14,407
            )Balances,
                December 31, 2005
            
            
            13,513,919
            
            $
            13,514
            
            $
            884,941
            
            $
            (894,556
            )
            $
            3,899Share
                issuances:For
                cash
            
            
            292,393
            
            
            292
            
            
            189,764
            
            
            -
            
            
            190,056Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (205,680
            )
            
            (205,680
            )Balances,
                December 31, 2006
            
            
            13,806,312
            
            $
            13,806
            
            $
            1,074,705
            
            $
            (1,100,236
            )
            $
            (11,725
            )





See
      summary of accounting policies and notes to financial statements.




F-5


SPUTNIK,
      INC.


STATEMENTS
      OF CASH FLOWS


Years
      Ended December 31, 2005 and 2004





2006
            
            2005Cash
                Flows from Operating ActivitiesNet
                loss
            
            $
            (205,680
            )
            $
            (14,407
            )Adjustments
                to reconcile net loss to netcash
                provided by (used in) operating activities:Depreciation
            
            
            6,704
            
            
            2,415Stock
                based compensation
            
            
            -
            
            
            21,550Changes
                in working capital:Accounts
                receivable
            
            
            (2,779
            )
            
            3,786Inventory
            
            
            9,672
            
            
            15,567Prepaid
                expenses and other current assets
            
            
            (2,823
            )
            
            (3,708
            )Deposit
            
            
            (5,867
            )
            
            -Accounts
                payable and accrued liabilities
            
            
            4,804
            
            
            (9,306
            )Net
                cash provided by (used in) operating activities
            
            
            (195,969
            )
            
            15,897Cash
                Flows from Investing ActivitiesPurchase
                of property and equipment
            
            
            (12,942
            )
            
            (7,866
            )Cash
                Flows from Financing ActivitiesLine
                of credit
            
            
            -
            
            
            (70,820
            )Common
                stock issued for cash
            
            
            190,056
            
            
            81,000Net
                cash provided by financing activities
            
            
            190,056
            
            
            10,180Net
                change in cash
            
            
            (18,855
            )
            
            18,211Cash
                at beginning of year
            
            
            26,782
            
            
            8,571Cash
                at end of year
            
            $
            7,927
            
            $
            26,782Supplemental
                Disclosures of Cash Flow InformationCash
                paid for interest
            
            $
            2,758
            
            $
            1,264Cash
                paid for income taxes
            
            
            -
            
            
            -Supplemental
                Non-cash Investing and Financing InformationStock
                issued for debt
            
            $
            -
            
            $
            682,441





See
      summary of accounting policies and notes to financial statements.





F-6





SPUTNIK,
      INC.


Notes
      to
      Financial Statements





NOTE
      1 -
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Nature
      of business .
      Sputnik, Inc. was incorporated in Delaware on September 27, 2001.  On
      February 10, 2005, we filed Articles of Conversion and new articles of
      incorporation in Nevada and became a Nevada corporation. Sputnik provides
      software for public Wi-Fi services. Sputnik’s software is designed to give
      service providers and businesses the ability to control access to their Wi-Fi
      networks, and to offer free, branded, or fee-based Wi-Fi services. The software
      also enables centralized, web-based management of Wi-Fi networks. Sputnik also
      provides Wi-Fi hardware components that are pre-configured to work with Sputnik
      software.





Use
      of
      Estimates .
      In
      preparing financial statements, management makes estimates and assumptions
      that
      affect the reported amounts of assets and liabilities in the balance sheet
      and
      revenues and expenses in the statement of operations, and the disclosure of
      contingent assets and liabilities. Actual results could differ from those
      estimates.





Cash
      and Cash Equivalents .
      For
      purposes of the statement of cash flows, Sputnik considers all highly liquid
      investments purchased with an original maturity of three months or less to
      be
      cash equivalents.





Revenue
      Recognition .
      Sputnik
      recognizes revenue for hardware, software and services when persuasive evidence
      of an arrangement exists, services have been rendered, the sales price is fixed
      or determinable, and collectibility is reasonably assured. This typically occurs
      when the product is shipped or service is provided. Sputnik is responsible
      for
      fulfillment of the product or service, including the acceptability of the
      product or service ordered or purchased. Sputnik takes title to a product before
      it is ordered by a customer and has latitude in establishing a price with the
      customer. In all cases Sputnik reconfigures the software prior to delivery
      to
      the customer using multiple suppliers with discretion in choosing between
      suppliers. Sputnik is involved in the determination of product or service
      specifications. Sputnik has both physical loss inventory risk and credit risk.
      Sputnik generates service revenues primarily by selling monthly or annual
      subscriptions to its software, which it hosts on its servers. Service revenue
      is
      recognized as it is earned. In addition, it generates service revenues by
      selling technical support, online or in-person training sessions, and online
      configuration services.





Allowance
      for Doubtful Accounts .
      Sputnik
      records a reduction to revenue for estimates for returns based on management’s
      estimate of likely losses per year, past experience and an estimate of current
      year uncollectible amounts. There was no allowance for doubtful accounts as
      of
      December 31, 2006.





F-7




Inventory .
      Inventory consists of finished goods to be sold to customers that use them
      to
      build Sputnik wireless networks is stated at the lower of average cost or
      market.





Property
      and Equipment .
      Property and Equipment is valued at cost. Additions are capitalized and
      maintenance and repairs are charged to expense as incurred. Gains and losses
      on
      dispositions of equipment are reflected in operations. Depreciation is provided
      using the straight-line method over the estimated five-year useful lives of
      the
      assets.





Impairment
      of Long-Lived Assets .
      Sputnik
      reviews the carrying value of its long-lived assets annually or whenever events
      or changes in circumstances indicate that the historical cost-carrying value
      of
      an asset may no longer be appropriate. Sputnik assesses recoverability of the
      carrying value of the asset by estimating the future net cash flows expected
      to
      result from the asset, including eventual disposition. If the future net cash
      flows are less than the carrying value of the asset, an impairment loss is
      recorded equal to the difference between the asset’s carrying value and fair
      value.





Stock
      Compensation .
      Sputnik
      issues stock as compensation to employees and outside consultants for services
      rendered. These shares are recorded at the fair value of the stock as measured
      on the date or dates the services were rendered.





On
      January 1, 2006, Sputnik adopted SFAS No. 123 (R), “Share-Based Payment.” SFAS
      123(R) replaced SFAS No. 123 and supersedes APB Opinion No. 25. SFAS 123(R)
      requires all share-based payments to employees, including grants of employee
      stock options, to be recognized in the financial statements based on their
      fair
      values. The pro forma disclosures previously permitted under SFAS 123 are no
      longer an alternative to financial statement recognition. Sputnik adopted SFAS
      123(R) using the modified prospective method which requires the application
      of
      the accounting standard as of January 1, 2006. The financial statements as
      of
      and for the year ended December 31, 2006 reflect the impact of adopting SFAS
      123(R). In accordance with the modified prospective method, the financial
      statements for prior periods have not been restated to reflect, and do not
      include, the impact of SFAS 123(R). Since Sputnik has not granted options during
      the year ended December 31, 2006 or during any period prior to January 1, 2006,
      the adoption of SFAS 123(R) had no impact.





Income
      Taxes .
      Sputnik
      recognizes deferred tax assets and liabilities based on differences between
      the
      financial reporting and tax bases of assets and liabilities using the enacted
      tax rates and laws that are expected to be in effect when the differences are
      expected to be recovered. Sputnik provides a valuation allowance for deferred
      tax assets for which it does not consider realization of such assets to be
      more
      likely than not.





Basic
      and Diluted Net Loss Per Share .
      Basic
      and diluted net loss per share are computed by dividing the net loss by the
      weighted average number of shares of common stock and common stock equivalents
      outstanding during the years. Common stock equivalents consist of common stock
      issuable under Sputnik’s stock compensation plan for its employees and
      consultants. Common stock equivalents are not included in diluted loss per
      share
      calculations because they would be anti-dilutive. There were no common stock
      equivalents during 2006 and 2005.





F-8




Recently
      Issued Accounting Pronouncements .
      Sputnik
      does not expect the adoption of recently issued accounting pronouncements to
      have a significant impact on its results of operations, financial position
      or
      cash flow.





NOTE
      2 -
      GOING CONCERN





The
      accompanying financial statements have been prepared assuming that Sputnik
      will
      continue as a going concern. As shown in the accompanying financial statements,
      Sputnik suffered losses of $205,680 and $14,407 in 2006 and 2005, respectively,
      has an accumulated deficit of $1,100,236 and a working capital deficit of
      $34,930 at December 31, 2006. These conditions raise substantial doubt as to
      Sputnik’s ability to continue as a going concern. The financial statements do
      not include any adjustments that might be necessary if Sputnik is unable to
      continue as a going concern. Management intends to finance these deficits by
      selling its common stock.




NOTE
      3 -
      BANK REVOLVING LINE OF CREDIT





Sputnik
      has a revolving line of credit that is secured by the assets of certain
      stockholders. The line of credit has a maximum borrowing amount of $107,000,
      an
      interest rate of 11% and no balance due at December 31, 2006.




NOTE
      4 -
      INCOME TAXES





Sputnik
      uses the liability method, where deferred tax assets and liabilities are
      determined based on the expected future tax consequences of temporary
      differences between the carrying amounts of assets and liabilities for financial
      and income tax reporting purposes. During fiscal 2006 and 2005, Sputnik incurred
      net losses and, therefore, has no tax liability. The net deferred tax asset
      generated by the loss carryforward has been fully reserved. The cumulative
      net
      operating loss carryforward is approximately $685,679 at December 31, 2006,
      and
      will expire in years 2023 through 2026.





At
      December 31, 2006, deferred tax assets consisted of the following:





Net
                operating losses
            
            $
            233,131Less:
                 valuation allowance
            
            
            (233,131
            )Net
                deferred tax asset
            
            $
            -




F-9




NOTE
      5 -
      PROPERTY, PLANT & EQUIPMENT





Property
      and equipment as of December 31, 2006 consists of the following:





**Description**Computers
                and office equipment
            
            $
            24,024Less:
                Accumulated depreciation
            
            
            (9,386
            )Property
                & equipment, net
            
            $
            14,638





Depreciation
      expense for was $6,704 and $2,415 for the years ended December 31, 2006 &
2005, respectively.




NOTE
      6 -
      COMMITMENTS





Beginning
      in 2007, Sputnik leases office space under an operating lease that expires
      in
      December 2009 that requires monthly rental payments of $2,933, $3,277 and $3,520
      per month for the years 2007, 2008 and 2009, respectively, for an aggregate
      of
      $35,196 in 2007, $38,724 in 2008 and $42,420 in 2009. Rent expense was $17,313
      and $16,200 in 2006 and 2005 respectively.




NOTE
      7 -
      EQUITY





Sputnik
      was incorporated on September 27, 2001 in the State of Delaware, with 10,000,000
      shares of authorized stock at $0.0001 par value. On February 10, 2005 Sputnik
      converted to a Nevada Corporation, with 50,000,000 shares of authorized stock
      at
      $0.001 par value. The newly authorized shares and par value are reflected
      retroactively in the accompanying financial statements.





In
      December 2005, Sputnik issued 215,500 shares to the consultants, valued at
      $21,550 for compensation expense.





In
      April
      2005, Sputnik issued 6,894,061 shares for a stock payable of
      $682,441





In
      2005,
      Sputnik sold 810,000 shares of common stock for $81,000 of cash.





From
      August 1, 2006 to December 31, 2006, we sold 292,393 shares of our Common Stock
      in a  best efforts, no minimum, direct public offering, without any
      involvement of underwriters or broker-dealers, to 14 investors in consideration
      for an  aggregate amount of $190,056. The price per share was $.65 in
      this offering. On October 10, 2006 we filed a prospectus supplement to
      extend the offering until February 10, 2007.




F-10




NOTE
      8 -
      STOCK OPTION PLAN





In
      April
      2005, Sputnik terminated its 2003 Stock Option Plan (“the Plan”). Sputnik did
      not issue any options under the Plan. As of December 31, 2006, Sputnik had
      no
      options or warrants outstanding.




NOTE
      9 -
      CONCENTRATIONS





For
      the
      year ended December 31, 2006, no customers accounted for more than 10% of
      revenues. For the year ended December 31, 2005, one customer accounted for
      14.7%
      of revenues.




NOTE
      10 -
      SUBSEQUENT EVENTS





From
      January 1, 2007 to February 10, 2007, the Company sold 957,607 shares of our
      common stock in the same offering, without any involvement of underwriters
      or
      broker-dealers, to 25 investors in consideration for an  aggregate amount
      of $622,445. The price per share was $.65 in this offering. The shares were
      issued in March 2007.





F-11




**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




**ITEM
      8A. CONTROLS AND PROCEDURES**





The
      Corporation maintains controls and other procedures that are designed to ensure
      that information required to be disclosed by the issuer in the reports that
      it
      files or submits under the Act (15 U.S.C. 78a *et
      seq.* )
      is
      recorded, processed, summarized and reported, within the time periods specified
      in the Commission’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed by an issuer in the reports that it files or submits
      under the Act is accumulated and communicated to the issuer’s management,
      including its principal executive and principal financial officers, or persons
      performing similar functions, as appropriate to allow timely decisions regarding
      required disclosure. At the end of the period covered by this Annual Report,
      we
      carried out an evaluation, under the supervision and with the participation
      of
      our management, including its Chief Executive Officer, of the effectiveness
      of
      the design and operation of our disclosure controls and procedures. Based upon
      the foregoing, our Chief Executive Officer concluded that, as of December 31,
      2006, our disclosure controls and procedures were effective to ensure that
      the
      information required to be disclosed in the Company’s Exchange Act reports was
      recorded, processed, summarized and reported on a timely basis.




**ITEM
      8B. OTHER INFORMATION**




None




**PART
      III**




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT**





Our
      directors and executive officers are as follows:





Name
            
            Age
            
            PositionDavid
                LaDuke
            
            47
            
            President,
                Chief Executive Officer, Treasurer, Secretary and
                DirectorArthur
                Tyde
            
            40
            
            Director





Directors
      serve for a one-year term.  Our Bylaws provide for three to nine
      directors.




14




**Biographical
      Information**





**David
      LaDuke, President and Chief Executive Officer**





Mr.
      LaDuke has served as President and Chief Executive Officer of Sputnik since
      February 2002. Since April 12, 2005, Mr. LaDuke has served as our Treasurer.
       Since November 2003, he has served as Secretary of Sputnik. In November
      1998, he co-founded Linuxcare Inc., now Levanta, Inc., a provider of enterprise
      services for open-source software. He served as Vice President of Marketing
      there until April 2001. From June 2001 to July 2003 and March 1993 to November
      1998, Mr. LaDuke was an independent consultant in technology, marketing and
      business strategy for various companies including Apple Computer, Crystal
      Decisions, Netscape Communications, Oracle Corporation, Pinnacle Systems,
      Silicon Graphics, and others. From November 1989 to February 1993, Mr. LaDuke
      worked as the manager of publishing industry marketing at NeXT Computer, Inc.,
      a
      computer manufacturing company acquired by Apple Computer in 1996.  From
      September 1986 to October 1989, Mr. LaDuke worked in marketing positions at
      Apple Computer, Inc. Mr. LaDuke earned an M.B.A. from the Tuck School of
      Business Administration at Dartmouth College in 1985, an M.F.A. from Columbia
      University in 1983 and an A.B. from Columbia College, Columbia University in
      1982.





**Arthur
      Tyde, Director**





Mr.
      Tyde
      has served as a Director for Sputnik since February 2002.  From February
      2002 to June 30, 2003, Mr. Tyde served as our Chief Operating Officer and
      Director of Sales. In March 2005, Mr. Tyde accepted a position as the Chief
      Technology Officer of The Free Standards Group, a nonprofit organization
      dedicated to developing and promoting open-source software standards. From
      June
      1999 to January 2003, Mr. Tyde served as the Executive Vice President of
      Linuxcare Inc., now Levanta, Inc., which he co-founded.  From September
      1998 to June 1999, he served as the Chief Executive Officer of Linuxcare Inc.
      From January 1996 to September 1998, he served as a Consultant with Hall Kinion.
       Mr. Tyde received a Bachelors degree from Michigan State University in
      Telecommunications in 1988.





**Board
      Committees**





We
      currently have no compensation committee or other board committee performing
      equivalent functions. Currently, all members of our board of directors
      participate in discussions concerning executive officer
      compensation.





**Director
      Compensation**





Members
      of our Board of Directors did not receive compensation in 2006.




**The
      Board of Directors and Committees**





Members
      of our Board of Directors do not receive compensation for
      their
      services as Directors, although Directors may be reimbursed for reasonable
      expenses incurred in attending Board or committee meetings.




15




**Family
      Relationships**





None.




**Compliance
      With Section 16(a) of the Exchange Act**





Section 16(a)
      of the Securities Exchange Act requires our executive officers and directors
      and
      person who own more than 10% of our common stock to file reports regarding
      ownership of and transactions in our securities with the Securities and Exchange
      Commissioner and to provide us with copies of those filings. Based solely on
      our
      review of the copies received by or a written representation from certain
      reporting persons we believe that during fiscal year ended December 31, 2006,
      we
      believe that all eligible persons are in compliance with the requirements of
      Section 16(a).





**Code
      of Ethics.**





The
      board
      of directors has not yet adopted a formal Code of Ethics.





**Involvement
      on Certain Material Legal Proceedings During the Past Five (5)
      Years**





(1)
            No
                director, officer, significant employee or consultant has been convicted
                in a criminal proceeding, exclusive of traffic violations or is subject
                to
                any pending criminal proceeding.





(2)
            No
                bankruptcy petitions have been filed by or against any business or
                property of any director, officer, significant employee or consultant
                of
                the Company nor has any bankruptcy petition been filed against a
                partnership or business association where these persons were general
                partners or executive officers.





(3)
            No
                director, officer, significant employee or consultant has been permanently
                or temporarily enjoined, barred, suspended or otherwise limited from
                involvement in any type of business, securities or banking
                activities.





(4)
            No
                director, officer or significant employee has been convicted of violating
                a federal or state securities or commodities
                law.





The
      Company has no formal audit committee. However, the entire Board of Directors
      (Board) is the Company’s defacto audit committee. In discharging its oversight
      responsibility as to the audit process, the Board obtained from the independent
      auditors a formal written statement describing all relationships between the
      auditors and the Company that might bear on the auditors’ independence as
      required by Independence Standards Board Standard No. 1, “Independence
      Discussions with Audit Committees.” The Board discussed with the auditors any
      relationships that may impact their objectivity and independence, including
      fees
      for non-audit services, and satisfied itself as to the auditors’ independence.
      The Board also discussed with management, the internal auditors and the
      independent auditors the quality and adequacy of the Company’s internal
      controls.





16




**ITEM
      10. EXECUTIVE COMPENSATION**




Summary
        Compensation Table
  The
        table
        below summarizes all compensation awarded to, earned by, or paid to our
        Principal Executive Officer, our two most highly compensated executive officers
        other than our PEO who occupied such position at the end of our latest fiscal
        year and up to two additional executive officers who would have been included
        in
        the table below except for the fact that they were not executive officers
        at the
        end of our latest fiscal year, by us, or by any third party where the purpose
        of
        a transaction was to furnish compensation, for all services rendered in all
        capacities to us for the latest two fiscal years ended December 31, 2006
        and
        2005.
  **Name**
              **Title**
              **Year**
              **Salary**
              **Bonus**
              **Stock
                  awards**
              **Option
                  awards**
              **Non
                  equity incentive plan compensation**
              **Non
                  qualified deferred compensation**
              **All
                  other compensa-tion**
              **Total**David
                  LaDuke
              President
              2006
              $43,500
              $0
              $0
              $0
              $0
              $0
              $13,500
              $57,0002005
              $0
              $0
              $0
              $0
              $0
              $0
              $43,000
              $43,500




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**





The
      following tables set forth the ownership of our common stock by each person
      known by us to be the beneficial owner of more than 5% of our outstanding common
      stock, our directors, and our executive officers and directors as a group.
       To the best of our knowledge, the persons named have sole voting and
      investment power with respect to such shares, except as otherwise noted.
 There are not any pending or anticipated arrangements that may cause a
      change in control.





The
      information presented below regarding beneficial ownership of our voting
      securities has been presented in accordance with the rules of the Securities
      and
      Exchange Commission and is not necessarily indicative of ownership for any
      other
      purpose. Under these rules, a person is deemed to be a “beneficial owner” of a
      security if that person has or shares the power to vote or direct the voting
      of
      the security or the power to dispose or direct the disposition of the security.
      A person is deemed to own beneficially any security as to which such person
      has
      the right to acquire sole or shared voting or investment power within 60 days
      through the conversion or exercise of any convertible security, warrant, option
      or other right. More than one person may be deemed to be a beneficial owner
      of
      the same securities. The percentage of beneficial ownership by any person as
      of
      a particular date is calculated by dividing the number of shares beneficially
      owned by such person, which includes the number of shares as to which such
      person has the right to acquire voting or investment power within 60 days,
      by
      the sum of the number of shares outstanding as of such date plus the number
      of
      shares as to which such person has the right to acquire voting or investment
      power within 60 days. Consequently, the denominator used for calculating such
      percentage may be different for each beneficial owner. Except as otherwise
      indicated below and under applicable community property laws, we believe that
      the beneficial owners of our common stock listed below have sole voting and
      investment power with respect to the shares shown.





17




**Name
                  and Address of Beneficial Owner**
              
              **Shares
                  Beneficially Owned**
              
              **Percentage
                  Beneficially Owned****David
                  LaDuke**
                650
                  5thStreet, Suite 303
                San
                  Francisco, CA 94107
                
                President,
                  Chief Executive Officer,
                Treasurer
                  and Director
              
              
              8,000,000
              
              
              54.2
              %**Arthur
                  Tyde**
                650
                  5th St., Suite 303
                San
                  Francisco, CA 94107
                
                Director
              
              
              1,000,000
              
              
              6.8
              %**Kathy
                  Giori**
                1060
                  Vernier Place
                Stanford
                  CA 94305
              
              
              1,250,000
              
              
              8.5
              %**Scott
                  Hutton**
                423
                  Dell Ave, Mountain View CA
                94035
              
              
              1,000,000
              
              
              6.8
              %***All
                  Officers and Directors as a Group (2
                  persons)***
              
              
              **9,000,000**
              
              
              **60.96**
              **%**


This
      table is based upon information derived from our stock records. Unless otherwise
      indicated in the footnotes to this table and subject to community property
      laws
      where applicable, we believe that each of the shareholders named in this table
      has sole or shared voting and investment power with respect to the shares
      indicated as beneficially owned. Except as set forth above, applicable
      percentages are based upon 14,763,919 shares
      of
      common stock outstanding as of March 15, 2007.





18




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





During
      2006, we have not entered into and as of December 31, 2006 we do not have any
      agreements to enter into any material transactions with any director, executive
      officer, and promoter, beneficial owner of five percent or more of our common
      stock, or family members of such persons. Mr. LaDuke and Mr. Tyde are promoters
      of Sputnik.




**ITEM
        13. EXHIBITS**
 
 (a)
        List
        of documents filed as part of this Report:
 
 None
 
 (b)
        Exhibits:
 
 The
        following exhibits listed are filed as part of this Report:
 
 31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive Officer and
                  Chief
                  Financial Officer, David LaDuke
 
 32.1
              Section
                  1350 Certification, David
                  LaDuke
  **ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





1.
      Audit
      Fees:  Aggregate
      fees billed for each of the last two (2) fiscal years for professional services
      rendered by the principal accountant for the audit of the annual financial
      statements and review of financial statements included on Form
      10-QSB:




2005:  $29,745


2006:  $23,413





2.
      Audit-Related Fees: Aggregate fees billed in each of the last two (2) fiscal
      years for assurance and related services by the principal accountant that are
      reasonably related to the performance of the audit or review of the financial
      statements and are not reported previously.





2005:  $0


2006:  $0





19




3.
      Tax
      Fees: Aggregate fees billed in each of the last two (2) fiscal years for
      professional services rendered by the principal accountant for tax compliance,
      tax advice, and tax planning.




2005:  $0


2006:  $0





4.
      All
      Other Fees: Aggregate fees billed in each of the last two (2) fiscal years
      for
      products and services provided by the principal accountant, other than the
      services previously reported.





2005:  $0


2006:  $0





5.
      Audit
      Committee Pre-Approval Procedures. The Board of Directors has not, to date,
      appointed an Audit Committee.




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) 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, in the City of San Francisco, State
      of California, on April 12, 2007.


SPUTNIK,
                INC./s/
              David LaDukeDavid
                LaDuke
              Chief
                  Executive Officer and Chairman of the Board




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed by the following persons on behalf of the Registrant and in the
      capacities and on the dates indicated.


SIGNATURE
              
              TITLE
              
              DATE/s/
                  David LaDuke
              
              Director
              
              4/12/07David
                LaDuke/s/
                  Arthur Tyde
              
              Director
              
              4/12/07Arthur
                Tyde





20