BSI2000 10QSB 2004 Q1 Quarterly report (small business)

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

Quarterly Report Under Section 13 or 15(d) of
Securities Exchange Act of 1934

For Period ended June 30, 2003
Commission File Number 0-28287

BSI2000, INC.
(Formerly Knowledge Foundations, Inc.)

Delaware 88-0418749
--------------------------- --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)

12600 W. Colfax Ave., Suite B410, Lakewood, CO 80215
---------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

(303) 231-9095
---------------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding twelve 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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock at the latest practicable date.

As of August 10, 2003 the registrant had 52,061,102 shares of common stock,
$.001 par value, issued and outstanding.

PART 1 FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS

Table of Contents

Consolidated Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statement of Changes in Stockholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

BSI 2000, INC.
(A Development Stage Company)

Consolidated Balance Sheets

June 30, December 31,
2003 2002
----------- -----------
(unaudited)
Assets

Current assets
Cash and cash equivalents .................................... $ 5,844 $ 228,617
Note receivable - shareholders ............................... 56,825 --
Inventories .................................................. 49,996 27,124
Other current assets ......................................... 852 4,257
----------- -----------
Total current assets ..................................... 113,517 259,998
----------- -----------

Non-current assets
Property and equipment, net .................................. 63,628 68,915
Intangible assets ............................................ 8,240 8,240
Other long-term assets ....................................... 4,232 4,232
----------- -----------
Total non-current assets ................................. 76,100 81,387
----------- -----------

Total assets ................................................... $ 189,617 $ 341,385
=========== ===========

Liabilities and Stockholders' Equity (Deficit)

Current liabilities
Accounts payable ............................................. $ 119,602 $ 9,247
Accrued liabilities .......................................... 80,656 6,492
Advances from shareholders ................................... 155,000 --
Notes payable ................................................ 57,575 --
----------- -----------
Total current liabilities ................................ 412,833 15,739
----------- -----------

Commitments and contingencies

Stockholders' equity (deficit)
Preferred stock, $.001 par value, 20,000,000
shares authorized, no shares issued and
outstanding ................................................. -- --
Common stock, $.001 par value, 100,000,000
shares authorized, 50,150,388 shares issued
and outstanding ............................................. 50,150 4,036,957
Additional paid-in capital ................................... 4,121,307 --
Accumulated deficit .......................................... (4,394,673) (3,711,311)
----------- -----------
Total stockholders' equity (deficit) ..................... (223,216) 325,646
----------- -----------

Total liabilities and stockholders' equity (deficit) ........... $ 189,617 $ 341,385
=========== ===========

See notes to consolidated financial statements.

BSI 2000, INC.
(A Development Stage Company)

Consolidated Statements of Operations
(Unaudited)

For the
Period
from July
30, 1993
For the Six Months For the Three Months (Inception)
Ended June 30, Ended June 30, through
---------------------- ---------------------- June 30,
2003 2002 2003 2002 2002
---------- ---------- ---------- ---------- ----------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)

Revenues $ 5,000 $ - $ 5,000 $ - $ 66,290
---------- ---------- ---------- ---------- -----------
Operating expenses
Selling expenses 132,936 122,574 61,715 80,814 896,811
General and
administrative 302,932 198,458 133,348 112,449 2,127,104
Stock-based
compensation expense - - - - 253,741
Research and
development 252,511 26,141 103,707 21,891 1,166,795
---------- ---------- ---------- ---------- -----------
Total operating
expenses 688,379 347,173 298,770 215,154 4,444,451
---------- ---------- ---------- ---------- -----------

Other income (expense)
Interest expense (1,214) (38,428) (1,214) (23,706) (122,427)
Interest income 1,231 17,997 871 17,973 22,639
Other expense - - - - 83,276
---------- ---------- ---------- ---------- -----------
Total other income
(expense) 17 (20,431) (343) (5,733) (16,512)
---------- ---------- ---------- ---------- -----------

Net loss $ (683,362) $ (367,604) $ (294,113) $ (220,887) $(4,394,673)
========== ========== ========== ========== ===========

Basic and diluted
weighted average common
shares outstanding 29,567,626 6,007,558 50,150,388 6,042,711 3,371,501
---------- ---------- ---------- ---------- -----------

Basic and diluted loss
per common share $ (0.02) $ (0.06) $ (0.01) $ (0.04) $ (1.30)
========== ========== ========== ========== ===========

See notes to consolidated financial statements.

BSI 2000, INC.
(A Development Stage Company)

Consolidated Statement of Changes in Stockholders' Equity
For the Six Months Ended June 30, 2003 (Unaudited)

Accumulated
Deficit Total
Common Stock Additional During the Stockholders'
----------------------- Paid-in Development Equity
Shares Amount Capital Stage (Deficit)
---------- ----------- ---------- ------------ ------------
Balance - December
31, 2002 8,652,400 $ 4,036,957 - $ (3,711,311) $ 325,646

Stock issued for
cash 134,500 134,500 - - 134,500

Issuance of stock
in connection with
reverse acquisition 41,363,488 (4,121,307) 4,121,307 - -

Net loss - - - (683,362) (683,362)
---------- ----------- ---------- ------------ ------------

Balance - June 30,
2003 50,150,388 $ 50,150 $ 4,121,307 $ (4,394,673) $ (223,216)
========== =========== =========== ============ ==========

See notes to consolidated financial statements.

BSI 2000, INC.
(A Development Stage Company)

Consolidated Statements of Cash Flows
(Unaudited)

For the
Period from
July 30, 1993
Six Months Ended June 30, (Inception)
------------------------- through
2003 2002 June 30, 2003
----------- ----------- -----------
(unaudited) (unaudited) (unaudited)

Cash flows from operating activities
Net loss $ (683,362) $ (367,604) $(4,394,673)
---------- ---------- ----------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation expense 14,481 8,721 91,514
Gain on forgiveness of debt - (10,312) (65,485)
Stock based compensation - 500 253,741
Changes in assets and liabilities
Inventories (22,872) - (49,996)
Other current assets - 488 (852)
Other long-term assets - 4,856 (4,232)
Accounts payable 110,355 (14,775) 173,665
Accrued liabilities 78,319 (6,916) 134,205
---------- ---------- ----------
180,283 (17,438) 532,560
---------- ---------- ----------
Net cash used in operating activities (503,079) (385,042) (3,862,113)
---------- ---------- ----------

Cash flows from investing activities
Redemption of certificates of deposit - - 35,000
Purchase of certificate of deposit - - (35,000)
Purchase of fixed assets (9,194) (13,895) (106,788)
Patent application - - (8,240)
---------- ---------- ----------
Net cash used in investing activities (9,194) (13,895) (115,028)
---------- ---------- ----------

Cash flows from financing activities
Proceeds from issuance of common stock 134,500 210,075 3,026,841
Repayment on long-term debt - (18,173) (81,516)
Proceeds from long-term debt - 500,000 919,500
Repayment on capital lease obligations - - (37,590)
Proceeds from short-term debt 155,000 - 155,750
---------- ---------- ----------
Net cash provided by financing
activities 289,500 691,902 3,982,985
---------- ---------- ----------

Net (decrease) increase in cash and cash
equivalents (222,773) 292,965 5,844

Cash and cash equivalents - beginning of
period 228,617 7,712 -
---------- ---------- ----------

Cash and cash equivalents - end of period $ 5,844 $ 300,677 $ 5,844
========== ========== ==========

Supplemental disclosure of cash flow information:

The Company did not pay cash for interest expense or income taxes during
the years ended December 31, 2002 or 2001 or during the six-month period
ended June 30, 2003 or 2002 (unaudited). Cash paid for interest expense
from Inception (July 30, 1993) through June 30, 2003 was $68,164.

Supplemental disclosure of non-cash activity:

During the three-month period ending March 31, 2003, the Company entered
into a merger agreement, which has been accounted for as a reverse
acquisition. No assets were acquired and no liabilities were assumed as a
result of the merger other then described below. As a result of the merger,
there has been an increase of 41,363,488 shares of common stock outstanding
in the surviving company.

During the three month period ended March 31, 2003, the Company assumed an
existing liability of KFI of $56,825 which will be funded through a note
receivable from shareholders of the Company.

During the six month period ended June 30, 2002 (unaudited), the Company
repaid a note with cash of $1,938 and the issuance of 13,322 shares of
common stock valued at $8,326. Two additional notes were repaid with
$16,235 cash and the remaining $10,312 was forgiven by the lenders.

See notes to consolidated financial statements.

Note 1 - Description of Business and Summary of Significant Accounting Policies

BSI 2000, Inc., (the Company), was formed on July 30, 1993. The Company is a
value-added reseller ("VAR") of LaserCard's(R)optical cards and optical card
readers. As a VAR, the Company develops proprietary hardware and software
adapting LaserCard's(R)optical card technology for specific applications. The
Company's products are designed as turnkey solutions for identified commercial
and governmental card-based information needs.

The Company is a development stage company that has not had any significant
revenue since inception. There is no assurance that the Company will generate
significant revenue or earn a profit in the future.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of BSI
2000, Inc. and its subsidiary, BSI Operating, Inc. All intercompany accounts and
transactions have been eliminated in consolidation.

Going Concern

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. The Company has experienced
losses since inception (July 30, 1993).

The extended period over which losses have been experienced is principally
attributable to two factors, lack of capital and long sales lead times. Lack of
capital has prevented the Company from quickly developing and aggressively
marketing its products. In addition, most of the Company's potential customers
are large corporations or governments. Adopting the Company's products will in
many cases require changing the way business is done. These circumstances can
result in two years or more elapsing from initial sales contact to delivery of
product.

The Company has made advances in the sales process with several potentially
large customers. In order to fund activities until positive operating cash flow
is achieved, the Company has implemented the plan described below.

During the first quarter of 2003, the Company merged with a small public company.
The transaction has been treated as a reverse acquisition with the Company as
the accounting acquirer. The Company has become a wholly owned subsidiary of the
public company, the Company's shareholders have become the majority shareholders
of the public company, and the public company has changed its name to "BSI2000,
Inc."

The Company plans to offer additional shares of the public company's common stock
to investors in a private placement of up to $15,000,000.

The Company expects that the capital raised in the transactions described above
will be sufficient to fund the Company's activities until positive operating
cash flow is achieved.

Cash and Cash Equivalents

The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents. The Company continually
monitors its positions with, and the credit quality of, the financial
institutions with which it invests.

Inventories

Inventory consists of raw materials and is stated at the lower of cost or
market, determined using the first-in, first-out method (FIFO).

Property and Equipment

Property and equipment is stated at cost. Depreciation is provided utilizing the
straight-line method over the estimated useful lives for owned assets of 5
years. Leasehold improvements are amortized over a 5 1/2 year period.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue in compliance with SAB 101, "Revenue Recognition
in Financial Statements." Revenue is recognized when an order has been placed by
the customer, the product has been shipped and collectibility is reasonably
assured. Prices of the products are determined prior to entering into a purchase
agreement. From inception through June 30, 2003, revenues earned represented
sales to distributors of demonstration units of the Company's products.

Transaction based revenue is recognized as transactions are completed and are
billed monthly based on service agreement rates in effect.

Intangible Assets

Intangibles include trademarks and patents, which are recorded at cost. These
patents are awaiting approval from the U.S. Patent office. Once accepted, the
Company will begin amortization over the life of the patent.

Advertising Costs

The Company expenses advertising costs as incurred.

Software and Research and Development Costs

Expenditures made for research and development are charged to expense as
incurred.

Costs incurred to date for the development of the Company's products have been
charged to expense as incurred. Future costs may be capitalized to the extent
they meet the requirements of SFAS No. 86 "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed."

Basic and Diluted Earnings Per Common Share

In accordance with FAS 128, basic earnings per share are computed by dividing
net income by the number of weighted average common shares outstanding during
the year. Diluted earnings per share is computed by dividing net income by the
number of weighted average common shares outstanding during the year, including
potential common shares, which consisted of warrants, options and convertible
debt.

Recently Issued Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived assets.
SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The
adoption of this statement had no material impact on the Company's financial
statements.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB No. 4, 44 and
64, Amendment of FASB No. 13, and Technical Corrections." SFAS rescinds FASB No.
4 "Reporting Gains and Losses from Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." This statement also rescinds SFAS No. 44 "Accounting
for Intangible Assets of Motor Carriers" and amends SFAS No. 13, "Accounting for
Leases." This statement is effective for fiscal years beginning after May 15,
2002. The adoption of this statement had no material impact on the Company's
financial statements.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (Including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value when the liability is incurred. SFAS No.
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with early application encouraged. The adoption of this
statement had no material impact on the Company's consolidated financial
statements.

In October 2002, the FASB issued SFAS No. 147 "Acquisitions of Certain Financial
Institutions". SFAS No. 147 amends FASB Statements No. 72 and 144 and FAB
Interpretations No. 9. The adoption of this statement had no material impact on
the Company's financial statements.

In November 2002, the FASB published interpretation No. 45 "Guarantor's
Accounting and Disclosure requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". The Interpretation expands on the
accounting guidance of Statements No. 5, 57, and 107 and incorporates without
change the provisions of FASB Interpretation No. 34, which is being superseded.
The Interpretation elaborates on the existing disclosure requirements for most
guarantees, including loan guarantees such as standby letters of credit. It also
clarifies that at the time a company issues a guarantee, that company must
recognize an initial liability for the fair value, or market value, of the
obligations it assumes under that guarantee and must disclose that information
in its interim and annual financial statements. The initial recognition and
initial measurement provisions apply on a prospective basis to guarantees issued
or modified after December 31, 2002, regardless of the guarantor's fiscal
year-end. The disclosure requirements in the Interpretation are effective for
financial statements of interim or annual periods ending after December 15,
2002. The adoption of this statement had no material impact on the Company's
financial statements.

In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation- Transition and Disclosure". This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation" to provide alternative methods of
transition for an entity that voluntarily changes to the fair value method of
accounting for stock-based compensation. In addition, SFAS 148 amends the
disclosure provision of SFAS 123 to require more prominent disclosure about the
effects of an entity's accounting policy decisions with respect to stock-based
employee compensation on reported net income. The effective date for this
Statement is for fiscal years ended after December 15, 2002. The adoption of
this statement had no material impact on the Company's financial statements.

Unaudited Interim Financial Information

The accompanying financial statements for the three-month and six-month periods
ended June 30, 2003 and 2002 are unaudited but include all adjustments
(consisting of normal recurring accruals) which, in the opinion of management,
are necessary for a fair statement of the operating results and cash flows for
the periods presented.

Note 2 - Reverse Acquisition

On March 31, 2003 the reverse triangular merger between the Company and
Knowledge Foundation, Inc. closed. As a result of the closing BSI2000, Inc.
became a 100% owned subsidiary of Knowledge Foundations, Inc. Also as result of
the closing Knowledge Foundations, Inc.'s name changed to BSI2000, Inc. ("new
BSI") and BSI2000, Inc.'s name changed to BSI Operating, Corp. ("old BSI").

Immediately prior to the closing all of Knowledge Foundation, Inc.'s assets and
all but $56,825 of its liabilities (see below) were spun-off to certain of its
shareholders in exchange for 34,105,900 shares of common stock, which were then
canceled. After the spin-off 5,027,818 shares of Knowledge Foundations, Inc.
common stock ("new BSI stock") remained outstanding.

Knowledge Foundations, Inc. ("new BSI") acquired BSI2000, Inc. ("old BSI") by
issuing 45,122,570 of its common shares ("new BSI stock") to shareholders of
BSI2000, Inc. ("old BSI") in exchange for 100% of the outstanding 8,786,900
common shares of BSI2000, Inc. ("old BSI stock").

For financial reporting purposes the transaction has been accounted for as a
re-capitalization of the Company. Accordingly the net increase in the
outstanding shares of 41,363,488 resulting from the above transactions has been
reflected in the financial statements as shares issued in connection with the
re-capitalization of the Company. In recording the re-capitalization transaction
$4,121,307 has been reclassified from common stock to additional paid in
capital.

As a result of the accounting method adopted to record the merger, for financial
reporting purposes the historical financial statements of the Company, and only
the historical financial statements of the Company, have become the historical
financial statements of the continuing entity. Historical financial statements
of Knowledge Foundation, Inc. are not presented.

The terms of the merger agreement between the Company and Knowledge Foundations,
Inc. provided that the liabilities of Knowledge Foundation, Inc. at the closing
would not exceed $15,000. However, at the closing Knowledge Foundations, Inc.
had a note payable and accrued interest outstanding in the amount of $56,825. In
order to off set this liability certain shareholders of Knowledge Foundations.
Inc. executed a note payable to the Company in the amount of $56,825. The
Knowledge Foundation, Inc. note and accrued interest have been recorded as a
reduction of additional paid in capital. The note receivable from the Knowledge
Foundation, Inc. shareholders has been recorded as an increase to additional
paid in capital.

Note 3-Subsequent Events

On July 7, 2003, BSI sold $250,000 convertible debentures to Cornell Capital
Partners. Cornell Capital Partners was the purchaser of the convertible
debentures. These debentures accrue interest at a rate of 5% per year and mature
two years from the issuance date. The debentures are convertible at Cornell
Capital Partners' option any time up to maturity at a conversion price equal to
the lower of (i) 120% of the closing bid price of the common stock as of the
closing date or (ii) 80% of the lowest closing bid price of the common stock for
the five trading days immediately preceding the conversion date. At maturity,
BSI has the option to either pay the holder the outstanding principal balance
and accrued interest or to convert the debentures into shares of common stock at
a conversion price equal to the lower of (i) 120% of the closing bid price of
the common stock as of the closing date or (ii) 80% of the lowest closing bid
price of the common stock for the five trading days immediately preceding the
conversion date. BSI has the right to redeem the debentures upon thirty days
notice for 120% of the amount redeemed.

On July 7, 2003, BSI entered into an Equity Line of Credit Agreement with
Cornell Capital Partners. Under this agreement, BSI may issue and sell to
Cornell Capital Partners common stock for a total purchase price of up to $15.0
million. Subject to certain conditions, BSI will be entitled to commence drawing
down on the Equity Line of Credit when the common stock to be issued under the
Equity Line of Credit is registered with the Securities and Exchange Commission
and the registration statement is declared effective and will continue for two
years thereafter. The purchase price for the shares will be equal to 99% of, or
a 1% discount to, the market price, which is defined as the lowest closing bid
price of the common stock during the five trading days following the notice
date. The amount of each advance is subject to an aggregate maximum advance
amount of $210,000, with no advance occurring within seven trading days of a
prior advance. In addition, in each advance notice BSI shall establish a minimum
acceptable price, whereby the amount requested in the advance notice shall
automatically decrease by 20% for each day of the five succeeding trading days
that the closing bid price is below the minimum acceptable price. Cornell
Capital Partners received 1,875,000 shares of BSI common stock as a one-time
commitment fee. Cornell Capital Partners is entitled to retain a fee of 4.0% of
each advance. In addition, BSI entered into a placement agent agreement with
Newbridge Securities Corporation., a registered broker-dealer. Pursuant to the
placement agent agreement, BSI will pay a one-time placement agent fee of 35,714
shares of common stock equal to approximately $10,000 based on BSI's stock price
on July 7, 2003, the date BSI agreed to engage the placement agent.

ITEM 2 Management's Plan of Operations

RISK FACTORS AND CAUTIONARY STATEMENTS

Cautionary Statement Regarding Forward-Looking Statements

The Company's Form 10-QSB or any other written or oral statements made by or on
behalf of the Company may contain forward-looking statements which reflect the
Company's current views with respect to future events and ate," "intends,"
"estimate," "forecast," "project," and similar expressions identify
forward-looking statements. All statements other than statements of historical
fact are statements that could be deemed forward-looking statements, including
any statements of the plans, strategies and objectives of management for future
operations; any statements concerning proposed new products, services,
developments or industry rankings; any statements regarding future economic
conditions or performance; any statements of belief; and any statements of
assumptions underlying any of the foregoing.

The Company wishes to caution investors that any forward-looking statements made
by or on behalf of the Company are subject to uncertainties and other factors
that could cause actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to the Risk Factors
listed below (many of which have been discussed in prior SEC filings by the
Company). Though the Company has attempted to list comprehensively these
important factors, the Company wishes to caution investors that other factors
could in the future prove to be important in affecting the Company's results of
operations. New factors emerge from time to time and it is not possible for
management to predict all of such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.

Readers are further cautioned not to place undue reliance on such
forward-looking statements as they speak only of the Company's views as of the
date the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.

Financial Condition and Results of Operations

The following should be read together with the financial statements included in
this report.

We have developed a family of three related products. To date, none of these
products have generated any significant revenues. All development expenditures
associated with these products have been expensed.

Results of Operations for the three months Ended June 30, 2003 and 2002.

Three Months Ended
June 30,
----------------------------------
2003(Unaudited) 2002(Unaudited)
--------------- ---------------

Revenues $ 5,000 $ -

Operating Expenses (298,770) (215,154)

Other Income (Expense) (343) (5,733)
------------ ------------

Net Income (Loss) $ (294,113) $ (220,887)
============ ============

Results of Operations for the three months ended June 30, 2003 Compared to June
30,2002.

We did not have any significant sales of units for the quarters ended June 30,
2003 and 2002.

We lost $294,113 in the quarter ending June 30, 2003 as compared to the loss of
$220,887 for the same period in 2002. The $73,226 increase in the loss was the
result of an increase in staffing levels for research and development of
$81,816. Selling and general and administrative expenses increased by $1,800. We
reduced interest expenses by $22,492 through a renegotiation and payment of
outstanding liabilities. Interest income decreased $17,102, as cash reserves
were used in operations.

Results of operations for the six months ended June 30, 2003 and 2003.

Six Months Ended
June 30,
----------------------------------
2003(Unaudited) 2002(Unaudited)
--------------- ---------------

Revenues $ 5,000 $ -

Operating Expenses (688,379) (347,173)

Other Income (Expense) 17 (20,431)
----------- -----------

Net Income (Loss) $ (683,362) $ (367,604)
=========== ===========

Results of Operations for the six months ended June 30, 2003 Compared to June
30, 2002.

We did not have any significant sales of units for the six months ended June 30,
2003 and 2002.

We lost $683,362 during the six months ending June 30, 2003 as compared to the
loss of $367,604 for the same period in 2002. The $315,758 increase in the loss
was the result of an increase in staffing levels for research and development of
$226,370. This includes an increase in consulting fees of $34,354. Selling and
general and administrative expenses increased by $114,836. This increase is
attributable to an increase in selling expenses paid to an outside consultant to
aid in the securing of government contracts of $33,410 in 2003: $34,035 of fees
attributable to the merger with Knowledge Foundations, Inc. plus additional
accounting fees of $17,700; the additional staff hired that resulted in payroll
tax expenses and employee benefits increasing by $11,014; and a $18,677 increase
in other general and administrative expenses. We reduced interest expenses by
$37,214 through a renegotiation and payment of outstanding liabilities. Interest
income decreased by $16,766 as cash reserves were used in operations.

Liquidity and Capital Resources at June 30, 2003 and December 31, 2002.

The following table summarizes working capital and total assets, accumulated
deficit and shareholders' equity.

June 30, December 31,
2003 2002
----------- -----------
Working Capital (Deficit) $ (299,316) $ 325,646

Total Assets $ 189,617 $ 341,385

Accumulated Deficit $(4,394,673) $(3,711,311)

Stockholders' Equity (Deficit) $ (223,216) $ 325,646

Our merger with Knowledge Foundations, Inc. is treated as a recapitalization of
BSI2000, Inc. The merger resulted in the stockholders of BSI2000, Inc.
exchanging all of their outstanding shares, or 8,786,900 shares of no par
common, for 45,122,570 shares of Knowledge Foundations, Inc. $.001 par common.
BSI2000, Inc. eliminated its no par common stock. The December 31, 2002 common
stock value was reduced from $4,036,957 to $50,150 at March 31, 2003. The amount
of the reduction is $3,986,807. At March 31, 2003 there were 50,150,390 shares
of outstanding $.001 par common stock. At December 31, 2002, the number of
outstanding no par common shares totaled 8,652,400. There were an additional
134,500 shares issued from January 01, 2003 through March 31, 2003 for $134,500.
The merger resulted in a reclassification of common stock as additional paid in
capital in the amount of $4,121,307.

Sales of equity to investors are the Company's only current source of capital.
The Company expects that it will be less difficult to raise fresh capital as a
public company now that the merger with Knowledge Foundations, Inc. has closed.
However, there is no assurance, given the current condition of the capital
markets, that the company can raise any additional capital even as a public
company.

At June 30, 2003 we had cash of $5,844. Based on our current budget assessment,
we believe that we may need to obtain approximately $1.5 million in additional
debt or equity capital from one or more sources to fund operations for the next
12 months.

On July 7, 2003, BSI entered into an Equity Line of Credit Agreement with Cornell
Capital Partners. Under this agreement, BSI may issue and sell to Cornell Capital
Partners common stock for a total purchase price of up to $15.0 million. Subject
to certain conditions, BSI will be entitled to commence drawing down on the
Equity Line of Credit when the common stock to be issued under the Equity Line of
Credit is registered with the Securities and Exchange Commission and the
registration statement is declared effective and will continue for two years
thereafter. The purchase price for the shares will be equal to 99% of, or a 1%
discount to, the market price, which is defined as the lowest closing bid price
of the common stock during the five trading days following the notice date. The
amount of each advance is subject to an aggregate maximum advance amount of
$210,000, with no advance occurring within seven trading days of a prior advance.
In addition, in each advance notice BSI shall establish a minimum acceptable
price, whereby the amount requested in the advance notice shall automatically
decrease by 20% for each day of the five succeeding trading days that the closing
bid price is below the minimum acceptable price. Cornell Capital Partners
received 1,875,000 shares of BSI common stock as a one-time commitment fee.
Cornell Capital Partners is entitled to retain a fee of 4.0% of each advance. In
addition, BSI entered into a placement agent agreement with Newbridge Securities
Corporation., a registered broker-dealer. Pursuant to the placement agent
agreement, BSI will pay a one-time placement agent fee of 35,714 shares of common
stock equal to approximately $10,000 based on BSI's stock price on July 7, 2003,
the date BSI agreed to engage the placement agent.

Plan of Operations

We have been awarded a contract from the INS for six of our optical card units.
The total contract award is $25,570. The INS will evaluate the units in their
Washington D.C. laboratories for use in border crossing/port of entry control
applications.

We intend to leverage the INS award into additional business with the Federal
government and new business with governments of other countries that are seeking
to strengthen control over their borders. We have teaming agreements in place
with several larger companies to help us accomplish this objective.

We will also continue to pursue sales of our Employee Tracking System and Access
Control and Site Security products to commercial customers. Upon closing of any
such sale we expect to increase our staff size by three employees.

Any award of a major contract would require us to immediately increase the size
of our staff to approximately 25 employees and consultants. We currently have
nine full time employees and three consultants.

ITEM 3 Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The Company's Chief
Executive Officer, after evaluating the effectiveness of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of a date within 90 days of the filing of this quarterly report (the "Evaluation
Date"), have concluded that, as of the Evaluation Date, the Company's disclosure
controls and procedures were effective to ensure the timely collection,
evaluation and disclosure of information relating to the Company that would
potentially be subject to disclosure under the Exchange Act and the rules and
regulations promulgated thereunder.

(b) Changes in Internal Controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
the internal controls subsequent to the Evaluation Date.

PART II OTHER INFORMATION

ITEM 1 Legal Proceedings.

The Company currently has a claim against it by a consultant over consideration
with regard to a finder's fee for potential equity financing for Knowledge
Foundations, Inc. The Company believes that neither the merit or future outcome
of such a claim nor potential damages is readily determinable as of June 30,
2003 and therefore has not accrued any liability in the accompanying financial
statements.

ITEM 2 Changes in Securities.

None.

ITEM 3 Defaults Upon Senior Securities.

The Company has borrowings from third parties totaling $50,000 under an
unsecured note payable. This note payable accrues interest at 6% per annum, and
principal and accrued interest are due on or before January 1, 2002, or five
days after receipt by the Company of additional debt or equity financing in a
sum of $500,000 or more. The note remains unpaid and is in default on the date
provision; additional financing exceeding $500,000 has not occurred.

ITEM 4 Submission of Matters to a Vote of Securities Holders.

None.

ITEM 5: Exhibits and Reports on 8-K:

Exhibits.
Exhibit 99.1 CEO Certifications
Reports on Form 8-K.
During April 2003, the Company filed a report on Form 8-K reporting the
consummation of its merger with Knowledge Foundations, Inc.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: August 10, 2003 By: /s/Jack Harper
Jack Harper
President and Chief Executive Officer

BSI2000 (BSIO) Inactive 10QSB2004 Q1 Quarterly report (small business)