BSI 2000, Inc.
12600 W. Colfax Ave., B410
Lakewood, Colorado 80215
November 11, 2005
VIA EDGAR AND U.S. MAIL
Mr. Stephen Krikorian
Accounting Branch Chief
United States Securities and Exchange Commission
Division of Corporation Finance
Mail Room 4561
Washington, DC 20549
Re: | BSI2000, Inc. |
Form 10-KSB for the Fiscal Year Ended December 31, 2004 |
Filed April 15, 2005 |
Form 10-KSB/A for the Fiscal Year Ended December 31, 2004 |
Filed October 14, 2005 |
File No. 000-28287 |
Dear Mr. Krikorian:
This letter has been prepared in response to your request for BSI 2000, Inc. (“BSI 2000” or the “Company”) to respond to the comments of the United States Securities and Exchange Commission (the “SEC” or the “Commission”) as memorialized in your October 19, 2005 letter to Jack Harper (the “Comment Letter”) concerning the above-referenced: (i) Form 10-KSB for the Fiscal Year Ended December 31, 2004 (the “Form 10-KSB”), and (ii) Form 10-KSB/A for the Fiscal Year Ended December 31, 2004 (the “Form 10-KSB/A”).
The Company’s responses to the SEC Comment Letter with respect to the Form 10-KSB and Form 10-KSB/A appear below.
Form 10-KSB/A-For The Year Ended December 31, 2004
Notes to Consolidated Financial Statements
Note 5 - Convertible Debt, page F-12
Prior Comment No. 1
COMMENT 1: | The Company should review the convertible debt arrangement to identify all embedded derivatives instruments as there may be more than one embedded derivative in your convertible notes. For example, we note your optional redemption provision provided with the convertible debt issued on October 7, 2004. This provision appears to represent a call option that might qualify as an embedded derivative instrument. The call option should be evaluated in accordance with DIG B-16 and paragraph 13 of SFAS 133. Tell us how you considered whether or not this call option was clearly and closely related to the debt host contract in determining whether it should be separately accounted for under the provisions of paragraph 61(d) of SFAS 133. | |
RESPONSE: | The Commission’s comment is clearly asking whether the call provision of Section 1.04 of the convertible debentures (the “Cornell Debentures”) issued to Cornell Capital Partners, LP (“Cornell”) qualifies as an embedded derivative instrument under DIG B-16 and paragraph 13 of SFAS 133. A call option is considered not to be clearly and closely related a convertible debt instrument if both (i) the debt involves a substantial premium or discount, and (ii) the put or call option is only contingently exercisable. The Cornell Debentures do involve a significant discount (i.e., 20%), but are not contingently exercisable, as the Company has the right to redeem the Cornell Debentures in its sole discretion. Accordingly, the redemption provision of the Cornell Debentures is deemed to be clearly and closely related to the Cornell Debentures. | |
Mr. Stephen Krikorian
United States Securities and Exchange Commission
November 11, 2005
Page 2
COMMENT 2: | Furthermore, the identification, classification and measurement of such instruments should be undertaken by management at each reporting period, in accordance with SFAS No. 133 and EITF 00-19. For example, an instrument that could have qualified as an equity instrument in prior reporting periods now may be considered a liability because the instrument must be reassessed at each reporting period. See paragraph 10 of EITF 00-19. That is, in order to maintain equity classification the embedded derivative or any freestanding derivative must satisfy the conditions outlined in paragraphs 12 to 32 of EITF 00-19 at each reporting period. This analysis should also be performed for the December 10, 2004, January 19, 2005, and June 17, 2005 financing arrangements. | |
RESPONSE: | As noted in the Company’s response to Comment No. 1 above, the redemption provision of the Cornell notes are clearly and closely related to the Cornell Debentures, and accordingly, the need to measure such instruments from period-to-period is not necessary. BSI has addressed this issue as it relates to all convertible debentures for all reporting periods. | |
COMMENT 3. | We note that you now have accounted and bifurcated the beneficial conversion feature embedded in the convertible notes payable (i.e., “Liability for derivative instruments”). Provide your analysis that supports your accounting for this embedded derivative including the method used to determine its fair value. Additionally, tell us how you allocated or bifurcated the fair value of the embedded derivative from the proceeds of the convertible debt. That is, the fair value should be first applied to the proceeds received and any excess amount should be expensed. In this regard, provide the journal entries used to record this transaction. | |
RESPONSE: | Please refer to Exhibit A attached hereto, which contains a spreadsheet detailing the Company’s Black-Scholes Option Valuation Model analysis at inception and at subsequent conversion dates and reporting period dates. In all but one case, the proceeds received from each convertible debt issuance were in excess of the fair value of the debt. In the once instance where the fair value exceeded the proceeds from issuance (the June 18, 2005 issuance), the small excess (i.e., $1,069) was deemed not material, and therefore was not expensed. The accompanying spreadsheet includes the Black-Scholes Option Valuation Models used by the Company in determining the fair value of each beneficial conversion feature, as well as fair value valuations at each reporting period and conversion date, again using the Black-Scholes Option Valuation Model. The accompanying spreadsheet also includes all journal entries made in connection therewith. | |
Mr. Stephen Krikorian
United States Securities and Exchange Commission
November 11, 2005
Page 3
Note 7 - Stockholders' Equity
Warrants, page F-15
COMMENT 4: | We note the vested warrants that were granted during February 2004. Explain to us, in great detail, how these vested warrants were analyzed under EITF 00-19 in order for it to maintain its equity classification. That is, in light of the fact that the debt is convertible into variable-number of shares of your common stock it is possible that the company will fail to have sufficient authorized shares available. See paragraph 19 of EITF 00-19. If the conditions outlined in EITF 00-19 are not satisfied, the warrant would be accounted for as a liability. It should be noted that the lack of a cap on the number of shares that could be issued through convertible debt would also impact any other instruments that are exercisable during the period that the conversion feature is in place. | |
RESPONSE: | Please refer to Exhibit B attached hereto, which contains a spreadsheet detailing excess shares that would be available if Cornell were to convert the entire Cornell Debentures at market prices of $0.05, $0.04, $0.03, $0.02 and $0.01. The analysis shows that only at a conversion price of $0.01 per share will the Company not have sufficient shares to satisfy all of the Cornell conversions. The Company will continue to evaluate, at each reporting period, the need to classify the equity classification of its vested warrants to determine the need for classification of vested warrants as liabilities. | |
Mr. Stephen Krikorian
United States Securities and Exchange Commission
November 11, 2005
Page 4
Should you have any questions concerning this Response Letter or Form 10-QSB/A2 or Q1 Form 10-QSB/A2 or Q2 Form 10-QSB/A2, please contact me at (303) 231-9095.
Very truly yours, | ||
| | |
By: | /s/ Jack Harper | |
Jack Harper President and Chief Executive Officer | ||
cc: | Clayton E. Parker, Esq. Kirkpatrick & Lockhart Nicholson Graham, LLP (via facsimile) Douglas Slaybaugh, Ehrhardt Keefe Steiner & Hottman PC (via facsimile) Rebecca Toten, United States Securities and Exchange Commission (via Fed Ex) |
EXHIBIT A
BSI2000, Inc. | |||||||||||||
Supplemental Response to | |||||||||||||
Comment No. 3 | |||||||||||||
Liability | |||||||||||||
12/31/2004 | 03/31/2005 | 06/30/2005 | 09/30/2005 | ||||||||||
01/19/2005 | - | 170,792 | 177,940 | 169,138 | |||||||||
12/10/2004 | 353,633 | 330,571 | 343,418 | 227,477 | |||||||||
10/07/2004 | 353,633 | 297,513 | 171,317 | - | |||||||||
06/18/2005 | - | - | 93,706 | 76,423 | |||||||||
07/15/2005 | 76,423 | ||||||||||||
08/05/2005 | 621,127 | ||||||||||||
Balances | 707,267 | 798,876 | 786,381 | 1,170,587 | |||||||||
Equity (APIC) | |||||||||||||
12/31/2004 | 03/31/2005 | 06/30/2005 | 09/30/2005 | ||||||||||
01/19/2005 | (177,953 | ) | |||||||||||
12/10/2004 | (362,709 | ) | 113,371 | ||||||||||
10/07/2004 | (374,512 | ) | 56,371 | 119,948 | 171,317 | ||||||||
06/18/2005 | (93,569 | ) | |||||||||||
07/15/2005 | (81,352 | ) | |||||||||||
08/05/2005 | (640,831 | ) | |||||||||||
Effect per quarter | (737,221 | ) | (121,581 | ) | 26,379 | (437,496 | ) | ||||||
Income Statement (quarterly) | |||||||||||||
12/31/2004 | 03/31/2005 | 06/30/2005 | 09/30/2005 | ||||||||||
01/19/2005 | - | (7,161 | ) | 7,148 | (8,802 | ) | |||||||
12/10/2004 | (9,076 | ) | (23,063 | ) | 12,848 | (2,571 | ) | ||||||
10/07/2004 | (20,878 | ) | 251 | (6,249 | ) | ||||||||
06/18/2005 | - | - | 138 | (17,283 | ) | ||||||||
07/15/2005 | (4,929 | ) | |||||||||||
08/05/2005 | (19,704 | ) | |||||||||||
Effect per quarter | 13,885 | (53,289 | ) | ||||||||||
(29,954 | ) | (29,973 | ) | ||||||||||
Proof | 707,267 | 798,876 | 786,381 | 1,170,587 | |||||||||
Valuation | Proceeds | Difference | |||||||||||
10/17/2004 | 374,512 | 440,000 | (65,488 | ) | |||||||||
12/10/2004 | 362,709 | 450,000 | (87,291 | ) | |||||||||
01/19/2005 | 177,953 | 225,000 | (47,047 | ) | |||||||||
06/18/2005 | 93,569 | 92,500 | 1,069 | Pass on expensing difference due to immateriality | |||||||||
07/15/2005 | 81,352 | 112,500 | (31,148 | ) | |||||||||
08/05/2005 | 640,831 | 695,378 | (54,547 | ) |
Journal Entries | |||||||||||||||||||||||||
12/31/2004 | 03/31/2005 | 06/30/2005 | 09/30/2005 | ||||||||||||||||||||||
Dr | Cr | Dr | Cr | Dr | Cr | Dr | Cr | ||||||||||||||||||
APIC | 737,221 | 177,953 | 93,569 | 722,183 | |||||||||||||||||||||
Liability for derivative instrument | 737,221 | 177,953 | 93,569 | 722,183 | |||||||||||||||||||||
To record initial liability | |||||||||||||||||||||||||
Liability for derivative instrument | 29,954 | 29,973 | 13,885 | 53,289 | |||||||||||||||||||||
Other income | 29,954 | 29,973 | 13,885 | 53,289 | |||||||||||||||||||||
To record period mark to market | |||||||||||||||||||||||||
Liability for derivative instrument | 56,371 | 119,948 | 284,688 | ||||||||||||||||||||||
APIC | 56,371 | 119,948 | 284,688 | ||||||||||||||||||||||
To record conversions as equity | |||||||||||||||||||||||||
Debt offering costs (contra liability) | 301,827 | ||||||||||||||||||||||||
Financing costs | 301,827 | ||||||||||||||||||||||||
Record 20,000,000 Cornell warrants | |||||||||||||||||||||||||
as financing costs | |||||||||||||||||||||||||
Note: See Black-Scholes Option Valuation Model for Cornell Warrants 6/30/05 |
BSI2000, Inc. | ||||||||||||||||
Supplemental Response to Comment No. 3 | ||||||||||||||||
BLACK-SCHOLES OPTION VALUATION MODEL | ||||||||||||||||
FOR USE WITH FAS 123 | ||||||||||||||||
As of: | As of: | As of: | As of: | |||||||||||||
INPUT VARIABLES | 01/19/2005 | 03/31/2005 | 06/30/2005 | 09/30/2005 | ||||||||||||
Stock Price | $ | 0.0420 | $ | 0.035 | $ | 0.049 | $ | 0.049 | ||||||||
Exercise Price | $ | 0.0336 | $ | 0.028 | $ | 0.039 | $ | 0.039 | ||||||||
Term | 3.00 | 2.83 | 2.58 | 2.33 | ||||||||||||
Volatility | 75.60 | % | 72.18 | % | 81.60 | % | 79.26 | % | ||||||||
Annual Rate of Quarterly Dividends | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Discount Rate = Bond Equivalent Yield | 3.420 | % | 3.960 | % | 3.880 | % | 4.180 | % | ||||||||
INTERMEDIATE CALCULATIONS | ||||||||||||||||
Present Value of Stock Ex-dividend | 0.04 | 0.04 | 0.05 | 0.05 | ||||||||||||
Present Value of Exercise Price | 0.03 | 0.03 | 0.04 | 0.04 | ||||||||||||
Cumulative Volatility | 130.94 | % | 121.49 | % | 131.16 | % | 120.99 | % | ||||||||
CALL OPTION VALUE | ||||||||||||||||
Proportion of Stock Present Value | 81.67 | % | 81.13 | % | 81.64 | % | 80.76 | % | ||||||||
Proportion of Exercise Price PV | -34.21 | % | -36.98 | % | -34.09 | % | -36.66 | % | ||||||||
Call Option Value | $ | 0.02 | $ | 0.02 | $ | 0.03 | $ | 0.03 | ||||||||
PUT OPTION VALUE | ||||||||||||||||
Proportion of Stock Present Value | -18.33 | % | -18.87 | % | -18.36 | % | -19.24 | % | ||||||||
Proportion of Exercise Price PV | 65.79 | % | 63.02 | % | 65.91 | % | 63.34 | % | ||||||||
Put Option Value | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | ||||||||
Number of shares | 7,440,476 | 8,928,571 | 6,377,551 | 6,377,551 | ||||||||||||
Ascribed value per share | $ | 0.02 | $ | 0.02 | $ | 0.03 | $ | 0.03 | ||||||||
Total compensation cost | $ | 177,953 | $ | 170,792 | $ | 177,940 | $ | 169,138 | ||||||||
P&L (Mark to Market) | $ | (7,161 | ) | $ | 7,148 | $ | (8,802 | ) | ||||||||
difference | difference | difference |
BSI2000, Inc. | ||||||||||||||||||||||
Supplemental Response to Comment No. 3 | ||||||||||||||||||||||
BLACK-SCHOLES OPTION VALUATION MODEL | ||||||||||||||||||||||
FOR USE WITH FAS 123 | ||||||||||||||||||||||
As of: | As of: | As of: | As of: | As of: | As of: | As of: | ||||||||||||||||
INPUT VARIABLES | 12/10/2004 | 12/31/2004 | 03/31/2005 | 06/30/2005 | 09/06/2005 | 09/12/2005 | 09/30/2005 | |||||||||||||||
Stock Price | $ | 0.045 | $ | 0.045 | $ | 0.035 | $ | 0.049 | $ | 0.041 | $ | 0.055 | $ | 0.049 | ||||||||
Exercise Price | $ | 0.036 | $ | 0.036 | $ | 0.028 | $ | 0.039 | $ | 0.033 | $ | 0.044 | $ | 0.039 | ||||||||
Term | 3.00 | 2.83 | 2.58 | 2.33 | 2.16 | 2.16 | 2.08 | |||||||||||||||
Volatility | 78.40 | % | 77.56 | % | 72.18 | % | 81.60 | % | 79.26 | % | 79.26 | % | 79.26 | % | ||||||||
Annual Rate of Quarterly Dividends | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Discount Rate = Bond Equivalent Yield | 3.150 | % | 3.250 | % | 3.960 | % | 3.880 | % | 3.830 | % | 3.930 | % | 4.180 | % |
INTERMEDIATE CALCULATIONS | ||||||||||||||||||||||
Present Value of Stock Ex-dividend | 0.05 | 0.05 | 0.04 | 0.05 | 0.04 | 0.06 | 0.05 | |||||||||||||||
Present Value of Exercise Price | 0.03 | 0.03 | 0.03 | 0.04 | 0.03 | 0.04 | 0.04 | |||||||||||||||
Cumulative Volatility | 135.80 | % | 130.55 | % | 116.01 | % | 124.65 | % | 116.60 | % | 116.60 | % | 114.31 | % |
CALL OPTION VALUE | ||||||||||||||||||||||
Proportion of Stock Present Value | 81.92 | % | 81.42 | % | 80.50 | % | 80.90 | % | 80.09 | % | 80.14 | % | 80.01 | % | ||||||||
Proportion of Exercise Price PV | -32.79 | % | -34.02 | % | -38.19 | % | -35.48 | % | -37.40 | % | -37.47 | % | -38.17 | % | ||||||||
Call Option Value | $ | 0.03 | $ | 0.03 | $ | 0.02 | $ | 0.03 | $ | 0.02 | $ | 0.03 | $ | 0.03 | ||||||||
PUT OPTION VALUE | ||||||||||||||||||||||
Proportion of Stock Present Value | -18.08 | % | -18.58 | % | -19.50 | % | -19.10 | % | -19.91 | % | -19.86 | % | -19.99 | % | ||||||||
Proportion of Exercise Price PV | 67.21 | % | 65.98 | % | 61.81 | % | 64.52 | % | 62.60 | % | 62.53 | % | 61.83 | % | ||||||||
Put Option Value | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | ||||||||
Number of shares | 13,888,889 | 13,888,889 | 17,857,143 | 12,755,102 | 12,195,122 | 7,954,545 | 8,928,571 | |||||||||||||||
Ascribed value per share | $ | 0.03 | $ | 0.03 | $ | 0.02 | $ | 0.03 | $ | 0.02 | $ | 0.03 | $ | 0.03 | ||||||||
Total compensation cost | $ | 362,709 | $ | 353,633 | $ | 330,571 | $ | 343,418 | $ | 262,619 | $ | 230,047 | $ | 227,477 | ||||||||
P&L (Mark to Market) | $ | (9,076 | ) | $ | (23,063 | ) | $ | 12,848 | $ | - | $ | - | $ | (2,571 | ) | |||||||
difference | difference | difference | difference | difference | difference | |||||||||||||||||
Equity (Conversions) | $ | 80,799 | $ | 32,571 | $ | - |
BSI2000, Inc. | ||||||||||||||||||||||
Supplemental Response to Comment No. 3 | ||||||||||||||||||||||
BLACK-SCHOLES OPTION VALUATION MODEL | ||||||||||||||||||||||
FOR USE WITH FAS 123 | ||||||||||||||||||||||
As of: | As of: | As of: | As of: | As of: | As of: | As of: | ||||||||||||||||
INPUT VARIABLES | 10/07/2004 | 12/31/2004 | 03/21/2005 | 03/31/2005 | 04/14/2005 | 06/29/2008 | 06/30/2005 | |||||||||||||||
Stock Price | $ | 0.062 | $ | 0.045 | $ | 0.035 | $ | 0.035 | $ | 0.039 | $ | 0.042 | $ | 0.049 | ||||||||
Exercise Price | $ | 0.050 | $ | 0.036 | $ | 0.028 | $ | 0.028 | $ | 0.031 | $ | 0.034 | $ | 0.039 | ||||||||
Term | 3.00 | 2.83 | 2.58 | 2.58 | 2.58 | 2.58 | 2.33 | |||||||||||||||
Volatility | 82.80 | % | 77.56 | % | 72.18 | % | 72.18 | % | 72.18 | % | 81.60 | % | 81.60 | % | ||||||||
Annual Rate of Quarterly Dividends | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | ||||||||
Discount Rate = Bond Equivalent Yield | 3.010 | % | 3.250 | % | 3.930 | % | 3.960 | % | 3.760 | % | 3.690 | % | 3.670 | % | ||||||||
INTERMEDIATE CALCULATIONS | ||||||||||||||||||||||
Present Value of Stock Ex-dividend | 0.06 | 0.05 | 0.04 | 0.04 | 0.04 | 0.04 | 0.05 | |||||||||||||||
Present Value of Exercise Price | 0.05 | 0.03 | 0.03 | 0.03 | 0.03 | 0.03 | 0.04 | |||||||||||||||
Cumulative Volatility | 143.42 | % | 130.55 | % | 115.94 | % | 116.01 | % | 116.01 | % | 131.15 | % | 124.65 | % | ||||||||
CALL OPTION VALUE | ||||||||||||||||||||||
Proportion of Stock Present Value | 82.51 | % | 81.42 | % | 80.48 | % | 80.50 | % | 80.38 | % | 81.54 | % | 80.79 | % | ||||||||
Proportion of Exercise Price PV | -30.89 | % | -34.02 | % | -38.19 | % | -38.19 | % | -38.03 | % | -33.96 | % | -35.34 | % | ||||||||
Call Option Value | $ | 0.04 | $ | 0.03 | $ | 0.02 | $ | 0.02 | $ | 0.02 | $ | 0.02 | $ | 0.03 | ||||||||
PUT OPTION VALUE | ||||||||||||||||||||||
Proportion of Stock Present Value | -17.49 | % | -18.58 | % | -19.52 | % | -19.50 | % | -19.62 | % | -18.46 | % | -19.21 | % | ||||||||
Proportion of Exercise Price PV | 69.11 | % | 65.98 | % | 61.81 | % | 61.81 | % | 61.97 | % | 66.04 | % | 64.66 | % | ||||||||
Put Option Value | $ | 0.02 | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | ||||||||
Number of shares | 10,080,645 | 13,888,889 | 16,071,429 | 16,071,429 | 11,217,949 | 7,440,476 | 6,377,551 | |||||||||||||||
Ascribed value per share | $ | 0.04 | $ | 0.03 | $ | 0.02 | $ | 0.02 | $ | 0.02 | $ | 0.02 | $ | 0.03 | ||||||||
Total fair value | $ | 374,512 | $ | 353,633 | $ | 297,262 | $ | 297,513 | $ | 230,787 | $ | 177,565 | $ | 171,317 | ||||||||
Pre-conversion FV | $ | 353,633 | 330,292 | $ | 297,262 | 296,726 | 284,105 | $ | 171,317 | |||||||||||||
Post Conversion FV | $ | 353,633 | $ | 297,262 | $ | 297,513 | $ | 230,787 | $ | 177,565 | $ | 171,317 | ||||||||||
P&L (Mark to market) | $ | (20,878 | ) | $ | - | $ | 251 | $ | - | $ | - | $ | (6,249 | ) | ||||||||
difference | difference | difference | difference | difference | difference | |||||||||||||||||
Equity (Conversions) | $ | - | $ | 56,371 | $ | - | $ | 66,727 | $ | 53,221 | $ | 171,317 ** |
**Note converted in total at 9-30-05. Therefore all equity.
BSI2000, Inc. | ||||||||||
Supplemental Response to Comment No. 3 | ||||||||||
BLACK-SCHOLES OPTION VALUATION MODEL | ||||||||||
FOR USE WITH FAS 123 | ||||||||||
As of: | As of: | As of: | ||||||||
INPUT VARIABLES | 06/18/2005 | 06/30/2005 | 09/30/2005 | |||||||
Stock Price | $ | 0.0270 | $ | 0.049 | $ | 0.049 | ||||
Exercise Price | $ | 0.0216 | $ | 0.039 | $ | 0.039 | ||||
Term | 3.00 | 3.00 | 1.75 | |||||||
Volatility | 81.60 | % | 81.60 | % | 79.26 | % | ||||
Annual Rate of Quarterly Dividends | 0.00 | % | 0.00 | % | 0.00 | % | ||||
Discount Rate = Bond Equivalent Yield | 3.750 | % | 3.880 | % | 4.180 | % | ||||
INTERMEDIATE CALCULATIONS | ||||||||||
Present Value of Stock Ex-dividend | 0.03 | 0.05 | 0.05 | |||||||
Present Value of Exercise Price | 0.02 | 0.03 | 0.04 | |||||||
Cumulative Volatility | 141.34 | % | 141.34 | % | 104.85 | % | ||||
CALL OPTION VALUE | ||||||||||
Proportion of Stock Present Value | 82.73 | % | 82.80 | % | 78.99 | % | ||||
Proportion of Exercise Price PV | -31.92 | % | -32.02 | % | -40.42 | % | ||||
Call Option Value | $ | 0.02 | $ | 0.03 | $ | 0.02 | ||||
PUT OPTION VALUE | ||||||||||
Proportion of Stock Present Value | -17.27 | % | -17.20 | % | -21.01 | % | ||||
Proportion of Exercise Price PV | 68.08 | % | 67.98 | % | 59.58 | % | ||||
Put Option Value | $ | 0.01 | $ | 0.02 | $ | 0.01 | ||||
Number of shares | 5,787,037 | 3,188,776 | 3,188,776 | |||||||
Ascribed value per share | $ | 0.02 | $ | 0.03 | $ | 0.02 | ||||
Total compensation cost | $ | 93,569 | $ | 93,706 | $ | 76,423 | ||||
P&L (Mark to market) | $ | 138 | $ | (17,283 | ) | |||||
difference | difference |
BSI2000, Inc. | |||||||
Supplemental Response to Comment No. 3 | |||||||
BLACK-SCHOLES OPTION VALUATION MODEL | |||||||
FOR USE WITH FAS 123 | |||||||
As of: | As of: | ||||||
INPUT VARIABLES | 07/15/2005 | 09/30/2005 | |||||
Stock Price | $ | 0.0380 | $ | 0.049 | |||
Exercise Price | $ | 0.0304 | $ | 0.039 | |||
Term | 2.00 | 1.75 | |||||
Volatility | 81.60 | % | 79.26 | % | |||
Annual Rate of Quarterly Dividends | 0.00 | % | 0.00 | % | |||
Discount Rate = Bond Equivalent Yield | 3.920 | % | 4.180 | % | |||
INTERMEDIATE CALCULATIONS | |||||||
Present Value of Stock Ex-dividend | 0.04 | 0.05 | |||||
Present Value of Exercise Price | 0.03 | 0.04 | |||||
Cumulative Volatility | 115.40 | % | 104.85 | % | |||
CALL OPTION VALUE | |||||||
Proportion of Stock Present Value | 79.89 | % | 78.99 | % | |||
Proportion of Exercise Price PV | -37.59 | % | -40.42 | % | |||
Call Option Value | $ | 0.02 | $ | 0.02 | |||
PUT OPTION VALUE | |||||||
Proportion of Stock Present Value | -20.11 | % | -21.01 | % | |||
Proportion of Exercise Price PV | 62.41 | % | 59.58 | % | |||
Put Option Value | $ | 0.01 | $ | 0.01 | |||
Number of shares | 4,111,842 | 3,188,776 | |||||
Ascribed value per share | $ | 0.02 | $ | 0.02 | |||
Total compensation cost | $ | 81,352 | $ | 76,423 | |||
P&L (Mark to market) | $ | (4,929 | ) | ||||
difference |
BSI2000, Inc. | |||||||
Supplemental Response to Comment No. 3 | |||||||
BLACK-SCHOLES OPTION VALUATION MODEL | |||||||
FOR USE WITH FAS 123 | |||||||
As of: | As of: | ||||||
INPUT VARIABLES | 08/05/2005 | 09/30/2005 | |||||
Stock Price | $ | 0.0750 | $ | 0.049 | |||
Exercise Price | $ | 0.0600 | $ | 0.039 | |||
Term | 2.00 | 1.83 | |||||
Volatility | 79.26 | % | 79.26 | % | |||
Annual Rate of Quarterly Dividends | 0.00 | % | 0.00 | % | |||
Discount Rate = Bond Equivalent Yield | 4.160 | % | 4.180 | % | |||
INTERMEDIATE CALCULATIONS | |||||||
Present Value of Stock Ex-dividend | 0.08 | 0.05 | |||||
Present Value of Exercise Price | 0.06 | 0.04 | |||||
Cumulative Volatility | 112.09 | % | 107.22 | % | |||
CALL OPTION VALUE | |||||||
Proportion of Stock Present Value | 79.76 | % | 79.24 | % | |||
Proportion of Exercise Price PV | -38.67 | % | -39.84 | % | |||
Call Option Value | $ | 0.04 | $ | 0.02 | |||
PUT OPTION VALUE | |||||||
Proportion of Stock Present Value | -20.24 | % | -20.76 | % | |||
Proportion of Exercise Price PV | 61.33 | % | 60.16 | % | |||
Put Option Value | $ | 0.02 | $ | 0.01 | |||
Number of shares | 16,666,667 | 25,510,204 | |||||
Ascribed value per share | $ | 0.04 | $ | 0.02 | |||
Total compensation cost | $ | 640,831 | $ | 621,127 | |||
P&L (Mark to market) | $ | (19,704 | ) | ||||
difference |
EXHIBIT B | ||||||||||||||||
BSI2000, Inc. | ||||||||||||||||
Supplemental Response to Comment No. 4 | ||||||||||||||||
At $.05 | At $.04 | At $.03 | At $.02 | At $.01 | ||||||||||||
Conversion price | $ | 0.04 | $ | 0.03 | $ | 0.02 | $ | 0.02 | $ | 0.0080 | ||||||
Outstanding debt | 1,850,000 | 1,850,000 | 1,850,000 | 1,850,000 | 1,850,000 | |||||||||||
�� | ||||||||||||||||
Shares needed to convert | 46,250,000 | 57,812,500 | 77,083,333 | 115,625,000 | 231,250,000 | |||||||||||
Shares outstanding | 123,479,677 | 123,479,677 | 123,479,677 | 123,479,677 | 123,479,677 | |||||||||||
169,729,677 | 181,292,177 | 200,563,010 | 239,104,677 | 354,729,677 | ||||||||||||
Total options & warrants | 47,710,000 | 47,710,000 | 47,710,000 | 47,710,000 | 47,710,000 | |||||||||||
217,439,677 | 229,002,177 | 248,273,010 | 286,814,677 | 402,439,677 | ||||||||||||
Total authorized | 400,000,000 | 400,000,000 | 400,000,000 | 400,000,000 | 400,000,000 | |||||||||||
Excess | (182,560,323 | ) | (170,997,823 | ) | (151,726,990 | ) | (113,185,323 | ) | 2,439,677 |