Mail Stop 4561
October 19, 2005
Jack Harper
BSI2000, Inc.
12600 West Colfax Ave. Suite B410
Lakewood, Colorado, 80215
Re: BSI2000, Inc.
Form 10-KSB for Fiscal Year Ended December 31, 2004
Filed April 15, 2005
Form 10-KSB/A for Fiscal Year Ended December 31, 2004
Filed October 14, 2005
File No. 000-28287
Dear Mr. Harper:
We have reviewed your response letter dated September 1, 2005
and have the following comments. Where indicated, we think you
should revise your document in response to these comments. If you
disagree, we will consider your explanation as to why our comments
are inapplicable or a revision is unnecessary. Please be as
detailed
as necessary in your explanation. In some of our comments, we may
ask you to provide us with supplemental information so we may
better
understand your disclosure. After reviewing this information, we
may
or may not raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
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
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.
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.
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.
Note 7 - Stockholders` Equity
Warrants, page F-15
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
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Please submit
all
correspondence and supplemental materials on EDGAR as required by
Rule 101 of Regulation S-T. You may wish to provide us with
marked
copies of any amendment to expedite our review. Please furnish a
cover letter with any amendment that keys your response to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing any amendment and your
response to our comment.
You may contact Jason Niethamer at 202-551-3855 or me at 202-
551-3488 if you have questions regarding the above comments.
Sincerely,
Stephen Krikorian
Accounting Branch Chief
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Jack Harper
BSI2000, Inc.
October 19, 2005
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