Mail Stop 4561
January 5, 2006
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
Forms 10-QSB for Fiscal Quarters Ended March 31, 2005, June 30,
2005
and September 30, 2005
Form 10-KSB/A for Fiscal Year Ended December 31, 2004
File No. 000-28287
Dear Mr. Harper:
We have reviewed your response letter dated November 11, 2005
and the above referenced filings and have the following additional
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 Number 1
1. You indicate in your response that the Cornell Debentures
involve
a significant discount (i.e., 20%). Clarify why you consider the
Cornell Debentures to include a significant discount. In this
regard, for each debt issuance, tell us the par value of the debt
issued as well as the gross proceeds received. Note that EITF 98-
5
or 00-27 is not applicable when the embedded conversion feature is
bifurcated under SFAS 133 and 00-19. Therefore, the beneficial
conversion feature would not be calculated under EITF 98-5 if the
embedded derivative is bifurcated. Further, it is not evident
from
your response how the call option within the Cornell Debentures
was
evaluated in accordance with DIG B16 and paragraph 13 of SFAS 133.
That is, the analysis does not appear to be completed. Please
advise.
Prior Comment Number 3
2. We note your use of the Black-Scholes Option Valuation Model.
Tell us why the model includes a "put option value". Further,
your
valuation techniques and assumptions in determining the fair value
of
each embedded conversion feature should be disclosed within your
periodic filings (i.e., critical accounting policies, footnotes to
financial statements). Please advise.
3. We note the journal entries used to set-up the derivative
liability included a debit to "additional paid-in-capital." Be
advised that this debit should be charged against the proceeds
received (i.e., the convertible debentures) not "APIC." In this
regard, the debit would create a discount for the debt and any
excess
would be expensed.
Note 7 - Stockholders` Equity, page F-14
Warrants, page F-15
Prior Comment Number 4
4. We note in your response that at a conversion price of $0.01
per
share, you would not have sufficient shares to satisfy all of the
Cornell conversions. As such, it appears that your warrants would
not meet the paragraph 19 analysis in EITF 00-19 and should be
accounted for as a liability. Note that paragraph 3 in section II
B
1 of the Current Accounting and Development Issues in the Division
of
Corporation Finance, located on our website at
http://www.sec.gov/divisions/corpfin/acctdis120105.pdf, states
that
when analyzing instruments under EITF 00-19, the probability of
the
event occurring is not a factor. Said differently, the mere
possibility, no matter how remote, that the Company would be
required
to settle the conversion of the debt at a market price of $.01
would
preclude you from classifying the warrants as equity. Note that it
is
possible that the market price might trade below $.01.
Form 8-K filed November 7, 2005
5. We note the convertible debentures issued on November 3, 2005
as
well as the registration rights agreement filed as exhibit 99.3
and
the liquidated damages clause included within the registration
rights
agreement and have the following comments:
* Explain how you considered whether the registration rights
agreement causes the embedded conversion derivative to meet the
definition of a derivative in accordance with SFAS 133.
* Tell us whether management considers the embedded derivative to
be
a freestanding or embedded financial instrument. Cite supporting
accounting literature in your response.
6. We note that the liquidated damages can be paid, at Cornell`s
option, in either a cash amount or shares of your common stock.
Tell
us more about the stock payout option. In this regard, clarify
how
you calculate the amount of shares that would be issuable.
Further,
is there a cap on the amount of shares that you would owe Cornell
if
they opted for net share settlement? If so, what is that cap
amount?
If not, how does this lack of a cap impact your paragraph 19 of
EITF
00-19 analysis as it relates to other issued convertible
debentures
or warrants?
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
Jack Harper
BSI2000, Inc.
January 5, 2006
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