-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ni8W1+19299wDqd1l0kFIojDr6hkCz/FymmrOi+MO3nC9n2E0ZCPztXivJgDKeap FcP1okOBQwHPebwRQuPYvA== 0001144204-05-035057.txt : 20090303 0001144204-05-035057.hdr.sgml : 20090303 20051114074901 ACCESSION NUMBER: 0001144204-05-035057 CONFORMED SUBMISSION TYPE: CORRESP PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20051114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BSI2000 INC CENTRAL INDEX KEY: 0001099780 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 880418749 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: CORRESP BUSINESS ADDRESS: STREET 1: 13525 MIDLAND ROAD STREET 2: SUITE I CITY: POWAY STATE: CA ZIP: 92064 BUSINESS PHONE: 6196922518 MAIL ADDRESS: STREET 1: 13525 MIDLAND ROAD STREET 2: SUITE I CITY: POWAY STATE: CA ZIP: 92064 FORMER COMPANY: FORMER CONFORMED NAME: KNOWLEDGE FOUNDATIONS INC/DE DATE OF NAME CHANGE: 20000926 FORMER COMPANY: FORMER CONFORMED NAME: CALIPSO INC DATE OF NAME CHANGE: 19991124 CORRESP 1 filename1.htm Unassociated Document

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
 
 
 -----END PRIVACY-ENHANCED MESSAGE-----