SEC Company Response from BSI2000 INC (CIK 0001099780) — Nov 14, 2005
BSI2000 INC (CIK 0001099780)
Date: Nov. 14, 2005 · CIK: 0001099780 · Accession: 0001144204-05-035057
AI Filing Summary & Sentiment
File numbers found in text: 000-28287
Letter
VIA EDGAR AND U.S. MAIL United States Securities and Exchange Commission Division of Corporation Finance Filed April 15, 2005 Form 10-KSB/A for the Fiscal Year Ended December 31, 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
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
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
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
Show Raw Text
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