BUYERS UNITED






                               2001 ANNUAL REPORT
                                TO STOCKHOLDERS















buyersonline                                                       UCN
Helping you zero-out monthly bills                       UNITED CARRIER NETWORKS

                                       1





                                TABLE OF CONTENTS






Section                                                                 Page No.
                                                                        --------


Letter to Stockholders                                                     3

Our Business                                                               6

Market for Common Equity and Related Stockholder Matters                   6

Summary Financial Information                                              7

Management's Discussion and Analysis of Financial Condition and
Results of Operations                                                      8

Financial Statements                                                      F-1



                                       2



buyersonline                                                       UCN
Helping you zero-out monthly bills                       UNITED CARRIER NETWORKS



May 15, 2002


Dear Fellow Shareholders:


     Last  September,  I reported to you on the status of Buyers  United and the
exciting things that had happened in the first eight months of 2001. In spite of
the tragic  events of  September 11 and the adverse  impact on our economy,  the
growth momentum has continued undiminished.  As I mentioned in my last letter to
you,  the true  strength  of the  company is the  collective  commitment  of our
shareholders and employees.

     Enclosed is a copy of our Annual  Report,  which  describes  the  company's
progress  through the end of last year.  In this letter I want to highlight  the
progress we have made since then.

o    In my last letter I reported that we were completing  successful testing of
     residential member  direct-response  advertising  through  LowerMyBills.com
     (LMB).  LMB shows its members  ways to save money by  connecting  them with
     service providers such as Buyers United.  LMB studied our business plan and
     concluded that our long distance services,  corporate  infrastructure,  and
     experience  make us a good fit.  We started  slowly  toward the end of last
     year and during the first quarter of this year assumed a leading  position.
     By the end of April we have added over 30,000 new members  through  LMB. We
     have  worked out the  expected  "kinks"  and  believe  that we can,  in the
     future,  add in excess of 10,000 new members per month.  Our LMB new member
     costs  average  about  $30 per new  member  which we have been able to fund
     through a unique loan program with the help of our investment banking firm,
     vFinance Investments.

o    In June of this year we will have completed our first year with RFC Capital
     Corporation, the company that finances our accounts receivable. The line of
     credit,  allowing  us to  borrow up to  $2,500,000,  has been  renewed  for
     another two years.

o    We  have  initiated  marketing  a new  proprietary  software  program  that
     increases the  productivity  of call  centers.  There are thousands of call
     centers in the U.S. that could benefit from this unique product. We did not
     expect  to roll out this  product  before  July but have  already  received
     several contracts based on our initial presentations.

o    In   February   of  this  year,   we  signed   Brad  Miehl  as  our  newest
     telecommunication   agent.   Brad  has  over  1,200  subagents  who  market
     telecommunication  services  for  him.  Brad  is a  great  addition  to our
     Independent Telecommunication Agent family.

o    In March  of this  year,  we  rolled  out a new  division:  United  Carrier
     Networks  ("UCN").  UCN was created to meet the specific  needs of our many
     and diverse  commercial  customers.  The advent of UCN is significant as it
     offers unique services to both small and large  businesses.  Our over 2,400
     Independent   Telecommunications  Agents  are  marketing  our  services  to
     businesses now through UCN.

o    With UCN firmly in place, we retained  BuyersOnline as a division to market
     our services to residential customers.
________________________________________________________________________________
                 Sales 1-888-UCN-5515 . Service 1-888-UCN-9981
                       Fax 1-800-921-9366 . info@ucn.net
                14870 Pony Express Road . Bluffdale, Utah, 84065

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o    We have leveraged our cost-efficient  operation and billing  infrastructure
     into wholesale relationships with large volume third parties.

o    Our first  quarter 2002  performance  saw  substantial  gains over the same
     period  the year  before.  Our  revenue  for the first  quarter of 2002 was
     $4,827,310.  This exceeded the first  quarter  revenue of 2001 by 64%. Even
     more important we realized positive net income for the first time!

o    Our first quarter 2002 revenue  exceeded the fourth quarter revenue by 22%.
     Our  membership  grew from 32,935 on December 31, 2001,  to 53,147 on March
     31, 2002.

     These  are some of our  successes  this  year.  As one of  Buyer's  largest
investors as well as a member of its Board and management team, I firmly believe
in its success and future.  It is rewarding to see the company grow when many of
its  competitors  are  stagnant or even closing  their doors.  I look forward to
sustained  growth.  We are  grateful to each of you and are working very hard to
protect and enhance the value of each shareholder's investment.

     Thank you all for your support and continued interest in our company.

Sincerely,




Theodore Stern
Chairman and CEO


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                                  OUR BUSINESS

     Buyers  United,  Inc.  ("the  Company"  or "Buyers  United")  is a Delaware
corporation  that has been  engaged  for the past five years in the  business of
selling telecommunication services and now represents approximately 33,000 small
businesses and residential  consumers across America.  Buyers United offers long
distance  telephone  service and related  products,  including calling cards and
toll free 800/888  services.  Long distance and related services are provided by
five different long distance companies.

     The Company has refined its business  model over the past several  years to
address specific niche  opportunities in the vast communications  industry.  The
Company's new brand, United Carrier Networks (UCN),  targets business customers,
while the brand developed during 2000,  BuyersOnline (BOL), is intended to cater
to the  residential  consumer.  The use of the two  distinct  brands  allows the
Company to specifically meet the needs of both customer types,  without creating
channel conflicts.

     Buyers United plans to offer a suite of services to business customers such
as teleconferencing,  call center routing services, and enhanced data solutions.
These different services would allow the Company to facilitate the specific, and
sometimes  sophisticated needs of large commercial customers.  The Company began
significantly  marketing  toward  this  particular  segment  in  2001,  and will
continue efforts to market to this segment through 2002.

     Buyers  United  is  now  pursuing  multiple  marketing  avenues,  including
marketing through the Internet,  using independent  agents, and contracting with
partners to stimulate interest in service offerings.  The Company's shopping and
referral rebate programs give customers additional cost saving opportunities and
significantly  increases  customer  retention.   The  new  UCN  web  site  gives
specialized  services  and options for  business  customers  and the agents that
represent them.

     There are approximately 5,000 independent  telecommunications agents around
the  country  that are  responsible  for a  substantial  amount of  annual  U.S.
telecommunication  sales.  Since the upsurge of  agent-oriented  business during
mid-2000,  Buyers United has engaged over 2,400 of these  independent  agents to
sell its business and residential telecommunications services.

     Buyers United intends to continue to pursue long distance customers through
partners that market through the Internet and promote its services.  Its largest
partner is an online comparison shopping service, LowerMyBills.com.

            MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The   common   stock  of  Buyers   United   trades   sporadically   in  the
over-the-counter  market.  The  following  table sets  forth for the  respective
periods indicated the prices of the common stock in the over-the-counter market,
as reported and summarized on the OTC Bulletin  Board.  Such prices are based on
inter-dealer bid and asked prices,  without markup,  markdown,  commissions,  or
adjustments and may not represent actual transactions.

Calendar Quarter Ended             High Bid ($)               Low Bid ($)

March 31, 2000                         5.75                      1.63
June 30, 2000                          5.19                      1.75
September 30, 2000                     3.50                      1.50
December 31, 2000                      2.50                      0.88

March 31, 2001                         1.94                      0.94
June 30, 2001                          1.75                      0.72
September 30, 2001                     1.16                      0.61
December 31, 2001                      1.01                      0.52

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     Since its  inception,  no  dividends  have been paid on the  common  stock.
Buyers United intends to retain any earnings for use in its business activities,
so it is not  expected  that any  dividends on the common stock will be declared
and paid in the foreseeable future.  There are currently  outstanding  1,870,000
shares of Series A Convertible  Preferred  Stock and 563,800  shares of Series B
Convertible  Preferred Stock.  Under the terms of this preferred  stock,  Buyers
United cannot make any distributions on its common stock without the approval of
a  majority  of the  preferred  stockholders.  At March  31,  2002,  there  were
approximately 4,900 holders of record of the common stock.

                          SUMMARY FINANCIAL INFORMATION

Operating statement data for the years ended December 31, 2001, 2000, and 1999:

                                  2001              2000             1999
                                  ----              ----             ----
Revenue                      $ 14,341,977       $ 7,355,559      $ 4,755,687
Operating expenses             19,811,215        13,853,238        6,446,271
Total other expenses, net         982,311         1,604,269           74,174
Extraordinary gains (losses)      383,520        (1,024,574)            -
Net (loss)                     (6,068,029)       (9,126,522)      (1,764,758)
Preferred stock dividends         759,455         2,481,592          160,127
Net (loss) applicable to
 common shareholders           (6,827,484)      (11,608,114)      (1,924,885)
Net (loss) per share applicable
 to common shareholders             (1.49)            (3.12)           (0.60)

Balance sheet data as of December 31, 2001, 2000, and 1999:

                                  2001              2000             1999
                                  ----              ----             ----
Current assets                $ 3,301,525       $ 2,044,032      $ 2,196,734
Total assets                    4,331,742         4,402,907        2,549,315
Current liabilities             6,871,313         5,910,462        1,294,557
Total liabilities              10,486,313         6,225,218        2,418,620
Stockholders' equity (deficit) (6,154,571)       (1,822,311)         130,695

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

Overview

     Buyers  United is engaged in the business of selling to consumers and small
businesses long distance and Internet access services. The marketing strategy of
Buyers United is based on a membership  concept under which members are entitled
to  receive  the  services  offered  at lower  prices.  Buyers  United  uses the
purchasing  power of its  membership  to  negotiate  lower cost or rebates  from
producers and  resellers of the services and products.  Lower costs allow Buyers
United to offer more competitive pricing to attract and retain members, and make
it possible for Buyers United to offer rebate incentive  programs to its members
for  referring  new  prospective  members.  Buyers  United's  goal is to build a
national consumer membership organization.  Its strategy for achieving this goal
is to focus on  expanding  service and product  offerings,  continue  its member
referral and rebate  program,  continue  development of its agent sales program,
and pursue Internet advertising to attract new members.

     Buyers United provides services that it believes are perceived by consumers
and  businesses  as  essential  or  are  compatible  with  their  normal  annual
expenditures.  Since its inception in January  1996,  the Company has focused on
selling long distance service. This focus has enabled Buyers United to build the
size of its membership base.

     Buyers United currently has over 53,000 members. Its target market includes
networking  professionals,  small businesses,  and middle-class families with an
annual  household  income  between  $30,000 and $100,000,  as these are the most

                                       6


likely to respond  actively to the cost  savings  opportunity  offered by Buyers
United.  Members reside mostly in high population centers and they tend to spend
more than the  average on long  distance  services.  The Company  believes  that
approximately  one-third of the present membership  consists of small businesses
and entrepreneurs who operate home-based businesses.

Results of Operations - Year Ended December 31, 2001 Compared to 2000

     Revenues  increased  95% during  2001 to $14.3  million as compared to $7.4
million  during 2000. The increase was due to higher  membership  resulting from
Buyers United's ongoing agent-related promotional efforts. Membership at the end
of 2001 increased 80% as compared to the previous  year.  During the latter part
of  December  2001 the  Company  began  seeing  the  results  of its new  online
marketing programs. Due in large part to these efforts, membership growth during
the first three months of 2002 has increased 61%.

     During 2001,  Buyers United  continued its efforts of negotiating  with its
vendors to lower the cost of long  distance  service  provided  to  members.  By
offering  to  increase  business  volume to certain  levels,  vendors  agreed in
exchange to offer lower  rates.  Accordingly,  the Company  began  concentrating
volume and new customer sign-ups with two of its largest long-distance wholesale
carriers.  At the end of 2001, the Company's  business was primarily placed with
these two  carriers,  but  offered  service to  members  through a total of five
different wholesale vendors. In response to the lower costs thus achieved during
2001, the Company was able to offer services to new members,  particularly those
in the  agent-sponsored  channels,  at  lower,  more  competitive  prices.  This
resulted in an increase in commission expense for the year. As a result of these
offsetting factors,  costs of revenues for the year ended December 31, 2001 were
$9.3 million, or 66% of revenue, as compared to costs of $4.8 million, or 65% of
revenue, for the year ended December 31, 2000. The resultant gross profit margin
for 2001 was  down  slightly  at  34.8%,  as  compared  to the  margin  of 35.1%
experienced  during 2000.  The Company  expects that gross margins will increase
slightly  during  2002 as revenue  from  customers  acquired  through its online
marketing programs becomes more significant in relation to overall revenue.

     General and administrative  expenses for 2001 increased 18% to $6.1 million
as compared to $5.2 million for the previous year.  Approximately  two-thirds of
the increase stemmed from higher bad debt estimated write-offs incidental to the
increased  level of revenue.  The remaining  increase  resulted  primarily  from
higher  occupancy  costs  during the year.  In  December  of 2000,  the  Company
consolidated four separate facilities into one location. However, offsetting the
higher rent and maintenance  costs were decreased  expenses for fund-raising and
business  promotion  activities.  Except for bad debt allowances which will vary
according to revenue levels,  the Company  anticipates  slightly lower levels of
general administrative expenses throughout the 2002 year.

     Selling and  promotion  expenses for the year ended  December 31, 2001 were
$3.3 million,  a decrease of 14% over the prior year's expenses of $3.9 million.
During the prior 2000 year,  selling and  promotion  expenses were higher mainly
due to infomercial  production  efforts.  No such activity occurred during 2001,
however  the  resultant  significant  decrease  in  production  costs was offset
somewhat  by higher 2001  commission  expenses in  proportion  to the  increased
revenue volume during 2001.

     During  2001,  the  Company  reviewed  its  investment  in leased  computer
equipment and software,  the related ongoing maintenance expenses, and the costs
primarily  incurred in 2000 in connection with the creation of various web sites
designed to work with Oracle-based applications.  The Company determined that it
could achieve its growth  objectives and serve existing and potential  customers
using a more  economical  equipment  and  software  solution.  Accordingly,  the
Company  negotiated with the equipment lessor to return the equipment and cancel
the lease.

     The  Company  also  replaced  its web site  software  with newly  developed
programs designed to operate on a SQL-based operating system and determined that
the costs previously  capitalized and associated with the returned equipment and
software  no longer  had a  realizable  value.  The total cost of  removing  the
unamortized  book  value  of the  lease  obligation,  equipment,  software,  and
capitalized web site development costs totaled $980,086.

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     Interest  income for 2001 was $15,571 as  compared to $21,943 in 2000.  The
difference  is  attributable  to the lower  amount of funds on hand during 2001.
Interest  expense for 2001 was  $997,882 as compared to $1.6 million for 2000, a
decrease of 39%.  The  decrease is  attributable  primarily  to the  significant
amount of bridge financing and related discount  amortization and write-offs the
Company  experienced  during 2000,  before  converting the bridge loans into the
Series B Preferred Stock issuance.

     In December 2001,  Buyers United  recognized an  extraordinary  gain on the
early  extinguishment  of debt of  $383,520.  Earlier  in the  year,  one of the
Company's  noteholders  sold the  obligation  to an investment  relations  firm.
Subsequently,  the Company negotiated a settlement with the investment relations
firm.  The Company  paid  $120,000 and issued  35,000  shares of common stock in
exchange  for  canceling  the  outstanding  obligation  plus  $25,921 in accrued
interest.  The stock had a fair market value of $22,401.  The difference between
the balance due, the cash paid and the fair market value of the stock issued was
recognized as a gain on early extinguishment of debt. By contrast,  in 2000, the
Company  recorded a loss of $1.02 million on the early  extinguishment  of debt.
Buyers United  obtained $2.5 million of debt  financing  during 2000,  which was
subsequently  exchanged for Series B 8% cumulative  convertible  preferred stock
and warrants to purchase common stock. The difference between the estimated fair
value of the Series B preferred  stock and warrants  and the carrying  amount of
the debt was recognized as a loss on early extinguishment of debt.

     As a result of the  above  factors,  the net loss  before  preferred  stock
dividends decreased 34% to $6.1 million for 2001 as compared to $9.1 million for
2000. During 2001, preferred stock dividends amounted to $759,455, consisting of
$738,957 of 8%  cumulative  dividends  on  outstanding  Series A and B preferred
stock,  and  $20,498 of  preferred  stock  dividends  related to the  beneficial
conversion  feature  associated  with the issuance of the last 110,000  Series B
Preferred shares in early 2001. This compares to total preferred stock dividends
during 2000 of $2.5 million,  consisting of $383,458 of 8% cumulative  dividends
on Series A and B preferred stock, and $2.1 million of preferred stock dividends
related to the beneficial  conversion  feature  associated  with the issuance of
453,800 shares of Series B preferred stock.

Liquidity and Capital Resources

     Buyers  United's  current ratio at the end of 2001  increased to 0.5:1 from
0.3:1 at the end of 2000. The reasons for the increase  mainly resulted from the
net increase in current asset amounts  related to higher  revenues and offset by
decreases in liabilities resulting from quicker payments and debt restructuring.
Restricted  cash  increased  over  the  2000  level  due to the  line of  credit
established in 2000. The line of credit agreement requires control over the bank
account to which customer  payments are remitted as part of the repayment terms.
While  this  cash  eventually  repays  the  debt  obligation  with  the  balance
transferring to the Company,  due to the controlled  nature of the account it is
reflected  on the  balance  sheet as  being  "restricted."  Accounts  receivable
increased 47% due to higher revenue levels. Other current assets rose 33% at the
end of 2001 over 2000 due to amounts  capitalized  associated with the Company's
direct  response  advertising  campaign.  The current  portion of notes  payable
balance  decreased  16%  due  to  the  amendment  of the  maturity  date  of the
$1,050,000  note from September  2002 to February 28, 2003,  offset by increased
borrowing  of $875,000 in  unsecured  promissory  notes which are  reflected  as
current  obligations on the balance sheet.  The current portion of capital lease
obligations  decreased 36% due to both lease payments and the elimination of one
of the two capital  leases.  Accounts  payable  rose by a net amount of only 12%
since a year  earlier,  despite  higher  revenue and related  operating  payable
increases. Offsetting factors included paying off and settling older outstanding
amounts  owed to  vendors.  Accrued  liabilities  increased  29% due  mainly  to
increase in accrued rebates and commissions  explained below.  Accrued dividends
increased 69% once the majority of the shares were  outstanding  the entire year
during 2001.  Accrued  rebates and  commissions  rose 330% at the end of 2001 as
compared to the previous year due to revenue  increases,  a higher proportion of
which involved outside sales agents.

     On June 7, 2001 the  Company  entered  into a one-year  account  receivable
financing  agreement with RFC Capital Corporation  ("RFC").  The facility allows
the  Company to  finance  up to $2.5  million  based on the  Company's  eligible
accounts receivable. The facility bears interest at a rate of prime plus 6%, and
also required the payment of a Commitment  Fee of $50,000.  The facility  allows

                                       8


the Company to borrow against  unbilled  receivables as well as finance  regular
monthly  billings.  At December 31,  2001,  the Company had financed the maximum
amount  available  based on eligible  accounts  receivable  at that time,  which
amounted to $574,172.  This  agreement  also  requires the Company to maintain a
restricted cash account for the collection of the Company's  receivables.  As of
December 31, 2001 the Company had $690,312 of restricted cash.

     As of December  31, 2001,  the Company had a $1,050,000  note payable to an
individual  bearing  interest at 18%,  payable  monthly.  On March 13, 2002, the
noteholder  agreed to extend the maturity date of the note to February 28, 2003.
The note provides a conversion  feature  whereby the holder may convert the note
into common stock at $2.50 per share. During extension  negotiations  earlier in
2001,  provisions  were added such that  50,000  shares of common  stock will be
issued to the noteholder at maturity. Should the note be prepaid, 100,000 shares
are to be issued.

     As of December 31, 2001, the Company had several unsecured promissory notes
payable to a member of the Company's Board of Directors totaling $2,565,000. All
but one of the  notes  (for  $400,000)  bear  interest  at a rate  of 12%,  with
interest payable upon maturity.  The $400,000 note originated in connection with
securing more  favorable  rates with certain of the Company's  telecommunication
providers.  Accordingly,  based on savings in terms of these costs,  interest on
this note is calculated  based on the monthly  vendor  billings  incurred by the
Company,  not to exceed $15,000 per month,  payable  monthly.  While  originally
payable on demand,  by the end of 2001 the notes had been renegotiated to mature
on July 5, 2003.

     During  October and  November  of 2001,  the Company  raised  $825,000  via
promissory  notes to raise working capital and to take part in a service from an
unrelated  comparison  shopping service to solicit new customers.  All the notes
carry  essentially the same terms.  They are unsecured and bear interest at 12%,
payable  monthly.  Principal is also payable  monthly,  based on 20% of billings
collected  during  each  monthly  billing  period from  specifically  designated
existing  customers or from any new customers  that  subscribed  via the on-line
shopping  service using the note  proceeds.  No principal  repayments  were made
during  2001,  these notes  mature in October and  November  2003..  Inasmuch as
principal payments could vary over time, the Company believes the principal will
be repaid over a period of  approximately  one year from the time the notes were
issued. Accordingly, the entire $825,000 amount outstanding at December 31, 2001
is classified as current on the  accompanying  balance sheet. Up through the end
of March 2002, the Company had repaid principal in the amount of $122,626.

     During February 2002, Buyers United issued $350,000 in notes payable.  Then
during the first  part of April  2002 the  Company  issued an  additional  $1.35
million in promissory notes.  Similar to the notes issued during 2001, principal
is to be repaid out of collected  billings from new customers  generated through
the online shopping  service.  With respect to these 2002 notes,  38% of the new
customer billings are to be reserved for principal repayment. However, only half
the note proceeds are to be used for this service,  the rest being allocated for
working  capital  purposes,  as needed.  These  notes bear  interest  at 10% and
interest and principal payments are due monthly

     During the years ended  December 31, 2001 and 2000,  the Company's net loss
applicable to common stockholders was $6,827,484 and $11,608,114,  respectively.
As of December 31, 2001, the Company had a working capital deficit of $3,569,788
and an accumulated  deficit of $25,631,129.  During the years ended December 31,
2001 and 2000, the Company's  operations used $4,145,290 and $3,418,987 of cash,
respectively.  These matters raise substantial doubt about the Company's ability
to continue as a going  concern.  The  financial  statements  do not include any
adjustments  relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

     During 2001, the Company began several cost-reduction initiatives.  The net
result of these  efforts  resulted in operating  expenses  (unrelated  to either
costs of revenue or asset disposals)  decreasing as a percentage of revenue from
123% during 2000 to 66% during  2001.  In addition  the  Company's  revenues and
number of customers increased 95% and 80%, respectively, during 2001 as compared
to 2000.

     Subsequent  to  December  31,  2001 the Company  obtained  $1.7  million of
additional  funding  through the issuance of promissory  notes and warrants.  Of
that  amount,  half is  available  for  working  capital,  and the other half is
intended to be used in the Company's ongoing online marketing  activities.  Such

                                       9


activities  have  increased the number of customers  during the first quarter of
2002 by 61%. The Company also renewed its line of credit agreement  through June
7, 2004.  Moreover,  revenue  levels  continued to increase  during 2002's first
quarter.  Management  estimates revenue for the first three months of 2002 to be
approximately $4.7 million,  or 19% higher than the previous quarter and expects
the trend of revenue  increases to continue  throughout 2002. As a result of the
revenue  growth and ongoing  cost-reduction  efforts,  the Company has  achieved
profitability  during the first  quarter  of 2002  (unaudited),  and  management
believes  the  Company  will  continue  to be  profitable  during the year ended
December 31, 2002.

Forward-looking statements

     The Private Securities Litigation Reform Act of 1985 provides a safe harbor
for forward-looking statements made by Buyers United. All statements, other than
statements  of  historical  fact,  which  address  activities,  actions,  goals,
prospects,  or new developments  that the Company expects or anticipates will or
may occur in the future,  including  such things as expansion  and growth of its
operations and other such matters are forward-looking  statements.  Any one or a
combination of factors could  materially  affect Buyers United's  operations and
financial  condition.   These  factors  include  the  availability  of  capital,
competitive  pressures,  success or failure of  marketing  programs,  changes in
pricing and availability of services and products offered to members,  legal and
regulatory  initiatives  affecting long distance service,  and conditions in the
capital markets.  Forward-looking  statements made by Buyers United are based on
knowledge  of its business  and the  environment  in which it operates as of the
date of this  report.  Because of the  factors  listed  above,  as well as other
factors  beyond  its  control,  actual  results  may  differ  from  those in the
forward-looking statements.

                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                       ACCOUNTING AND FINANCIAL DISCLOSURE

     On  February  20,  2002,   Buyers  United  dismissed  Arthur  Andersen  LLP
("Andersen") as its independent public  accountants.  The change was recommended
by the  Company's  Audit  Committee  and  approved  by the  Company's  Board  of
Directors.

     Andersen performed audits of the Company's  financial  statements as of and
for the years  ended  December  31, 1999 and 2000.  Their audit  reports did not
contain an adverse  opinion or  disclaimer  of  opinion;  however,  their  audit
reports for each of the years ended  December 31, 1999 and 2000 were modified as
to the  uncertainty  of the  Company's  ability to continue as a going  concern.
Their  reports were not  qualified  or modified as to audit scope or  accounting
principles.

     During the years ended  December 31, 1999 and 2000,  and during the interim
period from December 31, 2000 to February 20, 2002,  there were no disagreements
between the  Company and  Andersen  on any matter of  accounting  principles  or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements,  if not  resolved to the  satisfaction  of  Andersen,  would have
caused Andersen to make reference to the subject matter of such disagreements in
their reports.

     During the years  ended  December  31, 1999 and 2000 and during the interim
period from December 31, 2000 to February 20, 2002,  Andersen did not advise the
Company  of any  reportable  events as  described  in Item  304(a)(1)(iv)(B)  of
Regulation S-B.

     Andersen  has  furnished  the Company with a letter to the SEC stating they
agree with the above  statements.  The letter was  attached as an exhibit on the
Company's Form 8-K filed with the SEC on February 26, 2002.

     On February 20, 2002,  the  Company's  Board of  Directors  engaged  Crowe,
Chizek and Company LLP ("Crowe Chizek") as the Company's new independent  public
accountants.  Up to that  date,  neither  the  Company  nor anyone on its behalf
consulted  Crowe Chizek  regarding the  application of accounting  principles to
specific transactions or the type of audit opinion that might be rendered on the
Company's financial statements.

                                       10



                       BUYERS UNITED, INC. AND SUBSIDIARY

                        Consolidated Financial Statements

                                TABLE OF CONTENTS


Report of Independent Auditors ......................................... F - 2

Report of Independent Public Accountants ............................... F - 3

Consolidated Balance Sheet.............................................. F - 4

Consolidated Statements of Operations .................................. F - 5

Consolidated Statements of Stockholders' Equity (Deficit) .............. F - 6

Consolidated Statements of Cash Flows .................................. F - 8

Notes to Consolidated Financial Statements ............................. F -10



                                      F-1




                         REPORT OF INDEPENDENT AUDITORS



Board of Directors and Shareholders
Buyers United, Inc. and Subsidiary
Salt Lake City, Utah


We have audited the  accompanying  consolidated  balance sheet of Buyers United,
Inc.  and  Subsidiary  as of  December  31,  2001 and the  related  consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit. The financial  statements of Buyers United,  Inc.
and  Subsidiary  as of December  31, 2000 were audited by other  auditors  whose
report  dated  March  29,  2001  expressed  an  unqualified  opinion,   with  an
explanatory  paragraph  as  to  the  Company's  continued  existence,  on  those
statements.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the 2001 consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the  financial  position of Buyers
United,  Inc.  and  Subsidiary  as of  December  31, 2001 and the results of its
operations  and its cash  flows  for the year  then  ended  in  conformity  with
accounting principles generally accepted in the United States of America.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
deficit cash flows from  operations,  negative  working  capital,  and has a net
capital  deficiency.  These  results as reported in the  accompanying  financial
statements raise  substantial doubt about the Company's ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 1. The financial  statements do not include any  adjustments  that might
result from the outcome of this uncertainty.



Crowe, Chizek and Company, LLP

Oak Brook, Illinois
March 9, 2002, except for Note 5,
  as to which the date is March 13, 2002

                                      F-2



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To Buyers United, Inc.:


We  have  audited  the  accompanying   consolidated  statements  of  operations,
stockholders' equity (deficit) and cash flows of Buyers United, Inc. (a Delaware
corporation,  formerly known as  BuyersOnline.com,  Inc.) and subsidiary for the
year ended December 31, 2000. These financial  statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the results of  operations of Buyers  United,  inc. and
subsidiary  and  their  cash  flows  for the year  ended  December  31,  2000 in
conformity with accounting principles generally accepted in the United States.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations,  deficit cash flows from operations,  negative working capital,
and has a net capital  deficiency.  These matters raise  substantial doubt about
the  Company's  ability to continue as a going  concern.  Management's  plans in
regard to these matters are also described in Note 1. The accompanying financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of asset carrying  amounts or the amount and  classification  of
liabilities  that might  result  should the  Company be unable to  continue as a
going concern.



ARTHUR ANDERSEN LLP

Salt Lake City, Utah
March 29, 2001



                                      F-3



                       BUYERS UNITED, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET
                                December 31, 2001
--------------------------------------------------------------------------------

ASSETS
Current assets
   Cash                                                           $   57,100
   Restricted cash                                                   690,312
   Accounts receivable, net of allowance for
     doubtful accounts of $520,000                                 2,271,873
   Other current assets                                              282,240
                                                                  ----------
      Total current assets                                         3,301,525

Property and equipment, net                                          652,576

Debt issuance costs, net of accumulated amortization
  of $149,104                                                        187,756
Deposits                                                             189,885
                                                                  ----------
                                                                     377,641

   Total assets                                                   $4,331,742
                                                                  ==========

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
   Checks drawn in excess of available cash balances              $  186,866
   Line of credit                                                    574,172
   Current portion of long-term debt                               1,002,641
   Accounts payable                                                3,879,517
   Accrued liabilities                                               525,023
   Accrued commissions and rebates                                   324,778
   Accrued dividends payable on preferred stock                      378,316
                                                                  ----------
      Total current liabilities                                    6,871,313

Long-term liabilities
   Long-term debt, net of current portion                          3,615,000
                                                                  ----------
      Total liabilities                                           10,486,313
                                                                  ----------
Stockholders' deficit
   Preferred stock, $0.0001 par value; 15,000,000 shares authorized;
     Series A 8% cumulative convertible preferred stock; 1,870,000
     shares issued and outstanding (liquidation value of $3,740,000)     188
   Series B 8% cumulative convertible preferred stock; 563,800 shares
     issued and outstanding (liquidation value of $5,638,000)             56
   Common stock, $0.0001 par value; 100,000,000 shares authorized;
     5,312,629 shares issued and outstanding                             531
   Additional paid-in capital                                     15,190,855
   Warrants and options outstanding                                4,383,334
   Deferred consulting fees                                          (98,406)
   Accumulated deficit                                           (25,631,129)
                                                                  -----------
      Total stockholders' deficit                                 (6,154,571)
                                                                  ----------
         Total liabilities and stockholders' deficit              $4,331,742
                                                                  ==========

          See accompanying notes to consolidated financial statements.

                                      F-4



                       BUYERS UNITED, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     Years ended December 31, 2001 and 2000
--------------------------------------------------------------------------------
                                                             Years Ended
                                                            December 31,
                                                      --------------------------
                                                          2001         2000
                                                      ------------ -------------
Revenues
   Telecommunications services                        $14,256,990  $  7,311,520
   Other                                                   84,987        44,039
                                                      ------------ -------------
     Total revenues                                    14,341,977     7,355,559
                                                      ------------ -------------
Operating expenses
   Costs of revenues                                    9,348,215     4,773,707
   General and administrative                           6,163,505     5,224,290
   Selling and promotion                                3,319,409     3,855,241
   Disposal of leased equipment and web site
    development costs                                     980,086             -
                                                      ------------ -------------
     Total operating expenses                          19,811,215    13,853,238
                                                      ------------ -------------
Loss from operations                                   (5,469,238)   (6,497,679)
                                                      ------------ -------------
Other income (expense)
   Interest income                                         15,571        21,943
   Interest expense                                      (997,882)   (1,626,212)
                                                      ------------ -------------
     Total other expense, net                            (982,311)   (1,604,269)
                                                      ------------ -------------
Loss before extraordinary item                         (6,451,549)   (8,101,948)

Extraordinary item - gain (loss) on early
 extinguishment of debt                                   383,520    (1,024,574)
                                                      ------------ -------------
Net loss                                              $(6,068,029) $ (9,126,522)

Preferred stock dividends
   8% dividends on Series A and B preferred stock        (738,957)     (383,458)
   Beneficial conversion feature related to Series
    B preferred stock                                     (20,498)   (2,098,134)
                                                      ------------ -------------
     Total preferred stock dividends                     (759,455)   (2,481,592)
                                                      ------------ -------------

Net loss applicable to common stockholders            $(6,827,484) $(11,608,114)
                                                      ============ =============
Basic and diluted net loss per common share
   Net loss applicable to common stockholders before
    extraordinary item                                $     (1.57) $      (2.84)
   Extraordinary item - gain (loss) on early
    extinguishment of debt                                   0.08         (0.28)
                                                      ------------ -------------
Net loss applicable to common stockholders            $     (1.49) $      (3.12)
                                                      ============ =============

Weighted average common shares outstanding
   Basic and diluted                                    4,583,698     3,724,671
                                                      ============ =============

          See accompanying notes to consolidated financial statements.

                                      F-5


                       BUYERS UNITED, INC. AND SUBSIDARY
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                     Years ended December 31, 2001 and 2000

--------------------------------------------------------------------------------

                                                                                             
                                      Preferred Stock     Common Stock   Additional Warrants/   Deferred
                                     ------------------ ----------------  Paid-in     Options  Consulting  Accumulated
                                      Shares    Amount   Shares   Amount  Capital   Outstanding   Fees       Deficit       Total
                                    --------- -------- --------- ------ ----------- ---------- ---------- ------------- ------------
Balance at December 31, 1999        2,000,000 $   200  3,508,835 $  351 $ 7,146,175 $  179,500 $       -  $ (7,195,531) $   130,695

Issuance of common shares and
 warrants for cash                          -       -    150,000     15     187,184    112,801         -             -      300,000
Issuance of common shares for
 services                                   -       -     28,650      3      62,316          -         -             -       62,319
Conversion of preferred shares to
 common                              (125,000)    (12)   125,000     12           -          -         -             -            -
Issuance of warrants for services
 and with consulting agreements             -       -          -      -           -    473,703  (429,069)            -       44,634
Amortization of deferred consulting
 fees                                       -       -          -      -           -          -   330,924             -      330,924
Issuance of warrants with notes
 payable                                    -       -          -      -           -  1,427,654         -             -    1,427,654
Issuance of options for debt
 guarantee                                  -       -          -      -           -    103,200         -             -      103,200
Beneficial conversion feature in
 connection with debt extension             -       -          -      -     722,050          -         -             -      722,050
Imputed interest on notes payable           -       -          -      -      37,742          -         -             -       37,742
Issuance of Series B preferred stock
 and warrants, net of offering costs  199,300      20          -      -     909,285    754,457         -             -    1,663,762
Issuance of Series B preferred stock
 and warrants upon conversion of
 notes                                254,500      25          -      -   1,523,146  1,021,829         -             -    2,545,000
Beneficial conversion dividend on
 Series B preferred stock                   -       -          -      -   2,098,134          -         -    (2,098,134)           -
Preferred stock dividends                   -       -          -      -           -          -         -      (383,458)    (383,458)
Issuance of common shares as payment
 of preferred stock dividends               -       -    176,455     18     319,671          -         -             -      319,689
Net loss                                    -       -          -      -           -          -         -    (9,126,522)  (9,126,522)
                                    ---------- ------- --------- ------ ----------- ---------- ---------- ------------- ------------
Balance at December 31, 2000        2,328,800  $  233  3,988,940 $  399 $13,005,703 $4,073,144 $ (98,145) $(18,803,645) $(1,822,311)


                                  (Continued)

                                      F-6


                       BUYERS UNITED, INC. AND SUBSIDARY
     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) - (Continued)
                     Years ended December 31, 2001 and 2000

--------------------------------------------------------------------------------

                                                                                             
                                   Preferred Stock     Common Stock   Additional   Warrants/    Deferred
                                  ------------------ ----------------  Paid-in      Options    Consulting  Accumulated
                                   Shares    Amount   Shares   Amount  Capital    Outstanding     Fees       Deficit       Total
                                  ---------- ------- --------- ------ ----------- ------------ ---------- ------------- ------------
Balance at December 31, 2000      2,328,800  $   233 3,988,940 $  399 $13,005,703  $4,073,144  $ (98,145) $(18,803,645) $(1,822,311)

Issuance of common shares for
 services                                 -        -   148,800     15     104,572           -          -             -      104,587
Issuance of common shares with
 consulting agreement                     -        -   100,000     10     124,990           -   (125,000)            -            -
Issuance of common shares in
 connection with debt
 extinguishments                          -        -    35,000      4      22,397           -          -             -       22,401
Conversion of preferred shares
 to common                           (5,000)       -     5,000      -           -           -          -             -            -
Issuance of common shares in
 connection with notes payable            -        -   430,000     43     360,130           -          -             -      360,173
Issuance of warrants for services
 and with consulting agreements           -        -         -      -           -      54,515          -             -       54,515
Amortization of deferred
 consulting fees                          -        -         -      -           -           -     45,774             -       45,774
Issuance of warrants with notes
 payable                                  -        -         -      -           -      32,239          -             -       32,239
Issuance of common stock for debt
 guarantee                                -        -   100,000     10     144,990           -          -             -      145,000
Imputed interest on notes payable         -        -         -      -      25,500           -          -             -       25,500
Issuance of Series B preferred
 stock and warrants, net of
 offering costs                     110,000       11         -      -     797,588     302,401          -             -    1,100,000
Beneficial conversion dividend
 on Series B preferred stock              -        -         -      -      20,498           -          -       (20,498)           -
Cancellation of options issued
 for services                             -        -         -      -           -     (78,965)    78,965             -            -
Preferred stock dividends                 -        -         -      -           -           -          -      (738,957)    (738,957)
Issuance of common shares as
 payment of preferred stock
 dividends                                -        -   504,884     50     584,487           -          -             -      584,537
Net loss                                  -        -         -      -           -           -          -    (6,068,029)  (6,068,029)
                                  ---------- ------- --------- ------ ----------- ------------ ---------- ------------- ------------

Balance at December 31, 2001      2,433,800  $   244 5,312,624 $  531 $15,190,855 $ 4,383,334  $ (98,406) $(25,631,129) $(6,154,571)
                                  ========== ======= ========= ====== =========== ============ ========== ============= ============

          See accompanying notes to consolidated financial statements.

                                      F-7



                       BUYERS UNITED, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     Years ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

                                                                             
                                                                          2001        2000
                                                                      ------------ ------------
Cash flows from operating activities
   Net loss                                                           $(6,068,029) $(9,126,522)
   Adjustments to reconcile net loss to net cash used in
     operating activities
     Extraordinary item - (gain) loss on early extinguishment of debt    (383,520)   1,024,574
     Depreciation and amortization                                        766,869      331,027
     Interest expense resulting from issuing stock and warrants
       with notes                                                         255,623            -
     Interest expense associated with beneficial conversion feature
       in connection with debt extension                                        -      722,050
     Amortization of discount on notes payable                              6,140      614,119
     Amortization of note financing costs                                 169,154       36,356
     Amortization of deferred consulting fees                              45,774      330,924
     Services rendered in exchange for shares of common stock             104,587       62,319
     Expense related to the issuance of options to purchase
       common shares                                                       54,515       44,634
     Loss on disposal of leased assets and web site
       development costs                                                  980,086            -
     Changes in operating assets and liabilities
       Accounts receivable                                               (724,591)    (657,385)
       Other current assets                                              (112,176)      67,011
       Checks in excess of available cash balances                        186,866            -
       Accounts payable                                                   430,271    2,727,418
       Accrued commissions and rebates                                    249,244      (29,847)
       Accrued liabilities                                               (106,103)     434,335
                                                                      ------------ ------------
         Net cash used in operating activities                         (4,145,290)  (3,418,987)

Cash flows from investing activities
   Increase in other assets                                               (63,535)    (208,210)
   Purchases of property and equipment                                   (213,145)  (1,409,157)
                                                                      ------------ ------------
         Net cash used in investing activities                           (276,680)  (1,617,367)

Cash flows from financing activities
   Change in restricted cash                                             (462,542)     (57,083)
   Net borrowings under line of credit                                    574,172            -
   Borrowings under notes payable, net of debt issuance costs           3,833,750    2,639,000
   Principal payments on notes payable                                   (120,000)    (169,148)
   Principal payments on capital lease obligations                       (500,358)    (372,059)
   Issuance of preferred/common shares for cash,
     net of offering costs                                              1,097,223    1,963,762
                                                                      ------------ ------------
         Net cash provided by financing activities                      4,422,245    4,004,472
                                                                      ------------ ------------

Net increase (decrease) in cash                                               275   (1,031,882)

Cash at the beginning of the year                                          56,825    1,088,707
                                                                      ------------ ------------

Cash at the end of the year                                           $    57,100  $    56,825
                                                                      ============ ============

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-8



                       BUYERS UNITED, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                     Years ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

                                                                  

                                                                 2001      2000
                                                              --------- ----------
Supplemental cash flow information
   Cash paid for interest                                     $ 459,442 $  250,186

Supplemental schedule of noncash investing and
  financing activities
   Conversion of notes payable to common shares               $       - $2,545,000
   Issuance of common shares in payment of preferred
     stock dividend                                             584,537    319,689
   Issuance of common shares in payment of deferred services    125,000          -
   Issuance of common shares in payment of deferred
     financing costs                                            249,550          -
   Issuance of common shares in extinguishment of debt           22,400          -
   Issuance of warrants with preferred shares                         -  1,776,286
   Issuance of warrants with promissory notes                    32,239  1,427,654
   Beneficial conversion dividend on Series B preferred shares   20,498  2,098,134
   Accrual of dividend payable on preferred stock               738,957    383,458
   Assets acquired under capital lease arrangements             109,100    719,954






          See accompanying notes to consolidated financial statements.

                                      F-9



                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 1 - DESCRIPTION OF THE COMPANY AND NATURE OF OPERATIONS

Buyers United,  Inc. ("the Company") was incorporated on January 16, 1996 in the
state of Utah and was  reincorporated in the state of Delaware on April 9, 1999.
The Company was formerly known as Linguistix, Inc., Buyers United International,
Inc.,  BUI, Inc., and  BuyersOnline.com,  Inc. On November 20, 2001, the Company
changed its name to Buyers United,  Inc.,  the same name as its dormant,  wholly
owned Utah subsidiary. The Company plans to merge the subsidiary into the parent
entity during 2002. At the time of the name change, the Company's trading symbol
also changed to "BYRS."

The Company is a consumer  buying  organization  with the objective of providing
high quality consumer  products and services at favorable prices to its members.
The Company forms strategic alliances with various consumer service providers in
an effort to combine the purchasing power of its members to negotiate  favorable
prices from these  providers.  The Company  markets its  products  and  services
principally by offering  incentives to its existing members to refer new members
to the Company's products and services. During the years ended December 31, 2001
and  2000,   the   Company   primarily   provided   discounted   long   distance
telecommunication services to its members.

During the years  ended  December  31,  2001 and 2000,  the  Company's  net loss
applicable to common stockholders was $6,827,484 and $11,608,114,  respectively.
As of December 31, 2001, the Company had a working capital deficit of $3,569,788
and an accumulated  deficit of $25,631,129.  During the years ended December 31,
2001 and 2000, the Company's  operations used $4,145,290 and $3,418,987 of cash,
respectively.  These matters raise substantial doubt about the Company's ability
to continue as a going  concern.  The  financial  statements  do not include any
adjustments  relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

During 2001,  the Company  began  several  cost-reduction  initiatives.  The net
result of these  efforts  resulted in operating  expenses  (unrelated  to either
costs of revenue or asset disposals)  decreasing as a percentage of revenue from
123% during 2000 to 66% during 2001.  In addition,  the  Company's  revenues and
number of customers increased 95% and 80%, respectively, during 2001 as compared
to 2000.

As discussed in Note 13,  subsequent to December 31, 2001, the Company  obtained
$1.7 million of additional  funding through the issuance of promissory notes and
warrants.  Of that amount, half is available for working capital,  and the other
half  is  intended  to  be  used  in  the  Company's  ongoing  online  marketing
activities.  Such activities  have increased the number of customers  during the
first quarter of 2002 by 61%  (unaudited).  The Company also renewed its line of
credit  agreement  through June 7, 2004.  Moreover,  revenue levels continued to
increase during 2002's first quarter. Management estimates revenue for the first

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-10




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 1 - DESCRIPTION OF THE COMPANY AND NATURE OF OPERATIONS
  (Continued)

three months of 2002 to be  approximately  $4.7 million,  or 19% higher than the
previous  quarter  and  expects  the  trend of  revenue  increases  to  continue
throughout  2002  (unaudited).  As a result of the  revenue  growth and  ongoing
cost-reduction  efforts, the Company has achieved profitability during the first
quarter of 2002  (unaudited)  and  management  believes  that the  Company  will
continue to be profitable during the year ended December 31, 2002.

The  Company is  subject  to certain  risk  factors  frequently  encountered  by
companies  lacking  adequate  capital  and  which  are in the  early  stages  of
developing  a business  line that may impact its ability to become a  profitable
enterprise. These risk factors include:

a)   The  consumer  buying  organization  industry is  characterized  by intense
     competition, and many of the Company's competitors are substantially larger
     than the Company with greater  financial and other resources.  In addition,
     the Company is currently marketing  telecommunications  services, including
     long   distance   services,   to  its  members.   The  U.S.  long  distance
     telecommunications   industry  is  highly   competitive  and  significantly
     influenced by the marketing  and pricing  strategies of the major  industry
     participants,  which are  significantly  larger  than the  Company and have
     substantially greater resources.

b)   The  Company's  relationship  marketing  system is or may be  subject to or
     affected by extensive government regulation, including without limitations,
     state regulation of marketing practices and federal and state regulation of
     the offer and sale of  business  franchises,  business  opportunities,  and
     securities. Long distance telecommunications carriers currently are subject
     to extensive federal and state government regulation.

c)   Additional funds will be required to finance the Company's operations until
     profitability can be achieved and to fund the repayment of debt obligations
     and  other  liabilities.  There  can be no  assurance  that the  additional
     funding will be available  or, if  available,  that it will be available on
     acceptable terms or in required amounts.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation:  The accompanying consolidated financial statements
include the accounts of Buyers United,  Inc. and its wholly owned  subsidiary of
the same name. All significant  intercompany accounts and transactions have been
eliminated upon consolidation.
--------------------------------------------------------------------------------
                                  (Continued)

                                      F-11




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates in the Preparation of Financial Statements:  The preparation of
financial statements in conformity with accounting principles generally accepted
in the United  States of  America  requires  management  to make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from these estimates.

Revenue  Recognition:  The Company's revenue  recognition policy with respect to
reseller  agreements is to record gross revenues and receivables  from customers
when the  Company  acts as  principal  in the  transaction;  takes  title to the
products or services;  and has risks and rewards of  ownership,  such as risk of
loss for collection,  delivery,  or returns. With respect to commission or other
agent or broker  arrangements,  the Company recognizes net commission  revenues.
Revenues from sales of products and services are recognized upon shipment of the
products or  provision  of the  services to the  customers,  and  revenues  from
commissioned services are recognized as the services are provided.

Restricted  Cash: In accordance  with the Company's  agreement  with RFC Capital
Corp.  (Note 4),  the  Company  maintains  a  restricted  cash  account  for the
collection of the Company's  receivables.  As of December 31, 2001,  the Company
had $690,312 of cash that was restricted.

Property  and  Equipment:  Property  and  equipment  are  stated at cost.  Major
additions and improvements are capitalized,  while minor repairs and maintenance
costs are expensed when incurred. In accordance with Statement of Position 98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal  Use,"  the  Company   capitalizes   certain  costs  incurred  for  the
development of internal use software.  These costs include the costs  associated
with coding, software configuration,  upgrades, and enhancements. In March 2000,
the  Emerging  Issues  Task  Force  issued  its  consensus  on Issue  No.  00-2,
"Accounting for Web Site Development Costs." Pursuant to this pronouncement, the
Company has capitalized the direct costs of major development related to its web
site (see Note 3).

Depreciation and amortization are computed using the  straight-line  method over
the estimated useful lives of the related assets as follows:

    Computer and office equipment                           2 to 3 years
    Internal-use software and web site development costs    2 years
    Furniture and fixtures                                  3 to 7 years

Advertising  Costs:  The Company  advertises  its services  through  traditional
venues,  such as Internet,  television,  print media,  and radio, to the general
public.  Costs associated with these advertising means are expensed as incurred,
and  approximated  $1,057,000 and $446,000 for the years ended December 31, 2001
and 2000,  respectively.
--------------------------------------------------------------------------------
                                  (Continued)

                                      F-12




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In addition  to the  traditional  advertising  means  noted  above,  the Company
participates in a direct  response  advertising  campaign with  LowerMyBills.com
(LMB), an Internet service provider.  Through this campaign,  the Company's name
and the  services it provides are  displayed  on LMB's web site.  The Company is
obligated to pay LMB a fee when a customer  signs up for services  through LMB's
web site. The fees associated with this  advertising  campaign were deferred and
approximated  $170,000 during the year ended December 31, 2001.  These fees have
been amortized over the period during which the future  benefits are expected to
be received,  which was six months at December  31,  2001.  The fees and related
accumulated amortization of $42,000 was included with other current assets as of
December 31, 2001.

Fair Value of  Financial  Instruments:  The  carrying  amounts  reported  in the
accompanying  consolidated  balance  sheet for cash,  receivables,  and accounts
payable   approximate  fair  values  because  of  the  immediate  or  short-term
maturities of these financial instruments. The fair value of the Company's notes
payable and preferred stock also  approximate  fair value based on current rates
for similar debt and fixed-rate instruments.

Debt Issuance Costs: As an inducement to various  shareholders and board members
to lend monies to the Company,  shares of common stock were issued to them.  The
fair market value of those  shares at the date of issuance has been  capitalized
as debt  issuance  costs  and is being  amortized  over  the life of the  loans.
Amortization  of these costs for the years ended  December 31, 2001 and 2000 was
$149,104  and $0,  respectively,  and are  included  in  interest  expense.  The
remaining  amortization  period  for  these  costs is less  than two years as of
December 31, 2001.

Income  Taxes:  The Company  recognizes  a liability  or asset for the  deferred
income tax  consequences of all temporary  differences  between the tax bases of
assets and  liabilities and their reported  amounts in the financial  statements
that will  result in taxable  or  deductible  amounts  in future  years when the
reported  amounts of the assets and liabilities are recovered or settled.  These
deferred  income tax assets or  liabilities  are measured  using the enacted tax
rates that will be in effect  when the  differences  are  expected  to  reverse.
Recognition  of  deferred  tax  assets  is  limited  to  amounts  considered  by
management to be more likely than not of realization in future periods.

Net Loss Per  Common  Share : Basic  net loss per  common  share  ("Basic  EPS")
excludes  dilution and is computed by dividing net loss by the weighted  average
number of common shares outstanding during the year. Diluted net loss per common
share ("Diluted EPS") reflects the potential  dilution that could occur if stock
options or other  common stock  equivalents  were  exercised  or converted  into
common  stock.  The  computation  of  Diluted  EPS does not assume  exercise  or
conversion of securities that would have an antidilutive  effect on net loss per
common share.

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-13




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Outstanding  options of  employees  and  directors  to  purchase  2,818,585  and
3,053,019 shares of common stock as of December 31, 2001 and 2000, respectively;
5,252,800 and 4,144,000  shares of common stock  issuable upon the conversion of
preferred  stock as of December 31, 2001 and 2000,  respectively;  and 5,362,132
and  4,601,382  shares of common  stock  issuable  upon  exercise of warrants to
purchase common stock as of December 31, 2001 and 2000,  respectively,  were not
included in the computation of Diluted EPS because they would be antidilutive.

Reclassifications:  Certain  reclassifications  have been made to the prior year
financial statements to conform to the current year presentation.

Recent  Accounting   Pronouncements:   In  June  1998,  Statement  of  Financial
Accounting  Standards ("SFAS") No. 133,  "Accounting for Derivative  Instruments
and Hedging Activities," was issued. SFAS No. 133 establishes new accounting and
reporting  standards  for  companies  to  report  information  about  derivative
instruments,   including  certain  derivative   instruments  embedded  in  other
contracts (collectively referred to as derivatives), and for hedging activities.
This  statement,  as amended,  was adopted by the Company  effective  January 1,
2001.  The  adoption  of this  statement  did not have a material  impact on the
Company's results of operations, financial position, or liquidity.

On June 29, 2001, the Financial  Accounting  Standards Board (FASB) approved its
proposed SFAS No. 141 ("SFAS No. 141"),  "Business  Combinations,"  and SFAS No.
142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets."

Under SFAS No. 141, all business  combinations should be accounted for using the
purchase  method  of  accounting;  use of  the  pooling-of-interests  method  is
prohibited.  The provisions of the statement apply to all business  combinations
initiated after June 30, 2001.  SFAS No. 142 applies to all acquired  intangible
assets  whether  acquired  singly,  as  part  of  a  group,  or  in  a  business
combination.  The statement will supersede  Accounting  Principles Board ("APB")
Opinion No. 17,  "Intangible  Assets," and will carry forward  provisions in APB
Opinion No. 17 related to internally  developed  intangible  assets. The Company
believes that the adoption of these  statements  will not have a material impact
on the Company's results of operations, financial position, or liquidity.

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations."  The Company is  required  to adopt SFAS No. 143 for fiscal  years
beginning after June 15, 2002. Thus, the Company will need to adopt SFAS No. 143
as of January 1, 2003. SFAS No. 143 requires businesses to recognize a liability
for an asset retirement obligation when it is incurred. This liability should be
recorded at its fair value, and a corresponding  increase in the carrying amount
of the related  long-term asset should be recorded as well. The Company believes
the adoption of SFAS No. 143 on January 1, 2003 will not have a material  impact
on the Company's results of operations, financial position, or liquidity.

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-14




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived  Assets." SFAS No. 144 develops one  accounting  model
for long-lived  assets that are to be disposed of by sale. The long-lived assets
that are to be disposed of by sale should be measured at the lower of book value
or fair value less any selling expenses.  Additionally, SFAS No. 144 expands the
scope of  discontinued  operations  to include all  components of an entity with
operations  that can be  distinguished  from the rest of the  entity and will be
eliminated from the ongoing operations of the entity in a disposal  transaction.
The statement is effective for the Company for all financial  statements  issued
for fiscal years beginning after December 15, 2001. Management believes that the
adoption of this  pronouncement will not have a material effect on the Company's
results of operations, financial position, or liquidity.

NOTE 3 - PROPERTY AND EQUIPMENT

At December 31, 2001, property and equipment consists of the following:

            Computer and office equipment                $ 708,688
            Internal-use software and web site
              development costs                            558,548
            Furniture and fixtures                         217,690
                                                         ---------
                                                         1,484,926
            Accumulated depreciation and amortization      832,350
                                                         ---------

                                                         $ 652,576
                                                         =========

Property and equipment at December 31, 2001 includes  $327,992 of assets under a
capital lease and accumulated amortization of $208,369.

During the current year, the Company  reviewed its investment in leased computer
equipment  and  software,  and  determined  that it  could  achieve  its  growth
objectives  and serve its  customers  with a different  equipment  and  software
solution.  During the current  year,  the  Company  also  replaced  its web site
software  with a  newly-developed  program.  The  total  cost  of  removing  the
unamortized  book value of the above  assets was $980,086 and is included in the
consolidated statement of operations.

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-15




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 4 - LINE OF CREDIT

On June 7, 2001,  the Company  entered into a line of credit  agreement with RFC
Capital  Corporation  ("RFC").  The facility  allows the Company to borrow up to
$2,500,000  based on the Company's  eligible  accounts  receivable  and unbilled
receivables. The facility bears interest at prime plus 6% and expires June 2002.

As security  for the line of credit,  the Company is required to maintain a lock
box at a financial  institution.  As of December 31, 2001, there was $690,312 of
restricted  cash  associated  with this  agreement.  At December 31,  2001,  the
Company had borrowed the maximum  amount  available  based on eligible  accounts
receivable at that time, which amounted to $574,172.

NOTE 5 - LONG-TERM DEBT

Long-term debt consists of the following:

      Unsecured  notes  payable - Chairman  of the  Board,  bearing
      interest  of  12%,   with  both   principal  and  any  unpaid
      interest due July 5, 2003.                                      $2,565,000

      Secured  note  payable  bearing   interest  at  18%,  payable
      monthly.    Principal    and   any   unpaid    interest   due
      February 28,  2003.  The note is secured by certain assets of
      a member of the Board of Directors.                              1,050,000

      Unsecured promissory notes bearing interest at 12%. Principal
      payments due monthly based on 20% of billings collected from
      specifically-designated customers. All unpaid interest and
      principal are due November 2003. The Company believes that
      the principal will be repaid over a period of one year from
      the date of issue based on forecasted billings to these
      customers.                                                         825,000

      Other                                                              177,641
                                                                       ---------
                                                                       4,617,641
      Less current portion                                             1,002,641
                                                                       ---------

                                                                      $3,615,000
                                                                       =========
--------------------------------------------------------------------------------
                                  (Continued)

                                      F-16




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 5 - LONG-TERM DEBT (Continued)

Long-term debt maturities are as follows:

                  2002                             $1,002,641
                  2003                              3,615,000
                                                   ----------
                                                    4,617,641
                  Less current maturities           1,002,641
                                                   ----------

                                                   $3,615,000
                                                   ==========

NOTE 6 - NOTES PAYABLE

The secured note payable  provides a conversion  feature  whereby the holder may
convert the note into common stock at $2.50 per share.  This feature was amended
to the note  agreement  during 2000.  On the date of the  amendment,  the quoted
market value of the  Company's  common stock  exceeded the  conversion  price of
$2.50 per share;  therefore,  in 2000, the Company recorded a non-cash charge to
interest expense of $722,050  representing the intrinsic value of the beneficial
conversion feature.

In connection with the unsecured promissory notes, two-year warrants to purchase
211,850  shares of  common  stock at $2.50  per  share  were also  issued to the
noteholders.  Warrants for an additional  25,500 shares were issued to the sales
agent.  The estimated fair value of the warrants of $32,457,  based on using the
Black-Scholes  pricing  model,  was  allocated to the warrants and recorded as a
discount to the carrying value of the notes.  The discount is being amortized to
interest expense over the estimated term of the notes.

In June 2001, the Company  entered into a joint sales  agreement with Infotopia,
Inc.  ("Infotopia"),   a  direct  response  marketer.  In  connection  with  the
agreement, Infotopia agreed to loan the Company $500,000. Subsequent to entering
into the sales  agreement,  the two companies  decided not to pursue further any
joint  activity.  During  2001,  Infotopia  sold  the  loan  obligation  to Pali
Investments,  Inc. ("Pali"), an unrelated investment relations firm. In December
2001,  the Company  negotiated  a settlement  with Pali.  Under the terms of the
settlement,  the Company paid  $120,000 and issued 35,000 shares of common stock
in exchange for canceling  the  outstanding  obligation  plus $25,921 in accrued
interest.  The stock had a fair market value of $22,401.  Accordingly,  based on
these  amounts,  the  Company  recorded  an  extraordinary  gain  on  the  early
extinguishments of the debt in the amount of $383,520.

During 2000, various  investors,  including three members of the Company's Board
of Directors,  loaned the Company  $2,795,000  under promissory note agreements.
Certain of the notes were  non-interest-bearing  for an initial term and, if not

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-17




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 6 - NOTES PAYABLE (Continued)

repaid,  bore  interest at rates  ranging from 12% to 18%.  The Company  imputed
interest  of $37,742  for the  non-interest  periods,  which was  recorded  as a
discount on the notes.  The other agreements bore interest at rates ranging from
12% to 18%.  One note for $150,000 was repaid;  an 18%  $100,000  note  remained
outstanding  at  December  31, 2000 with a carrying  amount of  $98,613,  net of
discount, and an original due date of January 31, 2001. This note was amended to
extend the interest and principal  payments to be due in July 2003 (see Note 5).
The  remaining  $2,545,000  of notes  were  exchanged  for shares of Series B 8%
cumulative convertible preferred stock and warrants in October 2000 (see Notes 9
and 10).

In connection with the loans described in the preceding  paragraph,  the Company
issued  1,432,500  warrants  to the note  holders  and  32,500  warrants  to the
Placement  Agent.  The warrants entitle the holders to purchase shares of common
stock at prices  ranging  between $2.00 and $2.50 per share until June 30, 2005.
The  estimated  fair value of the  warrants  of  $1,427,654,  based on using the
Black-Scholes  pricing  model,  was  allocated to the warrants and recorded as a
discount to the carrying value of the notes. The discount was being amortized to
interest  expense over the term of the notes.  When the notes were  subsequently
exchanged  for Series B preferred  stock and warrants to purchase  common stock,
the difference  between the estimated fair value of the Series B preferred stock
and  warrants  and  the  carrying  amount  of  the  debt  was  recognized  as an
extraordinary  loss on early  extinguishment of debt. The extraordinary  loss on
early extinguishment in 2000 amounted to $1,024,574.

NOTE 7 - LEASES

In December 2000, the Company moved all of its operations  into one building and
entered into a  noncancellable  operating  lease agreement for the office space.
The Company has also entered into operating  leases for various pieces of office
equipment and has a capital  lease for software.  The following is a schedule of
future  minimum  payments  under the leases as of  December  31,  2001:

                                                     Capital   Operating
                                                     Leases     Leases
                                                   ---------   ----------
      2002                                         $ 210,673   $  376,581
      2003                                                 -      379,906
      2004                                                 -      387,681
      2005                                                 -      397,373
      2006                                                 -      407,307
      Thereafter                                           -      417,490
                                                   ---------   ----------
         Total future minimum lease payments         210,673   $2,366,338
                                                               ==========
      Less amount representing interest               (8,516)
                                                   ---------
         Total obligations under capital leases -
         all current                               $ 202,157
                                                   =========

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-18




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 7 - LEASES (Continued)

Rent  expense  was  approximately  $517,600  and  $220,000  for the years  ended
December 31, 2001 and 2000, respectively.

NOTE 8 - INCOME TAXES

The components of the Company's net deferred  income tax assets and  liabilities
are as follows:

      Deferred income tax assets:
         Net operating loss carryforwards                      $6,550,000
         Reserves and accrued liabilities                         408,000
         Other                                                     11,000
                                                               -----------
            Total deferred income tax assets                    6,969,000
         Valuation allowance                                   (6,752,000)
                                                               -----------

            Net deferred income tax asset                         217,000

      Deferred income tax liabilities:
         Capitalized software costs                                     -
         Tax depreciation in excess of book depreciation         (217,000)
                                                               -----------

            Net deferred income tax liability                    (217,000)
                                                               -----------

            Net deferred income taxes                          $        -
                                                               ===========

As of December 31, 2001,  the Company had net operating loss  carryforwards  for
federal income tax reporting purposes of approximately $18,000,000.  The tax net
operating loss carryforwards will expire beginning in 2012.

No benefit for income taxes has been recorded during the year ended December 31,
2001.  Inasmuch as the  Company's  history  includes  accumulated  net operating
losses,  it is uncertain as to whether the  Company's  deferred tax asset can be
fully realized.  Accordingly,  a valuation allowance has been recorded to reduce
the deferred  income tax assets.  The net change in the valuation  allowance for
deferred tax assets  during the year ended  December 31, 2001 was an increase of
$2,166,000.
--------------------------------------------------------------------------------
                                  (Continued)

                                      F-19




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 9 - CAPITAL TRANSACTIONS

Preferred  Stock: The Board of Directors is authorized to classify any shares of
the Company's  authorized  but unissued  preferred  stock in one or more series.
With respect to each series,  the Board of Directors is  authorized to determine
the number of shares that constitutes such series; the rate of dividend, if any,
payable on shares of such  series;  whether the shares of such  series  shall be
cumulative,  non-cumulative,  or partially  cumulative  as to dividends  and the
dates from which any cumulative dividends are to accumulate;  whether the shares
of such series may be redeemed, and, if so, the price or prices at which and the
terms and conditions on which shares of such series may be redeemed;  the amount
payable upon shares of such series in the event of the voluntary or  involuntary
dissolution,  liquidation,  or winding up of the  affairs  of the  Company;  the
sinking fund  provisions,  if any, for the  redemption of shares of such series;
the  voting  rights,  if any,  of the  shares  of such  series;  the  terms  and
conditions,  if any, on which shares of such series may be converted into shares
of capital stock of the Company of any other class or series; whether the shares
of such series are to be preferred  over shares of capital  stock of the Company
of any  other  class  or  series  as to  dividends  or  upon  the  voluntary  or
involuntary  dissolution,  liquidation,  or  termination  of the  affairs of the
Company or otherwise; and any other characteristics,  preferences,  limitations,
rights, privileges, immunities, or terms.

Series A 8% Cumulative  Convertible  Preferred Stock:  During 1999, the Board of
Directors  authorized the issuance of 2,000,000 shares of Series A 8% Cumulative
Convertible Preferred Stock ("Series A Preferred Stock") at an offering price of
$2.00 per share.  Gross  proceeds  of  $4,000,000  were  raised upon sale of the
shares.

The Series A Preferred  Stock is  convertible to common stock at any time at the
election of the holder and, under limited circumstances,  at the election of the
Company.  The conversion rate is one for one, subject to adjustment in the event
of a recapitalization,  reorganization,  or other corporate  restructuring or in
the event that the Company shall sell or otherwise  issue  securities at a price
below  $2.00 per  share or the then  adjusted  conversion  price.  The  Series A
Preferred Stock can be redeemed at the Company's election at any time commencing
January  1,  2005 at a  redemption  price of $2.00 per  share  plus all  accrued
dividends as of the redemption date. During 2001 and 2000, certain  stockholders
converted 5,000 and 125,000 Series A preferred shares, respectively, into common
shares.

Series B 8% Cumulative Convertible Preferred Stock: In September 2000, the Board
of  Directors  authorized  the  issuance  of  1,234,500  shares  of  Series B 8%
Cumulative  Convertible Preferred Stock ("Series B Preferred Stock") and related
warrants to purchase common shares at an offering price of $10.00 per unit. Each
unit  consists  of one share of Series B  Preferred  Stock and five  warrants to
purchase  one share of common  stock at an  exercise  price of $2.50 per  share.
During  2000,  various  investors  made loans to the  Company  and  subsequently
elected to  exchange  their  promissory  notes for  units.  In  addition  to the
converted  loans of  $2,545,000,  the  Company  raised  $1,993,000  through  the
issuance of units through December 31, 2000 and $1,100,000  through the issuance
of units in 2001.

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-20




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 9 - CAPITAL TRANSACTIONS (Continued)

In connection  with the unit  offering,  the Company agreed to pay the Placement
Agent a sales  commission  and expense  allowance  aggregating  13% of the gross
proceeds  from the sale of the Series B Preferred  Stock,  in addition to 10% of
the gross  proceeds  of certain  related  bridge  financing.  The  Company  also
incurred  approximately  $23,000  of  direct  expenses  in  connection  with the
offering.  As  additional  consideration,  the  Company  agreed  to issue to the
Placement  Agent  warrants to purchase  319,300  shares of the Company's  common
stock at an exercise price of $2.50 per share.

As part of the Series B Preferred Stock offering,  the Company issued  2,269,000
warrants to purchase common stock at $2.50 per share. The Company  allocated the
net  proceeds  from the  offering of  $4,208,762  between the Series B Preferred
Stock and the warrants  based on estimated  relative  fair values.  The Series B
Preferred  Stock was recorded at  $2,432,476,  and the warrants were recorded at
$1,776,286.  The estimated fair value of the warrants was  determined  using the
Black-Scholes  pricing  model.  The Series B Preferred  Stock is  convertible to
common  stock at any time at the  election  of the  holder  and,  under  limited
circumstances,  at the election of the Company.  The conversion rate is five for
one, subject to adjustment in the event of a  recapitalization,  reorganization,
or other corporate  restructuring or in the event that the Company shall sell or
otherwise issue securities at a price below $2.00 per share or the then adjusted
conversion  price.  On most of the  dates the  Series B  preferred  shares  were
issued, the quoted market price of the Company's common stock exceeded the $2.00
conversion price.  Accordingly,  the Company measured the intrinsic value of the
beneficial conversion feature as the difference between the quoted prices of the
common stock into which the Series B preferred  shares are  convertible  and the
recorded  value of the  Series B  preferred  shares  of  $2,432,476.  The  total
intrinsic  value of the  beneficial  conversion  feature of $2,098,134  has been
reflected  in the  accompanying  2000  consolidated  financial  statements  as a
preferred stock dividend and as an increase to additional paid in capital.

During the three months ended March 31, 2001,  the Company  issued an additional
110,000 shares of preferred stock and 550,000 warrants to purchase common stock.
The Company  allocated the net proceeds from the offering of $1,097,223  between
the Series B Preferred  Stock and the warrants based on estimated  relative fair
values.  Accordingly,  the stock was recorded at $794,822, and the warrants were
recorded at $302,401.  In connection with these additional Series B shares,  the
intrinsic value of the beneficial conversion feature of $20,498 was reflected in
the accompanying  2001  consolidated  financial  statements as a preferred stock
dividend  and as an  increase  to  additional  paid in  capital.  The  Series  B
Preferred Stock Offering closed on April 13, 2001.

The Series B Preferred  Stock can be redeemed at the  Company's  election at any
time commencing  January 1, 2004, at a redemption price of $10.00 per share plus
all accrued dividends as of the redemption date.

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-21




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 9 - CAPITAL TRANSACTIONS (Continued)

Cumulative  dividends  accrue on both Series A and B Preferred Stock at the rate
of 8% per annum from the date of original issue and are payable semi-annually on
June 30 and  December  31 of each year out of funds  legally  available  for the
payment of  dividends.  Dividends  are  payable  in cash or common  stock at the
election of the Company.  If paid in common  stock,  the number of shares issued
will be based on the average of the closing bid prices for the common stock over
the five trading days  immediately  prior to the dividend  payment  date. If the
Company fails to pay any dividend within 60 days of its due date, the conversion
price (see below) is adjusted  downward by $0.25 per share for each  occurrence.
During  the years  ended  December  31,  2001 and  2000,  the  Company  declared
dividends  aggregating  $738,957  and  $383,458,  respectively,  and to  satisfy
payment  obligations,  issued a total of 504,884  and  176,455  shares of common
stock, respectively.  As of December 31, 2001, the Company had accrued dividends
payable in the amount of $378,316.  In February  2002,  the Company  settled the
dividend payable by issuing 374,534 shares of common stock.

The Series A and B Preferred Stock have no voting rights,  except as required by
the General  Corporation  Laws of Delaware  that require  class votes on certain
corporate  matters  and  matters  affecting  the  rights of the  holders  of the
Preferred  Stock. The Preferred Stock is senior in right of payment in the event
of  liquidation  and with respect to dividends to the common stock and all other
subsequent  preferred  stock  issuances  that may be  authorized.  The  Series A
Preferred Stock has a liquidation preference of $2.00 per share and the Series B
Preferred Stock has a liquidation preference of $10.00 per share.

Issuances  of Common  Stock:  During  2001 the  Company  issued  113,300 to four
employees in payment of services rendered, at an aggregated fair market value of
$77,100.

The Company also issued 35,500  shares of stock to one of its  directors  during
2001 to personally act as a guarantor to certain of the Company's creditors with
respect to business  expansion  activities.  The fair market value of the shares
was $27,475.

In March 2001, the Company entered into three-year  marketing contracts with one
of its  Series B  Preferred  stockholders.  Under  the  terms of the  contracts,
100,000 shares of common stock were issued with a fair market value of $125,000.
This amount was recorded on the balance sheet as a deferred  consulting  fee and
included in  operating  expenses on a  straight-line  basis over the life of the
contracts.  During 2001,  $39,931 was recorded in promotion expenses as a result
of this  amortization.  Consideration  granted under the  contracts'  terms also
included options to purchase up to 150,000  additional shares of common stock at
$2.50 per share.  These  options vest  gradually  over the term of the contract.
These  options are  accounted for as variable plan options since the issuance of
these  options was under the premise that the grantee will be providing  current
and future services for the Company. Accordingly, using the Black-Scholes option
pricing model, $29,581 in consulting expense was recorded to reflect the vesting
of these  options  through  December  31,  2001.

--------------------------------------------------------------------------------
                                  (Continued)

                                      F-22




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 9 - CAPITAL  TRANSACTIONS (Continued)

In August 2000, the Company sold 150,000 shares of common stock to an individual
for  $300,000.  The  individual  also  received  warrants  to  purchase  200,000
additional  shares of common  stock at $2.00 per share.  Proceeds  from the sale
were allocated  between common stock and the warrants based on the relative fair
values.  The  estimated  fair value of the  warrants  was  determined  using the
Black-Scholes  option pricing  model.  The common stock was recorded at $187,199
and the warrants were recorded at $112,801.

Warrants to Purchase  Common  Shares:  As mentioned  above,  the Company  issued
warrants  in  connection  with its  Series B  preferred  stock  offering  and in
connection with certain  marketing  contracts.  In addition,  the Company issued
warrants when it issued and converted certain notes payable more fully described
in Note 6.

During 2000, the Company issued  warrants in connection with the sale of 150,000
shares of common stock as previously  described  above.  The Company also issued
223,082 warrants to purchase common shares at prices ranging from $2.00 to $5.13
per  share to  various  outside  consultants  and  independent  sales  agents in
exchange for services, which were valued at $473,703.

During 2001,  the Company  issued 10,000  warrants to purchase  common shares at
$2.50 per share to  independent  sales agents,  which were valued at $9,236.  In
addition,  the  Company  renegotiated  and settled  certain  terms of an outside
consulting contract entered into during 2000. Under the terms of the settlement,
the Company  modified the exercise price from $5.00 per share to $2.50 per share
on 50,000 warrants  outstanding and issued an additional 15,000 warrants with an
exercise price of $2.50 per share. In connection with the settlement the Company
recognized $15,696 in expense.

All of the warrants were  exercisable at December 31, 2001. The following tables
summarize the warrant activity for 2001 and 2000:
                                                                 Weighted
                                                                  Average
                                                    Price        Exercise
                                  Warrants          Range          Price
                                 ---------      -------------    --------
   Balance at December 31, 1999    125,000          $1.25         $  1.25
      Issued                     4,476,382      $2.00 - $5.13        2.47
                                 ---------
   Balance at December 31, 2000  4,601,382      $1.25 - $5.13        2.44
      Cancelled or expired        (268,000)     $2.00 - $5.00        2.60
      Issued                     1,012,350          $2.50            2.50
                                 ---------

   Balance at December 31, 2001  5,345,732      $1.25 - $5.13        2.44
                                 =========


--------------------------------------------------------------------------------
                                  (Continued)

                                      F-23




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 9 - CAPITAL TRANSACTIONS (Continued)

Long-Term  Stock   Incentive  Plan:   Effective  March  11,  1999,  the  Company
established the Buyers United International, Inc. Long-Term Stock Incentive Plan
("the Stock Plan"). The Stock Plan provides for a maximum of 1,200,000 shares of
common  stock  of  the  Company  to  be  awarded  to   participants   and  their
beneficiaries. A Committee, as determined by the Board of Directors,  determines
and  designates  the eligible  participants  and awards to be granted  under the
Stock Plan.  The  Committee may grant  incentive  stock  options;  non-qualified
options;  stock  appreciation  rights  ("SAR");  and on a limited  basis,  stock
awards. The terms and exercise prices of options and SARs will be established by
the Committee;  except that the exercise  prices cannot be less than 100 percent
of the fair market value of a share of common stock on the date of grant.  As of
December 31, 2001, incentive stock options to purchase a total of 794,653 shares
of common stock had been granted under this particular plan and, of that amount,
256,499 were still outstanding.

Stock Options: The Company's Board of Directors has from time to time authorized
the  grant  of  stock  options  to  directors,   officers,  key  employees,  and
consultants as  compensation  and in connection  with obtaining  financing.  The
following tables summarize the option activity for 2001 and 2000:

                                                                 Weighted
                                                                  Average
                                                    Price        Exercise
                                   Options          Range          Price
                                 ---------      -------------    --------
   Balance at December 31, 1999  1,494,838      $2.00 - $9.00     $  2.40
      Granted                    2,026,633      $2.00 - $5.13        2.85
      Cancelled or expired        (468,452)     $2.00 - $9.00        2.67
                                 ---------
   Balance at December 31, 2000  3,053,019      $2.00 - $9.00        2.66
      Granted                      562,501      $2.50 - $3.50        2.50
      Cancelled or expired        (796,935)     $2.00 - $5.00        2.41
                                 ---------

   Balance at December 31, 2001  2,818,585      $2.00 - $9.00        2.69
                                 =========


--------------------------------------------------------------------------------
                                  (Continued)

                                      F-24




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 9 - CAPITAL TRANSACTIONS (Continued)

A summary of the options  outstanding  and options  exercisable  at December 31,
2001 is as follows:
                                                                  Options
                    Options Outstanding                         Exercisable
   ---------------------------------------------------   -----------------------
                                    Average   Weighted       Options    Weighted
     Range of                      Remaining   Average   Exercisable at  Average
     Exercise        Options      Contractual Exercise    December 31,  Exercise
      Prices       Outstanding       Life       Price         2001       Price
   -------------   -----------    ----------- --------   -------------- --------
   $2.00 - $3.99    $2,535,359     4.5 years  $  2.44    $    2,190,359 $  2.37
   $4.00 - $5.99       280,726     3.6 years     4.90           280,726    4.90
   $6.00 - $9.00         2,500     0.1 years     9.00             2,500    9.00
                    ----------                           --------------

                    $2,818,585     4.4 years  $  2.69    $    2,473,585 $  2.67
                    ==========                           ==============

Stock-Based  Compensation:  The  Company  applies  Accounting  Principles  Board
Opinion  No. 25 and  related  interpretations  in  accounting  for its grants of
options to purchase  common shares to employees.  SFAS No. 123,  "Accounting for
Stock-Based  Compensation,"  requires pro forma information regarding net income
(loss) as if the Company had accounted  for its stock options  granted under the
fair value  method of the  statement.  The fair value of the stock  options  was
estimated  at the grant date by the Company  based on the  Black-Scholes  option
pricing  model.  For the years ended  December 31, 2001 and 2000,  the following
assumptions were used in the Black-Scholes  model: a weighted-average  risk-free
interest  rate of  2.18%  to  5.39%  depending  on the  grant  date,  and  6.2%,
respectively,  a dividend yield of 0% and 0%, a weighted  average  volatility of
111% and  104.3%,  and  weighted-average  expected  lives of 5.6 and 5.8  years,
respectively.  The  weighted  average fair value of options  granted  during the
years ended  December 31, 2001 and 2000 was $2.51 and $2.66,  respectively.  The
net losses  applicable to common  stockholders  under SFAS No. 123 for the years
ended  December  31,  2001 and 2000 would have been  increased  to the pro forma
amounts indicated below:

                                                     2001          2000
                                                     ----          ----
      Net loss applicable to common stockholders
         As reported                            $(6,827,484)  $(11,608,114)
         Pro forma                               (7,538,246)   (13,526,510)

      Basic and diluted net loss per common share
         As reported                                $ (1.49)       $ (3.12)
         Pro forma                                    (1.64)         (3.63)

The  effects of  applying  SFAS No. 123 are not  indicative  of future  amounts.
Additional awards in future years are anticipated.


--------------------------------------------------------------------------------
                                  (Continued)

                                      F-25




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 10 - RELATED PARTY TRANSACTIONS

During 2001 and 2000,  certain board members and stockholders  performed various
services  to the  Company.  These  services  included,  but were not limited to,
consulting,  marketing  and capital  and debt  raising  activities.  The Company
incurred  $167,000 and $59,400 in fees  associated  with these  services for the
years  ended  December  31,  2001 and 2000,  respectively.  Amounts  outstanding
related to these services were $31,300 at December 31, 2001.

During 2000,  certain board  members made loans to the Company and  subsequently
exchanged  their  notes for Series B  Convertible  Preferred  Stock and  related
warrants.  The five and two-year  warrants  have an exercise  price of $2.50 per
share.  The total number of warrants issued to these board members was 1,030,000
(see Note 9).

NOTE 11 - MAJOR SUPPLIERS

Approximately  84% of the Company's  cost of revenue for the year ended December
31, 2001 was generated from three telecommunication providers, and approximately
89% of the  Company's  cost of revenue for the year ended  December 31, 2000 was
generated from four  telecommunication  providers.  As of December 31, 2001, the
Company  owed  approximately  $1,685,600  to these  providers.  The  Company has
entered into contractual agreements with these vendors.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

On June 14,  2001,  a lawsuit was filed  against the Company by  Profitec,  Inc.
("Profitec")  in New Haven,  Connecticut.  Profitec  asserted  that it agreed to
perform  certain  billing  services in 1999 for the Company's  telecommunication
members and that the Company agreed to pay Profitec for such services.  Profitec
further  claimed  that the Company  breached  the  contract by  terminating  the
contract and failing to pay fees allocable under a "liquidated damage" provision
for early termination. Profitec has claimed damages in excess of $140,000, based
upon the  contract's  liquidated  damage  provisions.  The Company has  retained
counsel in New Haven to defend  this  action.  The  Company's  defenses  to this
matter include the following:  that Profitec  failed to provide the  contractual
services in a timely or competent manner;  that the Company notified Profitec on
many occasions  that it was not  performing in accordance  with the terms of the
contract; that Profitec failed to cure the billing inadequacies and continued to
deliver a billing  product  that  caused the  Company to lose  members and spend
excessive  monies to correct;  that Profitec  breached the contract and that the
Company  followed its remedial course set forth in the contract by canceling the
contract and  obtaining  billing  services  elsewhere;  and that the  liquidated
damage provision upon which plaintiff bases its lawsuit is unenforceable.


--------------------------------------------------------------------------------
                                  (Continued)

                                      F-26




                       BUYERS UNITED, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2001 and 2000
--------------------------------------------------------------------------------

NOTE 12 - COMMITMENTS AND CONTINGENCIES (Continued)

The  Company  has filed a general  denial  answer and has  asserted  affirmative
defenses,  including  breach of contract,  failure of  consideration,  and other
issues.  The  Company  has also filed a counter  claim and has pled for  damages
based  upon the  plaintiff's  failure  under the  above-described  contract.  On
November 5, 2001,  Profitec  answered and denied the counter-claim but has never
sought discovery.  The Company believes that Profitec's claims are without merit
and is aware of other actions by Profitec against defendants  similarly situated
as the Company.  The Company  intends to defend the action and pursue its claims
against Profitec as it deems appropriate.

The Company is the subject of certain  other legal  matters,  which it considers
incidental to its business  activities.  It is the opinion of management,  after
discussion  with legal  counsel,  that the ultimate  disposition  of these legal
matters will not have a material impact on the financial position, liquidity, or
results of operations of the Company.

NOTE 13 - SUBSEQUENT EVENTS

Subsequent to December 31, 2001, the Company  obtained  additional  financing of
$1,700,000 through the issuance of promissory notes and warrants.

The Company  also  received  $100,000  from the  issuance of a note payable to a
director of the Company.  The  unsecured  note bears  interest at 12% and is due
July 5, 2003. In connection  with the issuance of this note,  the Company issued
10,000  shares of common stock with a fair market value of $10,000.  This amount
was recorded as a debt financing cost and is being amortized to interest expense
over the remaining term of the note.

On January 28, 2002, one of the Company's main telecommunication  providers,  as
discussed in Note 11, filed for bankruptcy protection.  Although the Company has
not  experienced  a disruption  of service and feels that it could  replace this
company with another  telecommunications  provider,  the effect on the Company's
operations of potentially losing this service provider cannot be determined.


                                      F-27




Board of Directors and Executive Officers   Independent Public Accountants

  Theodore Stern                              Crowe, Chizek and Company LLP
    Chairman of the Board                     Oak Brook, Illinois
    Chief Executive Officer

  Gary Smith                                Corporate Counsel
    Director
    Business Consultant                       Cohne, Rappaport & Segal
                                              Salt Lake City, Utah
  Edward Dallin Bagley
    Director
    Business Consultant                     Transfer Agent

  Steve Barnett                               Atlas Stock Transfer Company
    Director                                  Salt Lake City, Utah
    Business Consultant

  Paul Jarman                               Business Office
    Chief Operating Officer
    Treasurer and Secretary                   14870 Pony Express Road
                                              Bluffdale, Utah 84065
  G. Douglas Smith                            (801) 320-3300
    Executive Vice President

  Kenneth D. Krogue
    Executive Vice President


--------------------------------------------

Upon written consent we will furnish to our  stockholders  without charge a copy
of our report on Form 10-KSB for the year ended  December 31, 2001 as filed with
the Securities and Exchange Commission. Requests should be directed to:

Mr. Paul Jarman
Chief Operating Officer
Buyers United, Inc.
14870 Pony Express Road
Bluffdale, Utah  84065

This report is also  available  from the  Securities  and Exchange  Commission's
Internet web site, http://www.sec.gov.