U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-26917
BUYERS UNITED, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 87-0528557
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
14870 Pony Express Road, Bluffdale, Utah 84065
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(Address of principal executive offices)
(801) 320-3300
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(Issuer's telephone number)
(Former name, address and fiscal year, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or
for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Check whether the registrant has filed all documents and reports required to
be filed by Sections 12, 13, or 15(d) of the Exchange Act subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of
common equity: 5,930,262 of common stock as of October 31, 2002.
Transitional Small Business Format: Yes [ ] No [ X ]
BUYERS UNITED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, December 31,
2002 2001
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ASSETS
Current assets:
Cash $ 869,399 $ 57,100
Restricted cash 890,944 690,312
Accounts receivable, net 5,046,421 2,271,873
Other current assets 1,391,301 282,240
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Total current assets 8,198,065 3,301,525
Property and equipment, net 573,401 652,576
Debt issuance cost, net - 187,756
Other assets, net 887,753 189,885
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Total assets $ 9,659,219 $ 4,331,742
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Checks drawn in excess of available cash
balances $ - $ 186,866
Line of credit 1,452,548 574,172
Current portion of long-term debt 7,137,105 1,002,641
Accounts payable 4,916,548 3,879,517
Accrued liabilities 776,004 525,023
Accrued commissions and rebates 417,714 324,778
Accrued dividends payable on
preferred stock 189,102 378,316
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Total current liabilities 14,889,021 6,871,313
Long-term liabilities:
Long-term debt, net of current portion - 3,615,000
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Total liabilities 14,889,021 10,486,313
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Stockholders' deficit:
Preferred stock 244 244
Common stock 593 531
Additional paid-in capital 16,014,068 15,190,855
Warrants and options outstanding 4,613,184 4,383,334
Deferred consulting fees (60,764) (98,406)
Accumulated deficit (25,797,127) (25,631,129)
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Total stockholders' deficit (5,229,802) (6,154,571)
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Total liabilities and stockholders' deficit $ 9,659,219 $ 4,331,742
========== ==========
See accompanying notes
BUYERS UNITED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30,
--------------------------------
2002 2001
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Revenues:
Telecommunications services $ 8,646,946 $ 3,913,095
Other 8,854 23,109
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Total revenues 8,655,800 3,936,204
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Operating expenses:
Costs of revenues 4,763,227 2,617,018
General and administrative 1,918,832 1,247,876
Selling and promotion 1,230,195 828,254
Termination of lease and write-off of web-
site development costs - 922,076
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Total operating expenses 7,912,254 5,615,224
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Income (loss) from operations 743,546 (1,679,020)
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Other income (expense):
Interest income 5,896 4,361
Interest expense (431,834) (334,341)
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Total other expense, net (425,938) (329,980)
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Net income (loss) $ 317,608 $ (2,009,000)
========= =========
Preferred stock dividends:
8% dividends on Series A and B preferred
stock (189,101) (189,157)
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Net income (loss) applicable to common
stockholders $ 128,507 $ (2,198,157)
========= =========
Net income (loss) per common share:
Basic and diluted $ 0.02 $ (0.47)
========= =========
Weighted average common shares outstanding:
Basic and diluted 5,806,286 4,711,019
========= =========
See accompanying notes
BUYERS UNITED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Nine Months Ended September 30,
-------------------------------
2002 2001
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Revenues:
Telecommunications services $ 20,214,927 $ 10,307,124
Other 44,415 62,180
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Total revenues 20,259,342 10,369,304
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Operating expenses:
Costs of revenues 10,943,056 7,124,478
General and administrative 4,650,156 4,564,959
Selling and promotion 3,163,130 2,381,991
Termination of lease and write-off of web-
site development costs - 922,076
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Total operating expenses 18,756,342 14,993,504
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Income (loss) from operations 1,503,000 (4,624,200)
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Other income (expense):
Interest income 12,698 13,485
Interest expense (1,120,558) (705,852)
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Total other expense, net (1,107,860) (692,367)
---------- ----------
Net income (loss) $ 395,140 $ (5,316,567)
========== ==========
Preferred stock dividends:
8% dividends on Series A and B preferred
stock (561,138) (549,799)
Beneficial conversion feature related to
Series B preferred stock - (20,498)
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Total preferred stock dividends (561,138) (570,297)
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Net loss applicable to common
stockholders $ (165,998) $ (5,886,864)
========== ==========
Net loss per common share:
Basic and diluted $ (0.03) $ (1.33)
========== ==========
Weighted average common shares outstanding:
Basic and diluted 5,672,462 4,427,380
========== ==========
See accompanying notes
BUYERS UNITED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended September 30,
-------------------------------
2002 2001
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Cash flows from operating activities:
Net income (loss) $ 395,140 $ (5,316,567)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 784,638 653,096
Interest expense resulting from issuing
stock and warrants with notes 23,375 205,274
Amortization of discount on notes payable 151,858 1,387
Amortization of note financing costs 133,587 160,214
Amortization of deferred consulting fees 37,642 32,160
Services rendered in exchange for shares
of common stock - 6,181
Expense related to the grant of options
to purchase common shares 42,964 12,133
Termination of lease and write-off of
web-site development costs - 922,076
Changes in operating assets and
liabilities:
Restricted cash (200,632) (419,271)
Accounts receivable (2,774,548) (991,560)
Other assets (2,040,103) 84,169
Checks in excess of available cash
balances (186,866) -
Accounts payable 1,037,031 708,631
Accrued commissions and rebates 92,936 151,637
Accrued liabilities 266,979 (29,066)
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Net cash used in operating activities (2,235,999) (3,819,506)
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Cash flows from investing activities:
Decrease (increase) in other assets (88,387) 18,325
Purchases of property and equipment (250,968) (282,341)
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Net cash used in investing activities (339,355) (264,016)
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Cash flows from financing activities:
Net borrowings under line of credit 878,376 463,865
Borrowings under notes payable, net of debt
issuance costs 3,937,250 2,815,000
Principal payments on notes payable (1,249,031) (83,246)
Principal payments on capital lease
obligations (178,942) (165,965)
Issuance of preferred/common shares for
cash, net of offering costs - 1,097,223
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Net cash provided by financing
activities 3,387,653 4,126,877
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Net increase in cash 812,299 43,355
Cash at the beginning of the period 57,100 56,825
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Cash at the end of the period $ 869,399 $ 100,180
========= =========
Supplemental cash flow information:
Cash paid for interest $ 666,883 $ 203,685
Supplemental schedule of noncash investing
and financing activities:
Issuance of common shares in payment of $ 750,352 $ 584,537
preferred stock dividend
Issuance of common shares in payment of - 125,000
deferred services
Issuance of common shares in payment of 49,548 205,000
deferred financing costs
Issuance of warrants with promissory notes 186,886 -
Beneficial conversion dividend on Series B - 20,498
preferred shares
Accrual of dividend payable on preferred 561,138 549,799
stock
See accompanying notes
BUYERS UNITED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
Buyers United, Inc. ("the Company" or "Buyers United") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of
Regulation S-B. Accordingly, they do not include all the information and
footnotes necessary for a comprehensive presentation of financial position
and results of operations.
It is management's opinion, however, that all material adjustments
(consisting of normal recurring accruals) have been made which are
necessary for a fair financial statement presentation. The results for the
interim period are not necessarily indicative of the results to be expected
for the year.
For further information, refer to the consolidated financial statements and
footnotes included in the Company's annual report on Form 10-KSB for the
year ended December 31, 2001.
2. Long-term Debt
In January 2002, the Company issued a $100,000 unsecured note payable to
the Chairman of the Board, which bears interest at 12% with both principal
and interest due July 5, 2003.
Also in January 2002 the Company issued $79,998 in unsecured notes payable
to three officers of the Company that bear interest at 12%, which are
payable monthly with the principal due July 5, 2003.
In April and May of 2002 the Company issued $2,265,000 in unsecured
promissory notes bearing interest at 10% to 12%, payable monthly.
Principal payments are due monthly based on 38% to 40% of billings
collected from specifically identified customers. These percentages will
increase if the notes are not fully repaid within a specified period.
After the notes' principal balance is paid in full, the Company will
continue to remit a percentage of the billings collected from these
customers but the percentage will be reduced to 18% to 20%. These payments
will continue as long as the customers continue purchasing long distance
services from the Company. In addition, each note holder received a two-
year warrant to purchase shares of common stock at an exercise price of
$2.50 per share. The amount of warrants issued equaled 10% of the note
proceeds.
In August 2002 the Company also issued $1,725,000 in unsecured promissory
notes bearing interest at 10%, payable monthly. Principal payments are due
monthly based on 40% of billings collected from specifically identified
customers. After the notes' principal balance is paid in full, the Company
will continue to remit a percentage of the billings collected from these
customers but the percentage will be reduced to 24%. These payments will
continue as long as the customers continue purchasing long distance
services from the Company. There were no warrants issued in connection
with these notes.
3. Capital Transactions
During the last half of 2001, preferred stock dividends amounted to
$378,316, consisting of $150,942 on outstanding shares of Series A 8%
cumulative convertible preferred stock, and $227,374 on outstanding shares
of Series B 8% cumulative convertible preferred stock. These dividends
were paid through the issuance of 374,534 shares of common stock to the
holders of the preferred stock in February 2002. Dividends for the first
half of 2002 amounted to $148,370 on Series A and $223,666 on Series B, and
were paid through the issuance of 200,101 shares of common stock.
On January 15, 2002, the Company issued 7,998 shares to three officers in
consideration of notes payable in the amount of $79,998. The value of the
shares was $8,798.
On January 18, 2002, the Company issued 10,000 shares to Theodore Stern,
the Company's CEO and Chairman of the Board of Directors, in consideration
of a note payable in the amount of $100,000. The value of the shares was
$10,000.
On February 15, 2002, the Company issued 25,000 shares to Mr. Stern in
consideration of him granting a $250,000 guaranty to MCI WorldCom, Inc. on
behalf of Buyers United in connection with the Company entering in to a
resale contract. The value of the shares was $30,750.
In May 2002 the Board of Directors approved a plan to modify the exercise
price on certain warrants from $2.50 to $2.00 per share, extend the
expiration date of certain warrants from December 31, 2002 to December 31,
2004, and amend the redemption provisions of certain warrants so that the
warrants could be called for redemption when the market price for our
common stock is $4.00 per share, rather than $6.00 per share.
4. Major suppliers
Approximately, 95% and 66% of the Company's costs of revenue for the nine
months ended September 30, 2002 and 2001, respectively, was generated from
two (three in 2002) telecommunications providers. As of September 30, 2002
two of these providers had filed for bankruptcy protection under Chapter
11, and the other provider is currently being scrutinized by the Securities
and Exchange Commission over certain accounting matters. Although the
Company has not experienced a disruption of service and feels it could
replace any one of these sources with other wholesale telecommunications
providers, the effect on the Company's operations of potentially losing all
three of these service providers can not be determined.
5. Subsequent events
On November 1, 2002, the Company issued a $250,000 unsecured promissory
note bearing interest at 12% to a member of its Board of Directors.
Interest is payable monthly, with principal due at the end of two years.
The note is convertible at the director's option into common stock at a
rate of $2.00 per share.
6. Going concern
Up through the end of 2001, the Company had experienced recurring losses
from operations. As of September 30, 2002, the Company had a working
capital deficit of $6.7 million and an accumulated deficit of $26 million.
Although the Company has achieved profitability during the first three
quarters of 2002, and management believes the Company will continue to be
profitable for the fourth quarter of 2002, the foregoing 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Buyers United is engaged in the business of selling to small to mid-size
businesses and consumers telecommunications services. Our business model is
to offer these services at what we believe to be competitive prices, and
provide additional value to the customer through specialized service,
convergent billing, product rebates, and other promotions. Buyers United uses
the purchasing power of its customer base to obtain favorable rates for long
distance and Internet access service and obtain rebates on products and
services we offer to our customers as an added benefit for purchasing long
distance through us. Buyers United's goal is to continue to expand and
develop as a national reseller of our services. Our strategy for achieving
this goal is to focus on expanding service and product offerings, continue our
customer rebate program, continue development of our agent sales program, and
pursue Internet marketing opportunities to obtain new customers.
Buyers United provides services that it believes are perceived by businesses
and consumers as essential or are compatible with their normal annual
expenditures. Since its inception in January 1996, Buyers United has focused
on selling long distance service. This focus has enabled Buyers United to
build the size of its customer base.
Buyers United currently has over 115,000 customers. Our 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 likely to respond actively to the cost savings opportunity offered by
Buyers United. Customers reside mostly in high population centers and they
tend to spend more than the average on long distance services. Buyers United
believes that approximately one-third of the present customers consist of
small businesses and entrepreneurs who operate home-based businesses.
RESULTS OF OPERATIONS
Total revenues from telecommunications and other services increased 120% to
$8.7 million for the three months ended September 30, 2002 as compared to $3.9
million for the same period in 2001. Year-to-date revenues increased 95% to
$20.3 million as compared to $10.4 million during the first nine months of
2001. The increase in revenue is due to an increase in the number of
customers we serve resulting from our ongoing promotional efforts, primarily
involving independent agents and referrals from an online shopping comparison
service.
Costs of revenues for the three-month period ended September 30, 2002 were
$4.8 million, an 82% increase as compared to $2.6 million incurred during the
comparable three-month period for the prior year. For the nine-month periods,
costs of revenue increased 54%. Such costs as a percentage of revenue for the
three and nine-month periods ended September 30, 2002 were 55% and 54%,
respectively, as compared to 66% and 69% during 2001. The higher gross
margins during 2002 is a result of obtaining better costs from our long
distance carriers, along with an increase in sales to residential customers
which earn higher gross margins.
Total operating expenses other than costs of revenues were 5% higher during
the quarter ended September 30, 2002 as compared to the same period of 2001,
and were 1% lower during the nine-month period as compared to the previous
year. These changes are a result of the following factors:
* General and administrative costs in 2002's third quarter increased 54% to
$1.9 million compared to $1.2 million in 2001. For the nine months ended
September 30, 2002, expenses were higher by 2% as compared to the previous
year. Increases during the third quarter resulted primarily from higher
billing expenses and allowances for uncollectible accounts directly
proportional to the increase in revenues. The revenue increase also
necessitated the hiring of an additional customer support and collection
personnel. Year-to-date, such increases were offset partially by lower
compensation costs incurred earlier in 2002 due to reduced employee levels
in 2001. In addition, certain occupancy and maintenance costs throughout
2002 were lower due to the cancellation of an equipment lease during the
third quarter of 2001.
* Selling and promotion expenses increased 49% to $1.2 million during the
third quarter of 2002 from $828,254 in 2001. Expenses for the nine-month
period ended September 30, 2002 rose 33% as compared to the same period of
2001. Such expenses as a percentage of revenue were 14% for 2002's third
quarter as compared to 21% in 2001, and year-to-date were 16% during 2002
as compared to 23% during the comparable period of 2001. The increases
resulted primarily from the proportionate higher commission amounts paid
on higher revenue. Included in selling and promotion expenses for the
first half of 2001 was $150,000 in celebrity contract renewal costs in
connection with an infomercial marketing tool originally intended to air
later in 2001. The infomercial was not used and we did not incur any
contract renewal costs in the first half of 2002. Consequently,
commissions on revenue represent a substantially higher proportion of
selling and promotion expense in the first nine months of 2002 as compared
to 2001.
* During the three months ended September 30, 2001, we cancelled an
equipment lease resulting in $922,076 of expense. Since there were no
such comparable costs during 2002, this partially offset the 2002
increases in the other types of expenses.
Interest income was $5,896 for the quarter ended September 30, 2002, and was
$12,698 for the nine months then ended. This compares to $4,361 and $13,485,
respectively, earned during the comparable periods of 2001. The differences
resulted from lower cash balances on hand during 2002 as compared to the
corresponding periods in 2001.
Interest expense for the three and nine-month periods ended September 30, 2002
was $431,834 and $1,120,558, respectively, compared to $334,341 and $705,852
for the comparative periods of 2001. The higher amounts were the result of
higher debt balances outstanding in 2002 as compared to the previous year.
As a result of the above factors overall net income before preferred stock
dividends was $317,608 during the quarter ended September 30, 2002, as
compared to a $2.0 million net loss for the same period during 2001. Net
income for the first nine months of 2002 was $395,140, as compared to a net
loss of $5.3 million incurred during the comparable period of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Buyers United's current ratio as of September 30, 2002 increased slightly to
0.55:1 from 0.48:1 at the end of 2001. The components of current assets and
current liabilities that changed significantly since the end of 2001 were
accounts receivable, other current assets, the current portion of long-term
debt, and accrued liabilities.
Accounts receivable and accrued commission and rebates increased as a result
of higher revenue amounts during 2002 as compared to 2001. Other current
assets increased 393% since the end of December 2001, due primarily to higher
capitalized amounts associated with our direct response advertising campaign,
the benefits of which are expected to be received during the next twelve
months.
The current portion of long-term debt rose 612%, due to a $1.05 million
promissory note, due February 28, 2003, that was reclassified from a long-term
to a current liability, and other promissory notes aggregating $2,544,998 due
July 5, 2003 that were similarly reclassified. In addition, although the
majority of new promissory notes issued during 2002 have no stated maturity
date, management believes these notes will be repaid over a period of
approximately twelve months. Accordingly, the entire amount of these loans
have also been included in current liabilities.
As of September 30, 2002, we had a $1.05 million note payable to an individual
bearing interest at 18%, payable monthly. The note is due February 28, 2003
and provides that 50,000 shares of common stock will be issued to the note
holder at maturity. Should the note be prepaid, we are required to issue
100,000 shares to the note holder. The note provides a conversion feature
whereby the holder may convert the note into common stock at $2.50 per share.
During October and November of 2001, we raised $825,000 via promissory notes
to fund our participation in an unrelated comparison shopping service and to
fund working capital needs. The notes 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 in which the shopping services fee was paid from the
proceeds. After the notes are repaid, we will continue to remit a percentage
of the billings collected from these customers, but the percentage will be
reduced to 10%. These payments will continue as long as the specific
customers continue purchasing long distance services from Buyers United.
During the first half of 2002, Buyers United raised $2,265,000 through the
sale of promissory notes to continue in the comparison shopping service and to
fund working capital needs. These notes bear interest at 10% to 12%, and
interest and principal payments are due monthly. Similar to the notes issued
during 2001, principal is repaid out of collected billings from new customers
generated through the online shopping service. However, only half the note
proceeds are to be used for this service, the rest being allocated for working
capital purposes, as needed. With respect to these 2002 notes, 38% to 40% of
the new customer billings are to be reserved for principal repayment,
depending on the particular note agreement. After the notes are repaid, we
will continue to remit a percentage of the billings collected from these
customers, but the percentage will be reduced to 18% to 20%. These payments
will continue as long as the specific customers continue purchasing long
distance services from Buyers United.
In August 2002, we sold an additional $1,750,000 in promissory notes bearing
interest at the rate of 10% per annum that will be repaid out of a portion of
billings to new customers obtained via the shopping service, similar to the
terms of the promissory notes describe above.
At June 30, 2002, Buyers United had several unsecured promissory notes payable
to Theodore Stern, an officer and director, totaling $2,465,000. All but one
of the notes (for $200,000) bear interest at a rate of 12%, with interest
payable upon maturity. The $200,000 note, along with the noteholder's
personal guaranty, originated in connection with securing more favorable rates
with certain of our 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 Buyers United, not to exceed $7,500
per month, payable monthly. All the notes mature on July 5, 2003.
During the first quarter of 2002, we issued $79,998 in unsecured promissory
notes payable to Paul Jarman, G. Douglas Smith, and Kenneth D. Krogue, all
executive officers. The notes mature in July 2003 and bear interest at 12%,
payable monthly.
Buyers United has a line of credit agreement with RFC Capital Corporation.
The facility allows us to finance up to $2.5 million based on our eligible
accounts receivable, and allows us to borrow against unbilled receivables as
well as finance regular monthly billings. The facility bears interest at a
rate of prime plus 6% and expires in June 2004. At September 30, 2002, we had
financed the maximum amount available based on eligible accounts receivable at
that time, which amounted to $1,452,548. This agreement also requires us to
maintain a restricted cash account for the collection of our receivables. As
of September 30, 2002 we had $890,944 of restricted cash primarily relating to
the RFC Capital agreement.
Up through the end of 2001, we had experienced recurring losses from
operations. As of September 30, 2002, we had a working capital deficit of
$6.7 million and an accumulated deficit of $26 million. Although we achieved
profitability during the first three quarters of 2002, the foregoing matters
raise substantial doubt about our 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 we be unable to
continue as a going concern. We are currently experiencing significant
revenue growth and have seen the results of several fixed-cost reduction
initiatives begun in 2001. While there can be no assurance that such will be
the case, management believes that the trend of revenue increases will
continue, and that we will continue to be profitable during last quarter of
2002 and into 2003.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1985 provides a safe harbor
for forward-looking statements made by Buyers United, except where such
statements are made in connection with an initial public offering. All
statements, other than statements of historical fact, which address
activities, actions, goals, prospects, or new developments that we expect or
anticipate will or may occur in the future, including such things as expansion
and growth of our operations and other such matters are forward-looking
statements. Any one or a combination of factors could materially affect our
operations and financial condition. These factors include 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 member marketing and rebate programs or long distance
service, and conditions in the capital markets. Forward-looking statements
made by us are based on knowledge of our business and the environment in which
we operate 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.
Item 3. CONTROLS AND PROCEDURES
With the participation of management, Buyers United's chief executive officer
and chief financial officer evaluated its disclosure controls and procedures
on October 31, 2002. Based on this evaluation, the chief executive officer
and the chief financial officer concluded that the disclosure controls and
procedures are effective in connection with Buyers United's filing of its
quarterly report on Form 10-QSB for the quarterly period ended September 30,
2002.
Subsequent to October 31, 2002 through the date of this filing of Form 10-QSB
for the quarterly period ended September 30, 2002, there have been no
significant changes in Buyers United's internal controls or in other factors
that could significantly affect these controls, including any significant
deficiencies or material weaknesses of internal controls that would require
corrective action.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On June 14, 2001, a lawsuit was filed against Buyers United by Profitec, Inc.,
in New Haven, Connecticut. Profitec asserted that it agreed to perform
certain billing services in 1999 for our telecommunication customers and that
we agreed to pay Profitec for such services. Profitec further claimed that we
breached the contract by terminating the contract and failing to pay fees
allocable under a "liquidated damage" provision for early termination.
Profitec claimed damages in excess of $140,000, based upon the contract's
liquidated damage provisions. Buyers United retained counsel to defend this
action. Our defenses included that Profitec breached the contract with
respect to manner and time of performance and failed to cure these breaches
after notice. We filed a general denial answer and asserted affirmative
defenses, including breach of contract, failure of consideration, and other
issues. We also filed a counter claim seeking damages for Profitec's breach
of the contract. In November 2001, Profitec answered and denied the counter-
claim. We finally reached an out-of-court settlement on October 17, 2002
whereby we agreed to pay $17,500.
We are a party to certain other legal proceedings that we consider incidental
to our business activities. It is the opinion of management, after discussion
with legal counsel, that the ultimate disposition of these other matters will
not have a material impact on our financial position, liquidity, or results of
operations.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In August 2002, Buyers United raised $1,750,000 through the sale of promissory
notes , the proceeds of which was used to fund our continued participation in
an unrelated online comparison shopping service and to fund working capital
needs. These notes bear interest at 10%, and interest and principal payments
are due monthly. Principal is repaid out of collected billings from new
customers generated through the online shopping service. With respect to
these notes, 40% of the new customer billings are to be reserved for principal
repayment, depending on the particular note agreement. After the notes are
repaid, we will continue to remit a percentage of the billings collected from
these customers, but the percentage will be reduced to 24%. These payments
will continue as long as the specific customers continue purchasing long
distance services from Buyers United. vFinance Investments, Inc. acted as
agent for us in the placement of the notes and was paid commissions of 6% of
the loan proceeds.
All of the aforementioned securities were issued in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933 or
Rule 506 of Regulation D promulgated there under. Based on information
provided by the investors, we believe each investor was an accredited investor
within the meaning of Rule 501 of Regulation D.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K:
None.
Exhibits:
None
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
BUYERS UNITED, INC.
Date: November 12, 2002 By: /s/ Paul Jarman, Chief Financial Officer
Date: November 12, 2002 By: /s/ G. Douglas Smith, Executive Vice President
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002.
In connection with the Quarterly Report of Buyers United, Inc. (the
"Company") on Form 10-QSB for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Theodore Stern, Chief Executive Officer of the Company, certify pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that: (1) The Report fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date: November 12, 2002 By: /s/ Theodore Stern, Chief Executive Officer
In connection with the Quarterly Report of Buyers United, Inc. (the
"Company") on Form 10-QSB for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Paul Jarman, Chief Financial Officer of the Company, certify pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that: (1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
Date: November 12, 2002 By: /s/ Paul Jarman, Chief Financial Officer
CERTIFICATION
I, Theodore Stern, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Buyers United,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Theodore Stern, Chief Executive Officer
CERTIFICATION
I, Paul Jarman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Buyers United,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 12, 2002 By: /s/ Paul Jarman, Chief Financial Officer