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 March 31, 2003
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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)
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(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: 6,330,213 shares of common stock as of April 30, 2003.
Transitional Small Business Format: Yes [ ] No [ X ]
BUYERS UNITED, INC.
CONDENSED BALANCE SHEETS - (Unaudited)
March 31, December 31,
2003 2002
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ASSETS
Current assets:
Cash $ 62,277 $ 994,360
Restricted cash 1,064,487 584,002
Accounts receivable, net 8,373,410 5,650,214
Other receivables 767,801 -
Other current assets 203,014 214,869
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Total current assets 10,470,989 7,443,445
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Property and equipment, net 841,012 540,578
Touch America customers, net 6,977,224 3,000,000
Deferred advertising costs, net 1,563,355 1,776,124
Other assets, net 378,265 384,801
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Total assets $20,230,845 $13,144,948
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Checks in excess of available cash balances $ 372,612 $ -
Line of credit 287,134 1,276,252
Notes payable 5,682,092 6,099,580
Current portion of Touch America obligation 2,500,000 -
Accounts payable 9,306,947 5,700,753
Accrued liabilities 1,013,439 772,347
Accrued dividends payable on preferred 175,661 377,688
stock
Accrued commissions and rebates 649,224 493,639
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Total current liabilities 19,987,109 14,720,259
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Notes payable 3,838,980 3,887,803
Obligation under Touch America transaction 1,250,000 -
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Total liabilities 25,076,089 18,608,062
Stockholders' deficit:
Preferred stock 240 242
Common stock 633 599
Additional paid-in capital 16,438,644 16,019,376
Warrants and options outstanding 4,592,514 4,592,514
Deferred consulting fees (19,965) (25,174)
Accumulated deficit (25,857,310) (26,050,671)
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Total stockholders' deficit (4,845,244) (5,463,114)
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Total liabilities and stockholders'
deficit $20,230,845 $13,144,948
========== ==========
See accompanying notes
BUYERS UNITED, INC.
CONDENSED STATEMENTS OF OPERATIONS - (Unaudited)
Three Months Ended March 31,
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2003 2002
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Revenues:
Telecommunications services $15,481,120 $4,801,608
Other - 25,702
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Total revenues 15,481,120 4,827,310
Operating expenses:
Costs of revenues 8,664,767 2,500,566
General and administrative 3,626,700 1,133,233
Selling and promotion 2,331,069 865,043
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Total operating expenses 14,622,536 4,498,842
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Income from operations 858,584 328,468
Other income (expense):
Interest income 2,601 804
Interest expense (485,929) (303,244)
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Total other expense, net (483,328) (302,440)
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Net income $ 375,256 $ 26,028
8% Preferred dividends on Series A and B
preferred stock (181,895) (186,018)
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Net income (loss) applicable to common
stockholders $ 193,361 $ (159,990)
========== =========
Net income (loss) per common share:
Basic $0.03 $(0.03)
Diluted 0.03 (0.03)
Weighted average common shares outstanding:
Basic 6,107,466 5,477,323
Diluted 6,150,660 5,477,323
See accompanying notes
BUYERS UNITED, INC.
CONDENSED STATEMENTS OF CASH FLOWS - (Unaudited)
Three Months Ended March 31,
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2003 2002
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Cash flows from operating activities:
Net income $ 375,256 $ 26,028
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 590,363 166,945
Amortization included in interest expense
resulting from issuing stock with notes 5,312 12,749
Amortization of discount on notes payable 114,064 -
Amortization of note financing costs 39,241 61,150
Amortization of deferred consulting fees 5,209 13,612
Expense related to the grant of options to
purchase common shares - 4,353
Changes in operating assets and
liabilities:
Accounts receivable (2,723,196) (244,368)
Other assets (460,358) (603,836)
Checks in excess of available cash
balances 372,612 (186,866)
Accounts payable 2,832,159 286,099
Accrued commissions and rebates 155,585 54,059
Accrued liabilities 241,092 121,211
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Net cash provided by (used in)
operating activities 1,547,339 (288,864)
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Cash flows from investing activities:
Increase in other assets (26,526) (14,950)
Purchases of property and equipment (402,918) (71,027)
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Net cash used in investing activities (429,444) (85,977)
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Cash flows from financing activities:
Restricted cash (480,485) 33,021
Net borrowings and payments under line of
credit (989,118) (46,760)
Borrowings under notes payable, net of debt
issuance costs 496,810 696,500
Principal payments on notes payable (1,077,185) (143,874)
Principal payments on capital lease
obligations - (65,715)
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Net cash provided by (used in)
financing activities (2,049,978) 473,172
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Net increase (decrease) in cash (932,083) 98,331
Cash at the beginning of the period 994,360 57,100
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Cash at the end of the period $ 62,277 $ 155,431
========= =========
Supplemental cash flow information:
Cash paid for interest $ 280,597 $ 101,461
Supplemental schedule of noncash investing and
financing activities:
Issuance of common shares in payment of
preferred stock dividend $ 377,688 $ 378,316
Issuance of common shares in payment of
deferred financing costs - 49,548
Issuance of common shares for officer's
personal guaranty 36,300 -
Issuance of warrants with promissory notes - 55,882
Accrual of dividend payable on preferred
stock 181,895 186,018
Retire and replace note payable 800,000 -
Close Touch America transaction and record
obligation 3,750,000 -
See accompanying notes
BUYERS UNITED, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (Unaudited)
March 31, 2003
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, 2002.
2. Summary of Significant Accounting Policies
Stock-Based Compensation
------------------------
Employee compensation expense under stock options is reported using the
intrinsic method. No stock-based compensation cost is reflected in net
income (loss) applicable to common stockholders, since all options had an
exercise price equal to or greater than the market price of the underlying
common stock at the date of grant. The following table illustrates the
effects on net income (loss) applicable to common stockholders and
earnings (loss) per share if expense was measured using the fair value
recognition provision of SFAS No. 123, "Accounting for Stock-Based
Compensation:"
2003 2002
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Net income (loss) applicable to common
stockholders:
As reported $210,101 $(159,990)
Pro forma stock-option based compensation (69,132) (187,214)
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Pro forma net income (loss) applicable to
common stockholders $140,969 $(347,204)
======= =======
Basic and diluted net income (loss) per
common share:
As reported $ 0.03 $ (0.03)
Pro forma basic and diluted net income
(loss) per common share $ 0.02 $ (0.06)
Advertising Costs
-----------------
The Company advertises its services through traditional venues such as
print media to the general public. Costs associated with these
advertising efforts are expensed as incurred.
In addition to the traditional advertising means noted above, the Company
participates in a direct response advertising campaign with
LowerMyBills.com, Inc. (LMB), a web-based comparison shopping service.
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 referred customer signs up for services with the Company. These
fees are capitalized and then amortized over the period during which the
future revenue benefits are expected to be received. The Company
estimates this to be 24 months.
3. Long-term Debt
In January and February 2003, the Company received $500,000 from the
issuance of promissory notes payable, $400,000 of which came from three
Directors of the Company. The unsecured notes bear interest at 12% and
are due in 2004 through early 2005.
On February 28, 2003, the Company retired its $1,050,000 note payable by
paying $250,000 in cash and issuing a new promissory note for $800,000.
In addition, the Company issued 50,000 shares of common stock in
connection with the original agreement. The new note is unsecured and
bears interest at 10%, payable monthly. Principal is also payable monthly
based on 20% of billings collected during each monthly billing period from
designated customers.
4. Capital Transactions
On January 15, 2003, the Company issued 15,000 shares of stock to one of
its directors for providing a credit guaranty to one of its wholesale
telecommunication service providers. The fair market value of the stock
was $36,300
5. Major suppliers
Approximately 97% and 84% of the Company's cost of revenue over the last
two fiscal years, respectively, was generated from three telecommunication
providers. As of March 31, 2003, the Company owed $4,568,522 to these
providers. The Company has entered into contractual agreements with these
vendors. During 2002 two of these providers 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 telecommunication service providers, the effect on the Company's
operations of potentially losing any one or all three of these service
providers is unknown.
6. Subsequent events
On December 20, 2002, Buyers United entered into an agreement with Touch
America, Inc., a subsidiary of Touch America Holdings, Inc., to purchase a
substantial number of its switched voice telecommunication customers,
including the carrier identification code used to service those customers.
The Company did not purchase any of Touch America's accounts receivable,
equipment, other assets, or retain any of its employees. The Company
agreed to pay to Touch America account receivable balances that predate
the sale as collected by Buyers United, subject to certain fees payable to
Buyers United. The Company made an initial payment of $3,000,000 to Touch
America. The original purchase price was $6,750,000, but the parties are
now attempting to negotiate a reduction in the purchase price due to
errors and other discrepancies the parties subsequently discovered in the
list of accounts. The balance of the final purchase price will be paid in
monthly increments based on a percentage of revenue generated by the
acquired customer accounts. The contract conditions for closing the
purchase were satisfied on March 7, 2003. The Company recorded the entire
amount due under this agreement, however based on the result of its
negotiations will adjust this liability accordingly. The Company also
began to amortize the intangible asset associated with this purchase as of
the closing date and over an estimated life of thirty months as determined
by management.
Also in December 2002, Buyers United, Inc. entered into the Asset Purchase
Agreement and Software License Agreement to purchase assets of I-Link,
Inc., and its subsidiary, I-Link Communications, Inc., and license in
perpetuity software developed by I-Link for the operation of a real-time
Internet protocol communications network (RTIP Network). The transaction
was closed effective May 1, 2003.
Concurrently with the agreement for the purchase of I-Link assets, I-Link
and Buyers United entered into transition and management agreements
pursuant to which the Company was appointed manager of all the assets to
be acquired from I-Link until the closing of the purchase. Under the
agreements, the Company assumed responsibility for day-to-day operation of
the RTIP Network, assumed responsibility for all customer billing and
collections, and acquired the right to use the RTIP Network to provide
services to its other customers.
In connection with the transaction, the Company agreed to sublease certain
space occupied by I-Link, then subsequently negotiated a new lease
arrangement for the space directly with the landlord. Through November
2004, the Company is leasing 14,339 square feet of space at 13751 S.
Wadsworth Park Drive, Draper, Utah, at a monthly cost of $16,728. In
consideration for entering into this agreement, I-Link agreed to subsidize
a total of $36,262 in lease payments, representing the difference between
the original sublease and the Company's subsequent arrangement.
The assets acquired include dedicated equipment required for operating the
RTIP Network, customers of I-Link serviced through the network, and
certain trademarks. In consideration for the assets and software license,
Buyers United issued to I-Link 246,430 shares of Series B Convertible
Preferred Stock, assumed certain liabilities, and agreed to issue an
additional 53,570 shares of Series B Convertible Preferred Stock in equal
monthly installments over a term of 10 months commencing June 1, 2003,
subject to satisfaction of certain conditions pertaining to provisioning
of one of the former I-Link customers acquired in the transaction. Under
the Asset Purchase Agreement the Company may redeem the Series B Preferred
Stock issued to I-Link at the liquidation preference value after December
5, 2007.
Assuming the additional 53,570 shares are issued to I-Link, Buyers United
will have 853,800 shares of Series B Convertible Preferred Stock
outstanding. If all of the shares of Series B Preferred Stock are issued
to I-Link and converted to common stock, I-Link would hold approximately
12.11 percent of the outstanding common stock of Buyers, without giving
effect to the exercise of conversion or purchase rights under any other
outstanding shares of preferred stock, options, or warrants.
In connection with the closing, the parties together with Counsel
Corporation, an Ontario corporation, and Counsel Communications LLC, a
Delaware limited liability company, both affiliates of I-Link, entered
into a Reimbursement Agreement pursuant to which Counsel Corporation,
Counsel Communications, and I-Link agreed to reimburse Buyers United for
any loss sustained as a result of any claims asserted against the assets
acquired from I-Link by certain creditors of I-Link, and out of the shares
it received in the transaction I-Link deposited in escrow 40,000 shares of
Series B Preferred Stock that may be applied to reimburse any such loss.
This is in addition to 25,000 shares of Series B Preferred Stock I-Link
received in the transaction that it deposited in escrow under the Asset
Purchase Agreement to satisfy certain claims for indemnification under the
Asset Purchase Agreement.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Buyers United is a domestic telecommunications company that offers and sells
a wide range of long distance and related communication service options to
business and residential customers. In the past, the Company functioned as
an aggregator and reseller of telecommunications services provided by others,
and intends to pursue and develop this type of business. However, in
December 2002 Buyers United entered into agreements to purchase and manage
assets of I-Link, Inc., and its subsidiary, I-Link Communications, Inc., and
license in perpetuity software developed by I-Link for the operation of a
real-time Internet protocol communications network (RTIP Network). This
transaction will enable the Company to develop and offer enhanced services,
such as fax to email, and transmit data and other communication services for
a portion of the journey over the RTIP Network rather than entirely through
third party providers.
On December 20, 2002, Buyers United entered into an agreement with Touch
America, Inc., a subsidiary of Touch America Holdings, Inc., to purchase a
substantial number of its switched voice telecommunication customers,
including the carrier identification code used to service those customers.
Buyers United did not purchase any accounts receivable, equipment, or other
assets of Touch America. Buyers United agreed to pay to Touch America
account receivable balances that predate the sale as collected by Buyers
United, subject to certain fees payable to Buyers United. Buyers United made
an initial payment of $3,000,000 to Touch America. The contract conditions
for closing the purchase were satisfied on March 7, 2003. The original
purchase price was $6,750,000, but the parties are now attempting to
negotiate a reduction in the purchase price due to errors and other
discrepancies the parties subsequently discovered in the list of accounts
sold to Buyers United. The balance of the final purchase price will be paid
in monthly increments based on a percentage of revenue generated by the
acquired customer accounts.
The Company generates internal growth by pursuing multiple marketing avenues,
including using independent agents, implementing promotional and rebate
programs to attract customers, marketing through the Internet, and obtaining
customers from unrelated marketing companies. In December 2002 Buyers United
agreed to purchase a substantial portion of the switched voice
telecommunication customers of Touch America, which will result in a
significant increase in the Company's customer base in 2003. The Company
believes recent financial difficulties and uncertainty in the
telecommunications industry that arose in 2002 may result in opportunities to
acquire customers from unrelated companies, and intends to remain open to
these opportunities. However, at the present it is not evaluating any new
acquisitions.
RESULTS OF OPERATIONS
Total revenues increased 221% to $15.5 million for the three months ended
March 31, 2003 as compared to $4.8 million for the same period in 2002.
While the increase in revenue is primarily due to the Touch America
transaction, revenue also grew due to an increase throughout 2002 in the
number of customers resulting from ongoing promotional efforts, primarily
involving independent agents and referrals from an online shopping comparison
service.
Costs of revenues for the three-month period ended March 31, 2003 were $8.7
million, a 247% increase as compared to $2.5 million incurred during the
comparable three-month period for the prior year. Such costs as a percentage
of revenue for the three-month period ended March 31, 2003 were 56%, as
compared to 52% during 2002. The lower gross margins during 2003 resulted
partly as a result of an increase in revenue derived from dedicated circuit
services as compared to the same period in 2002. This type of revenue
results in lower profit margins, but is realized in higher volumes than other
types of long distance services. The decreased gross margins also resulted
from a combination of integration efforts involved in the I-Link asset
purchase, along with slightly higher costs in connection with the Touch
America customers. The Company agreed with Touch America on certain
wholesale prices during a phase-in period after acquiring the customers.
However, the Company immediately began switching new customers over to other
lower-cost wholesale providers. Most of the customers have now been moved to
new providers and the Company anticipates gross margins to improve during the
remainder of 2003.
Total operating expenses other than costs of revenues were 198% higher during
the quarter ended March 31, 2003 as compared to the same period of 2002.
These changes are a result of the following factors:
* General and administrative costs in 2003's first quarter increased 220%
to $3.6 million compared to $1.1 million in 2002's first quarter.
Increases resulted primarily as a result of significant revenue growth
experienced through the latter part of 2002, and from higher expenses in
2003 associated with the I-Link and Touch America transactions. The
increased revenue levels, generated both during 2002 and subsequent to
the transactions, necessitated the hiring of additional customer service
and collection personnel. In addition, several former employees of I-
Link were retained by Buyers United in order to continue operating and
maintaining the RTIP Network, as well as to provide customer support and
billing services. The Company also assumed the lease of some of I-
Link's former office space, which resulted in additional occupancy
expenses.
* Selling and promotion expenses increased 169% to $2.3 million during the
first quarter of 2003 from $865,043 in 2002. Such expenses as a
percentage of revenue were 15% for 2003's first quarter as compared to
18% in 2002. The increases resulted partly from the proportionate
higher commission amounts paid on higher revenue. Selling and promotion
expenses during 2003 also included higher amortization expenses
associated with the deferred advertising costs and the customers
acquired from Touch America.
Interest expense for the three-month period ended March 31, 2003 was
$485,929, compared to $303,244 for the comparative period of 2002. The
higher amount was the result of higher debt balances outstanding in 2003 as
compared to the previous year.
As a result of the above factors net income before preferred stock dividends
was $375,256 during the quarter ended March 31, 2003, as compared to $26,028
for the same period during 2002. For the same respective periods, after
giving effect to the preferred stock dividend, net income applicable to
common stockholders was $193,361, as compared to a loss applicable to common
stockholders of $159,990.
LIQUIDITY AND CAPITAL RESOURCES
Buyers United's current ratio as of March 31, 2003 increased slightly to
0.52:1 from 0.51:1 at the end of 2002. The components of current assets and
current liabilities that changed significantly since the end of 2002 were
accounts receivable, other current assets, the current portion of long-term
debt, and accrued liabilities.
Accounts receivable, accrued commission and rebates, accrued liabilities, and
accounts payable all increased as a result of the higher revenue levels
during 2003's first quarter as compared to 2002. Accrued dividends decreased
as a result of the shares of common stock issued in February 2003 to pay the
dividends.
The current portion of long-term debt declined 16%, due to ongoing payments
on investor notes and the partial payoff and replacement of a $1.05 million
promissory note, previously due February 28, 2003. The Company retired its
$1,050,000 note payable by paying $250,000 in cash and issuing a new
promissory note for $800,000. In addition, the Company issued 50,000 shares
of common stock in connection with the original agreement. The new note is
unsecured and bears interest at 10%, payable monthly. Principal is also
payable monthly based on 20% of billings during each monthly billing period
from designated customers.
In January and February 2003, the Company received $500,000 from the issuance
of promissory notes payable, $400,000 of which came from three Directors of
the Company. The unsecured notes bear interest at 12% and are due in 2004
through early 2005.
Buyers United has a line of credit agreement with RFC Capital Corporation.
The facility allows the Company to obtain financing on its eligible accounts
receivable, including unbilled receivables and regular monthly billings. The
facility is collateralized by the underlying receivables. Interest during
2002 was at prime plus 6%. At March 31, 2003, Buyers United had financed the
maximum amount available based on eligible accounts receivable at that time.
This amount, less draws by RFC applied against the outstanding amount,
aggregated $287,134. The facility requires the Company to maintain a
restricted cash account for the collection of the receivables. As of March
31, 2003 the Company had $986,715 of restricted cash associated with the RFC
arrangement. On January 21, 2003, Buyers United and RFC Capital amended the
facility to increase the available borrowing limit to $5 million, and
decrease the interest rate to prime plus 3%. The amendment also extended the
facility to January 21, 2006.
Up through the end of 2001, the Company had experienced recurring losses from
operations. As of March 31, 2003, the Company had a working capital deficit
of $6.8 million and an accumulated deficit of $26 million. Although the
foregoing matters could raise doubt about the Company's ability to continue
as a going concern, the Company did achieve profitability in 2002 and during
the first quarter of 2003, and management believes the Company will continue
to be profitable throughout the remainder of 2003. Furthermore, all of the
long and short-term promissory notes payable are unsecured, and one-third of
the notes are due to Company directors and officers. Virtually all of the
remaining two-thirds have no stated maturity dates, and principal payments
are variable depending on when the Company collects billings from designated
customers. Accordingly, the Company believes that liabilities associated
with notes, while significant, have manageable terms during the coming two
years in which revenue is expected to increase and profits stabilize. As a
result of the I-Link and Touch America acquisitions, the Company is currently
experiencing significant revenue growth. While there can be no assurance
that such will be the case, management believes that this increased level of
revenue will continue throughout 2003, and that Buyers United will continue
to be profitable through the end of the year.
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 March 26, 2003. 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
interim report on Form 10-QSB for the quarterly period ended March 31, 2003.
Subsequent to March 26, 2003, through the date of this filing of Form 10-QSB
for the quarterly period ended March 31, 2003, 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
During the quarter ended March 31, 2003 there were no material developments
or changes in the status of any of the legal proceedings described in Buyers
United's Annual Report on Form 10-KSB for the year ended December 31, 2002.
Buyers United 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 other matters will not have a material impact on the
financial position, liquidity or results of operations of Buyers United.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 15, 2003, the Company issued 15,000 shares of stock to one of its
directors for providing a credit guaranty to one of its wholesale
telecommunication service providers. The fair market value of the stock was
$36,300.
In January and February 2003, the Company received $500,000 from the issuance
of promissory notes payable, $400,000 of which came from three Directors of
the Company. The unsecured notes bear interest at 12% and are due in 2004
through early 2005.
On February 28, 2003 the Company retired its $1,050,000 note payable by
paying $250,000 in cash and issuing a new promissory note for $800,000. In
addition, the Company issued 50,000 shares of common stock in connection with
the original agreement.
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
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:
The certifications required by 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 are presented in Exhibit 99.1
to this report.
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: May 15, 2003 By: /s/ Paul Jarman, Chief Financial Officer
Date: May 15, 2003 By: /s/ G. Douglas Smith, Executive Vice President
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: May 15, 2003 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: May 15, 2003 By: /s/ Paul Jarman, Chief Financial Officer