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 June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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: 5,730,161 of common stock as of July 31, 2002.
Transitional Small Business Format: Yes [ ] No [ X ]
BUYERS UNITED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2002 2001
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ASSETS
Current assets:
Cash $ 744,286 $ 57,100
Restricted cash 430,932 690,312
Accounts receivable, net 3,526,885 2,271,873
Other current assets 1,065,972 282,240
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Total current assets 5,768,075 3,301,525
Property and equipment, net 581,821 652,576
Debt issuance cost, net - 187,756
Other assets, net 714,778 189,885
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Total assets $ 7,064,674 $ 4,331,742
========= =========
LIABILITIES AND STOCKHOLDERS'
DEFICIT
Current liabilities:
Checks drawn in excess of
available cash balances $ - $ 186,866
Line of credit 811,072 574,172
Current portion of long-term debt 3,562,156 1,002,641
Accounts payable 4,269,808 3,879,517
Accrued liabilities 596,420 525,023
Accrued commissions and rebates 434,368 324,778
Accrued dividends payable on
preferred stock 372,037 378,316
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Total current liabilities 10,045,861 6,871,313
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Long-term liabilities:
Long-term debt, net of current
portion 2,744,998 3,615,000
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Total liabilities 12,790,859 10,486,313
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Stockholders' deficit:
Preferred stock 244 244
Common stock 573 531
Additional paid-in capital 15,633,197 15,190,855
Warrants and options outstanding 4,636,616 4,383,334
Deferred consulting fees (71,181) (98,406)
Accumulated deficit (25,925,634) (25,631,129)
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Total stockholders' deficit (5,726,185) (6,154,571)
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Total liabilities and
stockholders' deficit $ 7,064,674 $ 4,331,742
========= =========
See accompanying notes
BUYERS UNITED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30,
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2002 2001
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Revenues:
Telecommunications services $ 6,766,373 $ 3,474,312
Other 9,859 18,049
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Total revenues 6,776,232 3,492,361
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Operating expenses:
Costs of revenues 3,679,263 2,517,616
General and administrative 1,809,707 1,762,434
Selling and promotion 856,276 827,157
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Total operating expenses 6,345,246 5,107,207
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Income (loss) from operations 430,986 (1,614,846)
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Other income (expense):
Interest income 5,998 3,873
Interest expense (385,480) (184,137)
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Total other expense, net (379,482) (180,264)
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Net income (loss) $ 51,504 $(1,795,110)
8% dividends on Series A and B (186,019) (180,321)
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Net loss applicable to common
stockholders $ (134,515) $(1,975,431)
========= =========
Net loss per common share:
Basic and diluted $(0.02) $(0.45)
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Weighted average common shares
outstanding:
Basic and diluted 5,730,161 4,437,312
========= =========
See accompanying notes
BUYERS UNITED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended June 30,
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2002 2001
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Revenues:
Telecommunications services $11,567,981 $ 6,394,029
Other 35,561 39,071
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Total revenues 11,603,542 6,433,100
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Operating expenses:
Costs of revenues 6,179,829 4,507,460
General and administrative 2,942,940 3,317,083
Selling and promotion 1,721,319 1,553,737
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Total operating expenses 10,844,088 9,378,280
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Income (loss) from operations 759,454 (2,945,180)
Other income (expense):
Interest income 6,802 9,124
Interest expense (688,724) (371,511)
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Total other expense, net (681,922) (362,387)
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Net income (loss) $ 77,532 $(3,307,567)
Preferred stock dividends:
8% dividends on Series A and B
preferred stock (372,037) (360,642)
Beneficial conversion feature related
to Series B preferred stock - (20,498)
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Total preferred stock dividends (372,037) (381,140)
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Net loss applicable to common
stockholders $ (294,505) $(3,688,707)
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Net loss per common share:
Basic and diluted $(0.05) $(0.86)
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Weighted average common shares
outstanding:
Basic and diluted 5,604,441 4,283,210
========== =========
See accompanying notes
BUYERS UNITED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
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2002 2001
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Cash flows from operating activities:
Net income (loss) $ 77,532 $(3,307,567)
Adjustments to reconcile net income (loss)
to net cash used in operating activites:
Depreciation and amortization 438,208 558,651
Interest expense resulting from issuing
stock and warrants with notes 14,520 103,997
Amortization of discount on notes
payable 70,703 1,387
Amortization of note financing costs 94,060 84,410
Amortization of deferred consulting fees 27,225 18,547
Services rendered in exchange for shares
of common stock - 6,181
Expense related to the grant of options
to purchase common shares 66,396 13,135
Changes in operating assets and
liabilities:
Restricted cash 259,380 (387,582)
Accounts receivable (1,255,012) (448,681)
Other assets (1,330,721) 29,841
Checks in excess of available cash
balances (186,866) -
Accounts payable 390,291 408,534
Accrued commissions and rebates 109,590 123,627
Accrued liabilities 87,395 (67,992)
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Net cash used in operating
activities (1,137,299) (2,863,512)
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Cash flows from investing activities:
Decrease (increase) in other assets (17,060) 17,325
Purchases of property and equipment (155,836) (191,142)
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Net cash used in investing
activities (172,896) (173,817)
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Cash flows from financing activities:
Net borrowings under line of credit 236,900 415,722
Borrowings under notes payable, net
of debt issuance costs 2,315,750 1,840,000
Principal payments on notes payable (444,826) (39,252)
Principal payments on capital lease
obligations (110,443) (151,841)
Issuance of preferred/common shares for
cash, net of offering costs - 1,097,223
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Net cash provided by financing
activities 1,997,381 3,161,852
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Net increase in cash 687,186 124,523
Cash at the beginning of the period 57,100 56,825
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Cash at the end of the period $ 744,286 $ 181,348
========= =========
Supplemental cash flow information:
Cash paid for interest $ 463,094 $ 132,181
Supplemental schedule of noncash investing
and financing activities:
Issuance of common shares in payment of
preferred stock dividend $ 378,316 $ 223,896
Issuance of common shares in payment of
deferred services - 125,000
Issuance of common shares in payment of
deferred financing costs 49,548 205,000
Issuance of warrants with promissory notes 186,886 -
Beneficial conversion dividend on Series B
preferred shares - 20,498
Accrual of dividend payable on preferred
stock 372,037 360,642
See accompanying notes
BUYERS UNITED, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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 is payable
monthly with the principal due July 5, 2003.
In April and May of 2002 the Company also 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.
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.
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, 2001, 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, and to extend the
expiration date of certain warrants from December 31, 2002 to December 31,
2004. As of mid-August, the Company was in the process of obtaining the
required approvals from the warrant holders and expects the modifications to
be completed by the end of August.
4. Major suppliers
Approximately, 87% and 62% of the Company's cost of revenue for the six
months ended June 30, 2002 and 2001, respectively, was generated from two
telecommunications providers. As of June 30, 2002 one 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 these sources with other
wholesale telecommunications providers, the effect on the Company's
operations of potentially losing both of these service providers can not be
determined.
5. Subsequent events
During the first part of August 2002, the Company entered into loan
agreements with several individuals aggregating $1,700,000. Under the terms
of the agreements, the proceeds can be used for working capital or to partake
in a direct response advertising campaign with an unrelated comparison
shopping service to solicit new customers. The loans have a stated interest
rate of 10%, and are to be repaid using a portion of collected revenues from
specifically-designated new customers. After all principal and interest is
repaid, the note holder will retain a 24% residual for as long as the
specific customers remain active Buyers United customers. Unlike similar
loan arrangements entered into earlier in the year, no warrants were issued
in connection with these loans.
6. Going concern
Up through the end of 2001, the Company had experienced recurring losses from
operations. As of June 30, 2002, the Company had a working capital deficit
of $4.3 million and an accumulated deficit of $26 million. Although the
Company achieved profitability during the first two quarters of 2002, and
management believes the Company will continue to be profitable during the
remainder 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. MANAGEMENTS'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. Our business model is
to offer these services at what we believe to be competitive prices and provide
additional value to the customer through service maintenance and 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 or Internet access
service 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 consumers and
businesses 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 83,000 customers. 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
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 94% to
$6.78 million for the three months ended June 30, 2002 as compared to $3.49
million for the same period in 2001. Year-to-date, revenues increased 80% as
compared to the first half 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 June 30, 2002 were $3.68
million, a 46% increase as compared to $2.52 million incurred during the
comparable three-month period for the prior year. For the six-month periods,
costs of revenue increased 37%. Such costs as a percentage of revenue for the
three and six-month periods ended June 30, 2002 were 54% and 53%, respectively,
as compared to 72% and 70% during 2001. The higher gross margins 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 3% higher during the
quarter ended June 30, 2002 as compared to the same period of 2001, and were 4%
lower during the six-month period as compared to the previous year. These
changes are a result of the following factors:
* General and administrative costs in 2002's second quarter increased 3% to
$1.81 million compared to $1.76 million in 2001. For the six months ended
June 30, 2002, expenses were lower by 11% as compared to the previous
year. Decreases in expenses during 2002 as compared to 2001 resulted from
lower compensation costs incurred after we reduced employee levels in
2001. In addition, certain occupancy and maintenance costs were lower
stemming from the cancellation of an equipment lease during the third
quarter of 2001. These decreases were offset by increases during 2002 in
billing costs and allowances for uncollectible accounts directly
proportional to the increase in revenues.
* Selling and promotion expenses increased 4% to $856,276 during the second
quarter of 2002 from $827,157 in 2001. Expenses for the six-month period
ended June 30, 2002 rose 11% as compared to the same 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 six months of
2002 as compared to 2001.
Interest income was $5,998 for the quarter ended June 30, 2002, and was $6,802
for the six months then ended. This compares to $3,873 and $9,124,
respectively, earned during the comparable periods of 2001. The differences
resulted from varying cash balances on hand during 2002 as compared to the
corresponding periods in 2001.
Interest expense for the three and six-month periods ended June 30, 2002 was
$385,480 and $688,724, respectively, compared to $184,137 and $371,511 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 we earned overall net income before preferred
stock dividends of $51,504 during the quarter ended June 30, 2002, as compared
to a net loss of $1.80 million for the same period during 2001. For the first
half of 2002 we earned income of $77,532, as compared to a net loss of $3.31
million incurred during the first half of 2001.
Liquidity and Capital Resources
Buyers United's current ratio as of June 30, 2002 increased slightly to 0.57:1
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, accrued commissions and rebates, other current assets, and the
current portion of long-term debt.
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 278% since the end of December 2001, due primarily to higher
capitalized amounts associated with our direct financing campaign that are
expected to be recovered during the next twelve months.
The current portion of long-term debt rose 255%, partly because the balance of
a $1.05 million promissory note, due February 28, 2003, was reclassified from a
long-term to a current liability. In addition, although the majority of new
promissory notes issued during 2002 have no stated maturity date, management
believes we will repay the loans over a period of approximately twelve months.
Accordingly, the entire amount of these loans have also been included in
current liabilities.
As of June 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 $1,700,000 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 $2,665,000. 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, 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 $15,000 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 June 30, 2002, we had financed the
maximum amount available based on eligible accounts receivable at that time,
which amounted to $811,072. This agreement also requires us to maintain a
restricted cash account for the collection of our receivables. As of June 30,
2002 we had $430,932 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 June 30, 2002, we had a working capital deficit of $4.3
million and an accumulated deficit of $26 million. Although we achieved
profitability during the first two 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 the remainder of 2002.
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.
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 asserts 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 claims that we breached
the contract by terminating the contract and failing to pay fees allocable
under a "liquidated damage" provision for early termination. Profitec claims
damages in excess of $140,000, based upon the contract's liquidated damage
provisions. Buyers United has retained counsel to defend this action. Our
defenses include 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 but has never claimed the matter
to any trial list, nor have they ever sought discovery. Management believes
that Profitec's claims are without merit, and intends to defend the action and
pursue its claims against Profitec as it deems appropriate.
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 SECURITES AND USE OF PROCEEDS
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. 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 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, or a total of
226,500 issued to the note holders. vFinance Investments, Inc. acted as agent
for us in the placement of the notes and was paid commissions equaling 5% of
the loan proceeds. vFinance also received two-year warrants to purchase shares
of common stock in number equal to 3% of the loan proceeds. The warrants have
an exercise price of $2.50 per share.
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 thereunder. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders held on June 19, 2002, the stockholders
voted on the following matters:
(1) The election of Theodore Stern, Gary Smith, Edward Dallin Bagley, and
Steve Barnett as directors of Buyers United to serve for a term of one
year and until their successors are duly elected and qualified; and
(2) Ratification of the appointment of Crowe, Chizek and Company LLP as
independent auditors of Buyers United for 2002.
Each of the foregoing matters was approved or ratified by the stockholders.
The number of votes cast on the foregoing matters is as follows:
For Against Abstain
Election of Directors:
Theodore Stern 2,943,153 5,983 0
Gary Smith 2,943,653 5,483 0
Edward Dallin Bagley 2,943,652 5,484 0
Steve Barnett 2,943,152 5,984 0
Appointment of Crowe, Chizek
and Company LLP 2,943,802 5,219 115
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Reports on Form 8-K:
None.
Exhibits:
Exhibit 99.1 Certification required by the Sarbanes-Oxley Act of 2002.
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: August 13, 2002 By: /s/ G. Douglas Smith
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Executive Vice President
Date: August 13, 2002 By: /s/ Paul Jarman
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Treasurer and CFO