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, 2000
[ ] 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
BUYERSONLINE.COM, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 87-0528557
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
66 E. Wadsworth Park Drive, Suite 101, Draper, Utah 84020
(Address of principal executive offices)
(801) 523-8929
(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: 3,636,058 shares of common stock as of
May 11, 2000 .
Transitional Small Business Format: Yes [ ] No [ X ]
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FORM 10-QSB
BUYERSONLINE.COM, INC.
INDEX
Page
PART I. Financial Information
Condensed Consolidated Balance Sheets as
of June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of
Operations for the Three Months Ended
June 30, 2000 and 1999 4
Condensed Consolidated Statements of
Operations for the Six Months Ended June
30, 2000 and 1999 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30,
2000 and 1999 6
Notes to Condensed Consolidated Financial
Statements 8
Management's Discussion and Analysis of
Financial Condition 10
PART II. Other Information 14
Changes in Securities and Use of Proceeds 14
Exhibits and Reports on Form 8-K 14
Signatures 14
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BUYERSONLINE.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
June 30, December 31,
2000 1999
ASSETS
Current assets:
Cash $ 432,819 $ 1,088,707
Restricted cash 66,684 170,687
Accounts receivable 904,500 889,897
Other current assets 171,333 47,443
Total current assets 1,575,336 2,196,734
Furniture, fixtures and equipment, net 407,203 352,581
Other assets 187,692 -
Total assets $2,170,231 $ 2,549,315
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $1,476,803 $ -
Current portion of capital lease
obligation 89,554 81,133
Accounts payable 1,413,529 721,828
Accrued liabilities 460,989 226,059
Accrued dividends payable on preferred
stock 159,562 160,127
Accrued rebates 85,000 105,410
Total current liabilities 3,685,437 1,294,557
Note payable, net of current portion - 1,050,000
Capital lease obligation, net of current
portion 43,521 74,063
Total liabilities 3,728,958 2,418,620
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock 200 200
Common stock 364 351
Additional paid-in capital 7,368,608 7,146,175
Warrants and options outstanding 863,433 179,500
Deferred consulting fees (151,579) -
Accumulated deficit (9,639,753) (7,195,531)
Total stockholders' equity (deficit) (1,558,727) 130,695
Total liabilities and stockholders'
equity (deficit) $ 2,170,231 $ 2,549,315
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BUYERSONLINE.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended June 30,
2000 1999
(As restated)
Revenues:
Telecommunications services $ 1,663,773 $ 1,130,519
Other - 2,840
Total revenues 1,663,773 1,133,359
Operating expenses:
Costs of revenues 955,091 660,862
General and administrative 1,188,423 444,530
Selling and promotion 813,280 189,180
Total operating expenses 2,956,794 1,294,572
Loss from operations (1,293,021) (161,213)
Other income (expense):
Interest income 4,319 1,363
Interest expense (79,022) (31,903)
Other - -
Total other income (expense), net (74,703) (30,540)
Net loss $(1,367,724) $ (191,753)
Series A preferred stock dividends 79,781 2,740
Net loss applicable to common stockholders $(1,447,505) $ (194,493)
Net loss per common share: $ (0.40) $ (0.06)
Basic and diluted
Weighted average common shares outstanding: 3,610,404 3,045,607
Basic and diluted
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BUYERSONLINE.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Six Months Ended June 30,
2000 1999
(As restated)
Revenues:
Telecommunications services $3,085,204 $ 2,297,773
Other - 27,132
Total revenues 3,085,204 2,324,905
Operating expenses:
Costs of revenues 1,828,535 1,461,390
General and administrative 1,934,155 900,129
Selling and promotion 1,505,377 319,225
Total operating expenses 5,268,067 2,680,744
Loss from operations (2,182,863) (355,839)
Other income (expense):
Interest income 12,902 1,519
Interest expense (114,699) (65,543)
Other - (24,000)
Total other income (expense), net (101,797) (88,024)
Net loss $(2,284,660) $ (443,863)
Series A preferred stock dividends 159,562 2,740
Net loss applicable to common
stockholders $(2,444,222) $ (446,603)
Net loss per common share: $ (0.68) $ (0.15)
Basic and diluted
Weighted average common shares
outstanding: 3,579,118 3,005,116
Basic and diluted
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BUYERSONLINE.COM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended June 30,
2000 1999
(As restated)
Cash flows from operating activities:
Net loss $(2,284,660) $ (443,863)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 109,386 40,653
Amortization of discount on notes
payable 21,742 -
Services rendered in exchange for
shares of common stock 12,319 -
Expense related to the grant of
options to purchase common shares 62,415 -
Changes in operating assets and
liabilities:
Restricted cash 104,003 (1,244)
Accounts receivable (14,603) (21,618)
Other current assets (72,390) (2,450)
Accounts payable 691,701 (167,046)
Accrued rebates (20,410) -
Accrued founders settlement - (9,000)
Accrued liabilities 234,930 99,994
Net cash used in
operating activities (1,155,567) (504,574)
Cash flows from investing activities:
Increase in other assets (187,692) -
Purchases of furniture, fixtures and
equipment (157,758) (19,949)
Net cash used in investing activities (345,450) (19,949)
Cash flows from financing activities:
Proceeds from borrowings under notes
payable 875,000 49,000
Principal payments on notes payable - (119,135)
Principal payments on capital lease
obligation (29,871) -
Issuance of preferred shares for
cash, net of offering costs - 1,867,551
Issuance of common shares for cash,
net of offering costs - 164,250
Net cash provided by financing activities 845,129 1,961,666
Net increase (decrease) in cash (655,888) 1,437,143
Cash at the beginning of the year 1,088,707 22,690
Cash at the end of the year $ 432,819 $ 1,459,833
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Supplemental cash flow information:
Cash paid for interest $ 89,457 $ 32,776
Supplemental schedule of noncash
investing and financing activities:
Issuance of common shares in payment
of preferred stock dividend $ 160,127 $ -
Exercise of stock options in
connection with settlement of
Founders' Agreements - 34,522
Warrants issued in connection with
promissory notes 469,939 -
Issuance of options in connection
with consulting agreement 213,994 -
Accrual of dividend payable on
preferred stock 159,562 -
Capital expenditures financed with
capital lease obligation 7,750 -
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BUYERSONLINE.COM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements 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 periods ended June
30, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000.
The unaudited interim results of operations and cash flows for
the the periods ended June 30, 1999 have been restated as a
result of adjustments recorded at year-end.
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, 1999.
2. Stock Options
During the first six months of 2000, the Company has granted a
total of 911,153 options to purchase common stock at a weighted
average exercise price of $2.48 per share. The options were
granted primarily to employees hired since January 1, 2000.
The options vest ratably over a period of from one to five
years after the date of hire, and expire five years thereafter.
3. Bridge Financing - Related Parties
During the three months ended June 30, 2000, the Company sought
private placement funding to provide capital to implement its
Internet and infomercial marketing programs. While continuing
negotiations with various parties, as bridge financing the
Company entered into borrowing arrangements with two of its
directors and with First Level Capital, the placement agent for
the Company's 1999 private placement of preferred stock. A
total of $875,000 was raised by issuing 14% and 18% promissory
notes. The notes mature on June 30, 2001, or when the Company
obtains private placement funding, whichever comes first.
As additional consideration for the bridge loans, the Company
issued 470,000 warrants. The warrants entitle the note holders
to purchase shares of common stock at prices between $2.00
and $2.50 per share until June 30, 2005. A portion of the
proceeds from the bridge loans was allocated to the warrants
based upon the estimated fair value of the warrants, determined
using the Black-Scholes pricing model, and the estimated fair
value of the notes in accordance with
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APB No. 14, "Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrants." The portion allocated to the
warrants amounted to $469,939, which has been recorded as a
discount on the notes and will be amortized to interest expense
over the term. At June 30, 2000, a total of $21,742 of the
discount had been amortized and included in interest expense.
4. Subsequent Events
During July the Company entered into additional bridge
financing arrangements with various individuals, including
three of its directors. An additional $450,000 was raised by
issuing 18% promissory notes and warrants to purchase 225,000
shares of common stock at $2.00, expiring after five years.
Similar to those warrants described in Note 3, a value of
$186,877 was allocated to the warrants and recorded as a
discount on the debt. These particular notes have maturity
dates of July 31 and August 31, 2000. Those due July 31, 2000
were owing from Company directors who have not yet demanded
payment.
During August 2000, the Company moved close to completing a
private placement transaction with a financing company. A
total of $6,000,000 was secured in the form of a promissory
note. Interest will accrue at three percent over prime,
payable monthly. The note will mature July 2003, and cannot be
prepaid earlier than 2002. Final arrangements for commissions
and expenses have not been completed, but are anticipated to be
approximately 4% in addition to stock and/or warrant
provisions. Such costs will be reflected as a discount on the
note. The discount will then be amortized ratably over the
life of the loan as additional interest expense. The note is
secured by 13,715,000 shares of common stock.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
BuyersOnline is engaged in the business of selling to
consumers and small businesses services and products. The
marketing strategy of BuyersOnline is based on a membership
concept under which members of BuyersOnline are entitled to
receive the services and products offered at lower prices than
can be obtained elsewhere. BuyersOnline uses the purchasing
power of its membership to negotiate lower prices or rebates from
producers and resellers of the services and products. Lower
pricing allows BuyersOnline to attract and retain members, and
makes it possible for BuyersOnline to offer rebate incentive
programs to its members for referring to BuyersOnline new
prospective members. BuyersOnline's goal is to build a national
consumer membership organization. Its strategy for achieving
this goal is to focus on its member referral and rebate program,
expand service and product offerings, and develop and promote a
television advertising program to attract new members.
BuyersOnline provides services and products 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, BuyersOnline focused on selling long
distance telephone service. This focus has enabled BuyersOnline
to build the size of its membership base. With the recent
explosion in Internet commerce, especially among small
businesses, BuyersOnline is now offering low cost Internet access
to its members.
We are now expanding our selection to include a broader
range of consumer products and services, including clothing and
accessories, books and music, health and beauty products, sports
and recreation products, office supplies, toys and games, home
and garden products, computer products, travel service, specialty
food products, and specialty gift items. In the second half of
2000, BuyersOnline intends to launch its new web site that will
enable members to purchase these products online and receive from
BuyersOnline a rebate on each product and service purchase.
By expanding its service and product offerings, BuyersOnline
believes that membership will be attractive to a larger number of
prospective members and existing members will have added
incentive for staying with BuyersOnline.
BuyersOnline has over 16,000 members located in 48 states.
Its target market includes networking professionals, small
businesses, and middle-class families with an annual household
income between $36,000 and $80,000, as these are the most likely
to respond actively to the savings opportunity offered by
BuyersOnline. Members reside mostly in high population centers
and they tend to spend more than the average on long distance
services. Approximately one-third of the present membership
consists of small businesses and entrepreneurs who operate home-
based businesses.
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Results of Operations
Total revenues from telecommunications and other services
increased 47% to $1.66 million for the three months ended June
30, 2000 as compared to $1.13 million for the same period in
1999. Revenues year-to-date increased 34% to $3.09 million as
compared to $2.32 million for the previous year. The increases
are due to higher membership in general resulting from the
Company's ongoing promotional efforts. Costs of revenue for the
three-month period ended in 2000 was $955,091, a 44% increase as
compared to $660,862 during the comparable three-month period for
the prior year. Such costs as a percentage of revenue were 57%
during 2000 as compared to 58% during 1999. Costs during the six
months ended June 30, 2000 rose 25% to $1.83 million over the
same period last year from $1.46 million. As a percentage of
revenue, costs of revenues for the first half of 2000 were 59%,
compared to 63% during the comparable period of 1999. During the
latter part of 1999, the Company increased the number of its
wholesale telecommunications services vendors and in the process
negotiated lower overall rates. The Company plans to continue
its efforts in lowering wholesale rates during 2000 as well.
Total operating expenses other than costs of revenues
increased 216% during the first three months of 2000 compared to
the same period in 1999. General and administrative costs in
2000 increased 167% to $1.19 million compared to $444,530 in
1999. Selling and promotion costs rose 330% to $813,280 during
the second quarter of 2000 from $189,180 during the same period
in 1999. During the six-month periods, general and
administrative expenses for 2000 were $1.93 million, versus
$900,129 for 1999, a 115% increase. Selling and promotion costs
were higher by 372% during 2000, increasing from $319,225 to
$1.51 million. The increases in both areas stem from the
Company's ongoing efforts in significantly expanding it business.
Toward the end of 1999, the Company began to increase spending in
strategic areas to prepare for revenue growth during the year
2000. During the current year, the Company has started to expand
existing sales channels, and develop new ones in addition to
continuing development efforts on an infomercial marketing tool.
In addition, BuyersOnline has also begun capacity increases in
both internally and externally developed information technology.
This will allow BuyersOnline to leverage its membership base as
it pursues its "BuyersOnline.com" marketing strategy.
Interest income for the first six months of 2000 was $12,902
as compared to $1,519 earned in 1999, primarily due to the funds
on hand from the Series A preferred stock offering completed
during 1999's third quarter. Interest expense for the three
months ended June 30, 2000 included $21,742 amortization of the
discount on debt issued with the warrants. Not including such
amortization, interest expense rose 80% partly as a result of
extending a note, along with increasing the interest rate (see
below). The difference in interest expense also resulted from
having less debt outstanding during the second quarter of 1999 as
a result of debt payoffs. These factors also resulted in
interest expense year-to-date being 42% higher than last year's
comparable period, as well as a result of debt payoffs during the
comparable period last year.
As a result of the above factors, the overall net loss
before the Series A Preferred Stock dividend increased 603% to
$1.37 million for the three months ended June 30, 2000 as
compared
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to $194,493 for the three months ended June 30, 1999. For the
first six months of 2000, the loss increased 415% over the same
period last year, rising to $2.28 million as compared to
$443,863.
Liquidity and Capital Resources
The Company's current ratio during the first quarter of 2000
declined to 0.4:1 from 1.7:1 at the end of 1999. The primary
reasons for the decline was the cash used to fund operations
during the quarter (see the discussion of the increase in
operating expenses above), and the related issuance of short-term
debt. In addition, a $1,050,000 note was reclassified as short-
term from long-term. In addition to cash and note payable, the
elements of working capital which changed significantly were
accounts payable and accrued liabilities. Accrued liabilities
rose primarily due to higher accrued payroll costs resulting from
an overall increase in employees during the quarter.
The Company is currently experiencing a period of
significant expansion and growth. As a result, the Company has
suffered losses during the first half of 2000, and projects the
need for additional capital to fund operations throughout the
rest of the year. During August 2000, the Company moved close to
completing a private placement transaction with a financing
company. A total of $6,000,000 was secured in the form of a
promissory note. Interest will accrue at three percent over
prime, payable monthly. The note will mature July 2003, and
cannot be prepaid earlier than 2002. Final arrangements for
commissions and expenses have not been completed, but are
anticipated to be approximately 4% in addition to stock and/or
warrant provisions. Such costs will be reflected as a discount
on the note. The discount will then be amortized ratably over
the life of the loan as additional interest expense. The note is
to be secured by 13,715,000 shares of common stock. Despite this
additional financing however, there can be no assurance that the
Company will successfully culminate its efforts to attain
additional funding sufficient to ultimately achieve profitable
results in the long term.
In March 2000, BuyersOnline reached an agreement to extend
repayment of an outstanding note payable in the amount of
$1,050,000 to April 15, 2001. Under the terms of the extension,
the Company agreed to increase the interest rate on the note to
18% per annum beginning April 15, 2000, grant the holder the
right to convert the note to common stock at the rate of $3.00 of
principal per share, or a total of 350,000 shares, and grant the
holder the right to register the shares of common stock for
resale under the Securities Act of 1933 under certain
circumstances.
Year 2000 Compliance
BuyersOnline did not experience any problems in its own
critical business operations or in any of its significant third
party relationships related to Year 2000 compliance.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1985
provides a safe harbor for forward-looking statements made by
BuyersOnline, except where such statements are made in connection
with an initial public offering. All statements, other than
statements of historical fact, which
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address activities, actions, goals, prospects, or new
developments that BuyersOnline expects or anticipates will or may
occur in the future, including such things as expansion and
growth of its operations and other such matters are forward-
looking statements. Any one or a combination of factors could
materially affect BuyersOnline's 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 BuyersOnline are
based on knowledge of its business and the environment in which
it operates as of the date of this report. Because of the
factors listed above, as well as other factors beyond its
control, actual results may differ from those in the forward-
looking statements.
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PART II. OTHER INFORMATION
Changes in Securities and Use of Proceeds
In May 2000, the Company issued 3,650 shares of common stock
valued at $12,319 to an individual for consulting services. The
Company relied upon Section 4(2) to issue the shares without
registration as the transaction did not involve any public
offering.
In June 2000, the Company issued 25,000 shares of common
stock valued at $50,000 to an individual for consulting services.
The Company relied upon Section 4(2) to issue the shares without
registration as the transaction did not involve any public
offering.
Exhibits and Reports on Form 8-K.
Reports on Form 8-K: No reports on Form 8-K were filed by
the Company during the quarter ended June 30, 2000.
Exhibits: Included only with the electronic filing of this
report is the Financial Data Schedule for the three month period
ended June 30, 2000 (Exhibit ref. No. 27).
SIGNATURES
In accordance with the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized.
BUYERSONLINE.COM, INC.
Date: August 14, 2000 By: /s/ Rod Smith, President
Date: August 14, 2000 By: /s/ Paul Jarman, Treasurer
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