U.S. Securities and Exchange Commission
Washington, DC 20549
Form 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 33-11324-LA
NetUSA, Inc.
(Name of small business issuer in its charter)
Colorado 84-1035751
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
201 San Antonio Cir., C250, Mountain View, CA 94040
(Address of principal executive offices)
Issuer's telephone number: (650) 948-6200
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Common Over the Counter Bulletin Board (OTCBB)
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days.
Yes No __X
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. __X
Part I
Item 1: Description of Business
(a) Business Development
NetUSA, Inc. (hereinafter NetUSA, or the company) was formed
when Technology Management and Marketing, Inc. (hereinafter TMMI)
acquired the Mountain View, Calif.-based Pacific Microelectronics, Inc.
(hereinafter Pacific Micro) in February, 1996, wherein the shareholders
of Pacific Micro relinquished control of the company in exchange for
NetUSA stock. NetUSA thus is a successor of TMMI. TMMI was formed in
1985, and subsequently transferred all its assets and liabilities to
GeoTrans Technology, Inc. of Delaware, in 1990, and ceased operations;
at the time of TMMI's merger with Pacific Micro, TMMI had been out of
operation for 6 years.
In June, 1998, NetUSA acquired Recomex, Inc., a privately-held
California corporation based in San Diego, Calif. After the
acquisition, Recomex has been operated as an autonomous division within
NetUSA.
NetUSA has never been involved in any bankruptcy, receivership or
similar proceedings, and to the best knowledge of NetUSA, neither has
its predecessor TMMI.
(b) Business of Issuer
NetUSA has four principal divisions: Telecommunications, Web
Services, Software, and Peripherals.
(1) In General
NetUSA currently serves as its own distributor for most services
and directly deal with customers. The web services division, in
particular, directly interacts with customers and in fact serves as
conduit for other companies' products with customers (see below). The
software division has additional methods of distribution (see below).
Due to the nature of NetUSA's business, the company is not
dependent on major customers. NetUSA pursues its intellectual property
rights mostly through copyrighting and registering trademarks. NetUSA
currently has 16 employees, 13 of whom are full-time employees.
(2) Telecommunications
The Telecommunications Division of NetUSA currently markets two
main services: Internet dial-up service, and Internet fax service
(hereinafter Interfax). The Internet dial-up service allows users to
connect to the Internet using their personal computers and modems, to
receive and send electronic mail, and to access the World Wide Web.
Interfax allows users to send facsimiles through the Internet at cost
that is significantly lower than the phone rate the users would
otherwise have needed to pay, particularly if the faxes were to be sent
to international destinations.
As is common knowledge, Internet dial-up service and Internet
faxing are highly-competitive areas of business. NetUSA plans to
compete by offering friendly service with easy-to-reach customer
service, but does not foresee the dial-up service to be a substantial
source of revenue. NetUSA does derive significant revenue from
Interfaxing, but has no plans to expand the service at the moment.
There are no current or expected governmental regulations that
should significantly affect most of NetUSA's telecommunications
services.
(3) Web Services
The web services division of NetUSA currently has two main
services: SoftwareCenter (http://www.softwarecenter.com) and web
design/hosting. SoftwareCenter is a fast growing leading online
software information and reseller center for downloadable commercial
software; shareware and publications geared to consumers, small business
and large enterprise. SoftwareCenter.com is securing a leading position
in the explosive e-commerce market, and becoming economically successful
by capturing royalties, promotion and advertising revenues in this
exciting market place. Through SoftwareCenter.com, the Company offers
customers a comprehensive selection of software product and
publications, quality customer service and competitive pricing.
SoftwareCenter.com's business strategy also fits in the emerging
Electronic Commerce outsourcing model, which allows software development
companies to concentrate on creating technologies and cutting edge
products, and grow the sales through vast channels like
SoftwareCenter.com. This is nothing new to software development
companies since they have been doing this through traditional physical
distribution channels and retail stores. Now software companies can
reach customer's world wide in a reliable and cost effective way by
listing and resell their product through SoftwareCenter.com.
The company believes that SoftwareCenter.com is one of the most
widely known and used sites on the World Wide Web for information and
purchasing of software product. The Company fulfills a customer
purchase through secured downloading system. The company believes it
provides superior value to its customers by offering one of the largest
selections of brand-name, high quality software available online and the
convenience of shopping globally available 24 hours a day and 7 days a
week.
SoftwareCenter.com's owns and operates a large database with
automated system to permit the sale, order processing and delivery of
software with limited human intervention. This approach, combined with
significant operational experience, enables the Company to address the
complex process of real time online ordering. The Company has developed
relationships with many leading software publishers, who have signed up
agreement with the Company to distribute software.
The company is in a testing stage of introducing additional Web
Centers targeted to various niche market sectors. These additional Web
Centers, while consistent with the same business strategies and focus,
will attract large number customers and vendors alike in slightly
different market places, hence generate incremental revenue in many
years to come.
SoftwareCenter.com is also considering and formulating a business
model to build a turnkey solution customized for on-line retail stores.
The turnkey solution package to be sold will include all necessary
hardware, software, applications, Web page templates, Internet
connections, product listing and support. While the on-line retail
stores will be owned and operated independently, SoftwareCenter.com will
be the main distributor for the on-line retail stores.
NetUSA's Web design/hosting services includes customized services
ranging from designing World Wide Web documents for clients to hosting
the clients' documents on NetUSA's computers to allow World Wide Web
users to access the clients' documents. NetUSA charges the client based
on its need.
NetUSA is aware of some web sites offering similar or equivalent
service to SoftwareCenter. NetUSA plans to compete with these services
by aligning itself with key strategic partners in the software industry,
and also offer competitive pricing on the products offered by
SoftwareCenter and friendly service.
There are large numbers of companies offering similar services to
NetUSA's web design/hosting services. NetUSA plans to compete by
offering personalized services that allow the client to fit the service
as he or she wishes and by tendering high-quality service difficult to
find elsewhere.
Currently, NetUSA has a number of new Web-based services that
NetUSA plans to launch in the coming fiscal year. These include
CandyCenter, KidsCenter, TeenCenter, and CollegeCenter. CandyCenter,
the service closest to launching, is offered via a partnership with
Eden, N.C.-based The Candy Professionals. CandyCenter will offer high-
quality confections over the Web, allowing customers to receive candy in
the convenience of their own homes. KidsCenter, TeenCenter, and
CollegeCenter are sites that are geared toward pre-high school children,
high school students, and college students, respectively. Each will
offer a free web-hosting service for the users to create and place their
own web page on the World Wide Web, and various Web-based educational
opportunities for the appropriate age group. Each will also offer a
substantial number of commercial products for the target audience. For
KidsCenter and TeenCenter, NetUSA will put in an automated system to
make sure that the users are not exploited by adults and that they are
not exposed to inappropriate material. NetUSA is not aware of a
competitor for CandyCenter but is aware of a number of sites that at
least indirectly compete with KidsCenter, TeenCenter, and CollegeCenter.
Most of those sites also provide free web-hosting services. NetUSA,
however, believes that NetUSA can be competitive with them, since NetUSA
will offer services that are geared toward the particular age group as
the target audience, while the competitors are more of general hosting
service sites.
(4) Software
NetUSA's software division, using the trade name Pacific Micro,
currently offers a number of utility software programs. NetUSA's
flagship software product, Mac-In-DOS, allows users to exchange files
between Apple Computers, Inc.'s Mac OS file system and Microsoft's
Windows 95/98 and NT ("Windows") file systems. Other major NetUSA
software products include Common-Link, which allows users to exchange
files between Mac OS, Windows, and UNIX file systems, and SuperCut,
which allows users to capture screen displays for publication purposes.
NetUSA plans to launch the following new software products within
the coming fiscal year (all of the following names are tentative names):
DiskGate, which allows users to edit portions of their disks and have
greater controls in managing the file structure without having to leave
Windows; Linux-In-DOS, which allows users to access Linux disk volumes
in Windows; and NT-In-DOS, which allows users of Windows 95 and 98 to
access NT File System (NTFS) disk volumes.
Other than the direct distribution mentioned above, NetUSA also
distributes its software through retail vendors and catalogues.
All of NetUSA's software products have competing products on the
market, except for the forth-coming Linux-In-DOS and NT-In-DOS, for
which NetUSA is not aware of any commercially available competing
products. NetUSA plans to compete with these products by offering
programs that are superior in ease of use and provide greater
capabilities than competing products, by frequently updating the
software to take advantage of new advances in software and hardware
technology, as well as strategically pricing the products.
(5) Peripherals
NetUSA's peripherals division, using the trade name Recomex (see
also above) offers a number of different computer peripheral products.
The main products of the division are monitors, although other devices,
such as scanners and modems, are also featured.
There are numerous manufacturers for each of the peripherals that
NetUSA offers. NetUSA competes in two different ways. First, NetUSA
explores specialty markets, including local small businesses needed
integrated solutions, and ethnic groups requiring service in specific
languages. Second, NetUSA distributes some niche products difficult to
find elsewhere on the market, such as 8-inch and 10-inch monitors, which
many businesses require due to space constraints but cannot find easily
on the market. NetUSA also believes that the prices offered by NetUSA
are competitive with market prices, although NetUSA does not plan to
make price a major key to its marketing strategy.
Item 2: Description of Property
NetUSA does not own any real property.
Item 3: Legal Proceedings
NetUSA is not currently involved in litigation which is required
to be disclosed by Regulation S-B.
Item 4: Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year, there was no matter
submitted to a vote by the security holders.
Part II
Item 5: Market for Common Equity and Related Shareholder Matters
During the fiscal year covered by this report, NetUSA did not sell
any unregistered securities which were made in reliance on Regulation S.
Item 6: Management's Discussion and Analysis or Plan of Operation
(a) (not applicable for this company)
(b) Management's Discussion and Analysis of Financial Condition
and Results of Operations
In general, NetUSA's cash supply has been steadily used for
research and development purposes, to reform the web services division
within the past fiscal year. However, the company still has a sizable
cash reserve (see below, Item 7). At the same time, the revenues from
the three divisions have been fairly consistent through the quarters of
this fiscal year, so the company does not foresee significant financial
difficulties within the coming year.
Further, the company anticipates substantial increases in revenue
from the web services division within the coming fiscal year due to the
improvements and business agreements made within the fiscal year. The
success of the web services division will obviously depend on the
ability of SoftwareCenter to compete and the ability for the new
services (CandyCenter, KidsCenter, TeenCenter, and CollegeCenter) to
harness user populations.
Another event that may affect the company's liquidity would be
involve changes in Macintosh users' operating system. Currently, NetUSA
estimates that 5%-10% of Mac OS users would switch to Mac OS X Server,
Apple Computers' new high-end operating system. If this estimate is
correct, Mac-In-DOS sales will not be significantly impacted. However,
if in actually 50% or more of MacOS users switch to Mac OS X Server,
Mac-In-DOS sales may suffer a setback until Mac-In-DOS is revised to
account for Mac OS X Server. NetUSA does not foresee a high likelihood
for that event to happen, though.
Item 7: Financial Statements
Note: these statements are preliminary figures from Samuel H. Wong &
Co., the company's accounting firm. The company will file an amended
10-KSB that includes accountants' notes when they become available.
NetUSA, Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1997 and
1996
(Unaudited)
1998
1997
Cash flows from
operating
activities
(481,877)
338,344
--------------------
--------------------
Cash flows from
investing activities
(202,350)
(810,550)
--------------------
--------------------
Cash flows from
financing activities
364,781
(50,771)
--------------------
--------------------
Net Increase in
cash
(319,446)
(522,977)
Cash, beginning
of period
246,063
769,040
--------------------
--------------------
Cash, end of
period
(73,383)
246,063
NetUSA, Inc.
Condensed Consolidated Balance Sheets
As of September 30, 1998 & 1997
1998
1997
Current Assets
Cash
(73,383.1
2)
246,062.5
4
A/R
274,325.5
3
372,554.8
6
Inventory
7,666.00
4,051.74
Prepaid Exp
6,662.92
18,840.84
Deferred Income Tax
Assets - Current
48,524.12
48,524.12
-------------
- ---------
-------------
- ---------
Total Current Assets
263,795.4
5
690,034.1
0
Property & Equipment
At Cost
303,665.8
3
273,214.7
1
Less: Accum Depr.
(211,853.
04)
(185,941.
70)
-------------
- ---------
-------------
- ---------
Net Property & Equip
91,812.79
87,273.01
Other Assets
Note Receivable
80,000.00
80,000.00
Investment at cost
100,000.0
0
100,000.0
0
Other Assets
107,532.4
4
661,680.2
2
Goodwill
143,125.0
0
- -
-------------
- ---------
-------------
- ---------
Total Other Assets
430,657.4
4
841,680.2
2
TOTAL ASSETS
786,265.6
8
1,618,987
.33
---------------------------
-------------
- ----------
-------------
- ---------
Current Liabilities
Accounts Payable
246,400.8
5
338,196.3
9
Payroll Payable
- -
10,510.38
State Income Tax
Payable
20,151.00
20,151.00
Lease Obligation -
Current
1,958.78
7,556.19
Accrued Liabilities
42,504.59
8,193.60
Due to Shareholders
191,090.0
0
-------------
- ---------
-------------
- ---------
502,105.2
2
384,607.5
6
Long Term Liabilities
Lease Oblig. - LT
13,969.42
13,969.42
Note Payable
198,449.6
3
219,708.1
3
-------------
- ---------
-------------
- ---------
212,419.0
5
233,677.5
5
Stockholders' Equity
Common Stock
4,728.66
4,455.92
Add. Paid-In Capital -
Common Stock
3,944,803
.73
3,766,562
.82
Treasury Stock
(13.65)
Add. Paid-In Capital -
Treasury Stock
22,046.87
Current Income/(Deficit)
(1,129,50
7.68)
104,913.0
3
Retained Deficit
(2,770,31
6.52)
(2,875,22
9.55)
-------------
- ---------
-------------
- ---------
Total SH Equity
71,741.41
1,000,702
.22
TOTAL S/H and LIAB.
786,265.6
8
1,618,987
.33
(0)
0
NetUSA, Inc.
Condensed Consolidated Statements of Operations
For the Year Ended September 30, 1998 and 1997
(Unaudited)
1998
1997
Difference
Sales
1,734,655.19
2,104,432.04
(369,776.85)
Cost of Sales
(1,250,993.79
)
(911,079.27)
(339,914.52)
------------------
- ----------
-----------------
- -----------
-----------------
- -----------
Operating Income
483,661.40
1,193,352.77
(709,691.37)
Other Income
10,533.42
58,412.42
(47,879.00)
------------------
- ----------
-----------------
- -----------
-----------------
- -----------
Total Revenue
494,194.82
1,251,765.19
(757,570.37)
Salaries and Wages
(227,979.79)
(216,519.38)
(11,460.41)
Employee Benefits
(93,678.73)
(95,138.53)
1,459.80
------------------
- ----------
-----------------
- -----------
-----------------
- -----------
(321,658.52)
(311,657.91)
(10,000.61)
Administrative &
General Expenses
(435,113.76)
(460,467.41)
25,353.65
Depreciation & Amortization
(753,252.80)
(21,222.95)
(732,029.85)
Marketing Expense
(88,005.04)
(349,303.16)
261,298.12
Interest Expense
(25,379.68)
(31,422.39)
6,042.71
Financial Expense
(292.70)
(553.46)
260.76
------------------
- ----------
-----------------
- -----------
-----------------
- -----------
Total Operating Expenses
(1,623,702.50
)
(1,174,627.2
8)
(449,075.22)
------------------
- ----------
-----------------
- -----------
-----------------
- -----------
Income (Loss) before Taxes
(1,129,507.68
)
77,137.91
(1,206,645.5
9)
Current Income Tax
(20,749.00)
Deferred Income Tax
- -
48,524.12
(48,524.12)
------------------
- ----------
-----------------
- -----------
-----------------
- -----------
Net Income (Loss) for the year
after
Tax
(1,129,507.68
)
104,913.03
(1,234,420.7
1)
Item 8: Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
In the past two fiscal years, NetUSA's accountant has neither
resigned nor been dismissed.
Part III
Item 9: Directors, Executive Officers, Promoters and Control
Persons, Compliance With Section 16(a) of the Exchange Act
(a) Directors/Executive Officers
Dr. Wun C. Chiou, Chief Executive Officer/Sole Director:
Dr. Chiou has been CEO and Director ever since the TMMI/Pacific
Micro merger in February, 1996. From the time 5 years before this
form's filing up to February, 1996, he had been the CEO and sole
Director of Pacific Micro and held all actual and nominal
responsibilities associated with those offices. He does not hold a
director position in any other reporting company.
Mr. Nelson Lu, Secretary:
Mr. Lu had served as the special assistant to CEO from August,
1997, to March, 1998, when he assumed the post of secretary. He also
serves as the company's counsel. For the five years before this report,
he had been studying computer science and law.
(b) Significant Employees
Mr. Michael Gallagher, Director of Business Development:
Mr. Gallagher has been serving as director of business development
since September, 1998. Before NetUSA, Inc. Mr. Gallagher has worked as
financial consultant for several large financial companies.
Mr. Leo Xia, Chief Engineer:
Mr. Xia has served as the chief engineer for NetUSA since
February, 1996. Prior to that, he had been working as an electrical
engineer. He is the key architect behind NetUSA's utility software
projects.
(c) Family Relationships
There are no family relationships among the directors, officers,
and employees disclosed above.
(d) Involvement in Certain Legal Proceedings
To the best knowledge of the drafter of this document, there are
no outstanding legal proceedings that are required to be disclosed under
this item against any person listed above.
Item 10: Executive Compensation
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
Awards Payout All Other
Compensation
(a) (b) (c) (d) (e) (f) (g) (h) (i)
(1) CEO 97 96 0 0 0 0 0 0
'96 56 0 0 0 0 0 0
All figures are in thousands of US$.
Key:
(1) Dr. Wun Chiou
(a) Position held in company
(b) Fiscal year; '97 is October, 1996, through September, 1997; '96 is
October, 1995, through September, 1996.
(c) Salary
(d) Bonus
(e) Other annual compensation
(f) Restricted stock awards
(g) Securities underlying options/SARs
(h) LTIP payouts
(i) All other compensation
Item 11: Security Ownership of Certain Beneficial Owners and
Management
(a) Security Ownership of Certain Beneficial Owners
(1) (2) (3) (4)
Title of Name/Address of Beneficial Amount and Nature Percent of
Class Owner of Beneficial Class
Owner
Common Dr. Wun C. Chiou 3,000,000, 69%
directly
(b) Security Ownership of Management
See above, subitem (a).
(c) Changes in Control
There is no arrangement currently outstanding which may result in
a change of control.
Item 12: Certain Relationships and Related Transactions
There was no relevant transaction during the relevant period.
Item 13: Exhibits and Reports on Form 8-K
(a) Exhibits
There are no exhibits to be attached to this form.
(b) Reports on Form 8-K
No Form 8-K was filed during the final quarter of the fiscal year.
