**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM10-K/A**

**(Amendment No. 1)**

 

**AMENDMENTTO ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)**

**OFTHE SECURITIES EXCHANGE ACT OF 1934**

 

**For The Fiscal Year Ended June 30, 2004**

**Commission File Number 1-10366**

 

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**WEIDA****COMMUNICATIONS, INC.**

(Exact Name of Registrant as Specified in ItsCharter)

 
| **New  Jersey**                                                               | **22-2582847**                    |
|-------------------------------------------------------------------------------|-----------------------------------|
| (State or Other Jurisdiction of  Incorporation  or Organization)              | (IRS Employer Identification No.) |
| ** **                                                                    | ** **                        |
| **515  East Las Olas Boulevard, Suite 1350  Fort Lauderdale, Florida**        | **33301**                         |
| (Address of Principal Executive Offices)                                      | (Zip Code)                        |
| **(954)  527-7750**(Registrant’s  Telephone Number, Including Area Code) |

 

Securities registered pursuant to Section 12(b) of the Act: **None.**

Securities registered pursuant to Section12(g) of the Act: **Common Stock, no par valueper share.**

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.    Yes x  No ̈

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to thisForm 10-K.    o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule12b-2).    Yes  ̈  Nox

 

As of December 31, 2003,the aggregate market value of the common equity held by non-affiliates of theregistrant was approximately $2,685,089. The determination of stock ownershipby non-affiliates is based upon the registrant’s knowledge of stock ownershipas of December 31, 2003 and is made solely for purposes of responding to therequirements of the form and the registrant is not bound by this determinationfor any other purpose. The aggregate market value is based upon the closingsales price of the registrant’s common stock of $3.60, as reported by theOver-The-Counter Bulletin Board on December 31, 2003.

 

As of June 30, 2004, theaggregate market value of the common equity held by non-affiliates of theregistrant was approximately $231,571,675. The determination of stock ownershipby non-affiliates is based upon the registrant’s knowledge of stock ownershipas of June 30, 2004 and is made solely for purposes of responding to therequirements of the form and the registrant is not bound by this determinationfor any other purpose. The aggregate market value is based upon the closingsales price of the registrant’s common stock of $5.50, as reported by theOver-The-Counter Bulletin Board on June 30, 2004.

 

As of September 17, 2004,the registrant had 72,334,486 shares of common stock issued and outstanding.

 

DOCUMENTS INCORPORATED BYREFERENCE: **None.**

 

 

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**EXPLANATORYNOTE**

 

WeidaCommunications, Inc. (the “Company”) is filing this Amendment No. 1 to itsAnnual Report on Form 10-K for the fiscal year ended June 30, 2004 (the “OriginalReport”) for the sole purpose of (A) amending and restating (i) Part II, Item 6 to include disclosure regarding loss pershare for the periods being presented, which was inadvertently omitted from theOriginal Report, and to more accurately describe the periods being presented,and (ii) Part II, Item 7 to include discussion and analysis of loss per sharefor the periods being presented, which was inadvertently omitted from theOriginal Report, and (B) to change the date as of which the Company will reportits operating results on a consolidated basis with WeidaPRC.  Exceptfor the information set forth in this Amendment No. 1, no other informationincluded in the Company’s Original Report is hereby updated or amended.

 

1

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**ITEM 6.  SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA**

 

The share exchangetransaction between the Company and SCL in June 2004was accounted for similar to a reverse acquisition in which SCLis the accounting acquirer and the Company is the legal acquirer. As a resultof the share exchange transaction (i) the historicalfinancial statements of the Company for periods prior to the date of thetransaction are no longer presented and (ii) the historical financialstatements for periods prior to the date of the transaction are those of SCL.  Subsequent toJune 30, 2004, the Company acquired control of and a 51% profit-sharinginterest in, Weida  PRCthrough contractual arrangements between the WOFE andWeida  PRC, including atrust arrangement for the benefit of SCL with respectto 51% of the shares of Weida  PRC.See Notes 1 and 9 to the Consolidated Financial Statements of the Companyincluded elsewhere in this report.

 

The following selectedfinancial data for the Company and Weida  PRC should be read in conjunction with our financialstatements, the notes thereto, and Item 7, “Management’s Discussion andAnalysis of Consolidated Financial Condition and Results of Operations”appearing elsewhere in this report. The selected statements of operations datafor the Company for the six months ended June 30, 2004, for the period from May16, 2003 to June 30, 2003 (unaudited) and for theperiod from May 16, 2003 to December 31, 2003, and the selected balance sheetdata for the Company as of June 30, 2004 and December 31, 2003, are derivedfrom our audited and unaudited financial statementsincluded elsewhere in this report. The selected statements of operations datafor Weida  PRC for the sixmonths ended June 30, 2004 and June 30, 2003 (unaudited)and for the years ended December 31, 2003 and 2002 and the period from April 2,2001 to December 31, 2001, and the selected balance sheet data for Weida  PRC as of June 30, 2004,June 30, 2003 (unaudited) and December 31, 2003, 2002and 2001 are derived from Weida  PRC’saudited and unaudited financial statements includedelsewhere in this report.

 

**Weida****Communications, Inc.**

 

*Statementof Operations Data*

 
| ** **          | ** ** | **Six Months Ended  June 30, 2004** | ** ** | **Period From  May 16, 2003  (date of inception)  to June 30, 2003** | ** ** | **Period From  May 16, 2003  (date of inception)  to December 31, 2003** | ** ** |
|---------------------|------------|-------------------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|
| ** **          | ** ** | **US$**                             | ** ** | **US$**                                                              | ** ** | **US$**                                                                  | ** ** |
|                |       |                                |       |                                                                 |       |                                                                     |       |
| Operating  expenses |       | (1,930,660                          | )          | (137,469                                                             | )          | (1,180,702                                                               | )          |
| Interest income     |       | 49,060                              |       | —                                                               |       | 31,908                                                                   |       |
| Net loss            |       | (1,881,600                          | )          | (137,469                                                             | )          | (1,148,794                                                               | )          |
| Loss per share      |       | (0.03                               | )          | (0.00                                                                | )          | (0.02                                                                    | )          |

 

*Balance Sheet Data*

* *
| ** **                          | ** ** | **As of  June 30, 2004** | ** ** | **As of  December 31, 2003** | ** ** |
|-------------------------------------|------------|--------------------------|------------|------------------------------|------------|
| ** **                          | ** ** | **US$**                  | ** ** | **US$**                      | ** ** |
|                                |       |                     |       |                         |       |
| Working capital                     |       | 36,014                   |       | (1,504,079                   | )          |
| Cash and  cash-equivalents          |       | 1,617,845                |       | —                       |       |
| Property, plant  and equipment, net |       | 18,121                   |       | —                       |       |
| Total assets                        |       | 10,299,708               |       | 6,929,966                    |       |
| Total  liabilities                  |       | 2,545,189                |       | 1,535,987                    |       |
| Accumulated  deficit                |       | (3,030,394               | )          | (1,148,794                   | )          |
| Stockholders’  equity          |       | 7,754,519                |       | 5,393,979                    |       |

 

2

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**Guangzhou WeidaCommunications Technology Co., Ltd.**

 

*Statement of Operations Data*

 
| ** **      | ** ** | **Six Months Ended  June 30, 2004** | ** ** | **Six Months Ended  June 30, 2004** | ** ** | **Six Months Ended  June 30, 2003** | ** ** |
|-----------------|------------|-------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| ** **      | ** ** | **US$ ****(1)**                | ** ** | **RMB**                             | ** ** | **RMB**                             | ** ** |
|            |       |                                |       |                                |       |                                |       |
| Revenue         |       | 56,669                              |       | 469,023                             |       | 712,108                             |       |
| Cost of revenue |       | (868,115                            | )          | (7,185,044                          | )          | (3,764,539                          | )          |
| Operating loss  |       | (1,215,725                          | )          | (10,062,075                         | )          | (5,941,052                          | )          |
| Net loss        |       | (1,320,513                          | )          | (10,929,367                         | )          | (6,646,195                          | )          |

 

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(1)     Convenience translation into United States dollars, based on anexchange rate of 8.2766 RMB to the dollar.

 
| ** **      | ** ** | **January 1, 2003  to  December 31, 2003** | ** ** | **January 1, 2002  to  December 31, 2002** | ** ** | **April 2, 2001  to  December 31, 2001** | ** ** |
|-----------------|------------|-------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| ** **      | ** ** | **US$ (1)**                                | ** ** | **RMB**                                    | ** ** | **RMB**                                  | ** ** | **RMB** | ** ** |
|            |       |                                            |       |                                       |       |                                     |       |   |   |
| Revenue         |       | 158,134                                         |       | 1,310,517                                  |       | 537,427                                  |       | 448,718 |   |
| Cost of revenue |       | (1,308,903                                      | )          | (10,847,406                                | )          | (2,821,249                               | )          | (576,878 | ) |
| Operating loss  |       | (1,928,422                                      | )          | (15,981,601                                | )          | (6,562,306                               | )          | (2,319,933 | ) |
| Net loss        |       | (2,144,154                                      | )          | (17,769,459                                | )          | (7,939,835                               | )          | (3,269,912 | ) |

 

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(1)     Convenience translation into United States dollars, based on anexchange rate of 8.2874 RMB to the dollar.

 

*Balance Sheet Data*

* *
| ** **                              | ** ** | **As of  June 30, 2004** | ** ** | **As of  June 30, 2004** | ** ** | **As of  June 30, 2003** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|--------------------------|------------|--------------------------|------------|
| ** **                              | ** ** | **US$ (1)**         | ** ** | **RMB**                  | ** ** | **RMB**                  | ** ** |
|                                    |       |                     |       |                     |       |                     |       |
| Working capital                         |       | (4,353,019               | )          | (36,028,192              | )          | (13,574,078              | )          |
| Cash and  cash-equivalents              |       | 54,009                   |       | 447,009                  |       | 1,974,918                |       |
| Property, plant  and equipment, net     |       | 1,553,665                |       | 12,859,052               |       | 15,918,136               |       |
| Total assets                            |       | 3,001,335                |       | 24,840,830               |       | 55,243,571               |       |
| Bank debt                               |       | 2,416,451                |       | 20,000,000               |       | 40,000,000               |       |
| Total  liabilities                      |       | 5,406,739                |       | 44,749,403               |       | 52,899,513               |       |
| Stockholders’  (deficiency) equity |       | (2,405,404               | )          | (19,908,573              | )          | 2,344,058                |       |

 

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(1)     Convenience translation into United States dollars, based on anexchange rate of 8.2766 RMB to the dollar.

 

3

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| ** **                              | ** ** | **As of December 31,** | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                              | ** ** | **2003**               | ** ** | **2002**               | ** ** | **2001** | ** ** |
| ** **                              | ** ** | **US$ (1)**       | ** ** | **RMB**                | ** ** | **RMB** | ** ** | **RMB** | ** ** |
| ** **                              | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Working capital                         |       | (4,416,609             | )          | (36,602,206            | )          | (218,038 | ) | 9,465,397 |   |
| Cash and  cash-equivalents              |       | 65,443                 |       | 542,352                |       | 721,096 |   | 5,892,872 |   |
| Property, plant  and equipment, net     |       | 1,728,286              |       | 14,323,000             |       | 9,208,291 |   | 1,554,599 |   |
| Total assets                            |       | 4,524,369              |       | 37,495,261             |       | 33,347,945 |   | 43,678,767 |   |
| Bank debt                               |       | 4,826,604              |       | 40,000,000             |       | 20,000,000 |   | 25,000,000 |   |
| Total  liabilities                      |       | 5,583,713              |       | 46,274,467             |       | 24,357,692 |   | 26,748,679 |   |
| Stockholders’  (deficiency) equity |       | (1,059,344             | )          | (8,779,206             | )          | 8,990,253 |   | 16,930,088 |   |

 

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(1)     Convenience translation into United States dollars, based on anexchange rate of 8.2874 RMB to the dollar.

 

**ITEM7.              MANAGEMENT’S DISCUSSIONAND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*The following discussion and analysis of ourfinancial condition and results of operations should be read in conjunctionwith our financial statements and notes thereto included elsewhere in thisreport. In addition to historical information contained herein, this discussionand analysis contains forward-looking statements. These statements involverisks and uncertainties and can be identified by the use of forward-lookingterminology such as “estimates,” “projects,” “anticipates,” “plans,” “future,” “may,”“should,” “predicts,” “potential,” “continue,” “expects,” “intends,” “believes,”and similar expressions. Examples of forward-looking statements include thoserelating to the need for equity financing in order to consummate theacquisition of legal ownership of an equity interest in WeidaPRC, our historical and likely future losses and ourreliance on the provision of VSAT-basedcommunications services for the majority of our revenues. These and otherforward-looking statements are only estimates and predictions. While we believethat the expectations reflected in the forward-looking statements arereasonable, our actual results could differ materially due to a number offactors, including the risk factors set forth elsewhere in this report. Readersare cautioned not to place undue reliance on these forward-looking statements,which reflect management’s expectations only as of the date hereof.*

 

**Overview**

 

We are a United States-managed company that isparticipating in the fast-growing China telecommunications market throughcontrol of and a 51% profit-sharing interest, and our planned 51% combinedequity ownership and profit-sharing interest, in the only whollyprivately-owned company in China****holding licenses for bi-directional VSAT communications (the only other privately-owned companyrecently holding a license was merged into a joint government venture in January2004). Weida  PRC’ssatellite operations in China provide ground-based equipment and relatedservices to support government and corporate applications, including broadbandInternet access, remote meter monitoring, and mission-critical data backupsystems.

 

*Results of Operations*

 

We were established as SCL on May 16, 2003 to acquire an interest intelecommunications and related service entities in Asia. On April 29, 2003, SCL entered into a master agreement with Weida  PRC, as more fullydescribed elsewhere in this report. SCL has had nosources of revenue, and its operations prior to September 2004 have beenlimited to activities to complete the transaction with WeidaPRC.  For theperiod from date of inception to June 30, 2004, SCLincurred total operating expenses of $3,111,362, and deferred acquisition costsof $5,704,004.

 

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*Professional, General and Administrative Expenses*

 

Operating expenses totaled $3,111,362 from inceptionto June 30, 2004. These expenses reflect the expected one time costs associatedwith the negotiation and execution of the share exchange agreement and shareexchange between the Company and SCL. Included inthese expenses are legal fees, accounting fees, and consultant fees paid to certainparties in relation to funding activities. These expenses also reflect numerousdue diligence trips to China for certain executives of SCLas well as their advisors.

 

*Loss Per Share*

 

Loss per share increased to 0.03 cents per share forthe six months ended June 30, 2004 compared with 0.02 cents per share for theperiod from May 16, 2003 (date of inception) to December 31, 2003 due to anincrease in operating expenses resulting from the expected one-time costsassociated with the negotiation and execution of the share exchange agreementand share exchange between the Company and SCL. Included in these expenses are legal fees, accounting fees, andconsultant fees paid to certain parties in relation to funding activities.  These expenses also reflect numerous duediligence trips to China for certain executives of SCLas well as their advisors.

* *

*Liquidity and Capital Resources*

 

As shown in the consolidated financial statements, atJune 30, 2004 (following the consummation of the share exchange) we had positiveworking capital of approximately $0.04 million and an accumulated deficit ofapproximately $3.0 million. Since SCL’s formation inMay 2003, we have funded all of our operating expenses and deficit from the netproceeds of private placements of our shares and warrants to private investorsand, to a lesser extent, from shareholder loans.

 

At June 30, 2004, we had totalconsolidated assets of approximately $10.3 million. Included in total assets isa promissory note issued by Glendora Management Ltd. (“Glendora”), a BritishVirgin Islands corporation, to SCL in the amount of$2.2 million. Certain of Glendora’s shareholders are also shareholders of theCompany. Borrowings under the note bear interest at the London Interbank Offered Rate plus 200 basis points (effectiverate of 4.46% at June 30, 2004), with interest and principal due five yearsfrom the date of the note. Glendora has granted to SCLa security interest in and to certain of its property and assets as collateralfor repayment of the note. The carrying amount of this note receivableapproximates its fair value.

 

Additionally, SCLand Glendora signed an assignment agreement whereby SCLhas granted Glendora the rights to enter into a transaction with Guangzhou Suntek New Tech R&D Co., Ltd (“Suntek”),which was previously held by SCL. No value has beendesignated to the assignment agreement as it assigns the right to pursue apurchase agreement with Suntek and not a negotiatedpurchase agreement.

 

Our current cash and cashequivalents and funding commitments described below are not sufficient for usto sustain present operations beyond the third calendar quarter of 2005. Wewill need additional funding to continue operations as an ongoing entity. Weare in the process of negotiating to raise additional private funding tosatisfy these requirements. We are also in preliminary negotiations withcertain banking and financial institutions to secure a corporate credit line.

 

Effective as of September 3,2004, a credit facility for up to $5 million has been made available to us byAnthony Giordano, a Company shareholder, together with one of Mr. Giordano’sfamily limited partnerships, to fund the Company’s future operations. Thiscredit facility is unsecured, bears interest on any funds advanced at a rateequal to the London Interbank Offered Rate plus 200basis points, has no equity component, and terminates on October 31, 2005. Foradditional disclosure concerning Mr. Giordano, see Item 12, “Security Ownershipof Certain Beneficial Owners and Management–Matters concerning a beneficialshareholder.”

 

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**Guangzhou WeidaCommunications Technology Co., Ltd.**

** **

*Revenue and Costs of Revenue*

 

WeidaPRC, in which we recently acquired a 51%profit-sharing interest and control, and therefore will report its operatingresults on a consolidated basis with our own with effect from August 26, 2004,currently receives revenue from two sources, equipment sales and from satellitebandwidth provision agreements. The following tables set forth the revenues inthese categories and costs of revenues for each of the 6 months ended June 30,2004 and June 30, 2003 (unaudited), and for the 12months ended December 31, 2003, the 12 months ended December 31, 2002 and forthe period from April 2, 2001 through December 31, 2001: 

 
| ** **                   | ** ** | **January 1, 2004  to  June 30, 2004** | ** ** | **January 1, 2003  to  June 30, 2003  (Unaudited)** | ** ** |
|------------------------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                   | ** ** | **USD****(1)**                         | ** ** | **RMB**                                             | ** ** | **RMB** | ** ** |
|                         |       |                                   |       |                                                |       |   |   |
| Revenue:                     |       |                                   |       |                                                |       |   |   |
| Sales of  equipment          |       | 42,030                                 |       | 347,863                                             |       | 591,112 |   |
| Satellite  bandwidth revenue |       | 14,639                                 |       | 121,160                                             |       | 120,996 |   |
| Total revenue                |       | 56,669                                 |       | 469,023                                             |       | 712,108 |   |
|                         |       |                                   |       |                                                |       |   |   |
| Cost of revenue              |       | (868,115                               | )          | (7,185,044                                          | )          | (3,764,539 | ) |

 

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(1)     Conveniencetranslation into United States dollars, based on an exchange rate of 8.2766 RMB to the dollar. 

 
| ** **                   | ** ** | **January 1, 2003  to  December 31, 2003** | ** ** | **January 1, 2002  to  December 31, 2002** | ** ** | **April 2, 2001  to  December 31, 2001** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| ** **                   | ** ** | **US$ (1)**                           | ** ** | **RMB**                                    | ** ** | **RMB**                                  | ** ** | **RMB** | ** ** |
|                         |       |                                       |       |                                       |       |                                     |       |   |   |
| Revenue:                     |       |                                       |       |                                       |       |                                     |       |   |   |
| Sales of  equipment          |       | 121,744                                    |       | 1,009,189                                  |       | 418,803                                  |       | 448,718 |   |
| Satellite  bandwidth revenue |       | 36,360                                     |       | 301,328                                    |       | 118,624                                  |       | — |   |
| Total revenue                |       | 158,134                                    |       | 1,310,517                                  |       | 537,427                                  |       | 448,718 |   |
|                         |       |                                       |       |                                       |       |                                     |       |   |   |
| Cost of revenue              |       | (1,308,903                                 | )          | (10,847,406                                | )          | (2,821,249                               | )          | (576,878 | ) |

 

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(1)     Convenience translation into United States dollars, based on anexchange rate of 8.2874 RMB to the dollar.

 

Equipment sales are primarily VSAT equipment. Revenue is recognized when the equipment isdelivered, title has passed to the customers and WeidaPRC has no further obligations to provide servicesrelated to the operation of the equipment.

 

Revenue from satellite bandwidthprovision agreements is recognized on a straight-line basis over the period ofthe agreements. The excess of the amounts received or receivable from customersover the revenue recognized is included in accrued expenses and other payables,and amounted to RMB 338,920 (US$40,949) and RMB 130,480 at June 30, 2004 and June 30, 2003 (unaudited), respectively, and RMB389,280 (US$46,973) and RMB 14,400 at December 31,2003 and December 31, 2002, respectively.

 

During 2001 and 2002 Weida  PRC was demonstrating toits customers that its network and technology was operational and competitive.During 2002 revenue from equipment sales remained flat compared with 2001 whilemarket demand for satellite bandwidth increased due to network sharing ofequipment by some of Weida  PRC’scustomer base. As Weida  PRC’ssystem and equipment sales efforts

 

6

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produced positive results, WeidaPRC’s current customer base added additionalequipment and utilization increased respectively.  Weida  PRC did not sell additional equipment during that timeframewhile it focused on implementing and operating in a beta development phase withChina Telecom.

 

During 2001 and 2002 Weida  PRC was offering specialdiscounts to achieve a statistical sample set to prove its product capability.In addition, during the first three quarters of 2002 WeidaPRC intentionally did not accept orders until theyhad obtained a significant statistical sample of production volume and servicequeries to make appropriate adjustments and enhancements before it would acceptadditional customers. As Weida  PRC’sresults from positive tests in the field and actual production continued tomount, Weida  PRC’s revenueincreased to RMB 1,310,517 (US$158,134) in 2003compared with revenues of RMB 537,427 in 2002,reflecting increases in both equipment sales and satellite bandwidth revenue.However, revenues decreased in the six months ended June 30, 2004 to RMB 469,023 (US$56,669) compared with RMB712,108 in the 6 months ended June 30, 2003 a result of the beta developmentphase that Weida  PRC wasimplementing with China Telecom. Utilization will consistently lag behindequipment purchases, as Weida  PRC’saccounts require an average of three to six months to integrate systems, testprotocols with internal software and run quality assurance programs.

 

With any start up, in order toobtain distribution an organization must prove they can deliver what theypromise. The satellite communications market is no exception to this rule. Weida  PRC needed to obtain acustomer base to prove that its technology and service were sound, worked andreliable. To entice customers to take a risk and work with a new provider, Weida  PRC needed to offer itscustomers equipment and service contracts at a highly competitive andrelatively low price point that would allow Weida  PRC to enter the market. These service offerings wererequired to allow Weida  PRCopportunities to prove its capability, but adversely affected revenues. Havingnow established itself as a viable supplier of equipment and a qualifiedservice provider, Weida  PRCintends to eliminate its current early stage pricing structure and move to itsoperating plan pricing, which calls for increases in product equipment pricingand utilization pricing with the goal of achieving gross margins above 50% onsales for 2005 for all new accounts and any existing accounts upon expirationof the related satellite bandwidth provision agreements, which typically have a2 to 3 year term.

 

In addition, costs of revenues in2002 were substantially higher as a result of expenditures required to increaseits bandwidth to meet anticipated customer needs. Costs of revenues continuedto increase dramatically in 2003 to RMB 10,847,406(US$1,308,903), compared with RMB 2,821,249 in 2002,reflecting an increase in salaried employees and an expansion of Weida  PRC’s facilities. Cost ofrevenue in the six months ended June 30, 2004 was RMB7,185,044 (US$868,155) compared with RMB 3,764,539 inthe six months ended June 30, 2003 because of an increase in the amount ofinfrastructure equipment deployed as well as an increase in the bandwidthneeded for increased capacity. Additionally Weida  PRCis currently using only 5% of its bandwidth capacity, which adversely affectscost of revenues. As Weida  PRCadds additional customers this cost as a percentage can be expected todecrease. In future periods depreciation expense will increase, reflecting theincrease in 2002 and 2003 in the capital expansion of the network and the assetlevels resulting from that expansion.

 

*Operating Expenses*

 

Weida PRC’s operatingexpenses increased from RMB 2,191,773 in the periodfrom April 2, 2001 (date of establishment) to December 31, 2001, to RMB 4,278,484 in the 12 months ended December 31, 2002, andto RMB 6,444,712 (US$777,653) in the 12 months endedDecember 31, 2003. Similarly, operating expenses for the six months ended June30, 2004 increased to RMB 3,346,054 (US$404,279),compared with RMB 2,888,621 for the six months endedJune 30, 2003.  These increases wererelated to increases in salaries associated with the addition of employees in Weida  PRC’s service departmentalong with additional employee and other costs relating to deployment and distribution.Weida  PRC also realizedincreases in marketing expense and rent with the addition of two networklocations. This trend is expected to continue during fiscal 2005, although itcan be expected to decrease as a percent of sales. WeidaPRC expects SG&Aexpenses to stabilize at lower levels (as a percentage of total revenue) by theend of fiscal year 2005. 

 

7

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| ** **          | ** ** | **January 1, 2004  to  June 30, 2004** | ** ** | **January 1, 2003  to  June 30, 2003  (Unaudited)** | ** ** |
|---------------------|------------|----------------------------------------|------------|-----------------------------------------------------|------------|
| ** **          | ** ** | **USD****(1)**                         | ** ** | **RMB**                                             | ** ** | **RMB** | ** ** |
|                |       |                                   |       |                                                |       |   |   |
| Operating  expenses |       | (404,279                               | )          | (3,346,054                                          | )          | (2,888,621 | ) |

 

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(1)          Convenience translation into United States dollars, based on an exchangerate of 8.2766 RMB to the dollar.

* *
| ** **          | ** ** | **January 1, 2003  to  December 31, 2003** | ** ** | **January 1, 2002  to  December 31, 2002** | ** ** | **April 2, 2001  to  December 31, 2001** | ** ** |
|---------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------|------------|
| ** **          | ** ** | **US$ (1)**                           | ** ** | **RMB**                                    | ** ** | **RMB**                                  | ** ** | **RMB** | ** ** |
|                |       |                                       |       |                                       |       |                                     |       |   |   |
| Operating  expenses |       | (777,653                                   | )          | (6,444,712                                 | )          | (4,278,484                               | )          | (2,191,773 | ) |

 

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(1)          Convenience translation into United States dollars, based on an exchangerate of 8.2874 RMB to the dollar.

 

*Liquidity and Capital Resources*

 

Weida PRC’s operations havebeen funded to date by both shareholder equity investment and shareholderloans, and bank loans. Weida  PRC’spaid in capital reflects the approximately RMB20 million direct investment by several founding shareholders in 2001.**** Inaddition, in 2001 Weida  PRCobtained a bank loan for RMB 25 million, whichwas used for working capital and capital expenditures. The loan was repaid inApril 2002.

 

Weida PRC’s cash positiondecreased by RMB 5.2 million during 2002 as aresult of equipment purchases and repayment of bank debt. In 2002, Weida  PRC obtained another bankloan for RMB 20 million, which was used forworking capital and capital expenditures. During the twelve months endedDecember 31, 2003 Weida  PRCincurred additional bank debt of RMB 40 million.These loans funded the repayment of RMB20 million of earlier bank debt and also funded working capital needed forWeida  PRC’s network andproduct inventory needs (RMB 13 million foradvances and RMB 5 million for inventory).

 

During the six months ended June30, 2004, Weida  PRC’s bankdebt declined from RMB 40 million to RMB 20 million as a result of meeting the repayment termsof the bank loan.  Obtaining additionalfunding from Chinese banks became difficult because of the loan restrictionsimposed upon these banks by the Chinese government. As a partial replacementfor these funds, Weida  PRCincreased its borrowings from its shareholders and their affiliates byapproximately RMB 9.8 million, and also obtainedadvances of RMB 3.6 million from SCL.Cash and cash-equivalents during this period declined from approximately RMB 2 million to less than RMB0.5 million. The working capital deficiency decreased slightly fromapproximately RMB 36.6 million at December 31, 2003to approximately RMB 36.0 million (US$(4.4 million))at June 30, 2004.

 

Weida PRC’s current cash andcash equivalents and credit facilities are not sufficient for it to sustainpresent operations beyond the second calendar quarter of 2005. Weida  PRC will need additionalfunding of at least US$35 million in 2005 to maintain and expand itsnetwork including the purchase of additional earth stations to meet the ChinaTelecom business requirements. Weida  PRC anticipates utilizing and relying in large part on theCompany’s potential access to both private equity and public equity markets toobtain the necessary funding to satisfy these requirements, although it and theCompany may seek such requirements other than through the Company. However,there is no assurance that such efforts will be successful in 

 

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whole or in part, and the audited consolidated financial statements of Weida  PRC therefore reflect thatthere is substantial doubt about its ability to continue as a going concern.

 

**Management Changes**

 

On June 9, 2004, Walter J. Hinchclifferesigned as a member of our board of directors. This decision was made mutually by Mr. Hinchcliffeand the board of directors based on differences regarding the future directionof the Company.

 

On June 10, 2004, the shareholders of the Companyapproved the election of Mitchell Sepaniak, Tilmon Holloway and Carl Lanziseraas the new board of directors of the Company following the share exchange.

 

On June 11, 2004, our board of directors approved theelection of Mitchell Sepaniak as President, ChiefExecutive Officer and Chairman of the Board of the Company; Joseph Zumwalt as Senior Vice President, Chief Financial Officerand Secretary of the Company; and Amanda Harmon as Vice President, Controllerand Treasurer of the Company. On June 24, 2004, our board of directors approvedthe election of Jack Chin as Vice President Business Development of theCompany. In July 2004, Ms. Harmon resigned from her positions as VicePresident, Controller and Treasurer of the Company, and terminated heremployment with the Company.

 

On August 9, 2004, our board of directors approved theelection of Joseph Theismann and ShitotomoYamauchi as additional members of the board of directors of the Company.

 

**Critical accounting policies**

 

The preparation of our consolidated financialstatements and related disclosures in conformity with generally acceptedaccounting principles in the United States requires management to makeestimates and judgments that affect our reported amounts of assets andliabilities, revenues and expenses and related disclosures of contingent assetsand liabilities. On an on-going basis, we evaluate our estimates andassumptions based upon experience and various other factors and circumstances.Management believes that our estimates and assumptions are reasonable under thecircumstances; however, actual results may vary from these estimates andassumptions under different future circumstances. We have identified thefollowing critical accounting policies that affect the more significantjudgments and estimates used in the preparation of the consolidated financialstatements of the Company.

 

*Accruals and Provisions for Loss Contingencies*

 

We make provisions for all loss contingencies wheninformation available to us prior to the issuance of the financial statementsindicates that it is probable that an asset had been impaired or a liabilityhad been incurred at the date of the consolidated financial statements and theamount of loss can be reasonably estimated.

 

For provisions or accruals related to litigations, wemake provisions based on information from legal counsel and the best estimationof management. As discussed in Note 8 to the consolidated financial statementsof the Company, we are involved in various legal proceedings and contingencies,and we have not yet recorded a liability in relation to an asserted claim by aformer employee of SCL. In accordance with Statementof Financial Accounting Standards (“SFAS”) No. 5Accounting for Contingencies, SFAS No. 5 requires aliability to be recorded based on our estimate of the probable costs of theresolution of the contingency. The actual resolution of this contingency maydiffer from our estimates. If the contingency were settled for an amountgreater than our estimate, a future charge to income would result. Likewise, ifthe contingency were settled for an amount that is less than our estimate, afuture credit to income would result.

 

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**Recently Issued Accounting Pronouncements**

 

In May 2003, the Financial Accounting Standards Board(“FASB”) issued SFAS No.150, Accounting for Certain Financial Instruments with Characteristics of BothLiabilities and Equity, which establishes standards for how an issuerclassifies and measures certain financial instruments with characteristics ofboth liabilities and equity.  SFAS No. 150 is effective for financial instruments enteredinto or modified after May 31, 2003 and otherwise is effective at the beginningof the first interim period beginning after June 15, 2003.  The adoption of SFASNo. 150 had no impact on the financial statements as the Company did not haveany financial instruments with characteristics of both liabilities and equityduring the period ended December 31, 2003.

 

In April 2003, the FASBissued SFAS No. 149, Amendment of Statement 133 onDerivative Instruments and Hedging Activities, which amends and clarifiesaccounting for derivative instruments and for hedging activities under SFAS No. 133. Specifically, SFASNo. 149 requires that contracts with comparable characteristics be accountedfor similarly. Additionally, SFAS No. 149 clarifiesthe circumstances in which a contract with an initial net investment meets thecharacteristics of a derivative and when a derivative contains a financingcomponent that requires special reporting in the statement of cash flows.  This Statement is generally effective forcontracts entered into or modified after June 30, 2003 and did not have asignificant impact on the Company’s financial position or results ofoperations.

 

In January 2003, the FASBissued Interpretation (“FIN”) No. 46, Consolidation of Variable InterestEntities (“FIN 46”) and, in December 2003, issued a revision to thatinterpretation (“FIN 46R”).  FIN 46Rreplaces FIN 46 and addresses consolidation by business enterprises of variableinterest entities that possess certain characteristics.  A variable interest entity (“VIE”) is definedas (a) an ownership, contractual or monetary interest in an entity where theability to influence financial decisions is not proportional to the investmentinterest, or (b) an entity lacking the invested capital sufficient to fundfuture activities without the support of a third party. FIN 46R establishesstandards for determining under what circumstances VIEsshould be consolidated with their primary beneficiary, including those to whichthe usual condition for consolidation does not apply.  The Company did not have any ownership in anyvariable interest entities as of June 30, 2004 or December 31, 2003.

 

**Contractual Obligations**

 

As of June 30, 2004, our future contractual cashobligations are as follows:

 
| **Contractual Obligations (1)** | ** ** | **Payments due by period** | ** ** |
|---------------------------------|------------|----------------------------|------------|
| ** **                      | ** ** | **Total**                  | ** ** | **2004** | ** ** | **2005 – 2006** | ** ** | **2007 – 2008** | ** ** | **2009 and  thereafter** | ** ** |
| Long-Term  Obligations (2)      |       | 270,000                    |       | 0 |   | 0 |   | 270,000 |   | 0 |   |
| **Total**                       |       | 270,000                    |       | 0 |   | 0 |   | 270,000 |   | 0 |   |

 

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(1)                   We do not haveany purchase obligations other than standard purchase orders in the ordinarycourse of business. We do not have any capital lease obligations or operatinglease obligations.

 

(2)                   Our long-termobligations are primarily comprised of a long-term loan from ashareholder.  The shareholder hasindicated that he will not seek repayment prior to July 2005.  Although there is no commitment that the loanwill be repaid in 2007-2008, our board of directors believes the loan will berepaid during such time period.

 

**Off-Balance Sheet Arrangements**

 

In connection with our acquisition of control of and a51% profit-sharing interest in Weida  PRC, we will be required to pay approximately $15.8 millionas follows:

 

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•                  $805,153 in cash to the Weida  PRC shareholders, which payment shall also be deemed to satisfyour obligation to contribute a capital contribution to the WeidaEJV (which payment has been deposited and is reservedfor payment); and

 

•                  $15,000,000, payable in cash to the formershareholders of OIHL.

 

These payments are required to be made only if the conditions to the formation of the Weida  EJV discussed elsewhere inthis report have been completed and the Weida  EJV has been formed and has a valid business licenseshowing SCL’s 25% equity ownership.

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the registrant has duly caused thisAmendment No. 1 to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
|                    | WEIDA COMMUNICATIONS, INC. |
|-------------------------|----------------------------|
|                    | (the Registrant)           |
|                    |                       |   |
|                    |                       |   |
|                    | By:                        | /s/ Mitchell Sepaniak |   |
|                    |                       | Mitchell Sepaniak,  President |
|                    |                       |   |
|                    |                       |   |
| Dated: October 27, 2004 |                       |   |

 

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Pursuant to the requirements of the Securities Act of1934, this Amendment No. 1 has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.

 
| **Signature**      | ** **         | **Title**                                    | ** ** | **Date**                               |
|--------------------|--------------------|----------------------------------------------|------------|----------------------------------------|
|               |               |                                         |       |                                   |
| /s/                | Mitchell Sepaniak  |                                         |       | President, Chief Executive Officer,    |   | October 27, 2004 |
| Mitchell Sepaniak  |               | Chairman of the Board and Director           |       |                                   |
|               |               | (Principal Executive Officer)                |       |                                   |
|               |               |                                         |       |                                   |
| /s/                | Joseph Zumwalt     |                                         |       | Senior Vice President, Chief Financial |   | October 27, 2004 |
| Joseph Zumwalt     |               | Officer and Secretary                        |       |                                   |
|               |               | (Principal Financial and Accounting Officer) |       |                                   |
|               |               |                                         |       |                                   |
| /s/                | Tilmon Holloway    |                                         |       | Director                               |   | October 27, 2004 |
| Tilmon Holloway    |               |                                         |       |                                   |
|               |               |                                         |       |                                   |
| /s/                | Carl Lanzisera     |                                         |       | Director                               |   | October 27, 2004 |
| Carl Lanzisera     |               |                                         |       |                                   |
|               |               |                                         |       |                                   |
| /s/                | Joseph Theismann   |                                         |       | Director                               |   | October 27, 2004 |
| Joseph Theismann   |               |                                         |       |                                   |
|               |               |                                         |       |                                   |
| /s/                | Shitotomo Yamauchi |                                         |       | Director                               |   | October 27, 2004 |
| Shitotomo Yamauchi |               |                                         |       |                                   |

 

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** **

**EXHIBITINDEX**

 
| 31.1   |   | Certification of principal executive officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                             |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                 |
| 31.2   |   | Certification of principal financial officer  pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                             |
|   |   |                                                                                                                                                 |
| 32.1   |   | Certification of Chief Executive Officer Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                                                 |
| 32.2   |   | Certification of Chief Financial Officer Pursuant to  18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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