**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q/A**

 

**AmendmentNo. 1**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For TheQuarterly Period Ended September 30, 2004**

 

**CommissionFile Number 1-10366**

 

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| **WEIDA COMMUNICATIONS, INC.**                                          |
|-------------------------------------------------------------------------|
| (Exact  Name of Registrant as Specified in Its Charter)                 |
| ** **                                                              | ** ** | ** ** |
| **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)              |

 

Indicate bycheck mark whether the registrant: (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes  ý   No  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule12b-2). Yes  o   No  ý

 

As of November 12,2004, the registrant had 74,195,497 shares of common stock outstanding.

 

 

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**EXPLANATORYNOTE**

 

Weida Communications, Inc. is filing thisQuarterly Report on Form 10-Q/A for the fiscal quarter ended September 30,2004 (A) because the original Quarterly Report on Form 10-Q filed on November 22,2004 (the “Original Report”) was not reviewed by an independent auditor priorto filing, and (B) to restate its condensed consolidated financial statementsfor the fiscal quarter ended September 30, 2004 to reflect certainadjustments, identified after the Original Report had been filed, as a resultof such review.

 

Included herein are restated unauditedcondensed consolidated balance sheets at September 30, 2004 and June 30,2004 and restated unaudited condensed consolidated statements of operations andstatements of cash flows for the three months ended September 30, 2004 and2003. These restated condensed consolidated financial statements (the “March 2005Restatement”) contain all adjustments necessary to present fairly theconsolidated financial position of Weida Communications, Inc. and its Subsidiaryat September 30, 2004 and June 30, 2004 and the results of itsconsolidated operations and consolidated cash flows for the three months ended September 30,2004 and 2003.

 

For more information on the effect of the March 2005Restatement for the period presented, see Note 10 to the condensed consolidatedfinancial statements of the Company. Changes also have been made to the following items in this QuarterlyReport on Form 10-Q/A as a result of the March 2005 Restatement:

 

•                  Item 1,Condensed Consolidated Financial Statements has been revised to reflect the March 2005Restatement;

•                  Item 2,Management’s Discussion and Analysis of Financial Condition and Results ofOperations has been revised to reflect the March 2005 Restatement; and

•                  Item 3,Quantitative and Qualitative Disclosure about Market Risk has been updated.

 

Except for the matters discussed in thisExplanatory Note and certain additional revisions to Management’s Discussionand Analysis of Financial Condition and Results of Operations, no attempt hasbeen made in this Quarterly Report on Form 10-Q/A to modify or updatedisclosures presented in the Original Report. This Quarterly Report on Form10-Q/A generally does not reflect events occurring after the Original Report ormodify or update those disclosures affected by subsequent events.

 

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**TABLE OFCONTENTS**

 
| **PART I—Financial  Information**                                                                                                     |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **ITEM  1—Condensed Consolidated Financial Statements**                                                                               |   |
| Condensed  Consolidated Balance Sheets—September 30, 2004 (as restated) and June 30,  2004                                  |   |
| Condensed  Consolidated Statement of Operations—Three months ended September 30,  2004 (as restated) and September 30, 2003 |   |
| Condensed  Consolidated Statement of Cash Flows—Three months ended September 30,  2004 (as restated) and September 30, 2003 |   |
| Notes  to Condensed Consolidated Financial Statements                                                                                      |   |
| **ITEM  2—Management’s Discussion and Analysis of Financial Condition and Results of  Operations**                               |   |
| **ITEM  3—Quantitative and Qualitative Disclosures about Market Risk**                                                                |   |
| **ITEM 4—Controls and  Procedures**                                                                                                   |   |
| **PART II—Other Information**                                                                                                         |   |
| **ITEM 1—Legal Proceedings**                                                                                                          |   |
| **ITEM  2—Unregistered Sales of Equity Securities and Use of Proceeds**                                                               |   |
| **ITEM 3—Defaults  upon Senior Securities**                                                                                           |   |
| **ITEM  4—Submission of Matters to a Vote of Security Holders**                                                                       |   |
| **ITEM 5—Other Information**                                                                                                          |   |
| **ITEM 6—Exhibits**                                                                                                                   |   |
| **SIGNATURES**                                                                                                                             |   |

 

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**PARTI—FINANCIAL INFORMATION**

 

**ITEM 1—Condensed Consolidated Financial Statements**

 

**Weida Communications, Inc. and Subsidiary**

**Condensed Consolidated Balance Sheets**

AtSeptember 30, 2004 and June 30, 2004

 
| ** **                                                                                                                                                     | ** ** | **September 30  2004**  | ** ** | **June 30  2004** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                     | ** ** | **(Unaudited)  As restated** | ** ** | ** **             | ** ** |
| **ASSETS**                                                                                                                                                     |       |                         |       |                   |       |
| Current  Assets:                                                                                                                                               |       |                         |       |                   |       |
| Cash                                                                                                                                                           |       | $                            | 412,390    |                   | $          | 1,617,845 |   |
| Accounts  receivable, net                                                                                                                                      |       | 108,693                      |       | —                 |       |
| Interest  receivable                                                                                                                                           |       | 114,987                      |       | 80,968                 |       |
| Related  party receivable                                                                                                                                      |       | 0                            |       | 438,640                |       |
| Inventories                                                                                                                                                    |       | 1,618,732                    |       | —                 |       |
| Prepaid  expenses – current                                                                                                                               |       | 415,958                      |       | 173,750                |       |
| Total  Current Assets                                                                                                                                          |       | 2,670,760                    |       | 2,311,203              |       |
| Property,  Plant, & Equipment:                                                                                                                             |       | 2,404,586                    |       | 18,121                 |       |
| Other  Assets:                                                                                                                                                 |       |                         |       |                   |       |
| Notes  receivable                                                                                                                                              |       | 2,200,000                    |       | 2,200,000              |       |
| Goodwill                                                                                                                                                       |       | 8,623,544                    |       | 0                      |       |
| Deferred  acquisition costs                                                                                                                                    |       | 0                            |       | 5,704,004              |       |
| Prepaid  expenses – non-current portion                                                                                                                   |       | 30,625                       |       | 62,500                 |       |
| Other assets                                                                                                                                                   |       | 3,880                        |       | 3,880                  |       |
| Total Other  Assets                                                                                                                                            |       | 10,858,049                   |       | 7,970,384              |       |
| Total Assets                                                                                                                                                   |       | $                            | 15,933,395 |                   | $          | 10,299,708 |   |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                 |       |                         |       |                   |       |
| Current  Liabilities:                                                                                                                                          |       |                         |       |                   |       |
| Accounts  payable                                                                                                                                              |       | $                            | 2,286,378  |                   | $          | 1,360,703 |   |
| Accrued  expenses                                                                                                                                              |       | 164,445                      |       | 158,100                |       |
| Deferred  revenue                                                                                                                                              |       | 70,657                       |       | —                 |       |
| Amounts due  to shareholders                                                                                                                                   |       | 238,840                      |       | —                 |       |
| Amounts due  to related parties                                                                                                                                |       | 2,132,354                    |       | 756,386                |       |
| Short term  borrowing                                                                                                                                          |       | 24,165                       |       | —                 |       |
| Bank loan                                                                                                                                                      |       | 2,416,451                    |       | —                 |       |
| Total  Current Liabilities                                                                                                                                     |       | 7,333,290                    |       | 2,275,189              |       |
| Long term  loan                                                                                                                                                |       | 270,000                      |       | 270,000                |       |
| Total  Liabilities                                                                                                                                             |       | 7,603,290                    |       | 2,545,189              |       |
| Common  stock, $0 par value, 100,000,000 shares authorized, 72,334,486 issued and  outstanding at June 30, 2004 and September 30, 2004, respectively |       | 9,471,459                    |       | 9,408,958              |       |
| Common stock  to be issued                                                                                                                                     |       | 5,243,653                    |       | 1,375,955              |       |
| Accumulated  deficit                                                                                                                                           |       | (6,385,007                   | )          | (3,030,394             | )          |
| Total shareholders’  equity                                                                                                                               |       | 8,330,105                    |       | 7,754,519              |       |
| Total  Liabilities and Shareholders’ Equity                                                                                                               |       | $                            | 15,933,395 |                   | $          | 10,299,708 |   |

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

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**Weida Communications, Inc. and Subsidiary**

 

**Condensed Consolidated Statement of Operations**

 

ForThe Three Months Ended September 30, 2004 and September 30, 2003

 
| ** **                                   | ** ** | **September 30  2004**  | ** ** | **September 30  2003** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **(Unaudited)  As restated** | ** ** | **(Unaudited)**             | ** ** |
| Revenue                                      |       |                         |       |                        |       |
| Sales of  VSAT equipment                     |       | $                            | 19,910     |                        | $          | — |   |
| Transponder  utilization revenue             |       | 607                          |       | —                      |       |
|                                         |       | 20,517                       |       | —                      |       |
| Costs and  expenses                          |       |                         |       |                        |       |
| Cost of  goods sold                          |       | (121,468                     | )          | —                      |       |
| Selling,  general, and administrative costs  |       | (3,275,548                   | )          | (53,909                     | )          |
|                                         |       | (3,397,016                   | )          | (53,909                     | )          |
| Operating  loss                              |       | (3,376,499                   | )          | (53,909                     | )          |
| Other income  (expenses)                     |       |                         |       |                        |       |
| Interest  Expense                            |       | (12,156                      | )          | —                      |       |
| Interest  Income                             |       | 34,042                       |       | 12,763                      |       |
|                                         |       | 21,886                       |       | 12,763                      |       |
| Net loss  before provision for income taxes  |       | (3,354,613                   | )          | (41,146                     | )          |
| Provision  for income taxes                  |       | —                       |       | —                      |       |
| Net loss and  comprehensive loss             |       | $                            | (3,354,613 | )                           | $          | (41,146 | ) |
| Basic and  diluted net loss per common share |       | $                            | (0.05      | )                           | $          | (0.00 | ) |
| Weighted  average shares outstanding         |       | 72,334,486                   |       | 68,962,975                  |       |

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

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**Weida Communications, Inc. and Subsidiary**

 

**Condensed Consolidated Statement of Cash Flows**

 

ForThe Three Months Ended September 30, 2004 and September 30, 2003

 
| ** **                                                                                 | ** ** | **September 30  2004**  | ** ** | **September 30  2003** | ** ** |
|--------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                 | ** ** | **(Unaudited)  As restated** | ** ** | **(Unaudited)**             | ** ** |
| Cash flows  from operating activities                                                      |       |                         |       |                        |       |
| Net loss                                                                                   |       | $                            | (3,354,613 | )                           | $          | (41,146 | ) |
| Adjustments  to reconcile net loss to net cash (used in) provided by operating activities: |       |                         |       |                        |       |
| Depreciation expense                                                                       |       | 15,037                       |       | —                      |       |
| Non-cash compensation                                                                      |       | 1,276,481                    |       | —                      |       |
| (Increase)  Decrease in operating assets, net of the effect of acquisition subsidiaries:   |       |                         |       |                        |       |
| Accounts  receivable, net                                                                  |       | (95,615                      | )          | —                      |       |
| Interest  receivable                                                                       |       | (34,019                      | )          | (12,763                     | )          |
| Inventories                                                                                |       | (896,781                     | )          | —                      |       |
| Prepaid  expenses                                                                          |       | 26,608                       |       | —                      |       |
| Related party receivables                                                                  |       | (400,000                     | )          |                        |       |
|                                                                                       |       |                         |       |                        |       |
| Accounts  payable                                                                          |       | 12,467                       |       | 450,000                     |       |
| Related party payables                                                                     |       | 121,204                      |       |                        |       |
| Accrued  expenses                                                                          |       | 110,595                      |       | —                      |       |
| Net cash  (used in) provided by operating activities                                       |       | (3,218,636                   | )          | 396,091                     |       |
| Cash flows  from investing activities                                                      |       |                         |       |                        |       |
| Acquisition of subsidiary                                                                  |       | 37,368                       |       |                        |       |
| Deferred acquisition cost                                                                  |       | (65,844                      | )          | (1,124,155                  | )          |
| Additions to  property, plant, and equipment                                               |       | (496,487                     | )          | —                      |       |
| Net cash  used in investing activities                                                     |       | (524,963                     | )          | (1,124,155                  | )          |
| Cash flows  from financing activities                                                      |       |                         |       |                        |       |
| Stock sales                                                                                |       | 2,536,234                    |       | —                      |       |
| Amounts due  to shareholders                                                               |       | 1,910                        |       | —                      |       |
| Shareholders’  contribution                                                           |       | —                       |       | 38,434                      |       |
| Sales of  Founders Shares                                                                  |       | —                       |       | 689,630                     |       |
| Cash  provided by financing activities                                                     |       | 2,538,144                    |       | 728,064                     |       |
| Net decrease  in cash                                                                      |       | (1,205,455                   | )          | —                      |       |
| Cash -  beginning of period                                                                |       | 1,617,845                    |       | —                      |       |
| Cash - end  of period                                                                      |       | $                            | 412,390    |                        | $          | — |   |

 

See accompanying notes tounaudited condensed consolidated financial statements.

 

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**WEIDACOMMUNICATIONS, INC. AND SUBSIDIARY**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**FOR THETHREE MONTHS ENDED SEPTEMBER 30, 2004 (UNAUDITED)**

 

**1. ORGANIZATION AND NATURE OF THEBUSINESS**

 

Weida Communications, Inc (“Weida” or the “Company”) providesproducts and services for satellite-based communications networks in the People’sRepublic of China (“PRC” or “China”) through a series of contractualarrangements which give it control of and a 51% profit-sharing interest inGuangzhou Weida Communications Technology Co., Ltd. (a/k/a WeidaCommunications Technology Company Limited), a communications service companyorganized under the laws of the PRC and wholly-owned by PRC citizens (“WeidaPRC”). The Company conducts its business in China solely through certaincontractual arrangements among its affiliates, Weida PRC and the shareholdersof Weida PRC. Although the Company does not have an equity interest in WeidaPRC, it controls and enjoys the economic benefits of Weida PRC through suchcontractual arrangements.

 

Weida PRC is a wholly privately owned companyestablished in 2001 in response to the Chinese government allowing anindividual company to obtain a 100% private, non-governmental and non-military,VSAT satellite license. VSAT (Very Small Aperture Terminal) is a relativelysmall satellite antenna used by corporations and governments for satellitebased point-to-multipoint data communications, such as financial transactions,Internet services, multimedia and television. VSAT offers a number ofadvantages over terrestrial alternatives for businesses and homes.

 

The scope of the license permits the offer and saleof a variety of broadband satellite communications services, including audioand video services, Internet connectivity, multimedia services, HDTV, and VoiceOver IP. The license granted provides Weida PRC the opportunity to develop anddeliver such satellite communications in China. Weida PRC is licensed toprovide services in the rapidly growing Voice Over IP telephone service market,and to provide such services as a phone operator.

 

The Company’s wholly-owned subsidiary, SCLVentures, Ltd., a company organized under the laws of the British VirginIslands (“SCL”), was formed in May 2003 for the purpose of engaging in thetelecommunications business in China and entered into a master agreement withWeida PRC which was ratified and approved by the board of directors of SCL inMay 2003.

 

As described in the Company’s Annual Report on Form10-K for the fiscal year ended June 30, 2004, SCL entered into a series ofcontractual arrangements subsequent to June 30, 2004, resulting in itobtaining control of, and a 51% profit-sharing interest in, Weida PRC since August 27,2004. In particular, SCL entered into a trust agreement (the “Trust Agreement”)with Weida PRC and the existing shareholders of Weida PRC (the “ExistingShareholders”) and pursuant to which, the Existing Shareholders hold 51% of theshares of Weida PRC in trust for the benefit of SCL. Also, as part of theconsideration for the acquisition of the equity interest in Weida PRC, theCompany is to issue 16,296,296 shares to the Existing Shareholders and to pay$15,805,135 to the Existing Shareholders. However, the issuance of the shareswill not be due until certain conditions have been met, and the payment of cashwill not be due until certain other conditions have been met. As of September 30,2004, these conditions had not been met and as a result, such share and cashconsiderations have not been accrued and have not been included in thecalculation of goodwill in the accompanying condensed consolidated financialstatements.

 

**2.**** ****SUMMARY OF SIGNIFICANTACCOUNTING POLICIES**

 

***Basis ofaccounting*** - Theunaudited condensed consolidated financial statements for the three monthsended September 30, 2004 have been prepared on a going concern basis,which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business. As shown in the condensed consolidated financial statements, during theperiod ended September 30, 2004, the Company incurred net losses of $3,354,613and, as of that date, the Company’s current liabilities exceeded its currentassets by $4,662,530.  These factorsamong others may indicate that the Company will be unable to continue as agoing concern for a reasonable period of time.

 

The condensed consolidated financial statements donot include any adjustments relating to the recoverability and classificationof recorded asset amounts or the amounts and classification of liabilities thatmight be necessary should the Company be unable to continue as a goingconcern.  The Company’s continuation as agoing concern is dependent upon its ability to generate sufficient cash flow tomeet its obligations on a timely basis, to comply with the terms and covenantsof its financing agreements, to obtain additional financing or refinancing asmay be required, and ultimately to attain successful operations.  Management is continuing its efforts toobtain additional funds so that the Company can meet its obligations andsustain operations from sources such as the credit facility available to theCompany (see Note 8 to the condensed consolidated financial statements).

 

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***Principle ofconsolidation*** -The condensed consolidated financial statements include the financialstatements of the Company and its subsidiaries. The Company consolidatescompanies in which it has a controlling interest of over 50%. All significantintercompany accounts, transactions and cash flows have been eliminated onconsolidation.

 

***Use of estimates*** - The preparation of financial statementsrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reported period.  Actual results coulddiffer from those estimates.

 

The accompanying unaudited condensed consolidatedfinancial statements have been prepared in accordance with accountingprinciples generally accepted in the United States of America. They do notinclude all information and notes required by generally accepted accountingprinciples for complete consolidated financial statements.  In the opinionof management, all adjustments (consisting of normal recurring accruals only)considered necessary for a fair presentation have been included.  The results for the three months ended September 30,2004 are not necessarily indicative of results for a full year. The informationincluded in this Quarterly Report on Form 10-Q/A should be read in conjunctionwith Management’s Discussion and Analysis and the condensed consolidatedfinancial statements and notes thereto included in the Annual Report on Form10-K of the Company for the fiscal year ended June 30, 2004.

 

***Property, plantand equipment*** -These are recorded at cost less accumulated depreciation.  Depreciation isprovided on a straight-line basis over the estimated useful lives of theassets.  Estimated useful lives of property, plant and equipment are asfollows:

 
| VSAT and  other equipment |   | 5 years |   |
|---------------------------|--------|---------|--------|
| Office  equipment         |   | 5 years |   |
| Computers                 |   | 3 years |   |
| Motor  vehicles           |   | 5 years |   |

 

Major improvements of property, plant and equipmentare capitalized, while expenditures for repairs, maintenance and minor renewalsand betterments are expensed.

 

***Inventories*** - Inventories, which primarily consist ofVSAT equipment, are stated at the lower of cost market value.  Cost isdetermined by the first-in, first-out method.

 

***Long-lived assets*** - The Company evaluates its long-lived assetsfor impairment whenever events or changes in circumstances indicate that thecarrying amount of such assets may not be recoverable.  Recoverability ofassets to be held and used is measured by a comparison of the carrying amountof the assets to future undiscounted net cash flows expected to be generated bythe assets.  If the carrying amounts of long-lived assets are notrecoverable, impairment is recognized for the amount by which the carryingamounts of the assets exceed their fair values.  No impairment loss wasrecorded for the period presented.

 

***Income taxes*** - Deferred tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe carrying amounts of existing assets and liabilities and their respectivetax bases as well as operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax ratesexpected to apply to taxable income in the years in which those temporarydifferences are expected to be recovered or settled.  The effect ondeferred tax assets and liabilities of a change in tax rates is recognized inincome in the period that includes the enactment date.  Valuationallowances are established when it is more likely than not that some or all ofthe deferred tax assets will not be realized.

 

***Revenuerecognition*** -Revenue from the satellite bandwidth provision agreement is recognized on astraight-line basis over the period of the agreements.  The excess ofamounts received or receivable from customers over the revenue recognized isincluded in deferred revenue account.

 

Sales of VSAT equipment are recorded when theequipment is delivered, title has passed to the customers and the Company hasno further obligations to provide services related to the operation of suchequipment.

 

***Foreign currencytranslation*** – Alltransactions in currencies other than functional currencies during the periodare translated at the exchange rate prevailing on the respective transactions.Monetary assets and liabilities existing at the balance sheet date denominatedin currencies other than functional currencies are translated at the exchangerates existing on that date. Exchange differences are recorded in the condensedconsolidated statement of operations. The Company and its subsidiaries haveadopted the United States dollar (“USD”) and the Renminbi (“RMB”) as theirfunctional currencies, respectively. The financial statements of allsubsidiaries with functional currencies other than USD are translated inaccordance with Statement of Financial Accounting Standard (“SFAS”) No. 52, “ForeignCurrency Translation”. All assets and liabilities are translated at the ratesof exchange ruling at the balance sheet date

 

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and all income and expenses are translated at theaverage rates of exchange over the period. All exchange differences arisingfrom the translation of subsidiaries’ financial statements are recorded as acomponent of comprehensive income.

 

***Goodwill*** – The excess of the purchase price over thefair value of net assets acquired is recorded on the condensed consolidatedbalance sheet as goodwill. Goodwill will not be amortized but will be testedfor impairment at the reporting unit level on at least an annual basis. Theevaluation of goodwill for impairment involves two steps: (1) theidentification of potential impairment by comparing the fair value of areporting unit with its carrying amount, including goodwill and (2) themeasurement of the amount of goodwill loss by comparing the implied fair valueof the reporting unit goodwill with the carrying amount of that goodwill andrecognizing a loss by the excess of the latter over the former. For futureimpairment tests, the Company will measure fair value based either on internalmodels or independent valuations. As of September 30, 2004, the goodwillof $8,506,060 is subject to change pending a final analysis of the fair valuesof the assets acquired and liabilities assumed by the Company. Some of thegoodwill amount will be allocated to licenses with definite or indefinitelives. The impact of any such changes on future results of operations andreported assets and liabilities could be material.

 

***Fair value offinancial instruments*** - The carrying amounts of cash, amounts due to other related parties,short term borrowing and bank loan approximate their fair values due to theshort-term maturity of these instruments.

 

***Recently issuedaccounting pronouncements*** - In November 2004, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standard (“SFAS”) No. 151, “InventoryCosts - an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies theaccounting that requires abnormal amounts of idle facility expenses, freight,handling costs, and spoilage costs to be recognized as current-period charges.It also requires that allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities. SFASNo. 151 will be effective for inventory costs incurred on or after July 1,2005. The Company is currently evaluating the impact of this standard on itsconsolidated financial statements.

 

**3.****  ****NOTE RECEIVABLE FROM RELATEDPARTY**

 

On August 1, 2003, SCL signed a promissory notereceivable with Glendora, Ltd. (“Glendora”), a British Virgin Islandscorporation, in the amount of $2.2 million. Glendora has certainshareholders that are also shareholders of SCL and the Company. Borrowingsunder the note receivable bear interest at the London Interbank Offered Rateplus 200 basis points (effective rate of 4.17% at September 30, 2004),with interest and principal due five years from the date of the note. Glendorahas granted a general security interest in and to all of its tangible andintangible property and assets of any kind as collateral for the notereceivable. The carrying amount of this note receivable approximates its fairvalue.

 

Additionally, SCL and Glendora signed an assignmentagreement whereby SCL has granted Glendora the rights to enter into atransaction with Guangzhou Suntek New Tech R&D Co., Ltd. (“Suntek”)which was previously held by SCL. Management of the Company has not assignedany value to the assignment agreement as the assignment agreement assigns theright to pursue a purchase agreement with Suntek and not a negotiated purchaseagreement and, therefore, does not have any measurable value.

 

**4.****    ****INCOME TAXES**

 

The Company is located in a jurisdiction where it hasno actual operations and such jurisdiction does not impose income taxes. Assuch, no provision for income taxes for the Company has been provided.

 

The income tax rate applicable to enterprises in thePeople’s Republic of China (the “PRC”) is generally 33%. However, preferentialtax treatment of a wholly owned subsidiary of the Company in the PRC has beenagreed with the relevant tax authorities. The subsidiary is entitled to a oneyear exemption from income tax commencing 2003.

 

**5.****  ****NET LOSS PER SHARE**

 

Basic and diluted net loss per share is computed bydividing the net loss for the period by the weighted average number of sharesof common stock outstanding during the period. For periods in which a net losshas been incurred, the calculation of diluted net loss per share excludespotential common stock equivalents, as their effect is anti-dilutive. Potentialcommon stock includes incremental shares of common stock issuable upon theexercise of 2,370,048 outstanding stock warrants as of September 30, 2004.

 

**6.****   BANK LOAN**

 

The bank loan outstanding as of September 30,2004 of $2,416,451 bears interest at 5.84% per annum and is due on May 13,2005.  The loan is guaranteed by relatedparties.

 

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**7. ****COMMITMENTS AND CONTINGENCIES**

 

(i)  An employee of SCL has asserted claims forunpaid salary in the amount of $0.5 million and 3.3 million shares ofWeida’s common stock based on an asserted employment agreement between him andSCL, and has indicated through his counsel that if terminated he will alsoassert a claim for severance in the additional amount of $0.75 million.The Company’s management believes the Company has meritorious defenses to theclaims, including that the employee in question did not perform the servicescontemplated by the alleged agreement. A portion of the employee’s allegedunpaid salary had been and continues to be included in the Company’s condensedconsolidated financial statements as accounts payable.

 

SCL has commenced legal proceedings against theemployee for breach of contract and declaratory relief and has given him noticeof termination of employment. The employee has moved to compel arbitration ofthe matter.  The employee’s motion hasbeen granted, but no decision has been made as to whether to appeal thatdecision.  Arbitration proceedings withrespect to the employee’s claims are probable. There can be no assurance as tothe outcome of the current litigation or any arbitration proceedings.  Any adverse decision in such proceedingscould adversely affect the financial condition of the Company.

 

(ii)  A shareholder and former chief financialofficer of Teleflex Technologies, Inc. (“Teleflex”), a currently inactiveprivately-held company which had attempted to pursue joint ventureopportunities in the PRC in late 2001 and in 2002, and of which MitchellSepaniak, the president, chief executive officer and a shareholder of theCompany, was also a chief executive officer, commencing early 2003, hasrecently asserted claims in New York State court against SCL, Teleflex andMr. Sepaniak. The plaintiff’s petition alleges failure on the part ofMr. Sepaniak and Teleflex to comply with corporate formalities such asholding annual meetings and also alleges corporate waste, and is seekingvarious relief, including allowing shareholders to inspect the books andrecords, including balance sheets and profit and loss earnings statements. Theformer chief financial officer has also asserted claims against SCL, Teleflexand Mr. Sepaniak for unpaid salary and compensation.

 

Litigation proceedings with respect to the plaintiff’sclaims have commenced. The proceedings are at an early stage, and thereforethere can be no assurance as to the outcome of such proceedings. Any adversedecision in such proceedings could adversely affect the financial condition ofthe Company.

 

(iii)  The Company is also subject to variouslegal proceedings and claims that arise in the ordinary course of business. Inthe opinion of management, the amount of any ultimate liability with respect tothese actions will not materially affect the Company’s financial position,liquidity, or results of operations.

 

**8.****  ****RELATED PARTY TRANSACTIONS**

 

(i) On December 3, 2003, the Companyentered into a consulting agreement with Carl Lanzisera, the former presidentand current member of the Company’s board of directors. The agreement providesfor Mr. Lanzisera to assist the Company in structuring, operating andgrowing the Company’s business. The agreement is for a term ending on December 31,2004 and provides for cash payments aggregating $100,000 and the issuance of25,000 restricted shares of the Company’s common stock. The shares were issuedin June 2004 at the market value of $5.5 per share. The total considerationunder the agreement amounted to $237,500.

 

(ii) SCL has entered into a consulting agreementwith Anthony Giordano, a beneficial holder of the Company’s common stock,effective as of April 1, 2004. The agreement provides forMr. Giordano to assist SCL as a consultant by evaluating prospectivemerger, acquisition and financing transactions that are presented to SCL or theCompany. The agreement is for a term ending on March 30, 2006, withsubsequent one-year extensions unless otherwise terminated. The agreementprovides for a one-time initial consulting fee equal to $150,000, which waspaid to Mr. Giordano in April 2004. In addition, during the term ofthe agreement, commencing April 2004, Mr. Giordano will receive amonthly consulting fee, in arrears, in an amount equal to $20,000 plusreimbursement of expenses.

 

(iii) Certain shareholders contributed capitalto fund the Company’s operations through to December 31, 2003. In 2004, afounding shareholder of the Company contributed $600,000 capital and loaned$270,000 to the Company to fund its operations. The shareholder has indicatedit will not demand the repayment of $270,000 prior to July 2006.

 

In addition, on September 3, 2004,Mr. Giordano, together with one of Mr. Giordano’s family limited partnerships,has granted a credit facility amounting to $5 million to fund the Company’sfuture operations. This credit facility is unsecured, bears interest equal tothe London Interbank Offered Rate plus 200 basis points, has no equitycomponent, and terminates on October 31, 2005.

 

7

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**9.****   ****RECENT ACQUISITIONS**

 

 In August 2004, SCL completed a series ofcontractual arrangements. As part of the contractual arrangements, SCL acquired99.99% of the registered capital of Ocean International Holdings Limited (“OIHL”),a company incorporated in Hong Kong. The remaining 0.01% of the registeredcapital of OIHL is held by one of the Company’s executives as a nominal holderin order to meet local Hong Kong legal requirements. OIHL is the sole owner andholder of all the registered capital of Ocean Tian Di Communication TechnologyCo., Ltd. (Guangzhou), a wholly owned foreign enterprise (“OTDC”). OTDChas entered into an exclusive service and support agreement with Weida PRC,effective as of September 1, 2004, which provides for OTDC to providesupport services to Weida PRC in exchange for receiving service fees.

 

 Pursuant to the terms of the contractualarrangements, SCL has acquired effective majority ownership and control ofWeida PRC through trust agreements for 51% of its shares and an effective 51%profit-sharing interest in Weida PRC. Under the contractual arrangements, SCLcan designate three of Weida PRC’s five directors.

 

As part of the contractual arrangements, when theconversion of Weida PRC into a Sino-foreign Equity Joint Venture (the “WeidaEJV”) is approved by the PRC authorities, SCL’s profit-sharing interest will bereduced to 26% so as to maintain its effective 51% majority interest.

 

**10. RESTATEMENT**

 

Subsequent to the filing on November 22, 2004 ofthe Company’s unaudited condensed consolidated financial statements containedin the Quarterly Report on Form 10-Q for the three months ended September 30,2004 with the Securities and Exchange Commission (the “Original Report”), theCompany determined that such unaudited condensed consolidation financialstatements did not properly consolidate the Company’s acquisitions as disclosedin Note 9. Accordingly, the Original Report has been restated to correct theseerrors.

 

Below is a comparison of restated summarizedquarterly financial data and summarized quarterly financial data as previouslyreported.

 
| ** **                                           | ** ** | **September 30  2004** | ** ** | **September 30  2004** | ** ** |
|------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                           | ** ** | **(Unaudited)**             | ** ** | **(Unaudited)**             | ** ** |
| ** **                                           | ** ** | **As restated**             | ** ** | **As reported**             | ** ** |
| Related party  receivable                            |       | $                           | 0          |                        | $          | 1,340,488 |   |
| Inventories                                          |       |                        | 1,618,732  |                        |       | 774,732 |   |
| Property,  plant, & equipment                    |       | 2,404,586                   |       | 1,908,098                   |       |
| Goodwill                                             |       | 8,623,544                   |       | 0                           |       |
| Deferred  acquisition costs                          |       | 0                           |       | 6,212,254                   |       |
| Prepaid  expenses – non-current portion         |       | 30,625                      |       | 50,000                      |       |
| Accounts  payable                                    |       | 2,286,378                   |       | 2,295,179                   |       |
| Accrued  expenses                                    |       | 164,445                     |       | 235,102                     |       |
| Deferred  revenue                                    |       | 70,657                      |       | 0                           |       |
| Common stock                                         |       | 9,471,459                   |       | 723,095                     |       |
| Common stock  to be issued                           |       | 5,243,653                   |       | 1,375,955                   |       |
| Additional  paid-in capital                          |       | 0                           |       | 13,638,548                  |       |
| Accumulated  deficit                                 |       | (6,385,007                  | )          | (9,080,209                  | )          |
| Total  shareholders’ equity                     |       | 8,330,105                   |       | 5,929,389                   |       |
|                                                 |       |                        |       |                        |       |
| Revenue                                              |       |                        |       |                        |       |
| Transponder  utilization revenue                     |       | $                           | 607        |                        | $          | 109,542 |   |
| Costs and  expenses                                  |       |                        |       |                        |       |
| Cost of  goods sold                                  |       | (121,468                    | )          | (127,459                    | )          |
| Selling,  general, and administrative costs          |       | (3,275,548                  | )          | 1,715,678                   |       |
| Operating  loss                                      |       | (3,376,499                  | )          | (1,458,767                  | )          |
| Interest  expense                                    |       | (12,156                     | )          | (15,776                     | )          |
| Interest  income                                     |       | 34,042                      |       | 45                          |       |
| Net loss and  comprehensive loss                     |       | (3,354,613                  | )          | (1,474,498                  | )          |
| Basic and  diluted net loss per common share         |       | $                           | (0.05      | )                           | $          | (0.02 | ) |
| Weighted  average shares outstanding                 |       | 72,334,486                  |       | 72,334,486                  |       |
|                                                 |       |                        |       |                        |       |
| Net cash  used in operating activities               |       | $                           | (3,218,636 | )                           | $          | (2,219,772 | ) |
|                                                 |       |                        |       |                        |       |
| Net cash  (used in) provided by investing activities |       | (524,963                    | )          | 57,638                      |       |
|                                                 |       |                        |       |                        |       |
| Net cash  provided by financing activities           |       | 2,538,144                   |       | 984,132                     |       |

 

8

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**ITEM 2—Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

*The following discussion andanalysis of our financial condition and results of operations should be read inconjunction with our condensed consolidated financial statements and notesthereto included elsewhere in this report. In addition to historicalinformation contained herein, this discussion and analysis containsforward-looking statements. These statements involve risks and uncertaintiesand can be identified by the use of forward-looking terminology such as “estimates,”“projects,” “anticipates,” “plans,” “future,” “may,” “should,” “predicts,” “potential,”“continue,” “expects,” “intends,” “believes,” and similar expressions. These statements are based on the current expectations of the managementof the Company only, and are subject to a number of risk factors anduncertainties, including but not limited to the need for equity financing inorder to consummate the acquisition of a legal ownership interest in Weida PRC,limited operating history, the Company’s historical and likely future losses,uncertain regulatory landscape in the People’s Republic of China, fluctuationsin quarterly operating results, the Company’s reliance on the provision ofVSAT-based communications services for the majority of its revenues, changes intechnology and market requirements, decline in demand for the Company’sproducts, inability to timely develop and introduce new technologies, productsand applications, difficulties or delays in absorbing and integrating acquiredoperations, products, technologies and personnel, loss of market share, andpressure on pricing resulting from competition, which could cause the actualresults or performance of the Company to differ materially from those describedtherein. We undertake no obligation to update these forward- lookingstatements. For a more detailed description of the risk factors anduncertainties affecting the Company, refer to the Company’s reports filed fromtime to time with the Securities and Exchange Commission, including theinformation about risk factors provided in Item 1, “Business,” in the Company’sAnnual Report on Form 10-K for the fiscal year ended June 30, 2004.*

 

**Restatement**

 

Subsequent to the filing on November 22, 2004 ofour original Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,2004 with the Securities and Exchange Commission (the “Original Report”), itwas determined that the Original Report should have been reviewed by anindependent auditor prior to filing. Such review was subsequently completedafter the Original Report had been filed. In the ordinary course of suchreview, certain adjustments were identified. Therefore, management of theCompany determined that it would restate its unaudited condensed consolidatedbalance sheet at September 30, 2004 and its unaudited condensedconsolidated statements of operations and statements of cash flows for thethree months ended September 30, 2004. The following management’sdiscussion and analysis of financial condition and results of operations takesinto account the effects of the restatement.

 

**Overview**

 

We are a company organized under the laws of, andwith our executive offices in, the United States, and managed by United Statescitizens and residents, that is participating in the fast-growing Chinatelecommunications market through control of and a 51% profit-sharing interest,and our planned 51% combined equity ownership and profit-sharing interest, inthe only wholly privately-owned company in China****holding licenses for bi-directional VSAT communications (theonly other privately-owned company recently holding a license was merged into ajoint government venture in January 2004). Weida PRC’s satelliteoperations in China provide ground-based equipment and related services tosupport government and corporate applications, including broadband Internetaccess, remote meter monitoring, and mission-critical data backupsystems.  On May 20, 2003, we and three shareholders owning anaggregate of approximately 67% of our outstanding common stock (prior to givingeffect to a one-for-four reverse stock split that took effect on June 11,2004) entered into a share exchange agreement with SCL and certain of itsshareholders. Upon satisfaction of the terms and conditions of the shareexchange agreement, as amended, the closing of the share exchange wasconsummated on June 11, 2004, at which time SCL became our wholly-ownedsubsidiary and the shareholders of SCL were issued shares representingapproximately 96.5% of our outstanding shares. The share exchange with SCL hasbeen accounted for similar to a reverse acquisition in which SCL is theacquirer for accounting purposes. Upon completion of the share exchange, wechanged our name from Laser Recording Systems, Inc. to WeidaCommunications, Inc.

 

Our principal executive offices are located at 515East Las Olas Boulevard, Suite 1350, Fort Lauderdale, Florida 33301. Ourtelephone number is (954) 527-7750. Our Internet address is *http://www.weida.com*.

 

*Results of Operations*

 

On April 29, 2003, SCL entered into a masteragreement with Weida PRC, as more fully described elsewhere in our AnnualReport on Form 10-K for the fiscal year ended June 30, 2004. Weida PRC is currentlyour only source of revenue, and our operations prior to September 2004have been limited to activities to complete the transaction with WeidaPRC.  Consequently, management does not believe a period to periodanalysis of change in revenue, costs of goods sold and other expenses isrelevant to an understanding of the

 

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Company’s results of operations for periods through September 30,2004. For the three months ended September 30, 2004, we incurred totaloperating expenses of $3,275,548.

 

*Selling, General and AdministrativeExpenses*

 

Operating expenses totaled $3,275,548 for the threemonths ended September 30, 2004. These expenses reflect the expected onetime costs of building our infrastructure in order to fulfill certain contractsand prospective contracts. Included in these expenses are legal fees,accounting fees, and consultant fees paid. These expenses also reflect numerousdue diligence trips to China for certain executives of the Company as well astheir advisors.

 

*Liquidity and Capital Resources*

 

As shown in the condensed consolidated financialstatements, at September 30, 2004 we had consolidated negative workingcapital of approximately $4.66 million and an accumulated deficit ofapproximately $6.39 million. Since SCL’s formation in May 2003, we have fundedall of our operating expenses and deficit from the net proceeds of privateplacements of our shares and warrants to private investors and, to a lesserextent, from shareholder loans.

 

At September 30, 2004, we had total consolidatedassets of approximately $15.93 million. Included in total assets is apromissory note issued by Glendora Management Ltd. (“Glendora”), a BritishVirgin Islands corporation, to SCL in the amount of $2.2 million. Certain ofGlendora’s shareholders are also shareholders of the Company. Borrowings underthe note bear interest at the London Interbank Offered Rate plus 200 basispoints (effective rate of 4.17% at September 30, 2004), with interest andprincipal due five years from 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, SCL and Glendora signed an assignmentagreement whereby SCL has granted Glendora the rights to enter into atransaction with Guangzhou Suntek New Tech R&D Co., Ltd (“Suntek”), whichwas previously held by SCL. No value has been designated to the assignmentagreement as it assigns the right to pursue a purchase agreement with Suntekand not a negotiated purchase agreement.

 

Our current cash and cash equivalents and fundingcommitments described below are not sufficient for us to sustain presentoperations beyond the third calendar quarter of 2005. We will need additionalfunding to continue operations as an ongoing entity. We are in the process ofnegotiating to raise additional private funding to satisfy these requirements.We are also in preliminary negotiations with certain banking and financialinstitutions to secure a corporate credit line.

 

Effective as of September 3, 2004, a creditfacility for up to $5 million has been made available to us by AnthonyGiordano, a Company shareholder, together with one of Mr. Giordano’s familylimited partnerships, to fund the Company’s future operations. This creditfacility is unsecured, bears interest on any funds advanced at a rate equal tothe London Interbank Offered Rate plus 200 basis points, has no equitycomponent, and terminates on October 31, 2005. For additional disclosureconcerning Mr. Giordano, see Item 12, “Security Ownership of Certain BeneficialOwners and Management–Matters concerning a beneficial shareholder” in ourAnnual Report on Form 10-K for the fiscal year ended June 30, 2004.

 

**Certain Risks Associated with OurCompany and its Common Stock that May Impact our Future Liquidity and CapitalStructure**

 

***Potentially dilutive business combination transactions.***

 

From time to time ourmanagement has, and may continue to, consider possible acquisition or businesscombination transactions with other parties, including enterprises engaged in,or seeking to engage in telecommunications or related technologies and servicesin the PRC. Such potential business combination parties may be privately ownedor publicly traded entities, and may be located in the PRC, elsewhere in Asia,in the United States, or in another jurisdiction.  In view of our limited operating history, ourlack of substantial revenues to date, our substantial operating losses, and, inparticular, the highly limited public “float”, otherwise limited liquidity andthin trading volume of our shares and the prospect of substantial numbers ofshares becoming freely tradeable within the next six to nine months (whichrisks are described in greater detail below), if we were to consummate abusiness combination transaction with a third party, there is a substantiallikelihood that the terms of such combination transaction will not fullyreflect the current market price of our Common Stock, and will in fact be at asubstantial discount to such market price.

 

10

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***Sales of large amounts of our common stock in the public market coulddepress the market price of our common stock and impair the ability to raisecapital through offerings of equity securities.***

 

None of the shares of our common stock issuedto SCL’s shareholders in the June 2004 share exchange were, and none ofthe shares of our common stock sold and issuable to investors and advisors inrecent private placement transactions or which may be issued to the former OIHLshareholders will be, registered under the Securities Act. Accordingly, most ofour shareholders will not be able to sell their shares unless they are laterregistered or covered by an available exemption such as Rule 144. As a resultof these restrictions, the market for our common stock has remained “thin” forsome time, with trading in the shares limited to less than 1 million shares(excluding shares subject to a one-year lockup) out of almost 75 million sharesoutstanding.  We may determine toregister the shares of one or more other holders of common stock, at any timeor from time to time. If holders of our common stock sell substantial numbersof shares in the public markets, the price of our common stock may fall, makingit more difficult to raise capital.

 

Under Rule 144, each of the holders of the69,809,480 shares issued to SCL’s shareholders in the exchange will be eligibleto sell up to 1% of our outstanding common stock every three months commencing June 11,2005, and each of the holders of shares of our common stock sold to investorsand advisors in recent private placement transactions or to the former OIHLshareholders will be eligible to sell up to 1% of our outstanding common stockevery three months commencing 12 months after those shares are issued (subjectin each case to the restrictions on volume, manner of sale and other conditionsof Rule 144). SCL shareholders who received shares of our common stock in theexchange and who are not “affiliates” of the Company will be able to sell allof their shares of common stock commencing June 11, 2006.  Recent investors and advisors in privateplacement transactions and the former OIHL shareholders who are not “affiliates”of the Company will be able to sell all of their shares of common stockcommencing 24 months after those shares are issued.  The sale or prospective sale of these sharescould impede the ability to raise capital for some time to come.

 

**Critical accounting policies**

 

The preparation of our condensed consolidatedfinancial statements and related disclosures in conformity with generallyaccepted accounting 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 condensed consolidatedfinancial statements of the Company.

 

# ***Accruals andProvisions 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 7 to the condensed consolidated financialstatements of the Company, we are involved in various legal proceedings andcontingencies, and we have recorded a liability in relation to an assertedclaim by a former employee of SCL. In accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 5 Accounting for Contingencies, SFAS No. 5requires a liability to be recorded based on our estimate of the probable costsof the resolution of the contingency. The actual resolution of this contingencymay differ 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.

 

*Allowance for Bad and Doubtful Accounts*

 

The Company maintains allowances for its bad and doubtful accounts for estimated losses resulting from the inability of its customers or note receivable debtor to make required payments. If the financial condition of its customers or note receivable debtor changed, changes to these allowances may be required, which would impact the Company’s future operating results.

 

*Long-lived Assets*

 

The Company reviews the carrying value of itslong-lived assets for impairment whenever events or changes in circumstancesindicate that the carrying value may not be recoverable.  The Company assesses the recoverability ofthe carrying value of long-lived assets, other than goodwill and purchasedintangible assets with indefinite useful lives, by first grouping itslong-lived assets with other assets

 

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and liabilities at the lowest level for which identifiablecash flows are largely independent of the cash flows of other assets andliabilities (the asset group) and, secondly, estimating the undiscounted futurecash flows that are directly associated with and expected to arise from the useof and eventual disposition of such asset group.  The Company estimates the undiscounted cashflows over the remaining useful life of the primary asset within the assetgroup.  If the carrying value of theasset group exceeds the estimated undiscounted cash flows, the Company recordsan impairment charge to the extent the carrying value of the long-lived assetexceeds its fair value.  The Companydetermines fair value through quoted market prices in active markets or, ifquoted market prices are unavailable, through the performance of internalanalysis of discounted cash flows or external appraisals.  The undiscounted and discounted cash flowanalyses are based on a number of estimates and assumptions, including theexpected period over which the asset will be utilized, projected futureoperating results of the asset group, discount rate and long-term growth rate.

 

The Company’s assessments of impairment oflong-lived assets, and its periodic review of the remaining useful lives of itslong-lived assets are an integral part of the Company’s ongoing strategicreview of its business and operations. Therefore, future changes in the Company’soperations could impact the projected future operating results that areinherent in the Company’s estimates of fair value, resulting in impairments inthe future.  Additionally, other changesin the estimates and assumptions, including the discount rate and expectedlong-term growth rate, which drive the valuation techniques employed toestimate the fair value of long-lived assets could change and, therefore,impact the assessments of impairment in the future.

 

**Recently Issued AccountingPronouncements**

 

In November 2004, the FASB issued SFAS No. 151, “InventoryCosts – an amendment of ARB No. 43, Chapter 4.” SFAS No. 151 clarifies the accountingthat requires abnormal amounts of idle facility expenses, freight, handlingcosts, and spoilage costs to be recognized as current-period charges. It alsorequires that allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities. SFASNo. 151 will be effective for inventory costs incurred on or after July 1,2005. The Company is currently evaluating the impact of this standard on itsconsolidated financial statements.

 

**Contractual Obligations**

 

As of September 30, 2004, our future contractualcash obligations are as follows:

 
| ** **                      | ** ** | **Payments due by period** | ** ** |
|---------------------------------|------------|----------------------------|------------|
| **Contractual Obligations (1)** | ** ** | **Total**                  | ** ** | **2005** | ** ** | **2006 – 2007** | ** ** | **2008 – 2009** | ** ** | **2010 and  thereafter** | ** ** |
| Operating  Leases               |       | 4,749,783                  |       | 1,398,904 |   | 2,596,046 |   | 754,833 |   | 0 |   |
| Long-Term  Obligations (2)      |       | 270,000                    |       | 0 |   | 270,000 |   | 0 |   | 0 |   |
| **Total**                       |       | 5,019,783                  |       | 1,398,904 |   | 2,866,046 |   | 754,833 |   | 0 |   |

 

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(1)We do not have any purchase obligations otherthan standard purchase orders in the ordinary course of business. We do nothave any capital lease obligations.

 

(2) Our long-term obligations are primarilycomprised a long-term loan from a shareholder. The shareholder has agreed that he will not seek repayment prior to July 2006.This loan is a non-interest bearing note. Although there is no commitment that the loan will be repaid in2007-2008, our board of directors believes the loan will be repaid during suchtime.

 

**Contingent Consideration**

 

In connection with our acquisition of control of anda 51% profit-sharing interest in Weida PRC, we will be required to issue16,296,296 shares of the Company’s common stock and to pay approximately $15.8million as follows:

 

•                  $805,153 in cash to the Weida PRCshareholders, which payment shall also be deemed to satisfy our obligation tocontribute a capital contribution to the Weida EJV (which payment has beendeposited and is reserved for payment); and

 

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

 

The issuance of the shares is only required to be madeupon the consummation of a service and support agreement, execution anddelivery of all of the other agreements described in our Annual Report on Form10-K for the fiscal year ended June 30, 2004 and satisfaction of certaindue diligence requests of SCL, as more fully described in our Annual Report onForm 10-K for the fiscal year ended June 30, 2004. Not all of theseconditions had been satisfied as of September 30, 2004 or as of the dateof this Quarterly Report

 

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on Form 10-Q/A. The payments of cash are required tobe made only if the conditions to the formation of the Weida EJV discussed inthe Form 10-K for the fiscal year ended June 30, 2004 have been completedand the Weida EJV has been formed and has a valid business license showing SCL’s25% equity ownership.  Such contingentconsideration have not been recorded as a liability or included in determiningthe cost of the acquired entities.

 

**ITEM 3—Quantitative and Qualitative Disclosures aboutMarket Risk**

 

**Market-Rate Sensitive Instrumentsand Risk Management**

 

We are exposed to certain market risks fromtransactions that are entered into during the normal course of business.Fluctuating foreign exchange rates for the Renminbi may impact our financial conditionand results of operations.  Our foreign exchange exposure is presentlyexclusively related to activities associated with Weida PRC.  The Companydoes not attempt to manage these risks by entering into forward exchangecontracts.  We do not use derivative financial instruments for speculativeor trading purposes.  Therefore, no quantitative tabular disclosures arerequired.

 

Our interest income is sensitive to changes ininterest rates. Note receivable of $2,200,000 as of September 30, 2004 issubject to interest rate changes as it bears interest at the London InterbankOffered Rate plus 200 basis points. As such, interest income will fluctuatewith changes in interest rates.

 

**ITEM 4—Controls and Procedures**

 

The Company is required to maintain disclosurecontrols and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under theSecurities Exchange Act of 1934, as amended, (the “Exchange Act”)) that aredesigned to ensure that information that is required to be disclosed by theCompany in the reports it files or submits under the Exchange Act is recorded,processed, summarized and reported, within the time periods specified in theSEC’s rules and forms.

 

At the time the original Quarterly Report on Form10-Q for the period ended September 30, 2004 was prepared and filed, theCompany’s management, with the participation of our principal executive officerand principal financial officer, had evaluated the effectiveness of ourdisclosure controls and procedures as of the end of the period ended September 30,2004. Based on this evaluation, the management had originally concluded thatthe Company’s disclosure controls and procedures were effective as of the endof the quarter ended September 30, 2004 to ensure that information that isrequired to be disclosed by the Company in the reports it files or submitsunder the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the SEC’s rules and forms.

 

In conjunction with the Company’s decision to restateits condensed consolidated financial statements for the period ended September 30,2004, the Company identified a material weakness in its internal control overfinancial reporting (as defined in Public Company Accounting Oversight Board,Auditing Standard No. 2, a material weakness is a significant deficiency, or acombination of significant deficiencies, that results in more than a remotelikelihood that a material misstatement of the annual or interim financialstatements will not be prevented or detected) and, as a result thereof,reevaluated its disclosure controls and procedures over the consolidation ofthe Company’s acquisition and concluded that these controls were not effective.The Company is taking steps to identify, rectify and prevent the recurrence of thecircumstances that resulted in the determination to restate the condensedconsolidated financial statements for the period ended September 30, 2004.As part of this undertaking, the Company intends to incorporate additionallevels of review of the processes and supporting documentation, including butnot limited to those for the consolidation process. The Company believes theseenhancements to its systems of internal control over financial reporting anddisclosure controls and procedures will be adequate to provide reasonableassurance that the control objectives will be met.

 

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**PARTII—OTHER INFORMATION**

 

**ITEM 1—Legal Proceedings**

 

(a)  Anemployee of SCL has asserted claims for unpaid salary in the amount of $0.5million and 3.3 million shares of Weida’s common stock based on an assertedemployment agreement between him and SCL, and has indicated through his counselthat if terminated he will also assert a claim for severance in the additionalamount of $0.75 million. The Company’s management believes the Company hasmeritorious defenses to the claims, including that the employee in question didnot perform the services contemplated by the alleged agreement. A portion ofthe employee’s alleged unpaid salary had been and continues to be included inthe Company’s condensed consolidated financial statements as accounts payable.

 

SCL has commenced legal proceedings against theemployee for breach of contract and declaratory relief and has given him noticeof termination of employment. The employee has moved to compel arbitration ofthe matter. The employee’s motion has been granted, but no decision has beenmade as to whether to appeal that decision. Arbitration proceedings with respect to the employee’s claims areprobable. There can be no assurance as to the outcome of the current litigationor any arbitration proceedings. Any adverse decision in such proceedings couldadversely affect the financial condition of the Company.

 

(b)  Ashareholder and former chief financial officer of Teleflex Technologies, Inc. (“Teleflex”),a currently inactive privately-held company which had attempted to pursue jointventure opportunities in the PRC in late 2001 and in 2002, and of whichMitchell Sepaniak, the president, chief executive officer and a shareholder ofthe Company, was also a chief executive officer, commencing early 2003, hasrecently asserted claims in New York State court against SCL, Teleflex and Mr.Sepaniak. The plaintiff’s petition alleges failure on the part of Mr. Sepaniakand Teleflex to comply with corporate formalities such as holding annualmeetings and also alleges corporate waste, and is seeking various relief,including allowing shareholders to inspect the books and records, includingbalance sheets and profit and loss earnings statements. The former chieffinancial officer has also asserted claims against SCL, Teleflex and Mr.Sepaniak for unpaid salary and compensation.

 

Litigation proceedings with respect to the plaintiff’sclaims have commenced. The proceedings are at an early stage, and thereforethere can be no assurance as to the outcome of such proceedings. Any adversedecision in such proceedings could adversely affect the financial condition ofthe Company.

 

(c)  TheCompany is also subject to various legal proceedings and claims that arise inthe ordinary course of business. In the opinion of management, the amount ofany ultimate liability with respect to these actions will not materially affectthe Company’s financial position, liquidity, or results of operations.

 

**ITEM 2—Unregistered Sales of Equity Securities and Useof Proceeds**

 

*Recent Sales of UnregisteredSecurities*

 

(a)   Duringthe period from June 11, 2004 to June 30, 2004, the Company receiveda total gross proceeds of $1,375,955 in connection with the sale of 458,332shares of common stock and warrants to purchase an additional 229,173 shares ofcommon stock to be issued to existing and new investors. The warrants carry athree and one-half year term from the time such warrants are exercisable. TheCompany is also obligated to issue 80,000 shares of common stock to advisors,which have been accounted for as financing costs, in connection with thisprivate placement. As of September 30, 2004, the Company had not issuedthese shares and warrants.  These sharesare to be issued in the second quarter. The shares and warrant shares were sold under common individual purchaseagreements and advisory agreements. Our common stock and warrants to be issuedto investors and advisors were sold pursuant to an exemption from theregistration requirements of the Securities Act of 1933, as amended, pursuantto Regulation D promulgated thereunder.

 

(b)  During thethree months ended September 30, 2004, we sold (i) to investors 908,757shares of Weida common stock in a private placement transaction at a price of$3.00 per share and warrants to purchase an additional 454,391 shares of ourcommon stock at an exercise price of $2.75 per share and (ii) to advisors292,322 shares of our common stock in connection with the private placementtransaction.   These shares are to beissued in the second quarter. The shares and warrant shares were sold undercommon individual purchase agreements and advisory agreements. The warrantscarry a three and one-half year term from the time such warrants areexercisable. Our common stock and warrants to be issued to investors andadvisors were sold pursuant to an exemption from the registration requirementsof the Securities Act of 1933, as amended, pursuant to Regulation D promulgatedthereunder.

 

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**ITEM 3—Defaults upon Senior Securities**

 

Not applicable.

 

**ITEM 4—Submission of Matters to Vote of SecurityHolders**

 

Not applicable.

 

**ITEM 5—Other Information**

 

Not applicable.

 

**ITEM 6—Exhibits**

 
| (a)    |   | Exhibits:                                                                                                                                                                                   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                        |
| 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 and 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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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                       | **Weida Communications, Inc.** |
|----------------------------|--------------------------------|
|                       |                           | ** ** |
| Dated: March 22, 2005 | By:                            |   | /s/ Mitchell Sepaniak |   |
|                       |                           | **Mitchell  Sepaniak** |
|                       |                           | **President  and Chief Executive Officer** |
|                       |                           | ** ** |
| Dated: March 22, 2005 | By:                            |   | /s/ Joseph Zumwalt |   |
| ** **                 |                           | **Joseph  Zumwalt** |
| ** **                 |                           | **Chief  Financial Officer** |

 

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**EXHIBITINDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                             |
|-----------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 and 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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