**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

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**FORM 10-Q**

 

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

 

**For TheQuarterly Period Ended March 31, 2005**

 

**CommissionFile Number 1-10366**

 

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

(ExactName 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’sTelephone Number, Including Area Code)

 

Indicate bycheck mark whether the registrant: (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes  ý   No  o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).Yes  o   No  ý

 

As of June 13, 2005 theregistrant had 77,042,073 shares of common stock outstanding.

 

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**EXPLANATORYNOTE**

 

As reported by Weida Communications, Inc. (the “Company”) in aCurrent Report on Form 8-K filed on June 8, 2005, the Company’sformer independent auditors, Deloitte Touch Tohmatsu,resigned as the Company’s independent auditors on May 31, 2005.  The Company has not yet selected a newindependent registered public accounting firm. Consequently, this Quarterly Report on Form 10-Q was notreviewed by an independent auditor prior to filing.

 

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**TABLE OFCONTENTS**

 
| **PART I—Financial  Information**                                                                                   |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|
| **ITEM  1—Condensed Consolidated Financial Statements**                                                                  |   |
| Condensed  Consolidated Balance Sheets—March 31, 2005 and June 30, 2004                                        |   |
| Condensed  Consolidated Statement of Operations—Three and nine months ended March 31,  2005 and March 31, 2004 |   |
| Condensed  Consolidated Statement of Cash Flows—Nine months ended March 31, 2005  and March 31, 2004           |   |
| 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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**PART I—FINANCIALINFORMATION**

 

**ITEM 1—Condensed Consolidated Financial Statements**

 

**Weida****Communications, Inc. and Subsidiary**

**Condensed Consolidated Balance Sheets**

**At March 31, 2005 and June 30, 2004**

 
| ** **                                                                                                                                                                                                                                                                         | ** ** | **March 31,  2005** | ** ** | **June 30,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                                                                                                                         | ** ** | **(Unaudited)**          | ** ** | ** **              | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                         |       |                     |       |                    |       |
|                                                                                                                                                                                                                                                                               |       |                     |       |                    |       |
| Current  Assets:                                                                                                                                                                                                                                                                   |       |                     |       |                    |       |
| Cash                                                                                                                                                                                                                                                                               |       | $                        | 1,468,112  |                    | $          | 1,617,845 |   |
| Accounts  receivable, net                                                                                                                                                                                                                                                          |       | 70,783                   |       | —                  |       |
| Interest  receivable                                                                                                                                                                                                                                                               |       | —                   |       | 80,968                  |       |
| Advances                                                                                                                                                                                                                                                                           |       | 15,605                   |       | —                  |       |
| Related  party receivable                                                                                                                                                                                                                                                          |       | —                   |       | 438,640                 |       |
| Inventories                                                                                                                                                                                                                                                                        |       | 1,460,863                |       | —                  |       |
| Prepaid  expenses – current                                                                                                                                                                                                                                                   |       | 230,164                  |       | 173,750                 |       |
| Total  Current Assets                                                                                                                                                                                                                                                              |       | 3,245,527                |       | 2,311,203               |       |
|                                                                                                                                                                                                                                                                               |       |                     |       |                    |       |
| Property,  Plant, & Equipment                                                                                                                                                                                                                                             |       | 1,515,686                |       | 18,121                  |       |
|                                                                                                                                                                                                                                                                               |       |                     |       |                    |       |
| Other  Assets:                                                                                                                                                                                                                                                                     |       |                     |       |                    |       |
| Notes  receivable                                                                                                                                                                                                                                                                  |       | 2,200,000                |       | 2,200,000               |       |
| Goodwill                                                                                                                                                                                                                                                                           |       | 9,000,662                |       | —                  |       |
| Deferred  acquisition costs                                                                                                                                                                                                                                                        |       | —                   |       | 5,704,004               |       |
| Prepaid  expenses – non-current portion                                                                                                                                                                                                                                       |       | —                   |       | 62,500                  |       |
| Other assets                                                                                                                                                                                                                                                                       |       | 3,880                    |       | 3,880                   |       |
| Total Other  Assets                                                                                                                                                                                                                                                                |       | 11,204,542               |       | 7,970,384               |       |
|                                                                                                                                                                                                                                                                               |       |                     |       |                    |       |
| Total Assets                                                                                                                                                                                                                                                                       |       | $                        | 15,965,755 |                    | $          | 10,299,708 |   |
|                                                                                                                                                                                                                                                                               |       |                     |       |                    |       |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                                                                                                                                                                                                                                     |       |                     |       |                    |       |
|                                                                                                                                                                                                                                                                               |       |                     |       |                    |       |
| Current  Liabilities:                                                                                                                                                                                                                                                              |       |                     |       |                    |       |
| Bank loan                                                                                                                                                                                                                                                                          |       | $                        | 2,416,451  |                    | $          | — |   |
| Short term  borrowing                                                                                                                                                                                                                                                              |       | 32,599                   |       | —                  |       |
| Accounts  payable                                                                                                                                                                                                                                                                  |       | 876,616                  |       | 1,360,703               |       |
| Accrued  expenses and other payables                                                                                                                                                                                                                                               |       | 410,373                  |       | 158,100                 |       |
| Claim  settlement payable – current portion                                                                                                                                                                                                                                   |       | 250,833                  |       | —                  |       |
| Amounts due  to shareholders                                                                                                                                                                                                                                                       |       | 229,994                  |       | —                  |       |
| Amounts due  to related parties                                                                                                                                                                                                                                                    |       | 1,348,339                |       | 756,386                 |       |
| Total  Current Liabilities                                                                                                                                                                                                                                                         |       | 5,565,205                |       | 2,275,189               |       |
|                                                                                                                                                                                                                                                                               |       |                     |       |                    |       |
| Long term  liabilities:                                                                                                                                                                                                                                                            |       |                     |       |                    |       |
| Claim  settlement payable – net of current portion                                                                                                                                                                                                                            |       | 174,167                  |       | —                  |       |
| Long term  loan                                                                                                                                                                                                                                                                    |       | 270,000                  |       | 270,000                 |       |
| Total  Liabilities                                                                                                                                                                                                                                                                 |       | 6,009,372                |       | 2,545,189               |       |
|                                                                                                                                                                                                                                                                               |       |                     |       |                    |       |
| Shareholders’  equity:                                                                                                                                                                                                                                                        |       |                     |       |                    |       |
| Preferred  stock, $0 par value, 10,000,000 shares authorized, none issued at March 31,  2005                                                                                                                                                                                  |       | —                   |       | —                  |       |
| Common  stock, $0 par value, 400,000,000 shares authorized, 75,842,073 and 72,334,486  issued and outstanding at March 31, 2005 and June 30, 2004,  respectively, 1,225,000 and 538,332 shares to be issued at March 31,  2005 and June 30, 2004, respectively |       | 19,579,051               |       | 9,408,958               |       |
| Common stock  to be issued                                                                                                                                                                                                                                                         |       | 134,500                  |       | 1,375,955               |       |
| Accumulated  deficit                                                                                                                                                                                                                                                               |       | (9,757,168               | )          | (3,030,394              | )          |
| Total  shareholders’ equity                                                                                                                                                                                                                                                   |       | 9,956,383                |       | 7,754,519               |       |
|                                                                                                                                                                                                                                                                               |       |                     |       |                    |       |
| Total  Liabilities and Shareholders’ Equity                                                                                                                                                                                                                                   |       | $                        | 15,965,755 |                    | $          | 10,299,708 |   |

 

Seeaccompanying notes to unaudited condensedconsolidated financial statements.

 

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**Weida****Communications, Inc. and Subsidiary**

**Condensed Consolidated Statement of Operations**

**(Unaudited)**

 

**For The Three and Nine Months Ended March 31, 2005 and March 31,2004**

 
| ** **                                   | ** ** | **Three Months Ended  March 31,** | ** ** | **Nine Months Ended  March 31,** | ** ** |
|----------------------------------------------|------------|----------------------------------------|------------|---------------------------------------|------------|
| ** **                                   | ** ** | **2005**                               | ** ** | **2004**                              | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenue                                      |       |                                   |       |                                  |       |   |   |   |   |
| Sales of VSAT equipment                      |       | $                                      | 69,758     |                                  | $          | — |   | $ | 171,549 |   | $ | — |   |
| Transponder  utilization revenue             |       | 34,761                                 |       | —                                |       | 127,805 |   | — |   |
|                                         |       | 104,519                                |       | —                                |       | 299,354 |   | — |   |
| Costs and  expenses                          |       |                                   |       |                                  |       |   |   |   |   |
| Cost of  sales                               |       | 442,839                                |       | —                                |       | 910,205 |   | — |   |
| Selling,  general, and administrative costs  |       | 968,889                                |       | 682,630                               |       | 5,951,717 |   | 1,725,863 |   |
|                                         |       | 1,411,728                              |       | 682,630                               |       | 6,861,922 |   | 1,725,863 |   |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Operating  loss                              |       | (1,307,209                             | )          | (682,630                              | )          | (6,562,568 | ) | (1,725,863 | ) |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Other income  (expenses)                     |       |                                   |       |                                  |       |   |   |   |   |
| Interest  expense                            |       | (34,821                                | )          | —                                |       | (83,316 | ) | — |   |
| Interest  income                             |       | (158,895                               | )          | 19,145                                |       | (80,890 | ) | 51,053 |   |
|                                         |       | (193,716                               | )          | 19,145                                |       | (164,206 | ) | 51,053 |   |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Net loss                                     |       | $                                      | (1,500,925 | )                                     | $          | (663,485 | ) | $ | (6,726,774 | ) | $ | (1,674,810 | ) |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Basic and  diluted net loss per common share |       | $                                      | (0.02      | )                                     | $          | (0.01 | ) | $ | (0.09 | ) | $ | (0.02 | ) |
|                                         |       |                                   |       |                                  |       |   |   |   |   |
| Weighted  average shares outstanding         |       | 75,274,922                             |       | 68,962,275                            |       | 73,817,796 |   | 68,962,975 |   |

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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**Weida****Communications, Inc.and Subsidiary**

**Condensed Consolidated Statement of Cash Flows**

**(Unaudited)**

 

**For The Nine Months Ended March 31, 2005 and March 31, 2004**

 
| ** **                                                                            | ** ** | **Nine Months Ended  March 31,** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                            | ** ** | **2005**                              | ** ** | **2004** | ** ** |
| Cash flows  from operating activities                                                 |       |                                  |       |   |   |
| Net loss                                                                              |       | $                                     | (6,726,774 | ) | $ | (1,674,810 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities:          |       |                                  |       |   |   |
| Depreciation expense                                                                  |       | 407,450                               |       | — |   |
| Non-cash  compensation                                                                |       | 2,437,511                             |       | — |   |
| (Increase)  Decrease in operating assets, net of the effect of subsidiaries acquired: |       |                                  |       |   |   |
| Accounts  receivable, net                                                             |       | (73,310                               | )          | — |   |
| Interest  receivable                                                                  |       | 80,968                                |       | (51,053 | ) |
| Inventories                                                                           |       | (738,912                              | )          | — |   |
| Prepaid  expenses                                                                     |       | 243,027                               |       | — |   |
| Accounts  payable                                                                     |       | (1,180,444                            | )          | 1,515,579 |   |
| Accruals and other payables                                                           |       | 198,423                               |       | — |   |
| Deferred  revenue                                                                     |       | (70,657                               | )          | — |   |
| Net cash  used in operating activities                                                |       | (5,422,718                            | )          | (210,284 | ) |
|                                                                                  |       |                                  |       |   |   |
| Cash flows  from investing activities                                                 |       |                                  |       |   |   |
| Acquisition of subsidiaries                                                           |       | 37,368                                |       | — |   |
| Decrease in deposit in escrow                                                         |       | —                                |       | 58,346 |   |
| Deferred acquisition costs                                                            |       | (619,197                              | )          | (1,416,777 | ) |
| Additions to  property, plant, and equipment                                          |       | —                                |       | (393,950 | ) |
| Changes in  amounts due from related parties                                          |       | (400,000                              | )          | — |   |
| Net cash used  in investing activities                                                |       | (981,829                              | )          | (1,752,381 | ) |
|                                                                                  |       |                                  |       |   |   |
| Cash flows  from financing activities                                                 |       |                                  |       |   |   |
| Stock sales                                                                           |       | 6,806,127                             |       | 869,983 |   |
| Changes in  amounts due to shareholders                                               |       | (552,811                              | )          | 51,856 |   |
| Changes in  amounts due to related parties                                            |       | (6,936                                | )          | — |   |
| Proceeds  from short term borrowing                                                   |       | 8,434                                 |       | — |   |
| Capital  contribution by shareholders                                                 |       | —                                |       | 1,040,826 |   |
| Cash  provided by financing activities                                                |       | 6,254,814                             |       | 1,962,665 |   |
|                                                                                  |       |                                  |       |   |   |
| Net decrease  in cash                                                                 |       | (149,733                              | )          | — |   |
|                                                                                  |       |                                  |       |   |   |
| Cash -  beginning of period                                                           |       | 1,617,845                             |       | — |   |
| Cash - end  of period                                                                 |       | $                                     | 1,468,112  |   | — |   |
|                                                                                  |       |                                  |       |   |   |
| Supplemental  cash flow information:                                                  |       |                                  |       |   |   |
| Cash paid  during the period for:                                                     |       |                                  |       |   |   |
| Interest                                                                              |       | $                                     | 63,131     |   | $ | — |   |
| Income taxes                                                                          |       | —                                |       | — |   |
|                                                                                  |       |                                  |       |   |   |
| Supplemental  schedule of noncash investing activities:                          |       |                                  |       |   |   |
| Acquisition  of subsidiaries:                                                         |       |                                  |       |   |   |
| Cash  acquired                                                                        |       | $                                     | 37,368     |   | — |   |
| Fair value  of non cash assets acquired                                               |       | 2,876,985                             |       | — |   |
| Liabilities  assumed                                                                  |       | (5,591,814                            | )          | — |   |
| Deferred  acquisition cost-reclassified to goodwill                                   |       | (6,323,201                            | )          | — |   |
| Goodwill                                                                              |       | 9,000,662                             |       | — |   |
|                                                                                  |       | $                                     | —     |   | $ | — |   |

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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**WEIDA****COMMUNICATIONS, INC. AND SUBSIDIARY**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

 

**1.             ORGANIZATIONAND NATURE OF THE BUSINESS**

 

Weida Communications, Inc., formerly LaserRecording Systems, Inc. (“Weida” or the “Company”), providesproducts and services for satellite-based communications networks in the People’sRepublic of China (“PRC” or “China”) through a seriesof contractual arrangements which give it control of and a 51% profit-sharinginterest in Guangzhou Weida Communications TechnologyCo., Ltd. (a/k/a Weida Communications TechnologyCompany Limited), a communications service company organized under the laws ofthe PRC and wholly-owned by PRCcitizens (“Weida  PRC”). TheCompany conducts its business in China solely through certain contractualarrangements among its affiliates, Weida  PRC and the shareholders of WeidaPRC. Although the Company does not have an equityinterest in Weida  PRC, itcontrols and enjoys the economic benefits of Weida  PRC through such contractual arrangements.

 

Weida PRC is a whollyprivately owned company established in 2001 in response to the Chinesegovernment allowing an individual company to obtain a 100% private,non-governmental and non-military, VSAT satellitelicense. VSAT (Very Small Aperture Terminal) is arelatively small satellite antenna used by corporations and governments forsatellite based point-to-multipoint data communications, such as financialtransactions, Internet services, multimedia and television. VSAToffers a number of advantages over terrestrial alternatives for businesses andhomes.

 

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 todevelop and deliver such satellite communications in China. WeidaPRC is licensed to provide services in the rapidlygrowing Voice Over IP telephone service market, and toprovide such services as a phone operator.

 

The Company operates through WeidaPRC, which has entered into contractual arrangementswith our subsidiaries through which we conduct our business activities and willreceive substantially all of our revenues in the form of service fees.  If Weida  PRC or our other subsidiaries incur debt in the future, theinstruments governing the debt may restrict their ability to pay fees or makeother payments or distributions to us. In addition, Chinese law requires that payment of dividends by oursubsidiaries that are incorporated in China can only be made out of their netincome, if any, determined in accordance with Chinese accounting standards andregulations.  Under Chinese law, thosesubsidiaries are also required to set aside a portion, up to 10% of theirafter-tax net income each year to fund certain reserve funds, and thesereserves are not distributable as dividends. Any limitation on the payment of fees by WeidaPRC or dividends by our subsidiaries generally couldmaterially adversely affect our ability to grow, fund investments, makeacquisitions, pay dividends, and otherwise fund and conduct our business.

 

WeidaPRC receives substantially all of its revenues in Renminbi, which currently is not a freely convertiblecurrency.  A portion of these revenuesmay have to be converted into other currencies to meet our foreign currencyobligations.

 

The Share Exchange Transaction

 

As described in the Company’s Annual Report on Form 10-Kfor the fiscal year ended June 30, 2004, the Company entered into a shareexchange agreement (the “Exchange Agreement”) with SCLVentures, Ltd. (“SCL”) on May 20, 2003. TheExchange Agreement set forth the terms and conditions of the exchange by the SCL shareholders of their shares of capital stock,representing all of the issued and outstanding shares of capital stock of SCL in exchange for the issuance by the Company to theshareholders of SCL of 69,809,480 shares of commonstock, representing approximately 96.5% of the then issued and outstandingshares of the Company.  The shareexchange with SCL (the “Exchange”) was consummated onJune 11, 2004.  The Company thenchanged its name to Weida Communications, Inc.and changed its fiscal year end from January 31 to June 30.

 

The share exchange transaction was accounted for asa reverse acquisition in which SCL is the accountingacquirer and the Company is the legal acquirer. Since the transaction wasaccounted for as a reverse acquisition and not a business combination, nogoodwill has been recorded in connection with the transaction and such excessof purchase price over net assets acquired (goodwill) and the costs incurred inconnection with the transaction have been accounted for as an expense.

 

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As a result of the Exchange (i) thehistorical financial statements of the Company for periods prior to theExchange are those of SCL and the historicalfinancial statements of Laser Recording Systems, Inc. for periods prior tothe Exchange are no longer presented; (ii) all references to the financialstatements of the Company apply to the historical financial statements of SCL prior to the Exchange and the consolidated financialstatements of the Company and its subsidiaries subsequent to the Exchange; and (iii) allreferences to the Company apply to SCL prior to theExchange, and Weida Communications, Inc. and itssubsidiaries subsequent to the Exchange.

 

The Weida  PRC Acquisition 

 

As described in the Company’s Annual Report on Form 10-Kfor the fiscal year ended June 30, 2004, SCLentered into a series of contractual arrangements subsequent to June 30,2004, resulting in it obtaining control of, and a 51% profit-sharing interestin, Weida  PRC since August 27,2004. In particular, SCL entered into a trustagreement (the “Trust Agreement”) with Weida  PRC and the existing shareholders of WeidaPRC (the “Existing Shareholders”) and pursuant towhich, the Existing Shareholders hold 51% of the shares of WeidaPRC in trust for the benefit of SCL.Also, as part of the consideration for the acquisition of the equity interestin Weida  PRC, the Companyis 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 March 31,2005, 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.

 

On February 4, 2005, the Company and theExisting Shareholders agreed in principle to modify the terms of the masteragreement by entering into a revised master agreement.  As of March 31, 2005, the revised masteragreement was not fully effective.  Therevised master agreement, if and when fully effective, would provide for thetransfer of all of the Existing Shareholders equity interest in Weida  PRC to the Trust, so thatthe Trustee holds 100% of the shares of Weida  PRC.  The ExistingShareholders would then be entitled to receive the following in lieu of the16,296,296 shares and $15,805,135 described above:

 

a.               $1,000,000 cash, upon the Company completinga private placement of its equity securities or other financing:

b.              $1,000,000 cash, at December 31, 2005:

c.               $1,000,000 cash, at December 31, 2006:

d.              2,666,666 shares of the Company, uponachieving 2005 financial goals:

e.               2,666,666 shares of the Company, uponachieving 2006 financial goals:

f.                 2,666,666 shares of the Company, uponachieving 2007 financial goals:

g.              1,000,000 shares of the Company each year for4 years, with one-fourth upon signing employment contracts, based uponachieving financial goals and management by objectives (“MBO’s”)(with CEO approval), with a strike price of $.50 to $1.00, exercisable over 3years, with Board approval, and one-fourth similarly for each year of theemployment contract.

 

In part as a result of the events described in Note11 below, our current cash and cash equivalents and funding commitmentsdescribed below are not sufficient for us to sustain present operations beyondthe second calendar quarter of 2005. We will need additional funding tocontinue operations as an ongoing entity. We are in the process of attemptingto raise additional private funding to satisfy theserequirements. 

 

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

 

***Basis ofaccounting*** - The unaudited condensed consolidated financial statements forthe nine months ended March 31, 2005 have been prepared on a going concernbasis, 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 March 31, 2005, the Company incurred a net loss of$6,726,774, and as of March 31, 2005, the Company’s current liabilitiesexceeded its current assets by $2,319,678. These factors among others may indicate that the Company will be unableto continue as a going 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

 

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should the Company be unable to continue as a goingconcern.  The Company’s continuation as a going concern is dependent uponits ability to generate sufficient cash flow to meet its obligations on atimely basis, to comply with the terms and covenants of its financingagreements, to obtain additional financing or refinancing as may be required,and ultimately to attain successful operations.  The Company’s need foradditional financing has become more urgent in recent weeks, in part as aresult of the events described in Note 11. Management is continuing its effortsto obtain additional funds so that the Company can meet its obligations andsustain operations. These efforts may include obtaining additional privatefinancing in the form of secured or unsecured debt or preferred equityfinancing**.**

 

The accompanying unauditedcondensed consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States of America.They do not include all information and notes required by generally acceptedaccounting principles for complete consolidated financial statements.  In the opinion of management, all adjustments(consisting of normal recurring accruals only) considered necessary for a fairpresentation have been included.  Theresults for the three and nine months ended March 31, 2005 are notnecessarily indicative of results for a full year. The information included inthis Quarterly Report on Form 10-Q should be read in conjunctionwith Management’s Discussion and Analysis and the consolidated financialstatements and notes thereto included in the Annual Report on Form 10-Kof the Company for the fiscal year ended June 30, 2004.

 

***Principles ofconsolidation*** -The condensed consolidated financial statements include the financialstatements of the Company and its subsidiaries, SCL,Ocean International Holdings Limited, Ocean Tian  Di Communication Technology Co., Ltd. and Weida  PRC. The Companyconsolidates companies in which it has a controlling interest of over 50%. Allsignificant intercompany accounts, transactions andcash flows have been eliminated on consolidation.

 

***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 could differfrom those estimates.

 

***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 of VSAT equipment, are stated at the lower of cost or marketvalue.  Cost is determined by the first-in, first-out method.

 

***Long-lived assets*** - The Company evaluates its long-livedassets for impairment whenever events or changes in circumstances indicate thatthe carrying amount of such assets may not be recoverable.  Recoverabilityof assets to be held and used is measured by a comparison of the carryingamount of the assets to future undiscounted net cash flows expected to begenerated by the assets.  If the carrying amounts of long-lived assets arenot recoverable, 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 temporary differencesare expected to be recovered or settled.  The effect on deferred taxassets and liabilities of a change in tax rates is recognized in income in the

 

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period that includes the enactment date. Valuation allowances are established when it is more likely than not that someor all of the 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 equipmentare recorded when the equipment is delivered, title has passed to the customersand the Company has no further obligations to provide services related to theoperation of such equipment.

 

***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 functional currency of the Company isthe United States dollar (“USD”) and of itssubsidiaries is the Renminbi (“RMB”).The financial statements of all subsidiaries with functional currencies otherthan USD are translated into USDfor reporting purposes. All assets and liabilities are translated at the ratesof exchange ruling at the balance sheet date and all income and expenses aretranslated at the average rates of exchange over the period. All exchangedifferences arising from the translation of subsidiaries’ financial statementsare recorded as a component 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 March 31, 2005, the goodwill of$9,000,662 is subject to change pending a final analysis of the fair values ofthe 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, short term borrowing and bank loanapproximate their fair values due to the short-term maturity of theseinstruments.  The carrying amounts of the long term loan approximates its fair valuedue to the variable nature of the interest calculations.

 

***Minority interest*** - No minority interest balance is presentedin the condensed consolidated financial statements because it is an amountreceivable from the minority interest as of March 31, 2005. There is no binding agreements nor contractual arrangements in placein which the minority interest is obligated to fund the subsidiaries.Accordingly, no minority interest balance is presented.

 

***Stock-Based Payments –  During*** the three months ended March 31, 2005, the Company granted common stock as incentive to sign in for service and hasaccounted for the transaction in accordance with SFAS123.  Compensation expense was recordedfor the fair market value of the common stock at the date of grant.  The number of shares granted is included inthe common stock to be issued at March 31, 2005.  For stock issued to nonemployeesas payment for services, the Company accounts for the transaction using eitherthe fair value of (a) the goods or services received or (b) theequity instrument issued whichever, is more readily measured.

 

***Recently issuedaccounting pronouncements*** - In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 151, “Inventory Costs - an amendment of ARB No. 43, Chapter 4”. SFASNo. 151 clarifies the accounting that requires abnormal amounts of idlefacility expenses, freight, handling costs, and spoilage costs to be recognizedas current-period charges. It also requires that allocation of fixed productionoverheads to the costs of conversion be based on the normal capacity of theproduction facilities. SFAS No. 151 will be effectivefor inventory costs incurred on or after June 15, 2005. The Company iscurrently evaluating the impact of this standard on its consolidated financialstatements.

 

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In December 2004, the FASB issued SFAS No. 123R, “Share-BasedPayment”.  This statement is a revisionto SFAS No. 123 and supercedesAPB Opinion No. 25.  This statementestablishes standards for the accounting for transactions in which an entityexchanges its equity instruments for goods or services, primarily focusing onthe accounting for transactions in which an entity obtains employee services inshare-based payment transactions. Entities will be required to measure the cost of employee servicesreceived in exchange for an award of equity instruments based on the grant-datefair value of the award (with limited exceptions).  That cost will be recognized over the periodduring which an employee is required to provide service, the requisite serviceperiod (usually the vesting period), in exchange for the award.  The grant-date fair value of employee shareoptions and similar instruments will be estimated using option-pricingmodels.  If an equity award is modifiedafter the grant date, incremental compensation cost will be recognized in anamount equal to the excess of the fair value of the modified award over thefair value of the original award immediately before the modification.  This statement is effective as of thebeginning of the first interim or annual reporting period that begins after June 15,2005.  In accordance with the standard,the Company will adopt SFAS No. 123R effective July 1,2005.

 

Upon adoption, the Company has two applicationmethods to choose from: the modified-prospective transition approach or themodified-retrospective transition approach. Under the modified-prospective transition method, the Company would berequired to recognize compensation cost for share-based awards to employeesbased on their grant-date fair value from the beginning of the fiscal period inwhich the recognition provisions are first applied as well as compensation costfor awards that were granted prior to, but not vested as of the date ofadoption.  Prior periods remain unchangedand pro forma disclosures previously required by SFASNo. 123 continue to be required. Under the modified-retrospective transition method, the Company wouldrestate prior periods by recognizing compensation cost in the amountspreviously reported in the pro forma footnote disclosure under SFAS No. 123. Under this method, the Company is permitted to apply this presentationto all periods presented or to the start of the fiscal year in which SFAS No. 123R is adopted.  The Company would follow the same guidelinesas in the modified-prospective transition method for awards granted subsequentto adoption and those that were granted and not yet vested.  The adoption of SFASNo. 123R is not expected to have a material impact on the Company’sconsolidated financial statements. 

 

In December 2004, the FASBissued SFAS No. 153, “Exchanges of Nonmonetary Assets-An Amendment of APB Opinion No. 29,Accounting for Nonmonetary Transactions”.  SFAS No. 153eliminates the exception from fair value measurement for nonmonetaryexchanges of similar productive assets in paragraph 21(b) of AccountingPrinciples Board Opinion No. 29, “Accounting for NonmonetaryTransactions”, and replaces it with an exception for exchanges that do not havecommercial substance.  SFAS No. 153 specifies that a nonmonetaryexchange has commercial substance if the future cash flows of the entity areexpected to change significantly as a result of the exchange.  SFAS No. 153is effective for the fiscal periods beginning after June 15, 2005.  The Company is currently evaluating theeffect that the adoption of SFAS No. 153 willhave on its financial statements but does not expect it to have a materialimpact.

 

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

 

On August 1, 2003, SCLsigned a promissory note receivable with Glendora, Ltd. (“Glendora”), aBritish Virgin Islands corporation, in the amount of $2.2 million,representing advances paid on behalf of Glendora as of that date in connectionwith a then proposed acquisition by Glendora of a 51% interest in aSino-foreign Equity Joint Venture with Guangzhou SuntekNew Tech R&D Co., Ltd. (“Suntek”). Glendora hascertain shareholders that are also shareholders of the Company, and in August 2003the chief executive officer of Glendora was also the chief executive of SCL. Borrowings under the note receivable bear interest atthe London Interbank Offered Rate plus 200 basispoints (effective rate of 5.84% at March 31, 2005), with interest and principal due five yearsfrom the date of the note. Glendora has granted a general security interest inand to all of its tangible and intangible property and assets of any kind ascollateral for the note receivable (which assets as of March 31, 2005consisted solely of a loan receivable to Glendora’s acquisition subsidiary fromSuntek). Glendora previously also had the right to complete the acquisition of Suntek described above but Glendora terminated the proposedacquisition in 2004 and has requested the return of the $2.2 millionadvance.  The carrying amount of thisnote receivable approximates its fair value.

 

Additionally, SCL andGlendora on August 1, 2003 had signed an assignment agreement whereby SCL had granted Glendora the rights to enter into theacquisition transaction with Suntek which werepreviously held by SCL, in exchange for a rightgranted to SCL to require Glendora at any time withinthe next 24 months to negotiate in good

 

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faith with SCL withrespect to a possible acquisition of Glendora by SCLusing SCL shares. Management of the Company had notassigned any value to the assignment agreement or to the rights granted toGlendora or received from Glendora, as the assignment agreement assigns theright to pursue a purchase agreement with Suntek andnot a negotiated purchase agreement, neither SCL norGlendora then had contractually binding rights to acquire an interest in Suntek and, therefore, the agreement and rights did nothave any measurable value. As noted above, Glendora has since terminated itsproposed acquisition of Suntek.

 

During the period ended March 31, 2005, Glendorathrough its legal representative in China filed a claim with the Guangzhouauthorities against Suntek for recovery of the $2.2million advance, asserting that Suntek breached itsobligations under the acquisition agreement between Suntekand Glendora’s acquisition subsidiary. This filing now gives Glendora the right to arbitrate.  In connection with such filing, the Companybased on the advice of its legal counsel in China, has determined that Glendoracan recover the principal balance of $2.2 million; however, Glendora isunlikely to be able to recover interest accrued on the advance.   Consequently, as Glendora has no otherassets or sources of income, during the three months ended March 31, 2005,interest income was not accrued and interest accrued through December 31,2004 of $158,950 was reversed.

 

**4.****                                     ****ACQUISITIONS**

 

In August 2004, SCLcompleted a series of contractual arrangements. As part of the contractualarrangements, SCL acquired 99.99% of the registeredcapital 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’sexecutives as a nominal holder in order to meet local Hong Kong legalrequirements. OIHL is the sole owner and holder ofall the registered capital of Ocean Tian  Di Communication Technology Co., Ltd. (Guangzhou), a whollyowned foreign enterprise (“OTDC”). OTDC has entered into an exclusive service and supportagreement with Weida  PRC,effective as of September 1, 2004, which provides for OTDCto provide support services to Weida  PRC in exchange for receiving service fees.

 

As described in Note 1, pursuant to the terms of thecontractual arrangements, SCL has acquired effectivemajority ownership and control of Weida  PRC through a trust agreement for 51% of its shares and aneffective 51% profit-sharing interest in Weida  PRC. Pursuant to the trust agreement, the shareholders of Weida  PRC hold 51% of the sharesof Weida  PRC in trust forthe benefit of SCL. These shareholders may onlytransfer or dispose of the shares held in trust upon written instructions from SCL and must at all times exercise the voting rights of theshares held in trust at the direction of SCL Underthe contractual arrangements, SCL can designate threeof Weida  PRC’s fivedirectors.

 

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

 

The acquisitions of the Company were made for thepurpose of providing products and services for satellite-based communicationsnetwork in the People’s Republic of China.

 

The acquisitions were accounted for as a purchase inaccordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Business Combinations.  The assets and liabilities acquired are basedupon fair value.  The excess of theliabilities assumed over total assets acquired was recorded as goodwill.

 

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The following is a summary of the assets acquiredand liabilities assumed as of the date of acquisition of WeidaPRC:

 
| Current  Assets:                |   |      |       |
|---------------------------------|--------|-----------|------------|
| Cash                            |   | $         | 37,368     |   |
| Accounts  receivable, net       |   | 13,078    |       |
| Inventories                     |   | 721,951   |       |
| Prepaid  expenses               |   | 236,941   |       |
| Total  current assets           |   | 1,009,338 |       |
|                            |   |      |       |
| Property,  plant and equipment  |   | 1,905,015 |       |
|                            |   |      |       |
| Total Assets                    |   | $         | 2,914,353  |   |
|                            |   |      |       |
| Current  Liabilities:           |   |      |       |
| Accounts  payable               |   | $         | 696,357    |   |
| Accrued  expenses               |   | 53,850    |       |
| Deferred  revenue               |   | 70,657    |       |
| Amounts due  to shareholders    |   | 236,930   |       |
| Amounts due  to related parties |   | 2,093,404 |       |
| Short term  borrowing           |   | 24,165    |       |
| Bank loan                       |   | 2,416,451 |       |
| Total  current liabilities      |   | $         | 5,591,814  |   |
|                            |   |      |       |
| Net  Liabilities (Goodwill)     |   | $         | (2,677,461 | ) |

 

The following unauditedpro forma consolidated results of operations give effect to the acquisition of Weida  PRC as if it occurred as ofthe beginning of the period:

 
| ** **                                   | ** ** | **Nine months ended** | ** ** |
|----------------------------------------------|------------|-----------------------|------------|
| ** **                                   | ** ** | **March 31,**    | ** ** |
| ** **                                   | ** ** | **2005**              | ** ** | **2004** | ** ** |
|                                         |       |                  |       |   |   |
| Revenue                                      |       | $                     | 346,793    |   | $ | 72,207 |   |
| Loss from  operations                        |       | $                     | (6,792,957 | ) | $ | (2,935,261 | ) |
| Net loss                                     |       | $                     | (6,981,082 | ) | $ | (3,014,853 | ) |
| Basic and  diluted net loss per common share |       | $                     | 0.09       |   | $ | 0.04 |   |

 

**5.****                     ****BANK LOAN**

 

The bank loan outstanding asof March 31, 2005 payable in RMB 20,000,000($2,416,451) bears interest at 5.84% per annum, was due on May 13, 2005and has been extended to June 30, 2005.  The loan is guaranteed by arelated party, who is one of the Existing Shareholders who holds 95% of the sharesof Weida  PRC. Thatguarantee is in turn secured by the shares of Weida  PRC held by the related party, including substantially allof the 51% held in trust by Existing Shareholders for the benefit of SCL.

 

**6.****                     ****INCOME TAXES**

 

The Company is located in a jurisdiction where ithas no 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 thePRC is generally 33%. However, preferential taxtreatment of a wholly owned subsidiary of the Company in the PRC has been agreed with the relevant tax authorities. Thesubsidiary is entitled to a one year exemption from income tax for anyprofit-making year commencing the calendar year 2003.

 

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**7.  SHAREHOLDERS’ EQUITY**

 

On August 20, 2004, theCompany filed a restated Certificate of Incorporation.  The total number of shares the Company isauthorized to issue is 400,000,000 shares of common stock and 10,000,000 sharesof preferred stock, no par value per share. The common stock has voting rights and subject to any preferencesrelating to dividends, voting and liquidation rights of preferred stock whichmay be issued in the future.

 

**8.****                     ****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 issuableupon the exercise of 3,919,128 outstanding stock warrants as of March 31,2005.

 

**9.****                     ****COMMITMENTS ANDCONTINGENCIES**

 

(i) On March 30,2005, the Company settled a dispute with a former employee relating to claimsfor unpaid salaries and severance payments under the terms of an assertedemployment contract dated March 1, 2003 between him and SCL.  The settlementagreement requires the Company to pay the former employee $425,000 payable asfollows:  $150,000 due April 15,2005 and the balance payable in thirty equal monthly installments, plusinterest at 6% per annum.  In addition,the Company is required to issue 1,200,000 shares of restricted stock to theformer employee as part of the settlement. During the period ended March 31, 2005, selling, general andadministrative costs include $327,000 of compensation cost in connection withthis settlement and claim settlement payable was increased by $315,000 andshareholders’ equity by $12,000 for the value of the 1,200,000 shares to beissued.

 

(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 Mitchell Sepaniak, the president, chiefexecutive officer and a shareholder of the Company, was also a chief executiveofficer, commencing early 2003, has recently asserted claims in New York Statecourt against SCL, Teleflex and Mr. Sepaniak. The plaintiff’s petition alleges failure on thepart of Mr. Sepaniak and Teleflex to comply withcorporate formalities such as holding annual meetings and also allegescorporate waste, and is seeking various relief, including allowing shareholdersto inspect the books and records, including balance sheets and earningsstatements. The former chief financial officer has also asserted claims againstSCL, Teleflex and Mr. Sepaniakfor 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.

 

(iv)  See Note 11 below for events subsequent to March 31,2005 that may materially adversely affect the Company, its operations andfinancial condition.

 

**10.****                              ****RELATED PARTY TRANSACTIONS**

 

(i) On December 3,2003, the Company entered into a consulting agreement with Carl Lanzisera, the former president and current member of theCompany’s board of directors. The agreement provides for Mr. Lanzisera to assist the Company in structuring, operatingand growing the Company’s business. The agreement was for a term ending on December 31,2004 and provided 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 $5.50 per share. The totalconsideration under the agreement amounted to $237,500.  This consulting agreement has expired andwill not be renewed.

 

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(ii) SCL has enteredinto a consulting agreement with Anthony Giordano, a beneficial holder of theCompany’s common stock, effective as of April 1, 2004. The agreementprovides for Mr. Giordano to assist SCL or theCompany as a consultant by evaluating prospective merger, acquisition andfinancing transactions that are presented to SCL orthe Company. 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.  Subsequent toMarch 31, 2005, Mr. Giordano had agreed to terminate payments underthe agreement effective as of May 2005. Payments under this consultingagreement have been suspended as of April 30, 2005 pending the outcome ofthe events described in Note 11.

 

(iii) Certain shareholders contributed capitalto fund the Company’s operations through 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 indicatedhe will not demand the repayment of $270,000 prior to July 2006.

 

**11.****              ****SUBSEQUENT EVENTS**

 

OnApril 22, 2005, Anthony Giordano, one of the Company’s major shareholders,and Joseph Zumwalt, then chief financial officer ofthe Company, were arrested and charged with thirty five counts of fraudassociated with alleged illegal activities in connection with an independentinvestment entity that is also one of the Company’s shareholders.  The Company was not charged by the Federalgovernment; however, the Company’s bank accounts were initially frozen by courtorder at the request of the Federal government, apparently due to the Company’sassociation with the two individuals.  Inaddition, the SEC suspended trading in the Company’s shares from April 15,2005, through May 6, 2005. The freeze on the Company’s operating cash bankaccounts was later voluntarily lifted by the federal government, at Weida’s request, and the Company’s shares resumed tradingon May 9, 2005.  The Company hassince terminated Mr. Zumwalt for cause.

 

OnMay 6, 2005, the Company received a subpoena from the SEC requestingdocuments in connection with its investigation of certain matters involving Weida’s securities, and on May 16, 2005 received anadditional subpoena from the SEC for certain computer records.  

 

TheCompany is cooperating with the SEC and federal and Florida State legalenforcement in connection with these investigations. The Company has also begunits own internal investigation by outside counsel and accountants.

 

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**ITEM 2—Management’s Discussion and Analysis of FinancialCondition 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 current SEC and federalinvestigations involving the Company and persons associated with the Company,the Company’s urgent need for additional financing to continue perations, the need for equity financing in order toconsummate the acquisition of a legal ownership interest in WeidaPRC, limited operating history, the Company’shistorical and likely future losses, uncertain regulatory landscape in the People’sRepublic of China, fluctuations in quarterly operating results, the Company’sreliance on the provision of VSAT-basedcommunications services for the majority of its revenues, changes in technologyand market requirements, decline in demand for the Company’s products,inability to timely develop and introduce new technologies, products andapplications, 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.*

 

**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 VSATcommunications (the only other privately-owned company recently holding alicense was merged into a joint government venture in January 2004). Weida  PRC’s satellite operationsin China provide ground-based equipment and related services to supportgovernment and corporate applications, including broadband Internet access,remote meter monitoring, and mission-critical data backup systems.  On May 20,2003, we and three shareholders owning an aggregate of approximately 67% of ouroutstanding common stock (prior to giving effect to a one-for-four reversestock split that took effect on June 11, 2004) entered into a shareexchange agreement with SCL and certain of itsshareholders. Upon satisfaction of the terms and conditions of the share exchangeagreement, as amended, the closing of the share exchange (the “Exchange”) wasconsummated on June 11, 2004, at which time SCLbecame our wholly-owned subsidiary and the shareholders of SCLwere issued shares representing approximately 96.5% of our outstanding shares.The Exchange has been accounted for as a reverse acquisition in which SCL is the acquirer for accounting purposes. Uponcompletion of the Exchange, we changed our name from Laser Recording Systems, Inc.to Weida Communications, Inc.

 

As a result of the Exchange (i) thehistorical financial statements of the Company for periods prior to theExchange are those of SCL and the historicalfinancial statements of Laser Recording Systems, Inc. for periods prior tothe Exchange are no longer presented; (ii) all references to the financialstatements of the Company apply to the historical financial statements of SCL prior to the Exchange and the consolidated financialstatements of the Company and its subsidiaries subsequent to the Exchange; and (iii) allreferences to the Company apply to SCL prior to theExchange, and Weida Communications, Inc. and itssubsidiaries subsequent to the Exchange.

 

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

 

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*Results of Operations*

 

Weida PRC is currently our only source ofrevenue.  Our operations up through September 30,2004 have been principally activities to complete the acquisition of Weida  PRC.  Consequently, management does not believe ananalysis of third quarter 2005 to third quarter 2004 change in revenue and costof sales is meaningful at this time.  Forthe three months and nine months ended March 31, 2005, cost of sales of$442,839 and $910,205, respectively, exceeded revenues because cost of salesinclude fixed cost for leasing of equipment

 

Selling,General and Administrative Costs

 

Forthe three months ended March 31, 2005, we incurred total selling, generaland administrative costs of $968,889 which included $131,923 for salaries,$(264,120) for legal fees (the latter reflecting a reversal of $450,000 in feespayable and settled by the issuance of common stock prior to June 30,2004), $231,270 for accounting and auditor fees and $327,000 for cost ofsettlement of claims.  For the threemonths ended March 31, 2004, we incurred total selling, general andadministrative cost of $682,630.

 

Forthe nine months ended March 31, 2005, we incurred total selling, generaland administrative costs of $5,951,717 which includes $370,531 for salaries,$595,289 for legal fees, $553,612 for accounting and auditor fees and $327,000for cost of settlement of claims.  Thecosts incurred during this period included expenses ofWeida  PRC consolidated forthe period from August 2004 through March 31, 2005.  For the nine months ended March 31,2004, we incurred total selling, general and administrative costs of$1,725,863.

 

*Liquidity and Capital Resources*

 

As shown in the condensed consolidated financialstatements, at March 31, 2005 we had consolidated negative working capitalof approximately $2.3 million and an accumulated deficit of approximately $9.8million.  Since SCL’sformation in May 2003, we have funded all of our operating expenses anddeficit from the net proceeds of private placements of our shares and warrantsto private investors and, to a lesser extent, from shareholder loans. 

 

During the nine months ended March 31, 2005,proceeds of private placements of our shares totaled approximately $6.8million, thereby providing the approximately $5.4 million in net cash used inoperating activities and the approximately $1.0 million used in investingactivities during the period.  During thenine months ended March 31, 2004, proceeds of private placements of ourshares totaled approximately $0.9 million, and additional capital contributionsfrom existing shareholders totaled approximately $1.0 million, therebyproviding almost all of the approximately $0.2 million in net cash used inoperating activities and the approximately $1.8 million used in investingactivities during the period.  Ouroperations up through September 30, 2004 were principally activities tocomplete the Share Exchange and the acquisition of WeidaPRC. Consequently, management does not believe an analysis of year-to-yearchanges in cash flow items for the nine months ended March 31, 2005compared to the nine months ended March 31, 2004 is meaningful at thistime. 

 

At March 31, 2005, we had total consolidatedassets of $15,965,755. Included in total assets is a promissory note issued byGlendora Management Ltd. (“Glendora”), a British Virgin Islands corporation, toSCL in the amount of $2.2 million representing advances paid on behalf ofGlendora as of that date in connection with a then proposed acquisition byGlendora of a 51% interest in a Sino-foreign Equity Joint Venture withGuangzhou Suntek New Tech R&D Co., Ltd. (“Suntek”).  Glendorahas certain shareholders that are also shareholders of the Company, and during2003 the chief executive officer of Glendora was also the chief executive of SCL.  Borrowingsunder the note receivable bear interest at the London InterbankOffered Rate plus 200 basis points (effective rate of 5.84% at March 31,2005), with interest andprincipal due five years from the date of the note. Glendora has granted ageneral security interest in and to all of its tangible and intangible propertyand assets of any kind as collateral for the note receivable (which assets asof March 31, 2005 consisted solely of a loan receivable to Glendora’sacquisition subsidiary from Suntek).  Glendora previously also had the right tocomplete the acquisition of Suntek described abovebut Glendora terminated the proposed acquisition in 2004 and has requested thereturn of the $2.2 million advance.  Thecarrying amount of this note receivable approximates its fair value.

 

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Additionally, SCL and Glendoraon August 1, 2003 had signed an assignment agreement whereby SCL had granted Glendora the rights to enter into theacquisition transaction with Suntek which werepreviously held by SCL, in exchange for a rightgranted to SCL to require Glendora at any time withinthe next 24 months to negotiate in good faith with SCLwith respect to a possible acquisition of Glendora by SCLusing SCL shares. Management of the Company had notassigned any value to the assignment agreement or to the rights granted to Glendoraor received from Glendora, as the assignment agreement assigns the right topursue a purchase agreement with Suntek and not anegotiated purchase agreement, neither SCL norGlendora then had contractually binding rights to acquire an interest in Suntek and, therefore, the agreement and rights did nothave any measurable value. As noted above, Glendora has since terminated itsproposed acquisition of Suntek. 

 

During the period ended March 31, 2005,Glendora through its legal representative in China filed a claim with theGuangzhou authorities against Suntek for recovery ofthe $2.2 million advance, asserting that Suntekbreached its obligations under the acquisition agreement between Suntek and Glendora’s acquisition subsidiary.  This filing now gives Glendora the right toarbitrate.  In connection with suchfiling, the Company based on the advice of its legal counsel in China, hasdetermined that Glendora can recover the principal balance of $2.2 million;however, Glendora is unlikely to be able to recover interest accrued on theadvance.   Consequently, as Glendora hasno other assets or sources of income, during the three months ended March 31,2005, interest income was not accrued and interest accrued through December 31,2004 of $158,950 was reversed. 

 

The Company operates through WeidaPRC.  If Weida  PRC or our othersubsidiaries incur debt in the future, the instruments governing the debt mayrestrict their ability to pay fees or make other payments or distributions tous.  In addition, Chinese law requiresthat payment of dividends by our subsidiaries that are incorporated in Chinacan only be made out of their net income, if any, determined in accordance withChinese accounting standards and regulations. Under Chinese law, those subsidiaries are also required to set aside aportion, up to 10% of their after-tax net income each year to fund certainreserve funds, and these reserves are not distributable as dividends.  Any limitation on the payment of fees by Weida  PRC or dividends by oursubsidiaries generally could materially adversely affect our ability to grow,fund investments, make acquisitions, pay dividends, and otherwise fund andconduct our business.

 

As of March 31, 2005, the bank loan payable of RMB 20,000,000 $2,416,451 has been extended to June 30,2005 and as part of the settlement and to obtain 100% ownership of Weida  PRC (including the sharesin Weida  PRC held by aguarantor of the loan), the Company has agreed in principle to repay this loanover the next twelve months beginning in June 2005 and ending in June 2006.

 

In part as a result of the events described in Note11 to our financial statements, our current cash and cash equivalents andfunding commitments described below are not sufficient for us to sustainpresent operations beyond the second calendar quarter of 2005. We will needadditional funding to continue operations as an ongoing entity. We are in theprocess of attempting to raise additional privatefunding to satisfy these requirements. 

 

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

 

***Potentially dilutive business combinationtransactions.*********

 

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 combinationparties may be privately owned or publicly traded entities, and may be locatedin the PRC, elsewhere in Asia, in the United States,or in another jurisdiction.  In view ofour limited operating history, our lack of substantial revenues to date, oursubstantial operating losses, and, in particular, the highly limited public “float”,otherwise limited liquidity and thin trading volume of our shares and theprospect of substantial numbers of shares becoming freely tradeablewithin the next six to nine months (which risks are described in greater detailbelow), if we were to consummate a business combination transaction with athird party, there is a substantial likelihood that the terms of suchcombination transaction will not fully reflect the current market price of ourCommon Stock, and will in fact be at a substantial discount to such marketprice.

 

15

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***Sales of largeamounts of our common stock in the public market could depress the market priceof our common stock and impair the ability to raise capital through offeringsof equity securities.***

 

None of theshares of our common stock issued to SCL’sshareholders in the June 2004 share exchange were, and none of the sharesof our common stock sold and issuable to investorsand advisors in recent private placement transactions or which may be issued tothe former OIHL shareholders will be, registeredunder the Securities Act. Accordingly, most of our shareholders will not beable to sell their shares unless they are later registered or covered by anavailable exemption such as Rule 144. As a result of these restrictions,the market for our common stock has remained “thin” for some time, with tradingin the shares limited to less than 1 million shares (excluding shares subjectto a one-year lockup) out of almost 75 million shares outstanding.  We may determine to register the shares ofone or more other holders of common stock, at any time or from time to time. Ifholders of our common stock sell substantial numbers of shares in the publicmarkets, the price of our common stock may fall, making it more difficult toraise capital.

 

Under Rule 144,each of the holders of the 69,809,480 shares issued to SCL’sshareholders in the exchange will be eligible to sell up to 1% of ouroutstanding common stock every three months commencing June 11, 2005, andeach of the holders of shares of our common stock sold to investors andadvisors in recent private placement transactions or to the former OIHL shareholders will be eligible to sell up to 1% of ouroutstanding common stock every three months commencing 12 months after thoseshares are issued (subject in each case to the restrictions on volume, mannerof sale and other conditions of Rule 144). SCLshareholders who received shares of our common stock in the exchange and whoare not “affiliates” of the Company will be able to sell all of their shares ofcommon stock commencing June 11, 2006. Recent investors and advisors in private placement transactions and theformer OIHL shareholders who are not “affiliates” ofthe Company will be able to sell all of their shares of common stock commencing24 months after those shares are issued. The sale or prospective sale of these shares could impede the ability toraise capital for some time to come.

 

**Recently Issued AccountingPronouncements**

 

In November 2004, the FASBissued SFAS No. 151, “Inventory Costs – anamendment of ARB No. 43, Chapter 4”. SFAS No. 151 clarifies the accounting that requiresabnormal amounts of idle facility expenses, freight, handling costs, andspoilage costs to be recognized as current-period charges. It also requiresthat allocation of fixed production overheads to the costs of conversion bebased on the normal capacity of the production facilities. SFASNo. 151 will be effective for inventory costs incurred on or after June 15,2005. The Company is currently evaluating the impact of this standard on itsconsolidated financial statements.

 

In December 2004, the FASBissued SFAS No. 123R, “Share-Based Payment”.  This statement is a revision to SFAS No. 123 and supercedesAPB Opinion No. 25.  This statementestablishes standards for the accounting for transactions in which an entityexchanges its equity instruments for goods or services, primarily focusing onthe accounting for transactions in which an entity obtains employee services inshare-based payment transactions. Entities will be required to measure the cost of employee servicesreceived in exchange for an award of equity instruments based on the grant-datefair value of the award (with limited exceptions).  That cost will be recognized over the periodduring which an employee is required to provide service, the requisite serviceperiod (usually the vesting period), in exchange for the award.  The grant-date fair value of employee shareoptions and similar instruments will be estimated using option-pricingmodels.  If an equity award is modifiedafter the grant date, incremental compensation cost will be recognized in anamount equal to the excess of the fair value of the modified award over thefair value of the original award immediately before the modification.  This statement is effective as of thebeginning of the first interim or annual reporting period that begins after June 15,2005.  In accordance with the standard,the Company will adopt SFAS No. 123R effective July 1,2005.

 

Upon adoption, the Company has two applicationmethods to choose from: the modified-prospective transition approach or themodified-retrospective transition approach. Under the modified-prospective transition method, the Company would berequired to recognize compensation cost for share-based awards to employeesbased on their grant-date fair value from the beginning of the fiscal period inwhich the recognition provisions are first applied as well as compensation costfor awards that were granted prior to, but not vested as of the date ofadoption.  Prior periods remain unchangedand pro forma disclosures previously required by SFASNo. 123 continue to be required. Under the modified-retrospective transition method, the Company would restateprior periods by recognizing compensation cost in the amounts previouslyreported in the pro forma footnote disclosure under SFASNo. 123.  Under this method, theCompany is permitted to apply this presentation to all periods presented or tothe start of the

 

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fiscal year inwhich SFAS No. 123R is adopted.  The Company would follow the same guidelinesas in the modified-prospective transition method for awards granted subsequentto adoption and those that were granted and not yet vested.  The adoption of SFASNo. 123R is not expected to have a material impact on the Company’sconsolidated financial statements. 

 

In December 2004, the FASBissued SFAS No. 153, “Exchanges of Nonmonetary Assets-An Amendment of APB Opinion No. 29,Accounting for Nonmonetary Transactions”.  SFAS No. 153eliminates the exception from fair value measurement for nonmonetaryexchanges of similar productive assets in paragraph 21(b) of AccountingPrinciples Board Opinion No. 29, “Accounting for NonmonetaryTransactions”, and replaces it with an exception for exchanges that do not havecommercial substance.  SFAS No. 153 specifies that a nonmonetaryexchange has commercial substance if the future cash flows of the entity areexpected to change significantly as a result of the exchange.  SFAS No. 153is effective for the fiscal periods beginning after June 15, 2005.  The Company is currently evaluating theeffect that the adoption of SFAS No. 153 willhave on its financial statements but does not expect it to have a materialimpact.

 

**Contractual Obligations**

 

As of March 31, 2005, our future contractualcash obligations are as follows:

 
| ** **                       | ** ** | **Payments due by period** | ** **    |
|----------------------------------|------------|----------------------------|---------------|
| ** **                       | ** ** | **Total**                  | ** **    | **2005** | ** ** | **2006 – 2007** | ** ** | **2008 – 2009** | ** ** | **2010 and  thereafter** | ** ** |
| **Contractual  Obligations (1)** | ** ** | ** **                 | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating  Leases                | ** ** | **$**                      | **4,060,486** | ** ** | **$** | **346,706** | ** ** | **$** | **2,631,749** | ** ** | **$** | **1,082,031** |   | $ | 0 |   |
| Long-Term  Obligations (2)       |       | 270,000                    |          | 0 |   | 270,000 |   | 0 |   | 0 |   |
| **Total**                        | ** ** | **$**                      | **4,330,486** | ** ** | **$** | **346,706** | ** ** | **$** | **2,901,749** | ** ** | **$** | **1,082,031** |   | $ | 0 |   |

 

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(1) Wedo not have any purchase obligations other than standard purchase orders in theordinary course of business. We do not have 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 in 2007-2008,our board of directors believes the loan will be repaid during such time.

 

**Contingent Consideration**

 

In connection with our acquisition of control of anda 51% profit-sharing interest in Weida  PRC, we will be required to issue 16,296,296 shares of theCompany’s common stock and to pay approximately $15.8 million as follows:

 

•                  $805,153 in cash to the WeidaPRC shareholders, which payment shall also be deemedto satisfy our obligation to make 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 bemade upon the consummation of a service and support agreement, execution anddelivery of all of the other agreements described in our Annual Report on Form 10-Kfor the fiscal year ended June 30, 2004 and satisfaction of certain duediligence requests of SCL, as more fully described inour Annual Report on Form 10-K for the fiscal year ended June 30,2004. Not all of these conditions had been satisfied as of December 31, 2004or as of the date of this Quarterly Report on Form 10-Q. Thepayments of cash are required to be made only if the conditions to theformation of the Weida  EJVdiscussed in the Form 10-K for the fiscal year ended June 30,2004 have been completed and the Weida  EJV has been formed and has a valid business licenseshowing SCL’s 25% equity ownership.  Such contingent consideration have not beenrecorded as a liability or included in determining the cost of the acquiredentities.

 

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On February 4, 2005, the Company and theExisting Shareholders agreed in principle to modify the terms of the masteragreement by entering into a revised master agreement.  As of March 31, 2005, the revised masteragreement was not fully effective.  Therevised master agreement, if and when fully effective, would provide for thetransfer of all of the Existing Shareholders’ equity interest in Weida  PRC to the Trust, so thatthe Trustee holds 100% of the shares of Weida  PRC.  The ExistingShareholders would then be entitled to receive the following in lieu of the16,296,296 shares and $15,805,135 described above:

 

h.              $1,000,000 cash, upon the Company completinga private placement of its equity securities or other financing:

i.                  $1,000,000 cash, at December 31, 2005:

j.                  $1,000,000 cash, at December 31, 2006:

k.               2,666,666 shares of the Company, uponachieving 2005 financial goals:

l.                  2,666,666 shares of the Company, uponachieving 2006 financial goals:

m.            2,666,666 shares of the Company, uponachieving 2007 financial goals:

n.              1,000,000 shares of the Company each year for4 years, with one-fourth upon signing employment contracts, based uponachieving financial goals and management by objectives (“MBO’s”)(with CEO approval), with a strike price of $.50 to $1.00, exercisable over 3years, with Board approval, and one-fourth similarly for each year of theemployment contract.

 

**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 Renminbimay impact our financial condition and results of operations.  Our foreignexchange exposure is presently exclusively related to activities associatedwith Weida  PRC.  TheCompany does not attempt to manage these risks by entering into forwardexchange contracts.  We do not use derivative financial instruments forspeculative or trading purposes.  Therefore, no quantitative tabulardisclosures are required.

 

**ITEM 4—Controls and Procedures**

 

The Company is required to maintain disclosurecontrols and procedures (as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended,(the “Exchange Act”)) that are designed 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 and to delay the filing of the Form 10-Q for the period ended December 31,2004 for several weeks (the Form 10-Q not being filed until April 2005),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 a combination of significant deficiencies, that results in more than aremote likelihood that a material misstatement of the annual or interimfinancial statements will not be prevented or detected) and, as a resultthereof, reevaluated its disclosure controls and procedures over theconsolidation of the Company’s acquisition and concluded that these controlswere not effective.

 

The Company is taking steps to identify, rectify andprevent the recurrence of the circumstances that resulted in the determinationto restate the condensed consolidated financial statements for the period endedSeptember 30, 2004 and the delay in the filing of the Form 10-Qfor the period ended December 31, 2004. As part of this undertaking, theCompany intends to incorporate additional levels of review of the processes andsupporting documentation, including but not limited to those for theconsolidation process. The Company believes these enhancements to its systemsof internal control over financial reporting and disclosure controls andprocedures will be adequate to provide reasonable assurance that the controlobjectives will be met.

 

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**PART II—OTHERINFORMATION**

 

**ITEM 1—Legal Proceedings**

 

(a)  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 Mitchell Sepaniak, the president, chiefexecutive officer and a shareholder of the Company, was also a chief executiveofficer, commencing early 2003, has asserted claims in New York State courtagainst SCL, Teleflex and Mr. Sepaniak. The plaintiff’s petition alleges failure on thepart of Mr. Sepaniak and Teleflex to comply withcorporate formalities such as holding annual meetings and also allegescorporate waste, and is seeking various relief, including allowing shareholdersto inspect the books and records, including balance sheets and earningsstatements. The former chief financial officer has also asserted claims againstSCL, Teleflex and Mr. Sepaniakfor 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.

 

(b) On April 22, 2005, Anthony Giordano,one of the Company’s major shareholders, and Joseph Zumwalt,then former chief financial officer of the Company, were arrested and chargedwith thirty five counts of fraud associated with alleged illegal activities inconnection with an independent investment entity that specializes in hedgefunds, which is also one of the Company’s shareholders.  The Company was not charged by the Federalgovernment; however, the Company’s bank accounts were initially frozen by courtorder at the request of the Federal government, apparently due to the Company’sits association with the two individuals. In addition, the SEC suspended trading in the Company’s shares from April 15,2005, through May 6, 2005. The freeze on the Company’s operating cash bankaccounts was later voluntarily lifted by the federal government, at Weida’s request, and the Company’s shares resumed tradingon May 9, 2005. The Company is cooperating fully with the FBI, FederalProsecutor and the State of Florida with their ongoing investigations ofAnthony Giordano and Joseph Zumwalt. The Company hassince terminated Mr. Zumwalt for cause.

 

On May 6, 2005, the Company received a subpoenafrom the SEC requesting documents in connection with its investigation ofcertain matters involving Weida’s securities, and on May 16,2005 received an additional subpoena from the SEC for certain computer records,needed for its investigation of the private funding and procedures of theCompany.  

 

The Company is cooperating fully with the SEC andfederal and Florida State legal enforcement in connection with theseinvestigations.  

 

The Company has also begun its own internalinvestigation by outside counsel and accountants.  

 

(c)  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.

 

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

 

Not applicable.

 

**ITEM 3—Defaults upon Senior Securities**

 

Not applicable.

 

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**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: June 13, 2005 | By:        |                                       | /s/ Mitchell Sepaniak |   |
|                      |       | **Mitchell Sepaniak**                      |
| ** **                |       | **President  and Chief Executive Officer** |
| ** **                | ** ** | ** **                                 |
| Dated: June 13, 2005 | By:        |                                       | /s/ Meilin Yu |   |
| ** **                | ** ** | **Meilin****Yu**                           |
| ** **                |       | **Interim  Chief Financial Officer**       |

 

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**EXHIBIT INDEX**

 
| **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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