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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934. For the fiscal year ended December 31, 2002.
OR
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ________________ to
________________.
Commission File Number: 001-26539
EUPA INTERNATIONAL CORPORATION
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(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
Nevada 88-0409450
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
89 N. San Gabriel Blvd.
Pasadena, CA 91107
----------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Registrant's telephone number, including area code: 626-793-2688
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common
Stock, $0.001 par value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $33,350,323.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 26, 2003, was $159,801.
The number of shares of common stock outstanding as of March 26, 2003
was 21,000,024.
PART I
The information set forth in this Report on Form 10-KSB including,
without limitation, that contained in Item 6, Management's Discussion and
Analysis and Plan of Operation, contains "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results may
materially differ from those projected in the forward-looking statements as a
result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual future
results will not be different from the expectations expressed in this report.
The information set forth in this Annual Report on Form 10-KSB with
respect to the outstanding capital stock of EUPA International Corporation has
been adjusted to give effect to a 19.940179 to 1 forward split undertaken on
October 16, 2001.
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS
EUPA International Corporation ("EUPA"), formerly Access Network
Corporation, was incorporated on September 8, 1998 under the laws of the state
of Nevada. EUPA has two subsidiaries, Tsann Kuen U.S.A. ("TK USA"), an Illinois
corporation formed in June 1990, and Union Channel Limited ("Union Channel"), a
Hong Kong company formed on September 28, 2001 and which commenced operations
during the quarter ended March 31, 2002. EUPA, TK USA and Union Channel are
sometimes collectively referred to in this report as the "Company".
Until October, 2001, Access Network engaged in the business of
marketing and selling gift packaging to small businesses and individuals acting
as independent sales agents for direct marketing entities. During 2001, Access
Network's management determined that this business would not be viable in the
long run and sought out alternatives to maximize shareholder value.
On October 12, 2001, Access Network changed its name to EUPA
International Corporation and, on October 23, 2001, EUPA acquired all of the
issued and outstanding capital stock of TK USA from Tsann Kuen Enterprise
Company, Ltd. ("TKE") pursuant to an Exchange Agreement, dated as of October 10,
2001, by and among EUPA, TKE, TK USA and certain of EUPA's shareholders (the
"Exchange Agreement"). TK USA had been a wholly-owned subsidiary of TKE.
Pursuant to the Exchange Agreement, TK USA became EUPA's wholly-owned subsidiary
and, in exchange for the TK USA shares, EUPA issued 12,000,000 shares of its
common stock to TKE, representing 60% of the EUPA's outstanding capital stock at
that time.
TK USA is the United States market research, design, supply and sales
arm of TKE. TKE designs, manufactures and sells a range of small and medium size
electric products and appliances for the home, including coffee makers, electric
grills, irons, toaster ovens, motor-driven products and vacuum cleaners. All of
the products are sold to numerous brand name companies. TKE products are sold in
over 80 countries throughout the world. Common household items such as the
George Forman
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line of grills (marketed by Salton Inc.) were designed by the Company and
manufactured by TKE in China. The Company believes that TKE is the largest
manufacturer of coffee makers, electric grills and irons in the world. The
Company believes that TKE maintains a leading market position in the manufacture
of many household products as a result of innovative products designed to meet
consumer needs and esthetic preferences, strong relationships with customers and
its ability to manufacture its products at low cost.
The Company currently markets TKE products in the United States for TKE
through an internal sales force. TK USA does not recognize sales revenue from
the sale of TKE products in the United States. Rather, it interfaces with TKE
customers in the United States and processes orders. TK USA is then paid a
service fee, or commission, on each sale. TK USA's commission income generally
equals its costs. Accordingly, the Company does not and will not realize
significant net income from TK USA's operations in the United States.
Until the first quarter of 2002, the Company's operations consisted of
TK USA's business of designing products and sourcing orders for TKE in the
United States. The Comapny commenced operations in Asia during the March 31,
2002 quarter through its newly formed Union Channel subsidiary. Union Channel
was formed to be the outsourcing supplier of TKE for TKE's clients in Asia and
Europe in accordance with the Company's business plan. At the time of its
formation, Union Channel did not have operations which were independent of TKE.
All of its purchases are made from TKE and all of its sales are made to Tsann
Kuen China Enterprises Co., Ltd. ("TKE China"), a subsidiary of TKE.
However, after two quarters of operation, management determined that
Union Channel could not efficiently operate in Asia and Europe because it did
not have the requisite human resources and customer support, and to put this
infrastructure in place would not be cost-efficient. As a result, management
terminated Union Channel's operation in the third quarter of 2002 so that the
Company could focus on searching for more profitable business opportunities in
the United States or internationally.
The Company previously announced plans to open and operate in China and
Japan "3C" stores, which would be part of a chain of retail appliance and
electronics stores which TKE successfully operates in Taiwan. During the third
quarter of 2002, the Company organized a specialized team to conduct a market
survey in Mainland China. As a result of this survey, the Company determined
that there are high entry barriers in Mainland China, which include restrictions
on the acquisition of retail licenses, local government regulations and cultural
differentiation. In order to avoid taking unexpected risk in a highly
competitive market, the Company is in the process of analyzing the market
information and data collected. The Company cannot predict at this time when, or
if, it will be able to participate in opening the 3C stores in Mainland China.
To partially offset the effect of the discontinuation of the Union
Channel operations and management's decision to defer the opening of 3C stores
under EUPA, management has determined to accelerate its plan to derive revenues
from TK USA's research and development activities. TK USA subsidiary devotes
significant time and resources to the design and development of small
appliances. Some of TKE's products are the result of TK USA's design efforts.
Beginning in fiscal year 2003, the Company will become the primary research and
development center for TKE products to be marketed in the U.S. In this regard,
the TK USA has entered into a formal Product Design Contract with TKE to
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engage in market analysis and product design and development. For these
activities, TK USA will receive design fees for the products developed and the
royalty income from the patents used, which it has not done in the past. The
scope of work and the amount of the fees are determined on a project by project
basis, with the amount of the design fee to be generally based on the complexity
of the products designed. Although the Company will in the future generate
additional revenue from its product design activities for TKE, for the
foreseeable future, the Company will not realize significant revenue or profit
due to the start-up nature of these design activities and because of the
required research and development expenditures to be incurred in connection with
product development.
COMPETITIVE ADVANTAGES.
The Company believes that its principal competitive strengths are:
DESIGN AND DEVELOPMENT ABILITY. TK USA, as the major research and
development center for TKE in the U.S., put a high emphasis on product design
and the Company's management believes that the Company will continue to benefit
from the reputation TKE has among brand name distributors for its innovative
product design. In designing new products, the design centers analyze market
trends, social shifts, economics, aesthetics, ergonomics and new materials and
production methods and work closely with customers to identify consumer needs.
New products are constantly being developed to meet changing consumer needs
which will create additional ongoing revenue for the Company.
The increasing health consciousness of consumers creates a gap between
the products that consumers need and those provided by manufacturers. Through
the Company's research and development center, the Company will be able to
shorten the process and lead time from product ideas to actually put them into
production. This kind of prompt reaction to the market trend is where the
Company's strength lies. To maintain the advantage in research and development,
the Company expects to expand its research and development center to accommodate
the needs of TKE for more new product launches and product improvements. The
Company will:
- Establish the review and select index to choose the most
valuable product to design;
- Establish performance evaluation system to make sure the
smoothness of product development.
The Company's goal is to help TKE achieve profitable growth and low
cost operations through constantly improving the research and development
effectiveness and expediting the deployment of new products. As TKE's business
grows in the U.S., our design fee and royalty income will also increase.
HIGH QUALITY AND LOW COST PRODUCTION. TKE products are designed to meet
many international manufacturing standards, including VDE, BS, UL, SAA, CSA,
SEMKO, T-Mark and TVU. TKE's Taiwan operations are ISO 9001 certified and
products manufactured in China are ISO 9002 certified. The Company believes that
TKE is one of the few manufacturers whose products have two ISO recognitions.
TKE operates state of the art facilities in China and manufactures its own
molds. This allows TKE to produce products at lower cost than other
manufacturers. In particular, management believes that TKE's ability to produce
small home appliances such as coffee makers, electric grills and irons in mass
quantities enables TKE to sell such products at prices lower than those offered
by other vendors. As the sales for TKE products in the U.S. increase, the
Company will receive more royalty
4
income from the patents used on those products sold in the market. The high
quality and low cost advantages that TKE's products possess are beneficial to TK
USA's sales business
BUSINESS STRATEGY.
Our primary strategy is to be the anchor for TKE activities in the U.S.
Therefore, the Company is not only performing a research and development
function, but also acts as the information center for TKE. The following
initiatives are adopted to foster the research and development activities, and
to maintain the ongoing sales business:
NEW PRODUCTS AND PRODUCT LINE EXTENSION. The Company plans to increase
sales of products in the U.S. through strong product development initiatives,
including modifying and enhancing existing TKE products, expanding existing TKE
product lines and introducing new products. TK USA plans to increase cooperation
with TKE in product design and development, including modifying and enhancing
existing TKE products, expanding existing TKE product lines and introducing new
products. The Company conducts extensive market research and works closely with
brand names and distributors in the U.S. to identify consumer needs and
preferences and to develop new products to satisfy consumer demand.
CULTIVATE RELATIONSHIPS WITH NEW AND EXISTING CUSTOMERS. The home
appliance industry is going through a period of consolidation and the Company
expects that distributors will continue to consolidate their vendor base by
dealing primarily with a smaller number of suppliers that can provide them with
a broad array of innovative, differentiated and quality products. The Company
has been able to establish and intends to continue to build strong relationships
with the Company's distribution customers based on TKE's frequent product
innovation, high level of customer service, breadth of product offerings,
reputation for quality products and TKE's low cost manufacturing capabilities.
The Company will seek to maintain TKE's strong relationships with a broad array
of distributors and cultivate new relationships as part of the Company's
marketing strategy. The Company will continue to seek to establish "partnership"
relationships with TK USA's customers by offering them "one stop shopping" for a
wide variety of appliance and consumer electronics products. The Company plans
to attract and support customers who are consolidating their vendor
relationships to achieve greater purchasing and operating economies.
RESEARCH AND DEVELOPMENT
Management believes that the foundation of TKE's success is its
dedication to its research and development operations. Growth is driven by
ensuring that products manufactured by TKE are both technologically advanced and
aesthetically pleasing. The Company designs the style, features and
functionality of products for TKE to anticipate consumer demand rather than to
merely react to customer needs. The Company carefully analyzes market trends to
facilitate product development and design.
To address different consumer preferences around the world, TKE
maintains research and development centers in Taiwan, China, United States, and
Japan. TKE's use of in-house industrial designers, technicians and engineers as
well as other outside specialists has been a major strength in obtaining and
increasing TKE's business.
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Beginning in 2003, TK USA will become the major research and
development center for TKE products targeting in the U.S., which will result in
additional revenue for the Company from design fees for product moulds and the
ongoing royalties for the patents used in these products. Because of the
location of TK USA, TK USA assumes responsibility for the collection of market
trend, consumer taste and the competitors' information in the U.S market.
Pursuant to a Product Design Contract, TKUSA designs products for TKE on a
project by project basis. TKUSA intends to adjust the size of its full-time
research and development personnel based on the project needs. TKUSA from time
to time will engage outsourcing with outside designers to support its projects.
If necessary, TKUSA will recruit more full-time designers.
MARKETING AND DISTRIBUTION
The Company does not engage in extensive public marketing activities.
Rather, the Company directs its marketing efforts toward expanding TK USA's
product offerings to TK USA's existing customers although the Company intends to
seek to expand TK USA's customer base in the future. With TKE's broad array of
branded product offerings, reputation for quality and value-added marketing
services, such as customized merchandise planning, inventory management and
just-in-time delivery, The Company believes that it is one of the few companies
that can act as a "one-stop shop" to retailers of home appliances and consumer
electronics.
QUALITY CONTROL
Most of the products the Company supplies are manufactured by TKE and
its affiliated companies in Taiwan and China. All of TKE factories are ISO 9000
certified. Quality assurance is particularly important to the Company and TKE's
product shipments are required to satisfy quality control tests established by
its internal product design and engineering department.
COMPETITION
The small electronic products industry is mature and highly fragmented.
Competition is based upon price, manufacturing quality, costs and product
features and enhancements. The Company believes that its success lies on whether
the Company can assist TKE to offer a broad range of existing products and to
continually introduce new products and enhancements of existing products that
have substantial consumer appeals based upon price, design, performance and
features.
EMPLOYEES
As of December 31, 2002, the Company employed 7 employees at the
Company's Pasadena, California headquarters. None of the Company employees are
covered by any collective bargaining agreement. The Company generally considers
its relationship with its employees to be satisfactory and have never
experienced a work stoppage.
REGULATION
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Most of TKE's products are subject to federal, state and local
regulations concerning consumer products safety. Foreign jurisdictions also have
regulatory authorities overseeing the safety of consumer products. In general,
the Company has not experienced difficulty complying with such regulations and
compliance has not had an adverse effect on the Company's business.
PATENTS
The Company holds certain patents registered in the United States and
foreign countries for various TKE manufactured products and processes. The
Company considers these patents to be of considerable value and of material
importance to the Company's business. However, new products to be developed for
TKE under the Design Contract will be owned by TKE.
WARRANTIES
TKE products are generally sold with a limited one-year warranty from
the date of purchase. In the case of defects in material or workmanship, the
Company agrees to replace or repair the defective product without charge.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy
statements and other information with the SEC. The Company's SEC filings are
available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document the Company files at
the SEC's public reference rooms in Washington, D.C.. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room.
ITEM 2. DESCRIPTION OF PROPERTIES
Our principal executive offices are located at 89 N. San Gabriel Blvd,
Pasadena California in a 44,762 square foot building owned by the Company of
which the Company occupies 31,582 square feet. The Company believes that the
Company's principal executive offices are adequate to meet the Company's needs.
ITEM 3. LEGAL PROCEEDINGS
On November 30, 2001, Mir Kazem Kasheni ("Plaintiff") filed a complaint
in Los Angeles Superior Court against TKE China, Tsann Kuen Enterprise (USA)
Co., Ltd., TK USA, Tsann Kuen Shanghai Enterprise Co., Ltd. and TKE. Plaintiff
filed an amendment to the complaint on December 7, 2001 to add EUPA as a
defendant. Plaintiff filed another amendment to the complaint on March 15, 2002.
Plaintiff alleged breach of contract arising out of a letter of intent, dated
November 28, 2000, among Plaintiff, TKE China, Manoutcher Nikfarjam and Shantia
Hassaushahi (the "Letter of Intent"), related to the design, manufacture,
assembly and sale of TKE China's products in Iran. Plaintiff alleged that Tsann
Kuen Enterprise (USA) Co., Ltd., TK USA, Tsann Kuen Shanghai Enterprise Co.,
Ltd. and TKE are the "alter egos" of one another and, therefore, should be
responsible for TKE China's obligations under the Letter of Intent. Plaintiff
claims to have spent $750,000 in reliance on the Letter of Intent and to have
lost profits of $10 million. Plaintiff also alleges that the defendants
defrauded him with respect to the defendants' relationships with one another,
their corporate status and business locations.
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On February 5, 2003, the Superior Court granted summary judgement in
favor of the defendants. The Company plans to vigorously contest any appeal of
this judgment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this Annual
Report on Form 10-KSB, no matters were submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since October 18, 2001, the Company's shares have been quoted on the
OTC Bulletin Board under the trading symbol "EUPA". The Company's shares were
originally approved for quotation on the OTC Bulletin Board in July 2000 under
the symbol "ACSJ". However, no public trading market for the Company's common
stock took place until October 2001. The following table sets forth, for the
periods indicated, the range of high and low closing bid quotations for each
quarter during the last two fiscal years. The bid quotations set forth below
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
HIGH LOW
----- -----
Fiscal Year Ended December 31, 2001
First Quarter.......................................... n/a n/a
Second Quarter......................................... n/a n/a
Third Quarter.......................................... n/a n/a
Fourth Quarter......................................... $9.00 $9.00
Fiscal Year Ended December 31, 2002
First Quarter.......................................... $9.65 $8.12
Second Quarter......................................... 10.00 5.00
Third Quarter.......................................... 6.25 0.55
Fourth Quarter......................................... 0.75 $0.08
On March 25, 2003, the last reported sales price for the Company's
shares on the OTC Bulletin Board was $0.022 per share. At March 26, 2003, the
Company had 945 stockholders of record.
The Company has never paid cash dividends on the Company's common stock
and does not expect to pay such dividends in the foreseeable future. The Company
currently intends to retain any future earnings for the Company's business. The
payment of any future dividends on the Company's common stock will be determined
by the Company's Board in light of the conditions then existing, including the
Company's financial condition and requirements, future prospects, restrictions
in future financing agreements, business conditions and other factors deemed
relevant by the Board.
8
RECENT SALE OF UNREGISTERED SECURITIES
The securities described below were issued by the Company during the
year ended December 31, 2002 and not registered under the Securities Act of 1933
(the "Act") or previously reported. Except as set forth below, each of the
transactions is claimed to be exempt from registration with the Securities
Exchange Commission under Section 4(2) of the Act as transactions by an issuer
not involving a public offering or under Regulation D or Regulation S under the
Act. All certificates representing the Company's issued and outstanding
restricted securities contain appropriate text detailing their restricted status
and the Company has issued "stop transfer" instructions to its transfer agent
with respect to such securities. No commissions were paid in connection with any
of these issuances.
1. On October 23, 2001, the Company issued 700,000 warrants with an
exercise price of $0.01. These warrants were exercised in August 2002.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The information contained in this Item 2, Management's Discussion and
Analysis and results of operations, contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results may
materially differ from those projected in the forward-looking statements as a
result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual future
results will not be different from the expectations expressed in this report.
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's results of operations and financial condition. The discussion should
be read in conjunction with the Company's audited consolidated financial
statements for the fiscal year ended December 31, 2001 and notes thereto
appearing elsewhere in this Annual Report on Form 10-K.
EUPA International Corporation (formerly Access Network Corporation)
was incorporated on September 8, 1998 under the laws of the State of Nevada. TK
USA was incorporated under the laws of the State of Illinois in June 1990. On
October 23, 2001, TK USA became a wholly owned subsidiary of EUPA through a
transaction accounted for as a reverse merger. In the transaction, EUPA acquired
all of the issued and outstanding capital stock of TK USA from Tsann Kuen
Enterprise Co., Ltd. ("TKE") pursuant to an Exchange Agreement dated as of
October 10, 2001 by and among TKE, TK USA and EUPA (the "Exchange Agreement").
Pursuant to the Exchange Agreement, TK USA became a wholly owned subsidiary of
EUPA and, in exchange for the TK USA shares, EUPA issued 12,000,000 shares of
its common stock to TKE, representing 60% of the issued and outstanding capital
stock of EUPA at that time. Prior to the merger, EUPA had nominal business
activity. This activity is not material to the historical financial statements
of TK USA, and therefore pro forma operating results as if the acquisition had
taken place at the beginning of the periods presented have not been presented.
For accounting purposes, TK USA has been treated as the acquirer and,
accordingly, TK USA is presented as the continuing entity, and the historical
financial statements are those of TK USA through the date of the Exchange
Agreement. From the date of the Exchange Agreement forward, the activity of EUPA
includes its parent level expenses and the
9
operations of its two wholly owned subsidiaries, TK USA and Union Channel
Limited.
TK USA is the United States market research, design, supply and sales
arm of TKE. It currently markets TKE products in the United States for TKE
through an internal sales force. All of the products are sold to numerous brand
name companies. TK USA does not recognize sales revenue from the sale of TKE
products in the United States. Rather, it interfaces with TKE customers in the
United States and processes orders. TK USA is then paid a service fee, or
commission, on each sale. TKE's commission income generally equals its costs.
EUPA does not and will not realize significant net income from TK USA's
operations in the United States.
EUPA commenced operations in Asia during the March 31, 2002 quarter
through Union Channel. Union Channel was incorporated in Hong Kong in January
2002. Union Channel was formed to be the leading supplier of TKE products in
Asia and Europe. However, Union Channel was not intended to have independent
operations. All of its purchases were made from TKE and all of its sales were
made to TKC China, an operating subsidiary of TKE.
However, after two quarters of operation, management determined that
Union Channel could not efficiently operate in Asia and Europe because it did
not have the requisite human resources and customer support, and to put this
infrastructure in place would not be cost-efficient. As a result, management
terminated Union Channel's operation in the third quarter of 2002 so that EUPA
could focus on searching for more profitable business opportunities in the
United States or internationally. This will materially reduce EUPA's revenues
for the balance of the year, although management does not believe that it will
have a material impact on net operating results.
To partially offset the effect of the discontinuation of the Union
Channel operations, management has determined to accelerate its plan to derive
revenues from EUPA's research and development activities. EUPA's TK USA
subsidiary devotes significant time and resources to the design and development
of small appliances. Some of TKE's products are the result of TK USA's design
efforts. Beginning in the third quarter of 2002, pursuant to a Product Design
Contract TK USA began to receive fees for market research, product design and
product engineering. The fees will be based upon the type of product and the
difficulty of design. In addition TK USA will receive ongoing royalties for
patents used starting in 2003.
RESULTS OF OPERATIONS
The consolidated financial statements for the year ended December 31,
2002 include the accounts of EUPA and its wholly owned subsidiaries, TK USA and
Union Channel. For the fiscal year ended December 31, 2001, the consolidated
financial statements include the accounts of EUPA and its subsidiary, TK USA.
REVENUE. The Company's net revenues for the year ended December 31,
2002 totaled $33,350,323, in comparison to revenue of $1,052,684 for the year
ended December 31, 2001. The fee income of $1,052,684 for the year ended
December 31, 2001 was derived exclusively from service fees, or commissions,
paid by TKE China to TK USA, with respect to sales made to customers in the
United States. Beginning in January 2002, this commission fee arrangement was
terminated and a similar arrangement was put in place between TKE China and
Union Channel. The arrangement with Union
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Channel ceased at the end of the second quarter of 2002 as a result of the
cessation of the Union Channel operations. The arrangement between TKE China,
TKE and TK USA resumed in the third quarter of 2002. Revenue for the year ended
December 31, 2002 was derived exclusively by the operations of Union Channel
which began during the first two quarters, and the fee income $954,500 as of
Dec. 31, 2002 was the result of the product design fee operations of TK USA
started from the third quarter of 2002. TK USA has been engaged in the design
and development of small home appliances for TKE for a long time, but it had not
previously charged for these services. Design services are currently rendered
exclusively to TKE pursuant to a design service agreement between TK USA and TKE
that expired on December 31, 2002. The fees are based upon the complexity of the
design with payment made quarterly.
OPERATING EXPENSES. Operating expenses for the fiscal years ended
December 31, 2002 and 2001 totaled $1,672,571 and $1,037,431, respectively.
Operating expenses includes items such as selling and marketing expenses, plus
general and administrative expenses such as legal, accounting, consulting and
expenses like salaries and wages and research and development expenses incurred
during this period. The increase is largely attributed to legal and accounting
fees related to compliance with public company obligations.
NON-OPERATING INCOME (EXPENSE). Non-operating expense for the year
ended December 31, 2002 was $334,694 compared to non-operating income of
$128,258 for the year ended December 31, 2001. Included in the 2002 figure is a
bad debt expense of $417,574, offset by $14,256 of interest income and $67,800
of rental income. Non-operating income during the year ended December 31, 2001
included $58,667 and $73,857 of interest income and rental income, respectively.
NET INCOME. For the year ended December 31, 2002 the Company incurred a
net loss of $353,817 compared to a profit of $54,584 for the year ended December
31, 2001. The net loss in 2002 was almost exclusively the result of the accrual
of bad debt expense of $417,514. The Net loss per share basic and diluted were
($0.017) and ($0.016), respectively in 2002 compared with the Net earnings per
share basic and diluted were both $0.0041 in 2001. The weighted average shares
outstanding for the year ended December 31, 2002 was 20,550,000 for basic and
22,300,000 diluted. The weighted average shares outstanding for the year ending
December 31, 2001 was 13,333,334 and 13,461,111 for basic and diluted. Basic
income per share is computed by dividing net income attributable to common
stockholders by the weighted average number of common shares outstanding.
Diluted income per share is computed similar to basic earnings per share except
that the denominator is increased to include common stock equivalents (options
and warrants) as if the potential common shares had been issued.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced a huge increase from its cash balances of
$490,667 as of December 31, 2001 to 3,148,655 as of December 31, 2002 as a
result of the operation of Union Channel. The Company believes it will be able
to generate revenue from the design fee and future royalties to provide the
necessary cash flow to meet anticipated working capital requirements. The
Company's current assets totaled $6,259,137 and $1,289,024 on December 31, 2002
and 2001, respectively. Total assets were $7,492,319 and $2,613,213 on December
31, 2002 and 2001, respectively. The increase in current assets and total assets
were mainly due to the increase in accounts receivables from related parties and
increase in the cash and cash equivalents position because of the operation of
Union Channel. The Company's current liabilities totaled $5,353,119 and $148,295
at December 31, 2002 and
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2001, respectively. The accounts payables and accrued expenses to related
parties were $5,284,559 and $67,529, respectively. The resulted working capital
totaled $906,019 and $1,140,729 on December 31, 2002 and 2001, respectively.
Total liabilities were $5,357,219 and $148,265 on December 31, 2002 and 2001,
respectively. The increase in liabilities is primarily due to the account
payables to the related parties. Net cash provided (used) by operating
activities totaled $2,797,079 and ($800,750) for the years ended December 31,
2002 and 2001, respectively. Cash used in investing activities was $141,091,
which consisted of the costs associated with the obtaining of patent rights in
2002; while cash provided by investing activities in 2001 was $1,341,681, which
included proceeds from the sale of the shares of TK USA's Japanese subsidiary
and the cash used to obtain patents rights. Net cash provided by (used for)
financing activities totaled $2,000 and $(600,000) for the years ended December
31, 2002 and 2001, respectively. The $2,000 was provided by the sale of common
stocks in 2002 and the $600,000 was to pay off the mortgage in 2001.
Working Capital Requirements. Cash needs of the Company are currently
met by the Company's operations. From time to time, the Company's daily
operation is supported by advances from TKE if EUPA temporarily encounters money
shortage. These loans will be paid back by EUPA's revenue to TKE. Therefore, the
management believes that its current financial resources will be sufficient to
finance its operations for TK USA and obligations (current and long-term
liabilities) for the long and short term. The Company believes that its products
design fees and ongoing royalties with TK USA will provide adequate working
capital for the expenses for EUPA and TK USA. However, the Company consolidated
actual working capital needs for the long and short term will depend upon
numerous factors, including the Company's operating results, the cost of
increasing the research and development activities, and the availability of
existing credit facilities for TKE, none of which can be predicted with
certainty.
FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE RESULTS AND FINANCIAL CONDITIONS
Investing in the Company's securities involves a high degree of risk.
In addition to the other information contained in this annual report, including
the reports the Company incorporates by reference, you should consider the
following factors before investing in the Company's securities.
TKE CONTROLS THE COMPANY'S BUSINESS.
TKE owns more than 50% of the Company's outstanding capital stock. As a
result, TKE will be able to control the Company's business and affairs,
including the composition of the Company's board of directors or authorizing
corporate transactions such as mergers or sales of the Company's assets.
However, the interests of TKE may not be consistent with the interests of the
Company's other investors since it could take action that may not be in the best
interests of the Company's other investors.
WE ARE DEPENDENT ON TKE FOR THE COMPANY'S PRODUCT SUPPLY, SALES AND CAPITAL
REQUIREMENTS.
12
TKE is the major manufacturer of the products the Company supplies and
the major customer for the Company's design services. As a result, any change in
the cost of manufacturing these products will have a material adverse impact on
the Company's profit margins.
In addition to the Company's operational dependence on TKE, the Company
does not currently have an independent source of capital or lines of credit. All
of the Company's operations will initially be funded by TKE. Accordingly, any
change in TKE's financial condition or liquidity could have an impact on the
Company's ability to operate the Company's business.
MANY OR THE COMPANY'S EMPLOYEES WILL ALSO PERFORM SERVICES FOR TKE WHICH COULD
RESULT IN THEIR ATTENTION BEING DIVERTED FROM THE COMPANY'S BUSINESS.
Our success will depend, to some degree, on the efforts of the
Company's employees. Many of the Company's officers and employees will also be
employed by TKE. As a result, their full time, attention and energies will not
be directed to the Company's business. If the attention of the Company's
officers is diverted from the Company's business, the Company may not be able to
realize the full potential of the Company's business opportunities.
IF WE DO NOT DEVELOP AND INTRODUCE NEW TKE PRODUCTS, THE COMPANY'S ABILITY TO
GROW THE COMPANY'S BUSINESS WILL BE LIMITED.
The Company believes that its future success will depend in part upon
the Company's ability to continue to develop innovative designs in the products
manufactured by TKE and to develop and market new products for which the Company
will derive revenue and ongoing royalty income from patents used on those
products. The Company may not be successful in introducing or supplying any new
products or product innovations to TKE's existing products which satisfy
customer needs or achieve market acceptance. The failure to develop products and
introduce them successfully and in a timely manner would harm the Company's
ability to grow the Company's business.
A SLOWDOWN IN THE RETAIL INDUSTRY WILL LIKELY HAVE AN ADVERSE EFFECT ON THE
COMPANY'S RESULTS.
The products that the Company supplies are ultimately sold to consumers
through major retail channels, primarily mass merchandisers, department stores,
specialty stores and mail order catalogs. Changes in general economic conditions
will cause reductions in demand among consumers and retailers for the kind of
products the Company supplies. As a result, the Company's business and financial
results will fluctuate with the financial condition of the Company's retail
customers and the retail industry.
THE COMPETITIVE NATURE OF THE SMALL APPLIANCE INDUSTRY MAY CREATE PRICE
PRESSURES ON US.
The small household appliance industry is highly competitive and the
Company's ability to succeed is based upon the Company's and TKE's ability to
compete effectively. The Company believes
13
that competition is based upon several factors, including price, product
features and enhancements, new product introductions and customer delivery
needs.
The current general slowdown in the retail sector has resulted in, and
the Company expects it to continue to result in, additional pricing pressures on
the Company's customers and, as a result, upon the Company. The Company competes
with many manufacturing companies, some of which have substantially greater
facilities, personnel, financial and other resources than the Company has.
Significant new competitors or increased competition from existing competitors
may adversely affect the Company's business, financial condition and results of
operations.
IF ANY OF THE PRODUCTS WE SUPPLY INFRINGE ON THE RIGHTS OF OTHERS, WE COULD
SUFFER SIGNIFICANT FINANCIAL LOSS.
The Company and TKE hold numerous patents on the products that the
Company supplies and these proprietary rights are essential to the Company's
business. The Company's patents could be challenged by others or invalidated
through administrative process or litigation. This process could be costly and
time consuming and would divert the attention of management and key personnel
from other business issues. If any of the Company's patents are successfully
challenged, we could be required to pay a significant damage award and could no
longer supply these products. This would have an impact on both the Company's
sales and costs.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS COULD INCREASE THE COMPANY'S OPERATING
COSTS AND INTERFERE WITH THE COMPANY'S BUSINESS EFFORT.
Most federal, state and local authorities require certification by
Underwriters Laboratory, Inc., an independent, not-for-profit corporation
engaged in the testing of products for compliance with certain public safety
standards, or other safety regulation certification prior to marketing
electrical appliances. Foreign jurisdictions also have regulatory authorities
overseeing the safety of consumer products. TKE products, or additional
electrical appliances which may be developed by the Company or TKE, may not meet
the specifications required by these authorities. A determination that the
Company's products are not in compliance with these rules and regulations could
result in the imposition of fines or an award of damages to private litigants.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of EUPA International Corporation
and its subsidiaries including the notes thereto, together with the report
thereon of Lichter, Weil & Associates. is presented beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
14
EUPA INTERNATIONAL CORPORATION
AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002 AND 2001
Table of Contents
Page
-----
INDEPENDENT AUDITOR'S REPORT......................................... 1
FINANCIAL STATEMENTS:
Statements of Financial Position............................ 2
Statements of Operations.................................... 3
Statements of Stockholders' Equity.......................... 4
Statements of Cash Flows.................................... 5
Notes to Financial Statements............................... 6-16
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(Formerly Access Network Corporation)
Pasadena, California
We have audited the consolidated statement of financial position of Eupa
International, Inc. and its subsidiaries as of December 31 2002, and the related
consolidated statements of operations and stockholders' equity and cash flows
for the twelve months then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of Eupa International, Inc. and its subsidiaries as of December 31,
2001, were audited by other auditors whose report dated April 5, 2002, expressed
an unqualified opinion on those statements. We did not audit the financial
statements of Union Channel, Ltd., a wholly owned subsidiary, which statements
reflect total assets and revenues constituting 72 percent and 97 percent,
respectively, of the related consolidated totals. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for Union Channel, Ltd., is based
solely on the report of the other auditors.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit and the report of
the other auditors provide a reasonable basis for our opinion.
In our opinion, the 2002 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Eupa
International, Inc. as of December 31, 2002, and the results of its operations
and its cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
March 20, 2003
San Diego, California
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, 2002 AND 2001
ASSETS
2002 2001
---------- ----------
Current Assets
Cash and cash equivalents $3,148,655 $ 490,667
Accounts receivable, related parties, net 3,110,482 165,520
Accounts receivable, other 0 615,924
Prepaid expenses 0 9,055
Deferred income taxes 0 7,858
---------- ----------
Total Current Assets 6,259,137 1,289,024
---------- ----------
Fixed Assets
Property, furniture and equipment (net) 886,412 1,072,267
---------- ----------
Total Fixed Assets 886,412 1,072,267
---------- ----------
Other Assets
Intangible assets, net 338,400 243,552
Deposits 8,370 8,370
---------- ----------
Total Other Assets 346,770 251,922
---------- ----------
Total Assets $7,492,319 $2,613,213
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 37,878 $ 80,766
Accounts payable and accrued expenses, related parties 5,284,559 67,529
Income taxes payable 30,681 0
---------- ----------
Total Current Liabilities 5,353,118 148,295
Deposits payable 4,100 0
---------- ----------
Total Liabilities 5,357,218 148,295
---------- ----------
Stockholders' Equity
Common stock, $.001 par value, 25,000,000
shares authorized, 20,900,000 and 20,000,000
issued and outstanding, respectively 20,900 20,000
Additional paid in capital 1,907,203 1,884,103
Retained earnings 206,998 560,815
---------- ----------
Total Stockholders' Equity 2,135,101 2,464,918
---------- ----------
Total Liabilities and Stockholders' Equity $7,492,319 $2,613,213
========== ==========
See Accompanying Notes and Accountants' Report
2
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
------------ ------------
Sales, net $ 32,395,823 $ 0
Fee income 954,500 1,052,684
------------ ------------
Total revenue 33,350,323 1,052,684
Cost of sales 31,571,335 0
------------ ------------
Gross profit 1,778,988 1,052,684
Selling expenses 55,065 0
General and administrative expenses 1,617,506 1,037,431
------------ ------------
Income (loss) from operations 106,417 15,253
------------ ------------
Other (Income) Expense
Interest income (14,256) (58,667)
Rental income (67,800) (73,857)
Bad debt expense 417,574 0
Interest expense 0 4,266
Miscellaneous (824) 0
------------ ------------
Total Other (Income) Expense 334,694 (128,258)
------------ ------------
Income (loss) before income taxes (228,277) 143,511
Provison for income taxes 125,540 88,927
------------ ------------
Net income (loss) ($ 353,817) $ 54,584
============ ============
Net loss per share (basic and diluted)
Basic ($ 0.017) $ 0.0041
Diluted ($ 0.016) $ 0.0041
Weighted average number of shares
Basic 20,550,000 13,333,334
Diluted 22,300,000 13,461,111
See Accompanying Notes and Accountants' Report
3
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED STATEMENTS CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) ($ 353,817) $ 54,584
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 232,098 45,669
Stock options issued for services 22,000 3,700
Decrease (Increase) in receivables (2,944,962) (26,191)
Decrease (Increase) in other receivables 615,924 0
Decrease (Increase) in prepaid expenses 9,055 (9,055)
Decrease (Increase) in inventory 0 0
Decrease (Increase) in deferred income taxes 7,858 2,425
(Decrease) Increase in accounts payable
and accrued expenses 5,174,142 (871,882)
(Decrease) Increase in deposits payable 4,100 0
(Decrease) Increase in income taxes payable 30,681 0
----------- -----------
Total Adjustments 3,150,896 (855,334)
----------- -----------
Net cash provided by (used in) operations 2,797,079 (800,750)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (1,384) (16,329)
Proceeds from sale of TKE Japan 0 1,500,000
Increase in intangible assets (139,707) (141,990)
----------- -----------
Net cash provided by (used in) investing activities (141,091) 1,341,681
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment on mortgage 0 (600,000)
Sale of common stock 2,000 0
----------- -----------
Net cash provided by financing activities 2,000 (600,000)
----------- -----------
Net change in cash and cash equivalents 2,657,988 (59,069)
----------- -----------
Cash and cash equivalents at beginning of year 490,667 549,736
----------- -----------
Cash and cash equivalents at end of year $ 3,148,655 $ 490,667
=========== ===========
Supplemental cash flows disclosures:
Interest paid $ 0 $ 4,266
----------- -----------
Income tax payments $ 50,558 $ 242,765
----------- -----------
Non cash investing and financing activities:
Stock issued for services $ 22,000 $ 3,700
----------- -----------
See Accompanying Notes and Accountants' Report
4
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
DECEMBER 31, 2002 AND 2001
2002 2001
------------ ------------
Common stock, number of shares outstanding
Balance at beginning of period 20,000,000 12,000,000
Issuance of common stock 900,000 0
Issuance of common stock for TKE USA 0 8,000,000
------------ ------------
Balance at end of period 20,900,000 20,000,000
============ ============
Common stock, par value $.001 (thousands of shares)
Balance at beginning of period $ 20,000 $ 12,000
Issuance of common stock 900 0
Issuance of common stock for TKE USA 0 8,000
------------ ------------
Balance at end of period 20,900 20,000
------------ ------------
Additional paid in capital
Balance at beginning of period 1,884,103 1,888,403
Issuance of common stock for TKE USA 0 (8,000)
Issuance of common stock 8,100 0
Issuance of stock options for service 22,000 3,700
------------ ------------
Balance at end of period 1,914,203 1,884,103
------------ ------------
Stock subscription receivable
Balance at beginning of period 0 0
Issuance of common stock (7,000) 0
Payment for common stock 0 0
------------ ------------
Balance at end of period (7,000) 0
------------ ------------
Retained earnings
Balance at beginning of period 560,815 506,231
Net income (loss) (353,817) 54,584
------------ ------------
Balance at end of period 206,998 560,815
------------ ------------
Total Stockholders' Equity at end of period $ 2,135,101 $ 2,464,918
============ ============
See Accompanying Notes and Accountants' Report
5
NOTE A ORGANIZATION:
EUPA International Corporation ("EUPA"), formerly Access
Network Corporation, was incorporated on September 8, 1998
under the laws of the State of Nevada. Tsann Kuen U.S.A. ("TK
USA") was incorporated under the laws of the State of Illinois
in June 1990. Union Channel Limited ("Union Channel") was
incorporated in Hong Kong on September 28, 2001 and
commenced operation during the quarter ended March 31, 2002.
TK USA and Union Channel are owned 100% by EUPA, collectively
the three corporations are referred to as the "Company".
On October 23, 2001, TK USA became a wholly owned subsidiary
of EUPA through a reverse merger. EUPA acquired all of the
issued and outstanding capital stock of TK USA from Tsann Kuen
Enterprise Co., Ltd. ("TKE") Pursuant to an Exchange Agreement
dated as of October 10, 2001 by and among TKE, TK USA and EUPA
(the "Exchange Agreement"). Pursuant to the Exchange
Agreement, TK USA became a wholly owned subsidiary of EUPA
and, in exchange for the TK USA shares; EUPA issued 12,000,000
shares of its common stock to TKE, representing 60% of the
issued and outstanding capital stock of EUPA at that time.
Prior to the merger, EUPA had nominal business activity. This
activity is not material to the historical financial
statements of TK USA, and therefore pro forma operating
results as if the acquisition had taken place at the beginning
of the periods presented have not been presented. For
accounting purposes, TK USA has been treated as the acquirer
and, accordingly, TK USA is presented as the continuing
entity, and the historical financial statements are those of
TK USA.
TK USA is the United States market research, design, supply
and sales arm of TKE. TKE is a worldwide leader for more than
20 years in the manufacture and design of home appliance and
consumer electronic products for international brand name
distributors.
Union Channel was established to become the leading outsource
supplier for TKE in Asia and Europe. Union Channel has sales
and purchasing arrangements with TKE, Tsann Kuen China
Enterprise Co., Ltd. ("TKC") and Tsann Kuen China (Shanghai)
Enterprise Co., Ltd. ("TKS"), all are related parties. TKC
and TKS are operating subsidiaries of TKE. Sales to TKC were
approximately $23,699,344 for the year ended December 31,
2002. Included in accounts receivable from related parties
at December 31, 2002 is approximately $2,829,073. Included
in accounts payable as of December 31, 2002 is approximately
$4,736,687 to related parties. The activities of Union
Channel have been discontinued beginning in the third quarter
of 2002.
TKE products are sold in over 80 countries around the world.
Its major products are: small appliances including irons,
coffee makers, grills, and food processors; medium size
appliances which include microwave ovens, electromagnetic
ovens, electric cookers and vacuum cleaners.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION:
The consolidated financial statements for December 31, 2002
include the accounts of EUPA and its wholly owned subsidiaries
TK USA and Union Channel. The consolidated financial
statements for December 31, 2001 include the accounts of EUPA
and its wholly owned subsidiary, TK USA. All references
herein to the Company include the consolidated results of
EUPA and its subsidiaries. All significant intercompany
accounts and transaction have been eliminated upon
consolidation.
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION:
Revenue from sales of products to customers is recognized upon
shipment or when title passes to customers based on the terms
of the sales, and is recorded net of returns, discounts and
allowances. Service income is recognized as the related
services are provided per terms of the service agreement.
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, cash equivalents
include all highly liquid debt instruments with original
maturities of three months or less which are not securing any
corporate obligations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
The Company provides an allowance for loss on receivables
based on a review of the current status of existing
receivables, historical collection experience, subsequent
collections and management's evaluation of the effect of
existing economic conditions.
PROPERTY AND EQUIPMENT:
Property and Equipment are carried at cost. Property additions
and betterments are charged to the property accounts, while
maintenance and repairs are expensed as incurred. Whenever an
asset is retired or disposed of, its cost and accumulated
depreciation or amortization is removed from the respective
accounts, and the resulting gain or loss is credited or
charges to income.
Depreciation is computed using the straight-line and
declining-balance methods over the following estimated useful
lives:
Building and improvements 15 to 60 years
Automobiles 4 to 6 years
Machinery and equipment 5 to 12 years
Furniture and fixtures 7 years
INTANGIBLE ASSETS:
Legal fees and directly related costs to secure patents and
trademarks on behalf of the Company are capitalized.
Amortization is provided using the straight-line method over
the life of the patent or trademark or its useful life,
whichever is less.
EXCHANGE GAIN (LOSS):
During 2002, the transactions of Union Channel denominated in
foreign currency are recorded in Hong Kong dollars at the
rates of exchange in effect when the transactions occur.
Exchange gains and losses are recognized for the different
foreign exchange rates applied when the foreign currency
assets and liabilities are settled.
6
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSLATION ADJUSTMENT:
As of December 31, 2002, the accounts of Union Channel were
maintained, and its financial statements were expressed, in
Hong Kong dollars. Such financial statements were translated
into U.S. dollars in accordance with Statement of Financial
Accounts Standards ("SFAS") No. 52, "Foreign Currency
Translation", with the Hong Kong dollar as the functional
currency. According to the Statement, all assets and
liabilities were translated at the current exchange rate,
stockholder's equity are translated at the historical rates
and income statement items are translated at the average
exchange rate for the period. The resulting translation
adjustments are reported under other comprehensive income in
accordance with SFAS No. 130, "Reporting Comprehensive
Income".
As of December 31, 2002, the exchange rates between the Hong
Kong dollar and the U.S. dollar was HK$1=US$0.128225 and the
average exchange rate for the year ended December 31, 2002 was
HK$1=US$0.128211.
USE OF ESTIMATES:
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. For
certain of the Company's financial instruments, including
accounts receivable (trade and related party), notes
receivable and accounts payable (trade and related party), and
accrued expenses, the carrying amounts approximate fair value
due to their short maturities. The amounts owed for long-term
debt and revolving credit facility also approximate fair value
because interest rates and terms offered to the Company are at
current market rates.
STATEMENT OF CASH FLOWS:
In accordance with Statement of Financial Accounting Standards
No. 95, "Statement of Cash Flows", cash flows from the
Company's operations is based upon the local currencies. As a
result, amounts related to assets and liabilities reported on
the statement of cash flows will not necessarily agree with
changes in the corresponding balances on the balance sheet.
7
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk are cash, accounts receivable
and other receivables arising from its normal business
activities. The Company places its cash in what it believes to
be credit-worthy financial institutions. However, cash
balances have exceeded the FDIC insured levels at various
times during the year and at year-end. The Company has a
diversified customer base, most of which are related parties.
The Company controls credit risk related to accounts
receivable through credit approvals, credit limits and
monitoring procedures. The Company routinely assesses the
financial strength of its customers and, based upon factors
surrounding the credit risk, establishes an allowance, if
required, for un-collectible accounts and, as a consequence,
believes that its accounts receivable credit risk exposure
beyond such allowance is limited.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION:
The Company accounts for employee stock options in accordance
with APB No. 25 "Accounting for Stock Issued to Employees".
Under APB 25, the Company recognizes no compensation expense
related to employee stock options, as no options are granted
at a price below market price on the date of grant.
In 1996, SFAS No 123 "Accounting for Stock-Based
Compensation", became effective for the Company. SFAS No. 123,
which prescribes the recognition of compensation expense based
on the fair value of options on the grant date, allows
companies to continue applying APB 25 if certain pro forma
disclosures are made assuming hypothetical fair value method,
for which the Company uses the Black-Scholes option-pricing
model. For non-employee stock based compensation the Company
recognizes an expense in accordance with SFAS No. 123 and
values the equity securities based on the fair value of the
security on the date of grant. For stock-based awards the
value is based on the market value for the stock on the date
of grant and if the stock has restrictions as to
transferability a discount is provided for lack of
tradability. Stock option awards are valued using the
Black-Scholes option-pricing model where applicable, or
alternatively a book value approach. During the year ended
December 31, 2002 and 2001, the company recognized consulting
expenses of $22,000 and $3,700 for the granting of stock
options to non-employees.
INCOME TAXES:
Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on
temporary differences between the amount of taxable income and
pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial
statements.
Deferred tax assets and liabilities are included in the
financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled as
prescribed in SFAS No. 109, "Accounting for Income Taxes". As
changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income
taxes.
8
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
COMPREHENSIVE INCOME:
SFAS No. 130, "Reporting Comprehensive Income" establishes
standards for the reporting and display of comprehensive
income and its components in the financial statements. During
2000, the Company has other comprehensive income relating to
foreign currency translations and unrecognized holding gains
from marketable securities classifies as available-for-sale,
both of which were applied in the loss on disposal calculation
for Tsann Kuen Japan (see NOTE J) in 2001.
EARNINGS PER SHARE:
The Company uses SFAS No. 128, "Earnings Per Share", for
calculating the basic and diluted earnings (loss) per share.
Basic earnings (loss) per share are computed by dividing net
income (loss) attributable to common stockholders by the
weighted average number of common shares outstanding. Diluted
earnings per share are computed similar to basic earnings per
share except that the denominator is increased to include
common stock equivalents as if the potential common shares had
been issued.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE INSTRUMENTS:
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 requires the Company to
recognize all derivatives as either assets or liabilities and
measure those instruments at fair value. It further provides
criteria for derivative instruments to be designated as fair
value, cash flow and foreign currency hedges and establishes
respective accounting standards for reporting changes in the
fair value of the derivative instruments. Upon adoption, the
Company was required to adjust hedging instruments to fair
value in the balance sheet and recognize the offsetting gains
or losses as adjustments to be reported in net income or other
comprehensive income, as appropriate. For the year ended
December 31, 2000, the Company had other comprehensive income
of approximately $83,000, net of tax, as a result of the fair
value adjustment. This amount was used as a component in the
determination on the recorded loss on disposal of Tsann Kuen
Japan (see NOTE J). The Company held no derivative instruments
during 2002 and 2001.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF:
The Company adopted the provision of FASB No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". This statement requires that
long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amounts of the assets exceed the fair values of
the assets. In assessing the impairment of these identifiable
intangible assets, identifiable goodwill will be allocated on
a pro rata basis
9
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
using fair values of the assets at the original acquisition
date. In estimating expected future cash flows for determining
whether an asset is impaired and if expected future cash flows
are used in measuring assets that are impaired, assets will be
grouped at the lowest level (entity level) for which there are
identifiable cash flows that are largely independent of the
cash flows of other groups of assets. Assets to be disposed of
are reported at the lower of the carrying amount or fair value
less costs to sell. In recording an impairment loss, any
related goodwill would be reduced to zero before reducing the
carrying amount of any identified impaired asset.
For goodwill not identifiable with an impaired asset, the
Company will establish benchmarks at the lowest lever (entity
level) as its method of assessing impairment. In measuring
impairment, unidentifiable goodwill will be considered
impaired if the fair value at the lowest level is less than
its carrying amount. The fair value of unidentifiable goodwill
will be determined by subtracting the fair value of the
recognized net asset at the lowest level (excluding goodwill)
from the value at the lowest level. The amount of the
impairment loss should be equal to the difference between the
carrying amount of goodwill and the fair value of goodwill. In
the event that impairment is recognized, appropriate
disclosures would be made.
NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS:
In July 2001, The Financial Accounting Standards Board
("FASB") issued SFAS No. 141 "Business Combinations". SFAS No
141 supersedes Accounting Principles Board ("APB") No. 16 and
requires any business combinations initiated after June 30,
2001 be accounted for as a purchase; therefore, eliminating
the pooling-of-interest method defined in APB16. The statement
was effective for any business combination initiated after
June 30, 2001 and must have been applied to all business
combinations accounted for by the purchase method for which
the date of acquisition was July 1, 2001 or later. The
adoption of this statement did not have a material impact to
the Company's financial position or results of operations
since the Company has not participated in such activities
covered under this pronouncement.
In July 2001, the FASB issued SFAS No 142, "Goodwill and Other
Intangibles", SFAS No. 142 addresses the initial recognition,
measurement and amortization of intangible assets acquired
individually or with a group of other assets (but not those
acquired in a business combination) and addresses the
amortization provisions for excess cost over fair value of net
assets acquired or intangibles acquired in a business
combination. The statement is effective for fiscal years
beginning after December 15, 2001, and is effective July 1,
2001 for any intangibles acquired in a business combination
initiated after June 30, 2001. The Company does not expect the
adoption to
10
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
have material impact to the Company's financial position or
results of operations since the Company has not participated
in such activities covered under this pronouncement.
In October 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations," which requires companies to
record the fair value of a liability for asset retirement
obligations in the period in which they are incurred. The
statement applies to a company's legal obligations associated
with the retirement of a tangible long-lived asset that
results from the acquisition, construction, and development or
through the normal operation of a long-lived asset. When a
liability is initially recorded, the company would capitalize
the cost, thereby increasing the carrying amount of the
related asset. The capitalized asset retirement cost is
depreciated over the life of the respective asset while the
liability is accreted to its present value. Upon settlement of
the liability, the obligation is settled at its recorded
amount or the company incurs a gain or loss. The statement is
effective for fiscal years beginning after June 30, 2002. The
Company does not expect the adoption to have a material impact
to the Company's financial position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets." Statement
144 addresses the accounting and reporting for the impairment
or disposal of long-lived assets. The statement provides a
single accounting model for long-lived assets to be disposed
of. New criteria must be met to classify the assets as an
asset held-for-sale. This statement also focuses on reporting
the effects of a disposal of a segment of a business. This
statement is effective for fiscal years beginning after
December 15, 2001. The Company does not expect the adoption to
have material impact to the Company's financial position or
results of operations.
RECLASSIFICATION:
Certain amounts have been reclassified in prior years to be
consistent with the classification as of December 31, 2002.
NOTE C EXCHANGE AGREEMENT:
On October 23, 2001, TK USA became a wholly owned subsidiary
of EUPA through a reverse merger. EUPA acquired all of the
issued and outstanding capital stock of TK USA from Tsann Kuen
Enterprise Co., Ltd. ("TKE") pursuant to an Exchange Agreement
dated as of October 10, 2001 by and among TKE, TK USA and EUPA
(the "Exchange Agreement"). Pursuant to the Exchange
Agreement, TK USA became a wholly owned subsidiary of EUPA
and, in exchange for the TK USA shares, EUPA issued 12,000,000
shares of its common stock to TKE, representing 60% of the
issued and outstanding capital stock of EUPA at that time.
Prior to the merger, EUPA had nominal business activity. This
activity is not material to the historical financial
statements of TK USA, and therefore pro forma operating
results as if the acquisition had taken place at the beginning
of the periods presented have not been presented. For
accounting purposes, TK USA has been treated as the acquirer
and, accordingly, TK USA is presented as the continuing
entity, and the historical financial statements are those of
TK USA. EUPA and TK USA are collectively referred to as the
"Company".
11
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
NOTE D PROPERTY AND EQUIPMENT:
A summary is as follows:
2002 2001
---------- -----------
Building and improvements $ 649,988 $ 649,988
Land 400,000 400,000
Machinery and equipment 202,204 200,881
Automobiles 100,067 100,006
Furniture and fixtures 64,759 64,759
---------- -----------
1,417,018 1,415,634
Less accumulated depreciation 530,606 343,367
---------- -----------
$ 886,412 $ 1,072,267
========== ===========
NOTE E INTANGIBLE ASSETS:
A summary is as follows:
2002 2001
--------- -----------
Patents and Trademark costs $ 398,086 $ 258,378
Less accumulated amortization 59,686 14,826
--------- -----------
$ 338,400 $ 243,552
========= ===========
NOTE F COMMON STOCK:
On October 16, 2001, the Company effectuated a forward stock split of
19.940179 shares for every one issued and outstanding share of common
stock. This effect of the split is reflected for all periods presented.
The Company granted 700,000 warrants with an exercise price of $0.01 as
a broker commission in assisting to consummate the transaction. These
warrants approximated a value of $80,000, which has been netted out in
the equity section of the balance sheet. These warrants were exercised
in August 2002.
12
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
NOTE G INCENTIVE AND NON STATUTORY STOCK OPTION PLAN:
The 2001 Plan
In October 2001, the Company adopted a Stock Option Plan providing for
the issuance of up to 1,000,000 incentive stock options and
non-qualified stock options to the Company's key employees and others.
Incentive stock options may be granted at prices not less than 100% of
the fair market value at the date of the grant. Non-qualified stock
options may be granted at prices not less than 75% of the fair market
value at the date of the grant. The company has not granted any options
pursuant to this Plan during 2002 and 2001.
Non-Employee Options
In December 2001, the Company issued an option to purchase 1,000,000
shares of the Company's Common Stock at an exercise price of $0.001,
vesting over a period of five years. The options were issued in
exchange for future ongoing marketing services to be rendered to the
Company. The per unit weighted-average fair value of unit options
granted was $0.00 at the date of grant using a book value approach. The
book value approach best estimated the value of the services to be
provided. During the year ended December 31, 2002 and 2001, the Company
recognized consulting expenses of $22,000 and $3,700 for the granting
of stock options to non-employees.
NOTE H INCOME TAXES:
Income tax expense (benefit) consists of the following:
2002 2001
-------- --------
Current:
Federal $ 44,301 $ 63,047
State 1,600 15,072
Foreign 79,639 0
-------- --------
125,540 78,119
-------- --------
Deferred:
Federal -0- 7,566
State -0- 3,242
-------- --------
-0- 10,808
-------- --------
Net income tax provision (benefit) $125,540 $ 88,927
======== ========
NOTE H INCOME TAXES (CONTINUED)
13
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
Temporary differences which give rise to deferred tax assets and
liabilities at December 31, 2002 and 2001 are as follows:
2002 2001
----------- ------------
Deferred tax assets - current:
Allowance for doubtful accounts $ - 0 - $ 24,535
----------- ------------
Deferred tax liabilities - current:
Excess of tax over book R&D expense $ - 0 - $ (16,677)
----------- ------------
Net deferred tax assets - current $ - 0 - $ 7,858
=========== ============
NOTE I RELATED PARTY TRANSACTIONS:
Name of related party and relationship -
Name of related party Relationship with the Company
- --------------------- -----------------------------
Tsann Kuen Enterprise Co., Ltd. (TKE) Parent Company
Tsann Kuen (China) Enterprise Co., Ltd. (TKC) Affiliated Company
Tsann Kuen China (Shanghai) Enterprise Ltd. (TKS) Affiliated Company
Tsann Kuen Hong Kong Ltd. (TKH) Affiliated Company
Tsann Kuen Japan Co., Ltd. (TKJ) Affiliated Company
Significant related party transactions -
For the year ended December 31, 2002:
Sales income from:
TKC $ 23,699,333
==============
Service income from:
TKE $ 954,500
==============
Cost of sales to:
TKE $ 21,433,428
TKC 3,260,684
TKS 5,186,125
--------------
$ 29,880,237
==============
14
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
NOTE I RELATED PARTY TRANSACTIONS (CONTINUED)
Significant related party transactions -
For the year ended December 31, 2002 (Continued)
Accounts receivable from:
TKC $ 2,791,411
TKE 318,164
---------------
$ 3,109,575
===============
Accounts payable to:
TKE $ 4,403,755
TKS 332,932
---------------
$ 4,736,687
===============
For the year ended December 31, 2002:
- ------------------------------------
Service income from:
TKC $ 736,879
TKS 315,805
---------------
$ 1,052,684
===============
Accounts receivable from:
TKE $ 502
TKC 195,871
TKS 30,747
TKJ 2,166
---------------
$ 229,286
===============
Accounts payable to:
TKS $ 592,185
TKE 73,087
---------------
$ 665,272
===============
15
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Notes to Consolidated Financial Statements (Continued)
December 31, 2002 and 2001
NOTE J SALE OF SUBSIDIARY:
Effective December 31, 2000, the Company's Board of Directors resolved
to sell all the Company's shares of TKJ stock to its affiliates
Mountain Alps Ltd., Motor Chain Ltd. and Modern Hawk Ltd. For the
aggregate amount of $1,500,000 in exchange for three notes receivable
maturing on June 30, 2001, bearing no interest. The shares of TKJ were
originally purchased from TKE on July 1, 1998. The Company recognized a
loss of $615,805 on sale of the investment as follows:
Net Carrying value of investment at December 31, 2000
Prior to disposition $ 2,404,715
Adjustments:
Translation adjustment in 2000 214,361
Unrealized loss of TKJ's securities (4,147)
Less accumulated other comprehensive income (499,124)
Selling price of the investment (1,500,000)
------------
Loss on sale of the investment $ 615,805
============
NOTE K CONTINGENCIES:
The Company is party to certain litigation that has arisen in the
normal course of its business and that of its subsidiary. In the
opinion of management, none of the litigation is likely to result in a
material effect on the Company's financial position or results of
operations.
On November 31, 2001 an individual filed a complaint for breach of
contract against TKE Shanghai. The complaint included TKE, TK USA, TKC
and TKS for allegedly being "alter egos" of each other and should be
responsible for TKS's breach of contract. On December 7, 2001, the
plaintiff amended the complaint to include EUPA International as a
defendant. On February 5, 2003, the judge granted a summary judgment
motion for the defendants.
The Company plans to vigorously defend all appeals. At this time, the
Company's legal counsel cannot predict the outcome of any appeal or
subsequent litigation or to estimate the amount of damages, if any, for
which the Company could be liable. Therefore no amount has been accrued
on the books.
16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
MANAGEMENT.
Directors and Executive Officers
The following table and text sets forth the names and ages of all
directors and executive officers of EUPA and the Company's key management
personnel as of December 31, 2002. All of the Company's directors serve until
the next annual meeting of stockholders and until their successors are elected
and qualified, or until their earlier death, retirement, resignation or removal.
Executive officers serve at the discretion of the Board of Directors, and are
appointed to serve until the first Board of Directors meeting following the
annual meeting of stockholders. Also provided is a brief description of the
business experience of each director and executive officer and the key
management personnel during the past five years and an indication of
directorships held by each director in other companies subject to the reporting
requirements under the Federal securities laws. None of the Company's directors
or officers has any agreement with the Company regarding terms of employment or
compensation.
Director
--------
Name of Individual Age Position with company and subsidiaries since
- ------------------ --- -------------------------------------- -----
Tsan-Kun Wu 51 Director, Chairman of the Board and President 2001
Ching-Lun Yu 47 Director and Chief Financial Officer 2003
Hsing Chuang 48 Director and General Manager 2001
Wen-Fang Yang 42 Director 2001
Te-Jung Chien 39 Director 2001
Ko-Ta Chang 43 Secretary, Vice President and Chief Operational Officer 2001
Fang-Chuan Lin 37 Chief Planning Officer n/a
TSAN-KUN WU has been Chief Executive Officer, President and director of
EUPA since October 2001. From 1978 through the present, Mr. Wu has served as
President of Tsann Kuen Enterprises Co. Ltd., the parent company of EUPA and a
leading designer and manufacturer of home appliance and consumer electronic
products.
CHING-LUN YU has been Chief Financial Officer and director of EUPA
since January 2003. From January 2003 to the present, Mr. Yu has served as Chief
Executive Officer of Tsann Kuen Enterprises Co. Ltd. From 1991 to 2001, Mr. Yu
had served as Spokesman, Vice President and held several other positions in
Lite-On Electronics Inc.
HSING CHUANG has been General Manager and a director of EUPA since
October 2001. From 1998 to the present, Mr. Chuang has served as Vice President
of Tsann Kuen Enterprises Co. Ltd. From 1995 to 1998, Mr. Chuang served as
Manager of Research and Development for Tsann-Kuen Enterprises Co. Ltd.
15
WEN-FANG YANG has been a director of EUPA since October 2001. From
January 2001 to the present, Mr. Yang has served as Vice General Manager of
Tsann Kuen (China) Enterprises Co. Ltd. From December 1994 to December 2000, Mr.
Yang was employed by Shanghai P&C Telesystems Inc.
TE-JUNG CHIEN has been a director of EUPA since October 2001. From 1998
to the present, Mr. Chien has served as Vice-President of Tsann Kuen (Japan)
Enterprises Co. Ltd. From January 1995 to January 1998, Mr. Chien served as Vice
President of Logistics for Tsann Kuen Enterprise Co. Ltd.
KO-TA CHANG has been the Secretary of EUPA since January 2002. From
September 2001 to the present, Mr. Chang has served as Vice President of Tsann
Kuen Enterprise Co., Ltd. From August 2001 to June 2001, Mr. Chang served as
Sales Director of Tsann Kuen Enterprise Co. Ltd. From January 1996 to May 2001,
Mr. Chang served as Sales Manager of Tsann Kuen Enterprise Co. Ltd.
FANG-CHUAN LIN has been the Chief Planning Officer of EUPA since
November, 2001. From May 1999 to the present, Mr. Lin has served as Marketing
Manager for Tsann Kuen Enterprises Co. Ltd. From 1997 through 1998, Mr. Lin
served as a factory manager for Cameo Electric Company.
DIRECTOR COMPENSATION
The Company has no established compensation arrangements with the
Company's directors but directors may be reimbursed for their reasonable
expenses incurred in connection with the attendance at board and committee
meetings.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires a
company's officers, directors and persons who own more than ten percent of a
registered class of such company's equity securities to file reports of
ownership and changes in ownership with the SEC. Officers, directors and ten
percent stockholders are required by regulation to furnish the Company with
copies of all Section 16(a) forms they file. During fiscal 2002, no individual
or entity was late with any Form 3, 4 or 5 filings.
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table details information for EUPA for each of the fiscal
years ended December 31, 2002 and 2001 concerning compensation of all
individuals serving as the Company's chief executive officer during the fiscal
year ended December 31, 2002. No other executive officer or key employee had
total annual salary and bonus exceeded $100,000 as for the year ended December
31, 2002.
16
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
--------------------------------------------------------------------------
Other Annual Restricted Securities
Name and Year Salary Bonus Compensation Stock Under-lying All Other
Principal Position ($) ($) ($) Awards ($) Options (#) Compensation
Tsan-Kun Wu, President 2001 $0 $0 $0 $0 $0 $0
and Chairman of the
Board (1) 2002 $0 $0 $0 $0
(1) Mr. Wu's salary is paid by TKE, the owner of a majority of the Company's
shares. Ltd.
2001 STOCK OPTION PLAN
The Company adopted the 2001 Stock Incentive Plan on October 11, 2001.
The plan provides for grants of options and other incentive awards to employees,
officers, directors and consultants.
General. Provided that the shareholders of the corporation adopt the
plan on or before October 10, 2002, the plan authorizes options and other awards
to purchase up to 1,000,000 shares of common stock. If options granted under the
plan expire or are terminated for any reason without being exercised, the shares
of common stock underlying the expired grant will again be available for
purposes of the plan.
Administration of the Plan. The board of directors administers and
interprets the plan. The board of directors has the sole authority to determine:
- the employees, officers, directors or consultants to whom
grants will be made under the plan,
- the type, size and terms of the grants to be made to each
optionee, and
- the time when the grants will be made, the vesting period and
the duration of any applicable exercise or restriction period,
including the criteria for vesting.
Types of Grants. Grants under the plan may consist of:
- options intended to qualify as incentive stock options within
the meaning of Section 422 of the Internal Revenue Code;
- non-qualified stock options that are not intended to so
qualify;
- stock appreciation rights;
- stock awards;
- phantom stock; and
- other stock based incentive awards.
17
Terms of Options. The exercise price of common stock underlying an
option will be determined by the board of directors, and may be equal to,
greater than, or less than the fair market value of a share of common stock on
the date of grant.
The board of directors will determine the term of each option which may
be up to ten years from the date of grant.
STOCK OPTION GRANTS IN LAST FISCAL YEAR.
There were no grants of stock options during the fiscal year ended
December 2000 to Mr. Wu.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of common stock
beneficially owned as of March 26, 2003 by (i) those persons or groups known to
the Company to beneficially own more than 5% of the Company's common stock; (ii)
each director; (iii) each executive officer; and (iv) all directors and
executive officers as a group. The information is determined in accordance with
Rule 13d-3 promulgated under the Exchange Act based upon information furnished
by persons listed or contained in filings made by them with the SEC or by
information provided by such persons directly to the Company. Except as
indicated below, the stockholders listed possess sole voting and investment
power with respect to their shares and the address of each person is c/o Tsann
Kuen Group, 6F, No. 2, Shinhu 3[rd] Rd., Neihu Chiu, Taipei, Taiwan:
Beneficial
Ownership
of Common Stock Current
Name and Address Percent of Class (1)
- ----------------------------------- --------------- --------------------
Tsan Kun Wu (2) 523,263 2.49%
Tsann Kuen Enterprise Co., Ltd. (3). 14,000,000 66.67%
Hsing Chuang (4) 16,539 *
Fang-Chuan Lin 0 0%
Wen-Fang Yang 0 0%
Ching-Lun Yu 0 0%
Te-Jung Chien(5) 12,087 *
Ko-Ta Chang 0 0%
All Directors and Executive Officers 551,888 2.63%
as a Group (7 persons)
- -----------------------------
* Less than one percent.
18
(1) Based on 21,000,024 shares of Common Stock actually outstanding as
March _25, 2003.
(2) Mr. Wu by virtue of his 3.74% ownership interest in TKE is deemed to
beneficially own these shares.
(3) Owned of record by TKE.
(4) Mr. Chuang by virtue of his ownership interest in TKE is deemed to
beneficially own these shares.
(5) Mr. Chien by virtue of his ownership interest in TKE is deemed to
beneficially own these shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For the years ending December 31, 2001 and 2002, there were a number of
related party transactions between affiliated companies. These transactions are
more particularly described in Note 9 to the Company's financial statements. The
details of these transactions and the applicable agreements will be filed in an
amendment to this annual report on 10-KSB.
In addition, TK USA and TKE are parties to a certain Product Design
Contract dated January 1, 2002. During the year ended December 31, 2002, TKE
paid design fees of $954,500 to TK USA.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1 Articles of Incorporation of Access Network Corporation*
3.2 Bylaws*
3.3 Certificate of Amendment to Articles of Incorporation changing name to
EUPA International Corporation**
4.1 Specimen Certificate representing shares of EUPA International common
stock.
10.1 Exchange Agreement, dated as of October 10, 2001 by and among EUPA,
TKE, TK USA, Marci Evans and Michael Stankiewicz.**
10.2 EUPA International Corporation 2001 Stock Incentive Plan.***
10.3 Option Agreement dated December 27, 2001 by and between Tsann Pao Co.
and EUPA.***
10.4 Product Design Contract by and between TKE and TK USA****
21 Subsidiaries***
99.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act****
99.2 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act****
- --------------
* Filed as part of THE COMPANY'S Registration Statement on Form 10-SB
with the Securities and Exchange Commission on June 29, 1999.
** Filed as part of a Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 7, 2001.
*** Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 2001
**** Filed herewith.
19
(b) Reports on Form 8-K
None.
ITEM 14. CONTROLS AND PROCEDURES.
Within 90 days of the filing of this Form 10-KSB, we carried out an
evaluation, under the supervision and with the participation of management,
including the Chief Executive Officer and Chief Financial Officer, of the
Company's disclosure controls and procedures (as defined in Rules 13a-14 and
15d-14 under the Securities Exchange Act of 1934). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information required to be included in periodic filings with the
Securities and Exchange Commission.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these internal controls
subsequent to the date of the Company's most recent evaluation.
20
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EUPA INTERNATIONAL CORPORATION
By /s/ Tsan-Kun Wu
------------------------------------------
Tsan-Kun Wu
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
----------- ------- ------
/s/ Tsan-Kun Wu President, Chief Executive Officer and March 31, 2003
- ----------------------------- Director
Tsan-Kun Wu
/s/ Ching-Lun Yu Chief Financial Officer, Treasurer and March 31, 2003
- ----------------------------- Director
Ching-Lun Yu
/s/ Wen-Fang Yang Director March 31, 2003
- -----------------------------
Wen-Fang Yang
/s/ Te-Jung Chien Director March 31, 2003
- -----------------------------
Te-Jung Chien
/s/ Hsing Chuang Director March 31, 2003
- -----------------------------
Hsing Chuang
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, TSAN-KUN WU, President and Chief Executive Officer (principal executive
officer) of EUPA International Corporation (the "Registrant"), certifies that:
1. I have reviewed this annual report on Form 10-KSB of EUPA International
Corporation.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date:
/s/ Tsan-Kun Wu
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Tsan-Kun Wu
Date: March 31, 2003
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Ching-Lun Yu, Chief Financial Officer (principal financial officer) of EUPA
International Corporation (the "Registrant"), certifies that:
1. I have reviewed this annual report on Form 10-KSB of EUPA International
Corporation.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date:
/s/ Ching-Lun Yu
- ---------------------
Ching-Lun Yu
Date: March 31, 2003
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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10.4 Product Design Contract, dated January 1, 2002, by and between Tsann
Kuen USA Inc. and Tsann Kuen Enterprise Co., Ltd.
99.1 Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act
99.2 Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act