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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the quarterly period ended September 30, 2004
Commission file number 000-26539 EUPA International Corporation  Nevada
    
    88-0409450(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification Number)89 N. San Gabriel Boulevard, Pasadena, California
    
    91107(Address of principal executive offices)
    
    (Zip Code)
 626-793-2688   Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports) Yes ý No o, and (2) has been subject to such filing requirements
for the past 90 days Yes x No
o. 20,900,000 shares of common stock, par value $0.001, were outstanding as
of September 30, 2004.




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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES INDEX PagePart I - Financial InformationItem 1. Financial Statements (Unaudited)Consolidated Statements of Financial Position as of September 30, 2004 and December 31, 2003Consolidated Statements of Operations for the Nine Months Ended September 30, 2004 and September 30, 2003Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and September 30, 2003Consolidated Statements of Changes in Stockholders Equity for the Nine Months Ended September 30, 2004
and the Year Ended December 31, 2003Notes to Condensed Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 6. Exhibits and Other Reports on Form 8-KSignatureCertificationsEX-31.1EX-31.2EX-32.1EX-32.2
 2




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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION September 30, 2004(Unaudited)
    
    December 31, 2003ASSETSCurrent AssetsCash and cash equivalents
    
    $
    1,157,943
    
    
    $
    971,093Accounts receivable, net
    
    
    71,676
    
    
    
    272,680Other receivable, related parties
    
    
    31,201
    
    
    
    60,921Prepaid expenses
    
    
    18,152
    
    
    
    0Total Current Assets
    
    
    1,278,972
    
    
    
    1,304,694Fixed AssetsProperty, furniture and equipment (net)
    
    
    813,195
    
    
    
    854,768Total Fixed Assets
    
    
    813,195
    
    
    
    854,768Other AssetsIntangible assets, net
    
    
    367,356
    
    
    
    359,981Deposits
    
    
    8,370
    
    
    
    8,370Total Other Assets
    
    
    375,726
    
    
    
    368,351Total Assets
    
    $
    2,467,893
    
    
    $
    2,527,813LIABILITIES AND STOCKHOLDERS EQUITYCurrent LiabilitiesAccounts payable and accrued expenses
    
    $
    22,159
    
    
    $
    29,585Other payable, related parties
    
    
    196,442
    
    
    
    172,672Income taxes payable
    
    
    0
    
    
    
    84,636Total Current Liabilities
    
    
    218,601
    
    
    
    286,893Deposits payable
    
    
    4,100
    
    
    
    4,100Total Liabilities
    
    
    222,701
    
    
    
    290,993Stockholders EquityCommon stock, $.001 par value, 25,000,000
shares authorized, 20,900,000
issued and outstanding
    
    
    20,900
    
    
    
    20,900Additional paid in capital
    
    
    1,945,703
    
    
    
    1,929,203Cumulative foreign-exchange translation adjustment
    
    
    0
    
    
    
    1,943Retained earnings
    
    
    278,589
    
    
    
    284,774Total Stockholders Equity
    
    
    2,245,192
    
    
    
    2,236,820Total Liabilities and Stockholders Equity
    
    $
    2,467,893
    
    
    $
    2,527,813
 See Notes to Condensed Consolidated Financial Statements 3




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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Fee income
    
    $
    212,274
    
    
    $
    398,000
    
    
    $
    725,640
    
    
    $
    688,000Total revenue
    
    
    212,274
    
    
    
    398,000
    
    
    
    725,640
    
    
    
    688,000Selling expense
    
    
    6,197
    
    
    
    859
    
    
    
    58,313
    
    
    
    6,843Gross profit
    
    
    206,077
    
    
    
    397,141
    
    
    
    667,327
    
    
    
    681,157General and administrative expenses
    
    
    240,067
    
    
    
    323,260
    
    
    
    798,912
    
    
    
    679,567Income (loss) from operations
    
    
    (33,990
    )
    
    
    73,881
    
    
    
    (131,585
    )
    
    
    1,590Other (income) ExpenseInterest income
    
    
    (679
    )
    
    
    (553
    )
    
    
    (2,045
    )
    
    
    (3,961
    )Rental income
    
    
    (15,365
    )
    
    
    (17,706
    )
    
    
    (45,041
    )
    
    
    (46,743
    )Liquidating distribution
    
    
    (517,060
    )
    
    
    0
    
    
    
    (517,060
    )
    
    
    0Miscellaneous
    
    
    (100
    )
    
    
    (17
    )
    
    
    (869
    )
    
    
    (4,085
    )Total Other (Income) Expense
    
    
    (533,204
    )
    
    
    (18,276
    )
    
    
    (565,015
    )
    
    
    (54,789
    )Income (loss) before income taxes
    
    
    499,214
    
    
    
    92,157
    
    
    
    433,430
    
    
    
    56,379Provison for income taxes
    
    
    1,898
    
    
    
    5,440
    
    
    
    3,498
    
    
    
    7,040Income (loss) from continuing operations
    
    
    497,316
    
    
    
    86,717
    
    
    
    429,932
    
    
    
    49,339Discontinued operationsIncome (loss) from discontinued operations
    
    
    998
    
    
    
    (1,389
    )
    
    
    81,476
    
    
    
    10,525Net income (loss)
    
    $
    498,314
    
    
    $
    85,328
    
    
    $
    511,408
    
    
    $
    59,864Net loss per share from continuing operations (basic and diluted)Basic
    
    $
    0.024
    
    
    $
    0.004
    
    
    $
    0.021
    
    
    $
    0.002Diluted
    
    $
    0.022
    
    
    $
    0.004
    
    
    $
    0.019
    
    
    $
    0.002Net income (loss) per share (basic and diluted)Basic
    
    $
    0.024
    
    
    $
    0.004
    
    
    $
    0.024
    
    
    $
    0.003Diluted
    
    $
    0.022
    
    
    $
    0.004
    
    
    $
    0.023
    
    
    $
    0.003Weighted average number of shares (see note 7)Basic
    
    
    20,900,000
    
    
    
    20,900,000
    
    
    
    20,900,000
    
    
    
    20,900,000Diluted
    
    
    22,450,000
    
    
    
    22,450,000
    
    
    
    22,450,000
    
    
    
    22,450,000
 See Notes to Condensed Consolidated Financial Statements 4




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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS  Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    511,408
    
    
    $
    59,864Adjustments to reconcile net income (loss) to net cash
used in operating activities:Amortization
    
    
    22,685
    
    
    
    23,172Depreciation
    
    
    41,573
    
    
    
    44,048Stock issued for services
    
    
    16,500
    
    
    
    16,500Translation adjustments
    
    
    (2,476
    )
    
    
    2,981Liquidating distribution
    
    
    (517,060
    )
    
    
    0Decrease (Increase) in receivables
    
    
    201,004
    
    
    
    2,703,745Decrease (Increase) in other receivables
    
    
    29,720
    
    
    
    (47,358
    )Decrease (Increase) in prepaid expenses
    
    
    (18,152
    )
    
    
    0(Decrease) Increase in accounts payable
and accrued expenses
    
    
    (7,426
    )
    
    
    (5,040,027
    )(Decrease) Increase in other payable, related party
    
    
    23,770
    
    
    
    0(Decrease) Increase in income taxes payable
    
    
    (84,636
    )
    
    
    54,141Total Adjustments
    
    
    (294,498
    )
    
    
    (2,242,798
    )Net cash (used in) provided by operations
    
    
    216,910
    
    
    
    (2,182,934
    )CASH FLOWS FROM INVESTING ACTIVITIESIncrease in intangible assets
    
    
    (30,060
    )
    
    
    (46,009
    )Purchase of fixed assets
    
    
    0
    
    
    
    (11,750
    )Net cash used in investing activities
    
    
    (30,060
    )
    
    
    (57,759
    )Net change in cash and cash equivalents
    
    
    186,850
    
    
    
    (2,240,693
    )Cash and cash equivalents at beginning of year
    
    
    971,093
    
    
    
    3,148,655Cash and cash equivalents at end of period
    
    $
    1,157,943
    
    
    $
    907,962Supplemental cash flows disclosures:Income tax payments
    
    $
    23,655
    
    
    $
    800Non cash investing and financing activities:Stock issued for services
    
    $
    16,500
    
    
    $
    16,500
 See Notes to Condensed Consolidated Financial Statements 5




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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY September 30, 2004(Unaudited)
    
    December 31, 2003Common stock, number of shares outstandingBalance at beginning of period
    
    
    20,900,000
    
    
    
    20,900,000Issuance of common stock
    
    
    0
    
    
    
    0Balance at end of period
    
    
    20,900,000
    
    
    
    20,900,000Common stock, par value $.001 (thousands of shares)Balance at beginning of period
    
    $
    20,900
    
    
    $
    20,900Issuance of common stock
    
    
    0
    
    
    
    0Balance at end of period
    
    
    20,900
    
    
    
    20,900Additional paid in capitalBalance at beginning of period
    
    
    1,929,203
    
    
    
    1,914,203Issuance of stock options for service
    
    
    16,500
    
    
    
    22,000Write-off of stock subscription receivable
    
    
    0
    
    
    
    (7,000
    )Balance at end of period
    
    
    1,945,703
    
    
    
    1,929,203Stock subscription receivableBalance at beginning of period
    
    
    0
    
    
    
    (7,000
    )Write-off of stock subscription receivable
    
    
    0
    
    
    
    7,000Balance at end of period
    
    
    0
    
    
    
    0Cumulative foreign-exchange translation adjustmentBalance at beginning of period
    
    
    1,943
    
    
    
    0Liquidating distribution
    
    
    533
    
    
    
    0Foreign currency translation
    
    
    (2,476
    )
    
    
    1,943Balance at end of period
    
    
    0
    
    
    
    1,943Retained earningsBalance at beginning of period
    
    
    284,774
    
    
    
    206,998Liquidating distribution
    
    
    (517,593
    )
    
    
    0Net income (loss)
    
    
    511,408
    
    
    
    77,776Balance at end of period
    
    
    278,589
    
    
    
    284,774Total stockholders equity at end of period
    
    $
    2,245,192
    
    
    $
    2,236,820
 See Notes to Condensed Consolidated Financial Statements 6




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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
 Note 1  Accounting Policies Unaudited Interim Financial Information We have prepared the accompanying consolidated financial statements
pursuant to the rules and regulations of the Securities and Exchange Commission
(the SEC) for interim financial reporting. As used herein, EUPA, the
Company, we, our, and similar terms include EUPA International
Corporation and its wholly-owned subsidiaries, unless the context indicates
otherwise. These consolidated financial statements are unaudited and, in our
opinion, include all adjustments, consisting of normal recurring adjustments
and accruals necessary for a fair presentation of the consolidated balance
sheets, operating results, and cash flows for the periods presented. Operating
results for the periods presented are not necessarily indicative of the results
that may be expected for the year ending December 31, 2004. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
(GAAP) have been omitted in accordance with the rules and regulations of the
SEC. These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and accompanying notes included
in our Annual Report on Form 10-KSB for the year ended December 31, 2003. Basis of Consolidation The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany balances and transactions have
been eliminated upon consolidation. Revenue Recognition We recognize revenue from three major sources, sales and customer support
services, patent fiduciary and administration services and research and
development services. Each of these services is provided on an on-going
contractual basis. We recognize revenues from these services at the end of each
calendar quarter for services performed during that calendar quarter. Cash and Cash Equivalents Cash equivalents are stated at cost. Our cash equivalents are highly
liquid investments readily convertible into cash with original maturities of
three months or less and time deposits with commercial banks. Fixed Assets Property and equipment are stated at cost less accumulated depreciation.
Expenditures for major additions and improvements are capitalized and minor
replacements, maintenance and repairs are charged to expense 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 charged to income. Depreciation is computed using the straight-line and declining-balance
methods over the following estimated useful lives: Buildings and improvements
    
    15 to 60 yearsAutomobiles
    
    4 to 6 yearsMachinery and equipment
    
    5 to 12 yearsFurniture and Fixtures
    
    7 years
 Intangible Assets Trademarks and other intangible assets determined to have indefinite
useful lives are not amortized. We test such trademarks and other intangible
assets with indefinite useful lives for impairment annually, or more frequently
if events or circumstances indicate that an asset might be impaired. Trademarks
and other intangible assets determined to have definite lives are amortized
over their useful lives or the life of the trademark and other intangible
asset, whichever is less. 7




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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Estimates The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities in the consolidated financial statements and
accompanying notes. Estimates are used for, but not limited to, depreciable
lives, receivables valuation, accrued expenses, recoverability of intangible
assets and income taxes. Actual results could differ materially from those
estimates. Concentration of Credit Risk There is concentration of credit risk in our cash equivalents and trade
accounts receivable. Our cash equivalents are concentrated in select financial
institutions and, at times, cash balances exceed the FDIC insured levels. Our
trade accounts receivable are concentrated with related parties in Asia. Stock Based Compensation We account for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and comply with the
disclosure provisions of Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. Under APB No. 25,
compensation cost is recognized over the vesting period based on the
difference, if any, on the date of grant between the fair value of our stock
and the amount an employee must pay to acquire the stock. Discontinued Operations Results of discontinued operations of a segment of the business are shown
separately from continuing operations. Amounts for prior periods have also been
shown separately for comparative purposes. We have met the requirements to
classify our wholly-owned subsidiary, Union Channel Limited, a Hong Kong
corporation (Union), as discontinued operations at the end of 2003. Union was
previously included in our financial statements. During the nine months ended
September 30, 2004, the income from discontinued operations was generated from
the non-operating activities of income tax refunds and interest income. Impairment of Long-Lived Assets We evaluate long-lived assets, in accordance with SFAS No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets, for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. If the estimated future cash flows, undiscounted and
without interest charges, from the use of an asset are less than the carrying
value, a write-down would be recorded to reduce the related asset to its
estimated fair value. There have been no such impairments to date. Earnings Per Share We use 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 shares of common stock 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 shares of common stock had been issued. Income Taxes Income taxes have been provided based upon the tax laws and rates in the
countries in which operations are conducted and income is earned. The income
tax rates imposed by the taxing authorities vary. Taxable income may vary from
pre-tax income for financial accounting purposes. There is no expected
relationship between the provision for income taxes and income before income
taxes because the countries have different taxation rules, which vary not only
to nominal rates but also in terms of available deductions, credits and other
benefits. Deferred tax assets and liabilities are recognized for the
anticipated future tax effects of temporary differences between the financial
statement basis and the tax basis of the Companys assets and liabilities using
the applicable tax rates in effect at year end as prescribed by SFAS No. 109
Accounting for Income Taxes. 8




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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) For the nine months ended September 30, 20004, a tax refund in the amount
$79,996, as a result of the dissolution of Union, is included in Income from
Discontinued Operations. Foreign Currency Translation As of September 30, 2004 and 2003, the accounts of Union were maintained,
and its financial statements were expressed, in Hong Kong dollars. Such
financial statements were translated into U.S. dollars in accordance with 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 accounts are
translated at the historical rates and income statement items are translated at
the average exchange rates for the period. As of September 30, 2004 and 2003, the exchange rates between the Hong
Kong dollar and the U.S. dollar were HK$1=US$0.1282 and US$0.12190 and the
average exchange rate for the three months ended September 30, 2004 and 2003
were HK$1=US$0.12842 and US$0.12827 respectively. There is a ($533) and $2,981
translation adjustment recorded on the books for September 30, 2004 and 2003. Note 2  Property and Equipment A summary is as follows: September 30, 2004
    
    December 31, 2003Building and improvements
    
    $
    655,688
    
    
    $
    655,688Land
    
    
    400,000
    
    
    
    400,000Machinery and equipment
    
    
    216,026
    
    
    
    216,026Automobiles
    
    
    108,067
    
    
    
    108,067Furniture and fixtures
    
    
    64,759
    
    
    
    64,7591,444,540
    
    
    
    1,444,540Less accumulated depreciation
    
    
    (631,345
    )
    
    
    (589,772
    )$
    813,195
    
    
    $
    854,768
 Note 3 Intangible Assets A summary is as follows: September 30, 2004
    
    December 31, 2003Patent and trademark costs
    
    $
    479,712
    
    
    $
    449,651Less accumulated amortization
    
    
    (112,356
    )
    
    
    (89,670
    )$
    367,356
    
    
    $
    359,981
 Note 4  Compensated Absences All full time regular covered employees are eligible for vacation with pay
according to the following schedule: After one (1) full year of continuous full
time employment five (5) days of vacation, after two (2) full years of
continuous full time employment eight (8) days of vacation, after three full
years of continuous full time employment twelve (12) days of vacation, after
four full years of continuous full time employment sixteen (16) days of
vacation, and after five full years of continuous full time employment twenty
(20) days of vacation leave. The date of employment on a full time permanent
basis will be considered the anniversary date for vacation purposes. When a
regular full time employee has completed fifty-two (52) weeks of continuous
employment he/she will be considered as having earned the aforementioned
vacation benefits. At the end of each year and at termination, employees are
paid for any accumulated annual vacation leave. As of September 30, 2004
vacation liability exists in the amount of $12,132. 9




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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Note 5  Concentration  Related Party Transactions The Company had three customers during the three months ended September
30, 2004. Fees charged to these customers, all related parties, were
approximately $725,640. Included in accounts receivable is $71,676 from these
customers as of September 30, 2004. Note 6  Common Stock We recognize compensation expenses for non-employee stock-based
compensation in accordance with SFAS No. 123. In December 2001, we issued a
non-employee stock option to purchase 1,000,000 shares of our common stock at
an exercise price of $0.001 per share, vesting over a five year period. This
stock option was granted to a related party in exchange for the on-going
provision of consultant services and was valued using the book value approach.
At the time of grant, the book value approach best estimated the value of the
services to be provided. At the date of grant, the per unit weighted-average
fair value of unit options granted was $0.11. During the nine months ended
September 30, 2004 and 2003 the Company recognized consulting expenses of
$16,500 under the non-employee stock option. Note 7  Earnings Per Share We calculate basic and diluted earnings (loss) per share in accordance
with SFAS No. 128, Earnings Per Share. Basic earnings (loss) per share are
computed by dividing net income (loss) attributable to common stockholders by
the weighted average number of shares of common stock outstanding during the
period. Diluted earnings (loss) per share are computed similar to basic
earnings (loss) per share except that the denominator is increased to include
common stock equivalents as if the potential shares of common stock had been
issued. Stock options are stock equivalents and are assumed to be issued and
outstanding during the period. Diluted earnings (loss) per share adjust for any
changes in income and the repurchase of common shares that would have occurred
from the assumed issuance, unless such effect is anti-dilutive. Note 8  Liquidating Distribution As of September 30, 2004, we received a liquidating distribution from
Union in the amount $517,060. There will be a final distribution that will be
made in 2004 to close this subsidiary. Full closure should occur prior to
December 31, 2004. We expect that the final distribution will be minimal and
not material to our financial statements. We have accounted for this transaction as a reduction in the Stockholders
Equity section of Union and as Other Income on the books of EUPA. 
 Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations The following managements discussion and analysis of financial condition
and results of operations (MD&A) should be read in conjunction with the
December 31, 2003 consolidated financial statements and notes thereto (the 2003
Consolidated Financial Statements), along with the MD&A included in EUPAs 2003
Annual Report on Form 10-KSB for the period ended December 31, 2003 and the
Quarterly Reports on Form 10-QSB for the periods ended March 31, 2004 and June
30, 2004, filed separately with the SEC. The discussion of results, causes and
trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future. The information contained in this MD&A, other than historical information,
contains forward looking statements within the meaning of The Private
Securities Litigation Reform Act of 1995 that are based on managements current
expectations and assumptions. This MD&A should be read in conjunction with the
sections entitled Additional Factors That May Affect Future Results  and
Forward-Looking Statements. Overview EUPA is a holding company that currently has one wholly-owned subsidiary,
Tsann Kuen U.S.A., an Illinois corporation (TK USA). TK USA is a service
company providing sales and customer support, product design, research and
development, and patent administration 10




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services to Tsann Kuen Enterprise Co., Ltd., a corporation
organized and existing in the Peoples Republic of China (TKE). TKE, which
owns approximately 67% of the outstanding capital stock of EUPA, designs,
manufactures, markets and distributes small home and kitchen appliances,
motor-driven products, vacuum cleaners and consumer electronic products under
recognized brand names in the international housewares industry. TK USA also
provides sales and customer support services to the subsidiaries of TKE, Tsann
Kuen China (Shanghai) Enterprises Ltd. (TKS), Tsann Kuen (Zhangzhou)
Enterprise Co. Ltd. (TKL) and Tsann Kuen (China) Enterprise Co., Ltd.
(TKC), each of which are corporations organized and existing in the Peoples
Republic of China. Our primary focus is acting as the main facilitator for developing and
promoting TKEs products in the United States (U.S.). Our activities include
acting as the information center for TKE and its products, conducting market
research, designing products and enhancements, performing research and
development of products, cultivating and supporting relationships with brand
name distributors and other customers and increasing U.S. sales. We have sales and customer support service agreements with each of TKS,
TKL and TKC. We charge each of TKS, TKL and TKC sales and customer support fees
based on the fully-burdened costs we incur in providing these services plus a
mark-up. Our fully-burdened costs include salaries and other personnel
expenses, such as travel and travel-related expenses, operating and overhead
expenses, such as office space, administrative services, office supplies and
equipment. Our costs are allocated among TKS, TKL and TKC on a reasonable cost
allocation basis. We periodically review our fee formula with each party to
assure that it is consistent with industry standards and customs. During the
nine months period ended September 30, 2004, our mark-up was 2% for each of TKS
and TKL. There was no mark-up for TKC, as no sales and customer support
services were provided during the nine month period ended September 30, 2004. During the nine month period ended September 30, 2004, sales and customer
support fees charged to TKS and TKL were $92,111 and $513,968, respectively.
These fees are included in accounts receivable. We carry relatively large
accounts receivable, as the customer payment period is long, approximately 90
days. We invoice each of TKE, TKS and TKL on a quarterly basis for services
provided during the preceding calendar quarter and payments are due 90 days
after receipt of the invoice. We also receive revenues for research and development services and patent
fiduciary and administration services we provide to TKE. We have a research and
development services agreement and a patent fiduciary and administration
services agreement with TKE. Fees for these services are calculated in the same
manner as fees for sales and customer support services, on our fully-burdened
costs incurred in the provision of these services plus a mark-up. During the
nine months period ended September 30, 2004, our mark-up was 5% for research
and development services and 2% for patent fiduciary and administration
services. Fees charged to TKE during the nine month period ended September 30,
2004, were $92,286 for research and development services and $27,275 for patent
fiduciary and administration services. These fees are included in accounts
receivable, having the same customer payment period as fees for sales and
customer support services. Results of Operations Three Months Ended September 30, 2004 Compared with Three Months Ended
September 30, 2003 September 30, 2004
    
    September 30, 2003Revenue
    
    $
    212,274
    
    
    $
    398,000Selling Expense
    
    
    6,197
    
    
    
    859General Expense
    
    
    240,067
    
    
    
    323,260Income (loss) from operations
    
    $
    (33,990
    )
    
    $
    73,881
 Revenue from Fee Income During the three months ended September 30, 2004, revenue from fee income
was $212,274, down from $398,000 in the third quarter of 2003. The decrease in
fee income was attributed to the decrease in the amount of sales and customer
support, research and development and patent fiduciary administration services
provided to TKE. General and Administrative Expenses General and administrative expenses were $240,067 for the three months
ended September 30, 2004 compared with $323,260 in the third quarter of 2003.
These expenses included accounting fees, amortization and depreciation
expenses, wages and salaries and legal 11




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professional service expenses. The decrease in general and
administrative expenses was largely attributed to the decrease in general
expenses incurred for services provided to TKE. The income (loss) from
operations was $(33,990) and $73,881 for the three months ended September 30,
2004 and 2003, respectively, which was a result of the decrease in the amount
of sales and customer support, research and development and patent fiduciary
administration services provided to TKE for the three months ended September
30, 2004. Non-operating income for the three months ended September 30, 2004 was
$533,204 compared with $18,276 in the third quarter of 2003. Included in
non-operating income was $679 of interest income, $15,365 of rental income,
$100 of other income and $517,060 of liquidating distribution income for the
three months ended September 30, 2004. During the three months ended September
30, 2003, there was $553 of interest income, $17,706 of rental income, and $17
of other income. There was $1,898 and $5,440 in income tax expenses recognized
on our pre-tax income for the three months ended September 30, 2004 and 2003. For the three months ended September 30, 2004 we realized a net income of
$498,314 compared to a net income of $85,328 for the three months ended
September 30, 2003. The increase in net income was a result of a liquidating
distribution of $517,060 received from Union. Nine
Months Ended September 30, 2004 Compared with Nine Months Ended
September 30, 2003 September 30, 2004
    
    September 30, 2003Revenue
    
    $
    725,640
    
    
    $
    688,000Selling Expense
    
    
    58,313
    
    
    
    6,843General Expense
    
    
    798,912
    
    
    
    679,567Income (loss) from operations
    
    $
    (131,585
    )
    
    $
    1,590
 Revenue from Fee Income During the nine months ended September 30, 2004, revenue from fee income
was $725,640, up from $688,000 for the nine months ended
September 30, 2003. The increase in
fee income was attributed to the increase in the amount of sales and customer
support, research and development and patent fiduciary administration services
provided to TKE. General and Administrative Expenses General and administrative expenses were $798,912 for the nine months
ended September 30, 2004 compared with the $679,567 for the same
period in 2003. These expenses included accounting fees, amortization and depreciation
expenses, wages and salaries and legal professional service expenses. The
increase in general and administrative expenses was largely attributed to the
increase in wages and general expenses incurred for services provided to TKE.
The income (loss) from operations was $(131,585) and $1,590 for the nine months
ended September 30, 2004 and 2003, respectively, which was a result of higher
general expenses relating to increased customer support services. Non-operating income for the nine months ended September 30, 2004 was
$565,015 compared with $54,789 for the same period in 2003. Included in
non-operating income was $2,045 of interest income, $45,041 of rental income,
$869 of other income and $517,060 of liquidating distribution income for the
nine months ended September 30, 2004. During the nine months ended September
30, 2003, there was $3,961 of interest income, $46,743 of rental income, and
$4,085 of other income. There was $81,476 and $10,525 in income tax expenses
recognized on our pre-tax income for the nine months ended September 30, 2004
and 2003. For the nine months ended September 30, 2004 we realized a net income of
$511,408 compared to a net income of $59,864 for the nine months ended
September 30, 2003. The increase in net income was a result of a liquidating
distribution of $517,060 received from Union and income from discontinued
operations of $81,476. Liquidity and Capital Resources Our primary source of liquidity as of September 30, 2004 is our cash on
hand. Net cash provided by operations for the nine months ended September 30,
2004 was $216,910, as compared to net cash used in operations of $(2,182,934)
during the same period in 2003. The increase in net cash provided by operating
activities was a result of the significant reduction in accounts receivable.
Our cash and cash equivalents 12




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were $1,157,943 and $907,962 as of September 30, 2004 and
2003, respectively. Our current assets totaled $1,278,972 and $1,362,057 on
September 30, 2004 and 2003, respectively. Our current liabilities were
$218,601 and $367,232 on September 30, 2004 and 2003, respectively. Working
capital was $1,060,371 and $994,825 as of September 30, 2004 and 2003,
respectively. Net cash used in investing activities totaled $(30,060), for the nine
month period ended September 30, 2004, which consisted of the costs associated
with obtaining patent rights, compared with $(57,759) for the nine month period
ended September 30, 2003. Cash Flow Our cash needs are currently met by our cash on hand, primarily because of
the long lag time for payment of our accounts receivable. We believe we will be
able to continue to meet our anticipated working capital requirements through a
combination of cash on hand and revenues from service fees as our accounts
receivable are paid. From time to time, primarily because of our accounts
receivable lag time, our daily operations are supported by advances from TKE.
These advances are offset from our fee revenues. We believe that our current
financial resources are sufficient to finance our operations for at least the
next twelve months. Our actual working capital needs will depend upon numerous
factors, including our operating results, competition, and the availability of
monies from TKE, none of which can be predicted with certainty. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet financing arrangements and
have not established any special purpose entities. We have not guaranteed any
debt or commitments of other entities or entered into any options on
non-financial assets. Additional Factors That May Affect Future Results The following risk factors and other information included in this report
should be carefully considered. The risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties not presently
known to us or which we currently deem immaterial also may impair our business
operations. If any of the following risks occur, our business, financial
condition, operating results, and cash flows could be materially adversely
affected. Risks Relating to Recent Developments at TKE The chief executive officer of TKE and certain other present and former
employees of TKE are under investigation by the Taiwan Taipei District
Prosecutors Public Office (the Prosecutors Office) for possible violations of
the Republic of China Securities and Exchange Laws. The investigation regards
the sale of certain shares of common stock of EUPA (the EUPA Shares) owned by
Tsann Pao Co., Ltd., a subsidiary of TKE, to a buyer in Taiwan who resold the
EUPA Shares to certain unspecified investors in Taiwan. As of November 4,
2004, no one has been named in any civil or criminal proceeding related to the
foregoing. TKEs chief executive officer has been interviewed by the
Prosecutors Office and has posted a bond of NT$5,000,000 as required by the
Prosecutors Office. We cannot predict when this investigation will be
completed, nor can we predict what the results of this investigation may be.
It is not possible at this time to estimate what the ultimate liability of
TKEs chief executive officer or any of TKEs other current or former employees
involved in this matter may be. Liability could include imprisonment and/or
the payment of fines. Negative Publicity May Adversely Affect Our Business As a result of the investigation by the Prosecutors Office, TKE and EUPA
could become the subject of negative publicity. This negative publicity could
bring regulatory scrutiny upon us. Continuing negative publicity could have a
material adverse effect on our results of operations and liquidity and the
market price of our publicly traded securities. TKE Controls Our Business TKE owns more than 50% of our outstanding capital stock. As a result, TKE
is able to control our business and affairs and our board of directors. The
interests of TKE may not necessarily be consistent with the interests of our
other investors. 13




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We Are Dependent On TKE for Our Sales and Other Revenues and Capital Requirements As TKE is our sole customer, any changes in its business, financial
condition or liquidity could have a material impact on our ability to operate
our business. Many of Our Employees Also Perform Services for TKE Which Could Result In Their
Attention Being Diverted From Our Business Our success will depend, to some degree, on the efforts of our employees.
Many of our officers and employees are also employed by TKE. As a result, their
full time, attention and energies are not directed exclusively to our business.
If the attention of our officers is diverted from our business, we may not be
able to realize our full potential. If We Do Not Develop and Introduce New TKE Products, Our Ability to Grow Will
Be Limited We believe that our future success will depend in part upon our ability to
continue to develop innovative designs in the products manufactured by TKE and
to develop and market new products. We may not be successful in introducing or
supplying any new products or product innovations to TKEs which will satisfy
customer needs or achieve market acceptance. The failure to develop products
and introduce them successfully and in a timely manner could harm our ability
to grow our business. A Slowdown in the Retail Industry Will Likely Have an Adverse Effect on Our
Results TKE products 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. As a result, our business
and financial results will fluctuate with the financial condition of retail
customers and the retail industry. We Face Intense Competition The market segments in which we compete are intensely competitive, and we
have many competitors, including the manufacturing and retail services
industries. Many of our current and potential competitors have longer operating
histories, larger customer bases, greater brand recognition, and significantly
greater financial, marketing, and other resources than we have. They may be
able to secure comparable merchandise from vendors on more favorable terms and
may be able to adopt more aggressive pricing policies. Competitors in the
manufacturing industry may be able to devote more resources to new product
introductions, features and enhancements, and research and development than we
do. Competitors in the retail industry also may be able to devote more
resources to sales and marketing than we do. Compliance with Governmental Regulations Could Increase Our Operating Costs and
Interfere with Our Business Efforts 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 we may develop, may not meet the specifications
required by these authorities. A determination that our products are not in
compliance with these rules and regulations could result in the imposition of
fines or awards of damages to private litigants. We May Experience Significant Fluctuations in Our Operating Results and Rate of
Growth Due to our limited operating history, our evolving business model, and the
unpredictability of our industry, we may not be able to accurately forecast our
rate of growth. We base our current and future expense levels and our
investment plans on estimates of future net sales and rate of growth. Our
expenses and investments are to a large extent fixed. We may not be able to
adjust our spending quickly enough if our net sales fall short of our
expectations. Our revenue and operating profit growth depends on the continued growth of
demand for the products offered by TKE, and our business is affected by general
economic and business conditions throughout the world. A softening of demand,
whether caused by changes in consumer preferences or a weakening of the U.S. or
global economies, may result in decreased revenue or growth. Terrorist attacks
and armed hostilities create economic and consumer uncertainty that could
adversely affect our revenue or growth. Such events could create delays in, and 14




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increase the cost of, product
shipments, which may decrease demand. Revenue may not be sustainable and may
decrease in the future. Our sales and operating results will also fluctuate for many other
reasons, including our ability to retain and increase sales to existing
customers, attract new customers, and satisfy our customers demands; the
introduction by our competitors of products, services, or improvements; and
seasonal fluctuations in the retail industry. The Loss of Key Senior Management Personnel Could Negatively Affect Our
Business We depend on the continued services and performance of our senior
management and other key personnel. The loss of any of our executive officers
or other key employees could harm our business. We May Not Be Able to Adequately Protect Our Intellectual Property Rights or
May Be Accused of Infringing Intellectual Property Rights of Third Parties We regard our patents, trade secrets, proprietary technology, and similar
intellectual property as critical to our success, and we rely on patent law,
trade secret protection, and confidentiality agreements with our employees,
TKE, and other rights granted to us under international, federal and state
statutory and common law, to protect our proprietary rights. We may be unable
to prevent third parties from infringing upon or diminish the value of our
proprietary rights. Policing unauthorized use of our proprietary rights is inherently
difficult, and we may not be able to determine the existence or extent of any
such unauthorized use. The protection of our intellectual property may require
the expenditure of significant financial and managerial resources. Moreover, we
cannot be certain that the steps we take to protect our intellectual property
will adequately protect our rights or that others will not independently
develop or otherwise acquire equivalent or superior technology or other
intellectual property rights. Other parties may claim that we infringed their proprietary rights. Such
claims, whether or not meritorious, may result in the expenditure of
significant financial and managerial resources, injunctions against us or the
imposition of damages that we must pay. We may need to obtain licenses from
third parties who allege that we have infringed their rights, but such licenses
may not be available on terms acceptable to us or at all. We May Be Subject to Product Liability Claims if People or Property Are Harmed
by the Products We Sell Some of the products we sell may expose us to product liability claims
relating to personal injury, death, or property damage caused by such products,
and may require us to take actions such as product recalls. Although we
maintain liability insurance, we cannot be certain that our coverage will be
adequate for liabilities actually incurred or that insurance will continue to
be available to us on economically reasonable terms, or at all. Forward-Looking Statements This quarterly report on Form 10-QSB includes forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. All
statements other than statements of historical fact, made in this quarterly
report on Form 10-QSB are forward-looking. We use words such as anticipates,
believes, expects, future, intends, and similar expressions to identify
forward-looking statements. Forward-looking statements reflect managements
current expectations and are inherently uncertain. Actual results could differ
materially for a variety of reasons, including, among others, the rate of
growth of the economy in general, customer spending patterns, changes in
customer demand for TKEs products, effectiveness of marketing programs, our
success in designing and developing products, our research and development
costs, the length of development and product acceptance cycles, world events,
the amount that we invest in new business opportunities and the timing of those
investments, competition, the degree to which we enter into commercial
agreements and strategic transactions and maintain and develop commercial
relationships, foreign exchange risks, seasonality, international growth and
expansion and changes in laws and regulations. These risks and uncertainties,
as well as other risks and uncertainties that could cause our actual results to
differ significantly from managements expectations, are described in greater
detail in Additional Factors That May Affect Future Results, which, along
with the previous discussion, describes some, but not all, of the factors that
could cause actual results to differ significantly from managements
expectations. 15




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Item 3.Controls and Procedures Under the direction of our Chief Executive Officer and Chief Financial
Officer, we evaluated our disclosure controls and procedures and internal
control over financial reporting and concluded that (i) our disclosure controls
and procedures were effective as of September 30, 2004, and (ii) no change in
internal control over financial reporting occurred during the quarter ended
September 30, 2004, that has materially affected, or is reasonably likely to
materially affect, such internal control over financial reporting. 
 Part II  Other Information 
 Item 1.Legal Proceedings On November 30, 2001, Mir Kazem Kashani filed a complaint against TKE and
certain of its affiliates, including TK USA, alleging breach of contract and
damages of approximately $10,750,000 in connection with the sale in Iran of
products by TKS. On February 5, 2003, the court granted the defendants summary
judgment motion and entered judgment for TKE and its affiliates. On August 22,
2003, the plaintiff filed an appeal with the Court of Appeals of the State of
California. On May 11, 2004, the Court affirmed the judgment for TKE and its
affiliates. The time for plaintiff to seek review of the judgement has expired. EUPA is a party to a lawsuit which has arisen in the ordinary course of
business. We believe that the outcome of such lawsuit will not have a material
adverse effect on our business, financial condition or results of operations.
We have product liability and general liability insurance policies in amounts
we believe to be reasonable given our current level of business. Although
historically we have not had to pay any material product liability claims, it
is conceivable that we could incur claims for which we are not insured. 
 Item 6.Exhibits and Reports On Form 8-K (a) Exhibits.  31.1
    
    Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.32.1
    
    Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.32.2
    
    Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. (b) Reports on Form 8-K. None. 16




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SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized. EUPA INTERNATIONAL CORPORATION (Registrant) Date: November 15, 2004 /s/ Tsan-Kun WuTsan-Kun WuPresident and Chief Executive Officer Date: November 15, 2004 /s/ Kun Chieh HuangKung-Chieh HuangChief Financial Officer 17