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EUPA INTERNATIONAL CORP /NV/ - 10KSB - 20020417 - LIQUIDITY_CAPITAL
CAPITAL RESOURCES AND LIQUIDITY
The Company has experienced a slight reduction in its cash balances of
$59,069 from December 31, 2000 to December 31, 2001 as a result of our new rules
as a supplier of TKE products to Europe and Asia, as well as operating 3C retail
stores in China and Japan. We believe we will be able to increase our
anticipating revenues in 2002. We believe the anticipated revenue growth will
provide the necessary cash flow for anticipated working capital requirements. We
presently estimate that we will be able to reduce our current monthly rate of
using working capital beginning in the near term. We believe that certain of our
needed capital will result from the continuing successful collection of our
accounts receivable balances throughout the remainder of 2002. We also remain
confident we can continue to raise sufficient additional funds though private
placements of our common stock. Our current assets totaled $1,289,024 and
$2,815,272 at December 31, 2001 and 2000, respectively. Total assets were
$2,613,213 and $4,026,811 at December 31, 2001 and 2000, respectively. The
decrease in current assets and total assets is primarily due to the collection
of the $1,500,000 from the sale of Tsann Kuen Japan in December 2000. Our
current liabilities totaled $148,295 and $1,027,007 at December 31, 2001 and
2000, respectively. This resulted in working capital totaling $1,140,729 and
$1,788,265 at December 31, 2001 and 2000, respectively. Total liabilities were
$148,265 and $1,620,177 at December 31, 2001 and 2000, respectively. The
decrease in liabilities is primarily due to the payoff of a mortgage note
payable and accounts payable balances to related parties. Net cash used for
operating activities totaled $800,750 and $607,123 for the years ended December
31, 2001 and 2000, respectively. Net cash provided (used) for investing
activities totaled $1,341,681 and ($121,312) for the years ended December 31,
2001 and 2000, respectively. Net cash provided by (used for) financing
activities totaled $(600,000) and $330,348 for the years ended December 31, 2001
and 2000, respectively. We raised no funds in 2001 or 2000 through the issuance
of common stock.
11
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS AND FINANCIAL CONDITIONS
Investing in our securities involves a high degree of risk. In addition
to the other information contained in this annual report, including the reports
we incorporate by reference, you should consider the following factors before
investing in our securities.
TKE CONTROLS OUR BUSINESS.
TKE owns more than 50% of our outstanding capital stock. As a
result, TKE will be able to control our business and affairs, including the
composition of our board of directors or authorizing corporate transactions such
as mergers or sales of our assets. However, the interests of TKE may not be
consistent with the interests of our other investors since it could take action
or forgoing action which may not be in the best interests of our other
investors.
WE ARE DEPENDENT ON TKE FOR OUR PRODUCT SUPPLY AND CAPITAL REQUIREMENTS.
TKE will be the major manufacturer of the products we supply and
will manufacture a significant number of products that we expect to sell in our
3C stores. As a result, any change in the cost of manufacturing these products
will have a material adverse impact on our profit margins. TKE is subject to the
risks of doing business abroad, including trade restrictions, production delays
due to unavailability of parts or components, increases in transportation costs
and transportation delays, foreign currency fluctuations and political and
economic instability.
We do not currently have an independent source of capital or lines
of credit. All of our operations will initially be funded by TKE. Accordingly,
any change in TKE's financial condition or liquidity could have an impact on our
ability to operate our business.
MANY OR OUR EMPLOYEES WILL 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 will also be employed by TKE. As a
result, their full time, attention and energies will not be directed to our
business. If the attention of our officers is diverted from our business, we may
not be able to realize the full potential of our business opportunities.
IF WE DO NOT DEVELOP AND INTRODUCE NEW TKE PRODUCTS, OUR ABILITY TO GROW OUR
BUSINESS 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 or developing and
introducing in a timely manner 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 our
ability to grow our business.
A SLOWDOWN IN THE RETAIL INDUSTRY WILL LIKELY HAVE AN ADVERSE EFFECT ON OUR
RESULTS.
12
The products that we supply 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 we supply. As a result, our business and financial results will
fluctuate with the financial condition of our 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 our
ability to succeed is based upon our and TKE's ability to compete effectively.
We believe 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
we expect it to continue to result in, additional pricing pressures on our
customers and, as a result, upon us. We compete with many manufacturing
companies, some of which have substantially greater facilities, personnel,
financial and other resources than we have. Significant new competitors or
increased competition from existing competitors may adversely affect our
business, financial condition and results of operations.
EXPANDING INTERNATIONAL SALES WILL SUBJECT US TO ADDITIONAL BUSINESS RISKS.
We have begun to pursue growth opportunities internationally.
International operations are subject to a number of other risks and potential
costs, including: the risk that TKE products may not be locally recognized; the
risk that we may be required to spend significant amounts of time and money to
build an identity among distributors without certainty that we will be
successful; unexpected changes in regulatory requirements; foreign currency
fluctuations; transportation costs; adverse tax consequences; and political and
economic instability. We cannot assure you that we will not incur significant
costs in addressing these potential risks.
ONCE WE BEGIN OPENING 3C STORES, WE WILL BECOME SUBJECT TO THE SAME RISKS AS
RETAILERS.
Once we launch our 3C stores, we will become subject to additional
business risks including competition from other retailers, price pressure and
reduced sales in recessionary periods. Further, although TKE has had significant
experience in operating retail stores in Taiwan, we will not have any retailing
experience in China and Japan. There can be no assurance that we will be able to
successfully launch our retail stores in these markets. In the event that we are
not successful, a key element of our growth strategy will not be achieved.
PRODUCT RECALLS OR LAWSUITS RELATING TO DEFECTIVE PRODUCTS COULD ADVERSELY
IMPACT OUR FINANCIAL RESULTS.
We face exposure to product recalls and product liability claims in the
event that the products we supply are alleged to have manufacturing or safety
defects or to have resulted in injury or other adverse effects. Although we
believe that we maintain adequate product liability insurance, there can be no
assurance that we will be able to continue to maintain these policies on
acceptable terms, if at all, or that product liability claims will not exceed
the amount of our insurance coverage.
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IF ANY OF THE PRODUCTS WE SUPPLY INFRINGE ON THE RIGHTS OF OTHERS, WE COULD
SUFFER SIGNIFICANT FINANCIAL LOSS.
We and TKE hold numerous patents on the products that we supply and
these proprietary rights are essential to our business. Our 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
our 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 our sales and costs.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS COULD INCREASE OUR OPERATING COSTS AND
INTERFERE WITH OUR 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 us or TKE, 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 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 Stonefield Josephson, Inc. is presented beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Effective April 15, 2002, we terminated the services of Randy Simpson
CPA ("RS"), as our independent accountants. Effective January 2002, we engaged
Stonefield Josephson, Inc. ("SJ") as our new independent accountants. The
termination of RS and the retention of SJ were approved by our Board of
Directors. Prior to the engagement of SJ, neither we nor anyone on our behalf
consulted with such firm regarding the application of accounting principles to a
specified transaction, either completed or uncompleted, or type of audit opinion
that might be rendered on our financial statements.
RS audited our financial statements for the period from September 8,
1998 to December 31, 2000. RS's report for this period did not contain an
adverse opinion or a disclaimer of opinion, nor was the report qualified or
modified as to uncertainty, audit scope or accounting principles.
During the periods from September 8, 1998 to December 31, 1998, January
1, 1999 to December 31, 1999, January 1, 2000 to December 31, 2000 and January
1, 2001 to April 15, 2002, there were no disagreements with RS on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
RS, would have caused such firm to make reference to the subject matter of the
disagreements in
14
connection with its report on our financial statements. In addition, there were
no such events as described under Item 304(a)(1)(iv)(B) of Regulation S-B for
the period from September 8, 1998 to December 31, 1998, January 1, 1999 to
December 31, 1999, January 1, 2000 to December 31, 2000 and the subsequent
interim period through April 15, 2002.
We have requested RS to provide us with a letter addressed to the SEC
stating whether it agrees or disagrees with the statements made by us in
response to Item 304(a) regarding its involvement with us as independent
accountants.
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 Score One and our key management personnel
as of December 31, 2001. All of our 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 our directors or officers has any agreement with us
regarding terms of employment or compensation.
Director
Name of Individual Age Position with company and subsidiaries since
Tsan-Kun Wu 50 Director, Chairman of the Board and President 2001
Hsing Chuang 47 Director and General Manager 2001
Cheng-Chi Chang 43 Director and Chief Financial Officer 2001
Wen-Fang Yang 41 Director 2001
Te-Jung Chien 39 Director 2001
Ko-Ta Chang 41 Director, Secretary, Vice President and Chief Operational Officer 2001
Fang-Chuan Lin 36 Chief Planning Officer n/a
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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.
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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.
CHENG-CHI CHANG has been Chief Financial Officer, Treasurer and
director EUPA since November, 2001. From March 2001 to the present, Mr. Chang
has served as Director of the Resource Planning Division for the Tsann-Kuen
Group. From May 1999 to February 2001, Mr. Chang served as the Director for the
Finance Center of Eastern Multimedia Corporation. From December 1997 to May
1999, Mr. Chang served as Chief Financial Officer to United Test Center. From
February 1993 to October 1997, Mr. Chang served as Director of the Finance and
Administration Division of Want-Want Group. China.
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
We have no established compensation arrangements with our 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 us with copies of all
Section 16(a) forms they file.
During fiscal 2001, the following individuals were late with their Form
3 filings: Each of Messrs. Tsan-Kun Wu, Hsing Chuang, Wen-Fan Yang, Te-Jung
Chien and Cheng-Chi Chang were required to file Initial Statements of Beneficial
Ownership of Securities on Form 3 within 10 days after they became a director of
EUPA. As of the date of this report, none of the foregoing persons has filed a
Form 3.
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ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table details information for EUPA for each of the fiscal
years ended December 31, 2001, 2000 and 1999 concerning compensation of:
- all individuals serving as our chief executive officer during the fiscal
year ended December 31, 2001.
- no other executive officer or key employee had total annual salary and
bonus exceeded $100,000 as for the year ended December 31, 2001
(collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
-------------------------------------------------------------------------------------------------
Other Annual Restricted Securities
Name and Salary Bonus Compensation Stock Under-lying All Other
Principal Position Year ($) ($) ($) Awards ($) Options (#) Compensation
$0
Marci Evans 1999 $0 $0 $0 $0 $0 $0
President and 2000 $0 $0 $0 $7,500 $0 $0
Chief Executive
Officer
Tsan-Kun Wu, President 2001 $0 $0 $0 $0 $0
and Chairman of the
Board (1)
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(1) Mr. Wu's salary is paid by our parent company Tsann Kuen Enterprises Co.
Ltd.
2001 STOCK OPTION PLAN
We 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
17
- 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.
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 any of the Named Executives.
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 April 11, 2002 by (i) those persons or groups known to
us to beneficially own more than 5% of our 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 us. 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, (242) 4F, No. 108, Chung-Ping
Rd., Hsin-Chaung City, Taipei, Taiwan:
Beneficial
Ownership Current
Name and Address of Common Stock Percent of Class (1)
---------------------------------------- ----------------------- -----------------------
Tsan Kun Wu (2) 1,032,000 5.08%
Tsann Kuen Enterprise Co., Ltd. (3). 12,000,000 59.11%
Hsing Chuang (4) 15,600 *
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18
Beneficial
Ownership Current
Name and Address of Common Stock Percent of Class (1)
---------------------------------------- ----------------------- -----------------------
Fang-Chuan Lin 0 0%
Wen-Fang Yang 0 0%
Cheng-Chi Chang 0 0%
Te-Jung Chien 9,600 *
Ko-Ta Chang 0 0%
Marci Evans 2,991,027 14.7%
6357 Vicuna Drive
Las Vegas, NV 89146
All Directors and Executive Officers as a Group
(6 persons) 1,057,200 5.2%
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* Less than one percent.
(1) Based on 20,300,000 shares of Common Stock actually outstanding as April
11, 2002.
(2) Mr. Wu by virtue of his 8.6% ownership interest in TKE is deemed to
beneficially own these shares.
(3) Owned of record by TKE.
(4) Mr. Chang by virtue of his 0.13% ownership interest in TKE is deemed to
beneficially own these shares.
(5) Mr. Chien by virtue of his 0.08% ownership interest in TKE is deemed to
beneficially own these shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
1. For the year ending December 31, 2000, there were a number of
related party transactions involving our former operating subsidiary Tsann Kuen
Japan Co. Ltd. ("TKJ") and affiliated Companies. These transactions are more
particularly described in note 9 to our financial statements. The details of
these transactions and the applicable agreements will be filed in an amendment
to this annual report on 10-KSB.
2. In December 2000, we sold all of our stock in TKJ, our wholly-owned
Japanese subsidiary, to affiliates Mountain Alps Ltd., Motor Chain Ltd. and
Modern Hawk Ltd. for an 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. We recognized a loss of
$615,805 on sale of the investment as more particularly described in Note 10 to
our financial statements.
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3. On August 31, 2000, we issued 9,473,684 shares of our common stock
(post-split) to TKE in connection with the conversion of our note payable to TKE
in the principal amount of $1,425,625 and accrued interest of $74,341.
4. On October 10, 2001, we entered into an Exchange Agreement with TKE
and TKE USA pursuant to which we issued 12,000,000 shares of our common stock in
exchange for all the outstanding stock of TKE 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, TKE USA, Marci Evans and Michael Stankiewicz.**
10.2 EUPA International Corporation 2001 Stock Incentive Plan and certain of
our shareholders.
10.3 Option Agreement dated December 27, 2001 by and between Tsann Pao Co.
and EUPA.
23.1 Auditor's Report of Deloitte Touche Tohmatsu Japan.
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* Filed as part of our 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.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the last quarter of fiscal
year 2001 except that on November 7, 2001 we filed a Current Report on Form 8-K
reporting on Item 1 a change in control of the registrant.
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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
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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 Director April 16, 2002
------------------------------------
Tsan Kun Wu
/s/ Cheng-Chi Chang Chief Financial Officer, Treasurer and Director April 16, 2002
------------------------------------
Cheng-Chi Chang a/k/a
Jacky Chang
/s/ Wen-Fang Yang Director April 16, 2002
------------------------------------
Wen-Fang Yang
/s/ Te-Jung Chien Director April 16, 2002
------------------------------------
Te-Jung Chien
/s/ Hsing Chuang Director April 16, 2002
------------------------------------
Hsing Chuang
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21
EUPA INTERNATIONAL CORPORATION
AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001 AND 2000
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Balance Sheet 2
Statements of Income 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-20
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22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EUPA International Corporation and Subsidiaries
(Formerly Access Network Corporation)
Pasadena, California
We have audited the accompanying consolidated balance sheet of EUPA
International Corporation and Subsidiaries (formerly Access Network Corporation)
as of December 31, 2001, and the related consolidated statements of operations
and comprehensive income, stockholder's deficit and cash flows for each of the
two years in the period ended December 31, 2001. These consolidated 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. We did not audit the financial statements of Tsann Kuen Japan Co.,
Ltd. (a wholly owned subsidiary) as of December 31, 2000, whose statements
reflected total assets of approximately $17,900,000 as of December 31, 2000 and
total net revenues of approximately $29,100,000 for the year then ended. 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 Tsann Kuen
Japan Co., Ltd. for the year ended December 31, 2000, is based solely on the
report of the other auditors.
We conducted our audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EUPA International
Corporation and Subsidiaries (formerly Access Network Corporation) as of
December 31, 2001, and the results of its consolidated operations and cash flows
for each of the two years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
April 5, 2002
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1
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2001
ASSETS
CURRENT ASSETS -
Cash and cash equivalents $ 490,667
Accounts receivable, related party, net of
allowance for doubtful accounts of $61,600 165,520
Accounts receivable, other 615,924
Deferred income taxes 7,858
Prepaid expenses 9,055
--------------
Total current assets $ 1,289,024
PROPERTY AND EQUIPMENT, net of accumulated depreciation 1,072,267
OTHER ASSETS:
Intangible assets, net 243,552
Deposits 8,370
--------------
Total other assets 251,922
-------------
$ 2,613,213
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 80,766
Accounts payable and accrued expenses, related party 67,529
--------------
Total current liabilities $ 148,295
STOCKHOLDERS' EQUITY:
Common Stock, $.001 par value, 25,000,000 shares
authorized, 20,000,000 shares issued and outstanding 20,000
Additional paid in capital 1,884,103
Retained earnings 560,815
--------------
Total stockholders' equity 2,464,918
-------------
$ 2,613,213
==============
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See accompanying independent auditors' report and notes to financial statements.
2
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED STATEMENTS OF INCOME
Year ended Year ended
December 31, 2001 December 31, 2000
----------------- -----------------
REVENUE:
Net sales $ -- $ 29,750,454
Service income 1,052,684 1,140,385
--------------- --------------
Total revenue 1,052,684 30,890,839
--------------- --------------
COST AND EXPENSES:
Cost of sales -- 23,210,221
Operating expenses 1,037,431 7,558,704
--------------- --------------
Total cost and expenses 1,037,431 30,768,925
--------------- --------------
INCOME FROM OPERATIONS 15,253 121,914
------------ ------------
NON-OPERATING INCOME (EXPENSE):
Promotion fee income -- 406,243
Rental income 73,857 58,920
Interest income 58,667 13,581
Other income -- 24,174
Interest expense (4,266) (139,015)
Exchange loss -- (21,223)
Loss on sale of investment -- (615,805)
---------------- --------------
Non-operating income (expense), net 128,258 (273,125)
--------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES 143,511 (151,211)
INCOME TAX PROVISION (BENEFIT) 88,927 (203,780)
--------------- ---------------
NET INCOME $ 54,584 $ 52,569
=============== ==============
NET INCOME PER SHARE:
Basic $ 0.00 $ 0.00
============== ==============
Diluted $ 0.00 $ 0.00
============== ==============
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 13,333,334 5,684,211
=============== ==============
Diluted 13,461,111 5,684,211
=============== ==============
|
See accompanying independent auditors' report and notes to financial statements.
3
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Common stock Additional other Total
------------ paid-in comprehensive Retained stockholders'
Shares Amount capital income/ (loss) earnings deficit
------ ------ ------- ------------- -------- -------
Balance at January 1, 2000
(restated for forward
stock split - see Note 6) 2,526,316 $ 2,526 $ 397,877 $ 205,810 $ 453,662 $ 1,059,875
Issued shares for conversion
of debt to equity (see Note 6) 9,473,684 9,474 1,490,526 1,500,000
Net income 52,569 52,569
Other comprehensive income:
Translation adjustment 214,361 214,361
Unrealized loss on investment
Securities available for sale,
net of tax (4,147) (4,147)
Reclassification adjustment
for realized losses on the
disposition of subsidiary
(see Note 10) (416,024) (416,024)
---------- ----------- ----------- ----------- --------- -----------
Balance at December 31, 2000 12,000,000 12,000 1,888,403 -- 506,231 2,406,634
Issuance of shares for TKE USA 8,000,000 8,000 (8,000)
Issuance of stock options for
services rendered 3,700 3,700
Net income 54,584 54,584
---------- ----------- ----------- ----------- --------- -----------
Balance at December 31, 2001 20,000,000 $ 20,000 $ 1,884,103 $ -- $ 560,815 $ 2,464,918
========== =========== =========== =========== ========= ===========
|
See accompanying independent auditors' report and notes to financial statements.
4
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Year ended
December 31, 2001 December 31, 2000
----------------- -----------------
CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net income $ 54,584 $ 52,569
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY (USED FOR) OPERATING
ACTIVITIES:
Depreciation and amortization 45,669 228,327
Non cash consulting expense 3,700 --
Loss on sale of investment in TKJ -- 615,805
Loss on disposal of goodwill -- 542,355
Provision for bad debts -- (103,744)
Deferred income taxes 2,425 (336,567)
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ASSETS:
Accounts receivable (26,191) 6,843,096
Inventories -- 2,211,164
Note receivable -- (1,500,000)
Other current assets -- 177,953
Prepaid expenses (9,055) 12,406
Other assets -- 241,982
INCREASE (DECREASE) IN LIABILITIES -
accounts payable and accrued expenses (871,882) (9,592,469)
-------- ----------
Net cash used for operating activities (800,750) (607,123)
---------- -----------
CASH FLOWS PROVIDED BY (USED FOR) INVESTING
ACTIVITIES:
Intangible assets (141,990) (44,112)
Proceeds from sale of TKE Japan 1,500,000 --
Investment available for sale -- 9,408
Acquisition of property and equipment (16,329) (86,608)
---------------- ---------------
Net cash provided (used for) investing
activities 1,341,681 (121,312)
---------------- ---------------
CASH FLOWS PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:
(Payments on)/proceeds from mortgage payable (600,000) 60,703
Proceeds from note payable 269,645
---------------- ---------------
Net cash provided by (used for)
financing activities (600,000) 330,348
---------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (59,069) (398,087)
CASH AND CASH EQUIVALENTS, beginning of year 549,736 947,823
---------------- ---------------
CASH AND CASH EQUIVALENTS, end of year $ 490,667 $ 549,736
================ ===============
|
Continued
See accompanying independent auditors' report and notes to financial statements.
5
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended Year ended
December 31, 2001 December 31, 2000
----------------- -----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 242,765 $ 40,248
================ ===============
Interest paid $ 4,266 $ 98,798
================ ===============
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Offset of notes payable of $1,425,659 and interest payable of
$74,341 to TKE for issuance of common stock $ -- $ 1,500,000
================= ===============
Three notes acquired for sale of all the outstanding shares of TKJ
to the Company's affiliates $ -- $ 1,500,000
================= ===============
|
See accompanying independent auditors' report and notes to financial statements.
6
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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. ("TKE
USA") was incorporated under the laws of the State of Illinois
in June 1990. On October 23, 2001, TKE 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 TKE USA from Tsann
Kuen Enterprise Co., Ltd. ("TKE") pursuant to an Exchange
Agreement dated as of October 10, 2001 by and among TKE, TKE
USA and EUPA (the "Exchange Agreement"). Pursuant to the
Exchange Agreement, TKE USA became a wholly owned subsidiary
of EUPA and, in exchange for the TKE 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. Prior to
the merger, EUPA had nominal business activity. This activity
is not material to the historical financial statements of TKE
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,
TKE USA has been treated as the acquirer and, accordingly, TKE
USA is presented as the continuing entity, and the historical
financial statements are those of TKE USA. EUPA and TKE USA
are collectively referred to as the "Company".
EUPA 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 names
distributors.
BASIS OF CONSOLIDATION:
The consolidated financial statements for 2001 include the
accounts of EUPA and its wholly owned subsidiary TKE USA. For
2000, the consolidated financial statements include the
accounts of EUPA, TKE USA, and Tsann Kuen Japan ("Tsann Kuen
Japan"), a wholly owned subsidiary of TKE USA. Tsann Kuen was
sold in December 2000 (see Note 10). Accordingly, all
references herein to EUPA or the "Company" include the
consolidated results. All significant intercompany accounts
and transactions have been eliminated in consolidation.
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.
See accompanying independent auditors' report.
7
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
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
charged 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:
Patents and trademarks are amortized by the straight-line
method over fifteen years.
See accompanying independent auditors' report.
8
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
EXCHANGE GAIN (LOSS):
During 2000, the transactions of TKE Japan denominated in
foreign currency are recorded in Japanese yen 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.
TRANSLATION ADJUSTMENT:
As of December 31, 2000, the accounts of TKE Japan were
maintained, and its financial statements were expressed, in
Japanese yen. 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 Japanese yen 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 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, 2000, the exchange rates between Japanese
yen and U.S. dollars is Y1=US$0.0087 and the average exchange
rate for the year ended December 31, 2000 is Y1=US$0.0093.
Other comprehensive loss arising from translation adjustment
for the year ended December 31, 2000 is $214,361. See Note 10
for information on the sale of Tsann Kuen Japan.
INVESTMENT IN EQUITY SECURITIES:
In accordance with FASB No. 115, equity securities that have
readily determinable fair values are classified as either
trading or available-for-sale securities. Securities that are
bought and held principally for the purpose of selling in the
near term (thus held for only a short period of time) are
classified as trading securities and all other securities are
classified as available-for-sale. Trading and
available-for-sale securities are measured at fair value in
the balance sheet. For trading securities any realized gains
or losses and any unrealized holding gains and losses are
reported in the statement of operations. For
available-for-sale securities any realized gains and losses
are reported in the statement of operations and any unrealized
holding gains and losses are reported as a separate component
of stockholders' equity until realized.
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.
See accompanying independent auditors' report.
9
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
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 calculated 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.
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.
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.
See accompanying independent auditors' report.
10
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
STOCK BASED COMPENSATION, CONTINUED:
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, 2001, the Company recognized consulting expenses
of $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.
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 classified as available-for-sale,
both of which were applied in the loss on disposal calculation
for Tsann Kuen Japan (see Note 10).
See accompanying independent auditors' report.
11
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
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.
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 10). The Company held no derivative
instruments during 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 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.
See accompanying independent auditors' report.
12
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
OF, CONTINUED:
For goodwill not identifiable with an impaired asset, the
Company will establish benchmarks at the lowest level (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 assets 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.
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 that any business combinations initiated after June
30, 2001 be accounted for as a purchase; therefore,
eliminating the pooling-of-interest method defined in APB 16.
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 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 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.
See accompanying independent auditors' report.
13
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED:
NEW ACCOUNTING PRONOUNCEMENTS, CONTINUED:
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 asset 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 a 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, 2001.
(2) EXCHANGE AGREEMENT:
On October 23, 2001, TKE USA became a wholly owned subsidiary of EUPA
through a transaction account for as a reverse merger. EUPA acquired
all of the issued and outstanding capital stock of TKE USA from Tsann
Kuen Enterprise Co., Ltd. ("TKE") pursuant to an Exchange Agreement
dated as of October 10, 2001 by and among TKE, TKE USA and EUPA (the
"Exchange Agreement"). Pursuant to the Exchange Agreement, TKE USA
became a wholly owned subsidiary of EUPA and, in exchange for the TKE
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.
Prior to the merger, EUPA had nominal business activity. This activity
is not material to the historical financial statements of TKE 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, TKE USA has been treated as the
acquirer and, accordingly, TKE USA is presented as the continuing
entity, and the historical financial statements are those of TKE USA.
EUPA and TKE USA are collectively referred to as the "Company".
(3) RECEIVABLES:
The Company had one major customer in 2000, which represented 10% or
more of the total sales of the Company. Sales to this customer for the
year ended December 31, 2000 were $5,221,434. The Company had no major
customers in 2001.
See accompanying independent auditors' report.
14
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(4) PROPERTY AND EQUIPMENT:
A summary is as follows:
Building and improvements $ 649,988
Land 400,000
Machinery and equipment 200,881
Automobiles 100,006
Furniture and fixtures 64,759
--------------
1,415,634
Less accumulated depreciation 343,367
--------------
$ 1,072,267
==============
(5) INTANGIBLE ASSETS:
A summary is as follows:
Costs $ 258,378
Less accumulated amortization 14,826
--------------
$ 243,552
==============
|
(6) 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 stock split is reflected for all periods
presented. The Company granted 750,000 warrants with a exercise price
of $0.001 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.
On August 31, 2000, the Company converted a note payable of $1,425,659
and accrued interest of $74,341 to Tsann Kuen Enterprise Co., Ltd, for
9,473,684 shares of common stock (post split). As a result, common
stock and additional paid-in capital were increased on August 31, 2000
by $9,474 and $1,490,526, respectively.
See accompanying independent auditors' report.
15
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(7) 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. 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 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 $0.11 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, 2001, the Company
recognized consulting expenses of $3,700 for the granting of stock
options to non-employees.
(8) INCOME TAXES:
Income tax expense (benefit) consists of the following:
2001 2000
---- ----
Current:
Federal $ 63,047 $ 241,570
State 15,072 43,933
-------------- --------------
78,119 285,503
-------------- --------------
Deferred:
Federal 7,566 (380,306)
State 3,242 (108,977)
-------------- --------------
10,808 (489,283)
-------------- --------------
Net income tax provision (benefit) $ 88,927 $ (203,780)
============== ==============
|
See accompanying independent auditors' report.
16
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(8) INCOME TAXES CONTINUED:
Included in current income tax expense in 2000 is approximately
$125,000 of foreign taxes from the Company's wholly owned foreign
subsidiary Tsann Kuen Japan Co., Ltd.
Temporary differences which give rise to deferred tax assets and
liabilities at December 31, 2001 are as follows:
Deferred tax assets - current:
Allowance for doubtful accounts $ 24,535
Less deferred tax assets valuation allowance --
---------------
Deferred tax asset - current 24,535
Deferred tax liabilities - current:
Excess of tax over book R&D expense (16,677)
--------------
Net deferred tax assets - current $ 7,858
==============
|
(9) 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 after December
31, 2000 and subsidiary prior to
December 31, 2000 (date of
disposition)
|
See accompanying independent auditors' report.
17
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(9) RELATED PARTY TRANSACTIONS CONTINUED:
Significant related party transactions -
For the year ended December 31, 2001:
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
==============
For the year ended December 31, 2000:
Sales to TKC $ 1,810,301
==============
Service income from:
TKC $ 902,595
TKS 235,461
--------------
$ 1,138,056
==============
Promotion fee income from:
TKC $ 406,243
==============
Purchases from:
TKS $ 3,988,355
TKC 9,389,065
TKH 730,195
TKE 756,115
--------------
$ 14,863,730
==============
|
See accompanying independent auditors' report.
18
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(9) RELATED PARTY TRANSACTIONS CONTINUED:
Significant related party transactions, Continued -
For the year ended December 31, 2000, Continued:
Interest expense to:
TKE $ 43,475
==============
Accounts receivable from:
TKE $ 502
TKC 76,209
TKS 120,774
TKJ 2,914
--------------
$ 200,399
==============
Notes receivable from:
MA $ 285,000
MC 765,000
MH 450,000
--------------
$ 1,500,000
==============
Accounts payable to:
TKS $ 595,578
==============
Other payables to:
TKE $ 36,042
TKC 78,193
TKS 59,486
TKH 8,388
--------------
$ 182,109
==============
|
See accompanying independent auditors' report.
19
EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES
(FORMERLY ACCESS NETWORK CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2001
(10) SALE OF SUBSIDIARY:
Effective December 31, 2000, the Company's Board of Directors resolved
to sell all the Company's shares of Tsaan Kuen Japan 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
==============
|
(11) 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.
See accompanying independent auditors' report.
20
Exhibit 4.1
Number Shares
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
EUPA INTERNATIONAL CORPORATION
75,000,000 SHARES PAR VALUE $.001 EACH
COMMON STOCK
See reverse for
Certain Definitions
This is to certify that ________________________________________is the owner of
__________________________________________________________________ fully paid
and non-assessable shares of the above Corporation transferable only on the
books of the Corporation by the holder hereof in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
Dated:
Secretary President
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT...Cust
(Cust) (Minor)
TEN ENT - as tenants by the entireties Under Uniform Gifts to
Minors Act...(State)
JT TEN - as joint tenants with right of
Survivorship and not as tenants in
common
Additional abbreviations may also be
used though not in the above list
|
For value received _______________________ hereby sell, assign and transfer unto
(PLEASE INSERT SOCIAL SECURITY OR OTHER INDENTIFYING NUMBER OF ASSIGNEE)
[ ]
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING
POSTAL ZIP CODE OF ASSIGNEE)
_______________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
________________________________________________________ Attorney to transfer
the said Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated ___________________________
In presence of
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERNATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER
-2-
Exhibit 10.2
TSANN KUEN USA INC.
2001 STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
TSANN KUEN USA INC.. a Nevada corporation (the "Company"), hereby
establishes the 2001 STOCK INCENTIVE PLAN (the "Plan"). The purpose of the Plan
is to promote the long-term growth and profitability of the Company by (i)
providing key people with incentives to improve stockholder value and to
contribute to the growth and financial success of the Company, and (ii) enabling
the Company to attract, retain and reward the best-available persons.
The Plan permits the granting of stock options (including incentive
stock options qualifying under Code Section 422 and nonqualified stock options),
stock appreciation rights, restricted or unrestricted stock awards, phantom
stock, performance awards, other stock-based awards, or any combination of the
foregoing.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "AFFILIATE" shall mean any entity, whether now or hereafter
existing, which controls, is controlled by, or is under common control with, the
Company (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean ownership
of 50% or more of the total combined voting power or value of all classes of
stock or interests of the entity.
(b) "AWARD" shall mean any stock option, stock appreciation right,
stock award, phantom stock award, performance award, or other stock-based award.
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) "CHANGE IN CONTROL" means:
(i) an acquisition (other than from the Company) in a
transaction, or a series of related transactions, by any person, entity
or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the "EXCHANGE ACT"), (excluding for
this purpose, (A) the Company or its subsidiaries, (B) any employee
benefit plan of the Company or its subsidiaries which acquires
beneficial ownership of voting securities of the Company, (C) an
underwriter temporarily holding securities pursuant to an offering of
such securities, or (D) any corporation owned, directly or indirectly,
by the stockholders of the Company in substantially the same
proportions as their ownership of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors) of beneficial ownership, within the meaning of
Rule 13d-3 promulgated under the Exchange Act, of 50% or more of either
the then outstanding shares of common stock or the combined voting
power of the Company's then outstanding voting securities entitled to
vote generally in the election of directors (the "COMPANY VOTING
STOCK");
(ii) the effective time of any merger, share exchange,
consolidation or other reorganization or business combination of the
Company if immediately after such transaction persons who hold a
majority of the outstanding voting securities entitled to vote
generally in the election of directors of the surviving entity (or the
entity owning 100% of such surviving entity) are not persons who held
the Company Voting Stock immediately prior to such transaction;
(iii) the closing of a sale or conveyance of all or
substantially all of the assets of the Company;
(iv) individuals who were the Board's nominees for election as
directors immediately prior to a meeting of the stockholders of the
Company involving an actual or threatened election contest relating to
the election of the directors of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, cease
to constitute a majority of the Board following the election; or
(v) the dissolution or liquidation of the Company;
provided, however, that the term "Change in Control" does not include a
public offering of capital stock of the Company that is effected pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder.
(f) "COMMON STOCK" shall mean shares of common stock of the
Company, par value $0.001 per share.
(g) "FAIR MARKET VALUE" shall mean, with respect to a share of the
Company's Common Stock for any purpose on a particular date, the value
determined by the Administrator in good faith. However, if the Common Stock is
registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934,
as amended, and listed for trading on a national exchange or market, "Fair
Market Value" shall mean, as applicable, (i) either the closing price or the
average of the high and low sale price on the relevant date, as determined in
the Administrator's discretion, quoted on the New York Stock Exchange, the
American Stock Exchange, or the Nasdaq National Market; (ii) the last sale price
on the relevant date quoted on the Nasdaq SmallCap Market; (iii) the average of
the high bid and low asked prices on the relevant date quoted on the Nasdaq OTC
Bulletin Board Service or by the National Quotation Bureau, Inc. or a comparable
service as determined in the Administrator's discretion; or (iv) if the Common
Stock is not quoted by any of the above, the average of the closing bid and
asked prices on the
2
relevant date furnished by a professional market maker for the Common Stock, or
by such other source, selected by the Administrator. If no public trading of the
Common Stock occurs on the relevant date, then Fair Market Value shall be
determined as of the next preceding date on which trading of the Common Stock
does occur. For all purposes under this Plan, the term "relevant date" as used
in this Section 2.1(g) shall mean either the date as of which Fair Market Value
is to be determined or the next preceding date on which public trading of the
Common Stock occurs, as determined in the Administrator's discretion.
(h) "STOCK OPTION AGREEMENT" shall mean a written document
memorializing the terms and conditions of an Award granted pursuant to the Plan
and shall incorporate the terms of the Plan.
3. ADMINISTRATION
(a) ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Board or by such committee or committees as may be appointed by the Board
from time to time (the Board, committee or committees hereinafter referred to as
the "ADMINISTRATOR").
(b) POWERS OF THE ADMINISTRATOR. The Administrator shall have all
the powers vested in it by the terms of the Plan, such powers to include
authority, in its sole and absolute discretion, to grant Awards under the Plan,
prescribe Stock Option Agreements evidencing such Awards and establish programs
for granting Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Company; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
3
(c) NON-UNIFORM DETERMINATIONS. The Administrator's determinations
under the Plan (including without limitation, determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the Stock Option Agreements evidencing such
Awards) need not be uniform and may be made by the Administrator selectively
among persons who receive, or are eligible to receive, Awards under the Plan,
whether or not such persons are similarly situated.
(d) LIMITED LIABILITY. To the maximum extent permitted by law, no
member of the Administrator shall be liable for any action taken or decision
made in good faith relating to the Plan or any Award thereunder.
(e) INDEMNIFICATION. To the maximum extent permitted by law and by
the Company's charter and by-laws, the members of the Administrator shall be
indemnified by the Company in respect of all their activities under the Plan.
(f) EFFECT OF ADMINISTRATOR'S DECISION. All actions taken and
decisions and determinations made by the Administrator on all matters relating
to the Plan pursuant to the powers vested in it hereunder shall be in the
Administrator's sole and absolute discretion and shall be conclusive and binding
on all parties concerned, including the Company, its stockholders, any
participants in the Plan and any other employee, consultant, or director of the
Company, and their respective successors in interest.
4. SHARES AVAILABLE FOR THE PLAN
Subject to adjustments as provided in Section 7(d) of the Plan, the
shares of Common Stock that may be issued with respect to Awards granted under
the Plan shall not exceed an aggregate of 1,000,000 shares of Common Stock. The
Company shall reserve such number of shares for Awards under the Plan, subject
to adjustments as provided in Section 7(d) of the Plan. If any Award, or portion
of an Award, under the Plan expires or terminates unexercised, becomes
unexercisable or is forfeited or otherwise terminated, surrendered or canceled
as to any shares, or if any shares of Common Stock are surrendered to the
Company in connection with any Award (whether or not such surrendered shares
were acquired pursuant to any Award), or if any shares are withheld by the
Company, the shares subject to such Award and the surrendered and withheld
shares shall thereafter be available for further Awards under the Plan;
provided, however, that any such shares that are surrendered to or withheld by
the Company in connection with any Award or that are otherwise forfeited after
issuance shall not be available for purchase pursuant to incentive stock options
intended to qualify under Code section 422.
5. PARTICIPATION
Participation in the Plan shall be open to all employees, officers, and
directors of, and other individuals providing bona fide services to or for, the
Company, or of any Affiliate of the Company, as may be selected by the
Administrator from time to time. The Administrator may also grant Awards to
individuals in connection with hiring, retention or otherwise, prior to the date
the individual first performs services for the Company or an Affiliate provided
that such Awards shall not become vested prior to the date the individual first
performs such services.
4
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Stock Option Agreement. The Administrator may permit or require
a recipient of an Award to defer such individual's receipt of the payment of
cash or the delivery of Common Stock that would otherwise be due to such
individual by virtue of the exercise of, payment of, or lapse or waiver of
restrictions respecting, any Award. If any such payment deferral is required or
permitted, the Administrator shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
(a) STOCK OPTIONS. The Administrator may from time to time grant
to eligible participants Awards of incentive stock options as that term is
defined in Code section 422 or nonqualified stock options; provided, however,
that Awards of incentive stock options shall be limited to employees of the
Company or of any current or hereafter existing "parent corporation" or
"subsidiary corporation," as defined in Code sections 424(e) and (f),
respectively, of the Company. Options intended to qualify as incentive stock
options under Code section 422 must have an exercise price at least equal to
Fair Market Value as of the date of grant, but nonqualified stock options may be
granted with an exercise price less than Fair Market Value. No stock option
shall be an incentive stock option unless so designated by the Administrator at
the time of grant or in the Stock Option Agreement evidencing such stock option.
(b) STOCK APPRECIATION RIGHTS. The Administrator may from time to
time grant to eligible participants Awards of Stock Appreciation Rights ("SAR").
An SAR entitles the grantee to receive, subject to the provisions of the Plan
and the Stock Option Agreement, a payment having an aggregate value equal to the
product of (i) the excess of (A) the Fair Market Value on the exercise date of
one share of Common Stock over (B) the base price per share specified in the
Stock Option Agreement, times (ii) the number of shares specified by the SAR, or
portion thereof, which is exercised. Payment by the Company of the amount
receivable upon any exercise of an SAR may be made by the delivery of Common
Stock or cash, or any combination of Common Stock and cash, as determined in the
sole discretion of the Administrator. If upon settlement of the exercise of an
SAR a grantee is to receive a portion of such payment in shares of Common Stock,
the number of shares shall be determined by dividing such portion by the Fair
Market Value of a share of Common Stock on the exercise date. No fractional
shares shall be used for such payment and the Administrator shall determine
whether cash shall be given in lieu of such fractional shares or whether such
fractional shares shall be eliminated.
(c) STOCK AWARDS. The Administrator may from time to time grant
restricted or unrestricted stock Awards to eligible participants in such
amounts, on such terms and conditions, and for such consideration, including no
consideration or such minimum consideration as may be required by law, as it
shall determine. A stock Award may be paid in Common Stock, in cash, or in a
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator.
(d) PHANTOM STOCK. The Administrator may from time to time grant
Awards to eligible participants denominated in stock-equivalent units ("phantom
stock") in such amounts
5
and on such terms and conditions as it shall determine. Phantom stock units
granted to a participant shall be credited to a bookkeeping reserve account
solely for accounting purposes and shall not require a segregation of any of the
Company's assets. An Award of phantom stock may be settled in Common Stock, in
cash, or in a combination of Common Stock and cash, as determined in the sole
discretion of the Administrator. Except as otherwise provided in the applicable
Stock Option Agreement, the grantee shall not have the rights of a stockholder
with respect to any shares of Common Stock represented by a phantom stock unit
solely as a result of the grant of a phantom stock unit to the grantee.
(e) PERFORMANCE AWARDS. The Administrator may, in its discretion,
grant performance awards which become payable on account of attainment of one or
more performance goals established by the Administrator. Performance awards may
be paid by the delivery of Common Stock or cash, or any combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
Performance goals established by the Administrator may be based on the Company's
or an Affiliate's operating income or one or more other business criteria
selected by the Administrator that apply to an individual or group of
individuals, a business unit, or the Company or an Affiliate as a whole, over
such performance period as the Administrator may designate.
(f) OTHER STOCK-BASED AWARDS. The Administrator may from time to
time grant other stock-based awards to eligible participants in such amounts, on
such terms and conditions, and for such consideration, including no
consideration or such minimum consideration as may be required by law, as it
shall determine. Other stock-based awards may be denominated in cash, in Common
Stock or other securities, in stock-equivalent units, in stock appreciation
units, in securities or debentures convertible into Common Stock, or in any
combination of the foregoing and may be paid in Common Stock or other
securities, in cash, or in a combination of Common Stock or other securities and
cash, all as determined in the sole discretion of the Administrator.
7. MISCELLANEOUS
(a) WITHHOLDING OF TAXES. Grantees and holders of Awards shall pay
to the Company or its Affiliate, or make provision satisfactory to the
Administrator for payment of, any taxes required to be withheld in respect of
Awards under the Plan no later than the date of the event creating the tax
liability. The Company or its Affiliate may, to the extent permitted by law,
deduct any such tax obligations from any payment of any kind otherwise due to
the grantee or holder of an Award. In the event that payment to the Company or
its Affiliate of such tax obligations is made in shares of Common Stock, such
shares shall be valued at Fair Market Value on the applicable date for such
purposes.
(b) LOANS. The Company or its Affiliate may make or guarantee
loans to grantees to assist grantees in exercising Awards and satisfying any
withholding tax obligations.
(c) TRANSFERABILITY. Except as otherwise determined by the
Administrator, and in any event in the case of an incentive stock option or a
stock appreciation right granted with respect to an incentive stock option, no
Award granted under the Plan shall be transferable by a grantee otherwise than
by will or the laws of descent and distribution. Unless otherwise determined by
6
the Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) ADJUSTMENTS FOR CORPORATE TRANSACTIONS AND OTHER EVENTS.
(i) STOCK DIVIDEND, STOCK SPLIT AND REVERSE STOCK SPLIT.
In the event of a stock dividend of, or stock split or reverse stock split
affecting, the Common Stock, (A) the maximum number of shares of such Common
Stock as to which Awards may be granted under this Plan, as provided in Section
4 of the Plan, and (B) the number of shares covered by and the exercise price
and other terms of outstanding Awards, shall, without further action of the
Board, be adjusted to reflect such event unless the Board determines, at the
time it approves such stock dividend, stock split or reverse stock split, that
no such adjustment shall be made. The Administrator may make adjustments, in its
discretion, to address the treatment of fractional shares and fractional cents
that arise with respect to outstanding Awards as a result of the stock dividend,
stock split or reverse stock split.
(ii) NON-CHANGE IN CONTROL TRANSACTIONS. Except with respect to the
transactions set forth in Section 7(d)(i), in the event of any change affecting
the Common Stock, the Company or its capitalization, by reason of a spin-off,
split-up, dividend, recapitalization, merger, consolidation or share exchange,
other than any such change that is part of a transaction resulting in a Change
in Control, the Administrator, in its discretion and without the consent of the
holders of the Awards, shall make (A) appropriate adjustments to the maximum
number and kind of shares reserved for issuance or with respect to which Awards
may be granted under the Plan, as provided in Section 4 of the Plan; and (B) any
adjustments in outstanding Awards, including but not limited to reducing the
number, kind and price of securities subject to Awards.
(iii) CHANGE IN CONTROL TRANSACTIONS. In the event of any
transaction resulting in a Change in Control, outstanding stock options and
SAR's under this Plan will terminate upon the effective time of such Change in
Control unless provision is made in connection with the transaction for the
continuation or assumption of such Awards by, or for the substitution of the
equivalent awards of, the surviving or successor entity or a parent thereof. In
the event of such termination, the holders of stock options and SAR's under the
Plan will be permitted, for a period of at least twenty (20) days prior to the
effective time of the Change in Control, to exercise all portions of such Awards
that are then exercisable or which become exercisable upon or prior to the
effective time of the Change in Control; provided, however, that any such
exercise of any portion of such an Award which becomes exercisable as a result
of such Change in Control shall be deemed to occur immediately prior to the
effective time of such Change in Control.
(iv) POOLING OF INTERESTS TRANSACTIONS. In connection with any
business combination authorized by the Board, the Administrator, in its sole
discretion and without the consent of the holders of the Awards, may make any
modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards, in whole or in part,
regardless of the vested status of the Award, but solely to the extent necessary
to facilitate the
7
compliance of such transaction with requirements for treatment as a pooling of
interests transaction for accounting purposes under generally accepted
accounting principles.
(v) UNUSUAL OR NONRECURRING EVENTS. The Administrator is
authorized to make, in its discretion and without the consent of holders of
Awards, adjustments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events affecting the
Company, or the financial statements of the Company or any Affiliate, or of
changes in applicable laws, regulations, or accounting principles, whenever the
Administrator determines that such adjustments are appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan.
(e) SUBSTITUTION OF AWARDS IN MERGERS AND ACQUISITIONS. Awards may
be granted under the Plan from time to time in substitution for Awards held by
employees, officers, consultants or directors of entities who become or are
about to become employees, officers, consultants or directors of the Company or
an Affiliate as the result of a merger or consolidation of the employing entity
with the Company or an Affiliate, or the acquisition by the Company or an
Affiliate of the assets or stock of the employing entity. The terms and
conditions of any substitute Awards so granted may vary from the terms and
conditions set forth herein to the extent that the Administrator deems
appropriate at the time of grant to conform the substitute Awards to the
provisions of the awards for which they are substituted.
(f) TERMINATION, AMENDMENT AND MODIFICATION OF THE PLAN. The Board
may terminate, amend or modify the Plan or any portion thereof at any time.
(g) NON-GUARANTEE OF EMPLOYMENT OR SERVICE. Nothing in the Plan
or in any Stock Option Agreement thereunder shall confer any right on an
individual to continue in the service of the Company or shall interfere in any
way with the right of the Company to terminate such service at any time with or
without cause or notice and whether or not such termination results in (i) the
failure of any Award to vest; (ii) the forfeiture of any unvested or vested
portion of any Award; and/or (iii) any other adverse effect on the individual's
interests under the Plan.
(h) COMPLIANCE WITH SECURITIES LAWS; LISTING AND REGISTRATION. If
at any time the Administrator determines that the delivery of Common Stock under
the Plan is or may be unlawful under the laws of any applicable jurisdiction, or
federal or state securities laws, the right to exercise an Award or receive
shares of Common Stock pursuant to an Award shall be suspended until the
Administrator determines that such delivery is lawful. The Company shall have no
obligation to effect any registration or qualification of the Common Stock under
federal or state laws.
The Company may require that a grantee, as a condition to exercise of
an Award, and as a condition to the delivery of any share certificate, make such
written representations (including representations to the effect that such
person will not dispose of the Common Stock so acquired in violation of federal
or state securities laws) and furnish such information as may, in the opinion of
counsel for the Company, be appropriate to permit the Company to issue the
Common Stock in compliance with applicable federal and state securities laws.
The stock certificates for any shares of Common Stock issued pursuant to this
Plan may bear a legend restricting
8
transferability of the shares of Common Stock unless such shares are registered
or an exemption from registration is available under the Securities Act of 1933,
as amended, and applicable state securities laws.
(i) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a grantee or any other person. To
the extent that any grantee or other person acquires a right to receive payments
from the Company pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(j) GOVERNING LAW. The validity, construction and effect of the
Plan, of Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Stock Option Agreements, and the rights of any and all persons
having or claiming to have any interest therein or thereunder, shall be
determined exclusively in accordance with applicable federal laws and the laws
of the State of Nevada, without regard to its conflict of laws principles.
(k) EFFECTIVE DATE; TERMINATION DATE. The Plan is effective as of
the date on which the Plan is adopted by the Board, subject to approval of the
stockholders within twelve (12) months before or after such date. No Award shall
be granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan, or if
earlier, the tenth anniversary of the date this Plan is approved by the
stockholders. Subject to other applicable provisions of the Plan, all Awards
made under the Plan prior to such termination of the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
Date Approved by the Board: October 11, 2001
Date Approved by the Stockholders: ______________
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Exhibit 10.3
STOCK OPTION AGREEMENT
AGREEMENT made as of this 27th day of December, 2001 by and
between EUPA INTERNATIONAL CORPORATION, a corporation organized under the laws
of the State of Nevada (the "Company"), and TSANN PAO CO. (the "Optionee").
W I T N E S S E T H:
WHEREAS, Optionee has provided and will provide services to
the Company; and
WHEREAS, the Company desires to compensate the Optionee for
his efforts.
NOW, THEREFORE, in consideration of the covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. GRANT OF OPTION. Upon the terms and subject to the
conditions set forth herein, the Company hereby grants to the Optionee, during
the period commencing on the date of this Agreement, the right and option (the
"Option") to purchase 1,000,000 shares of the Company's common stock (the
"Common Stock") at $.01 per share.
2. VESTING AND EXERCISE OF OPTION. The Option shall vest as of
the date hereof and shall expire on the fifth anniversay of the date hereof (the
"Termination Date"). Subject to the terms and conditions set forth herein, the
Optionee may exercise all or part of the Option any time prior to the
Termination Date.
3. METHOD OF EXERCISING OPTION. The Optionee may exercise the
Option by delivering to the Company (i) a written notice stating the number of
shares of Common Stock that the Optionee has elected to purchase at that time
from the Company and (ii) full payment of the purchase price of the shares of
Common Stock then to be purchased. Payment of the purchase price for the shares
of Common Stock upon any exercise of the Option may be made by certified or bank
cashier's check payable to the order of the Company, by wire transfer subject to
the Company's instructions ck.
4. ISSUANCE OF COMMON STOCK UPON EXERCISE OF OPTION. As
promptly as practicable after receipt of such written notification of the
Optionee's election to exercise the Option and full payment of such purchase
price, the Company shall issue or transfer to the Optionee the number of shares
of Common Stock with respect to which the Option has been so exercised and shall
deliver to the Optionee a certificate or certificates therefor, registered in
the Optionee's name.
5. SECURITIES LAW ACKNOWLEDGMENTS. (a) The Optionee
acknowledges that the shares of Common Stock issued upon exercise of the Option
may not be registered under applicable securities laws, that such shares of
Common Stock purchased upon the exercise of the Option must be held indefinitely
unless subsequently registered under the applicable securities laws or unless an
exemption therefrom is available and at the election of the Company, such
certificates may bear such legends regarding the limited transferability of the
shares of Common Stock under applicable securities laws as counsel for the
Company may require. The shares of Common Stock issued pursuant to the terms of
this Agreement shall represent fully paid and nonassessable shares of Common
Stock.
6. OPTIONEE. Whenever the word "Optionee" is used in any
provision of this Agreement under circumstances where the provision should
logically be construed to apply to the executors, administrators or person or
persons to whom the Option may be transferred by will or by the laws of descent
and distribution, the word "Optionee" shall be deemed to include such person or
persons.
7. TRANSFERABILITY. The Option may be transferred
by the Optionee only with the consent of the Company in accordance with
applicable securities laws.
8. RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as
a shareholder with respect to any share of Common Stock covered by the Option
until the Optionee shall have become the holder of record of such share of
Common Stock, and no adjustment shall be made for dividends or distributions or
other rights in respect of such share of Common Stock for which the record date
is prior to the date upon which the Optionee shall become the holder of record
thereof.
9. ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC. The aggregate
number of shares of Common Stock that may be purchased pursuant to the Option,
the number of shares of Common Stock covered by the Option and the price per
share shall be appropriately adjusted for any increase or decrease in the number
of outstanding shares of Common Stock resulting from a stock split or other
subdivision or consolidation of shares of Common Stock or for other capital
adjustments or payments of stock dividends or distributions or other increases
or decreases in the outstanding shares of Common Stock effected without receipt
of consideration by the Company.
Subject to any required action by the shareholders, if the
Company shall be the surviving corporation in any merger, combination,
consolidation or other business transaction, the Option shall cover the
securities to which a holder of the number of shares of Common Stock covered by
the unexercised portion of the Option would have been entitled pursuant to the
terms of the merger or consolidation.
Upon the dissolution or liquidation of the Company, the Option
shall terminate; provided, however, that the surviving corporation may grant an
option or options to purchase its shares on such terms and conditions, both as
to the number of shares and otherwise, which shall substantially preserve the
rights and benefits of the Option.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Board of Directors of the
Company in its sole discretion. Any such adjustments may provide for the
elimination of any fractional share which might otherwise become subject to the
Option.
10. COMPLIANCE WITH LAW. Notwithstanding any of the provisions
hereof, the Optionee hereby agrees that the Optionee will not exercise the
Option, and that the Company will not be obligated to issue or transfer any
shares of Common Stock to the Optionee hereunder, if the exercise hereof or the
issuance or transfer of such Common Stock shall constitute a violation by the
Optionee or the Company of any provisions of any law or regulation of any
governmental authority. Any determination in this regard by the Compensation
Committee or, in the absence of a Compensation Committee, by the Board of
Directors shall be final, binding and conclusive. The Company shall in no event
be obliged to register any securities pursuant to the Securities Act of 1933, as
amended, or to take any other affirmative action in order to cause the exercise
of the Option or the issuance or transfer of Common Stock pursuant thereto to
comply with any law or regulation of any governmental authority.
11. NOTICE. Every notice or other communication relating to
this Agreement shall be in writing and shall be mailed to or delivered to the
party for whom it is intended at such address as may from time to time be
designated in a notice mailed or delivered to the other party as herein
provided; provided that, unless and until some other address be so designated,
all notices or communications by the Optionee to the Company shall be mailed or
delivered to the Company at its executive offices, and all notices or
communications by the Company to the Optionee may be given to the Optionee
personally or may be mailed to the Optionee at the address shown below the
Optionee's signature to this Agreement.
12. ENTIRE AGREEMENT. This Agreement sets forth the
complete understanding of the Company and the Optionee with respect to the
subject matter hereof and supersedes all prior understandings,whether oral
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or written.
13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada (without giving
effect to principles of conflicts of law).
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
EUPA INTERNATIONAL CORPORATION
By: /S/ CHENG-CHI CHANG
------------------------------
Name:
Title:
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TSANN PAO CO.
By: /S/ [ILLEGIBLE]
------------------------------
Name:
Title:
Address:
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Exhibit 23.1
1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Tsann Kuen Japan Co., Ltd.:
We have examined the non-consolidated balance sheets of Tsann Kuen Japan Co.,
Ltd. as of December 31, 2000 and 1999, and the related non-consolidated
statements of income and retained earnings for the years then ended, all
expressed in Japanese yen. Our examinations were made in accordance with
auditing standards, procedures and practices generally accepted and applied in
Japan and, accordingly, included such tests of the accounting records and such
other auditing procedures as we considered necessary in the circumstances.
In our opinion, the non-consolidated financial statements referred to above
present fairly the financial position of Tsann Kuen Japan Co., Ltd. as of
December 31, 2000 and 1999, and the results of its operations for the years then
ended in conformity with accounting principles and practices generally accepted
in Japan ("Japanese GAAP") applied on a consistent basis.
Our examinations were made for the purpose of forming an opinion on the basic
Japanese GAAP financial statements taken as a whole. The supplemental
information in Note 11 as to accounting differences between Japanese GAAP and
the accounting principles generally accepted in the United States of America is
presented for purposes of additional analysis and is not a required part of the
basic Japanese GAAP financial statements. This information has been subjected to
the auditing procedures applied in our examination of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic Japanese GAAP financial statements taken as a whole.
/S/ DELOITTE TOUCHE TOHMATSU
TOKYO, JAPAN
January 31, 2001 (March 22, 2002 as to Note 11)
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