EUPA International (EUPI) 10QSB/A 2005 Q2 Quarterly report (small business) (amended)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A (No. 1)

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2005
Commission file number 000-26539

EUPA International Corporation

(Exact name of small business issuer as specified in its charter)

Nevada
(State or other jurisdiction of incorporation or organization) 88-0409450
(IRS Employer Identification Number)

89 N. San Gabriel Boulevard, Pasadena, California
(Address of principal executive offices) 91107
(Zip Code)

626-793-2688

(Issuer’s telephone number, including area code)

     Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yesþ Noo.

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No o

     20,900,024 shares of common stock, par value $0.001, were outstanding as of August 12, 2005.

EXPLANATORY NOTE

     This Amendment No. 1 on Form 10-QSB (“Form 10-QSB/A No. 1)”) to our Quarterly Report on Form 10-QSB for the quarter ended June 30, 2005, initially filed with the Securities and Exchange Commission (“SEC”) on August 15, 2005 (“Original Filing”), reflects a restatement of the Consolidated Financial Statements of EUPA International Corporation as discussed in Note 8 to the Consolidated Financial Statements.

     This Form 10-QSB/A No. 1 only amends and restates Items 1 and 2 of Part I of the Original Filing and we have revised language in these Items from the Original Filing to reflect the restatement of our consolidated financial statements. In response to a comment letter from the SEC, we have restated our unaudited consolidated financial statements to correct errors in prior financial periods relating to an over accrual of income tax liability and a liquidating distribution from our wholly-owned subsidiary, Union Channel, Ltd. to us. No other information in the Original Filing is amended hereby. The foregoing items have not been updated to reflect other events occurring after the initial Original Filing or to modify or update those disclosures affected by subsequent events. In addition, the exhibit list in Item 6 of Part II has not been updated except that currently dated certifications from our President and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, are filed with this Form 10-QSB/A (No. 1) as Exhibits 31.1, 31.2, 32.1 and 32.2.

     With this filing, we have amended the Original Filing. As such, the consolidated financial statements contained in the Original Filing should no longer be relied upon. In addition, as we are concurrently amending the consolidated financial statements contained in the Company’s Quarterly Reports on Form 10-QSB for the periods ended March 31, 2005 and September 30, 2005 and the consolidated financial statements for the fiscal years ended December 31, 2004 and 2003 contained in the Annual Report on Form 10-KSB/A (No. 1), as previously filed, such original filings should no longer be relied upon either.

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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES

INDEX

	Page
Part I — Financial Information		2
Item 1. Financial Statements (Unaudited)		2
Consolidated Statements of Financial Position as of June 30, 2005 and December 31, 2004		2
Consolidated Statements of Operations for the Three Months Ended June 30, 2005 and June 30, 2004		3
Consolidated Statements of Cash Flows for the Three Months Ended June 30, 2005 and June 30, 2004		4
Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended June 30, 2005 and the Year Ended December 31, 2004		5
Notes to Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3. Controls and Procedures		14
Part II — Other Information		14
Item 1. Legal Proceedings		14
Item 6. Exhibits and Other Reports on Form 8-K		15
Signature		16
Certifications		17
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Restated)

ASSETS

	June 30, 2005
	(Unaudited)		December 31, 2004
Current Assets
Cash and cash equivalents	$	976,644	$	828,091
Accounts receivable, related parties, net		217,273		260,947
Other receivable, related parties		3,936		29,656
Prepaid expenses		8,940		11,740
Total Current Assets		1,206,793		1,130,434
Fixed Assets
Property, furniture and equipment (net)		786,706		800,610
Total Fixed Assets		786,706		800,610
Other Assets
Intangible assets, net		370,765		373,126
Deposits		8,370		8,370
Total Other Assets		379,135		381,496
Total Assets	$	2,372,634	$	2,312,540
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	86,234	$	57,860
Other payable, related parties		89,831		36,133
Total Current Liabilities		176,065		93,993
Deposits payable		4,100		4,100
Total Liabilities		180,165		98,093
Stockholders’ Equity
Common stock, $.001 par value, 25,000,000 shares authorized, 20,900,024 issued and outstanding		20,900		20,900
Additional paid in capital		1,962,203		1,951,203
Cumulative foreign-exchange translation adjustment		0		(532	)
Retained earnings		209,366		242,876
Total Stockholders’ Equity		2,192,469		2,214,447
Total Liabilities and Stockholders’ Equity	$	2,372,634	$	2,312,540

See Accompanying Notes and Accountants’ Report

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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Restated)

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2005			2004			2005			2004
Fee income	$	219,763		$	202,453		$	474,058		$	513,366
Total revenue		219,763			202,453			474,058			513,366
Selling expenses		36			12,244			15,970			52,116
Gross profit		219,727			190,209			458,088			461,250
General and administrative expenses		240,006			275,417			520,518			558,845
Income (loss) from operations		(20,279	)		(85,208	)		(62,430	)		(97,595	)
Other (income) expense
Interest income		(754	)		(502	)		(1,414	)		(1,366	)
Rental income		(16,051	)		(15,057	)		(29,638	)		(29,676	)
Miscellaneous		0			(669	)		532			(769	)
Total other (income) expense		(16,805	)		(16,228	)		(30,520	)		(31,811	)
Income (loss) before income taxes		(3,474	)		(68,980	)		(31,910	)		(65,784	)
Provision for income taxes		0			0			1,600			1,600
Income from continuing operations		(3,474	)		(68,980	)		(33,510	)		(67,384	)
Discontinued operations: (See note 8)
Income from discontinued operations		0			1,337			0			482
Net Income (loss)		($3,474	)		($67,643	)		($33,510	)		($66,902	)
Net loss per share from continuing operations (basic and diluted)
Basic		($0.000	)		($0.003	)		($0.002	)		($0.003	)
Diluted		($0.000	)		($0.003	)		($0.002	)		($0.003	)
Net loss per share (basic and diluted)
Basic		($0.000	)		($0.003	)		($0.002	)		($0.003	)
Diluted		($0.000	)		($0.003	)		($0.002	)		($0.003	)
Weighted average number of shares (See note 7)
Basic		20,900,024			20,900,024			20,900,024			20,900,024
Diluted		20,900,024			20,900,024			20,900,024			22,650,024

See Accompanying Notes and Accountants’ Report

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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Restated)

	Six Months Ended
	June 30,			June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss)		($33,510	)		($66,902	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		35,072			43,258
Stock options issued for services		11,000			11,000
Translation adjustment		532			(2,420	)
Decrease (Increase) in receivables		43,674			(200,661	)
Decrease (Increase) in other receivables		25,720			44,998
Decrease (Increase) in prepaid expenses		2,800			(7,560	)
(Decrease) Increase in accounts payable and accrued expenses		28,374			48,478
(Decrease) Increase in other payable		53,698			(47,228	)
(Decrease) Increase in income taxes payable		0			(4,640	)
Total Adjustments		200,870			(114,775	)
Net cash provided by (used in) operations		167,360			(181,677	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets		(5,472	)		0
Increase in intangible assets		(13,335	)		(15,642	)
Net cash used in investing activities		(18,807	)		(15,642	)
Net change in cash and cash equivalents		148,553			(197,319	)
Cash and cash equivalents at beginning of period		828,091			971,093
Cash and cash equivalents at end of period	$	976,644		$	773,774
Supplemental cash flows disclosures:
Income tax payments	$	1,600		$	10,600
Non cash investing and financing activities:
Stock issued for services	$	11,000		$	11,000

See Accompanying Notes and Accountants’ Report

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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Restated)

	June 30, 2005
	(Unaudited)			December 31, 2004
Common stock, number of shares outstanding
Balance at beginning of period		20,900,024			20,900,024
Balance at end of period		20,900,024			20,900,024
Common stock, par value $.001 (thousands of shares)
Balance at beginning of period	$	20,900		$	20,900
Balance at end of period		20,900			20,900
Additional paid in capital
Balance at beginning of period		1,951,203			1,929,203
Issuance of stock options for service		11,000			22,000
Balance at end of period		1,962,203			1,951,203
Cumulative foreign-exchange translation adjustment
Balance at beginning of period		(532	)		1,943
Foreign currency translation		532			(2,475	)
Balance at end of period		0			(532	)
Retained earnings
Balance at beginning of period		242,876			364,770
Net income (loss)		(33,510	)		(121,894	)
Balance at end of period		209,366			242,876
Total Stockholders’ Equity at end of period	$	2,192,469		$	2,214,447

See Accompanying Notes and Accountants’ Report

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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004

Note 1 — Accounting Policies

Unaudited Interim Financial Information

     We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial reporting. As used herein, “EUPA,” the “Company,” “we,” “our,” and similar terms include EUPA International Corporation and its wholly-owned subsidiaries, unless the context indicates otherwise. These consolidated financial statements are unaudited and, in our opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of the consolidated balance sheets, operating results, and cash flows for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted in accordance with the rules and regulations of the SEC. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-KSB for the year ended December 31, 2004.

Basis of Consolidation

     The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated upon consolidation.

Revenue Recognition

     We recognize revenue from three major sources, sales and customer support services, patent fiduciary and administration services and research and development services. Each of these services is provided on an on-going contractual basis. We recognize revenues from these services at the end of each calendar quarter for services performed during that calendar quarter.

Cash and Cash Equivalents

     Cash equivalents are stated at cost. Our cash equivalents are highly liquid investments readily convertible into cash with original maturities of three months or less and time deposits with commercial banks.

Fixed Assets

     Property and equipment are stated at cost less accumulated depreciation. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance and repairs are charged to expense as incurred. Whenever an asset is retired or disposed of, its cost and accumulated depreciation or amortization is removed from the respective accounts and the resulting gain or loss is credited or charged to income.

     Depreciation is computed using the straight-line and declining-balance methods over the following estimated useful lives:

Buildings and improvements	15 to 60 years
Automobiles	4 to 6 years
Machinery and equipment	5 to 12 years
Furniture and Fixtures	7 years

Intangible Assets

     Trademarks and other intangible assets determined to have indefinite useful lives are not amortized. We test such trademarks and other intangible assets with indefinite useful lives for impairment annually, or more frequently if events or circumstances indicate that an asset might be impaired. Trademarks and other intangible assets determined to have definite lives are amortized over their useful lives or the life of the trademark and other intangible asset, whichever is less.

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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004

Estimates

     The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, depreciable lives, receivables valuation, accrued expenses, recoverability of intangible assets and income taxes. Actual results could differ materially from those estimates.

Concentration of Credit Risk

     There is concentration of credit risk in our cash equivalents and trade accounts receivable. Our cash equivalents are concentrated in select financial institutions and, at times, cash balances exceed the FDIC insured levels. Our trade accounts receivable are concentrated with related parties in Asia.

Stock Based Compensation

     We account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and comply with the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” Under APB No. 25, compensation cost is recognized over the vesting period based on the difference, if any, on the date of grant between the fair value of our stock and the amount an employee must pay to acquire the stock.

Discontinued Operations

     Results of discontinued operations of a segment of the business are shown separately from continuing operations. Amounts for prior periods have also been shown separately for comparative purposes. We have met the requirements to classify our wholly-owned subsidiary, Union Channel Limited, a Hong Kong corporation (“Union”), as discontinued operations at the end of 2003. Union was previously included in our financial statements.

Impairment of Long-Lived Assets

     We evaluate long-lived assets, in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows, undiscounted and without interest charges, from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. There have been no such impairments to date.

Earnings Per Share

     We use SFAS No. 128 “Earnings Per Share” for calculating the basic and diluted earnings (loss) per share. Basic earnings (loss) per share are computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding. Diluted earnings per share are computed similar to basic earnings per share except that the denominator is increased to include common stock equivalents as if the potential shares of common stock had been issued.

Income Taxes

     Income taxes have been provided based upon the tax laws and rates in the countries in which operations are conducted and income is earned. The income tax rates imposed by the taxing authorities vary. Taxable income may vary from pre-tax income for financial accounting purposes. There is no expected relationship between the provision for income taxes and income before income taxes because the countries have different taxation rules, which vary not only to nominal rates but also in terms of available deductions, credits and other benefits. Deferred tax assets and

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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004

liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company’s assets and liabilities using the applicable tax rates in effect at year end as prescribed by SFAS No. 109 “Accounting for Income Taxes.”

Foreign Currency Translation

     The accounts of Union were maintained, and its financial statements were expressed, in Hong Kong dollars. Such financial statements were translated into U.S. dollars in accordance with SFAS No. 52 “Foreign Currency Translation,” with the Hong Kong dollar as the functional currency. According to the statement all assets and liabilities were translated at the current exchange rate, stockholder’s equity accounts are translated at the historical rates and income statement items are translated at the average exchange rates for the period. As of November 6, 2004, Union officially dissolved operations.

Note 2 — Property and Equipment

     A summary is as follows:

	June 30, 2005			December 31, 2004
Building and improvements	$	659,688		$	655,688
Land		400,000			400,000
Machinery and equipment		218,537			217,065
Automobiles		108,067			108,067
Furniture and fixtures		64,759			64,759
		1,451,051			1,445,579
Less accumulated depreciation		(664,345	)		(644,969	)
	$	786,706		$	800,610

Note 3—Intangible Assets

     A summary is as follows:

	June 30, 2005			December 31, 2004
Patents and Trademark costs	$	506,714		$	493,380
Less accumulated amortization		(135,949	)		(120,254	)
	$	370,765		$	373,126

Note 4 — Compensated Absences

     All full time regular covered employees are eligible for vacation with pay according to the following schedule: After one (1) full year of continuous full time employment five (5) days of vacation, after two (2) full years of continuous full time employment eight (8) days of vacation, after three full years of continuous full time employment twelve (12) days of vacation, after four full years of continuous full time employment sixteen (16) days of vacation, and after five full years of continuous full time employment twenty (20) days of vacation leave. The date of employment on a full time permanent basis will be considered the anniversary date for vacation purposes. When a regular full time employee has completed fifty-two (52) weeks of continuous employment he/she will be considered as having earned the aforementioned vacation benefits. At the end of each year and at termination, employees are paid for any accumulated annual vacation leave. As of June 30, 2005 vacation liability exists in the amount of $28,401.

Note 5 — Concentration — Related Party Transactions

     The Company had three customers during the six months ended June 30, 2005. Fees charged to these customers,

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EUPA INTERNATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004

all related parties, were approximately $473,951. Included in accounts receivable is $217,273 from these customers as of June 30, 2005.

Note 6 — Common Stock

     We recognize compensation expenses for non-employee stock-based compensation in accordance with SFAS No. 123. In December 2001, we issued a non-employee stock option to purchase 1,000,000 shares of our common stock at an exercise price of $0.001 per share, vesting over a five year period. This stock option was granted to a related party in exchange for the on-going provision of consultant services and was valued using the book value approach. At the time of grant, the book value approach best estimated the value of the services to be provided. At the date of grant, the per unit weighted-average fair value of unit options granted was $0.11. During the six months ended June 30, 2005 the Company recognized consulting expenses of $11,000 under the non-employee stock option.

Note 7 — Earnings Per Share

     We calculate basic and diluted earnings (loss) per share in accordance with SFAS No. 128, “Earnings Per Share.” Basic earnings (loss) per share are computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share are computed similar to basic earnings (loss) per share except that the denominator is increased to include common stock equivalents as if the potential shares of common stock had been issued. Stock options are stock equivalents and are assumed to be issued and outstanding during the period. Diluted earnings (loss) per share adjust for any changes in income and the repurchase of common shares that would have occurred from the assumed issuance, unless such effect is anti-dilutive.

Note 8 — Restated Financial Statements

In accordance with APB Opinion No. 20 “Accounting Changes,” the Company has restated its December 31, 2004 and June 30, 2004 and 2005 financial statements to correct errors in prior financial periods relating to an over accrual of income tax liability and a liquidating distribution to the Company from its wholly-owned subsidiary, Union.

Income Tax Liability

The Company over accrued its income tax liability in the amount of $79,996 for Union Channel in 2002. The Company accounted for the reversal of the income tax accrual as a correction of an error in a prior financial period. The effect of this correction is an increase in retained earnings by $79,996 in 2003 and decrease in income from discontinued operation by $79,996 in 2004.

Liquidating Distribution

In connection with the liquidation of Union, the Company originally recorded a liquidating distribution of $517,060 as other income of the Company and as a reduction in stockholder’s equity of Union. As a result, the Company realized net income in the year 2004 of $475,163. In order to correct this error, the Company has removed the transfer-related accountings between its wholly-owned subsidiary and itself resulting from the dissolution of Union. The transfer of cash from Union to the Company, as the parent corporation, should not have had any effect on the consolidated financial statements and the Company has, accordingly, decreased other income by $517,061. As restated, the Company realized a net income (loss) of $(121,894) in 2004 compared to a net income of $77,776 in 2003. This restatement had no impact on consolidated stockholders’ equity.

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the restatement of our December 31, 2004 audited consolidated financial statements and notes thereto (the “2004 Consolidated Financial Statements”), along with the MD&A included in EUPA’s 2004 Annual Report on Form 10-KSB/A (No. 2) for the period ended December 31, 2004 and the Quarterly Report on Form 10-QSB/A (No. 1) for the period ended March 31, 2005, filed separately with the SEC. We have revised language in the MD&A from the Original Filing only to reflect the restatement of our consolidated financial statements and, in accordance with APB Opinion No. 20, “Accounting Changes,” correction of the errors in prior financial periods relating to the over accrual of income tax liability and the liquidating distribution from our wholly-owned subsidiary, Union. No other information has been amended or updated to reflect other events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events.

     The information contained in this MD&A, other than historical information, contains “forward looking statements” within the meaning of The Private Securities Litigation Reform Act of 1995 that are based on management’s current expectations and assumptions. This MD&A should be read in conjunction with the sections entitled “Additional Factors That May Affect Future Results “ and “Forward-Looking Statements.” The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future.

Overview

     EUPA, through its wholly-owned subsidiary, Tsann Kuen U.S.A., an Illinois corporation (“TK USA”) provides sales and customer support, product design, research and development, and patent administration services to Tsann Kuen Enterprise Co., Ltd., a corporation organized and existing in the Republic of China (“TKE”) and owner of approximately 67% of EUPA’s capital stock. TKE is a major designer, manufacturer and marketer of small home and kitchen appliances, motor-driven products, vacuum cleaners and other consumer electronic products for brand name distributors worldwide.

     Our business has been structured around developing and promoting TKE’s products in the United States (“U.S.”). Our activities have included acting as the information center for TKE and its products, conducting market research, designing products and enhancements, performing research and development of products, cultivating and supporting relationships with brand name distributors and other customers and increasing U.S. sales. We also provide sales and customer support services to TKE’s subsidiaries, Tsann Kuen China (Shanghai) Enterprises Ltd. (“TKS”), Tsann Kuen (Zhangzhou) Enterprise Co. Ltd. (“TKL”) and Tsann Kuen (China) Enterprise Co., Ltd. (“TKC”), each of which are corporations organized and existing in the People’s Republic of China.

     We have sales and customer support service agreements with each of TKS, TKL and TKC. We charge each of TKS, TKL and TKC sales and customer support fees based on the fully-burdened costs we incur in providing these services plus a mark-up. Our fully-burdened costs include salaries and other personnel expenses, such as travel and travel-related expenses, operating and overhead expenses, such as office space, administrative services, office supplies and equipment. Our costs are allocated among TKS, TKL and TKC on a reasonable cost allocation basis. We periodically review our fee formula with each party to assure that it is consistent with industry standards and customs. During the six months period ended June 30, 2005, our mark-up was 2% for each of TKS and TKL. There was no mark-up for TKC, as no sales and customer support services were provided during the six months ended June 30, 2005.

     During the six month period ended June 30, 2005, sales and customer support fees charged to TKS and TKL were $85,406 and $371,740, respectively. These fees are included in accounts receivable. We carry relatively large accounts receivable, as the customer payment period is long, approximately 90 days. We invoice each of TKE, TKS and TKL on a quarterly basis for services provided during the preceding calendar quarter and payments are due 90 days after receipt of the invoice.

     We also receive revenues for research and development services and patent fiduciary and administration services we provide to TKE. We have a research and development services agreement and a patent fiduciary and administration services agreement with TKE. Fees for these services are calculated in the same manner as fees for

12

sales and customer support services, on our fully-burdened costs incurred in the provision of these services plus a mark-up. During the six months ended June 30, 2005, our mark-up was 5% for research and development services and 2% for patent fiduciary and administration services. Fees charged to TKE during the six months ended June 30, 2005, were $0 for research and development services and $16,805 for patent fiduciary and administration services. These fees are included in accounts receivable, having the same customer payment period as fees for sales and customer support services.

     Costs associated with research and development services include all costs incurred by the Company related to the provision of these service including, without limitation, salaries and other personnel expenses, including employee benefits; rent; depreciation of equipment; office supplies and expense; telephone; travel, including lodging and meals; and entertainment. Costs associated with patent and fiduciary services only include amortization of the legal costs and registration filing fees of the internally-developed patents and trademarks. All costs associated with research and development services and patent and fiduciary administration services are charged to general and administrative expenses.

Trends, Events and Uncertainties

     We have been assessing business operations and strategy. In light of the results of this assessment, we may consider and implement a broad range of business initiatives and strategic alternatives. These may include, without limitation, new business initiatives, strategic transactions and other business efficiencies.

Results of Operations

     Six Months Ended June 30, 2005 Compared with Six Months Ended June 30, 2004

	June 30, 2005			June 30, 2004
Revenue	$	474,058		$	513,366
Selling Expense		15,970			52,116
General Expense		520,518			558,845
Income (loss) from operations	$	(62,430	)	$	(97,595	)

Revenue from Fee Income

     During the six months ended June 30, 2005, revenue from fee income was $474,058 down from $513,366 in the second quarter of 2004. The decrease in fee income was attributed to the decrease in the amount of sales and customer support, research and development and patent fiduciary administration services provided to TKE.

General and Administrative Expenses

     General and administrative expenses were $520,518 for the six months ended June 30, 2005 compared with $558,845 in the second quarter of 2004. These expenses included accounting fees, amortization and depreciation expenses, wages and salaries and legal professional service expenses. The decrease in general and administrative expenses was largely attributed to the decrease in general expenses incurred for services provided to TKE. The income (loss) from operations was $(62,430) and $(97,595) for the six months ended June 30, 2005 and 2004, respectively, which was a result of the decrease in the amount of selling expense and general expense for the six months ended June 30, 2005.

     Non-operating income for the six months ended June 30, 2005 was $30,520 compared with $31,811 in the second quarter of 2004. Included in non-operating income was $1,414 of interest income, $29,638 of rental income, for the six months ended June 30, 2005. During the six months ended June 30, 2004, there was $1,366 of interest income, $29,676 of rental income, and $769 of other income. There was $1,600 income tax expenses recognized on our pre-tax income for both the six months ended June 30, 2005 and 2004.

     For the six months ended June 30, 2005 we realized a net loss of $(33,510) compared to a net income of $13,094 for the six months ended June 30, 2004. The increase in net loss was a result of the decrease in income from

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discontinued operations.

Liquidity and Capital Resources

     Our primary source of liquidity as of June 30, 2005 is our cash on hand. Net cash provided by operations for the six months ended June 30, 2005 was $167,360, as compared to net cash used in operations of $(181,677) during the same period in 2004. The increase in net cash provided by operating activities was a result of the significant decrease in accounts receivable. Our cash and cash equivalents were $976,644 and $828,091 as of June 30, 2005 and December 31, 2004, respectively. Our current assets totaled $1,206,793 and $1,130,434 on June 30, 2005 and December 31, 2004, respectively. Our current liabilities were $176,065 and $93,993 on June 30, 2005 and December 31, 2004, respectively. Working capital was $1,030,728 and $1,036,441 as of June 30, 2005 and December 31, 2004, respectively.

     Net cash used in investing activities totaled $(18,807), for the six months ended June 30, 2005, which consisted of the costs associated with obtaining patent rights and fixed assets, compared with $(15,642) for the six months ended June 30, 2004. The net cash change was $148,533 and $(197,319) for the second quarter of 2005 and 2004, respectively.

Cash Flow

     Our cash needs are currently met by our cash on hand, primarily because of the long lag time for payment of our accounts receivable. We believe we will be able to continue to meet our anticipated working capital requirements through a combination of cash on hand and revenues from service fees as our accounts receivable are paid. From time to time, primarily because of our accounts receivable lag time, our daily operations are supported by advances from TKE. These advances are offset from our fee revenues. We believe that our current financial resources are sufficient to finance our operations for at least the next twelve months. Our actual working capital needs will depend upon numerous factors, including our operating results, competition, and the availability of monies from TKE, none of which can be predicted with certainty.

Off-Balance Sheet Arrangements

     We have not entered into any off-balance sheet financing arrangements and have not established any special purpose entities. We have not guaranteed any debt or commitments of other entities or entered into any options on non-financial assets.

Additional Factors That May Affect Future Results

     The following risk factors and other information included in this report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or which we currently deem immaterial also may impair our business operations. If any of the following risks occur, our business, financial condition, operating results, and cash flows could be materially adversely affected.

Risks Relating to Resignation of Tsan-Kuen Wu

     On March 11, 2005, Tsan-Kuen Wu resigned from his positions as our President, Chief Executive Officer and Chairman of the Board of Directors, amidst two criminal proceedings involving alleged securities law violations and fraud in Taiwan. Mr. Wu is also the founder and Chairman of TKE. In one proceeding, Mr. Wu was convicted, on December 31, 2004, of manipulating the stock price of Sunfar Computer Co., Ltd. and sentenced to prison for 1¹/2 years. Mr. Wu’s prison sentence was suspended pending the outcome of a final appeal. In the second on-going proceeding, on November 11, 2004, Mr. Wu was indicted on charges of publicly offering shares of common stock of EUPA without first obtaining the necessary governmental approvals and securities fraud. We believe that the resolution of these legal proceedings, and resulting negative publicity, may negatively impact our business. However, Mr. Wu currently has no plans to resign from his position as chairman of TKE, and, as TKE’s management is not dependent on Mr. Wu, we do not expect the impact of Mr. Wu’s indictment to significantly

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impact EUPA’s business.

Negative Publicity May Adversely Affect Our Business

     As a result of the criminal proceedings against Mr. Wu, TKE and EUPA could become the subject of negative publicity. This negative publicity could bring regulatory scrutiny upon EUPA. Continuing negative publicity for TKE, as well as for EUPA, could have a material adverse effect on our results of operations and liquidity and the market price of our publicly traded securities.

TKE Controls Our Business

     TKE owns more than 50% of our outstanding capital stock. As a result, TKE is able to control our business and affairs and our board of directors. The interests of TKE may not necessarily be consistent with the interests of our other shareholders.

We Are Dependent On TKE for Our Sales and Other Revenues and Capital Requirements

     As TKE is our sole customer, any changes in its business, financial condition or liquidity could have a material impact on our ability to operate our business. The market segments in which TKE competes are intensely competitive, and TKE has many competitors in the manufacturing and retail services industries. Many of TKE’s current and potential competitors have longer operating histories, larger customer bases, greater brand recognition, and significantly greater financial, marketing, and other resources than TKE. They may be able to secure comparable merchandise from vendors on more favorable terms and may be able to adopt more aggressive pricing policies. Competitors in the manufacturing industry may be able to devote more resources to new product introductions, features and enhancements, and research and development than we or TKE do. Competitors in the retail industry also may be able to devote more resources to sales and marketing than we or TKE do.

Many of Our Employees Also Perform Services for TKE Which Could Result In Their Attention Being Diverted From Our Business

     Our success will depend, to some degree, on the efforts of our employees. Many of our officers and employees are also employed by TKE. As a result, their full time, attention and energies are not directed exclusively to our business. If the attention of our officers is diverted from our business, we may not be able to realize our full potential.

The Loss of Key Senior Management Personnel Could Negatively Affect Our Business

     We depend on the continued services and performance of our senior management and other key personnel. The loss of any of our executive officers or other key employees could harm our business.

If We Do Not Develop and Introduce New TKE Products, Our Ability to Grow Will Be Limited

     We believe that our future success will depend in part upon our ability to continue to develop innovative designs in the products manufactured by TKE and to develop and market new products. We may not be successful in introducing or supplying any new products or product innovations to TKE’s which will satisfy customer needs or achieve market acceptance. The failure to develop products and introduce them successfully and in a timely manner could harm our ability to grow our business.

A Slowdown in the Retail Industry Will Likely Have an Adverse Effect on Our Results

     TKE products are ultimately sold to consumers through major retail channels, primarily mass merchandisers, department stores, specialty stores and mail order catalogs. Changes in general economic conditions will cause reductions in demand among consumers and retailers. As a result, our business and financial results will fluctuate with the financial condition of retail customers and the retail industry.

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Compliance with Governmental Regulations Could Increase Our Operating Costs and Interfere with Our Business Efforts

     Most federal, state and local authorities require certification by Underwriters Laboratory, Inc., an independent, not-for-profit corporation engaged in the testing of products for compliance with certain public safety standards, or other safety regulation certification prior to marketing electrical appliances. Foreign jurisdictions also have regulatory authorities overseeing the safety of consumer products. TKE products, or additional electrical appliances which we may develop, may not meet the specifications required by these authorities. A determination that our products are not in compliance with these rules and regulations could result in the imposition of fines or awards of damages to private litigants.

We May Experience Significant Fluctuations in Our Operating Results and Rate of Growth

     Due to our limited operating history, our evolving business model, and the unpredictability of TKE’s business, we may not be able to accurately forecast our rate of growth. We base our current and future expense levels and our investment plans on estimates of future net sales and rate of growth. Our expenses and investments are to a large extent fixed. We may not be able to adjust our spending quickly enough if our or TKE’s net sales fall short of our expectations.

     Our revenue and operating profit growth depends on the continued growth of demand for the products offered by TKE, and our business is affected by general economic and business conditions throughout the world. A softening of demand, whether caused by changes in consumer preferences or a weakening of the U.S. or global economies, may result in decreased revenue or growth. Terrorist attacks and armed hostilities create economic and consumer uncertainty that could adversely affect our revenue or growth. Such events could create delays in, and increase the cost of, product shipments, which may decrease demand. Revenue may not be sustainable and may decrease in the future.

     Our sales and operating results will also fluctuate for many other reasons, including our ability to retain and increase sales to existing customers, attract new customers, and satisfy our customers’ demands; the introduction by our competitors of products, services, or improvements; and seasonal fluctuations in the retail industry.

We May Not Be Able to Adequately Protect Our Intellectual Property Rights or May Be Accused of Infringing Intellectual Property Rights of Third Parties

     We regard our patents, trade secrets, proprietary technology, and similar intellectual property as critical to our success, and we rely on patent law, trade secret protection, and confidentiality agreements with our employees, TKE, and other rights granted to us under international, federal and state statutory and common law, to protect our proprietary rights. We may be unable to prevent third parties from infringing upon or diminish the value of our proprietary rights.

     Policing unauthorized use of our proprietary rights is inherently difficult, and we may not be able to determine the existence or extent of any such unauthorized use. The protection of our intellectual property may require the expenditure of significant financial and managerial resources. Moreover, we cannot be certain that the steps we take to protect our intellectual property will adequately protect our rights or that others will not independently develop or otherwise acquire equivalent or superior technology or other intellectual property rights.

     Other parties may claim that we infringed their proprietary rights. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, injunctions against us or the imposition of damages that we must pay. We may need to obtain licenses from third parties who allege that we have infringed their rights, but such licenses may not be available on terms acceptable to us or at all.

We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell

     Some of the products we sell may expose us to product liability claims relating to personal injury, death, or property damage caused by such products, and may require us to take actions such as product recalls. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred

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or that insurance will continue to be available to us on economically reasonable terms, or at all.

Forward-Looking Statements

     This quarterly report on Form 10-QSB/A (No. 1) includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, made in this quarterly report on Form 10-QSB/A (No. 1) are forward-looking. We use words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain.

     Actual results could differ materially for a variety of reasons, including, among others, the rate of growth of the economy in general, customer spending patterns, changes in customer demand for TKE’s products, effectiveness of marketing programs, our success in designing and developing products, our research and development costs, the length of development and product acceptance cycles, world events, the amount that we invest in new business opportunities and the timing of those investments, competition, the degree to which we enter into commercial agreements and strategic transactions and maintain and develop commercial relationships, foreign exchange risks, seasonality, international growth and expansion and changes in laws and regulations. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results to differ significantly from management’s expectations, are described in greater detail in “Additional Factors That May Affect Future Results,” which, along with the previous discussion, describes some, but not all, of the factors that could cause actual results to differ significantly from management’s expectations.

Item 3.Controls and Procedures

     Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that (i) our disclosure controls and procedures were effective as of June 30, 2005, and (ii) no change in internal control over financial reporting occurred during the quarter ended June 30, 2005, that has materially affected, or is reasonably likely to materially affect, such internal control over financial reporting.

Part II — Other Information

Item 1.Legal Proceedings

     EUPA is a party to a product liability lawsuit which has arisen in the ordinary course of business. We believe that the outcome of such lawsuit will not have a material adverse effect on our business, financial condition or results of operations. We have product liability and general liability insurance policies in amounts we believe to be reasonable given our current level of business. Although historically we have not had to pay any material product liability claims, it is conceivable that we could incur claims for which we are not insured.

Item 6.Exhibits and Reports On Form 8-K

     (a) Exhibits.

31.1	Certification of the Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
31.2	Certification of the Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

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(b) Reports on Form 8-K.

     We filed a Form 8-K on July 26, 2005 reporting an event pursuant to Item 5.02, Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

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SIGNATURES

     In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EUPA INTERNATIONAL CORPORATION

(Registrant)

Date: March 10, 2006

/s/ Yuan-Chung Tsai  

Yuan-Chung Tsai 

President and Chief Executive Officer 

Date: March 10, 2006

/s/ Kung-Chieh Huang  

Kung-Chieh Huang 

Chief Financial Officer 

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