UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2013 or

 

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _____________ to _____________

 

Commission files number 0-21384

 

INTERNATIONAL PACKAGING AND LOGISTICS GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada		13-3367421
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

 

7700 Irvine Center Drive, Suite 870

Irvine, California

(Address of Principal Executive Offices)

 

92608

(Zip Code)

 

(949) 861-3560

(Registrant’s Telephone Number, Including Area Code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. x Yes £ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

 

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

 

The number of shares outstanding of the Issuer’s common stock as of August 14, 2013 was 4,961,357.

 

International Packaging and Logistics Group, Inc.,

and Subsidiaries

 

Condensed Consolidated Financial Statements

for the Three and Six Months Ended

 

June 30, 2013 and 2012

 

 

 

 

C O N T E N T S

 

 

 

Condensed Consolidated Balance Sheets	1
Condensed Consolidated Statements of Operations and Comprehensive Income	3
Condensed Consolidated Statements of Cash Flows	5
Notes to Condensed Consolidated Financial Statements	6 – 21

 

 

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Condensed Consolidated Balance Sheets

As of June 30, 2013 and December 31, 2012

(Unaudited)

 

		June 30,				December 31,
		2013				2012
		(Unaudited)				(Audited)
Current Assets
Cash		$	661,171			$	1,387,939
Accounts receivable, net			6,323,036				5,860,116
Other current assets			3,998				14,248
Total Current Assets			6,988,205				7,262,303
Property, Plant and Equipment, net			7,074				10,319
Other Assets
Prepaids			11,610				49,907
Deposits			64,338				40,184
Contract in place			1,295,726				1,295,726
Deferred tax assets			183,679				183,679
Total Other Assets			1,555,353				1,569,496
Total Assets		$	8,550,632			$	8,842,118
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses		$	5,388,222			$	5,621,853
Notes payable - related party			80,000				80,000
Other current liabilities			25,798				32,129
Total Current Liabilities			5,494,020				5,733,982

 

See accompanying notes.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Condensed Consolidated Balance Sheets

As of June 30, 2013 and December 31, 2012

(Unaudited)

  

Commitments and contingencies		–				–
Stockholders' Equity
Convertible preferred shares: $0.0001 par value, 50,000,000
shares authorized, 974,730 Series A issued and outstanding			98				98
400,000 Series B issued and outstanding			40				40
Common stock: $0.001 par value, 900,000,000 shares authorized,			4,961				4,961
4,961,357 issued and outstanding
Additional paid-in capital			2,202,877				2,202,877
Accumulated other comprehensive income			35,923				52,359
Retained earnings (deficit)			(61,403	)			(28,144	)
Total IPLO Stockholders' Equity			2,182,496				2,232,191
Non-controlling interest			874,116				875,945
Total Stockholders' Equity			3,056,612				3,108,136
Total Liabilities and Stockholders' Equity		$	8,550,632			$	8,842,118

 

See accompanying notes.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Three and Six Months Ended June 30, 2013 and 2012

(Unaudited)

  

		Six Months Ended June 30,								Three Month Ended June 30,
		2013				2012				2013				2012
Revenues
Packaging		$	16,647,979			$	15,204,257			$	7,992,803			$	8,346,209
Logistics			3,816,824				4,832,926				2,104,191				2,706,183
Total Revenues			20,464,803				20,037,183				10,096,994				11,052,392
Cost of Goods Sold
Packaging			15,994,563				14,613,277				7,657,269				8,226,936
Logistics			3,202,870				4,215,054				1,752,994				2,392,409
Total Cost of Goods Sold			19,197,433				18,828,331				9,410,263				10,619,345
Gross Profit			1,267,370				1,208,852				686,731				433,047
Operating Expenses
Administrative expenses			525,022				421,302				293,385				195,509
Rent			66,354				98,447				30,344				49,085
Salaries and wages			701,284				608,683				347,814				306,407
Total Operating Expenses			1,292,660				1,128,432				671,543				551,001
Loss from Operations			(25,290	)			80,420				15,188				(117,954	)
Other Income
Interest income (expense), net			573				(239	)			343				111
Other income (expense)			1,965				3,224				1,576				1,402
Rent Income			193				–				193				–
Total Other Income			2,731				2,985				2,112				1,513
Net Income (Loss) before Income Taxes			(22,560	)			83,404				17,300				(116,441	)

 

See accompanying notes.

  

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

For the Three and Six Months Ended June 30, 2013 and 2012

(Unaudited)

 

Income tax benefit  (expense)			(12,529	)			(29,890	)			(14,629	)			23,070
Net Income (Loss)			(35,089	)			53,514				2,671				(93,371	)
Net (gain) loss attributable to non-controlling interest			1,830				(14,210	)			(7,816	)			(14,015	)
Net Income (Loss) attributable to IPLO			(33,259	)			39,304				(5,145	)			(107,386	)
Comprehensive Income
Currency translation adjustment			(16,436	)			(6,405	)			(28,064	)			(6,718	)
Comprehensive Income (Loss)		$	(49,695	)		$	32,899			$	(33,209	)		$	(114,104	)
Earnings per weighted average share of common stock - basic		$	(0.01	)		$	0.01			$	(0.00	)		$	(0.02	)
Earnings per weighted average share of common stock - diluted		$	(0.01	)		$	0.01			$	(0.00	)		$	(0.02	)
Weighted average shares outstanding - basic			4,961,357				4,961,357				4,961,357				4,961,357
Weighted average shares outstanding - diluted			4,961,357				6,336,087				4,961,357				4,961,357

 

See accompanying notes.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2013 and 2012

(Unaudited)

  

		June 30,				June 30,
		2013				2012
Increase (decrease) in cash and cash equivalents:
Net income/(loss)		$	(35,090	)		$	53,514
Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating activities:
Depreciation expense			2,931				6,616
Loss on disposal of PP&E			–				137
Changes in operating assets and liabilities:
Decrease (Increase) in accounts receivable			(491,194	)			(479,580	)
Decrease in prepaid expense			–				70,881
Increase in deposits			(25,000	)			–
Decrease deferred tax asset			–				15,879
Decrease in current assets			46,555				63,783
(Decrease) Increase in accounts payable and accrued expenses			(237,932	)			353,301
Increase (Decrease) in other current liabilities			21,389				34,188
Net cash provided by (used in) operating activities			(718,341	)			118,719
Cash flow from investing activities:
Net cash from investing activities			–				–
			–				–
Cash flow from financing activities:
Net cash provided by financing activities			–				–
Effect of currency translation			(8,427	)			(2,800	)
Net increase/(decrease) in cash and cash equivalents			(726,768	)			115,919
Cash and cash equivalents at beginning of period			1,387,939				1,140,791
Cash and cash equivalents at end of period		$	661,171			$	1,256,710

 

See accompanying notes.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

1.          Summary of Significant Accounting Policies

 

Organization and Basis of Presentation

 

These interim condensed consolidated financial statements represent the financial activity of International Packaging and Logistics Group, Inc., (“IPL Group” or “the Company”) a publicly traded company listed and traded on the NASDAQ Over the Counter Bulletin Board (“OTCBB”). The interim condensed consolidated financial statements for the three and six months ended June 30, 2013 and 2012 have been prepared in accordance with accounting principles generally accepted in the United States. The interim condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions have been eliminated. The Company’s fiscal year end is on December 31.

 

The foregoing unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited condensed consolidated financial statements and the notes thereto included on Form 10-K for the period ended December 31, 2012. In the opinion of management, the unaudited interim condensed consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.

 

The preparation of interim condensed consolidated financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the condensed consolidated financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumption are inherent in the preparation of the Company’s condensed consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company’s financial position and results of operations.

 

Operating results for the three and six month periods ended June 30, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

  

Nature of Operations

 

On July 2, 2007, International Packaging and Logistics Group, Inc., through its wholly-owned subsidiary, YesRx.com (“YesRx”) acquired all the outstanding shares of H&H Glass, Inc. (“H&H Glass” or “H&H”), in exchange for 3,915,000 shares of its common stock in a reverse triangular merger (the “Merger”). H&H Glass is a glass importer that supplies custom products such as perfume bottles and food condiment bottles, plus provides complementary services such as container design and mold making. H&H Glass imports glass containers from Asia and distributes to North America. H&H Glass acquires its products mainly from one supplier in China and Taiwan and sells its products through several distributors in the United States and Canada who service small to medium sized customers. H&H imports in excess of 1,000 shipping containers of glass a year. Depending on the size of the product, a container can contain anywhere from 3,000 to 300,000 pieces.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

1.          Summary of Significant Accounting Policies (continued)

 

On January 1, 2010, International Packaging and Logistics Group, Inc., (“IPL Group Inc.”), acquired a majority interest in EZ Link Holdings, Ltd., company organized under the laws of the British Virgin Islands which contractually controls EZ Link Corporation (“EZ Link”), a logistics company headquartered in Taiwan. EZ Link was established in July 2003 under the laws of Taiwan, Republic of China (“PRC”) EZ LINK is a full service international freight forwarder, who has current networks to locations in China, Hong Kong, South East Asia, North East Asia, North America, Latin America and Europe.

  

Organization and Line of Business

 

International Packaging and Logistics Group, Inc., a Nevada corporation, was originally incorporated as Interactive Medical Technologies, Ltd., on June 2, 1986, in the state of Delaware. On April 17, 2008, IPL Group converted from a Delaware corporation to a Nevada Corporation.

 

EZ Link Holdings Ltd.

 

EZ Link Holdings Ltd. was incorporated in 2009, under the laws of the British Virgin Islands. The Company has no substantive operations of its own.

 

EZ Link Corp., a Taiwan company established in July 2003 with initial registered capital of NTD 13,500,000, is a freight forwarder with current networks of locations in China, Hong Kong, South East Asia, North East Asia, North America, Latin America and Europe, and holds the licenses and approvals necessary to operate its business in China.

 

Taiwan law currently has limits on foreign ownership of companies. To comply with these foreign ownership restrictions, on December 31, 2009, EZ Link Holdings entered into following exclusive agreements with EZ Link Corp. and its owners (collectively the “Contractual Arrangements”):

 

(1) Consulting Services Agreement, through which EZ Link Holdings has the right to advise, consult, manage and operate EZ Link Corp. and collect and own all of its net profits;

 

(2) Operating Agreement, through which EZ Link Holdings has the right to recommend director candidates and appoint the senior executives of EZ Link Corp, approve any transactions that may materially affect the assets, liabilities, rights or operations of EZ Link Corp, and guarantee the contractual performance by EZ Link Corp. of any agreements with third parties, in exchange for a pledge by EZ Link Corp. of its accounts receivable and assets.

 

In consideration of services provided by the consultant, EZ Link Corp will pay a consulting fee equal to all of its net income on a quarterly basis. There was a cumulative net loss from January 1, 2012 to June 30, 2013 of $3,735.

 

The terms of these Consulting Agreements begin as of the date of the Contractual Agreements, and shall continue in perpetuity, unless terminated in accordance with relevant provisions in the agreements or by any other agreement reached by all parties.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

  

1.          Summary of Significant Accounting Policies (continued)

 

Consolidation of variable interest entities

 

The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries in which the Company has a controlling financial interest.  All significant intercompany accounts and transactions have been eliminated in consolidation.  The Company determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity (“VIE”). 

 

Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that give them the power to make significant decisions related to the entity’s operations.  The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest.  Accordingly, the Company consolidates its majority-owned subsidiary, EZ Link Corp, in which it holds more than 50% of the voting rights or where control is exercised through other contractual rights. 

 

VIEs are entities that lack one or more of the characteristics of a voting interest entity.  Either the entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties or the equity investors do not have the characteristics of a controlling financial interest.  The entity that has a controlling financial interest in a VIE is referred to as the primary beneficiary and is required to consolidate the VIE.  The Company’s majority-owned subsidiaries are not considered VIEs. 

 

The Company's consolidated financial statements include 100% of the assets, liabilities and earnings of a subsidiary, EZ Link Corp, which is more than 50% owned and control is established.  The ownership interest of the minority owners of the Company’s subsidiary is called non controlling interest.

 

The Company has concluded that EZ Link Corp is a VIE and that the Company’s 51% owned subsidiary, EZ Link Holdings, absorbs a majority of the risk of loss from the activities of EZ Link Corp. and enables the Company to receive a majority of its expected residual returns. Accordingly, the Company accounts for EZ Link Corp. as a VIE as of January 1, 2010.

 

The initial measurement of the assets and liabilities of EZ Link Corp. for the purpose of consolidation by the Company is at fair value. EZ Link Holdings, Ltd. has had no other business activities except for the entering into of the exclusive agreements with EZ Link Corp. and its shareholders.

 

The consolidated financial statements include the financial statements for the Company, its subsidiaries and the variable interest entity, EZ Link Corp. and EZ Link Corp.’s subsidiary EZ Link International. All significant inter-company transactions and balances between the Company, its subsidiaries and the variable interest entity are eliminated upon consolidation.

 

Country risk

 

As EZ Link Holding, Ltd. principal operations are conducted in Taiwan, it is subject to special considerations and significant risks not typically associated with companies in the US. These risks include, among others, risks associated with the political, economic and legal environments and foreign currency exchange limitations encountered in Taiwan. The EZ Link Holdings results of operations may be adversely affected by changes in the political and social conditions in Taiwan, and by changes in governmental policies with respect to laws and regulations, among other things.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

  

1.          Summary of Significant Accounting Policies (continued)

 

In addition, most of the transactions undertaken in Taiwan are denominated in New Taiwan Dollars (“NTD”), which must be converted into other currencies before remittance out of Taiwan may be considered. Both the conversion of NTD into foreign currencies and the remittance of foreign currencies abroad require the approval of the Taiwan government.  Therefore, it is assumed that there will be limitations of distribution of profits from EZ Link Corp. to EZ Link Holdings.

 

Principles of Consolidation

 

The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America. EZ Link Corp’s functional currency is New Taiwan Dollars (NTD), however, the accompanying consolidated financial statements have been re-measured and presented in United States Dollars ($).

 

The consolidated financial statements include the accounts of IPL Group and its subsidiaries (collectively the “Company”). The Company’s subsidiaries include H&H Glass and 51% of EZ Link Holdings, Ltd.

 

The accompanying consolidated financial statements at June 30, 2013, include EZ Link Holdings, Ltd., and subsidiaries from the January 1, 2010 date of acquisition. Intercompany accounts and transactions have been eliminated upon consolidation.

 

Estimates

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosures of contingent assets and liabilities at the date of the consolidated financial statements. Significant estimates include an allowance for doubtful accounts and depreciation of property, plant and equipment.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents include amounts invested in a money market account with a financial institution. Cash equivalents are carried at cost, which approximates fair value.

 

Contract in Place

 

Goodwill and indefinite-lived intangible assets are not amortized. Rather, they are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.  Contracts in place is the only intangible asset with an indefinite life on our consolidated balance sheets.  We have elected December 31 as the date to perform our annual impairment test.  

 

The contract in place represents the fair value of the consulting contract and operating agreement between EZ Link Holdings, Ltd. and EZ Link Corp.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

  

1.          Summary of Significant Accounting Policies (continued)

 

Revenue Recognition

 

The Company recognizes product revenue provided that (1) persuasive evidence of an arrangement exists, (2) delivery to the customer has occurred, (3) the selling price is fixed or determinable and (4) collection is reasonably assured.  Delivery is considered to have occurred when title and risk of loss have transferred to the customer. The price is considered fixed or determinable when it is not subject to refund or adjustments. Outbound shipping and handling charges are included in net sales.

 

Foreign Currency Translation

 

As of June 30, 2013 the accounts of the EZ Link were maintained, and its consolidated financial statements were expressed, in NTD. Such consolidated financial statements were translated into USD with NTD as the functional currency. All assets and liabilities were translated at the exchange rate on the consolidated balance sheet dates, stockholders’ equity are translated at the historical rates and the statements of income items are translated at the weighted average exchange rate for the year. The resulting translation adjustments are reported under other comprehensive income.

 

Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. Such amounts were not material during each of the six month periods ended June 30, 2013 and 2012.

 

Cash flow from the Company's operations included in the statement of cash flows is calculated based upon the functional currency using the average translation rate. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with arithmetical changes in the corresponding balances on the consolidated balance sheet. No presentation is made that the NTD amounts could have been, or could be, converted into USD at the rates used in translation.

 

Concentration of Credit Risk

 

The Company maintains balances in a Money Market Fund that is not federally insured. Balances in this fund were $54,909 and $956,365 at June 30, 2013 and December 31, 2012, respectively.

 

Accounts receivable are typically unsecured. The Company performs ongoing credit evaluations of its customers’ financial condition. It generally requires no collateral and maintains reserves for potential credit losses on customer accounts, when necessary. As of June 30, 2013, 75.6% of H&H Glass’s Accounts Receivable were attributable to three customers. As of December 31, 2012, 85.0% of H&H Glass’s Accounts Receivable were attributable to three customers.

 

At June 30, 2013 and 2012 H&H Glass had allowance for doubtful reserves of $16,194 and $16,194 respectively.

 

At June 30, 2013 and 2012 EZ Link had an allowance for doubtful reserves of $5,378 and $6,815 respectively.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

1.          Summary of Significant Accounting Policies (continued)

 

Concentration of Credit Risk - continued

 

In general the Company will reserve a receivable based one of the following reasons; if the receivable is over 90 days old the company will reserve 50% and if over 12 months old the Company will reserve 100% of the amount.

 

H&H Glass purchased 100% of its glass from one vendor in the three month periods ending June 30, 2013 and 2012.  During the three-month period ending June 30, 2013 and 2012, H&H Glass purchased $7,271,607 and $7,048,372 of products from this vendor, respectively.  During the six months ended June 30, 2013 and 2012, H&H Glass purchased $14,528,397 and $12,926,700 of products from this vendor, respectively. This concentration is due to the relatively small size of H&H Glass’s orders.  H&H Glass’s specialized short-run custom orders generally are not attractive to larger glass manufacturers. 

 

Non-controlling Interest

 

The Company accounts for its non-controlling interest of 49% in EZ Link Holdings, Ltd. in the condensed consolidated financial statements classified as a separate component of equity. In addition, net earnings, and components of other comprehensive income are attributed to both the Company and non-controlling interest.

 

Net Earnings/(Loss) per Share

 

Earnings/(loss) per common share is computed on the weighted average number of common shares outstanding during each year. Basic earnings per share are computed as net loss applicable to common stockholders’ divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through convertible preferred shares, stock options, warrants and other convertible securities when the effect would be dilutive.

 

Comprehensive Income (Loss)

 

The Company reports and displays comprehensive income and its components in a full set of general purpose consolidated financial statements. The Company’s translation loss of $28,064 and $6,718 for the three month periods ended June 30, 2013 and 2012 and a loss of $16,436 and a loss of $6,405 for the six month periods ended June 30, 2013 and 2012, respectively, relate to the translation of financial statements from New Taiwan Dollar to US Dollars.

 

2.          Preferred Stock Transactions

 

The Preferred Shares shall be convertible into common shares in two equal traunches, the first being upon completion and receipt of the year ending December 31, 2010, financials if all of the following performance targets are met by EZ Link:

 

(a) Maintain revenues and before tax earnings same as the prior 12 month period; and

(b) Maintained a positive cash flow from operations over the prior 12 month period.

 

These criteria were not met, so there were no conversions as of December 31, 2012.  However, the first tranche will be eligible for conversion again at December 31, 2013.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

2.          Preferred Stock Transactions - continued

 

The Series A Preferred shares are convertible into common shares on a 1:1 ratio at a fixed rate of $3 per share.  Preferred shares have no voting rights, have no redemption rights and earn no dividends.  Holders of Series A Convertible Preferred Stock are not permitted to convert their stock into common shares until the Company’s market capital reaches $15,000,000.  Upon dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the holders of the then outstanding shares of Series A Convertible Preferred Stock shall be entitled to receive out of the assets of the Company the sum of $0.0001 per share (the “Liquidation Rate”) before any payment or distribution shall be made on any other class of capital stock of the Company ranking junior to the Series A Convertible Preferred Stock.

 

Description of the Series B Convertible Preferred Stock

 

As of January 1, 2010 pursuant to the purchase agreement for 51% ownership in EZ Link Holdings Ltd., approximately 47% of the purchase price amount $400,000 was paid in Series B convertible preferred shares of IPL Group, Inc. at a per share value of $1.00, or 400,000 shares.

 

The Preferred shares are convertible into common shares on a 1:1 ratio at a fixed rate of $1 per share.  Preferred shares have no voting rights, have no redemption rights and earn no dividends.

 

The Series B Preferred Shares shall be convertible into common shares in two equal tranches, the first tranche was to be upon completion and receipt of the year ending December 31, 2010, financials if all of the following performance targets are met by EZ Link:

 

(a) Maintain revenues and before tax earnings same as the prior 12 month period; and

(b) Maintained a positive cash flow from operations over the prior 12 month period.

 

This criteria was not met so there were no conversions as of December 31, 2012.  However, the first tranche will be eligible for conversion again at December 31, 2013. If EZ Link does not reach its performance goals at December 31, 2013, the conversion rights will be extended one additional year.

 

The second tranche of the Preferred Shares shall be convertible after the second 12 month period, i.e. the year ending December 31, 2011, if all of the following performance targets are met by EZ Link:

 

(a) 5% increase in revenues and 1% before tax earnings over the prior 12 month period; and

(b) Maintained a positive cash flow from operations over the prior 12 month period.

 

EZ Link did not reach its performance goals at December 31, 2012, so the conversion rights will be extended one additional year.

 

ASC Topic 480, “Distinguishing Liabilities from Equity,” establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.

 

A mandatorily redeemable financial instrument shall be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity.  A financial instrument issued in the form of shares is mandatorily redeemable if it embodies an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event certain to occur.  A financial instrument that embodies a conditional obligation to redeem the instrument by transferring assets upon an event not certain to occur becomes mandatorily redeemable—and, therefore becomes a liability—if that event occurs, the condition is resolved, or the event becomes certain to occur.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

2.          Preferred Stock Transactions - continued

  

The Company determined that the preferred shares are not mandatorily or conditionally redeemable and are properly classified as permanent equity in the accompanying consolidated financial statements.

 

3.          Common Stock Transactions

 

During the six months ending June 30, 2013 and 2012 no stock was issued.

 

4.          Related Party Transactions

 

Allen Lin

 

The Company paid Mr. Allen Lin, President of H&H Glass and a member of the board of directors of the Company, salary of $65,000 and $62,500 for the three-month periods ended June 30, 2013 and 2012, respectively, and $130,000 and $125,000 for the six-month periods ended June 30, 2013 and 2012, respectively. 

 

Several years ago Mr. Lin paid accounting fees on behalf of the Company.   This amount is reported in the accompanying financial statements as “Related Party Advances.”  Total advances due to Mr. Lin totaled $80,000 at June 30, 2013 and 2012, respectively

 

Josephine Lin

 

Josephine Lin, Mr. Lin’s wife, is employed by the Company and was paid salary of $14,500 and $14,000 for the three-month periods ended June 30, 2013 and 2012, and $29,000 and $28,000 for the six-month periods ended June 30, 2013 and 2012

 

William Gresher

 

For each three-month period ended June 30, 2013 and 2012, Mr. Gresher, a member of the Board of Directors, was paid $1,500 in cash for Director fees.

 

For each six-month period ended June 30, 2013 and 2012, Mr. Gresher, a member of the Board of Directors, was paid $3,000 in cash for Director fees.

 

Owen Naccarato

 

For each three-month period ending June 30, 2013 and 2012 respectively, Mr. Naccarato, a member of the Board of Directors, was paid $9,000 in cash for legal fees and for the three month period ending June 30, 2013 was paid $1,500 in cash for Directors fees.

 

For each six-month period ending June 30, 2013 and 2012 respectively, Mr. Naccarato, a member of the Board of Directors, was paid $18,000 in cash for legal fees and for the six month period ending June 30, 2013 was paid $1,500 in cash for Directors fees.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

  

4.          Related Party Transactions - continued

 

Easy Global Company, Ltd.

 

The chairman of Easy Global Company, Ltd. is also a shareholder of EZ Link Corporation. EZ Link rents its offices from Easy Global Company, Ltd. During the three months ended June 30, 2013 and 2012, EZ Link paid $11,489 and $11,310, respectively, and for the six months ended June 30, 2013 and 2012, EZ Link paid $23,177 and $23,205, respectively to Easy Global Company for rent expense.

 

5.          Property and Equipment

 

The Company’s property and equipment at June 30, 2013 and December 31, 2012, consisted of the following:

 

		June 30, 2013				December 31, 2012
Furniture and fixtures		$	14,552			$	14,552
Computers and equipment			146,586				150,456
Leasehold improvements			–				19,005
			161,138				184,013
Less accumulated depreciation			(154,091	)			(173,694	)
Total		$	7,074			$	10,319

 

The Company recorded depreciation expense for the six-month periods ending June 30, 2013 and 2012, of $2,931 and $6,616 respectively.

  

6.          Commitments and Contingencies

 

Litigation

 

The Company is not currently aware of any formal legal proceedings or claims that the Company believes will have, individually or in the aggregate, a material adverse effect on the Company’s financial position or results of operations.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

6.          Commitments and Contingencies - continued

 

Leases

 

Operating leases

 

H&H Glass rents approximately 2,900 square feet of office space for its headquarters. The lease began on January 1, 2013 and expires on August 31, 2019. As of June 30, 2013, total monthly base rent is $6,235 per month.

 

EZ Link rents 2,388 square feet of office space for its headquarters. The lease began on October 1, 2011, through March 31, 2012. The lease is renewed annually. As of June 30, 2013, total base monthly rent is $6,595 per month.

 

EZ Link also rents 182 square feet of office space. The lease began on April 15, 2011, and expires on April 14, 2014. The lease has a 3% increase each year. As of June, 2013, total base monthly rent is $1,436

 

EZ Link also maintains operating leases for parking spaces and vehicles used in its operations expiring through June 23, 2014.

 

Future minimum payments on this lease for fiscal years following December 31, 2013, are:

  

Year ended December 31,
2014			92,794
2015			80,890
2016			83,326
2017			85,118
2018			86,652
Thereafter			59,624
		$	488,404

  

7.          Earnings per Share

 

Earnings per share have been calculated using the weighted average number of shares outstanding during each period. There was negative net income during the six months ended June 30, 2013 and the three months ended June 30, 2013 and 2012, therefore the Company’s Convertible Preferred Shares would not constitute potentially dilutive securities. However, the net income for the six months ended June 30, 2012 would have made these securities anti-dilutive. Earnings per share at June 30, 2013, is calculated using the number of common shares issued to effect the business combination as being outstanding during the entire period.

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

Earnings (loss) per share of common stock are calculated as follows:

  

		For the Three Months Ended June 30,
		2013				2012
BASIC EARNINGS PER SHARE OF COMMON STOCK:
Net loss available to IPLO common stockholders		$	(5,145	)		$	(107,386	)
Weighted average common shares outstanding			4,961,357				4,961,357
Basic loss per share of common stock		$	(0.00	)		$	(0.02	)
DILUTED EARNINGS PER SHARE OF COMMON STOCK:
Net loss available to IPLO common stockholders		$	(5,145	)		$	(107,386	)
Weighted average common shares outstanding			4,961,357				4,961,357
Effect of dilutive securities:
Convertible preferred stock			–				–
Weighted average common shares outstanding after effect of dilutive securities			4,961,357				4,961,357
Diluted loss per share of common stock		$	(0.00	)		$	(0.02	)

 

 

		For the Six Months Ended June 30,
		2013				2012
BASIC EARNINGS PER SHARE OF COMMON STOCK:
Net earnings (loss) available to IPLO common stockholders		$	(33,259	)		$	39,304
Weighted average common shares outstanding			4,961,357				4,961,357
Basic earnings (loss) per share of common stock		$	(0.01	)		$	0.01
DILUTED EARNINGS PER SHARE OF COMMON STOCK:
Net earnings (loss) available to IPLO common stockholders		$	(33,259	)		$	39,304
Weighted average common shares outstanding			4,961,357				4,961,357
Effect of dilutive securities:
Convertible preferred stock			–				1,374,730
Weighted average common shares outstanding after effect of dilutive securities			4,961,357				6,336,087
Diluted earnings (loss) per share of common stock		$	(0.01	)		$	0.01

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

8.          Segment Reporting

 

The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.  Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

 

Following is a summary of segment information for the three and six months ended June 30, 2013:

  

June 30	Y-T-D			Packaging				Logistics				Total
Revenue				$	16,647,979				3,816,824				20,464,803
Operating Income					(31,216	)			5,926				(25,290	)
Total Assets					7,321,340				1,229,292				8,550,632
Interest Income					217				356				573
Interest Expense					0				0				0
Depreciation				$	0				2,965				2,965

 

 

June 30	QTR			Packaging				Logistics				Total
Revenue				$	7,992,803				2,104,191				10,096,994
Operating Income					(27,453	)			42,641				15,188
Total Assets					7,321,340				1,229,292				8,550,632
Interest Income					36				307				343
Interest Expense					0				0				0
Depreciation				$	0				778				778

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

9.          Unrestricted Net Assets

 

EZ Link Corp. has retained earnings of approximately ($12,550) as of June 30, 2013. Distributions and other payments to EZ Link Holdings, Ltd. from its subsidiary, EZ Link Corp. may not permitted by the Taiwan government. Condensed financial information of the United States operations is as follows:

  

		June 30,				December 31,
Balance Sheets		2013				2012
Assets
Cash and cash equivalents		$	151,647			$	1,115,982
Accounts receivable, net			5,654,095				4,932,202
Other current assets			(1,240	)			(1,240	)
Total current assets			5,804,502				6,046,944
Investment in EZ Link Holdings, Ltd.			857,143				857,143
Deposits			37,433				12,433
Deferred tax assets			183,679				183,679
Total assets		$	6,882,757			$	7,100,199
Liabilities
Accounts payable		$	4,638,623			$	4,822,195
Accrued liabilities			60,676				63,190
Notes payable to related party			80,000				80,000
Total current liabilities			4,779,299				4,965,385
Total liabilities			4,779,299				4,965,385
Stockholders' equity
Common stock			4,961				4,961
Preferred stock			138				138
Additional paid-in capital			2,202,877				2,202,877
Retained earnings			(104,518	)			(73,162	)
Total stockholders' equity			2,103,458				2,134,814
Total liabilities and stockholders' equity		$	6,882,757			$	7,100,199

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

  

9.          Unrestricted Net Assets - continued

  

Information of the United States operations is as follows:

  

		Three Months				Three Months
		June 30,				June 30,
Statement of Operations		2013				2012
Net sales		$	7,992,803			$	8,346,209
Cost of goods sold			(7,657,269	)			(8,226,936	)
Operating expenses			(361,455	)			(269,744	)
Loss from operations			(25,921	)			(150,471	)
Other income and (expense)
Interest income			36				7
Other income			1,245				1,200
Income tax benefit (payable)			(1,600	)			53,037
Total other income			(319	)			54,244
Net Income		$	(26,240	)		$	(96,227	)

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

9.          Unrestricted Net Assets - continued

  

		Six Months				Six Months
		June 30,				June 30,
Statement of Operations		2013				2012
Net sales		$	16,647,979			$	15,204,257
Cost of goods sold			(15,994,563	)			(14,613,277	)
Operating expenses			(684,632	)			(552,380	)
Loss from operations			(31,216	)			38,600
Other income and (expense)
Interest income			217				18
Other income			1,245				2,400
Realized gain on investment			–				–
Income tax payable			(1,600	)			(24,262	)
Total other income			(138	)			(21,844	)
Net Income		$	(31,354	)		$	16,756

 

 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2013

 

9.          Unrestricted Net Assets - continued

 

Information of the United States operations is as follows:

  

		Three Months				Three Months
		June 30,				June 30,
Statements of Cash Flows		2013				2012
Net cash provided (used) by operating activities:		$	(964,335	)		$	38,834
Cash flow from investing activities
Proceeds from sale of investment			–				–
Net cash provided by investing activities			–				–
Cash flow from financing activities:
Proceeds from note payable - related party			–				–
Net cash provided by financing activities			–				–
Net increase (decrease) in cash			(964,335	)			38,834
Cash, beginning of period			1,115,982				803,072
Cash, end of period		$	151,647			$	841,906

 

 

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

  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS’

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  In some cases, forward-looking statements are identified by terms such as “may”, “will”, “should”, “could”, “would”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “projects”, “predicts”, “potential”, and similar expressions intended to identify forward-looking statements.

 

These forward-looking statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this Report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this Report to reflect any change in our expectations or any change in events, conditions, or circumstances on which any of our forward-looking statements are based or to conform to actual results. We qualify all of our forward-looking statements by these cautionary statements.

 

You should read this section in combination with the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2012 included in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

Overview

 

We import glass containers from Asia and distribute to the North American market including Canada. This was a result of International Packaging and Logistic Group, Inc. (“IPLO”) acquiring H&H Glass in July of 2007. IPLO closed its pharmacy business in February 2007.

 

H&H Glass is a glass importer that supplies custom products such as perfume bottles and food condiment bottles, plus provides complementary services such as product design and the making of product molds. H&H Glass acquires its products from 3 to 5 suppliers in China and Taiwan and sells its products through several distributors in the United States and Canada who service small- to medium-sized customers. H&H imports in excess of 1,000 containers of glass a year. Depending on the size of the product a containers can contain anywhere from 3,000 to 300,000 pieces.

 

In addition, as of January 1, 2010, International Packaging and Logistics Group, Inc., (“IPL Group Inc.”), acquired a majority interest in EZ Link Holdings, Ltd., company organized under the laws of the British Virgin Islands on December 18, 2009, which controls EZ Link Corporation, a logistics company headquartered in Taiwan. EZ Link was established in July 2003 under the laws of Taiwan, Republic of China. EZ Link Holdings, Ltd. consolidates EZ Link under ASC Topic 810 (FIN 46R) as it controls EZ Link through a management contract. EZ LINK is a full service international freight forwarder, who has current networks to locations in China, Hong Kong, South East Asia, North East Asia, North America, Latin America and Europe. EZ Link International, Samoa (“ELIS”) was incorporated in Samoa.  ELIS is a wholly owned subsidiary of EZ Link Corporation and was set up to facilitate shipping operations in the Republic of China. 

  

Plan of Operation

 

Our general operating plan is as follows:

 

  

Short Term

 

·

Continue growing revenue and profits through the existing business; focus closely on product mix, improve our gross margin and develop new projects with existing clients;

·

expand the supply network for our products;

·

expand our current business model to include other areas that fall within our distribution expertise such as packaging that uses plastic and acrylic material.

·

Develop a growth strategy for our logistics business

 

Long Term

 

·

Expand our service into other areas such as Europe and Australia through the same supplier channel.  Our existing business model copies to other markets naturally.

·

Expand the client base and areas of service of our logistics business.

·

Look into new but related high growth business opportunities

 

Results of Operations

 

Three and six months ending June 30, 2013 and 2012

 

Revenue:

 

For the three months ending June 30, 2013 and 2012, revenues were $10,096,994 and $11,052,392 respectively, for a decrease of $955,398 (8.6%) over the same period in 2012. The decrease in revenue is a mainly due a decrease in packaging revenue of $353,406 (4.2%) and a decrease in logistics revenue of $601,992 (22.2%). Higher packaging revenue in Q2 of 2012 was a result of manufacturing capacity easing up allowing for a backlog of orders to get processed. The decrease in logistics revenue was mainly a result of decreased local business.

 

For the six months ending June 30, 2013 and 2012, revenues were $20,464,803 and $20,037,183 respectively, for an increase of $427,620 (2.1%) over the same period in 2012. The increase in revenue is a mainly due to an increase in packaging revenue of $1,443,722 (9.5%) due to an upturn in the worldwide economy offset by a decrease in logistics revenue of ($1,016,102) (21.0%).

 

Cost of Goods Sold:

 

Cost of goods sold for the three months ending June 30, 2013 and 2012 were $9,410,263 and $10,619,345 respectively, for a decrease of $1,209,082 (11.4%) over the same period in 2012. This decrease consists of a decrease in packaging cost of goods sold of $569,667 (6.9%) which was a direct result of the decrease in sales, plus a decrease in logistics cost of goods sold of $639,415 (26.7%) from the same period in 2012 mainly due to a decrease in local shipping business.

 

Cost of goods sold for the six months ending June 30, 2013 and 2012 were $19,197,433 and $18,828,331 respectively, for an increase of $369,102 (2.0%) over the same period in 2012. This increase consists of an increase in packaging cost of goods sold of $1,381,286 (9.5%) which was a direct result of the increase in sales, offset by a decrease in logistics cost of goods sold of ($1,012,184) (24.0%) from the same period in 2012 due to decrease in local shipping business on a year to date basis.

 

 

Gross Profit:

 

Gross profit was $686,731 and $433,047 for the three months ending June 30, 2013 and 2012, an increase of $253,684 (58.6%) over the same period in 2012.   The gross profit margin as a percent of sales for the three months ending June 30, 2013 and 2012 was 6.8% and 3.5 % respectively for an increase of 3.3%. The increase is a result of a 2.8% increase in profit percent from the packaging business plus an increase in gross profit percent from the logistics business.

 

Gross profit was $1,267,370 and $1,208,852 for the six months ending June 30, 2013 and 2012, an increase of $58,518 (4.8%) over the same period in 2012.   The gross profit margin as a percent of sales for the six months ending June 30, 2013 and 2012 was 6.2% and 6.0 % respectively for an increase of 0.2%. The increase is a result of a 0% gross profit percent increase from the packaging business plus an increase in the gross profit percent from the logistics business of 3.3%.

 

Operating Expenses:

 

Operating expenses for the three month period ended June 30, 2013 and 2012 were $671,543 and $551,001 respectively for an increase of $120,542 (21.9%) from the same period prior year. Operating expenses for the six month period ended June 30, 2013 and 2012 were $1,292,660 and $1,128,432 respectively for an increase of $164,228 (14.6%) from the same period prior year. These differences in operating expenses were mostly attributable to the following:

  

Three months ending:		6/30/2013				6/30/2012				$ VAR				% VAR
Salaries & Related Expense		$	347,814			$	306,407			$	41,407				13.5%			Packaging salary increased in 2013 by $5,572 plus an
																		$35,835 increase in EZ Link salary (bonuses).
Rent			30,344				49,085				(18,741	)			-38.2%			Packing rent decreased $17,673 and EZ Link rent decreased
																		by $1,068.  Decrease due to new contract - packaging.
Insurance			45,822				53,096				(7,274	)			-13.7%			Packaging insurance decreased by $8,472 offset by
																		an increase in EZ Link Group insurance of $1,198.
Meals & Entertainment			8,505				10,290				(1,785	)			-17.3%			Packaging  expense was down $1,909, EZ Link up $124.
Travel Expense			51,024				33,793				17,231				51.0%			Increase in packaging travel of $20,920, decrease in
																		EZ Link travel of $3,689.
Miscellaneous			188,034				98,330				89,704				91.2%			Miscellaneous items
Total Expenses		$	671,543			$	551,001			$	120,542				21.9%

  

Six months ending:		6/30/2013				6/30/2012				$ VAR				% VAR
Salaries & Related Expense		$	701,284			$	608,683			$	92,601				15.2			Packaging salary higher in 2013 by $51,927 plus
																		$40,674 increase in EZ Link salary (bonuses).
Rent			66,354				98,447				(32,093	)			-32.6			Packaging rent lower by $30,409 and EZ Link rent decreased
																		by $1,683.  decrease due to new contract - packaging.
Insurance			101,985				95,144				6,841				7.2			Packaging insurance increased $3,162, EZ  Link up $3,679
Meals & Entertainment			16,504				16,667				(163	)			-1.0			Packaging decreased by $163
Travel Expense			107,962				104,387				3,575				3.4			Increase in packaging travel of $9,933, decrease in
																		EZ Link travel of $6,358.
Miscellaneous			298,571				205,104				93,467				45.6			Miscellaneous items
Total Expenses		$	1,292,660			$	1,128,432			$	164,228				14.6

 

 

Other Income (Expenses):

 

Interest income (expense) for the three months ended June 30, 2013 and 2012 was $343 and $111 respectively for an increase of $232 (209.0%) from the same period prior year. Interest income (expense) for the six months ended June 30, 2013 and 2012 was $573 and ($239) respectively for an increase of expense $812 (340.0%) from the same period prior year

 

Other income was $1,576 for the three months ending June 30, 2013, an increase of $174 (12.4%) over the same period in 2012 and for the six months ending June 30, 2013, other income was $1,965 a decrease of $1,259 (39.1%) over the same period in 2012.  Rent income was $193 for the three and six months ending June 30, 2013, an increase of $193 (100.0%) over the same periods in 2012.

 

Liquidity and Capital Resources

 

Cash flow used in operations for the six months ending June 30, 2013 amounted to $718,341 which mainly consisted the following: six months net loss of $35,089 plus 1) increase in accounts receivable of $491,194, 2) increase in deposits of $25,000, and 3) decrease in accounts payable and accrued expenses of $237,933, offset by 1) depreciation expense of $2,931, 2) decrease in current assets of $46,555 and 3) an increase in other accrued liabilities of $21,389.

 

On June 30, 2013 the Company had total assets of $8,550,632 compared to $8,842,118 on December 31, 2012, a decrease of $291,486 or 3.2%.  The Company had total IPLO stockholders’ equity of $3,056,612 on June 30, 2013, compared to stockholders’ equity of $3,108,136 at December 31, 2012, a decrease of $51,523 (1.7%).  As of June 30, 2013 the Company's working capital position decreased by $34,135 from working capital of $1,528,321 at December 31, 2012 to working capital of $1,494,185 at June 30, 2013.  

 

Capital Resources

 

Over the next twelve months, management is of the opinion that sufficient working capital will be obtained from operations or from its positive working capital position at June 30, 2013.

 

Item 4T. Controls and Procedures.

 

Evaluation of Disclosure and Procedures

 

We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.

 

As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, they have concluded that our disclosure controls and procedures are not effective in timely alerting them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure about our internal control over financial reporting discussed below.

 

 

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed by, and under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

 

Our internal control over financial reporting includes those policies and procedures that:

 

·

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2012. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a resulted of identified material weakness in our financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated  Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this quarterly report.

  

IDENTIFIED MATERIAL WEAKNESS

 

	·	A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.
	·	Management identified the following material weakness in internal control during its assessment of internal controls over financial reporting as of June 30, 2013:
	·	We lack an effective period-end financial statement reconciliation process to transition from Taiwan Accounting Standards to U.S. Generally Accepted Accounting Principles (“GAAP”).
	·	We lack formal guidance or checklist of procedures to facilitate the reconciliation of the financial statements reported under Taiwan accounting standards to GAAP.

 

 

MANAGEMENT'S REMEDIATION INITIATIVES

 

We are undertaking the remedial measures to establish effective disclosure controls and procedures and internal control over financial reporting, including improving the supervision and training of our accounting staff to understand and implement accounting requirements, policies and procedures for the accounting of variable interest entities. We are reviewing the qualifications of qualified GAAP consultants who can work with the Company’s Chief Financial Officer and Taiwan accounting team to identify GAAP related issues and help evaluate and address such issues before they present problems in reporting in the United States. We are planning to utilize a qualified consultant on an on-going basis. We also appointed an independent director who is knowledgeable in US GAAP to our board of directors. The remediation initiatives are an ongoing process of establishing and meeting recording and reporting milestones that are designed to provide an effective system of internal control over financial reporting. We expect to have the system fully operational within the current fiscal year. Until then, executive and financial management is closely scrutinizing the recording and reporting of all material financial transactions.

 

In light of the identified material weaknesses, management, performed (1) significant additional substantive review of those areas described above, and (2) performed additional analyses, including but not limited to a detailed balance sheet and statement of operations analytical review that compared changes from the prior period's financial statements and analyzed all significant differences. These procedures were completed so management could gain assurance that the financial statements and schedules included in this Form 10-Q fairly present in all material respects the Company's financial position, results of operations and cash flows for the periods presented.

  

Changes in Internal Controls

 

There has been no additional changes except for what is discussed above in our internal control over financial reporting during this fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting

  

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Submission of Matters of a Vote to Security Holders.

 

None

 

Item 5. Other Information.

 

None

 

Item 6. Exhibits.

  

a) Exhibits

 

31.1     Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)

31.2     Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)

32.1     Certification of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

32.2     Certification of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

 

 

SIGNATURES

  

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

International Packaging and Logistics Group, Inc.

(Registrant)

 

Dated:  August 19, 2013	By:	/s/ Owen Naccarato
		Owen Naccarato
		Chief Executive Officer
		Principal Financial Officer and Director
	By:	/s/ Allen Lin
		Allen Lin, Director
		President H&H Glass
	By:	/s/ William Gresher
		William Gresher, Director