Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - YBCC, Inc.Financial_Report.xls
EX-32.1 - CERTIFICATION - YBCC, Inc.iplo_10q-ex3201.htm
EX-31.2 - CERTIFICATION - YBCC, Inc.iplo_10q-ex3102.htm
EX-32.2 - CERTIFICATION - YBCC, Inc.iplo_10q-ex3202.htm
EX-31.1 - CERTIFICATION - YBCC, Inc.iplo_10q-ex3101.htm

 

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 September 30, 2014 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 file 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  o 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 x No

 

The number of shares outstanding of the Issuer’s common stock as of November 10, 2014 was 4,961,357

 

 

 
 

 

International Packaging and Logistics Group, Inc.,

and Subsidiaries

 

Condensed Consolidated Financial Statements

for the Three and Nine Months Ended

 

September 30, 2014 and 2013

(Unaudited)

 

C O N T E N T S

 

 

I. FINANCIAL INFORMATION  
Item 1. Financial Statements  
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations and Comprehensive Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6 – 20
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 21
   
Item 4. Controls and Procedures 25
   
PART II. OTHER INFORMATION  
   
Item 1. Legal Proceedings  
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Mine Safety Disclosures 26
Item 5. Other Information 26
Item 6. Exhibits 27
Signatures 28

 

2
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Condensed Consolidated Balance Sheets

As of September 30, 2014 and December 31, 2013

 

  September 30   December 31 
   2014   2013 
  unaudited     
Current Assets          
Cash  $1,379,554   $1,192,443 
Accounts receivable, net   7,285,662    6,106,850 
Inventory   1,555,692     
Other current assets   7,287     
Prepaid taxes        
           
Total Current Assets   10,228,195    7,299,293 
           
Property, Plant and Equipment, net   46,372    7,050 
           
Other Assets          
Prepaids   12,378    25,892 
Deposits   24,736    39,248 
Contract in place   1,295,726    1,295,726 
Deferred tax assets   264,315    264,315 
Total Other Assets   1,597,155    1,625,181 
           
Total Assets  $11,871,722   $8,931,524 
           
Liabilities and Equity          
Current Liabilities          
Accounts payable and accrued expenses  $8,599,668   $5,655,668 
Notes payable - related party   80,000    80,000 
Bank Loan   65,600     
Other current liabilities   7,297    21,010 
           
Total Current Liabilities   8,752,565    5,756,678 
           
Commitments and contingencies        
           
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, 4,961,357 issued and outstanding     4,961       4,961
Additional paid-in capital   2,202,878    2,202,877 
Accumulated other comprehensive income   27,424    34,414 
Retained earnings (deficit)   35,689    54,304 
Total International and Logistics Group Inc. Stockholder Equity   2,271,090    2,296,694 
Non-controlling interest   848,067    878,152 
Total Equity   3,119,157    3,174,846 
           
Total Liabilities and Equity  $11,871,722   $8,931,524 

 

See accompanying notes

3
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income

For the Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

 

  Nine Months Ended   Three Months Ended 
  September 30,   September 30 
   2014   2013   2014   2013 
Revenues                    
Packaging  $25,085,447   $24,814,637   $8,997,294   $8,166,658 
Logistics   5,326,002    5,545,734    2,107,246    1,728,910 
Total Revenues   30,411,449    30,360,371    11,104,540    9,895,568 
                     
Cost of Goods Sold                    
Packaging   24,019,055    23,834,770    8,621,465    7,840,207 
Logistics   4,522,023    4,661,720    1,822,232    1,458,851 
Total Cost of Goods Sold   28,541,078    28,496,490    10,443,697    9,299,058 
                     
Gross Profit   1,870,371    1,863,881    660,843    596,510 
                     
Operating Expenses                    
Administrative expenses   842,578    732,916    270,005    207,894 
Rent   92,197    96,427    28,608    30,073 
Salaries and wages   988,091    1,004,040    315,320    302,756 
Total Operating Expenses   1,922,866    1,833,383    613,933    540,723 
                     
(Loss) Income from Operations   (52,495)   30,498    46,910    55,787 
                     
Other Income                    
Interest income (expense), net   102    619    (2,349)   46 
Other income (expense)   2,469    3,729    1,902    1,764 
Rent Income   757    670    757    477 
Total Other Income   3,328    5,018    310    2,287 
                     
Net (Loss) Income before Income Taxes   (49,167)   35,516    47,220    58,074 
Income tax benefit (expense)   989    (12,482)   (1,671)   48 
Net (Loss) Income   (48,178)   23,034    45,549    58,122 
                     
Net (gain) loss attributable to non-controlling interest   30,085    1,902    (3,999)   72 
Net (Loss) Income attributable to common stockholders   (18,093)   24,936    41,550    58,194 
Comprehensive Income                    
Currency translation adjustment   519    (10,036)   (9,558)   6,400 
Comprehensive (Loss) Income  $(17,574)  $14,900   $31,992   $64,594 
                     
Earnings per weighted average share of common stock - basic  $(0.00)  $0.01   $0.01   $0.01 
Earnings per weighted average share of common stock -diluted  $(0.00)  $0.00   $0.01   $0.01 
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    6,336,087    6,336,087 

 

See accompanying notes.

 

4
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

 

  September 30   September 30 
   2014   2013 
Cash flows from operating activities:          
Net loss  $(48,179)  $23,034
Adjustments to reconcile net income to net cash provided by (used in) operating activities:                
Depreciation expense   5,506    2,965 
Changes in operating assets and liabilities:          
Increase in accounts receivable   (1,188,508)   (347,546)
Decrease (increase) in deposits       (25,000)
Increase in inventory   (1,555,692)    
Decrease in current assets   5,292    39,647 
Increase in accounts payable and accrued expenses   2,961,166    (539,523)
Decrease in other current liabilities   (22,246)   (2,551)
Net cash provided by (used in) operating activities   157,339    (153,882)
           
Cash flow from investing activities:          
Purchase of property and equipment   (44,935)    
Net increase in refundable deposits   14,111     
Net cash used in investing activities   (30,824)    
           
Cash flow from financing activities:          
Proceeds from short-term borrowing   65,600     
Net cash provided by financing activities   65,600     
           
Effect of currency translation   (5,004)   (5,002)
           
Net increase/(decrease) in cash and cash equivalents   187,111    (158,884)
Cash and cash equivalents at beginning of period   1,192,443    1,387,939 
Cash and cash equivalents at end of period  $1,379,554   $1,229,055 
           
Supplementary Disclosures of Cash Flow          
Cash paid during the year for:          
Interest  $   $ 
Taxes (refund)  $   $36,345 

 

See accompanying notes.

 

5
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

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” , “the Company”, or “IPLO”) a publicly traded company listed and traded on the NASDAQ Over the Counter Bulletin Board (“OTCBB”). The interim unaudited condensed consolidated financial statements for the nine months ended September 30, 2014 and 2013 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, 2013. 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 nine month periods ended September 30, 2014, are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

 

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.

 

6
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

1. Summary of Significant Accounting Policies (continued)

 

On January 1, 2010, International Packaging and Logistics Group, Inc., (“IPL Group Inc.”), acquired a majority interest (51%) in EZ Link Holdings, Ltd., company organized under the laws of the British Virgin Islands which contractually controls EZ Link Corporation (“EZ Link Corp”), 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 Ltd. 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 Ltd. 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 Ltd. 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, 2014 to September 30, 2014 of ($61,397).

 

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.

 

Principles of Consolidation

 

The accompanying unaudited condensed 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 unaudited condensed consolidated financial statements at September 30, 2014, include EZ Link Holdings, Ltd., and subsidiaries from the January 1, 2010 date of acquisition. Intercompany accounts and transactions have been eliminated upon consolidation.

7
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

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 Ltd., 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 unaudited condensed 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 (a non-operational subsidiary). 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 Ltd. 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.

 

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 Ltd.

 

8
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

1. Summary of Significant Accounting Policies (continued)

 

Estimates

 

The preparation of unaudited condensed 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. The carrying value of goodwill is reviewed at least annually for possible impairment. The Company first assesses qualitative factors in order to determine if goodwill is impaired. If, through the qualitative assessment, it is determined that it is more likely than not that goodwill is not impaired, no further testing is required.  If it is determined that it is more likely than not that goodwill is impaired, or if the Company elects not to first assess qualitative factors, the Company’s impairment testing continues with the estimation of the fair value of goodwill at the reporting unit level using an income (discounted cash flow) approach that requires significant management judgment with respect to revenue and expense growth rates and the selection and use of an appropriate discount rate. 

 

The contract in place represents the fair value of the consulting contract and operating agreement between EZ Link Holdings, Ltd. and EZ Link Corp. Contract in place is the only intangible asset with an indefinite life on our consolidated balance sheets and is accounted for as goodwill. We have elected December 31 as the date to perform our annual impairment test.

 

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.

 

Inventories

 

Inventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). All inventory consists of finished goods.

 

Foreign Currency Translation

 

As of September 30, 2014 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.

 

9
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

1. Summary of Significant Accounting Policies (continued)

 

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 nine month periods ended September 30, 2014 and 2013.

 

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 $1,030,256 and $783,519 at September 30, 2014 and December 31, 2013, 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 September 30, 2014, 89.2% of H&H Glass’s Accounts Receivable were attributable to three customers. As of December 31, 2013, 86.0% of H&H Glass’s Accounts Receivable were attributable to three customers.

 

At September 30, 2014 and December 31, 2013 H&H Glass had allowance for doubtful reserves of $16,194 and $16,194, respectively.

 

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 period ending September 30, 2014 and 2013.  During the three-month period ending September 30, 2014 and 2013, H&H Glass purchased $7,701,676 and $7,095,734 of products from this vendor, respectively. During the nine-month period ending September 30, 2014 and 2013, H&H Glass purchased $21,997,846 and $21,624,131 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 is 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.

 

10
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

1. Summary of Significant Accounting Policies (continued)

 

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 income of $16,955 and $6,400 for the three month periods ended September 30, 2014 and 2013 and income of $519 and a loss of $10,036 for the nine month periods ended September 30, 2014 and 2013, respectively, relate to the translation of financial statements from New Taiwan Dollar to US Dollars.

 

Recently Issued Accounting Pronouncements – Q3 2014

 

In 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2014-15, Presentation of Financial Statements – Going Concern and in May 2014, the FASB issued new accounting guidance related to revenue recognition.

 

ASU 2014-15 requires management to perform an assessment of going concern and under certain circumstances disclose information regarding this assessment in the footnotes to the financial statements. ASU 2014-15 is effective for the Company beginning January 1, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

 

In April 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity" ("ASU 2014-08"). ASU 2014-08 limits the requirement to report discontinued operations to disposals of components of an entity that represent strategic shifts that have (or will have) a major effect on an entity's operations and financial results. The amendments also require expanded disclosures concerning discontinued operations and disclosures of certain financial results attributable to a disposal of a significant components of an entity that does not qualify for discontinued operations reporting. The amendments in this ASU are effective prospectively for reporting periods beginning on or after December 15, 2014, with early adoption permitted. The impact on our Financial Statements of adopting ASU 2014-08 is being assessed by management.

 

On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This new revenue recognition standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance, and it provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The accounting standard is effective for annual reporting periods (including interim reporting periods within those periods) beginning after December 15, 2016. Early adoption is not permitted. The impact on the Company’s Financial Statements of adopting ASU 2014-09 is being assessed by management.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

 

11
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

2. Preferred Stock Transactions

 

Description of the Series A Convertible Preferred Stock

 

As of July 9, 2008, pursuant to the debt restructure section of the “Agreement and Plan of Merger” agreement dated on or about January 23, 2007 which was the H&H Glass acquisition, an aggregate of 974,730 shares the Series A Preferred Shares were issued. 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 of $400,000 was paid in Series B convertible preferred shares of IPL Group 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 would have been convertible into common shares in two equal tranches, the first tranche was to be upon completion and receipt of the financial statements as of and for the year ending December 31, 2010, if all of the following performance targets were 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, 2013. However, the first tranche will be eligible for conversion again at December 31, 2014. If EZ Link does not reach its performance goals, the conversion rights will be extended each year, on an indefinite basis until the performance goals are reached.

 

The second tranche of the Preferred Shares shall be convertible after the 12 month period after the first tranche becomes convertible, i.e. at the earliest the year ending December 31, 2015, 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, 2013, so the conversion rights will be extended each year, on an indefinite basis until the performance goals are reached.

 

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.

 

12
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

2. Preferred Stock Transactions - continued

 

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.

 

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 nine months ending September 30, 2014 and 2013 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 $66,950 and $65,000 for the three-month periods ended September 30, 2014 and 2013, respectively and $200,850 and $195,000 for the nine-month periods ended September 30, 2014 and 2013, respectively.

 

There is currently an $80,000 payable to Allen Lin for funds contributed to the company at the time EZ Link Holdings, Ltd. was acquired. There are no terms or repayment schedule attached to this debt.

 

Josephine Lin

 

Josephine Lin, Mr. Lin’s wife, is employed by the Company and was paid salary of $14,805 and $14,500 for the three-month periods ended September 30, 2014 and 2013 and $44,805 and $43,500 for the nine-month periods ended September 30, 2014 and 2013, respectively.

 

William Gresher

 

For each three-month period ended September, 2014 and 2013, Mr. Gresher, a member of the Board of Directors, was paid $1,500 in cash for Director fees.

 

For each nine-month period ended September 30, 2014 and 2013, Mr. Gresher, a member of the Board of Directors, was paid $4,500 in cash for Director fees.

 

Owen Naccarato

 

For each three-month period ending September 30, 2014 and 2013 respectively, Mr. Naccarato, a member of the Board of Directors, was paid $9,000 in cash for legal fees and for the three month periods ending September 30, 2014 and 2013 was paid $1,500 in cash for Directors fees.

 

For each nine-month period ending September 30, 2014 and 2013 respectively, Mr. Naccarato, a member of the Board of Directors, was paid $27,000 in cash for legal fees and for the nine-month periods ending September 30, 2014 and 2013 was paid $4,500 in cash for Directors fees.

 

13
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

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 September 30, 2014 and 2013, EZ Link paid $11,349 and $11,280, respectively and for the nine months ended September 30, 2014 and 2013, EZ Link paid $34,046 and $34,457, respectively to Easy Global Company Ltd. for rent expense.

 

5. Property and Equipment

 

The Company’s property and equipment at September 30, 2014 and December 31, 2013, consisted of the following:

 

  September 30,
2014
   December 31,
2013
 
Furniture and fixtures  $14,552   $14,552 
Computers and equipment   189,273    146,180 
    203,825    160,732 
Less accumulated depreciation   (157,453)   (153,682)
Total  $46,372   $7,050 

 

The Company recorded depreciation expense for the nine-month periods ending September 30, 2014 and 2013 of $5,506 and $2,965 respectively. The Company recorded depreciation expense for the three-month periods ending September 30, 2014 and 2013 of $1,907 and $nil 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.

 

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 September 30, 2014, total monthly base rent is $6,235 per month.

 

EZ Link rents 2,388 square feet of office space for its headquarters. The original lease began on October 1, 2011, through March 31, 2012. The lease is renewed annually. As of September 30, 2014, total base monthly rent is $3,840 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 was renewed until May 2015. As of September 30, 2014, 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.

14
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

6. Commitments and Contingencies - continued

 

Future minimum payments on the non-cancellable leases described above as of September 30, 2014, are:

 

Fiscal Year ended December 31, 
2014  $19,227 
2015   80,899 
2016   83,335 
2017   85,133 
2018   86,652 
Thereafter   59,624 
   $414,870 

 

7. Earnings per Share

 

Earnings per share have been calculated using the weighted average number of shares outstanding during each period. There was a net loss during the nine months ended September 30, 2014 therefore the Company’s Convertible Preferred Shares would not constitute potentially dilutive securities. There was a net income during the nine months ended September 30, 2013 and the three months ended September 30, 2014 and 2013 therefore the Company’s Convertible Preferred Shares would constitute potentially dilutive securities.

 

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

 

  For the Three Months Ended
September 30,
 
   2014   2013 
BASIC EARNINGS PER SHARE OF COMMON STOCK:        
Net earnings available to IPLO common stockholders  $41,550   $58,194 
           
Weighted average common shares outstanding   4,961,357    4,961,357 
Basic earnings per share of common stock  $0.01   $0.01 
           
DILUTED EARNINGS PER SHARE OF COMMON STOCK:          
Net earnings available to IPLO common stockholders  $41,550   $58,194 
           
Weighted average common shares outstanding   4,961,357    4,961,357 
Effect of dilutive securities:          
Convertible preferred stock   1,374,730    1,374,730 
Weighted average common shares outstanding after effect of dilutive securities   6,336,087    6,336,087 
           
Diluted earnings per share of common stock  $0.01   $0.01 

 

15
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

7. Earnings per Share – continued

 

  For the Nine Months Ended
September 30,
 
   2014   2013 
BASIC EARNINGS PER SHARE OF COMMON STOCK:        
Net (loss) earnings available to IPLO common stockholders  $(18,093)  $24,936 
           
Weighted average common shares outstanding   4,961,357    4,961,357 
Basic earnings per share of common stock  $(0.00)  $0.01 
           
DILUTED EARNINGS PER SHARE OF COMMON STOCK:          
Net (loss) earnings available to IPLO common stockholders  $(18,093)  $24,936 
           
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 per share of common stock  $(0.00)  $0.00 

 

 

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 nine months ended September 30, 2014:

 

For the nine months ending
September 30, 2014
  Packaging   Logistics   Total 
                
Revenue  $25,085,447    5,326,002    30,411,449 
Operating Income   15,207    (67,703)   (52,496)
Total Assets   10,833,095    1,038,627    11,871,722 
Interest Income   0    401    401 
Interest Expense   (299)   0    (299)
Depreciation  $0    5,557    5,557 

 

 

For the three months ending
September 30, 2014
  Packaging   Logistics   Total 
                
Revenue  $8,997,294    2,107,246    11,104,540 
Operating Income   37,440    9,470    46,910 
Total Assets   10,833,095    1,038,627    11,871,722 
Interest Income   0    0    0 
Interest Expense   0    0    0 
Depreciation  $0    1,998    1,998 

 

16
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

8. Segment Reporting - continued

 

For the nine months ending
September 30, 2013
  Packaging   Logistics   Total 
                
Revenue  $24,814,637    5,545,734    30,360,371 
Operating Income   27,052    3,445    30,497 
Total Assets   7,359,330    938,992    8,298,322 
Interest Income   217    402    619 
Interest Expense   0    0    0 
Depreciation  $0    2,965    2,965 

 

 

For the three months ending
September 30, 2013
  Packaging   Logistics   Total 
                
Revenue  $8,166,658    1,728,910    9,895,568 
Operating Income   58,268    (2,481)   55,787 
Total Assets   7,359,330    938,992    8,298,322 
Interest Income   0    46    46 
Interest Expense   0    0    0 
Depreciation  $0    0   0
                

 

17
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

9. Unrestricted Net Assets

 

EZ Link Corp. has retained earnings of approximately $9,136 as of September 30, 2014. 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:

 

   September 30,   September 30 
Balance Sheets  2014   2013 
           
Assets          
Cash and cash equivalents  $1,179,825   $864,920 
Accounts receivable, net   6,527,529    4,979,731 
Inventory   1,555,692     
Other current assets   (2,423)   (2,158)
Total current assets   9,260,623    5,842,493 
           
Investment in EZ Link Holdings, Ltd.   857,143    857,143 
Deposits   12,433    37,433 
Deferred tax assets   264,314    183,679 
Total assets  $10,394,513   $6,920,748 
           
Liabilities          
           
Accounts payable  $8,013,655   $4,616,846 
Accrued liabilities   72,675    62,175 
Notes payable to related party   80,000    80,000 
Total current liabilities   8,166,330    4,759,021 
Total liabilities   8,166,330    4,759,021 
           
Stockholders' equity          
Common stock   4,961    4,961 
Preferred stock   138    138 
Additional paid-in capital   2,202,877    2,202,877 
Retained earnings   20,207    (46,249)
Total stockholders' equity   2,228,183    2,161,727 
Total liabilities and stockholders' equity  $10,394,513   $6,920,748 

 

 

18
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

9. Unrestricted Net Assets - continued 

 

   Three Months   Three Months 
   September 30,   September 30, 
Statement of Operations  2014   2013 
           
Net sales  $8,997,294   $8,166,658 
Cost of goods sold   (8,621,465)   (7,840,207)
           
Operating expenses   (338,389)   (268,183)
Income from operations   37,440    58,268 
           
Other income and (expense)          
Interest income (expense)       36 
Other income (expense)   (50)   1,245 
Income tax benefit (payable)       (1,600)
Total other income   (50)   (319)
Net Income   $37,390   $57,949 

 

 

   Nine Months   Nine Months 
   September 30,   September 30, 
Statement of Operations  2014   2013 
           
Net sales  $25,085,447   $24,814,637 
Cost of goods sold   (24,019,055)   (23,834,770)
           
Operating expenses   (1,051,185)   (952,815)
Income from operations   15,207    27,052 
           
Other income and (expense)          
Interest income (expense)   (299)   217 
Other income (expense)   (90)   1,245 
Income tax benefit (payable)   (1,600)   (1,600)
Total other income   (1,989)   (138)
Net Income  $13,218   $26,914 

 

 

19
 

International Packaging and Logistics Group, Inc., and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2014

unaudited

 

 

9. Unrestricted Net Assets - continued

 

   Nine Months   Nine Months 
   September 30,   September 30, 
Statements of Cash Flows  2014   2013 
           
Net cash provided by operating activities:  $330,142   $(251,062)
           
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 in cash   330,142    (251,062)
Cash, beginning of period   849,683    1,115,982 
Cash, end of period  $1,179,825   $864,920 

 

10. Inventory

 

Inventory is carried on a first in-first out basis and valued at the lower of cost or market. All inventory consists of finished goods.

 

 11. Bank Loan

 

As of September 30, 2014, EZ Link had a $65,600 loan outstanding with a bank. The loan has a 30 day maturity, starting from September 25, 2014 to October 24, 2014. The interest rate is 2.414% per annum. Of the $65,600 principle balance owed, $13,000 is unsecured and $52,600 is a secured loan. The carrying amount of receivables that serve as collateral. The loan was paid off on October 24, 2014.

 

20
 

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.

 

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. (“IPL Group Inc.” or the “Company”) acquiring H&H Glass, Inc. (“H&H Glass”) in July of 2007. IPL Group, Inc. 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 container can contain anywhere from 3,000 to 300,000 pieces.

 

In addition, as of January 1, 2010, International Packaging and Logistics Group, Inc., acquired a 51% interest in EZ Link Holdings, Ltd., a company organized under the laws of the British Virgin Islands on December 18, 2009, which 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. EZ Link Holdings, Ltd. consolidates EZ Link under ASC Topic 810 as it controls EZ Link through a management contract. EZ Link has a non-operating subsidiary EZ Link International, Ltd. 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.

 

Plan of Operation

 

Our general operating plan is as follows:

 

Short Term

 

·Continue growing revenue and profits through the existing business;
·Meet the challenge of the declining world economy while maintaining revenue and profitability - our goal will be to 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 using plastic and acrylic materials.
·Integrate our new logistics business into our overall plan

 

21
 

 

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.

 

Results of Operations

 

Three and nine months ending September 30, 2014 and 2013

 

Revenue:

 

For the three months ending September 30, 2014 and 2013, revenues were $11,104,540 and $9,895,568, respectively, for an increase of $1,208,972 (12.2%) over the same period in 2013. The increase in revenue is mainly due to two factors; 1) an increase in packaging revenue of $830,636 (10.2%) due to a decrease in sales deductions, 2) plus an increase in logistics revenues of $378,336 (21.9%), mainly due to an increase in overall shipping for the quarter.

 

For the nine months ending September 30, 2014 and 2013, revenues were $30,411,449 and $30,360,371, respectively, for an increase of $51,078 (0.2%) over the same period in 2013. The increase in revenue is mainly due to two factors; 1) a increase in packaging revenue of $270,810 (1.1%) due to a decrease in sales deductions, 2) and a decrease in logistics revenues of $219,732 (4.0%), mainly due to a decrease in overall shipping.

 

Cost of Goods Sold:

 

Cost of goods sold for the three months ending September 30, 2014 and 2013 were $10,443,697 and $9,299,058 respectively, for an increase of $1,144,639 (12.3%) over the same period in 2013. This increase consists of a increase in packaging cost of goods sold of $781,258 (10.0%) which was a direct result of the increase in packaging revenue plus an increase in packaging cost of goods sold of $363,381 (25.0%) from the same period in 2013 mainly due to an overall increase in shipping for the quarter.

 

Cost of goods sold for the nine months ending September 30, 2014 and 2013 were $28,541,078 and $28,496,460 respectively, for an increase of $44,618 (0.2%) over the same period in 2013. This increase consists of an increase in packaging cost of goods sold of $184,285 (0.7%) which was a direct result of an increase in overall shipping, offset by a decrease in logistics cost of goods sold of $196,697 (3.0%) from the same period in 2013 mainly due to a decrease shipping.

 

Gross Profit:

 

Gross profit was $660,843 and $596,510 for the three months ending September 30, 2014 and 2013, an increase of $64,333 (10.8%) over the same period in 2013.  The gross profit margin as a percent of sales for the three months ending September 30, 2014 and 2013 was 5.9% and 6.0%, respectively, for a decrease of 0.1%. The decrease is a result of a 2.1% decrease in gross profit percent from the logistics business offset by an increase of 0.9% gross profit percent from the packaging business over prior year.

 

Gross profit was $1,870,371 and $1,863,881 for the nine months ending September 30, 2014 and 2013, an increase of $6,490 (0.3%) over the same period in 2013. The gross profit margin as a percent of sales for the nine months ending September 30, 2014 and 2013 was 6.2% and 6.1%, respectively, for an increase of 0.1%. The increase is a result of a 0.4% increase in gross profit percent from the packaging business offset by a decrease of 0.8 % gross profit percent from the logistics business over prior year.

 

22
 

 

Operating Expenses:

 

Operating expenses for the three month period ended September 30, 2014 and 2013 were $613,933 and $540,723 respectively for an increase of $73,210 (13.5%) from the same period prior year. Operating expenses for the nine month period ended September 30, 2014 and 2013 were $1,922,866 and $1,833,383 respectively for an increase of $89,483 (4.9%) from the same period prior year. These differences in operating expenses were mostly attributable to the following:

 

Three months ending:  9/30/2014  9/30/2013  $ VAR  % VAR   
Salaries & Related Expense  $315,320  $302,756  $12,564  4.1%  Packaging salary increased in 2014 by $18,484 offset by $5,920 decrease in EZ Link salary.
Rent  28,608  30,073  (1,465)  -4.9%  Packing rent increased $946 and EZ Link rent decreased by $2,411. Packaging increase due to new contract.
Insurance  37,164  30,834  6,330  20.5%  Packaging insurance increased by $6,835 offset by a decrease in EZ Link Group insurance of $505.
Meals & Entertainment  18,662  16,821  1,841  10.9%  Packaging expense was up $2,509, EZ Link down $668.
Travel Expense  100,606  59,312  41,294  69.6%  Increase in packaging travel of $36,013, increase in EZ Link travel of $5,281.
                
Accounting  17,147  25,500  (8,353)  -32.8%  Prior year had $7,500 of tax service fees included
Miscellaneous  96,426  75,427  20,999  27.8%  Miscellaneous items
Total Expenses  $613,933  $540,723  $73,210  13.5%   

 

 

Nine months ending:  9/30/2014  9/30/2013  $ VAR  % VAR   
Salaries & Related Expense  $988,091  $1,004,040  $(15,949)  -1.6%  Packaging salary higher in 2014 by $5,487 plus $21,436 decrease in EZ Link salary (bonuses).
Rent  92,197  96,427  (4,230)  -4.4%  Packaging rent lower by $1,150 and EZ Link rent decreased by $3,080.
Insurance  146,625  132,819  13,806  10.4%  Packaging insurance increased $13,428, EZ Link up $378.
Meals & Entertainment  60,146  48,149  11,997  24.9%  Packaging increased by $8,232, EZ Link by $3,765
Travel Expense  283,900  167,274  116,626  69.7%  Increase in packaging travel of $107,532, increase in EZ Link travel of $9,094.
Accounting  121,902  153,786  (31,884)  -20.7%  Packaging Audit reserve cleaned up.
Miscellaneous  230,005  230,888  (883)  -0.4%  Miscellaneous items
Total Expenses  $1,922,866  $1,833,383  $89,483  4.9%   

 

 

 

23
 

 

Other Income (Expenses):

 

Interest income (expense) for the three months ended September 30, 2014 and 2013 was ($2,349) and $46, respectively, for a decrease of $2,395 (5,206.5%) from the same period prior year. Interest income (expense) for the nine months ended September 30, 2014 and 2013 was $102 and $619, respectively, for a decrease of $517 (83.5%) from the same period prior year.

 

Other income (expense) was $1,902 for the three months ending September 30, 2014, an increase of $138 (7.8%) over the same period in 2013.  Other income was $2,469 for the nine months ending September 30, 2014, a decrease of $1,260 (33.8%) over the same period in 2013

 

Rent income was $757 for the three months ending September 30, 2014, an increase of $280 (58.7%) from the same period prior year. Rent income was $757 for the nine months ending September 30, 2014, an increase of $87 (13.0%) from the same period prior year.

 

Liquidity and Capital Resources

 

Cash flow provided in operations for the nine months ending September 30, 2014 amounted to $157,339, which mainly consisted the following: by 1) nine month net loss of $48,179, 2) increase in accounts receivable of $1,188,508 and 3) increase in inventory of $1,555,692, and 4) a decrease in current liabilities of $22,246 offset by 1) depreciation expense of $5,506, 2) decrease in current assets of $5,292 and a 3) increase in accounts payable and accrued expenses of $2,961,166.

 

On September 30, 2014, the Company had total assets of $11,871,722 compared to $8,931,524 on December 31, 2013, an increase of $2,940,198 or 32.9%. The Company had total equity of $3,119,157 on September 30, 2014, compared to equity of $3,174,846 on December 31, 2013, a decrease of $55,689 (1.8%). As of September 30, 2014, the Company's working capital position decreased by $66,985 (4.5%) from working capital of $1,542,615 at December 31, 2013 to working capital of $1,475,630 at September 30, 2014.

 

Capital Resources

 

Over the next twelve months, management is of the opinion that sufficient working capital will be obtained from operations or from current working capital of the company.

 

Federal Income Tax

 

The Company deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities

 

EZ Link Corporation is governed by the Taiwan’s Income Tax Law and local income tax laws. Pursuant to the Taiwan Income Tax Law, enterprises are subject to tax at a statutory rate of 17%. The local government has also provided companies with various incentives to encourage economic development in the region. Such incentives include reduced tax rates and other measures

 

24
 

 

ITEM 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

As of September 30, 2014, under the supervision and with the participation of the Company's Chief Executive Officer and the Chief Financial Officer, management has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation and because of the material weaknesses in our internal control over financial reporting described below, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of September 30, 2014.

 

Management identified the following control deficiencies that constitute material weaknesses that are not fully remediated as of the filing date of this report:

 

Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our internal control system. There is mainly one person involved in processing of transactions. Therefore, it is difficult to effectively segregate accounting duties. We have hired an additional administrative person and retained an outside professional firm to assist in the separation of duties on an ongoing basis. The use of the outside firm has proven successful in assisting in the separation of duties. However, additional people are not needed to do the administrative work therefore segregation of duties will continue to be an ongoing weakness.

 

Similarly, the EZ Link operation also has a material weakness due to lack of segregation of duties. Its size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our internal control system. We have retained an outside professional firm to assist in the separation of duties on an ongoing basis. The use of the outside firm has proven successful in assisting in the separation of duties. However, additional people are not needed to do the administrative work therefore segregation of duties will continue to be an ongoing weakness.

 

Limitations on the Effectiveness of Internal Controls

 

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in internal control over financial reporting that occurred during the current quarter covered by this report that have materially affected, or are reasonably likely to affect, the Company's internal control over financial reporting.

 

 

 

25
 

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

 

Not Applicable

 

Item 4. Mine Safety Disclosures

 

None

 

Item 5. Other Information

 

None

 

 

 

26
 

 

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)
     
  101.INS XBRL Instance Document* 
  101.SCH XBRL Schema Document* 
  101.CAL XBRL Calculation Linkbase Document*
  101.DEF XBRL Definition Linkbase Document*
  101.LAB XBRL Label Linkbase Document*
  101.PRE  XBRL Presentation Linkbase Document*

 

* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

27
 

 

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: November 19, 2014 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

 

 

 

28