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UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-QSB

|(Mark One)
|----------
|x         
|          
|          
|o         
|          

Commission file number: 000-30721

IPEC HOLDINGS INC.(Name of small business issuer in its charter)

| | Nevada                                                              |  | 87-0621339                           | 
| | ------------------------------------------------------------------- |  | ------------------------------------ | 
| | (State or other jurisdiction of incorporation or 
    organization) |  | (I.R.S. Employer Identification No.) | 

|                                                                                                                                                                                              
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Northgate Industrial Park, 185 Northgate Circle
      New Castle, Pennsylvania 16105(Address of principal executive offices, including zip code)
    Issuers telephone number: (800) 377-4732

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange
Act during the past 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes: x No: o

State the number of shares outstanding of each of the issuers classes of common equity, as of
the latest practicable date: 9,972,912 shares of Common Stock as of May 5, 2005.

Transitional Small Business Disclosure Format (Check one):  Yes: o No: x

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TABLE OF CONTENTS

|PART 1  FINANCIAL INFORMATION | 4                                                                   
|------------------------------ | --------------------------------------------------------------------
|                               |                                                                     
|                               | ITEM 1.  FINANCIAL STATEMENTS                                       
|                               |                                                                     
|                               |                                                                     
|                               |                                                                     
|                               |                                                                     
|                               |                                                                     
|                               |                                                                     
|                               | ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION  
|                               |                                                                     
|                               | ITEM 3.  CONTROLS AND PROCEDURES                                    
|                               |                                                                     
|PART II  OTHER INFORMATION    | 29                                                                  
|                               |                                                                     
|                               | ITEM 1.  LEGAL PROCEEDINGS                                          
|                               | ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|                               | ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                            
|                               | ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS        
|                               | ITEM 5.  OTHER INFORMATION                                          
|                               | ITEM 6.  EXHIBITS                                                   
|                               |                                                                     
|SIGNATURES                     | 30                                                                  

In this report, the terms the Company, we, our and us
refer to IPEC Holdings Inc. and unless the context otherwise requires, the Companys wholly-owned
subsidiary, International Plastics and Equipment Corp (IPEC).

2

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Forward-looking Statements

Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995
(the PSLRA), we caution readers regarding forward looking statements found in this report
and in any other statement made by, or on our behalf, whether or not in future filings with the Securities
and Exchange Commission. Forward-looking statements are statements not based on historical information
and which relate to future operations, strategies, financial results or other developments and are
typically identified by words such as believes, anticipates and expects.
In addition, any statements that refer to expectations or other characterizations of future events
or circumstances are forward-looking statements. Forward-looking statements are necessarily based
upon estimates and assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond our control and many of which,
with respect to future business decisions, are subject to change. These uncertainties and contingencies
can affect actual results and could cause actual results to differ materially from those expressed
in any forward looking statements made by or on our behalf. We undertake no obligation to update
forward-looking statements. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors discussed throughout this report,
including but not limited to those discussed under the caption Risk Factors in the Management
Discussion and Analysis or Plan of Operation section of this report.

Any of these factors, or a combination of these factors, could materially affect our future results
of operations and the ultimate accuracy of the forward-looking statements. These forward-looking
statements are not guarantees of our future performance, and our actual results and future developments
may differ materially from those projected in the forward-looking statements. Management cautions
against putting undue reliance on forward-looking statements or projecting any future results based
on such statements or present or prior earnings levels.

3

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IPEC Holdings Inc.Condensed Consolidated Balance Sheets

|                                                                                                                 | March 31, 
      2005
      (Unaudited) |            | December 31,
      2004 |  
|---------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ---------- | ----------------------- | -
|
|Assets                                                                                                           |                                         |            |                         |  
|Cash                                                                                                             | $                                       | 83,384     |                         | $
|Accounts receivable, less allowance for doubtful accounts and returns 
   of $378,238 and $418,000, respectively |                                         | 1,590,409  |                         |  
|Other trade related receivables                                                                                  |                                         | 218,898    |                         |  
|Inventories                                                                                                      |                                         | 3,214,832  |                         |  
|Income tax refund receivable                                                                                     |                                         |           |                         |  
|Deferred tax asset                                                                                               |                                         | 197,194    |                         |  
|Prepaid expenses & other current assets                                                                          |                                         | 93,228     |                         |  
|                                                                                                                 |                                         |            |                         |  
|Current Assets                                                                                                   |                                         | 5,397,945  |                         |  
|                                                                                                                 |                                         |            |                         |  
|                                                                                                                 |                                         |            |                         |  
|Land                                                                                                             |                                         | 41,040     |                         |  
|Buildings and equipment                                                                                          |                                         | 17,820,689 |                         |  
|Construction in progress                                                                                         |                                         | 225,271    |                         |  
|Accumulated depreciation                                                                                         |                                         | (9,176,087 | )                       |  
|                                                                                                                 |                                         |            |                         |  
|Property, plant & equipment, net                                                                                 |                                         | 8,910,913  |                         |  
|                                                                                                                 |                                         |            |                         |  
|                                                                                                                 |                                         |            |                         |  
|Patents, less accumulated amortization of $136,107 and $129,709,                                                 |                                         |            |                         |  
|respectively                                                                                                     |                                         | 255,780    |                         |  
|Other assets                                                                                                     |                                         | 383,788    |                         |  
|                                                                                                                 |                                         |            |                         |  
|Other Assets                                                                                                     |                                         | 639,568    |                         |  
|                                                                                                                 |                                         |            |                         |  
|Total Assets                                                                                                     | $                                       | 14,948,426 |                         | $
|                                                                                                                 |                                         |            |                         |  

The accompanying notes are an integral part of these consolidated financial statements.

4

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IPEC Holdings Inc.
Condensed Consolidated Balance Sheets

|                                                                                                                     | March 31, 
      2005
      (Unaudited) |            | December 31,
      2004 |  
|-------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ---------- | ----------------------- | -
|Liabilities                                                                                                          |                                         |            |                         |  
|                                                                                                                     |                                         |            |                         |  
|Accounts payable                                                                                                     | $                                       | 873,350    |                         | $
|Accrued liabilities                                                                                                  |                                         | 816,000    |                         |  
|Income taxes payable                                                                                                 |                                         | 406,522    |                         |  
|Current portion of long-term debt                                                                                    |                                         | 360,431    |                         |  
|Bank line of credit                                                                                                  |                                         | 952,675    |                         |  
|Current portion of capital lease obligations                                                                         |                                         | 10,220     |                         |  
|Current portion of deferred gain on plant sale                                                                       |                                         | 45,724     |                         |  
|Current Liabilities                                                                                                  |                                         | 3,464,922  |                         |  
|                                                                                                                     |                                         |            |                         |  
|Capital lease obligations                                                                                            |                                         | 24,207     |                         |  
|Long-term debt                                                                                                       |                                         | 3,088,819  |                         |  
|Derivative financial instrument, at fair value                                                                       |                                         | 965        |                         |  
|Long-term deferred gain on plant sale                                                                                |                                         | 1,036,152  |                         |  
|Long-term Liabilities                                                                                                |                                         | 4,150,143  |                         |  
|                                                                                                                     |                                         |            |                         |  
|Deferred income taxes                                                                                                |                                         | 706,685    |                         |  
|                                                                                                                     |                                         |            |                         |  
|                                                                                                                     |                                         |            |                         |  
|Total Liabilities                                                                                                    |                                         | 8,321,750  |                         |  
|                                                                                                                     |                                         |            |                         |  
|                                                                                                                    
|Shareholders Equity                                                                                                
|                                                                                                                    
|Preferred stock, $0.001 par value, 25,000,000 shares authorized,                                                    
|no shares issued and outstanding                                                                                     |                                         |           |                         |  
|Common stock, par value $0.001 per share, 100,000,000 shares 
   authorized, 9,972,912 shares issued and outstanding |                                         | 9,973      |                         |  
|Additional paid in capital                                                                                           |                                         | 4,471,994  |                         |  
|Unearned stock-based compensation                                                                                    |                                         | (3,652     | )                       |  
|Accumulated other comprehensive loss, net                                                                            |                                         | (598       | )                       |  
|Retained earnings                                                                                                    |                                         | 2,148,959  |                         |  
|                                                                                                                     |                                         |            |                         |  
|Shareholders Equity                                                                                                 |                                         | 6,626,676  |                         |  
|                                                                                                                     |                                         |            |                         |  
|Total Liabilities and Shareholders Equity                                                                           | $                                       | 14,948,426 |                         | $
|                                                                                                                     |                                         |            |                         |  

The accompanying notes are an integral part of these consolidated financial statements.

5

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IPEC Holdings Inc.Statements of Condensed Consolidated Operations

|                                         | Three Months 
      Ended 
      March 31, 2005 
      (Unaudited) |            | Three Months 
      Ended 
      March 31, 2004 
      (Unaudited) |  
|---------------------------------------- | ------------------------------------------------------------------ | ---------- | ------------------------------------------------------------------ | -
|                                         |                                                                    |            |                                                                    |  
|Sales                                    | $                                                                  | 5,317,409  |                                                                    | $
|                                         |                                                                    |            |                                                                    |  
|                                        
|Operating Expenses                      
|Cost of Goods Sold                       |                                                                    | 3,788,013  |                                                                    |  
|Selling and Service                      |                                                                    | 229,642    |                                                                    |  
|General and Administrative               |                                                                    | 490,914    |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|Operating Expenses                       |                                                                    | 4,508,569  |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|Operating Income                         |                                                                    | 808,840    |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|                                        
|Non-operating Expense (Income)          
|Interest Expense                         |                                                                    | 82,457     |                                                                    |  
|Other Income                             |                                                                    | (28,520    | )                                                                  |  
|                                         |                                                                    |            |                                                                    |  
|Non-operating Expenses, net              |                                                                    | 53,937     |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|Income Before Taxes                      |                                                                    | 754,903    |                                                                    |  
|Income Taxes                             |                                                                    | 286,863    |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|Net Income                               | $                                                                  | 468,040    |                                                                    | $
|                                         |                                                                    |            |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|Other Comprehensive Income, net of tax   |                                                                    | (598       | )                                                                  |  
|                                         |                                                                    |            |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|Comprehensive Income                     | $                                                                  | 467,442    |                                                                    | $
|                                         |                                                                    |            |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|Average Shares of Common Stock - Basic   |                                                                    | 9,972,912  |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|Average Shares of Common Stock - Diluted |                                                                    | 10,499,586 |                                                                    |  
|                                         |                                                                    |            |                                                                    |  
|Basic Net Income Per Share               | $                                                                  | 0.05       |                                                                    | $
|                                         |                                                                    |            |                                                                    |  
|Diluted Net Income Per Share             | $                                                                  | 0.04       |                                                                    | $
|                                         |                                                                    |            |                                                                    |  

The accompanying notes are an integral part of these consolidated financial statements.

6

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IPEC Holdings Inc.Statements of Condensed Consolidated Cash Flows

|                                                                                              | Three Months
      Ended 
      March 31, 2005 
      (Unaudited) |            | Three Months
      Ended 
      March 31, 2004 
      (Unaudited) |  
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ---------- | ----------------------------------------------------------------- | -
|                                                                                              |                                                                   |            |                                                                   |  
|Cash Flows from Operating Activities:                                                         |                                                                   |            |                                                                   |  
|Net Income                                                                                    | $                                                                 | 468,040    |                                                                   | $
|Adjustments to reconcile net income to net cash provided 
    (used) by operating activities:
|Depreciation and amortization                                                                 |                                                                   | 447,442    |                                                                   |  
|Deferred taxes                                                                                |                                                                   | (140,473   | )                                                                 |  
|Deferred financing cost amortization                                                          |                                                                   | 2,604      |                                                                   |  
|Gain amortization on plant sale                                                               |                                                                   | (11,431    | )                                                                 |  
|Amortization of unearned stock-based compensation                                             |                                                                   | 348        |                                                                   |  
|                                                                                             
|Changes in operating assets and liabilities:                                                 
|Accounts receivable                                                                           |                                                                   | 32,974     |                                                                   |  
|Other trade related receivables                                                               |                                                                   | 49,407     |                                                                   |  
|Inventory                                                                                     |                                                                   | (440,219   | )                                                                 |  
|Prepaid expenses & Other current assets                                                       |                                                                   | 67,870     |                                                                   |  
|Other assets                                                                                  |                                                                   | 21,023     |                                                                   |  
|Accounts payable                                                                              |                                                                   | (31,765    | )                                                                 |  
|Accrued liabilities                                                                           |                                                                   | (384,850   | )                                                                 |  
|Income taxes payable                                                                          |                                                                   | 444,014    |                                                                   |  
|                                                                                              |                                                                   |            |                                                                   |  
|Net cash provided (used) by operating activities                                              |                                                                   | 524,984    |                                                                   |  
|                                                                                              |                                                                   |            |                                                                   |  
|                                                                                             
|Cash Flows from Investing Activities:                                                        
|Purchases of property, plant & equipment                                                      |                                                                   | (94,548    | )                                                                 |  
|                                                                                              |                                                                   |            |                                                                   |  
|Net cash used in investing activities                                                         |                                                                   | (94,548    | )                                                                 |  
|                                                                                              |                                                                   |            |                                                                   |  
|                                                                                             
|Cash Flows from Financing Activities:                                                        
|Repayment on bank line of credit                                                              |                                                                   | (800,000   | )                                                                 |  
|Borrowings on bank line of credit, net                                                        |                                                                   | 952,675    |                                                                   |  
|Repayment of long-term debt                                                                   |                                                                   | (2,233,212 | )                                                                 |  
|Proceeds from long-term debt, net of $43,525 in transaction related costs                     |                                                                   | 1,456,475  |                                                                   |  
|Amount borrowed from related parties                                                          |                                                                   |           |                                                                   |  
|Repayment of capital lease obligations                                                        |                                                                   | (2,268     | )                                                                 |  
|                                                                                              |                                                                   |            |                                                                   |  
|Net cash (used) provided by financing activities                                              |                                                                   | (626,330   | )                                                                 |  
|                                                                                              |                                                                   |            |                                                                   |  
|                                                                                              |                                                                   |            |                                                                   |  
|Net decrease in cash                                                                          |                                                                   | (195,894   | )                                                                 |  
|Cash - beginning of period                                                                    |                                                                   | 279,278    |                                                                   |  
|                                                                                              |                                                                   |            |                                                                   |  
|Cash  end of period                                                                          | $                                                                 | 83,384     |                                                                   | $
|                                                                                              |                                                                   |            |                                                                   |  

The accompanying notes are an integral part of these consolidated financial statements.

7

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IPEC HOLDINGS INC.Notes to Condensed Consolidated Financial Statements (Unaudited)
  March 31, 2005 and December 31, 2004

1.  Description of Business

IPEC Holdings Inc. (the Company) manufactures and sells tamper evident plastic closures
through its wholly-owned operating subsidiary, International Plastics and Equipment Corp. (IPEC).
These closures are predominantly used in the bottling of non-carbonated beverages including bottled
water, milk and fruit and sports drinks. The Company also designs and manufactures equipment for
the bottling industry. IPECs customer base primarily consists of dairy and bottled water manufactures
both domestically and internationally. The Companys two manufacturing facilities are located
in Pennsylvania and Alabama.

2.  Basis of Presentation

The accompanying condensed consolidated balance sheets as of March 31, 2005 and December 31, 2004,
statements of operations for the three-month periods ended March 31, 2005 and 2004 and cash flows
for the three-month periods ended March 31, 2005 and 2004 have been prepared by the Company in accordance
with the instructions for the Securities and Exchange Commission (SEC) Form 10-QSB and,
accordingly, do not include all disclosures required by accounting principles generally accepted
in the United States for complete financial statements. The financial statements at March 31, 2005
and December 31, 2004 include the accounts of the Company and its wholly-owned subsidiary. In the
opinion of management of the Company, all adjustments, consisting of normal recurring accruals considered
necessary for a fair presentation, have been included. The results of operations for the three-month
period ended March 31, 2005 are subject to various factors including seasonality and are not necessarily
indicative of the operating results to be expected for the full fiscal year ending on December 31, 2005.

Interim unaudited condensed consolidated financial results should be read in conjunction with the audited
financial statements included in the Companys Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2004.

3.  Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement No. 123(R), Share-Based

Payment (Statement 123(R)). Statement 123(R) revised Statement 123, Accounting

for Stock-Based Compensation (Statement 123), and supersedes APB Opinion
No.
25, Accounting for Stock Issued for Employees, and its related implementation guidance.

Statement 123(R) will require compensation costs related to share-based payment transactions to
be
recognized in the financial statements (with limited exceptions). The amount of compensation
cost
will be measured based on the grant-date fair value of the equity or liability instruments
issued.
Compensation cost will be recognized over the period that an employee provides service
in exchange
for the award.

On April 14, 2005, the SEC adopted a new rule that amends the compliance dates for Statement 123(R).
Under the new rule, the Company is required to adopt Statement 123(R) in the first annual period
beginning after December 15, 2005. The Company has not yet determined the method of adoption or the
effect of adopting Statement 123(R), and it has not determined whether the adoption will result in
amounts that are similar to the current pro forma disclosures under Statement 123.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB No. 107), Share-Based

Payment, providing guidance on option valuation methods, the accounting for income tax effects

of share-based payment arrangements upon adoption of Statement 123(R), and the disclosures in Management

Discussion and Analysis subsequent to the adoption. The Company will provide SAB No. 107 required

disclosures upon adoption of Statement 123(R) as of January 1, 2006.

In November 2004, the Financial Accounting Standards Board issued Statement No. 151 Inventory

Costs, an amendment of ARB No. 43, Chapter 4, which clarifies the types of costs that should

be expensed rather than capitalized as inventory. Statement No. 151 also clarifies the circumstances

under which fixed overhead costs associated with operating facilities involved in inventory processing

should be capitalized. The provisions of Statement No. 151 are effective for fiscal years beginning

after June 25, 2005 and the Company will adopt this standard as of January 1, 2006. The Company
has
not determined the impact, if any, that Statement No. 151 will have on its results of operations

and financial position.

8

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IPEC HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 and December 31, 2004

4.  Supplemental Cash Flow Information

|                                                                                  | Three Months
      Ended March
      31, 2005 |  | Three Months
      Ended March
      31, 2004 |       
|--------------------------------------------------------------------------------- | --------------------------------------------- |  | --------------------------------------------- | ------
|                                                                                  |                                               |  |                                               |       
|                                                                                 
|Cash paid for interest, including $-0- and $4,000 for
       capitalized interest |                                               |  | $                                             | 75,492
|                                                                                  |                                               |  |                                               |       
|Cash paid for income taxes                                                        |                                               |  | $                                             | 42,000
|                                                                                  |                                               |  |                                               |       
|Equipment acquired under capital leases                                           |                                               |  | $                                             |      
|                                                                                  |                                               |  |                                               |       

5.  Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of IPEC Holdings Inc. and its wholly-owned
subsidiary, International Plastics and Equipment Corporation. All significant intercompany accounts
and transactions have been eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original or remaining maturity
of less than three months at the date of purchase to be cash equivalents. Cash and cash equivalents
are maintained with primarily one financial institution.

Use of Estimates

The preparation of the consolidated financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements and the
accompanying notes. Estimates are used for allowance for doubtful accounts and sales returns, inventory
allowances, impairment of long-lived assets, stock compensation, income taxes, loss contingencies
and intangible assets. Actual results could differ materially from these estimates.

Stock-Based Compensation

Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based CompensationTransition
and Disclosure and Amendment of FASB Statement No. 123, amends the disclosure requirements
of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123), to require more prominent disclosures in both annual and interim financial
statements regarding the method of accounting for stock-based employee compensation and the effect
of the method used on reported results.

The Company accounts for stock-based awards to employees and non-employee directors using the intrinsic
value method of accounting in accordance with Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB 25). Under the intrinsic value method, when
the exercise price of the Companys employee and non-employee director stock options equals
the market price of the underlying stock on the date of grant, no compensation expense is recognized
in the Companys Consolidated Statements of Operations.

9

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IPEC HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 and December 31, 2004

The Company is required under SFAS 123, to disclose pro forma information regarding option grants made
  to its employees and non-employee directors based on specified valuation techniques that produce
  estimated compensation charges. The pro forma information is as follows:

|                                                         | Three Months
      Ended
      March 31,
      2005 |  | Three Months
      Ended
      March 31,
      2004 |        
|-------------------------------------------------------- | --------------------------------------------------- |  | --------------------------------------------------- | -------
|                                                         |                                                     |  |                                                     |        
|                                                         |                                                     |  |                                                     |        
|Net Income - as reported                                 |                                                     |  | $                                                   | 468,040
|Compensation expense options - net of tax                |                                                     |  |                                                     | (21,403
|Compensation expense warrants - net of tax               |                                                     |  |                                                     |       
|Compensation recorded in financial statement -net of tax |                                                     |  |                                                     | 216    
|                                                         |                                                     |  |                                                     |        
|Net Income - pro forma                                   |                                                     |  | $                                                   | 446,853
|                                                         |                                                     |  |                                                     |        
|Basic Net Income Per Share - as reported                 |                                                     |  | $                                                   | 0.05   
|                                                         |                                                     |  |                                                     |        
|Diluted Net Income Per Share - as reported               |                                                     |  | $                                                   | 0.04   
|                                                         |                                                     |  |                                                     |        
|Basic Net Income Per Share - pro forma                   |                                                     |  | $                                                   | 0.04   
|                                                         |                                                     |  |                                                     |        
|Diluted Net Income Per Share - pro forma                 |                                                     |  | $                                                   | 0.04   
|                                                         |                                                     |  |                                                     |        

The value of each option grant is estimated on the date of grant using the Black-Scholes option pricing
model. The Black-Scholes option pricing model was developed for use in estimating the value of traded
options that have no vesting restrictions and are fully transferable. In addition, option pricing
models require the input of highly subjective assumptions including the expected stock price volatility.
The Company uses projected data for expected volatility and expected life of its stock options based
upon historical and other economic data trended into future years. Because the Companys employee
and non-employee directors stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions can materially affect
the estimate, in managements opinion, the existing valuation models do not provide a reliable
measure of the fair value of the Companys employee and non-employee directors stock options.

Computation of Net Income per Share

Basic net income per share is computed using the weighted-average number of common shares outstanding
during the period. Diluted net income per share is computed using the weighted-average number of
common shares and dilutive potential common shares outstanding during the period. If applicable,
diluted net loss per share is computed using the weighted-average number of common shares and excludes
dilutive potential common shares outstanding, as their effect is antidilutive. Dilutive potential
common shares primarily consist of employee and non-employee director stock options and warrants.

For purposes of determining the number of diluted shares outstanding, weighted-average shares outstanding
for basic earnings per share calculations were increased due solely to the dilutive effect of unexercised
stock options and warrants by 526,674 and 233,988 for the three months ended March 31, 2005 and 2004,
respectively.

Revenue Recognition

The Company recognizes product revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed or determinable, and collection is reasonably assured. Cash payments
received in advance of product revenue are recorded as deferred revenue.

Contingent Vendor Rebates

The Company has entered into multiple contracts with its suppliers that provide for retroactive rebates
if negotiated quantitative breakpoints of purchase volumes are obtained. The Company follows the
guidance in EITF 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor and recognizes such vendor rebates as a reduction of the cost of sales
on a systematic and rational allocation correlated to progress by the Company towards earning the
rebate or refund, provided the amounts are probable and reasonably estimable. If the rebate or refund
is not probable and reasonably estimable, the Company recognizes such rebates when the quantitative
breakpoint is actually obtained.

10

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IPEC HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 and December 31, 2004

Inventory Valuation

Inventories are stated at the lower of cost or market. The Company uses the first-in first-out (FIFO)
method for determining the cost of its inventory. The Company will record an obsolescence reserve
based upon its assessment of customer demand and alternative disposals methods.

Shipping

Amounts billed to customers for shipping-related fees are recorded as revenue. Shipping costs incurred
by the Company are recorded as cost of sales in the accompanying statements of operations. For the
three months ended March 31, 2005 and 2004, the Company recorded shipping revenue of approximately
$266,555 and $174,000, respectively.

Concentrations

Cash and cash equivalents are maintained with primarily one financial institution. Deposits held with
banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may
be redeemed upon demand and therefore bear minimal risk.

The Company performs ongoing credit evaluations of its customers and with the exception of certain
financing related transactions, does not require collateral from its customers. The Companys
customer base consists primarily of dairy and bottled water manufacturers in the United States, Canada
and the United Kingdom.

The Company receives certain raw materials from primary suppliers. The inability of any contract manufacturer
or supplier to fulfill supply requirements could materially impact future operating results.

The majority of the Companys products are produced from plastic resin. Resin pricing is subject
to periodic price fluctuations primarily resulting from shortages in supply and fluctuations in feedstock
petrochemical products. The Companys agreements with its customers generally include adjustment
clauses to pass price changes on to the Companys customers.

During the three months ended March 31, 2005 and 2004, sales to one customer amounted to 31% and 22%,
respectively, of net sales. In determining the customer concentration information presented above,
the Company used the aggregated sales of the customers parent company. Typically, purchasing
decisions are made at the subsidiary or plant level of our customer base, mitigating a portion of
the risk associated with the concentration levels.

Depreciation

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets as follows:

| | Asset                          |  | Depreciable Life 
    Years | 
| | ------------------------------ |  | --------------------------- | 
| |                                |  |                             | 
| | Building                       |  | 40                          | 
| | Machinery and equipment        |  | 5  10                      | 
| | Office furniture and equipment |  | 7                           | 
| | Software                       |  | 3-5                         | 

Depreciation charged to operations was approximately $441,000 and $441,000 for the three months ended
March 31, 2005 and 2004, respectively. Of those amounts, approximately $431,000 and $434,000, respectively,
were included in cost of goods sold.

Expenditures for improvements are capitalized while costs for maintenance and repairs are expensed
as incurred. The Company capitalized $-0- and $4,000 of interest in connection with buildings and
equipment under construction in the three months ended March 31, 2005 and 2004, respectively.

11

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IPEC HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 and December 31, 2004

Impairment of Long-Lived Assets

Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment

whenever events or changes in circumstances indicate that the carrying amount of such assets may

not be recoverable. Determination of recoverability is based on an estimate of undiscounted cash

flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment

loss for long-lived assets and certain identifiable intangible assets that management expects to

hold and use is based on the fair value of the asset. Long-lived assets and certain identifiable

intangible assets to be disposed of are reported at the lower of carrying amount or the fair value

less costs to sell.

Advertising

The Company expenses all advertising costs as incurred. Such costs were insignificant for the three-month
periods ended March 31, 2005 and 2004.

Intangible Assets

The Companys intangible assets include finite-life patents that are amortized over the shorter
of their legal or estimated useful lives. Amortization expense for these intangible assets was approximately
$6,400 for each of the three months ended March 31, 2005 and 2004, respectively. The following represents
the estimated future amortization expense for these intangible assets as of March 31, 2005:

| | Fiscal Year        |  | Amount |        
| | ------------------ |  | ------ | -------
| |                    |  |        |        
| | 2005 (Nine months) |  | $      | 19,200 
| | 2006               |  |        | 25,600 
| | 2007               |  |        | 25,600 
| | 2008               |  |        | 25,600 
| | 2009               |  |        | 25,600 
| | Thereafter         |  |        | 134,180
| |                    | 
| | Total              |  | $      | 255,780
| |                    | 

Fair Value of Financial Instruments

The carrying amount of cash, receivables, and accounts payable approximate fair value based upon the
liquidity and short-term nature of the items. The carrying amount of notes payable approximates the
fair value based upon borrowings at approximate market interest rates.

Income Taxes

The Company accounts for income taxes under the liability method which requires that deferred taxes
be computed annually on an asset and liability basis and adjusted when new tax laws are enacted or
new tax rates become effective.

Foreign Currency Translation

The Company has no foreign subsidiaries and uses the United States Dollar as its functional currency.
Translation gains and losses result from changes in exchange rates between the functional currency
and the currency in which the Companys customers denominate transactions. Translation gains
and losses are not considered significant.

Segment Information

The Companys primary operations are in one segment - the manufacture of injection molded thermoplastic
components used primarily as closures for containers in the non-carbonated beverage industry. All
of the Companys production operations are in the United States.

Reclassifications

Certain reclassifications have been made to prior period balances in order to conform to the current
period presentation.

12

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IPEC HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 and December 31, 2004

6. Balance Sheet Details

|               | March 31,
      2005 |   | December 31,
      2004 | 
|-------------- | -------------------- | - | ----------------------- | 
|               |                      |   |                         | 
|Inventories:   |                      |   |                         | 
|Raw materials  |                      | $ | 1,047,082               | 
|Finished goods |                      |   | 2,167,750               | 
|               |                      |   |                         | 
|Total          |                      | $ | 3,214,832               | 
|               |                      |   |                         | 

The Company is permitted to borrow under its secured line of credit up to 50% of the value of all components
of its inventory after adjusting for certain items as set forth in its borrowing agreement.

|Other Assets:                  |  |   |         |  |   |         | 
|------------------------------ |  | - | ------- |  | - | ------- | 
|Deferred financing costs, net  |  | $ | 242,827 |  | $ | 210,612 | 
|Deferred contract incentives   |  |   | 67,632  |  |   | 73,163  | 
|Letter of credit collateral    |  |   | 53,333  |  |   | 40,000  | 
|Long-term equipment receivable |  |   |        |  |   | 35,000  | 
|Miscellaneous items            |  |   | 19,996  |  |   | 13,818  | 
|                               |  |   |         | 
|Total                          |  | $ | 383,788 |  | $ | 372,593 | 
|                               |  |   |         | 

Unamortized deferred financing costs represent transaction costs arising from the Alabama Plant Financing
discussed in Note 10 and the debt refinancing discussed in Note 8. The costs are being amortized
using the effective interest rate method over the life of the related obligations. During the three
months ended March 31, 2005, the Company amortized $2,600 as interest expense in the accompanying
consolidated statement of operations associated with these deferred financing costs.

7.   Common Stock and Equity Awards

The following is a schedule of option and warrant activity from December 31, 2004 to March 31, 2005:

|                  | Options |  | Warrants  | 
|----------------- | ------- |  | --------- | 
|                  |         |  |           | 
|                  |         |  |           | 
|December 31, 2004 |         |  | 1,217,500 | 
|Granted           |         |  | 10,000    | 
|Forfeitures       |         |  |          | 
|Exercised         |         |  |          | 
|                  |         |  |           | 
|March 31, 2005    |         |  | 1,227,500 | 
|                  |         |  |           | 

On January 31, 2005, the Company granted options to purchase $10,000 shares of its common stock with
an exercise price of $2.00 per share to an employee. At January 31, 2005, the underlying shares of
common stock had a fair market value of $2.40 per share. Accordingly, the Company recognized $4,000
worth of unearned stock-based compensation expense, which is being amortized over the vesting period
of the options. The options vest 50% at December 31, 2005, with the remaining 50% vesting at December
31, 2006.

13

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IPEC HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 and December 31, 2004

8.  Debt and Capital Lease Obligations

On February 18, 2005, IPEC entered into a Revolving Credit and Term Loan Agreement (the Loan
Agreement) with Citizens Bank of Pennsylvania (Citizens), which provides for the
making by Citizens to IPEC of revolving credit loans in the maximum principal amount of $3,500,000
outstanding at any given time (the Revolving Credit Facility), a term loan in the principal
amount of $1,500,000 (the Term Loan), a multi-draw term loan in the maximum principal
amount of $1,000,000 (the Multi-Draw Term Loan) and a letter of credit facility in the
maximum principal amount of $1,800,000 that secures IPECs obligations under the lease of its
manufacturing and warehouse facility in Alabama (the Letter of Credit). The Company has
guaranteed IPECs obligations under the Loan Agreement. The maximum availability under the Revolving
Credit Facility is the lesser of $3,500,000 or the sum of 85% of the aggregate gross amount of IPECs
Qualified Accounts plus 50% of the aggregate gross amount of its Qualified Inventory, each as defined
in the Loan Agreement. On February 22, 2005, IPEC borrowed approximately $1,412,000 under the Revolving
Credit Facility and used such funds in combination with the $1,500,000 proceeds of the Term Loan
to repay all of its then existing revolving credit facility and equipment notes indebtedness to its
former lender. No prepayment fees were associated with the termination of these agreements.

All financial instruments under the Loan Agreement bear interest at the one month LIBOR plus 150 basis
points. The covenants in the Loan Agreement also include covenants regarding the maintenance of certain
financial conditions of IPEC including (i) a minimum Consolidated Tangible Net Worth equal to the
sum of $5,049,000 plus 50% of the Consolidated Net Income (excluding net losses) for each completed
fiscal quarter and (ii) a Consolidated Fixed Charge Coverage Ratio of not less than 1.10 to 1.00
at the end of any fiscal quarter, each as described in the Loan Agreement. As of March 31, 2005,
IPEC was in compliance with all financial covenants.

At March 31, 2005, IPEC had $952,675 outstanding on its Revolving Credit Facility. Remaining borrowing
capacity amounted to $2,970,879, consisting of $1,970,879 on the Revolving Credit Facility and $1,000,000
under the Multi-Draw Term Loan. At March 31, 2005, one month LIBOR under the Companys debt
obligations was at 2.85%.

Long-term debt at March 31, 2005 was comprised of the following:

|                                                                         | 
|------------------------------------------------------------------------ | 
|6.97% fixed interest rate obligation through June 1, 2009, with rate     | 
|reset thereafter every 60 months based on market conditions secured by   | 
|letter of credit and lease commitment on Alabama plant                   | 
|                                                                         | 
|Interest-only variable rate obligation at 3-month LIBOR plus 165 basis   | 
|points through June 1, 2024, thereafter monthly principal payments of    | 
|$5,061 for 9.5 years secured by letter of credit and lease commitment on | 
|Alabama plant                                                            | 
|                                                                         | 
|Variable rate note bearing interest at one month LIBOR plus 150 basis    | 
|points payable in monthly installments of $25,000 through February 28,   | 
|2010, secured by substantially all of the Companys assets               | 
|                                                                         | 
|                                                                         | 
|Subtotal                                                                 | 
|Less - current portion of long-term debt                                 | 
|                                                                         | 
|                                                                         | 
|                                                                         | 
|                                                                         | 

Payments on long-term debt in future years are as follows:

| | Calendar Year      |  | Debt
      Reduction |          
| | ------------------ |  | -------------------- | ---------
| |                    |  |                      |          
| | 2005 (nine months) |  | $                    | 276,345  
| | 2006               |  |                      | 337,310  
| | 2007               |  |                      | 339,995  
| | 2008               |  |                      | 342,874  
| | 2009               |  |                      | 345,959  
| | Thereafter         |  |                      | 1,806,767
| |                    | 
| | Total              |  | $                    | 3,449,250
| |                    | 

14

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IPEC HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 and December 31, 2004

Swap Derivative

On March 3, 2005, the Company entered into a swap agreement with a notional amount of $1,500,000 of
the Companys floating rate debt. The effective one month LIBOR swap rate was 4.30% and the
notional amount of the swap amortizes in accordance with the amortization schedule of the Term Loan.
The Company has designated this transaction as a cash flow hedge of a floating-rate liability and
has applied the guidance set forth in SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, to this transaction. The fair value of the swap is recorded in the balance
sheet with the offset to Accumulated Other Comprehensive Income (Loss), net of a provision for income
taxes. At March 31, 2005, the fair value of the swap was a liability of $965.

Capital Leases

The Company leases certain manufacturing and office equipment under capital leases expiring at various
dates through 2009.

As of March 31, 2005, future minimum lease payments for capital leases are as follows:

| | Calendar Year                                  |  | Capital Leases |        
| | ---------------------------------------------- |  | -------------- | -------
| |                                                |  |                |        
| | 2005 (nine months)                             |  | $              | 10,633 
| | 2006                                           |  |                | 14,178 
| | 2007                                           |  |                | 9,865  
| | 2008                                           |  |                | 5,550  
| | 2009                                           |  |                | 1,630  
| |                                                | 
| | Total minimum lease payments                   |  | $              | 41,856 
| | Less amount representing interest              |  |                | (7,429 
| |                                                | 
| | Present value of future minimum lease Payments |  |                | 34,427 
| | Less current portion                           |  |                | (10,220
| |                                                | 
| | Long-term portion                              |  | $              | 24,207 
| |                                                | 

9.  Asset Sale  Pennsylvania Plant

On May 21, 2004, the Company sold its Pennsylvania production facility for gross proceeds of $3,897,000.
Concurrent with the sale, the Company leased the property back under a non-cancelable lease for a
period of 29.5 years, renewable thereafter at market rates at the Companys option. As part
of the transaction, the Company incurred transaction costs of $434,000 and a gain on the sale of
$1,120,000 that was initially deferred to be prospectively amortized through other income over the
term of the lease in proportion to the related gross rental charges. During the three months ended
March 31, 2005, $11,431 of this gain was recorded as other income in the accompanying statement of
operations.

Annual rental payments are based on a combination of a fixed market component subject to agreed upon
reset provisions, typically every five years, and a variable component indexed to the 3-month LIBOR
plus 165 basis points.

10.  Alabama Plant Financing

On May 21, 2004, the Company sold its Alabama production facility and title rights to an in-progress
warehouse addition on that facility to an independent third-party resulting in gross sale proceeds
of $1,977,000. As a required condition under the sale agreement, the Company funded $900,000 in an
escrow account to be released to the construction contractor upon satisfaction of certain milestones
towards completion of the warehouse addition. All funds were released to the contractor by August
18, 2004. Concurrent with the sale, the Company entered into a lease agreement with the buyer for
a period of 29.5 years for the property, renewable thereafter at market rates at the Companys
option.

15

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IPEC HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 and December 31, 2004

As part of the transaction, the Company was required to obtain a secured letter of credit in the amount
  of $1,800,000 to provide collateral for its rental obligation. As a result of the secured nature
  of the letter of credit, the transaction has been recorded as a financing transaction rather than
  as a sale, and the building, transaction debt and related accounts will continue to be recognized
  in the accompanying financial statements. Accordingly, any rental payments made that are not attributable
  to transaction debt are recorded as interest expense.

In fiscal 2014, the lease agreement rescinds the requirement to maintain the letter of credit and the
Company expects to record the transaction as a sale at that time. The Company has initially recorded
deferred financing costs of $223,000 in other assets in the accompanying balance sheet to be amortized
prospectively as interest expense under the effective interest rate method.

Annual rental payments under the lease agreement are based on a combination of a fixed market component
subject to agreed upon reset provisions, typically every five years, and a variable component indexed
to the 3-month LIBOR plus 165 basis points.

As of March 31, 2005, future minimum lease payments required through December 1, 2033 are as follows:

| | Calendar Year        |  | Payment |          
| | -------------------- |  | ------- | ---------
| |                      |  |         |          
| | 2005 (nine months)   |  | $       | 116,251  
| | 2006                 |  |         | 155,051  
| | 2007                 |  |         | 155,051  
| | 2008                 |  |         | 155,051  
| | 2009                 |  |         | 155,051  
| | Thereafter           |  |         | 2,930,300
| |                      | 
| | Total Lease Payments |  | $       | 3,666,755
| |                      | 

Future minimum lease payments depend on an existing index or rate, such as LIBOR, were included in
minimum lease payments based on the index or rate existing in the lease as of March 31, 2005.

11.  Commitments and Contingencies

Purchase Commitments with Suppliers

The Company purchases components from a variety of suppliers for its products. During the normal course
of business, in order to reduce manufacturing lead times and to help assure adequate component supply,
the Company enters into agreements with suppliers that either allow them to procure inventory based
upon criteria as defined by the Company or that establish the parameters defining the Companys
requirements. All significant supply agreements allow the Company the option to cancel, reschedule
and adjust the Companys requirements based on its business needs prior to firm orders being
placed. Consequently, the Company does not report purchase commitments arising from firm, non-cancelable
and unconditional commitments.

Legal Proceedings

The Company is subject to various legal proceedings and claims arising out of the normal course of
business. Based on the facts currently available, management believes that the ultimate amount of
liability beyond reserves provided, if any, for any pending actions will not have a material adverse
effect on the Companys financial position or results of operations. However, the ultimate outcome
of any litigation is uncertain, and either unfavorable or favorable outcomes could have a material
impact on the results of operations or liquidity of the Company in a particular period.

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IPEC HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2005 and December 31, 2004

12.  Related Parties

Giordano Construction Company, Inc. (Giordano Construction) entered into an $868,000 construction
agreement with the Company to provide overall management and construction-related services for a
30,000 square foot expansion of the Companys Brewton, Alabama production facility. In connection
with the Alabama Plant Financing discussed in Note 10, the Company funded $900,000 into an escrow
account. On May 25, 2004, funds totaling $673,000 were paid to Giordano Construction. In August 2004,
the remaining obligation of the escrow deposit was disbursed to the contractor with the residual
escrow account proceeds of $32,000 returned to the Company for use in general operations. In December
2004, Giordano Construction was paid $29,000 for cost overruns related to this project. Giordano
Construction is owned 50% by a Company director, executive officer and principal owner and 50% by
another Company director.

17

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ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion of our results of operations for the three months ended March 31, 2005 should
be read in conjunction with our condensed consolidated financial statements (unaudited) and related
notes included therein.

Company History

Effective January 28, 2003, an arrangement was completed between Golden Hole, Inc. and IPEC, whereby
the shareholders of IPEC exchanged all of their common shares for 9,489,796 shares of Golden Hole
common stock.

Following the acquisition, the former shareholders of IPEC held a majority of Golden Holes total
issued and outstanding common shares, and IPEC was therefore deemed to be the acquirer. Accordingly,
the transaction was accounted for as a reverse takeover using the purchase method whereby the assets
and liabilities of Golden Hole have been recorded at their fair market values and operating results
have been included in the financial statements from the effective date of purchase. The fair value
of the net assets acquired is equal to their book values. Golden Hole was renamed IPEC Holdings Inc.
in April 2003.

Overview

We sell standardized tamper evident plastic closures that address a wide range of closure requirements
for such industries as water, milk, juice and food. We believe our two primary competitive advantages
are i) our continuous focus on delivering industry leading after-sale support through a combination
of our domestically dispersed field technicians and centralized customer service center and ii) our
low cost manufacturing process.

The closure industry in the United States is dependent primarily on container demand trends and container
mix. We believe unit gains will be driven by the following major market trends:

| |  | Increasing demand for smaller, single-serve containers and multi-packs;                  
| | - | -----------------------------------------------------------------------------------------
| |   |                                                                                          
| |  | Further market share conversion from metal and glass closures; and                       
| |   |                                                                                          
| |  | Reduction in the amount of closureless containers like metal cans and paperboard cartons.
| |   |                                                                                          

| |   |                                                               
| | - | --------------------------------------------------------------
| |  | Emphasizing customer support and total product solutions;     
| |   |                                                               
| |  | Continuing to enhance low cost manufacturing capabilities; and
| |   |                                                               
| |  | Expanding sales initiatives.                                  

In February 2005, we consummated a debt refinancing package with Citizens Bank. The consummation of
this transaction reduced the average fixed interest rate (considering the effect of our swap derivative)
by approximately 200 basis points from that of the refinanced debt; decreased required term principal
debt payments by approximately $600,000 over the subsequent twelve-month period, and removed our
obligation to fund $400,000 to a reserve fund over a sixty-month period as security against our $1,800,000
letter of credit.

During 2005, we plan on focusing on growing annual revenue, maintaining gross profit margins and expanding
our product offerings. Among the key external factors we expect to influence our fiscal 2005 performance
are the success of our additional product offerings in the marketplace, the trend of market pricing
on certain product lines, the advancement of the major market expectations discussed above and our
ability to increase market share primarily on the west coast of the United States.

18

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Critical Accounting Estimates

General

The preparation of consolidated financial statements and related disclosures in conformity with accounting
principles generally accepted in the United States requires management to make judgments, estimates
and assumptions that affect the amounts reported in the consolidated financial statements and the
accompanying notes. Actual results could differ from those estimates. Note 5 to our Consolidated
Financial Statements included in this report describes certain of the significant accounting policies
and methods used in the preparation of our Consolidated Financial Statements. We consider the accounting
policies described below to be affected by critical accounting estimates. Such accounting policies
are impacted significantly by judgments, assumptions, and estimates used in the preparation of the
consolidated financial statements, and actual results may differ from our estimates under different
assumptions or conditions.

Allowance for Doubtful Accounts and Returns

Our accounts receivable allowance is based on our assessment of the collectibility of customer accounts.
We regularly review the allowance by considering factors such as historical experience, credit quality,
age of the accounts receivable balances, and current economic conditions that may affect a customers
ability to pay.For up to 180 days from the delivery date of our product, we offer our customers either a full refund
or replacement product for goods determined to have quality-related deficiencies. All other product
is eligible for return at our sole discretion. A reserve for sales returns is established based on
historical trends in product return rates. If the actual future returns were to deviate from the
historical data on which the reserve had been established, our revenue could be adversely affected.

Allowance for Inventory

We provide inventory allowances based on excess and obsolete inventories determined primarily by future
demand forecasts and historical product turns. The allowance is measured as the difference between
the cost of the inventory and market based upon assumptions about future demand and is charged to
the provision for inventory, which is a component of our cost of sales. At the point of the loss
recognition, a new, lower-cost basis for that inventory is established, and subsequent changes in
facts and circumstances do not result in the restoration or increase in that newly established cost
basis.If there were to be a sudden and significant decrease in demand for our products, or if there were
a higher incidence of inventory obsolescence because of rapidly changing markets and customer requirements,
we could be required to increase our inventory allowances, and our gross margin could be adversely
affected. Inventory management remains an area of focus as we balance the need to maintain strategic
inventory levels to ensure competitive lead times compared with the risk of inventory obsolescence.

Non-Employee Stock Based Compensation

We account for stock-based awards to non-employees (excluding non-employee directors) using the fair
value method of accounting in accordance with Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation (SFAS 123).

The value of each non-employee option and warrant grant is estimated on the date of grant using the
Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use
in estimating the value of traded options that have no vesting restrictions and are fully transferable.
In addition, option pricing models require the input of highly subjective assumptions including the
expected stock price volatility. We use historical data to compute expected volatility based on the
sixty-five week period prior to the awards grant date. Expected life of our stock options are
based upon historical and other economic data trended into future years.

Impairments of Long-Lived Assets

Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment

whenever events or changes in circumstances indicate that the carrying amount of such assets may

not be recoverable. Determination of recoverability is based on an estimate of undiscounted cash

flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment

loss for long-lived assets and certain identifiable intangible assets that management expects to

hold and use is based on the fair value of the asset. Long-lived assets and certain identifiable

intangible assets to be disposed of are reported at the lower of carrying amount or the fair value

less costs to sell.

19

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Contingent Vendor Rebates

The Company has entered into multiple contracts with its suppliers that provide for retroactive rebates
if negotiated quantitative breakpoints of purchase volumes are obtained. The Company follows the
guidance in EITF 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor and recognizes such vendor rebates as a reduction of the cost of sales
on a systematic and rational allocation correlated to progress by the Company towards earning the
rebate or refund, provided the amounts are probable and reasonably estimable. If the rebate or refund
is not probable and reasonably estimable, the Company recognizes such rebates when the quantitative
breakpoint is actually obtained. Rebates recognized under this policy could be adversely affected
by a variety of events including unforeseeable declines in unit sales from historical levels, unplanned
long-term production outages and vendor force majeure.

Income Taxes

We are subject to income taxes in both the United States and various state jurisdictions. During the
ordinary course of business, there are certain transactions and calculations for which the ultimate
tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates
of whether, and the extent to which, additional taxes and interest will be due. These reserves are
established when, despite our belief that our tax return positions are fully supportable, we believe
that certain positions are likely to be challenged and may not be sustained on review by tax authorities.
Reserves are also established for changes or challenges by taxing authorities in state apportionment
factors and the negative effect such changes may have on our reported taxable income and on our deferred
taxes and liabilities. We adjust these reserves in light of changing facts and circumstances. The
provision for income taxes includes the impact of reserve provisions and changes to reserves that
are considered appropriate. Our effective tax rates differ from the statutory rate primarily due to state taxes, export incentives
and the tax impact of permanent differences relating to life insurance premiums and non-deductible
meals and entertainment. Our future effective tax rates could be adversely affected by earnings or
apportionment factors being lower than anticipated in states where we have lower statutory rates
and higher than anticipated in states where we have higher statutory rates, by changes in the valuation
of our deferred tax assets or liabilities, or by changes in tax laws or interpretations thereof.
In addition, we are subject to the examination of our income tax returns by the Internal Revenue
Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting
from these examinations to determine the adequacy of our provision for income taxes.Loss Contingencies

We are subject to the possibility of various loss contingencies arising in the ordinary course of business.
We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as
well as our ability to reasonably estimate the amount of loss, in determining loss contingencies.
An estimated loss contingency is accrued when it is probable that an asset has been impaired or a
liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate
current information available to us to determine whether such accruals should be adjusted and whether
new accruals are required.

Results of Operations for the Three Months Ended March 31, 2005 and 2004

Operating income for the three months ended March 31, 2005 increased $432,166 as compared to the comparable
2004 period. The increase in operating income was primarily a result of our increasing customer base,
fixed overhead volume efficiencies, implementation and execution of certain cost saving initiatives
and the attainment of a stable selling and service infrastructure permitting margin from our new
customer base to increase overall profitability. Accordingly, sales for the three month period ended
March 31, 2005 increased by $910,719 (21%) while operating expenses increased by $478,553 (12%).
Non-operating expenses decreased by $69,888 (56%) primarily due to lower borrowing rates and a lower
overall outstanding balance of borrowings. This resulted in income before taxes for the three months
ended March 31, 2005 being $502,054 higher than that of the comparable 2004 period.

20

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Cost of sales of $3,788,013 for the three months ended March 31, 2005 was lower as a percentage of
sales (71%) than that for the comparable 2004 period (76%) as a result of fixed overhead volume efficiencies
and the implementation and execution of certain cost savings initiatives, offset by lower selling
prices in certain product lines as a result of intensified market competition and customer consolidation.

Selling and service expense for the three months ended March 31, 2005 decreased $3,019 (1%) as compared
to the comparable 2004 period, reflecting minor decreases in costs associated with start-up tooling
for customer conversions.

General and administrative expenses for the three months ended March 31, 2005 increased $20,658 (4%)
as compared to the comparable 2004 period, reflecting a minor increase in the number of employees
in various departments, routine salary increases and higher professional service fees.

We accrued $286,863 for federal and state income taxes for the three months ended March 31, 2005 resulting
in an effective rate of approximately 38% compared to 40% in the comparable 2004 period, primarily
due to recent changes in federal income tax regulations resulting in phased income tax deductions
for certain domestic manufacturing operations. As a result, net income for the three months ended
March 31, 2005 was $468,040 or $0.04 per diluted share, as comparable to net income of $151,849 or
$0.01 per diluted share for the comparable 2004 period.

Liquidity and Financial Condition

Cash and Cash Equivalents.At March 31, 2005, we had cash and cash equivalents of $83,384. In addition, we had a working capital
surplus of $1,933,023, as compared to a deficit of $3,230,705 at March 31, 2004. This favorable variation
was primarily due to a combination of the consummation of our sale leaseback transactions relating
to our Pennsylvania and Alabama production facilities, increased customer base and new credit arrangements
with our primary resin suppliers. Management believes that existing cash and cash equivalents and
available borrowing capacity together with anticipated cash flow from operations will be adequate
to fund of operations, debt service requirements and capital expenditures throughout the remainder
of 2005.

Operating Activities.Our operations provided cash of $524,984 for the three months ended March 31, 2005, whereas during
the comparable 2004 period, our operations used cash of $88,744. The increase in cash provided by
operations during the 2005 period was due primarily to an increase in net income, the results of
an ongoing improved accounts receivable management process, and favorable credit terms awarded by
our primary resin supplier.

Investing Activities.During the three months ended March 31, 2005, we made $94,548 of capital expenditures primarily for
plant machinery. This compares to $667,962 of capital expenditures made in the comparable 2004 period
primarily related to our 30,000 square foot warehouse addition at our Alabama production facility.

We anticipate that future capital expenditures will be incurred primarily for the purchase of additional
molds, presses and customer conversion equipment in order to meet increasing demand for our products.
We project additional growth spending of $900,000 for the remaining nine months of 2005. Furthermore,
we believe capital spending to maintain existing machinery and equipment and enhance administrative
operations and processes will approximate $400,000 for the remaining nine months of 2005.

We anticipate the majority of the capital required for these items to be funded through a combination
of operating cash flows and traditional debt financing collateralized by a combination of existing
assets and the new assets being acquired.

Financing Activities. During the three months ended March 31, 2005, we reduced debt by $582,805. During the three-month
period, we refinanced all of our existing bank borrowings into a master debt agreement. This agreement
provides us with increased financial flexibility, lower borrowing rates and an enhanced cash management
process. During the three months ended March 31, 2005, we repaid $571,892 worth of debt related to
bank borrowings, $8,645 worth of debt related to our Alabama facility and $2,268 worth of debt related
to capital lease obligations. In addition, we incurred $43,525 worth of costs associated with our
debt refinancing.

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IPEC currently has in place a revolving credit facility that provides for revolving credit loans in
the maximum principal amount of $3,500,000 outstanding at any given time (the Revolving Credit
Facility), a term loan in the principal amount of $1,500,000 (the Term Loan), a
multi-draw term loan in the maximum principal amount of $1,000,000 (the Multi-Draw Term Loan)
and a letter of credit facility in the maximum principal amount of $1,800,000 that secures IPECs
obligations under the lease of its manufacturing and warehouse facility in Alabama (the Letter
of Credit). The Company has guaranteed IPECs obligation under this facility. The maximum
availability under the Revolving Credit Facility is the lesser of $3,500,000 or the sum of 85% of
the aggregate gross amount of IPECs Qualified Accounts plus 50% of the aggregate gross amount
of its Qualified Inventory, each as defined in the related Loan Agreement. At March 31, 2005, IPEC
had $952,675 outstanding on its Revolving Credit Facility and $1,500,000 on its Term Loan. Remaining
borrowing capacity amounted to $2,970,879, consisting of $1,970,879 on the Revolving Credit Facility
and $1,000,000 under the Multi-Draw Term Loan.

Outstanding borrowings under this credit facility bear interest at the one month LIBOR plus 150 basis
points. The covenants in the Loan Agreement also include the maintenance of certain financial conditions
of IPEC including (i) a minimum Consolidated Tangible Net Worth equal to the sum of (x) $5,049,000
plus (y) 50% of the Consolidated Net Income (excluding net losses) for each completed fiscal quarter
and (ii) a Consolidated Fixed Charge Coverage Ratio of not less than 1.10 to 1.00 at the end of any
fiscal quarter, each as described in the Loan Agreement. As of March 31, 2005, IPEC was in compliance
with all financial covenants.

Related Party Transactions

The Company incurs related party transactions throughout the normal course of its business.

Giordano Construction Company, Inc. (Giordano Construction) entered into an $868,000 construction
agreement with the Company to provide overall management and construction-related services for a
30,000 square foot expansion of the Companys Brewton, Alabama production facility. In connection
with the Alabama Plant Financing discussed in Note 10 to the Companys consolidated financial
statements included in this Report on Form 10-QSB, the Company funded $900,000 into an escrow account.
On May 25, 2004, funds totaling $673,000 were paid to Giordano Construction. In August 2004, the
remaining obligation of the escrow deposit was disbursed to the contractor with the residual escrow
account proceeds of $32,000 returned to the Company for use in general operations. In December 2004,
Giordano Construction was paid $29,000 for cost overruns related to this project.

The Company does not believe there have been significant additional related party transactions from
those disclosed in Note 12 to the Consolidated Financial Statements of the Companys most recent
annual report on Form 10-KSB. See Forward-Looking Statements.

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New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued Statement No. 123(R), Share-Based

Payment (Statement 123(R)). Statement 123(R) revised Statement 123, Accounting

for Stock-Based Compensation (Statement 123), and supersedes APB Opinion
No.
25, Accounting for Stock Issued for Employees, and its related implementation guidance.

Statement 123(R) will require compensation costs related to share-based payment transactions to
be
recognized in the financial statements (with limited exceptions). The amount of compensation
cost
will be measured based on the grant-date fair value of the equity or liability instruments
issued.
Compensation cost will be recognized over the period that an employee provides service
in exchange
for the award.

On April 14, 2005, the SEC adopted a new rule that amends the compliance dates for Statement 123(R).
Under the new rule, the Company is required to adopt Statement 123(R) in the first annual period
beginning after beginning after December 15, 2005. The Company has not yet determined the method
of adoption or the effect of adopting Statement 123(R), and it has not determined whether the adoption
will result in amounts that are similar to the current pro forma disclosures under Statement 123.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB No. 107), Share-Based

Payment, providing guidance on option valuation methods, the accounting for income tax effects

of share-based payment arrangements upon adoption of Statement 123(R), and the disclosures in Management

Discussion and Analysis subsequent to the adoption. The Company will provide SAB No. 107 required

disclosures upon adoption of Statement 123(R) as of January 1, 2006.

In November 2004, the Financial Accounting Standards Board issued Statement No. 151 Inventory

Costs, an amendment of ARB No. 43, Chapter 4, which clarifies the types of costs that should

be expensed rather than capitalized as inventory. Statement No. 151 also clarifies the circumstances

under which fixed overhead costs associated with operating facilities involved in inventory processing

should be capitalized. The provisions of Statement No. 151 are effective for fiscal years beginning

after June 25, 2005 and the Company will adopt this standard as of January 1, 2006. The Company
has
not determined the impact, if any, that Statement No. 151 will have on its results of operations

and financial position.

Off Balance Sheet Arrangements

We are not a party to any off-balance sheet arrangement.

Risk Factors

Set forth below and elsewhere in this report are descriptions of certain risks and uncertainties that
could affect our companys future overall performance as well as cause our actual results to
differ materially from the results contemplated by the forward-looking statements contained in this
report.

VOLATILE PRICING OR SHORTAGE IN RESIN MAY SIGNIFICANTLY AFFECT OUR OPERATING MARGINS

We purchase large volumes of resin in order to conduct our business operations. The cost of resin,
in the aggregate, represents approximately 55% of our total production costs. Resin pricing generally
follows price trends of, and varies with the market conditions for, crude oil and natural gas, which
may be highly volatile and cyclical. Instability in the world markets for petroleum and natural gas
could materially adversely affect the price and timely availability of raw materials. Our results
of operations could be in the future significantly affected by the increases and volatility in these
costs. Increases in the unit price of resin will generally increase our working capital needs, and
can therefore also adversely affect our liquidity and cash flow.

We may not be able to arrange for sources of resin from our regular vendors or alternative sources
in the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation
of certain types or grades of resin purchased from one or more of our suppliers.

To mitigate against the risk of resin price volatility, we generally have cost pass-through arrangements
for resin pricing with our customers. Loss or significant ineffectiveness in these arrangements could
remove stability in our margins and have a material adverse effect on our business, results of operations
and financial condition.

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WE MAY EXPERIENCE CONTINUED PRICING PRESSURES AND CREDIT RISKS DUE TO CONSOLIDATION IN OUR CUSTOMER
ACCOUNTS

We have experienced customer consolidations through mergers and acquisitions in recent years primarily
in our dairy customer base and this trend may continue. We could experience additional customer concentration,
and our results of operations would be increasingly sensitive to changes in the businesses of customers
that represent an increasingly large portion of our sales or any deterioration of their financial
condition. Furthermore, this consolidation has resulted in pricing pressures, as larger customers
often have been able to make greater pricing and other demands on us.

Most of our contracts have ninety-day termination clauses which permit, with proper notification, our
customers to exit their contractual relationship with us without significant penalty. The loss or
significant decrease in business or a change in the procurement practices of any of our major customers
may produce pricing pressures or other circumstances that could have a material adverse effect on
our business, results of operations and financial condition.

WE MAY COMPETE AGAINST EXISTING OR NEW COMPETITORS THAT HAVE FINANCIAL AND OTHER RESOURCES SUBSTANTIALLY
GREATER THAN OURS

We face direct competition in each of our product lines from a number of companies, many of which have
financial and other resources that are substantially greater than ours. We can expect to meet significant
competition from existing competitors with entrenched positions and new competitors with respect
to our existing product lines as well as with respect to new products we might introduce. The market
has decreased historical pricing levels of our products, and this trend has accelerated during recent
years.

In addition, the dairy closure market in the United States is significantly controlled by one primary
competitor. This competitor is substantially larger than us and could have better access to capital
markets and other financial resources than we do.

POTENTIAL FUTURE ACQUISITIONS AND/OR JOINT VENTURES MAY NOT RESULT IN EXPECTED SYNERGIES OR OTHER LONG-TERM
BENEFITS

We continuously seek opportunities to generate value through business combinations, purchases and sales
of assets and contractual arrangements or joint ventures. Any identified transactions would be intended
to result in the realization of synergies, the creation of efficiencies or the generation of cash
to reduce debt. To the extent permitted under our credit facilities and other debt agreements, some
of these transactions may be financed with additional borrowings by us or by the issuance of equity
securities or other securities convertible into equity securities. Although these transactions would
be expected to yield longer-term benefits if the expected efficiencies and synergies of the transactions
are realized, they could adversely affect our results of operations in the short term because of
the costs and possible business disruptions associated with such transactions, and there can be no
assurance that the expected efficiencies and synergies will be realized in the longer term.

Acquisitions may also cause us to:

| | Issue common stock or other equity or debt securities that would dilute our current shareholders
percentage ownership;                                       
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                               
| | Assume liabilities;                                                                                                                                           
|  |                                                                                                                                                               
| | Record goodwill and non-amortizable intangible assets that will be subject to impairment testing on
a regular basis and potential periodic impairment charges;
|  |                                                                                                                                                               
| | Incur amortization expenses related to certain intangible assets;                                                                                             
|  |                                                                                                                                                               
| | Incur large and immediate write-offs and restructuring and other related expenses; or                                                                         
|  |                                                                                                                                                               
| | Become subject to litigation.                                                                                                                                 

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WE MAY BE SUBJECT TO UNINSURED OPERATING CONDITIONS THAT MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION

Although we take precautions to enhance the safety of our operations and minimize the risk of disruptions,
we are subject to certain production hazards. These hazards include: explosions; fires; severe weather
and natural disasters; mechanical failures; unscheduled downtimes; labor difficulties; transportation
interruptions; environmental risks; and potential terrorists acts. Some of these hazards can cause
personal injury and loss of life, severe damage to or destruction of property and equipment and environmental
damage, and may result in suspension of operations and imposition of civil or criminal penalties.

Furthermore, we are also subject to present and future claims with respect to workplace exposure, workers
compensation and other matters. We maintain property, business interruption and casualty insurance,
which we believe are in accordance with customary industry practices, but we are not fully insured
against all potential hazards incident to our business, including losses resulting from war risks
or terrorist acts. As a result of market conditions, premiums and deductibles for certain insurance
policies can increase substantially and, in some instances, certain insurance may become unavailable
or available only for reduced amounts of coverage. If we were to incur a significant liability for
which we were not fully insured, it could have a material adverse effect on our financial condition.

ADVERSE WEATHER CONDITIONS COULD ADVERSELY IMPACT OUR FINANCIAL RESULTS

Weather conditions in the United States can have a significant impact on our water closure sales. Unusually
cool temperatures during a hot weather season in one or more of our markets have adversely affected,
and could again adversely affect, sales of our products in those markets.

OUR OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, WHICH MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION

We expect to experience fluctuations in our future operating results that may be caused by many factors,
including:

| | Our ability to maintain appropriate inventory levels and purchase commitments;                                                                                                                                                                                                                    
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                   
| | Fluctuations in demand for our products and services, such as has occurred in the last two years;                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                   
| | Price and product competition in the dairy closure industry, which can change rapidly due to the competitive
landscape;                                                                                                                                                                           
|  |                                                                                                                                                                                                                                                                                                   
| | The overall trend toward industry consolidation among our customers;                                                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                   
| | Variations in sales channels, product costs, or mix of products sold;                                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                                                   
| | The timing and size of orders from customers;                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                   
| | Manufacturing lead times;                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                   
| | Fluctuations in our gross margins and the factors that contribute to this;                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                   
| | Our ability to achieve targeted cost reductions;                                                                                                                                                                                                                                                  
|  |                                                                                                                                                                                                                                                                                                   
| | Actual events, circumstances, outcomes, and amounts differing from judgments, assumptions, and estimates
used in determining the values of certain assets (including the amounts or related valuation allowances),
liabilities and other items reflected in our consolidated financial statements;
|  |                                                                                                                                                                                                                                                                                                   
| | How well we execute on our strategy and operating plans; and                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                   
| | Changes in accounting rules, such as recording expenses for employee stock option grants.                                                                                                                                                                                                         

As a consequence, operating results for a particular future period are difficult to predict, and therefore,
prior results are not necessarily indicative of results to be expected in future periods. Any of
the foregoing factors, or any other factors discussed elsewhere in this report, could have a material
adverse effect on our business, results of operations, and financial condition.

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OUR STOCK PRICE MAY CONTINUE TO BE VOLATIVE WITH LOW TRADING VOLUME

Our common stock has experienced substantial price volatility, primarily due to a combination of low
trading volumes and volatile earnings in recent years. Our common stock is currently traded through
the Over-the-Counter Bulletin Board with minimal, if any, volume exchanging hands on a daily basis.
While we expect that trading volume in our stock will improve over time as, among other items, i)
we have commenced work with an investor relations firm to create retail and institutional investor
awareness of an exposure in our common stock and ii) we intend to seek to list our common stock on
the American Stock Exchange, there can be no assurance these events will occur or that if they do
occur, that they will result in increased liquidity in our stock. Additionally, volatility or a lack
of positive performance in our stock price may adversely affect our ability to retain key employees
that are frequently compensated in part based on the performance of our stock price. Furthermore,
the lack of liquidity in our stock may put us at a disadvantage in constructing future acquisition
financing packages.

OUR BUSINESS MODEL SUBSTANTIALLY DEPENDS UPON THE CONTINUED GROWTH AND ACCEPTANCE IN THE GENERAL MARKETPLACE
OF BOTTLED WATER AND MILK PACKAGED IN PLASTIC UNITS

A substantial portion of our business and revenue depends on growth and acceptance of bottled water
and milk products packaged in plastic and on the related demand for our products by customers that
depend on the continued growth of these markets. To the extent that an event or condition would cause
a market shift away from either i) the core bottled water or milk beverage markets or ii) plastic
packaging units, this would adversely affect spending on our product lines and likely cause us to
experience material adverse effects on our business, operating results, and financial condition.

In response to paradigm shifts in industry and market conditions, we may be required to strategically
realign our resources and consider restructuring, disposing of, or otherwise exiting businesses.
Any decision to limit investment in or dispose of or otherwise exit businesses may result in the
recording of special charges, such as inventory and other write-offs, workforce reduction costs or
charges relating to the consolidation of excess facilities.

WE DEPEND UPON KEY PERSONNEL

We have two principal shareholders that own approximately 81% of our common stock and serve in the
capacities of president, secretary, treasurer and directors of our company. We believe that our future
success depends upon their knowledge, ability and experience coupled with that of other senior executive
management. The loss of key personnel responsible for managing our company could adversely affect
our business and financial condition.

WE MAY NOT BE ABLE TO SERVICE OUR DEBT OR STAY IN COMPLIANCE WITH OUR FINANCIAL COVENANTS

Our ability to satisfy our obligations will depend on our future operating performance and financial
results, which will be subject, in part, to factors beyond our control, such as interest rates and
general economic, financial and business conditions. If we are unable to generate sufficient cash
flow to service our debt, we may be required to:

| |  | refinance all or a portion of our debt;  
| | - | -----------------------------------------
| |   |                                          
| |  | obtain additional funding;               
| |   |                                          
| |  | sell certain of our assets or operations;
| |   |                                          
| |  | reduce or delay capital expenditures; or 
| |   |                                          
| |  | revise or delay our strategic plans      

If we are required to take any of these actions, it could have a material adverse effect on our business,
financial condition and results of operations. In addition, we cannot assure you that we would be
able to take any of these actions, that these actions would enable us to continue to satisfy our
capital requirements or that these actions would be permitted under the terms of our various debt
instruments.

26

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Our primary lender, among other items, requires us to comply with certain financial covenants and other
restrictions. Adverse changes in our operating results or other adverse factors could result in our
being unable to comply with these financial covenants. If we violate these covenants and are unable
to obtain waivers from our lender, we would be in default under these agreements and our lender could
accelerate our obligations thereunder. If our indebtedness is accelerated, we may not be able to
repay our debt or borrow sufficient funds to refinance it. Even if we are able to obtain new financing,
it may not be on commercially reasonable terms, or terms that are acceptable to us. If our expectations
of future operating results are not achieved, or our debt is in default for any reason, our business,
financial condition and results of operations would be materially and adversely affected. In addition,
complying with these covenants may make it more difficult for us to successfully execute our business
strategy and compete against companies who are not subject to such restrictions.

In addition, we have a $1,800,000 secured letter of credit related to our Alabama plant financing.
The letter of credit is renewable annually at the election of the lender. If the financial markets
did not permit us to renew this letter of credit on an annual basis, our lessor could draw upon the
letter of credit prior to its expiration and its issuer could require us to make an immediate payment
of $1,800,000. If such payment is required, it is possible that we may not have either adequate funds
to make such payment or the option to make payment without triggering a default under other outstanding
debt agreements.

OUR PROPRIETARY RIGHTS MAY PROVE DIFFICULT TO ENFORCE

We generally rely on patents, unregistered copyrights, unregistered trademarks, and trade secret laws
to establish and maintain proprietary rights in our technology and products. While we have been issued
a number of patents and other patent applications are currently pending, there can be no assurance
that any of these patents will not be challenged, invalidated, or circumvented, or that any rights
granted under these patents will in fact provide competitive advantages to us. In addition, there
can be no assurance that patents will be issued from pending or any future applications, or that
claims allowed on any patents will be sufficiently broad to protect our technology. In addition,
the laws of some foreign countries may not protect our proprietary rights to the same extent as do
the laws of the United States. The outcome of any actions taken in these foreign countries may be
different than if such actions were determined under the laws of the United States.

WE MAY BE FOUND TO INFRINGE ON INTELLECTUAL PROPERTY RIGHTS OF OTHERS

Third parties, including customers, have in the past and may in the future assert claims or initiate
litigation related to exclusive patent, copyright, trademark and other intellectual property rights
to technologies and related standards that are relevant to us. Regardless of the merit of these claims,
they can be time-consuming, result in costly litigation and diversion of technical and management
personnel, or require us to develop a non-infringing technology or enter into license agreements.
Where claims are made by customers, resistance even to unmeritorious claims could damage customer
relationships. There can be no assurance that licenses would be available on acceptable terms and
conditions, if at all, in all such circumstances. Furthermore, because of the potential for high
court awards which are not necessarily predictable, it is not unusual to find even arguably unmeritorious
claims settled for significant funds. If any infringement or other intellectual property claim made
against us by any third party is successful, of if we fail to develop non-infringing technology or
license the proprietary rights on commercially reasonable terms and conditions, our business, operating
results and financial condition could be materially and adversely affected.

Our exposure to risks associated with the use of intellectual property may be increased as a result
of any acquisitions we may complete, as we would likely have less knowledge of the development process
with respect to acquired technology or the care taken to safeguard against infringement risks.

IF WE DO NOT SUCCESSFULLY MANAGE OUR STRATEGIC ALLIANCES, WE MAY EXPERIENCE INCREASED COMPETITION OR
DELAYS IN PRODUCT DEVELOPMENT

We have several strategic alliances with other companies with whom we work to offer complementary products
and services. These arrangements are generally limited to specific projects, the goal of which is
generally to either supplement our product line portfolio or facilitate product compatibility and
adoption of industry standards. If successful, these relationships may be mutually beneficial and
result in revenue growth. However, these alliances carry an element of risk because, in most cases,
we must compete in some business areas with a company with which we have a strategic alliance and,
at the same time, cooperate or compete with that company in another business area.

With respect to strategic alliances with whom we compete in another business area, it is possible that
through our relationship they will develop a substantial amount of knowledge about that particular
area or other areas of our business and in the future utilize such knowledge to detrimentally affect
us through new product offerings or competing products. Also, if these companies fail to perform
or if these relationships fail to materialize as expected, we could suffer delays in product development
or other operational difficulties.

27

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OUR BUSINESS AND OPERATIONS ARE ESPECIALLY SUBJECT TO THE RISKS OF FLOODS, HURRICANES AND OTHER NATURAL
CATASROPHIC EVENTS

Our Brewton, Alabama manufacturing facility is located near an area that has experienced recent flooding
and intense hurricane activity. A significant natural disaster, such as a flood or hurricane could
have a material adverse impact on our business, operating results, and financial condition.

CHANGES IN EFFECTIVE TAX RATES OR ADVERSE OUTCOMES RESULTING FROM EXAMINATION OF OUR INCOME TAX RETURNS
COULD ADVERSELY AFFECT OUR RESULTS

Our future effective tax rates could be adversely affected and drive our earnings lower than anticipated.
Such changes could be driven by a variety of circumstances including i) a revision in our state apportionment
factors which could adversely affect our existing deferred tax assets and liabilities as well as
future provisional expense, ii) any requirement to file tax returns in states where we currently
do not believe such requirements exists or iii) changes in tax laws or interpretations thereof. In
addition, we are subject to normal examination of our income tax returns by the Internal Revenue
Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting
from these examinations to determine the adequacy of our provision for income taxes. There can be
no assurance that the outcomes from these examinations will not have an adverse effect on our operating
results and financial condition.

WE ARE EXPOSED TO THE CREDIT RISK OF SOME OF OUR CUSTOMERS AND TO CREDIT EXPOSURES IN WEAKENED MARKETS,
WHICH COULD RESULT IN MATERIAL LOSSES

Most of our sales are on an open credit basis, with typical payment terms of 30 days in the United
States, and, because of local customs or conditions, longer in some markets outside the United States.
We monitor individual customer payment capability in granting such open credit arrangements, seek
to limit such open credit to amounts we believe the customers can pay, and maintain reserves we believe
are adequate to cover exposure for doubtful accounts.

Although we have programs in place that are designed to monitor and mitigate the associated risk, including
monitoring of particular risk in certain geographic areas, there can be no assurance that such programs
will be effective in reducing our credit risks. There exists a significant number of bankruptcies
among our customer base, particularly among start-up bottled water companies due to the low capital
and informational barriers to entry coupled with attractive market growth trends for the industry.
There can be no assurance that additional losses will not be incurred. Although these losses have
not been material to date, future losses, if incurred, could harm our business and have a material
adverse effect on our operating results and financial condition.

PRODUCT QUALITY PROBLEMS COULD LEAD TO REDUCED REVENUE, GROSS MARGINS AND NET INCOME

We produce injection-molded parts that must hold liquid. Defects in our products can cause the customer
significant downtime and have detrimental margin effects on their entire operations. There can be
no assurance that our pre-shipment testing programs will be adequate to detect all defects, which
might interfere with customer satisfaction, reduce sales opportunities, or affect gross margins.
While the cost of recalls and remediation has not been material in the past, there can be no assurance
that a recall or remediation, depending on the product involved, would not have a material impact.
An inability to cure a product defect could result in failure of a product line, temporary or permanent
withdrawal from a product or market segment, damage to our reputation, inventory costs, or product
reengineering expenses, any of which could have a material negative impact on our business, operating
results and financial condition.

OUR REVENUE FOR A PARTICULAR PERIOD IS DIFFICULT TO PREDICT, AND A SHORTFALL IN REVENUE MAY HARM OUR
OPERATING RESULTS

As a result of a variety of factors discussed in this report including the unpredictable nature of
inventory build months for our seasonal customer base, our revenue for a particular quarter is difficult
to predict. Our net sales may grow at a slower rate than in the past periods and, in particular periods,
may decline. Our ability to meet financial expectations could also be adversely affected if the nonlinear
sales pattern seen in some of our past quarters recurs in future periods. We have experienced periods
of time during which shipments exceeded net bookings, leading to nonlinearity in shipping patterns.
This can increase costs, as irregular shipment patterns result in periods of underutilized capacity
and periods when overtime expenses may be incurred, as well as leading to additional costs arising
out of inventory management.

28

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In addition, to improve customer satisfaction, we continue to attempt to reduce our manufacturing lead
times, which may result in corresponding reductions in order backlog. A decline in backlog levels
could result in more variability and less predictability in our quarter-to-quarter net sales and
operating results.

ITEM 3. CONTROLS AND PROCEDURES

Based on our managements evaluation (with the participation of our principal executive officer
and principal financial officer), as of the end of the period covered by this report, our principal
executive officer and principal financial officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended, (the Exchange Act)) are effective to ensure that information required to
be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission rules
and forms. During the quarter ended March 31, 2005, there were no changes in our internal control
over financial reporting that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

PART II         OTHER INFORMATION

|Item 1. | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
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|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | We are not a party to any pending legal proceedings, other than routine litigation deemed incidental to our business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | Since our inception, no cash dividends have been declared on our common stock. Our Revolving Credit and Loan Agreement (Loan Agreement) with Citizens Bank prohibits our subsidiary, IPEC, from making dividend distributions or repurchasing its capital stock if we are in an Event of Default, as defined in the Loan Agreement, or after giving effect to such distribution we would be in an Event of Default.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Item 3. | Defaults Upon Senior Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Item 4. | Submission of Matters to a Vote of Security Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | None.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|Item 5. | Other Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | (a)(i)  On March 18, 2005, the Compensation and Management Development Committee (the Compensation Committee) of the Companys Board of Directors determined to retain the policy in effect for the 2004 fiscal year with respect to compensation of directors of the Company in the 2005 fiscal year. A description of the material terms of the Companys current compensation policy for members of its Board of Directors is included as Exhibit 10.7 to this Report on Form 10-QSB.                                                                                                                                                                                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | (ii)  On May 11, 2005, the Company issued a press release announcing its financial results for the three-month period ended March 31, 2005. In lieu of filing a Current Report on Form 8-K under Items 2.02 and 9.01, the Company has attached a copy of the press release hereto as Exhibit 99.1, and such press release is incorporated herein by reference. The information included in Exhibit 99.1 hereto and contained in this Item 5(a)(ii) of this Report on Form 10-QSB shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that Section,
or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly incorporated by specific reference in such a filing.

29

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|Item 6. | Exhibits                                                                                                                                  
|------- | ------------------------------------------------------------------------------------------------------------------------------------------
|        |                                                                                                                                           
|        | The exhibits listed in the Index to Exhibits are incorporated herein by reference as the list of exhibits
required as part of this report.

SIGNATURES

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

|                    | IPEC HOLDINGS INC.
|------------------- | ------------------
|                    |                   
|Date:  May 12, 2005 | By:               
|                    |                   
|                    |                   

**EXHIBIT INDEX**

|Exhibit 
    Number | Description of Exhibit (1)                                                                                                                                                                                                                                                         
|------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                    |                                                                                                                                                                                                                                                                                    
|2.1                 | Share Exchange Agreement between Golden Hole, Inc. and International Plastics and Equipment Corp. dated January 14, 2002 (incorporated by reference to Exhibit 2.1 to the registrants Current Report on Form 8-K/A dated March 18, 2002).                                         
|                    |                                                                                                                                                                                                                                                                                    
|3.1                 | Restated Articles of Incorporation of IPEC Holdings Inc. (incorporated by reference to Exhibit 3.1 to the registrants Current Report on Form 8-K dated April 15, 2002).                                                                                                           
|                    |                                                                                                                                                                                                                                                                                    
|3.2                 | Bylaws of IPEC Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the registrants Current Report on Form 8-K dated April 15, 2002).                                                                                                                                      
|                    |                                                                                                                                                                                                                                                                                    
|10.1                | Revolving Credit and Term Loan Agreement dated February 18, 2005 by and between International Plastics and Equipment Corp. and Citizens Bank of Pennsylvania (incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form 8-K filed on February 25, 2005).
|                    |                                                                                                                                                                                                                                                                                    
|10.2                | Revolving Credit Note dated February 18, 2005 made by International Plastics and Equipment Corp. in favor of Citizens Bank of Pennsylvania (incorporated by reference to Exhibit 10.2 to the registrants Current Report on Form 8-K filed on February 25, 2005).                  
|                    |                                                                                                                                                                                                                                                                                    
|10.3                | Term Note dated February 18, 2005 made by International Plastics and Equipment Corp. in favor of Citizens Bank of Pennsylvania (incorporated by reference to Exhibit 10.3 to the registrants Current Report on Form 8-K filed on February 25, 2005).                              
|                    |                                                                                                                                                                                                                                                                                    
|10.4                | Multi-Draw Term Note dated February 18, 2005 made by International Plastics and Equipment Corp. in favor of Citizens Bank of Pennsylvania (incorporated by reference to Exhibit 10.4 to the registrants Current Report on Form 8-K filed on February 25, 2005).                   
|                    |                                                                                                                                                                                                                                                                                    
|10.5                | Security Agreement dated February 18, 2005 by and between International Plastics and Equipment Corp. and Citizens Bank of Pennsylvania (incorporated by reference to Exhibit 10.5 to the registrants Current Report on Form 8-K filed on February 25, 2005).                      
|                    |                                                                                                                                                                                                                                                                                    

30

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|Exhibit 
      Number | Description of Exhibit (1)                                                                                                                                                                                                                           
|--------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |                                                                                                                                                                                                                                                      
|10.6                  | Guaranty and Suretyship Agreement dated February 18, 2005 made by IPEC Holdings Inc. in favor of Citizens Bank of Pennsylvania (incorporated by reference to Exhibit 10.6 to the registrants Current Report on Form 8-K filed on February 25, 2005).
|                      |                                                                                                                                                                                                                                                      
|10.7                  | Summary of Director Compensation effective January 1, 2005                                                                                                                                                                                           
|                      |                                                                                                                                                                                                                                                      
|10.8*                 | Summary of Annual Base Salaries for Executive Officers for 2005 Fiscal Year.                                                                                                                                                                         
|                      |                                                                                                                                                                                                                                                      
|10.9*                 | Summary of Supplemental Insurance for Executive Officers.                                                                                                                                                                                            
|                      |                                                                                                                                                                                                                                                      
|31.1                  | Rule 13a-14(a) Certification of Chief Executive Officer.                                                                                                                                                                                             
|                      |                                                                                                                                                                                                                                                      
|31.2                  | Rule 13a-14(a) Certification of Chief Financial Officer.                                                                                                                                                                                             
|                      |                                                                                                                                                                                                                                                      
|32.1                  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, of the Chief Executive Officer.                                                                                              
|                      |                                                                                                                                                                                                                                                      
|32.2                  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2003, of the Chief Financial Officer.                                                                                              
|                      |                                                                                                                                                                                                                                                      
|99.1                  | Press Release of IPEC Holdings Inc. dated May 11, 2005.                                                                                                                                                                                              
|                      |                                                                                                                                                                                                                                                      

* Indicates management contract or compensatory plan or arrangement.

(1)  In the case of incorporation by reference to documents filed by the registrant under
the Securities Exchange Act of 1934, as amended, the registrants file number under the Exchange
Act is 000-30721.

31

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