Jpak Group, Inc. - FORM 10-Q/A

Attached files

file	filename
EX-32.1 - CERTIFICATION - Jpak Group, Inc.	ex32one.htm
EX-31.1 - CERTIFICATION - Jpak Group, Inc.	ex31one.htm
EX-31.2 - CERTIFICATION - Jpak Group, Inc.	ex31two.htm
EX-32.2 - CERTIFICATION - Jpak Group, Inc.	ex32two.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number

Jpak Group, Inc.

(Exact name of registrant as specified in its charter)

Nevada		20-1977020
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

15 Xinghua Road, Qingdao, Shandong Province

People’s Republic of China 266401

(Address of principal executive offices (zip code))

(86-532) 84616387

(Issuer's telephone number)

(Former address)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)

Large Accelerated Filer	o	Accelerated Filer	o
Non-accelerated filer	o	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes o No þ

As of November 11, 2011 there were 36,368,344 shares of the issuer's common stock, par value $.001 per share, outstanding. The issuer also has 5,608,564 shares of Series A Preferred Stock, par value $.0001 per share, outstanding, which shares are convertible into on aggregate of 11,217,128 shares of common stock, and 5,000,000 shares of Series B Convertible Preferred Stock, par value $.0001 per share outstanding, which shares are convertible into an aggregate of 8,333,333 shares of common stock, 12,000,000 shares of Series C Convertible Preferred Stock, par value $0.0001 per share outstanding, which shares are convertible into an aggregate of 12,000,000 shares of common stock.

Explanatory Note

We are filing this Form 10-Q/A for the period ended September 30, 2011 (“Amended Report”) pursuant to comments from the Securities and Exchange Commission, dated January 5, 2012 regarding the acquisition of Qingdao Jiexin Recycling Resources Technological Developments Co., Ltd. The only change to the original Form 10-Q filed on November 14, 2011 (“Original Report”), is reflected in paragraph 5 of Note 1 – Organization and Nature of Business of the Financial Statements. This Amended Report does not reflect events occurring after the filing of the Original Report, nor does it modify or update those disclosures presented therein, except with regard to the modifications described in this Explanatory Note. As such, this Amended Report continues to speak as of November 14, 2011. Accordingly, this Amended Report should be read in conjunction with the Original Report and our other reports filed with the SEC subsequent to the filing of our Original Report, including any amendments to those filings.

In addition, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as a result of this Amended Report, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively, as exhibits to the Original Report have been re-executed and re-filed as of the date of this Amended Report and are included as exhibits hereto.

PART I – FINANCIAL INFORMATION

Consolidated Balance Sheets

	September 30,		June 30,
	2011		2011
Assets	(Unaudited)
Current assets:
Cash and cash equivalents	$	1,209,311	$	5,574,130
Restricted cash		20,747,726		12,904,460
Accounts receivable, net of allowance for doubtful accounts of $1,355,071		20,057,214		14,369,228
and $1,339,485 at September 30, 2011 and June 30, 2011, respectively
Inventory		12,550,906		10,655,991
Trade notes receivable		148,675		30,940
Other receivables		166,319		627,444
Advance payments		928,103		773,833
Prepaid expenses and other current assets		242,330		515,229
Total current assets		56,050,584		45,451,255

Property and equipment, net		23,208,633		18,706,975

Other noncurrent assets:
Advance payments – non current		734,451		592,489
Intangible assets, net		3,155,027		3,134,678
Deferred loss on sales of assets		2,271,671		2,302,922
Prepaid expenses		1,144,902		1,111,259

Total assets	$	86,565,268	$	71,299,578

Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	10,487,134	$	5,402,866
Trade notes payable		20,695,883		12,513,972
Short-term bank loans		3,130,000		3,094,000
Current portion of long-term debt		3,701,047		3,899,818
Income tax payable		92,024		9,986
Other current liabilities		244,044		116,110
Total current liabilities		38,350,132		25,036,752
Long-term debt		10,735,611		9,883,005
Total liabilities		49,085,743		34,919,757

Equity
Stockholders’ equity:
Series A convertible preferred stock, $0.0001 par value, 5,608,564
shares authorized, issued and outstanding		561		561
Series B convertible preferred stock, $0.0001 par value, 5,000,000
shares authorized, issued and outstanding		500		500
Series C convertible preferred stock, $0.0001 par value, 12,000,000
shares authorized, issued and outstanding		1,200		1,200
Common stock, $0.001 par value, 300,000,000 shares authorized,
36,368,334 shares issued and outstanding at September 30, 2011
and June 30, 2011, respectively		36,368		36,368
Series A preferred stock		2,484,226		2,484,226
Series B preferred stock		1,390,853		1,390,853
Additional paid-in capital		23,903,645		23,903,645
Retained earnings		2,932,161		2,252,319
Statutory reserves		1,826,236		1,826,236
Accumulated other comprehensive income		4,792,949		4,374,319
Total stockholders’ equity		37,368,699		36,270,227
Noncontrolling interest		110,826		109,594
Total equity		37,479,525		36,379,821

Total liabilities and equity	$	86,565,268	$	71,299,578

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

JPAK GROUP, INC.

Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended
	September 30,
	2011			2010

Sales	$	24,357,736		$	16,185,647

Cost of sales		21,514,314			12,625,157

Gross profit		2,843,422			3,560,490

Operating expenses
Selling, general and administrative		2,220,766			2,232,495

Income from operations		622,656			1,327,995

Other income (expenses):
Interest Income		44,919			27,705
Interest expense		(176,378	)		(178,441	)
Non-operating income, net		280,438			(12,567	)

Total other income (expenses)		148,979			(163,303	)

Income before provision for income taxes		771,635			1,164,692

Provision for income taxes		91,836			187,436

Net income		679,799			977,256

Less: net loss attributable to noncontrolling interest		(43	)		(44	)

Net income attributable to Jpak Group, Inc.		679,842			977,300

Undistributed income attributable to preferred stockholders		315,809			453,987

Net income attributable to common stockholders	$	364,033		$	523,313

Basic earnings per common share	$	0.01		$	0.01
Diluted earnings per common share	$	0.01		$	0.01

Weighted average number of common shares outstanding
Basic		36,368,334			36,368,334
Diluted		67,918,795			67,918,795

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

Consolidated Statements of Comprehensive Income

(Unaudited)

	For the Three Months Ended
	September 30,
	2011		2010

Net income	$	679,799	$	997,256

Other comprehensive income
Foreign currency translation adjustment		419,905		521,161

Total other comprehensive income		419,905		521,161

Comprehensive income		1,099,704		1,498,417

Less: comprehensive income attributable to the
noncontrolling interest		1,232		1,671

Comprehensive income attributable to Jpak Group, Inc.	$	1,098,472	$	1,496,746

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

Consolidated Statements of Cash Flows

(Unaudited)

	For the Three Months Ended
	September 30,
	2011			2010

Cash flows from operating activities:
Net income	$	679,799		$	977,256
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization		410,334			341,021
Loss on disposal of fixed assets		28,960			9,165
Non-cash payments of rent		-			28,911
Gain on acquisition of a subsidiary - Jiexin		(206,291	)
Changes in assets and liabilities:
Accounts receivable		(4,962,007	)		(626,169	)
Inventory		(927,460	)		(512,655	)
Trade notes receivable		(117,135	)		122,841
Other receivables		(17,483	)		(736,665	)
Advance payments		(80,462	)		337,004
Prepaid expenses and other current assets		286,019			(247,447	)
Accounts payable and accrued expenses		4,956,403			1,460,432
Income tax payable		81,754			59,749
Other current liabilities		(293,891	)		(5,628	)
Total adjustments		(841,259	)		230,559

Net cash provided by (used in) operating activities		(161,460	)		1,207,815

Cash flows from investing activities:
Advance payments for fixed assets		(134,792	)		(130,326	)
Additions to property and equipment		(4,215,193	)		(1,023,164	)
Proceeds from disposal of fixed assets		-			5,802
Acquisition of intangible assets – land use rights		-			(3,032,962	)
Acquisition of a subsidiary - Jiexin, net of cash		(757,888	)		-

Net cash used in investing activities		(5,107,873	)		(4,180,650	)

Cash flows from financing activities:
Restricted cash		(7,677,387	)		953,888
Issuance (repayment) of trade notes payable		8,019,874			(1,465,474	)
Proceeds from long-term debt		492,457			67,999

Net cash provided by (used in) financing activities		834,944			(443,587	)

Effect of foreign currency translation on cash		69,570			24,169

Net decrease in cash and cash equivalents		(4,364,819	)		(3,392,253	)

Cash and cash equivalents – beginning		5,574,130			6,221,273

Cash and cash equivalents – ending	$	1,209,311		$	2,829,020

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

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Organization and Nature of Business

JPAK Group, Inc. (Formerly Rx Staffing Inc.), a public shell company as defined in Rule 12b-2 of the Exchange Act of 1934, was established under the laws of Nevada on December 6, 2004. The accompanying consolidated financial statements include the financial statements of JPAK Group, Inc. and its subsidiaries (the “Company”). The Company’s primary business is to print and produce packaging products for sale to the beverage and other industries.

On August 9, 2007, Rx Staffing Inc. (“Rx Staffing”) completed a reverse acquisition of JPAK Group Co., Ltd., (“JPAK Co.”) which was incorporated in the Cayman Islands on June 22, 2006. To accomplish the exchange of shares Rx Staffing issued 23,005,000 shares of common stock on a one to one ratio for a 100% equity interest in JPAK Co., per the terms of the Share Exchange and Bill of Sale of assets of Rx Staffing and Shaun Jones. Rx Staffing was delivered with zero assets and zero liabilities at time of closing. Following the reverse acquisition, Rx Staffing changed the name to JPAK Group, Inc. (“JPAK”). The transaction was regarded as a reverse merger whereby JPAK Co. was considered to be the accounting acquirer as its shareholders retained control of RX Staffing after the exchange. Although the Company is the legal parent company, the share exchange was treated as a recapitalization of JPAK Co.. Thus, JPAK Co. is the continuing entity for financial reporting purposes. The financial statements have been prepared as if JPAK Co. had always been the reporting company and then on the share exchange date, had changed its name and reorganized its capital stock.

In September 2006, JPAK Co. acquired 100% interest in Grand International Industrial Ltd. which was incorporated on August 4, 2006, in the city of Hong Kong, the People’s Republic of China (“PRC”). In August 2006, Grand International acquired 88.23% interest in Qingdao Renmin, which was incorporated in May 2001 in the city of Qingdao, the People’s Republic of China. On July 3, 2007, Grand International acquired the remaining 11.77% interest in Qingdao Renmin. The consolidated financial statements reflect all predecessor statements of income and cash flows from the inception of Qingdao Renmin in August 2006. In October 2007, Qingdao Renmin invested in Qingdao Delikang Packing Machinery Co., Ltd., (“Qingdao Delikang”), a joint venture with Xi’an Heiniu Machinery, Co. Qingdao Renmin acquired 51% interest of Qingdao Delikang.

On January 11, 2010, Qingdao Likang Packaging Co. Ltd (“Qingdao Likang”), a wholly-owned subsidiary of Grand International, was registered in Qingdao with a capital commitment of $13.5 million. As of September 30, 2010, approximately $7.1 million or 52.6% of total registered capital has been invested and the remaining $6.4 million of the registered capital will be invested within two years since the registration. Grand International is allowed to use the capital raised or the profit generated by Qingdao Renmin for this capital investment.

Qingdao Jiexin Recycling Resources Technological Development Co., Ltd. (“Qingdao Jiexin”) was established on August 29, 2008, in the city of Qingdao, PRC. On July 20, 2011, Qingdao Renmin contributed RMB 5,000,000 (approximately $773,500) and acquired 100% interest in Qingdao Jiexin. As a result, Qingdao Jiexin became a wholly-owned subsidiary of Qingdao Renmin. The fair value of the identifiable assets acquired and liabilities assumed of $979,791 exceeded the fair value of the purchase price of the business of $773,500. As a result, the Company reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that the valuation procedures and resulting measures were appropriate. Accordingly, the Company recognized a gain of $206,291 associated with the acquisition. The gain is included in the line item “Non-operating income” in the Consolidated Statements of Operations for the three months ended September 30, 2011. For the three months ended September 30, 2011, the Company consolidated the financial statements of Qingdao Jiexin and eliminated the intercompany transactions, including the RMB 5,000,000 (approximately $773,500) investment in Qingdao Jiexin.

Substantially all of the Company’s business is conducted through Qingdao Renmin, an operating subsidiary established in the Peoples Republic of China, in which the Company indirectly holds a 100% interest.

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 2 – Summary of Significant Accounting Policies

Basis Of Presentation

The Company’s consolidated financial statements include the accounts of its controlled subsidiaries. All intercompany balances and transactions are eliminated in consolidation. The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applicable to interim financial information and the requirements of Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included.

In preparing the accompanying unaudited consolidated financial statements, we evaluated the period from September 30, 2011 through the date the financial statements were issued, for material subsequent events requiring recognition or disclosure. No such events were identified for this period.

Interim Financial Statements

These consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements for the years ended June 30, 2011 and 2010, as not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements for the years ended June 30, 2011 and 2010.

Note 3– Restricted Cash

As of September 30, 2011 and June 30, 2011, the Company had restricted cash of $20,747,726 and $12,904,460, respectively. These restricted cash balances are reserved for settlement of trade notes payable and open letter of credit in connection with inventory purchases. The cash held in custody by bank issuing the trade notes payable and letter of credit is restricted as to withdrawal or use, and is currently earning interest.

Note 4– Accounts Receivable

Trade accounts receivable are stated at original invoice amount less allowance for doubtful receivables based on management’s periodic review of aging of outstanding balances and customer credit history. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The balance of allowance for doubtful accounts amounted to $1,355,071 and $1,339,485 as of September 30, 2011 and June 30, 2011, respectively. The allowance was mainly made for a customer currently under bankruptcy restructuring and we estimate that chances to recover the outstanding allowance balance from this customer are remote.

Note 5 – Inventory

Inventory, consisting of material, labor, and manufacturing overhead, as of September 30, 2011 and June 30, 2011 consists of the following:

	September 30, 2011		June 30, 2011

Raw materials	$	9,221,165	$	8,423,431
Work in process		1,196,045		675,738
Finished goods		1,773,387		1,296,126
Parts and supplies		360,309		260,696

Total	$	12,550,906	$	10,655,991

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 6 – Advance Payments

Advance payments as of September 30, 2011and June 30, 2011 consist of the following:

	September 30, 2011		June 30, 2011

Advance payments for inventory	$	928,103	$	773,833
Advance payments for equipment		734,451		592,489

Total	$	1,662,554	$	1,366,322

Note 7 – Property and Equipment

Property and equipment as of September 30, 2011 and June 30, 2011 consist of the following:

	September 30, 2011		June 30, 2011

Buildings	$	4,352,613	$	4,928,620
Machinery and equipment		16,305,257		14,435,629
Machinery—capital lease		3,208,250		3,370,395
Subtotal		23,866,120		22,734,644
Less: Accumulated depreciation		11,660,730		11,040,592
		12,205,390		11,694,052
Add: Construction in progress		11,003,243		7,012,923

Total	$	23,208,633	$	18,706,975

Depreciation expenses for the three months ended September 30, 2011 and 2010 were $394,242 and $335,880, respectively. For the three months ended September 30, 2011, amortization of machinery and equipment under capital lease included in depreciation expense was $57,927.

Note 8 – Intangible Assets

Intangible assets at September 30, 2011 and June 30, 2011 consist of the following:


	September 30, 2011		June 30, 2011

Land use rights	$	3,224,900	$	3,187,808
Less: accumulated amortization		69,873		53,130

Total	$	3,155,027	$	3,134,678

The intangible assets represent consideration payments and other expenditures of Qingdao Likang for land use rights of a parcel of land with an area of approximately 65,064 square meters. The total cost is amortized over 50 years. Amortization expense for the three months ended September 30, 2011 and 2010 was $16,092 and $5,141, respectively.

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 9 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses at September 30, 2011 and June 30, 2011 consist of the following:

	September 30, 2011		June 30, 2011

Accounts payable	$	9,783,925	$	4,745,322
Accrued expenses		703,209		657,544

Total	$	10,487,134	$	5,402,866

The carrying values of accounts payable and accrued expenses approximate their fair values due to the short-term nature of these obligations.

Note 10 – Trade Notes Payable

Trade notes payable consist of non-interest bearing promissory notes issued in connection with the acquisition of certain inventory and equipment. Balances outstanding under the notes as of September 30, 2011 and June 30, 2011 were $20,695,883 and $12,513,972 respectively.

Note 11 – Short-Term Bank Loans

Short term bank loans as of September 30, 2011 and June 30, 2011 consist of the following:

	September 30,		June 30,
	2011		2011

On January 14, 2011, the Company obtained a loan from Qingdao City Commercial Bank, out of which, the principal is to be paid in full by January 13, 2012. Interest is to be calculated using an annual fixed rate of 6.1005% and paid monthly. The loan was secured by the Company's property.	$	626,000	$	618,800

On January 18, 2011, the Company obtained a loan from Qingdao City Commercial Bank, out of which, the principal is to be paid in full by January 18, 20112. Interest is to be calculated using an annual fixed rate of 6.1005% and paid monthly. The loan was secured by the Company's property.	$	1,252,000	$	1,237,600

On January 26, 2011, the company obtained a loan from Qingdao City Commercial Bank, out of which, the principal is to be paid in full by January 26, 2012. Interest is to be calculated using an annual fixed rate of 6.1005% and paid monthly. The loan was secured by the Company’s property.	$	1,252,000	$	1,237,600
Total short-term bank loans	$	3,130,000	$	3,094,000

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 12 – Long-Term Debt

Long term debt as of September 30, 2011 and June 30, 2011 consist of the following:

	September 30,		June 30,
	2011		2011

The Company obtained loans from employees, upon which interest is payable at an annual fixed rate of 10%. Interest payments are made semi-annually with no principal payments due until February 07, 2012, as per the terms of the loan agreement.	$	6,318,293	$	5,385,107

On November 27, 2009, the Company entered into a sale-leaseback transaction with International Fareastern Leasing Co., Ltd., which was accounted for as a financing arrangement in the amount of approximately $1.4 million. The annual principal and interest payment is $437,658 and the term of the arrangement is four years. Refer to Note 18.	$	762,661	$	843,561

In December 2010, two other sale-leaseback agreements established on November 27, 2009 went into effect, which represents financing arrangement in the total amount of approximately $1.65 million, received in two allotments. The annual principal and interest payment is $497,705 and the term of the arrangement is four years. Refer to Note 18.	$	1,095,704,	$	1,366,155

	September 30,		June 30,
	2011		2011

On April 28, 2011, the Company obtained a loan from Bank of Qingdao. The Principle is to be paid in full by April 28, 2016. The interest rate is a variable rate equal to 15% per annum above the floating base interest for loans of the same term promulgated by the PRC’s central bank, China People’s bank. The average annual interest rate for the three month ended September 30, 2011 was approximately 7.6475%. Interest is paid monthly. The loan was designated to finance the construction of Qingdao Likang. The loan was secured by the Company’s construction in progress and guaranteed by the Company’s subsidiary-Qingdao Renmin.	$	6,260,000	$	6,188,000
Total	$	14,436,658	$	13,782,823
Less: Current portion of loans		2,489,915		2,688,686
Current portion of obligation under capital lease		1,211,132		1,211,132

Total Current portion		3,701,047		3,899,818

Total long-term portion	$	10,735,611	$	9,883,005

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 13 – Stockholders’ Equity and Related Financing Agreements

On August 9, 2007, the shareholders of JPAK were issued 23,005,000 shares of Rx Staffing’s common stock, which represented 64.4% of all the issued and outstanding shares of JPAK’s common stock, under a Securities Exchange Agreement (the “SEA”), pursuant to which all the shares of Rx Staffing were transferred and JPAK became a wholly-owned subsidiary of Rx Staffing. In connection with the Share Exchange, the Company changed its name to JPAK Group, Inc.

On August 9, 2007, JPAK became a party to the Note Purchase Agreement dated May 17, 2007 (“NPA”). Pursuant to the NPA, JPAK issued Convertible Promissory Notes in the aggregate principal amount of $5.5 million to the Investors. As a result of the Share Exchange, and under the terms of the Notes and the NPA, the notes converted to the following: (i) 5,608,564 shares of the Company’s Series A Convertible Preferred Stock, par value $.0001 per share, convertible into an aggregate of 11,217,128 shares of Common Stock, (ii) Series A Warrants to purchase an aggregate of 5,500,000 shares of Common Stock (subject to adjustment) at an exercise price of $.60 per share until August 2011 (the “Series A Warrants”), (iii) Series B Warrants to purchase an aggregate of 5,500,000 shares of Common Stock (subject to adjustment) at an exercise price of $.70 per share until August 2011 (the “Series B Warrants”) and (iv) Series J Warrants to purchase (a) an aggregate of 5,000,000 shares of Series B Preferred Stock, which shall contain the same terms as the Series A Preferred Stock (other than conversion price), and will be convertible into 8,333,333 shares of the Company’s Common Stock, (b) Series C Warrants to purchase an aggregate of 4,166,667 shares of Common Stock (subject to adjustment) at an exercise price of $.72 per share (the “Series C Warrants”) and (c) Series D Warrants to purchase an aggregate of 4,166,667 shares of Common Stock (subject to adjustment) at an exercise price of $.84 per share (the “Series D Warrants” and together with the Series A Warrants, Series B Warrants and Series C Warrants, the “Warrants”). The Series J Warrants were exercisable until 90 days following the effective date of a registration statement registering for sale of shares of common stock underlying the securities issued in the financing. Finally, the Company also granted warrants to purchase 990,000 shares of common stock at an exercise price of $.50 per share and 750,000 shares of common stock at an exercise price of $.60 per share to the placement agent in the financing transaction. These warrants have the same terms as the Series A and Series B Warrants, except that they contain a “cashless” exercise provision.

On December 28, 2007, the holders of the JPAK’s outstanding Series J Warrants exercised in full such warrants for aggregate gross proceeds of $5.0 million to The Company. Upon exercise of the Series J Warrants and pursuant to their stated terms, the Company issued to the holders of the Series J Warrants (a) an aggregate of 5,000,000 shares of the Company’s Series B Convertible Preferred Stock, which are convertible into an aggregate of 8,333,333 shares of the Company’s common stock, (b) Series C Warrants to purchase an aggregate of 4,166,667 shares of the Company’s common stock at an exercise price of $0.72 per share and (c) Series D Warrants to purchase an aggregate of 4,166,667 shares of the Company’s common stock (subject to adjustment) at an exercise price of $0.84 per share. The Series C Warrants and Series D Warrants have a term of six years from the date of issuance.

In connection with the exercise of the Series J Warrants, the term of Series A and Series B Warrants was extended from four years to six years, so that such warrants shall now expire on August 9, 2013. The extension of the term of the Series A and Series B Warrants was a condition of the exercise of the Series J Warrants and the subsequent issuance of the Series B Preferred stock (the “Series B financing”). In this way, the conversion of Series A and Series B convertible Preferred Stock is deemed as “in the money” and therefore contain a beneficial conversion feature which amounted to $2,484,226 and $1,390,853, respectively, after allocation.

On April 1, 2008, JPAK entered into a consulting agreement with Tripoint Capital Advisors, LLC to provide consulting services for one year. As a result, JPAK agreed to issue to Tripoint and/or its affiliates 300,000 shares of its capital stock on July 1, 2008. The shares were issued on July 1, 2008. 150,000 shares were vested immediately and the remaining 150,000 were to be vested in equal installments in the next two quarters. The fair value on April 1, 2008 was $404,700 based on the quoted price of the Company’s common stock.

On April 1, 2009, the Board of Directors approved to issue 200,000 shares of the Company’s common stock to Mr. Dongliang (Frank) Su, the acting CFO of the Company and the shares were vested on July 1, 2009. The fair value on April 1, 2009 was $20,000 based on the quoted price of the Company’s common stock on that day.

On November 3, 2009, JPAK completed a financing with one accredited investor. The financing raised gross proceeds of $6.0 million with net proceeds to JPAK of $5,916,500. As a result of the financing, JPAK issued 12,000,000 units of securities at a price of $0.50 per unit. Each unit consists of (i) one (1) share of the Company’s Series C Convertible Preferred Stock, par value $0.0001 per share (the “Preferred Shares”), convertible into one share of the Company’s common stock, par value $0.001 per share (the “Common Stock”), and (ii) a one-half Series E Warrant (the “Series E Warrant”) and one-half Series F Warrant (the “Series F Warrant”, collectively the “Warrants”). Each whole Series E Warrant may be exercised to purchase one share of Common Stock at an exercise price of $0.60 per share and each whole Series F Warrant may be exercised to purchase one share of Common Stock at an exercise price of $0.70 per share. The Warrants are exercisable for a period of five years from the date of issuance. In connection with the financing, the Company paid the fee of $30,000 to Tripoint Global Equities, LLC, who acted as placement agent.

On December 16, 2009, JPAK entered into an Exchange Agreement with each of the holders of the warrants that were issued pursuant to the private financings which closed in August 2007, December 2007 and November 2009. Pursuant to the Exchange Agreement the Company issued an aggregate of 11,363,334 shares of our common stock in exchange for 5,500,000 Series A Warrants; 5,500,000 Series B Warrants; 4,166,667 Series C Warrants; 4,166,667 Series D Warrants; 6,000,000 Series E Warrants; and 6,000,000 Series F Warrants. The warrant exchange took the form of a cashless transaction. As a result, JPAK does not have any warrants outstanding other than those issued to the placement agent of the above mentioned private financings.

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 13 – Stockholders’ Equity and Related Financing Agreements (continued)

On December 15, 2010, JPAK granted five years options to purchase up to 3,600,000 shares of the common stock of the Company at the exercise price of $0.20 per share to four of its key employees in accordance with the 2010 Equity Incentive Plan. All the options vested immediately upon issuance. The fair value of each option grant is estimated on the granted date using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the period ended December 31, 2010: expected volatility of 299.23 percent and risk-free interest rate of 2.11 percent.

Note 14 – Income Taxes

JPAK Group Co., Ltd. was incorporated in the Cayman Islands. Under the laws of Cayman Islands, the Company is not subject to tax on income or capital gain.

The operating subsidiary Qingdao Renmin is a wholly foreign-owned enterprise incorporated in the PRC and subject to PRC Foreign Enterprise Income Tax (“FEIT”) Law. Pursuant to FEIT Law, foreign invested enterprises (“FIEs”) are subject to FEIT at a state tax rate of 30% plus a local tax rate of 3% on PRC taxable income. FIEs are also entitled to be exempted from FEIT for a 2-year period starting from their first profit-making year followed by a 50% reduction of FEIT payable for the subsequent three years, if they fall into the category of production-oriented enterprises with an operational period of more than 10 years in China. Qingdao Renmin started its tax holiday period on January 1, 2007, which will end on December 31, 2011.

On March 16, 2007, the National People’s Congress of China enacted a new Corporate Income Tax (“CIT”) law, under which FIEs and domestic companies would be subject to CIT at a uniform rate of 25%. The new CIT law became effective on January 1, 2008. The grandfathering treatments for unutilized tax holiday are provided for certain qualified FIEs. For those FIEs which have already commenced their qualified tax holidays before 2008, they can continue to enjoy the remaining unutilized tax holidays until expiry. For those qualified old FIEs which have not commenced their tax holidays before 2008 due to cumulative losses, their tax holidays will be deemed to commence in 2008 and can be utilized until expiry. Currently, the Company does not believe that the new CIT law will affect the preferential tax treatments (i.e. the unutilized tax holiday) that it is entitled to. Accordingly, since January 1, 2009, the Company has commenced the 3-year period of tax holidays by a 50% reduction of FEIT with an effective tax rate of 12.5%, and for the three months ended September 30, 2011 and 2010, the income tax expense was $ 91,836 and $187,436, respectively.

On February 22, 2008, the Ministry of Finance (“MOF”) and the State Administration of Taxation (“SAT”) jointly issued Cai Shui [2008] Circular 1 (“Circular 1”). According to Article 4 of Circular 1, distributions of accumulated profits earned by a FIE prior to January 1, 2008 to foreign investor(s) in 2008 or after will be exempt from withholding tax (“WHT”) while distribution of the profit earned by an FIE after January 1, 2008 to its foreign investor(s) shall be subject to WHT. Since the Company intends to reinvest its earnings to further expand its businesses in mainland China, its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies in the foreseeable future.

Note 15 – Employee Welfare Plan

The Company has established an employee welfare plan in accordance with Chinese laws and regulations. Full-time employees of the Company in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Company to accrue for these benefits based on a certain percentage of the employees’ salaries. The total contribution for such employee benefits was $96,006 and $136,676 for the three months ended September 30, 2011 and 2010, respectively.

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 16 – Risk Factors

The Company's operations are carried out in the PRC. Accordingly, the Company's business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC as well as by the general state of the PRC’s economy. The Company's business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Note 17 - Risk of Concentrations and Credit Risk

For the three months ended September 30, 2011 and 2010, five vendors accounted for approximately 82% and 77% of the Company’s purchases, respectively. Total purchases from these vendors were $20,607,367 and $11,736,904 for the three months ended September 30, 2011 and 2010, respectively.

For the three months ended September 30, 2011 and 2010, five customers accounted for approximately 58% and 55% of the Company’s revenue, respectively. Total sales to these customers were $14,120,428 and $8,840,612 for the three months ended September 30, 2011 and 2010, respectively.

Financial instruments which potentially subject the Company to credit risk consist principally of cash on deposit with financial institutions. Management believes that the financial institutions that hold the Company’s cash and cash equivalents are financially sound and minimal credit risk exists with respect to these investments.

Note 18 – Sale-Leaseback Transaction Accounted for as a Financing Arrangement

On November 27, 2009, the Company entered into three sale-leaseback arrangements with International Fareastern Leasing Co., Ltd and completed one of them through the refinancing of its printing equipment. Equipment with book value of approximately $3.4 million was sold for approximately $1.4 million. The other two arrangements went into effect in December 2010, pursuant to which the equipment with book value of approximately $2.4 million was sold for $ 1.65 million. The cash received was used towards the original invoice amount. The transaction has been accounted for as a financing arrangement, wherein the equipment remains on the Company’s books and will continue to be depreciated.

The loss on the sale of the equipment was deferred and amortized over the remaining useful life of the leased assets as an increase of depreciation expense. For the three months ended September 30, 2011 and 2010, the Company amortized $52,308 and $44,782 of the deferred loss into depreciation expense respectively. A financing obligation in the amount of $3.05 million representing the proceeds has been recorded under long-term debt in the Company’s Balance Sheet, and is being reduced based on payments under the lease.

The lease has a term of four years and requires minimum annual lease payments as follows:

Year Ending June 30	Amount
2012	$	885,550
2013		885,550
2014		755,958
Total	$	2,527,058

The Company has the option to purchase the equipment at the end of the lease term.

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 19 – Earnings Per Share

The Company presents earnings per share (“EPS”) on a basic and diluted basis. Basic earnings per share have been computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share have been computed by dividing income available to common shareholders by the weighted average number of shares outstanding including the dilutive effect of equity securities. All share and per share data have been adjusted retroactively to reflect the recapitalization of the Company pursuant to the Securities Exchange Agreement with Rx Staffing.

The Company uses two-class method to calculate the basic earnings per share. Under the two class method, net income is allocated between ordinary shares and other participating securities based on their respective participating rights. The Company’s Series A, Series B and Series C preferred shares are participating securities. In the event that any dividends are paid on our common stock, the holders of Series A, Series B and Series C preferred stock shall share with the holders of common stock on an as converted basis in such dividends. The 5,608,564 shares of Series A Preferred Stock are convertible into an aggregate of 11,217,128 shares of common stock. The 5,000,000 shares of Series B Preferred Stock are convertible into an aggregate of 8,333,333 shares of common stock. The 12,000,000 shares of Series C Preferred Stock are convertible into an aggregate of 12,000,000 shares of common stock.

Basic EPS for the quarter ended September 30, 2011 was computed as follows:

Net income	$	679,842
Less dividends paid to:
Common shareholders		-
Series A convertible preferred shareholders		-
Series B convertible preferred shareholders		-
Series C convertible preferred shareholders		-
Undistributed earnings	$	679,842

Basic earnings per share amounts:

			Series A		Series B		Series C
	Common		convertible		convertible		convertible
	Stock		preferred stock		preferred stock		preferred stock

Distributed earnings	$	0.00	$	0.00	$	0.00	$	0.00
Undistributed earnings		0.01		0.02		0.02		0.01
Totals	$	0.01	$	0.02	$	0.02	$	0.01

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 19 – Earnings Per Share (continued)

Diluted EPS for the quarter ended September 30, 2011 was computed as follows using the If-Converted Method:

	Distributed &
	Undistributed
	earnings to
	Common		Common		Earnings
	Stock		Shares		Per Share

As reported - Basic	$	364,033		36,368,334	$	0.01
Warrants		-		-		-
		364,033		36,368,334	$	0.01
Series A preferred stock conversion		112,279		11,217,128		-
Series B preferred stock conversion		83,414		8,333,333		-
Series C preferred stock conversion		120,116		12,000,000		-
Diluted earnings for common stock	$	679,842		67,918,795	$	0.01

Basic EPS for the quarter ended September 30, 2010 was computed as follows:

Net income	$	977,300
Less dividends paid to:
Common shareholders		-
Series A convertible preferred shareholders		-
Series B convertible preferred shareholders		-
Series C convertible preferred shareholders		-
Undistributed earnings	$	977,300

Basic earnings per share amounts:

			Series A		Series B		Series C
	Common		convertible		Convertible		convertible
	Stock		preferred stock		preferred stock		preferred stock

Distributed earnings	$	0.00	$	0.00	$	0.00	$	0.00
Undistributed earnings		0.01		0.03		0.02		0.01
Totals	$	0.01	$	0.03	$	0.02	$	0.01

JPAK GROUP, INC.

Notes to Consolidated Financial Statements

(Unaudited)

Note 19 – Earnings Per Share (continued)

Diluted EPS for the quarter ended September 30, 2010 was computed as follows using the If-Converted Method:

	Distributed &
	Undistributed
	earnings to
	Common		Common		Earnings
	Stock		Shares		Per Share

As reported - Basic	$	523,313		36,368,334	$	0.01
Warrants		-		-		-
		523,313		36,368,334	$	0.01
Series A preferred stock conversion		161,406		11,217,128		-
Series B preferred stock conversion		119,910		8,333,333		-
Series C preferred stock conversion		172,671		12,000,000		-
Diluted earnings for common stock	$	977,300		67,918,795	$	0.01

Note 20 – Supplemental Cash Flow Information

	Three Months Ended September 30,
	2011		2010

Cash paid for interest	$	176,378	$	186,075
Cash paid for income taxes	$	9,798	$	127,687

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and result of operations contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section of the other reports we file with the Securities and Exchange Commission. Actual results may differ materially from those contained in any forward-looking statements.

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of Jpak for the three months ended September 30, 2011 and 2010 and should be read in conjunction with such financial statements and related notes included in this report and the Company’s Annual Report on Form 10-K for the year ended June 30, 2011.

Overview

We are engaged primarily in the development, manufacture and distribution of aseptic liquid food and beverage cartons for milk, fruit juices, soy milk, yogurt drinks, iced tea, wine, sauces and other liquid foods and beverages in China. Since 2004, we have focused on research and development and we believe we are one of the largest and leading domestic suppliers of aseptic liquid food and beverage cartons in China. Our business is primarily focused in China, but we have begun exporting our manufacturing products to several foreign countries.

Company History

Our operations are conducted in China through Qingdao Renmin. Qingdao Renmin commenced operations in China in 1958 as a state-owned, traditional printing and packaging company. Management completed the buyout of 88.23% of the state-owned equity interest in 2004, and in the same year started the development of aseptic liquid food and beverage cartons which was launched in the China market in 2005.

On June 22, 2006, Jpak Group Co., Ltd (“Jpak Ltd.”) was incorporated in the Cayman Islands. In September 2006, Jpak Ltd. completed the acquisition of 88.23% of the equity interest in Qingdao Renmin through Grand International, the 100% owned subsidiary of Jpak Ltd.. In July 2007, Grand International completed the acquisition of the remaining 11.77% of the state-owned equity interest and now owns 100% of the equity interest of Qingdao Renmin.

On August 9, 2007, Rx Staffing completed a reverse acquisition of Jpak Ltd. and issued 23,005,000 shares of common stock on a one to one ratio for a 100% equity interest in Jpak Ltd., whereby Jpak Ltd. becomes a subsidiary of Rx Staffing. On the same day, Rx Staffing changed its corporate name to Jpak Group, Inc. (“Jpak”).

On January 11, 2010, Qingdao Likang Packaging Co. Ltd (“Qingdao Likang”), a wholly-owned subsidiary of Grand International, was registered in Qingdao with a capital commitment of $13.5 million. As of September 30, 2010, approximately $7.1 million or 52.6% of total registered capital has been invested and the rest will be invested within two years since the registration. Grand International is allowed to use the capital raised or the profit generated by Qingdao Renmin for this capital injection.

Competitive environment

The market for packaging products is competitive. Our operations may be affected by technological advances of competitors, industry consolidation, competitive combination products and new information of marketed products or post-marketing surveillance.

Due to China’s new anti-monopoly laws, some of our larger competitors decreased the amounts of bundled products they offer, which may cause them to lower their prices. Because of the relatively high margin offered by the products in this sector, local suppliers continue to enter this space, thereby creating more competition. As a result of growing competition, our sales prices and gross margin have been affected.

Strategy

Our growth strategy consists of consolidating our market leader position among domestic liquid food and beverage aseptic carton suppliers and pursuing expansion in the China market as well as selective Asian and Middle Eastern markets. We intend to achieve our goal by implementing the following strategies:

●	Increasing output to further penetrate the China market;
●	Developing bundled packaging materials and liquid filling machines;
●	Increasing sales to selective Asian and other markets;
●	Partnering with top milk producers;
●	Establishing brand names and brand awareness; and
●	Enhancing the Company’s competitive advantages through R&D.

Research and Development

To maintain and expand our market share, our top priority is to achieve technology breakthroughs on SIG packages and self-developed filling equipment.

In October 2006, Qingdao Renmin invested in Qingdao Delikang Packing Machinery Co., Ltd., (“Qingdao Delikang”), a joint venture with Xi’an Heiniu Machinery, Co.. Qingdao Renmin is the 51% owner of Qingdao Delikang. The main business of this joint venture is to research and develop filling machines. Our first filling machine can run at approximately 12,000 packages output per hour. As disclosed in our Annual Report on Form 10-K/A for the year ended June 30, 2011, we finished testing this machine with one of our customers; however, the test results were unsatisfactory and we may need to send the machine back to the Xi’an Machinery for adjusting. As this is our first filing machine, the testing and adjustments needed, and therefore the time it takes for the machines to run as we planned, is taking longer than expected. The second filing machine was installed and began production; we expect to put it into the experimental stage by March 2012.

In addition, we are dedicated to developing packaging materials that can be used in the filling machines created by SIG. We have achieved technology breakthroughs with our two SIG packaging lines, which can produce packages for small customers. We continue to improve both quality and stability of these two new lines. We plan to add up to eight additional lines by 2014. Management believes that these new SIG packaging lines will significantly increase our revenue and also provide relatively higher gross margins in the next several years.

Manufacturing, Sales and Marketing

We support commercialized products with manufacturing, sales and marketing efforts. We are also moving forward with additional investments to enhance our infrastructure and business, including capital expenditures for the new production machinery. Our current annual capacity is approximately 4.5 billion packs for normal packaging. Once SIG packaging proves its ability to produce packages in large batches, assuming funding is available, management plans to introduce up to eight more production lines with anticipated annual capacity of 80 million packs per SIG line.

Management continually reviews the business, including manufacturing operations, to identify actions that will enhance long-term competitiveness. By continuously streamlining the management of the production processes and improving production efficiency, we have decreased the scrap percentage and lowered our costs. Although our market share increased because of old and new customer development, because of rising raw material prices and decreased sales prices, our profit margin is much smaller than before.

With the planning and construction of our new plant Qingdao Likang, we anticipate that a new line for normal packs and four new lines for SIG packs will be put into production in the beginning of 2012. As our finances permit, further expansion will be continued in the following two or three years which may increase our annual capacity to 8.0 billion packs per annum in total.

Results of Operations

The following table shows the results of operations of our business.

Comparison of the three months ended September 30, 2011 and 2010

Three Months Ended September 30	2011			2010
Sales	$	24,357,736		$	16,185,647
Cost of sales	$	21,514,314		$	12,625,157
Gross profit	$	2,843,422		$	3,560,490
Selling, general and administrative expenses	$	2,220,766		$	2,232,495
Other income (expense)	$	148,979		$	(163,303	)
Income taxes	$	91,836		$	187,436
Noncontrolling interest	$	(43	)	$	(44	)
Net income attributable to Jpak Group, Inc.	$	679,842		$	977,300
Foreign currency translation adjustment	$	419,905		$	501,161
Comprehensive income (loss)	$	1,099,704		$	1,498,417

Sales. Total sales were approximately $24.4 million for the three months ended September 30, 2011 as compared with approximately $16.2 million for the three months ended September 30, 2010, a significant increase of approximately $8.2 million, or 50%. The increase was mainly due to our continued sales and marketing efforts to locate new customers who contributed to the sales growth. Although the total sales volume increased largely in this period, our revenue decreased because the sale prices of our products decreased and the materials prices increased. With our competitive pricing advantage, we have added 5 new domestic customers and 1 overseas customer in this quarter which accounted for 6% of total revenue.

Cost of Sales. Cost of sales for the three months ended September 30, 2011 was approximately $21.5 million, or 88.3% of sales, as compared with $12.6 million, or 78% of sales, for the three months ended September 30, 2010, an increase of approximately $8.9million or 10.3%. Our cost of sales is primarily composed of the costs of direct raw materials (mainly paper materials, polyethylene materials, aluminum materials, printing materials), labor, depreciation and amortization of manufacturing equipment and facilities, and other overhead. The increase of cost of sales as a percentage of sales by 10.3% was due to the purchase price escalation of major raw materials such as paper and plastic particles, which led to a narrower profit margin in the period covered by this Report. Our cost of sales may continue to rise as the global commodity prices move higher. We have no control over the cost of our major raw materials such as paper and plastic particles. Although we constantly try to lower our cost of sales, our efforts may prove insignificant compared with the price increase of certain raw materials.

Gross profit. As a result of the increase in the percentage of cost of sales, the gross profit margin for the three months ended September 30, 2011 was approximately 11.7% as compared with 22% for the three months ended September 30, 2010, a decrease of 10.3%.

Selling, general and administrative expenses. Selling, general and administrative expenses were approximately $2.22 million for the three months ended September 30, 2011 as compared with approximately $2.23 million for the three months ended September 30, 2010. Although the sales increase sharply, the company decreases the management members’ salaries to save the administrative expenses.

Income tax. Income tax was approximately $0.09 million for the three months ended September 30, 2011 as compared with approximately $0.19 million for the three months ended September 30, 2010, a decrease of approximately $0.09 million or 52.6% in accordance with the change of profit before tax.

Net income. Net income was approximately $0.68 million for the three months ended September 30, 2011 as compared with net income of $1 million for the three months ended September 30, 2010, a decrease of approximately $0.32 million, or 30.6%. The decrease in net income was primarily due to the increase of cost of sales.

Foreign currency translation adjustment. Our reporting currency is the US dollar. Our local currency, Renminbi (RMB), is our functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and was a gain of $419,905 for the three months ended September 30, 2011 compared with a gain of $501,161 for the three months ended September 30, 2010. The balance sheet amounts with the exception of equity at September 30, 2011 were translated at RMB6.3898 to US$1.00 as compared with RMB6.6800 to US$1.00 at September 30, 2010. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the three months ended September 30, 2011 and 2010 were RMB6.4029 and RMB6.7613 to US$1.00.

Comprehensive income. The comprehensive income, which adds the currency adjustment to net income, was $1.1 million for the three months ended September 30, 2011 as compared with $1.5 million for the three months ended September 30, 2010. The decrease of comprehensive income was mainly due to the large increase of our net income.

Liquidity and Capital Resources

	For the three months ended September 30,
	2011			2010
Cash flow provided by (used in) operating activities	$	(161,460	)	$	1,207,815
Cash flow used in investing activities		(5,107,873	)		(4,180,560	)
Cash flow provided by (used in) financing activities		834,944			(443,587	)

As of September 30, 2011, we had working capital totaling approximately $17.7 million, including cash and cash equivalents of $1.2 million.

Net cash used in operating activities was approximately $0.2 million for the three months ended September 30, 2011. This net cash used was primarily due to the decrease of accounts receivable balances by approximately $5million. Net cash generated in operating activities was $1.2 million for the three months ended September 30, 2010 due to the increase of accounts payable balances by approximately $1.5 million.

Net cash used in investing activities for the three months ended September 30, 2011 totaled $5.1 million and related primarily to the purchase and advanced payments for property and consideration for acquisition of Jiexin, a subsidiary. Net cash used in investing activities for the three months ended September 30, 2010 totaled $4.2 million and also related primarily to the purchase and advanced payments for property and equipment and the consideration paid for a land use right of Qingdao Likang.

Net cash provided by financing activities for the three months ended September 30, 2011 was $0.8 million and related primarily to the repayment of trade notes payable. Net cash used in financing activities for the three months ended September 30, 2010 was $0.4 million and was related primarily to the repayment of trade notes payable.

Borrowings and Credit Facilities

We have entered into several loan agreements with our primary lenders, Qingdao City Commercial Bank, with which we have term loans. The short-term bank borrowings outstanding as of September 30, 2011 and 2010 were approximately $3.1 million and $3.0 million, respectively. The loan borrowed in 2011 bore an average interest rate of 6.1005% per annum, and borrowed in 2010 bore an average interest rate of 5.31% per annum. Secured by properties and equipment of Qindao Renmin, the loan agreements have one-year terms, contain customary affirmative and negative covenants and will expire in January 2012. As of September 30, 2011, we were in material compliance with the terms of our loan agreements. The current borrowings will probably extend after expiration in consideration of the capital demand from our company.

On April 28, 2011, the subsidiary of the company, Likang entered into one long-term loan with the Bank of Qingdao for approximately $6.2 million with an average interest rate 7.6475% in the first year. The loan agreement has a 5-year term, contains customary affirmative and negative covenants and will expire in April 28, 2016.

Capital Commitment

On August 12, 2010, Qingdao Likang, our indirectly owned subsidiary, entered into a land use right transfer agreement with Qingdao Territories and House Administration Bureau, pursuant to which, Qingdao Likang was granted a 50-year use right for a parcel of land in Qingdao with an area of approximately 65,064 square meters. Qingdao Likang has paid the consideration and started building a new plant on the land and the construction is estimated to be completed by March 2012.

The agreement also included provisions that requires total investments for the project of not less than RMB242.1 million (US$35.66 million) before August 12, 2013 with a conditional one-year extension. The amount of total investment refers to the amount of capital that will be spent in the construction and operations of the plant. It includes not only the registered capital, but also future borrowings such as bank loans and funds from the potential investors.

Critical Accounting Policies and Estimates

Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Jpak’s 2011 10-K for disclosures regarding Jpak’s critical accounting policies and estimates. The interim financial statements follow the same accounting policies and methods of computations as those for the year ended June 30, 2011.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

(a)	Evaluation of disclosure controls and procedures

We maintain disclosure controls and procedures designed to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We performed an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and our Acting Chief Financial Officer have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission, and are effective in providing reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Acting Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(b)	Changes in internal control over financial reporting

Since April 2009, we have been working diligently on the evaluation of internal controls based on COSO framework. The evaluation covers all the major financial reporting processes, including procurement, revenue, inventory, fixed assets, tax, treasury and financial reporting. As of June 30, 2010, we completed our documentation both at the entity level and process level. As a result, we have identified a number of significant deficiencies and improvement opportunities with each process. We have subsequently implemented remediation measures to correct most of these weaknesses. We believe that these corrective steps have remediated the material weaknesses disclosed in our annual report on Form 10-K for the year ended June 30, 2009 and our internal controls are now effective.

Nevertheless, we would like to draw your attention to a number of remaining significant deficiencies with our internal controls, as described in our Form 10-K for the year ended June 30, 2011. A significant deficiency is a deficiency, or a combination of deficiencies, that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant’s financial reporting. After the evaluation, we believe these deficiencies are significant, but not material after taking into account our risk assessment and existing controls both at the entity and process levels. The significant deficiencies identified in the Form 10-K for the year ended June 30, 2011, which have been partially remediated, are as follows:

Currently we do not have sufficient in-house expertise in US GAAP reporting. Although we have not identified any material errors with our financial reporting or any material weaknesses with our internal controls, no assurances can be given that there are no such material errors or weaknesses existing. To remediate this situation, we are seeking to recruit experienced professionals to augment and upgrade our financial staff to address issues of timeliness and completeness in US GAAP financial reporting.

Although the Company does not have a Board with a majority of independent members and does not have an audit committee, it hired Mr. Wenjie Li as its independent director in July 2010. The Company is also seeking additional independent members, including a qualified financial expert to fulfill the role of audit committee chairman. Nevertheless, the Company cannot assure you of when it will identify a qualified candidate or when it will be able to form an independent audit committee.

For the remediation measures that have recently been implemented, they are relatively new and their operating effectiveness still needs to be monitored carefully.

Except as described above, there have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

Not applicable to smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Not Applicable.

(b) Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

(a) Not Applicable.

(b) Not Applicable.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

(a) Not applicable.

(b) Not applicable.

ITEM 6. EXHIBITS

(a) The following exhibits are filed as part of this report.

Exhibit No		Description

3.1		Articles of Incorporation, as amended (Incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K filed on September 29, 2008)

3.2		Bylaws (Incorporated by reference to Exhibit 3.2 to our Annual Report on Form 10-K filed on September 29, 2008)

31.1		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Acting Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of the Acting Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

	JPAK GROUP, INC.

	By:	/s/ Yijun Wang
		Yijun Wang Chief Executive Officer,
		President & Director

	By:	/s/ Yongbo Wang
		Yongbo (Esther) Wang Chief Financial Officer

Date: January 19, 2012

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