UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
  FORM 10-Q
 
 [X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009
 
 OR
  [  ]
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:000-1321559
 
  Jpak Group, Inc.
 (Exact name of Registrant as specified in its charter)
  
   Nevada

20-1977020(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification Number)
  15 Xinghua Road
Qingdao, Shandong Province
People’s Republic of China

266401(Address of Principal Executive Offices)

(ZIP Code)
  (86-532) 84616387
 (Registrant’s telephone number,
 including area code)
  ________________________________________________________
 Former name, former address and former fiscal year, if changed since last report)
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
  Yes [X]  No [  ]
  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


Accelerated FilerNon-accelerated filer
(do not check if a smaller reporting company)

Smaller reporting company
X
  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes [  ]  No [X]
  Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.





On November 9, 2009 there were 25,005,000 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 8,333,334 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.























JPAK GROUP, INC.





INDEX





Page
NumberPART I - FINANCIAL INFORMATIONItem 1.

Financial StatementsConsolidated Balance SheetsSeptember 30, 2009 (unaudited)

4Consolidated Statements of Operations (unaudited)Three months ended September 30, 2009 and 2008

5Consolidated Statements of Cash Flows (unaudited)Three months ended September 30, 2009 and 2008

6Notes to Condensed Consolidated Financial Statements

7Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15Item 3.

Quantitative and Qualitative Disclosure About Market Risks

20Item 4.

Controls and Procedures

21Item 4T

Controls and Procedures

23PART II - OTHER INFORMATIONItem 1.

Legal Proceedings

23Item 1.A

Risk Factors

23Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24Item 3.

Defaults Upon Senior Securities

24Item 4.

Submission of Matters to a Vote of Security Holders

24Item 5.

Other Information

24Item 6.

Exhibits

24








2


Report of Independent Registered Public Accounting Firm





To the Board of Directors and Stockholders


JPAK Group, Inc.











We have reviewed the accompanying consolidated balance sheet of JPAK Group, Inc. and Subsidiaries (the “Company”) as of September 30, 2009, and the related consolidated statements of operations and comprehensive income, and cash flows for the three months ended September 30, 2009
and 2008. These consolidated financial statements are the responsibility of the Company's management.





We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.





Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.





We have previously audited, in accordance with auditing standards of the Public Company Accounting Oversight Board (United States), the balance sheet of JPAK Group, Inc. and Subsidiaries as of June 30, 2009, and the related consolidated statements of operations and comprehensive income, stockholders’
equity and cash flows for the year then ended (not presented herein); and in our report dated September 10, 2009, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of June 30, 2009, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.











/s/  Patrizio & Zhao, LLC
 Patrizio & Zhao, LLC





Parsippany, New Jersey


November 6, 2009









3






JPAK GROUP, INC.


Consolidated Balance Sheets


September 30,


June 30,2009


2009Assets

(Unaudited)Current assetsCash and cash equivalents

$
1,411,453


$
2,969,699Restricted cash


5,848,890



3,403,868Accounts receivable, net of allowance for doubtful accounts of $1,498,766and $$1,496,723 at September 30, 2009 and June 30, 2009, respectively


11,367,055



9,063,973Inventory


6,449,591



5,353,193Trade notes receivable


88,020



-Other receivables


1,278,933



1,205,983Loan receivable


132,030



175,800Advance payments


2,820,655



503,143Prepaid expenses and other current assets


219,355



70,544Prepaid other taxes


-



266,664Total current assets


29,615,982



23,012,867Property and equipment, net


12,939,056



13,107,216Total assets

$
42,555,038


$
36,120,083LiabilitiesCurrent liabilitiesAccounts payable and accrued expenses

$
4,923,976


$
3,277,973Trade notes payable


5,209,267



3,212,704Advance payments from customers


311,727



327,898Short term bank loans


2,347,200



2,344,000Current portion of long-term debt


151,101



951,811Income tax payable


242,987



167,429Other current liabilities


261,273



97,827Total current liabilities


13,447,531



10,379,642Long-term debt


3,827,403



1,985,075Total liabilities


17,274,934



12,364,717EquityStockholders’ equitySeries A convertible preferred stock, $0.0001 par value, 5,608,564shares authorized, issued and outstanding


561



561Series B convertible preferred stock, $0.0001 par value, 5,000,000shares authorized, issued and outstanding


500



500Common stock, $0.001 par value, 300,000,000 shares authorized,25,005,000 shares issued and outstanding at September 30, 2009 andJune 30, 2009, respectively


25,005



25,005Series A preferred shares


2,484,226



2,484,226Series B preferred shares


1,390,853



1,390,853Warrants


4,634,678



4,634,678Placement agent warrants


1,172,487



1,172,487Additional paid-in capital


11,473,104



11,473,104Retained earnings (deficit)


386,142



(1,106,478
)Statutory reserves


1,010,026



1,010,026Accumulated other comprehensive income


2,597,306



2,565,276Total stockholders’ equity


25,174,888



23,650,238Noncontrolling interest


105,216



105,128Total equity


25,280,104



23,755,366Total liabilities and equity

$
42,555,038


$
36,120,083


The accompanying notes are an integral part of these consolidated financial statements.
 4




JPAK GROUP, INC.  Consolidated Statements of Operations and Comprehensive Income


(Unaudited)





For the Three Months EndedSeptember 30,2009


2008Sales

$
16,561,920


$
9,430,330Cost of sales


11,837,612



6,995,902Gross profit


4,724,308



2,434,428Operating expensesSelling, general and administrative


2,888,343



2,107,661Income from operations


1,835,965



326,767Other income (expenses):Interest expense, net


(97,051
)


(8,525
)Non-operating expense, net


(3,512
)


12,636Total other income (expenses)


(100,563
)


4,111Income before provision for income taxes


1,735,402



330,878Provision for income taxes


242,838



-Net income before noncontrolling interest


1,492,564



330,878Noncontrolling interest


(56
)


(492
)Net income


1,492,620



331,370Undistributed income attributable to preferred stockholders


654,946



146,079Net income applicable to common stockholders


837,674



185,291Other comprehensive incomeForeign currency translation adjustment


32,030



(38,908
)Comprehensive income

$
1,524,650


$
292,462Basic earnings per common share

$
0.03


$
0.01Diluted earnings per common share

$
0.03


$
0.01Weighted average number of common shares outstandingBasic


25,005,000



24,798,478Diluted


44,555,461



51,681,761


The accompanying notes are an integral part of these consolidated financial statements.
 5
 JPAK GROUP, INC.




Consolidated Statements of Cash Flows


(Unaudited)





For the Three Months EndedSeptember 30,2009


2008Cash flows from operating activities:Net income

$
1,492,620


$
331,370Adjustments to reconcile net income to net cashprovided by (used in) operating activities:Noncontrolling interest


(56
)


(492
)Depreciation


382,499



296,909Share-based payment


-



202,500Loss on disposal of fixed assets


2,354



-Provision for bad debts


-



150,782Changes in assets and liabilities:Accounts receivable


(2,289,303
)


472,126Inventory


(1,088,422
)


125,185Trade notes receivable


(87,966
)


-Other receivables


(71,260
)


(90,037
)Advance payments


(2,315,404
)


(554,020
)Prepaid expenses and other current assets


(148,704
)


(3,397
)Accounts payable and accrued expenses


1,640,738



(1,045,312
)Advance payments from customers


(16,609
)


-Income tax payable


75,283



-Other current liabilities


430,078



(43,880
)Total adjustments


(3,486,772
)


(489,636
)Net cash used in operating activities


(1,994,152
)


(158,266
)Cash flows from investing activities:Additions to property and equipment


(198,913
)


(247,665
)Loan receivable


43,983



-Net cash used in investing activities


(154,930
)


(247,665
)Cash flows from financing activities:Issuance of trade notes payable


1,990,955



585,547Proceeds from long-term debt


1,036,973



125,164Net cash provided by financing activities


3,027,928



710,711Effect of foreign currency translation on cash


7,930



(82,849
)Net increase in cash and cash equivalents


886,776



221,931Cash and cash equivalents and restricted cash –  beginning


6,373,567



7,218,904Cash and cash equivalents and restricted cash –ending

$
7,260,343


$
7,440,835


The accompanying notes are an integral part of these consolidated financial statements.
 6
 JPAK GROUP, INC.
 Notes to Consolidated Financial Statements
 September 30, 2009 and 2008
 (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.





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.





Note 2 – Summary of Significant Accounting Policies





Basis Of Presentation





The Company’s consolidated financial statements include the accounts of its direct wholly-owned subsidiaries and of its indirect proportionate share of subsidiaries owned by the wholly-owned 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 Rule 10-01 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes 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.





Interim Financial Statements





These interim financial statements should be read in conjunction with the audited financial statements for the years ended June 30, 2009 and 2008, 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, 2009 and 2008.


7
 JPAK GROUP, INC.
 Notes to Consolidated Financial Statements
 September 30, 2009 and 2008
 (Unaudited)


Note 2 – Summary of Significant Accounting Policies (continued)





Recent Accounting Pronouncements





On July 1, 2009, the Financial Accounting Standards Board (“FASB”) officially launched the FASB Accounting Standards Codification (“ASC”), which has become the single official source of authoritative nongovernmental U.S. GAAP, in addition to guidance issued by the Securities and Exchange Commission. The ASC is designed
to simplify U.S. GAAP into a single, topically ordered structure. All guidance contained in the ASC carries an equal level of authority. The ASC is effective for all interim and annual periods ending after September 15, 2009. The Company’s implementation of this guidance effective July 1, 2009 did not have a material effect on the Company’s condensed consolidated financial statements.





Reclassification





Certain amounts of September 30, 2008 were reclassified for presentation purposes.





Note 3– Restricted Cash





As of September 30, 2009 and June 30, 2009, the Company had restricted cash of $5,848,890 and $3,403,868, 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 $1,498,766 and $1,496,723 as of September 30, 2009 and June 30, 2009, respectively. The allowance was mainly because a major customer was near bankruptcy as of September 30, 2009.





Note 5 – Inventory





Inventory at September 30, 2009 and June 30, 2009 consists of the following:





September 30, 2009


June 30, 2009Finished goods

$
2,264,747


$
939,428Raw materials


3,630,333



3,912,953Parts and supplies


154,465



84,806Work in process


400,046



416,006Total

$
6,449,591


$
5,353,193





8
 JPAK GROUP, INC.
 Notes to Consolidated Financial Statements
 September 30, 2009 and 2008
 (Unaudited)


Note 6 – Advance Payments





The Company makes advances to certain vendors for inventory and equipment. The advances for the purchase of inventory amounted to $1,793,557 and $210,449 as of September 30, 2009 and June 30, 2009, respectively. Additionally, the advances for the purchase of equipment amounted to $1,027,098 and $292,694 as of September 30, 2009 and
June 30, 2009, respectively.





Note 7 – Loan Receivable





The Company has given a non interest-bearing loan in the amount of $132,030 to a certain customer for purchasing a filling machine, with a commitment from the customer to buy an agreed quantity of packaging supplies from the Company. The customer agreed to pay back the loan in four installments by June 30, 2010.





Note 8 – Property and Equipment





Property and equipment at September 30, 2009 and June 30, 2009 consists of the following:


September 30, 2009


June 30, 2009Buildings

$
4,495,198


$
4,463,528Machinery and equipment


17,007,960



16,817,851Subtotal


21,503,158



21,281,379Less: Accumulated depreciation


8,565,898



8,174,16312,937,260



13,107,216Add: Construction in progress


1,796



-Total

$
12,939,056


$
13,107,216





Depreciation expenses for the three months ended September 30, 2009 and 2008 were $382,499 and $296,909, respectively.





Note 9 – Accounts Payable and Accrued Expenses





Accounts payable and accrued expenses at September 30, 2009 and June 30, 2009 consist of the following:





September 30, 2009


June 30, 2009Accounts payable

$
4,746,966


$
3,032,577Accrued expenses


177,010



245,396Total

$
4,923,976


$
3,277,973





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-collateralized 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, 2009 and June 30, 2009 were $5,209,267 and $3,212,704, respectively.





9
 JPAK GROUP, INC.
 Notes to Consolidated Financial Statements
 September 30, 2009 and 2008
 (Unaudited)


Note 11 – Short Term Bank Loans





Short term bank loans at September 30, 2009 and June 30, 2009 consist of the following:





September 30,


June 30,2009


2009On January 22, 2009, the Company obtained a loan from Qingdao CityCommercial Bank, out of which, the principal is to be paid in full by January22, 2010.  Interest is to be calculated using an annual fixed rate of 5.31%and paid monthly. The loan is secured by the company's property andequipment.

$
2,347,200


$
2,344,000Total short term bank loans

$
2,347,200


$
2,344,000





Note 12 – 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 quarter ended September 30, 2009, the income tax expense was $242,838.





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 13 – Long-Term Debt





As of September 30, 2009, the Company had an outstanding long-term debt of $3,978,504, including the current portion of $151,101. As of June 30, 2009, the Company had an outstanding long-term debt of $2,936,886, including the current portion of $951,811. These loans represent borrowings from employees at an annual interest
rate of 10%. Interest payments are made semi-annually with no principal payments due until May 31, 2010, as per the terms of the loan agreement.


10
 JPAK GROUP, INC.
 Notes to Consolidated Financial Statements
 September 30, 2009 and 2008
 (Unaudited)


Note 14 – 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.


11
 JPAK GROUP, INC.
 Notes to Consolidated Financial Statements
 September 30, 2009 and 2008
 (Unaudited)


Note 14 – Stockholders’ Equity and Related Financing Agreements (continued)





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.





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 $109,266 and $119,482 for the quarters ended September 30, 2009 and 2008, respectively.





Note 16 – Risk Factors





In the three months ended September 30, 2009 and 2008, five vendors accounted for approximately 79% and 64% of the Company's purchases, respectively. Total purchases from these vendors were $12,914,455 and $5,765,152 for the three months ended September 30, 2009 and 2008, respectively.





In the three months ended September 30, 2009 and 2008, five customers accounted for approximately 59% and 47% of the Company's revenue, respectively. Total sales to these customers were $9,692,619 and $4,431,837 for the three months ended September 30, 2009 and 2008, respectively.





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 - Concentrations of Credit Risk





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 – 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 the 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 and Series B preferred shares are participating securities.
In the event that any dividends are paid on our common stock, the holders of Series A and Series B 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.


12
 JPAK GROUP, INC.
 Notes to Consolidated Financial Statements
 September 30, 2009 and 2008
 (Unaudited)


Note 18 – Earnings Per Share (continued)





Basic EPS for the quarter ended September 30, 2009 was computed as follows:





Net income





$
1,492,620Less dividends paid to:Common shareholders






-Series A convertible preferred shareholders






-Series B convertible preferred shareholders






-Undistributed 2009 earnings





$
1,492,620Basic earnings per share amounts:Series A


Series BCommon


convertible


convertibleStock


preferred stock


preferred stockDistributed earnings

$
0.00


$
0.00


$
0.00Undistributed earnings


0.03



0.07



0.06Totals

$
0.03


$
0.07


$
0.06





Diluted EPS for the quarter ended September 30, 2009 was computed as follows using the If-Converted Method:





Distributed &Undistributedearnings toCommon


Common


EarningsStock


Shares


Per ShareAs reported - Basic

$
837,674



25,005,000


$
0.03Warrants


-



-



--837,674



25,005,000


$
0.03Series A preferred stock conversion


375,777



11,217,128



-Series B preferred stock conversion


279,169



8,333,333



--Diluted earnings for common stock

$
1,492,620



44,555,461


$
0.03





Basic EPS for the quarter ended September 30, 2008 was computed as follows:





Net income





$
331,370Less dividends paid to:Common shareholders






-Series A convertible preferred shareholders






-Series B convertible preferred shareholders






-Undistributed earnings





$
331,370Basic earnings per share amounts:Series A


Series BCommon


convertible


convertibleStock


preferred stock


preferred stockDistributed earnings

$
0.00


$
0.00


$
0.00Undistributed earnings


0.01



0.01



0.01Totals

$
0.01


$
0.01


$
0.01





13


Note 18 – Earnings Per Share (continued)





Diluted EPS for the quarter ended September 30, 2008 was computed as follows using the If-Converted Method:





Distributed &Undistributedearnings toCommon


Common


EarningsStock


Shares


Per ShareAs reported - Basic

$
185,291



24,798,478


$
0.01Warrants


-



7,332,822



--185,291



32,131,300


$
0.01Series A preferred stock conversion


83,813



11,217,128



-Series B preferred stock conversion


62,266



8,333,333



--Diluted earnings for common stock

$
331,370



51,681,761


$
0.01





Note 19 – Supplemental Cash Flow Information





Three Months Ended September 30,2009


2008Cash paid for interest

$
126,967


$
29,691Cash paid for income taxes

$
167,429


$
-





Note 20 – Subsequent Events





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 approximately $5.9 million. As a result of the financing, JPAK issued 12,000,000 shares of Series C Convertible Preferred Stock at a price of $.50 per share. In
addition, JPAK also issued: (i) Series E Warrants to purchase an aggregate of 6,000,000 shares of common stock at an exercise price of $.60 per share until November 2014, (ii) Series F Warrants to purchase an aggregate of 6,000,000 shares of common stock at an exercise price of $.70 per share until November 2014. Under the terms of the financing agreements, these warrants can be exercised by cash payment or via cashless method in the event that an effective registration statement is not available as required
by the registration rights agreement between JPAK and the investor.


14






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, 2009 and 2008 and should be read in conjunction with such financial statements and related notes
included in this report.







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 that we are one of the largest
and leading domestic supplier of aseptic liquid food and beverage cartons in China. Our business is primarily in China, but we recently began manufacturing products for export to several other countries.





Company History





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 was incorporated in the Cayman Islands as Winner Dragon Limited. Winner Dragon Limited and was renamed Jpak Group Co., Ltd. on September 18, 2006. Additionally, during September 2006, Jpak completed the acquisition of 88.23% of the equity interest in Qingdao Renmin through Grand International, the 100% owned subsidiary
of Jpak. Currently, substantially all of our operations are conducted in China through Qingdao Renmin.





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.











15


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.  Although this may cause such competitors to lower their price points, we believe it will allow us to be more competitive with them.  Since the sale of bundled products still maintains a large
market share, we will continue to try and compete in the offering of bundled materials and equipment.





Milk scandal, economic crisis and their effects on Jpak





In September 2008, the Chinese health ministry announced that several babies died and thousands were sickened by contaminated milk formula powder during the previous months.  The authorities later confirmed that the tainted powder was laced with melamine, an industrial chemical sometimes used to make plastics and fertilizer; adding
the chemical to the milk makes the formula test at higher concentrations of protein.




After this scandal, the Chinese government began strengthening its supervision of both the milk and beverage industries. As a result, some smaller plants stopped their production and some larger companies within the industry continue to work on recovering from the damage caused by the scandal.




Prior to the milk scandal, we focused more on the dairy packaged segment as it typically has higher margins than the fruit juice market. Due to this scandal, we terminated our previously developed relationship with Sanlu and cancelled all of their orders. Additionally, orders from Taizinai, one of our other customers in the diary sector,
have declined rapidly.





During the year after this milk scandal, management monitored both the short and long-term impact on our business and operations. Compared to the market before the scandal, prices of dairy products have decreased by nearly 10% and although we have been and continue to  take every action necessary to minimize the impact of this
scandal, since most of our customers are medium and small size companies, our short-term revenue has been adversely impacted and the performance in the fiscal year 2009 was significantly below expectations. However, management’s efforts to realign our marketing effort in the post-scandal market place have shown positive results, as demonstrated by our performance of the first quarter in fiscal year 2010. At present, packages for dairy and tea drink account for a large percentage of our products which
cover more than 50% and 30% of our revenue, respectively.





In addition, since the downturn in the worldwide financial and credit markets in the year 2008, some of our key customers have been experiencing a challenging business situation in conjunction with mounting financial pressure.





We are seeing some signs of recovery: the sales volumes of the top two milk producers have almost reached the levels that existed before the scandal.





To limit the impact of the scandal and general market conditions, Management has tightened our credit control by installing ceilings on our customers’ credit limits and more closely monitoring the financial situation of our customers.  In addition, we have been dedicated to maintaining our major customers and exploring new
clients. Our sales department has developed as many as 35 new domestic clients which amounted to 10.64% of the total sales in the fiscal year 2009 and five more in the quarter ended September 30, 2009. Furthermore, we have signed a contract with one of the Chinese top three milk producers and begun cooperation.  We expect we will receive trial orders of 100 million packs from this new customer in the first half of fiscal year 2010 before mass production. We believe this establishment of business relationship
will enhance our business performance to a great extent.








16





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 pursuing the following strategies:





●
Increasing output to further penetrate the China market;●
Offering bundled packaging materials and liquid filling machines;●
Increasing sales to selective Asian and other markets;●
Continuing and increasing the recent orders from Russia and other Eastern European markets;●
Establishing brand names and brand awareness; and●
Enhance the Company’s competitive advantages through R&D.








Research and Development





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.  We
are progressing with related technology and techniques and the filling machines are still in the development period. During our recent testings of the filling machines, they can run at 12,000 packages output per hour and we anticipate that the first machine will begin production trials with our customers in December 2009, which may take three months before client’s final acceptance.





In addition, we successfully developed packaging which can be used in the filling machines created by SIG.  Currently, the new products are being tested among our customers and the manufacturing techniques are still being improved. We estimate that approximately US$300 thousand additional costs will incur with the Research and
Development (the “R&D”) of this new product improvement. Provided that the product tests are successful, management believes this new packaging will be able to increase our revenue significantly with a relative higher gross margin.





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. We have increased our annual capacity from 2 billion packs last year to approximately 3.5
billion packs for our current normal packaging. Additionally, once the packaging we developed for the SIG filling machines passes tests and is successfully launched into the market, if funding is available, management plans to introduce up to eight more production lines with annual capacity of 80 million packs per 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.





We have expanded our market by increasing the number of transactions with existing key clients and new clients; during fiscal year 2009, we gained a number of additional clients.  We have received orders from customers in Russia and Eastern Europe, which currently only account for a small amount of our total sales, but we intend
to increase the amount of customers in these regions. Management also believes we are well positioned to attain new strategic clients in the year 2010 with our new filling machines and SIG packaging.







17




Results of Operations







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







Comparison of the three months ended September 30, 2009 and 2008





Three Months Ended September 30

2009


2008Sales

$
16,561,920


$
9,430,330Cost of sales

$
11,837,612


$
6,995,902Total expenses

$
2,888,343


$
2,107,661Other income (expense)

$
(100,563
)

$
4,111Income taxes

$
242,838


$
-Minority interest

$
(56
)

$
(492
)Net income

$
1,492,620


$
331,370Undistributed income attributable toSeries A&B convertible preferred stockholders
convertible preferred stock

$
(654,946
)

$
(146,079
)Foreign currency translation adjustment

$
32,030


$
(38,908
)Comprehensive income

$
1,524,650


$
292,462





Sales. Total sales were approximately US$16.6 million for the three months ended September 30, 2009 as compared to approximately US$9.4 million for the same period ended September 30, 2008, an increase of approximately US$7.1 million, or 75.6%. The significant increase of sales reflected
the extent of our recovery and growth from the milk scandal in the same period of 2008. In addition to the new client development, we are improving our cooperation with our existing clients such as Yinlu and Wonderson which accounted for approximately 39% and 25% of total increased amount of sales, respectively.





Cost of Sales. Cost of sales for the three months ended September 30, 2009 was approximately US$11.8 million, or 71.5% of sales, as compared to US$7.0 million, or 74.2% of sales, for the same period ended September 30, 2008. Our cost of sales are 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 fall of the raw material prices, together with the rise of outputs which helped to increase the economic scale and reduce material wastage, led to an increase of gross margin by 2.7%.





Selling, general and administrative expenses. Selling, general and administrative expenses were approximately US$2.9 million for the three months ended September 30, 2009 as compared to approximately US$2.1 million for the same period ended September 30, 2008, an increase of approximately
US$0.8 million, or 37%. The increase was mainly due to an increase of post-sale service expenses and research and development expenses. The Company continuously strengthened the research and development activities. The total R&D expense was almost US$0.7 million, compared to the R&D expense of US$0.6 million in the same period ended September 30, 2008. With the increase of sales in the three months ended September 30, 2009, post-sale service and freight expenses increased from US$0.07 million to US$0.55
million and from US$0.2 million to US$0.3 million, respectively.





Net income.  Net income was approximately US$1.5 million for the three months ended September 30, 2009, compared to net income of approximately US$0.3 million for the same period ended September 30, 2008, an increase of approximately US$1.2 million, or 352%.
The increase in net income was primarily due to the significant growth in revenue in the period ended September 30, 2009.





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.









18






Currency translation adjustments resulting from this process are included in accumulated other comprehensive income in the consolidated statement of shareholders' equity and amounted to gain of US$0.03 million as of September 30, 2009 as compared to loss of US$0.04 million as of September 30, 2008. The balance sheet amounts with the exception
of equity at September 30, 2009 were translated at RMB6.81663 to US$1.00 as compared to RMB6.83527 to US$1.00 at September 30, 2008. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the three months were average exchange rate during the quarter.





Comprehensive income.The comprehensive income, which adds the currency adjustment to net income applicable to common stockholders, was approximately US$1.5 million for the three months ended September 30, 2009, compared to an income of US$0.3 million for the three months ended September
30, 2008, an increase of $1.2 million. The increase of comprehensive income was mainly due to the increase of our operating profit in this period.





Liquidity and Capital Resources





As of September 30, 2009, we had working capital totaling approximately US$16.2 million, including cash and cash equivalents of US$7.3 million.





Net cash used in operating activities was US$1,994,152 for the three months ended September 30, 2009. This net cash used was primarily due to the increase of accounts receivable, advanced payment and inventory balances as a result of the increase in sales. Net cash used in operating activities was US$158,266 for the same period ended September
30, 2008. This net cash used was primarily due to the decrease of account payable during the period.





Net cash used in investing activities for the three months ended September 30, 2009, totaled US$0.15 million and related primarily to the purchase of property and equipment. Net cash used in investing activities for the same period ended September 30, 2008 totaled US$0.25 million and also related primarily to the purchase of property and
equipment.





Net cash generated in financing activities for the three months ended September 30, 2009, was US$3.0 million and related primarily to the issuance of trade notes payable and proceeds from additional borrowings from employees in this period. Net cash generated in financing activities for the same period ended September 30, 2008 was US$0.7
million and related primarily to issuance of trade notes payable during the period.





We have entered into several loan agreements with our primary lenders, Industrial and Commercial Bank of China and Qingdao City Commercial Bank, under which we have term loans. As of September 30, 2009, we had an aggregate principal amount of US$2.3 million outstanding under the loan agreements, with amounts mature in
January 2010 and bear an interest rate of 5.31% per annum. The loan agreements contain customary affirmative and negative covenants and were secured by the property and equipment of Qindao Renmin. As of September 30, 2009, we were in material compliance with the terms of our loan agreements.





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 approximately $5.9 million. As a result of the financing, JPAK issued 12,000,000 shares of Series C Convertible Preferred Stock at a price of $.50 per
share. In addition, JPAK also issued: (i) Series E Warrants to purchase an aggregate of 6,000,000 shares of common stock at an exercise price of $.60 per share until November 2014, (ii) Series F Warrants to purchase an aggregate of 6,000,000 shares of common stock at an exercise price of $.70 per share until November 2014. Under the terms of the financing agreements, these warrants can be exercised by cash payment or via cashless method in the event that an effective registration statement is not available as
required by the registration rights agreement between JPAK and the investor. Management believes the new financing will provide additional capital for us to capture the opportunities for further growth.








19





Critical Accounting Policies and Estimates





Please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Jpak’s 2008 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 quarter ended September 30, 2009.





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 Disclosure About Market Risk





Not applicable.


























20








Item 4. Controls and Procedures





I.   Disclosure Controls and Procedures.


As of the end of the period covered by this report, our management conducted an evaluation, under the supervision and with the participation of our chief executive officer and acting chief financial officer of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934). Based on this evaluation, the officers concluded that our disclosure controls and procedures are ineffective in ensuring that information required to be disclosed by our company in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Commission rules and forms.





II.  Changes in Internal Control over Financial Reporting


On May 4, 2008, management concluded that our internal control over financial reporting was not effective due to the existence of the material weaknesses discussed below. A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of
the annual or interim financial statements will not be prevented or detected.





On May 4, 2008, our Board of Directors concluded that we are required to restate its previously issued audited financial statements for the year ended June 30, 2007 and the periods ended September 30, 2007, and December 31, 2007.  Subsequent to the issuance of these financial statements, management identified various errors in connection
with its 2007 financial statements and determined that a restatement was necessary in respect of the following:





1.
Revision of reverse acquisition accounting.On August 9, 2007, we completed a reverse acquisition of Jpak Group Co., Ltd. (“Jpak Ltd”), a Cayman Islands Company.   As a result, Jpak Ltd became our wholly owned subsidiary.  Previously, in September 2006, Jpak Ltd acquired an 88.23% equity interest in Qingdao Renmin,
our primary operating subsidiary located in the city of Qingdao in Shandong Province in the Peoples Republic of China, through Grand International, a Hong Kong company, which is the wholly owned subsidiary of Jpak Ltd.  In July 2007, Grand International acquired the remaining 11.77% state-owned equity interest in Qingdao Renmin and now owns 100% equity interest in Qingdao Renmin.  The acquisition of Qingdao Renmin was initially accounted for using the purchase method. Subsequent to the issuance
of the June 30, 2007, financial statements, management revisited the acquisition and deemed the transaction to be a reverse acquisition for accounting purposes. Qingdao Renmin was considered to be the accounting acquirer as both Grand International and Jpak Ltd were holding companies with no significant operations and Qingdao Renmin continues as the primary operating entity even after the exchange, although Jpak Ltd is the legal parent company.  As such, Qingdao Renmin (and its historical financial statements)
is the continuing entity for financial reporting purposes and the share exchange will be treated as a recapitalization of Jpak Ltd.  Thus, Jpak Ltd is the continuing entity for financial reporting purposes.  Accordingly, we will prepare the financial statements as if Jpak Ltd had always been the reporting company and then on the share exchange date, changed its name and reorganized its capital stock.  Accordingly, we shall revise our financial statements to reflect reverse merger accounting
by eliminating the goodwill and adjusting the additional paid-in capital.





2.
Revision of capitalized costs related to financing transaction. In connection with the US$5,500,000 financing that we completed in August 2007, we granted warrants, with an exercise price of US$0.50 per share, to purchase up to 990,000 shares of common stock to the placement agent of the Financing. The expiration date of this warrant is May 17, 2011.
Furthermore, as a result of the investors’ exercise of their Series J warrants in December 2007, we granted the placement agent an additional warrant to purchase up to 750,000 shares of common stock with an exercise price of US$0.60 per share; the expiration date of this warrant is December 28, 2011. These placement agent warrants have the same terms as the Series A and Series B Warrants we issued to the investors.  The cost related to the two placement agent warrants were originally capitalized and
amortized over the term of the warrants.    However, after further  discussion  and research, we  believe  the  warrants  issued to  the placement  agents  are directly attributable to raising capital; if we had not issued the warrants to the placement agent, we would have paid the same amount of cash as the fair value of the warrants.  Therefore, we will allocate the proceeds received in a financing transaction to the preferred shares and warrants
on a relative fair value basis to the additional paid-in capital of preferred shares and common shares, respectively.











21








On September 23, 2008, our Board of Directors concluded that we are required to restate its previously issued audited financial statements for the period ended December 31, 2007 and March 31, 2008.  Subsequent to the issuance of these financial statements, management identified various errors in connection with them and determined
that a restatement was necessary in respect of the following:





1.
In connection with the exercise of the Series J Warrants (the “Series J Exercise”), we extended the term of our Series A Warrants and Series B Warrants 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 (from four to six years) was a condition of the exercise of the Series J Warrants and the
subsequent issuance of the Series B Preferred stock (“the financing”).  Originally we considered the incremental costs as part of the issuance costs for the Series B Preferred Shares.  However, after reviewing the SEC’s comments, we now believe that these costs are indirect costs associated with the offering of our securities and should be changed to an expense.  The incremental value of Series A warrants, Series B Warrants and investors warrants are US$540,430.





2.
We incurred a commission of $462,519.22 pursuant to the Series J Exercise.  However, this commission was not paid until January 16, 2008.  Originally, in the financial statements as of March 31, 2008, we did not account for this commission as a deduction to additional paid-in capital; we included this commission as part of the expenses in the third quarter.  To correct the error, we
accounted for the commission as a deduction to additional paid-in capital in the second quarter and revise the amount of expenses in the third quarter.








These control deficiencies resulted in a misstatement to substantially all of our financial statements and disclosures covering the year ended June 30, 2007 and onward, which resulted in a material misstatement to such annual and interim financial statements (September 30, 2007, December 30, 2007 and March 31, 2008) that was not prevented
or detected. Because of the aforementioned control deficiencies, which together constitute a material weakness, our management concluded that our internal control over financial reporting was ineffective.





Remediation Plan for Material Weaknesses





The material weaknesses described above in “Evaluation of Disclosure Controls and Procedures” comprise control deficiencies that we discovered in the third quarter of fiscal year 2008 as we were preparing responses to SEC comments regarding the registration statement on Form S-1 that we filed on February 29, 2008 and
in the first quarter of our fiscal 2009 year as we were preparing additional responses to SEC comments regarding the registration statement on Form S-1 that we filed on August 5, 2008. Pursuant to this discovery, we formulated a remediation plan and initiated remedial action to address those material weaknesses. The elements of the remediation plan are as follows:





●
Appoint a new Acting Chief Financial Officer.We appointed a new Acting CFO with extensive US GAAP and regulatory experience.  Our new Acting CFO, Frank Su, maintains a deep understanding of GAAP and financial statements and is highly skilled in analyzing and evaluating
various financial issues and in preparing financial statements.●
Restate Financial Statement:We restated our financial statements for the year ending June 30, 2007 and our interim financial statements for the quarter ending September 30, 2007, December 31, 2007 and March 31, 2008; furthermore, we filed the necessary amendments so that the
correct accounting treatment is reflected in those statements and flows through them accordingly.●
Seeking and Recruiting Additional Accounting Professionals. We are seeking to recruit experienced professionals to augment and upgrade our financial staff to address issues of timeliness and completeness in financial reporting when we are preparing filings for the Securities
and Exchange Commission.





Since April 2009 we have been working diligently on the documentation of internal controls. The documentation is expected to complete in December 2009. Testing of internal controls will be conducted thereafter. We have identified a number of weaknesses with several financial processes.  We are still in the process of evaluating
the impacts of these weaknesses, some of which may be material.  We expect this Sarbanes-Oxley Act Section 404 compliance project will enhance the Company’s internal controls significantly.





Although we believe that these corrective steps will remediate the material weaknesses discussed above when all of the additional financial staff positions are filled and our filings do not receive any additional comments from the SEC, we cannot assure you that this will be sufficient. We may be required to expend additional resources
to identify, assess and correct any additional weaknesses in our internal control. We cannot make assurances that it will not identify additional material weaknesses in its internal control over financial reporting in the future.





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.








22





ITEM 4T. CONTROLS AND PROCEDURES.





Management's Quarterly Report on Internal Control over Financial Reporting.





Management is responsible for establishing and maintaining adequate internal control over financial reporting.  Our management conducted an evaluation of the effectiveness  of our internal  control over  financial  reporting  based on the framework in Internal  Control -  Integrated  Framework  ("ICFR")  issued
by the Committee of Sponsoring  Organizations of the Treadway Commission.  Based on our evaluation, management has concluded, as of September 30, 2009, we did not maintain effective controls over the financial reporting process.





Management’s assessment of the effectiveness of the registrant’s internal control over financial reporting is as of the period ended September 30, 2009. Based on the evaluation, management concluded that there was a material weakness in our internal control over financial reporting.  Subsequent to the issuance of our
June 30, 2007 financial statements, management identified various errors in connection with our 2007 financial statements and determined that a restatement was necessary in respect of the following: revision of reverse acquisition accounting and revision of capitalized costs relatedto financing transactions.  As a result, we filed restated financial statements for the year ending June 30, 2007 and for the quarters ending September 30, 2007
and December 31, 2007.  We then received additional SEC comments and management determined that another restatement of our December 31, 2007 financial statements, and a restatement of our March 31, 2008 financial statements was necessary in respect of the following: accounting for the extended term of the Series A and Series B Warrants issued in the private placement we closed in August 2007 and the commission paid pursuant to the exercise of the Series J Warrants.





A  material  weakness  is  a  control  deficiency,  or  combination  of  control deficiencies,  in ICFR  such  that  there  is a  reasonable  possibility  that a
material  misstatement of our annual or interim financial statements will not be prevented or detected on a timely  basis by  employees  in the normal  course of their assigned functions.





To remediate the error, we filed restated financials and amendments to ensure that the disclosure in all of our filings is consistent and accurate.





This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's  report was not subject to attestation by our registered  public accounting firm pursuant to temporary rules of the Securities and Exchange  Commission  that
permit us to provide  only  management's report in this quarterly report.








PART II - OTHER INFORMATION





Item 1. Legal Proceedings





Not applicable.





Item 1A. Risk Factors





Not applicable.






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





(a)
As disclosed on the Current Report on Form 8-K that we filed with the Securities and Exchange Commission on November 5, 2009, on November 4, 2009, we issued 12,000,000 units of our securities pursuant to a Securities Purchase Agreement we entered into with one accredited investor.





For a more complete description of the terms of the securities, please see the November 5, 2009 8-K.





The Financing was consummated pursuant to the exemption from the registration provisions of the Securities Act of 1933, as amended, provided by Section 4(2) of the Securities Act, Rule 506 of Regulation D and/or Regulation S promulgated thereunder.








(b)
Not applicable.





(c)
Not applicable.








Item 3. Defaults Upon Senior Securities





Not applicable.





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





No matters were submitted to our security holders during the period covered by this Report.





Item 5. Other Information





Not applicable.





Item 6. Exhibits





Exhibit No.

Description3.1

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)15.1

Letter regarding unaudited interim financial information31.1

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.














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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 WangYijun Wang
Chief Executive Officer, Chief Accounting Officer,President & DirectorBy:
/s/  Dongliang SuDongliang Su
Acting Chief Financial Officer





Date:  November 12, 2009








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