Jpak Group (OTC BB:JPAK)

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.

JPAK GROUP, INC.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

 

 

		For the Three Months Ended								For the Six Months Ended
		December 31,								December 31,
			2011				2010				2011				2010
Sales		$	19,686,287			$	16,658,221			$	44,044,023			$	32,843,868
Cost of sales			17,077,534				13,774,638				38,591,848				26,399,795
Gross profit			2,608,753				2,883,583				5,452,175				6,444,073
Operating expenses
Selling, general and administrative			2,285,353				3,307,261				4,506,119				5,539,756
Income (loss) from operations			323,400				(423,678	)			946,056				904,317
Other income (expenses):
Interest Income			170,925				28,559				215,844				56,264
Interest expense			(248,203	)			(184,150	)			(424,581	)			(362,591	)
Non-operating income, net			(57,286	)			24,908				223,152				12,341
Total other income (expenses)			(134,564	)			(130,683	)			14,415				(293,986	)
Income (loss) before provision for income taxes			188,836				(554,361	)			960,471				610,331
Provision for income taxes			49,912				125,906				141,748				313,342
Net income (loss)			138,924				(680,267	)			818,723				296,989
Less: net loss attributable to noncontrolling interest			(87	)			(37	)			(130	)			(81	)
Net income (loss) attributable to Jpak Group, Inc.			139,011				(680,230	)			818,853				297,070
Undistributed income attributable to preferred
stockholders			64,575				—				380,384				137,999
Net income (loss) attributable to common
stockholders		$	74,436			$	(680,230	)		$	438,469			$	159,071
Basic earnings per common share		$	0.00			$	(0.02	)		$	0.01			$	0.00
Diluted earnings per common share		$	0.00			$	(0.02	)		$	0.01			$	0.00
Weighted average number of common shares outstanding
Basic			36,368,334				36,368,334				36,368,334				36,368,334
Diluted			67,918,795				36,368,334				67,918,795				67,918,795

The gross profit margin for the three months ended December 31, 2011was approximately 13.2 % as compared with 17.3% for the three months ended December 31, 2010, a decrease of 4.1%. The decrease was caused by ecreased sales price of our products. In order to maintain and expand our market shares in this competitive packing industry, we have to drop the sale prices to keep old customers and attract new customers. With the improved production technology, we expected the gross margin would increase slightly.

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 years use rights for a parcel of land with an area of approximately 65,064 square meters in Qingdao for a consideration of RMB19,909,553 (US$2,928,700). Qingdao Likang has started building a new plant on the land and the construction is estimated to be completed by June, 2011.

The agreement also included provisions that require total investment for the project no 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.

On July 20, 2011, Qingdao Renmin Printing Co., Ltd (“Qingdao Renmin”), our wholly-owned subsidiary established in People’s Republic of China (“PRC”), and Qingdao Jiexin Recycling Resources Technological Development Co. Ltd (“Qingdao Jiexin”), a PRC company, entered into a Merger Agreement, pursuant to which Qingdao Renmin will acquire 100% of Qingdao Jiexin’s shares for the consideration of RMB 5,000,000 by Qingdao Renmin.

As of May 9, 2011, Dongliang (Frank) Su resigned as our Acting Chief Financial Officer, although he will maintain his position as one of our financial advisors. Mr. Su’s tendered his resignation voluntarily and not as a result of any dispute or disagreement between us. On the same day, we appointed Yongbo (Esther) Wang as our Chief Financial Officer

In order to meet the corporate governance requirements imposed by the national securities exchanges and in anticipation that a majority of our directors will eventually be independent directors, the Company has been seeking qualified independent director with experience beneficial to the Company’s development. On July 10, 2010, the Board of Directors of Jpak Group, Inc appointed Mr. Wenjie Li as an independent director, effective July 10, 2010. Additionally, on July 10, 2010, Mr. Stewart Shiang Lor resigned from his position as one of our directors in order to provide a vacancy for Mr. Li on the Board, whose experience we believe will better assist the remaining board members to carry out their duties as a Board of Directors. Mr. Lor’s resignation was tendered voluntarily and not as a result of any dispute or disagreement between Mr. Lor and the Company. Accordingly, the Board of Directors accepted Mr. Lor’s resignation and appointed Mr. Li as his replacement to serve out the remainder of Mr. Lor’s term on the Board. Mr. Li is expected to bring additional value to the Company, in order to assist the Company in its planned growth.