Jpak Group Inc. (fka JPAK)

JPAK GROUP, INC...

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 the largest and leading domestic supplier of aseptic liquid food and beverage cartons in China. Our business is primarily in China, but we have recently begun contract 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.

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. In addition, the recent milk scandal has brought significant downward pressure on the industry.

As a result of Chinas new anti-monopoly laws, some of our larger competitors have decreased the amount of bundled products that they offer. Although this may cause such competitors to lower their price points, we believe it may actually allow us to be more competitive with them as we continue to offer bundled material and equipment which still maintains a large market share.

Milk scandal and its continuous effect on Jpak

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

The tainted milk powder was traced to the Sanlu Group, one of China's biggest dairy producers, which operates as a joint venture with a New Zealand-based dairy conglomerate, Fonterra. Further investigation revealed that milk formula powders produced by dozens of other dairy producers were also contaminated. After this scandal, the Chinese government began strengthening its supervision of both the milk and beverage industries. As a result, some smaller plants have been stopped their production and other larger companies within the industry are still working to recovery from the damage caused by the scandal.

In recent years and prior to the milk scandal, we began focusing more efforts in the dairy packaged segment as it typically had higher margins than the fruit juice market. Due to the scandal, our previously developed relationship with Sanlu has been terminated and all orders were cancelled. Additionally, orders from Taizinai, one of our other customers in the diary sector, have also fallen sharply.

Management continues to monitor both the short and long-term impact that the milk scandal will continue to have on our operations. Although Management believes that we are currently taking every possible action to minimize the impact, we may still experience some negative short term impact on our operating results. For example, our short term revenue has been adversely impacted by scandals negative impact on medium and small size companies that constitute most of our customers. Additionally, we have reduced our average sales price by nearly 10% as a result of more competitive environment brought by this scandal. However, management's efforts to realign our marketing focus on the post-scandal market place are beginning to show positive results. Our orders of the fiscal year 2009 increased by 27% compared to fiscal year 2008 in terms of volume. Currently packages for dairy and tea drink account for a largely percentage of our products and 50% and 30% of our revenue respectively.