­UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
20-F




ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934




For
fiscal year ended: December
31, 2008


Commission
File Number: 000-51180




Poly-Pacific
International Inc.


(Exact
Name of the Registrant as Specified in its Charter)




Alberta,
Canada


(Jurisdiction
of Incorporation or Organization)




1279
E. 51st
Avenue


Vancouver,
BC, V5X 1E9


(Address
of Principal Executive Offices)




Securities
registered or to be registered pursuant to Section 12(b) of the Act: NONE




Securities
registered or to be registered pursuant to Section 12(g) of the
Act:




Common  shares, no
par value


(Title of
Class)




Preferred  shares,
no par value


(Title of
Class)




Securities
for which there is a reporting obligation pursuant to Section 15(d) of the Act:
NONE




The
number of outstanding shares of each of the issuer's classes of capital or
common shares as of the close of the period covered by the annual
report:


79,609,946Common Shares and 0 (zero)
Preferred Shares




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:oNo: x




Indicate
by check mark which financial statement item the registrant has elected to
follow:




Item
17:xItem 18:o





Indicate by check mark whether the
registrant has filed all documents and reports required to be filed by Sections
12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a
court.


Not
applicable




1




TABLE OF CONTENTS




EXPLANATORY
      NOTE REGARDING FORM 20-F
            5GENERAL
            5FORWARD
      LOOKING STATEMENTS
            5PART
      I
            6ITEM
      1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
            6A.
      Directors and Senior Management
            6Table
      1.1--Company Directors and Officers
            6B.
      Advisers
            6C.
      Auditors
            6ITEM
      2. OFFER STATISTICS AND EXPECTED TIME TABLE
            6ITEM
      3. KEY INFORMATION
            7A.
      Selected Financial Data
            7Table
      3.1--Summary of Financial Statements in United States GAAP
            7Table
      3.2--Effects of Currency Translation and Conversion
            8B.
      Capitalization and Indebtedness
            8C.
      Reasons for the Offer and Use of Proceeds
            8D.
      Risk Factors
            8ITEM
      4. INFORMATION ON THE COMPANY
            10A.
      History and Development of the Company
            10B.
      Business Overview
            11




2





ITEM
      5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
              12Company's
      Critical Accounting PoliciesA.
      Operating Results
              18Table
      5.1--Summary of Operations
              18B.
      Liquidity and Capital Resources
              19D.
      Trend Information
              21E.
      Off Balance Sheet Arrangements
              21F.
      Tabular Disclosure of Contractual Obligations
              21ITEM
      6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
              21A.
      Directors and Senior Management
              21B.
      Compensation
              23C.
      Board Practices
              27D.
      Employees
              27E.
      Share Ownership
              27ITEM
      7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
              28A.
      Major Shareholders
              28B.
      Related Party Transactions
              28C.
      Interests of Experts and Counsel
              28ITEM
      8. FINANCIAL INFORMATION
              29A.
      Consolidated Financial Statements and Other Financial
      Information
              29Consolidated
      Financial Statements for December 31, 2007, 2006 and 2005
              29B.
      Significant ChangesITEM
      9. THE OFFER AND LISTING
              56Table
      9.1--History on TSX Venture Exchange (in Canadian Dollars)
              56ITEM
      10. ADDITIONAL INFORMATION
              57A.
      Share Capital
              57Common
      Shares
              57Preferred
      Shares
              58Stock
      options
              59B.
      Memorandum and Articles of Association
              61C.
      Disclosure controls and Procedures update
              61D.
      Material Contracts
              62E.
      Exchange Controls
              62F.
      Taxation
              64G.
      Dividend and Paying Agents
              67H.
      Statement by Experts
              67I.
      Documents on Display
              67J.
      Subsidiary Information
              68




3


ITEM
      11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
    RISK
            68ITEM
      12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
            68PART
      II
            68ITEM
      13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
            68ITEM
      14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
            68ITEM
      15. CONTROL AND PROCEDURES
            68ITEM
      16. RESERVED
            68A.
      Audit Committee Financial Expert
            68B.
      Code Of Ethics
            68C.
      Principal Accountant Fees And Services
            68D.
      Exemption From Listing Standards For Audit Committees
            69E.
      Purchases Of Equity Securities By The Issuer And Affiliated
      Persons
            69PART
      III
            69ITEM
      17. FINANCIAL STATEMENTS
            69ITEM
      18. FINANCIAL STATEMENTS
            69ITEM
      19. EXHIBITS
            70SIGNATURE
            71




4




EXPLANATORY
NOTE REGARDING FORM 20-F




This Form
20-F is filed for the years ended December 31, 2008, 2007, and
2006.




GENERAL




Unless
the context otherwise requires, the "Registrant" means Poly-Pacific
International Inc. and the "Company" means the Registrant.




The
Registrant uses the Canadian dollar as its reporting currency. Unless otherwise
indicated, all references in this document to "dollars" or "$" are expressed in
Canadian dollars. Also, see Item 3 "Key Information" Table 3.2 for more detailed
currency and conversion information.




FORWARD
LOOKING STATEMENTS




Some of
the statements contained in this Report that are not historical facts,
including, statements made in the sections entitled Item 3-"Key Information,"
Item 4-"Information on the Company," “New Opportunities/Direction for the
Company,” and Item 5-"Operating and Financial Review and Prospects," are
statements of future expectations and other forward-looking statements that are
based on management's current views and assumptions and involve known and
unknown risks and uncertainties that could cause actual results, performance or
events to differ materially from those expressed or implied in the statements.
Actual results, performance or events may differ materially from those in the
statements due to, without limitation, (i) general economic conditions, (ii)
performance of financial markets, (iii) interest rate levels, (iv) currency
exchange rates, (v) changes in laws and regulations, (vi) changes in the
policies of central banks and/or foreign governments, and (vii) competitive
factors, in each case on a global, regional and/or national basis. See Item
5-"Operating and Financial Review and Prospects."




The
forward looking statements contained herein are based on the Company's
assumptions regarding world economic and market conditions the price and supply
of raw materials. Among the factors that have a direct bearing on the Company's
future results of operations and financial conditions are the successful
development of the Company's projects and a change in government regulations,
leverage and debt service, competition, cost of certain raw materials, currency
fluctuations and restrictions, technological changes, and other factors
discussed herein. The Company's actual results of operations may vary
significantly from the performance projected in the forward looking
statements.




5




PART I




ITEM
1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS




A.
Directors and Senior Management





Table
1.1—Company Directors and Officers





Name
                      Position
                      Business
      AddressRandy
      Hayward
                      President,
      Acting Chief Executive
                        officer
      and Active Chief Financial
                        Officer
      and Director
                      1279
      E. 51st
      Avenue, Vancouver,
                        British
      Columbia,  V5X 1E9Richard
      Oravec
                      Director
                      Greenwich,
      CT, USAGreg
      Pendura
                      Director
                      Edmonton,
      AB, CanadaDick
      Sharples
                      Director
                      Gabriola,
      BC,
Canada




B.
Advisers




The
Company banks with the Bank of Nova Scotia (ScotiaBank) at 11508 Jasper Avenue,
Edmonton, Alberta T5K 0M8. The telephone number for the ScotiaBank is
780-448-7930.  The Company’s Canadian corporate legal advisor is Roy
Hudson who is a partner in Davis LLP. The address for Davis LLP is 1500
Livingston Place, 1000-250 2nd St. SW.
Calgary, Alberta, Canada, and T2P. The telephone number for Roy
Hudson  is 403-698-8708.




C.
Auditors




The
Company’s auditor is K.R. Margetson Ltd. located at 5588 Inlet Avenue, Sechelt,
British Columbia, Canada V0N 3A1.  The audit contact partner is Keith
Margetson, C.A. and C.P.A.




ITEM
2. OFFER STATISTICS AND EXPECTED TIME TABLE




Not
applicable.




6




ITEM
3. KEY INFORMATION




A.
Selected Financial Data




The
selected financial data set forth below have been derived from our audited
financial statements. Our financial statements for fiscal years ended December
31, 2008 and 2007 have been audited by K.R.Margetson Ltd.  Financial
statements for fiscal years ending December 31, prior to 2007 have been audited
by Collins Barrow Edmonton LLP, Chartered Accountants. The selected financial
data should be read in conjunction with and are qualified by reference to
the  Financial Statements and notes thereto for the years ended
December 31, 2008 and 2007 included elsewhere in the Exhibits to this
Report.




Our
financial statements have been prepared in accordance with the standards of the
Public Company Accounting Oversight Board (PCAOB) pursuant to generally accepted
accounting principles (GAAP) in the United States.




All
amounts are shown in Canadian dollars, unless otherwise specified.




Table
3.1—Summary of Financial Statements in United States GAAP




Summary
of annual financial statements for the prior five years are presented in this
table. All amounts are shown in Canadian dollars and prepared in accordance with
U.S. GAAP.  The summaries for 2008, 2007, 2006, 2005 and 2004 are
taken from the audited financial statements included elsewhere in this
report.




Poly-Pacific
      International Inc.Year
                                      ended
                                      31/12/2008
                                    
                                    
                                    Year
                                      ended
                                      31/12/2007
                                    
                                    
                                    Year
                                      ended
                                      31/12/2006
                                    
                                    
                                    Year
                                      ended
                                      31/12/2005
                                    
                                    
                                    Year
                                      ended
                                      31/12/2004Total
      Consolidated Revenues
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    1,470,357
                                    
                                    
                                    
                                    3,052,716
                                    
                                    
                                    
                                    3,819,057Total
      Operating Expenses
                                    
                                    
                                    2,171,689
                                    
                                    
                                    
                                    2,975,383
                                    
                                    
                                    
                                    2,281,996
                                    
                                    
                                    
                                    4,389,138
                                    
                                    
                                    
                                    4,041,414Income
      tax expense (recovery)
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    174,750
                                    
                                    
                                    
                                    19,392Net
      Loss
                                    
                                    
                                    (2,171.689)
                                    
                                    
                                    
                                    (2,975,383)
                                    
                                    
                                    
                                    (1,970,479)
                                    
                                    
                                    
                                    (1,161,662)
                                    
                                    
                                    
                                    (241,749)Discount
      on Redemption of Preferred Shares
                                    
                                    
                                    
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --Net
      Income (Loss) available to Common Shareholders
                                    
                                    
                                    (2,171,689)
                                    
                                    
                                    
                                    (2,975,383)
                                    
                                    
                                    
                                    (1,970,479)
                                    
                                    
                                    
                                    (1,161,662)
                                    
                                    
                                    
                                    (241,749)Net
      Income (Loss) per share
                                    
                                    
                                    (0.03)
                                    
                                    
                                    
                                    (0.06
                                    )
                                    
                                    
                                    (0.09)
                                    
                                    
                                    
                                    (0.09)
                                    
                                    
                                    
                                    (0.03)Diluted
      Earnings (Loss) per share
                                    
                                    
                                    (0.03)
                                    
                                    
                                    
                                    (0.06
                                    )
                                    
                                    
                                    (0.09)
                                    
                                    
                                    
                                    (0.09)
                                    
                                    
                                    
                                    (3.03)Total
      Assets
                                    
                                    
                                    173,822
                                    
                                    
                                    
                                    497,356
                                    
                                    
                                    
                                    1,313,837
                                    
                                    
                                    
                                    2,111,503
                                    
                                    
                                    
                                    3,628,977Long
      term obligations
                                    
                                    
                                    196,557
                                    
                                    
                                    
                                    171,749
                                    
                                    
                                    
                                    2,045,778
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    137,820Additional
      Paid in Capital
                                    
                                    
                                    3,424,280
                                    
                                    
                                    
                                    2,375,573
                                    
                                    
                                    
                                    952,976
                                    
                                    
                                    
                                    731,170
                                    
                                    
                                    
                                    697,474Accumulated
      Comprehensive Income
                                    
                                    
                                    53,195
                                    
                                    
                                    
                                    53,195
                                    
                                    
                                    
                                    53,195
                                    
                                    
                                    
                                    53,195
                                    
                                    
                                    
                                    53,195Common
      Shares Capital
                                    
                                    
                                    5,678,396
                                    
                                    
                                    
                                    4,903,756
                                    
                                    
                                    
                                    2,293,422
                                    
                                    
                                    
                                    1,998,538
                                    
                                    
                                    
                                    865,584Preferred
      Shares Capital
                                    
                                    
                                    ---
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --Accumulated
      Deficit
                                    
                                    
                                    (9,178,606)
                                    
                                    
                                    
                                    (7,006,917)
                                    
                                    
                                    
                                    (4,031,534)
                                    
                                    
                                    
                                    (2,061,055)
                                    
                                    
                                    
                                    (899,393)Total
      Shareholders Equity
                                    
                                    
                                    (22,735)
                                    
                                    
                                    
                                    325,607
                                    
                                    
                                    
                                    (731,941)
                                    
                                    
                                    
                                    721,848
                                    
                                    
                                    
                                    716,860Common
      Shares outstanding
                                    
                                    
                                    76,609.946
                                    
                                    
                                    
                                    58,720,279
                                    
                                    
                                    
                                    25,237,740
                                    
                                    
                                    
                                    18,885,456
                                    
                                    
                                    
                                    9,361,624Weighted
      Average – Diluted Shares
                                    
                                    
                                    63,493,042
                                    
                                    
                                    
                                    47,146,785
                                    
                                    
                                    
                                    22,817,241
                                    
                                    
                                    
                                    12,536,235
                                    
                                    
                                    
                                    9,361,624




7




Table
3.2--Effects of Currency Translation and Conversion




The
following tables set forth: (i) the rates of exchange for the Canadian dollar,
expressed in U.S. dollars, in effect at each of the periods indicated; (ii) the
average exchange rates in effect on the last day of each period; (iii) the high
and low exchange rate during such periods, in each case based on the noon buying
rate in New York City for cable transfers in Canadian dollars as certified for
customs purposes by the Federal Reserve Bank of New York; (iv) annual prices
based for the period January 1 to December 31 yearly; and (v) monthly prices
based for the first to last reported day each month for the most recent six
months, and quoted in U.S. dollars.




Annual
      Periods
                    2008
                    2007
                    2006
                    2005
                    2004Rate
      at end of period
                    0.8210
                    1.0120
                    0.8671
                    0.8576
                    0.8310Average
      rate during period
                    0.9371
                    0.9309
                    0.8700
                    0.8253
                    0.7696High
      Rate
                    0.8101
                    0.8437
                    0.8629
                    0.8672
                    0.8493Low
      Rate
                    1.0001
                    1.0908
                    0.8700
                    0.7853
                    1.7158





Monthly
      Periods
                  May/09
                  Apr/09
                  Mar/09
                  Feb/09
                  Jan/09
                  Dec/08Rate
      at end of period
                  0.8696
                  0.8166
                  0.7916
                  0.8034
                  0.8165
                  0.8210Average
      rate during period
                  0.8689
                  0.8170
                  0.7908
                  0.8031
                  0.8155
                  0.8100High
      Rate
                  0.8639
                  0.8115
                  0.7872
                  0.7980
                  0.8093
                  0.8101Low
      Rate
                  0.8735
                  0.8202
                  0.7965
                  0.8079
                  0.8223
                  1.0001




On June
26, 2009, the noon buying rate in New York City for cable transfer in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York as $.8672 USD = $1.00 CDN.




B.
Capitalization and Indebtedness





Capitalization
      of Poly-Pacific International Inc. in Canadian DollarsDescription
                    Authorized
                    Balance
      at  December 31, 2008Debentures
                    N/A
                    $119,000Common
      Shares
                    Unlimited
                      (79,609,946  issued
      and outstanding
                      as
      of December 31, 2008)
                    $5,678,396




C.
Reasons for the Offer and Use of Proceeds




Not
applicable.




D. Risk Factors




The
following is a brief discussion of those distinctive or special characteristics
of the Company's operations and industry which may have a material impact on the
Company's business development, or constitute risk factors in respect of the
Company's financial performance.





We are authorized to issue
preferred shares which, if issued, may reduce the price of the common
shares.





Although
no preferred shares are currently issued and outstanding, our directors are
authorized by our Articles of Incorporation, as amended, to issue preferred
shares in series without the consent of our shareholders. Our preferred shares,
if and when issued, may rank senior to common shares with respect to payment of
dividends and amounts received by shareholders upon liquidation, dissolution or
winding up. The issuance of preferred shares in series and the preferences given
the preferred shares must be made by a Resolution of Directors, but do not need
the approval of our shareholders. The existence of rights, which are senior to
common shares, may reduce the price of our common shares.




8




Because we do not have a
compensation committee, shareholders will have to rely on the entire board of
directors,  one members of which are not independent, to perform this
function.





We do not
have a compensation committee comprised of independent
directors.  Indeed, we do not have a compensation
committee.  This function is performed by the board of directors as a
whole in respect of compensation of officers of the corporation.  Mr.
Randy Hayward, President as a member of the board of directors is not an
independent directors.  The Board of Directors does not have a
formally appointed compensation committee, but performs this function as a whole
in respect of compensation of officers of the corporation, with any officer who
is also a director being excluded from the deliberations of the other directors
in respect of that officer’s compensation.  Thus, there is a potential
conflict in that board members who are not independent may participate in
discussions concerning management compensation other than their compensation and
other issues that may affect management decisions.





Penny
Stocks.





Because
our common shares are a penny stock, trading in the common shares involves
increased risks­­ concerning price fluctuation, additional disclosure
requirements and a lack of a liquid market.





Our
shares will be "penny stocks" as that term is generally defined in the
Securities Exchange Act of 1934 to mean equity securities with a price of less
than $5.00.  Our shares thus will be subject to rules that impose
sales practice and disclosure requirements on broker-dealers who engage in
certain transactions involving a penny stock.





Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or accredited investor must make a special
suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt.





Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling
shareholders or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the secondary
market.  These additional sales practice and disclosure requirements
could impede the sale of our securities.  This lower trading volume
can cause price fluctuations.  In addition, the liquidity for our
securities will be decreased, with a corresponding decrease in the price of our
securities.  Accordingly, our shareholders will, in all likelihood,
find it difficult more to sell their securities.





Because a portion of
convertible debentures issued in 2003 remains outstanding as at the date of
this  report, there is a potential for some dilution in share
values.





The
holders of the $119,000 in convertible debentures outstanding as at the date of
this  report might decide to act on the conversion if the common
shares value rises above the conversion price.  If this event was to
occur it would have the effect of diluting the earnings per share by about 0.2%
which could decrease the value of the Company’s common shares.  This
amount is comprised of $102,000 in principal and $17,000 in accrued
interest.




9




ITEM
4. INFORMATION ON THE COMPANY




A.
History and Development of the Company





Poly-Pacific
International Inc. (“Poly-Pacific” or the “Company”) is an innovator in
eco-friendly solutions to Industrial Waste by-products.  The Company
is actively pursuing the reclamation of industrial polymers throughout the
world. The significance and importance of recycling and reclaiming industrial
waste has become an important global issue. Poly-Pacific is focused on
benefiting our planet by exploring and pursuing new environmentally sound
methods and technologies in recycling, while creating significant value for our
shareholders as the leading company in the reclamation sector.





In the
past, the Company’s wholly owned subsidiary, Poly-Pacific Technologies Ltd.
(“PPT”) was a key player in the Green Industry and a leading manufacturer of
plastic media blast and plastic lumber.  PPT produced plastic media
blast from scrap plastic designed for the rapid removal of paints and coatings
from sensitive surfaces that could be used on aircrafts, automobiles,
composites, and electronic components.  Plastic media blast was a
proven, environmentally friendly alternative to harsh chemical stripping agents
and other hard abrasive materials.   In addition, the Company had
another owned subsidiary, Everwood Agricultural Products International Inc.
(“Everwood”), which recycled the spent media and disposed plastic containers
into plastic lumber for the agricultural industry.





At
December 31, 2006, as a result of continued losses and Everwood’s inability to
obtain an adequate supply of raw materials to make posts and attain
cost-efficient production, the Company decided to permanently cease its
operations in St. Thomas, Ontario, in order to manage costs and to focus its
efforts in the plastic media market and to develop the McAdoo Nylon Reclamation
Project in Kingston, Ontario.





On
November 1, 2007, due to the continuing losses as a result of decreasing market
share and lack of demand for plastic media, the Company announced the closure of
its wholly owned subsidiary, Poly-Pacific Technologies Inc. and its operations
in Ontario, California.





Currently,
the Company is actively pursuing reclamation of industrial polymers,
particularly nylon, around the world.  On July 8, 2008, the Company
completed a feasibility study on the McAdoo landfill site in Kingston,
Ontario.  Though the McAdoo landfill site proved not to be
economically feasible, the Company gained valuable knowledge and expertise in
reclamation of an industrial landfill site.  Then on November 10,
2008, the Company has signed a License Agreement with Energy Quest Inc. Under
the terms of this agreement, the Company will have the exclusive rights to
commercialize and/or or manufacture, market and distribute Energy Quest's
Gasification Technologies in the People's Republic of China, which includes
Mainland China, Hong Kong and Macau.  The objectives of the License
Agreement as agreed and approved by both parties shall be to deliver sustainable
municipal waste management in China by selling gasification power plants that
are based on a new and more effective technology with no emissions. The
application of the Gasification Technology would include municipal and
industrial solid waste, tires, forestry, pulp and paper waste.




10




B.
Business Overview




Since
inception, the Company has worked to refine its MultiCut TM plastic blasting
media by developing the technology to provide consistent, high quality products
for military, commercial and industrial customers.




As
worldwide demand for plastic blast media declined coupled with rising costs and
declining demand for plastic media, management at Poly-Pacific has concluded
that being a manufacturer of plastic blast media is no longer economically
viable. Recognizing this, they have made the decision to redirect the company
from being a buyer of plastics to being a provider of the
commodity.




Poly-Pacific
has a long history in recycled plastics, purchasing the majority of its scrap
plastic from China. As such, it has identified the worldwide shortage in certain
types of plastics, specifically petroleum based polymers. As a result of this
decision, the company is had focused its efforts in the reclamation of polymers,
specifically nylon, that have strategically been buried in landfill sites around
the world.




Utilizing
its expertise in the recycling of plastics, Poly-Pacific has sought out several
landfill sites in North America that contain vast quantities commercial grade of
nylon. These nylon deposits were as a result of over-production by the various
manufactures during the 1950’s, 60’s and 70’s. Nylon, being a synthetic fibre,
takes hundreds of years to decompose. Nylon which was deposited underground
thirty to forty years ago will still retain most of its virgin commercial value.
As a commodity, nylon is one of the most popular polymers in use today. When
first invented in the 1940’s, nylon was mainly used for parachutes, toothbrushes
and stockings. Nylon was also a principle component in the manufacturing of
automotive tires up until the 1960’s. Today, nylons largest market, motor
vehicles, accounted for 45% of total demand. Other major markets include
electrical and electronics, consumer and institutional goods, packaging and
industrial products. Advances in the motor vehicle market will fuel gains, as
nylon will continue to penetrate new applications in engine and mechanical
areas. Electrical and electronic markets will be bolstered by gains in wire,
cable and electronic component uses. Worldwide nylon demand is estimated to
increase by 40% by 2015.




With
growing landfill sites becoming a worldwide problem, landfill reclamation
projects provided Poly-Pacific with a unique opportunity to assist in cleaning
our environment, while earning revenue for the Company and enhancing shareholder
value. The Company will continue to pursue its business model to include the
reclamation of landfill sites and industrial polymer fibre throughout North
America.  The first property to be assessed was the McAdoo Landfill
Site in the City of Kingston, Ontario.  The feasibility study for
McAdoo which was completed in  2008 proved to be economically
unviable, however, the company was able to gain experience and knowledge that it
will be able to leverage in other properties it continues to
assess.




Stock
listing Information:




As
discussed above, Poly-Pacific International Inc. is a junior industrial company
that was first listed in Canada in 1995 and trades as a Tier 1 company on the
TSX Canadian Venture Exchange (TSX-V:PMB).  Poly-Pacific was also
listed on the USA on December 30, 2005, on the NASDAQ Over The Counter Bulletin
Board (OTCBB: PLYPF), on the German Stock Exchange in January 2007 (POZ), and
the Berlin Stock Exchange (A0LGDN)
also in January 2007.




The
address of our principal executive offices is 1279 51st Avenue
East, Vancouver, British Columbia, V5X 1E9:  (604)
324-2110.   The name and address of our registered agent in
Canada is: Davis LLP
:LivingstonPlace, 1000-250 2nd St. SW,
Calgary, Alberta, T2P 0C1.




Property,
Plants and Equipment




Not
applicable




11




ITEM
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS




Nature
of Business





Poly-Pacific
International Inc. (“Poly Pacific” or the “Company”) was incorporated under the
Alberta Business Corporations Act on October 25, 1995.  The Company is
actively pursuing the reclamation of industrial polymers throughout the
world.  Poly Pacific is focused on exploring and pursuing new
environmentally sound methods and technologies in recycling, and in particular,
the reclamation sector.





Going
Concern





These
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles on a going concern basis, which presumes that the
Company will be able to realize its assets and discharge its liabilities in the
normal course of business for the foreseeable future.





The
Company incurred a net loss for the year ended December 31, 2008 of $2,171,689
with a total accumulated deficit of $9,178,606.  There is substantial
doubt about the Company’s ability to continue as a going concern.  The
Company’s continuation as a “going concern” is dependent upon its ability to
achieve profitable operations, upon the continued financial support of its
shareholders and upon its ability to obtain additional financing or
equity.  Management is implementing a plan to obtain additional equity
financing in amounts sufficient to sustain operations.  The outcome of
this matter cannot be determined at this time.





These
financial statements do not include any adjustments to the amounts and
classification of assets and liabilities that may be necessary should the
Company be unable to continue as a going concern.


Significant
Accounting Policies





Basis
of Presentation





These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (U.S. GAAP).  All amounts
herein are expressed in Canadian dollars unless otherwise
noted.  These financial statements conform in all material respects
with Canadian generally accepted accounting principles (“Canadian GAAP”), except
as discussed in Note 14.





Measurement
uncertainty





The
preparation of financial statements is in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  Actual results could differ
from those estimates.




Through
the ordinary course of business, a number of claims are pending in which the
Company or its subsidiaries may be the plaintiff or defendant.  The
claims are discussed in Note 4 Convertible Debentures and Note 7 Contingencies
in the audited financial statements for the year ended December 31, 2008
included below. The likely outcome of these claims is disclosed on a per claim
basis, along with any measurement uncertainty relating thereto.


12





Revenue
Recognition





Revenue
is recorded when significant risks and rewards of ownership have been
transferred to the customer.  This occurs at the time of shipment (FOB
shipping point) of the products from the Company’s warehouse and an invoice is
prepared.  Revenues are recognized only when the Company has
transferred to the customer the significant risk and rewards of ownership of the
goods, title to the products transfers, the amount is fixed and determinable,
evidence of an agreement exists, there is reasonable assurance of collection of
the sales proceeds, the Company has no future obligations and the customer bears
the risk of loss.





Cash
and cash equivalents





The
Company considers all highly liquid investments and short term debt instruments
with original maturities of three months or less to be cash
equivalents.  As at December 31, 2008, there were cash equivalents of
$nil (2007 - $20,000).  As at December 31, 2008, all amounts were
deposited in accounts that were federally insured.  (2007 - $15,328
were in accounts that were not insured.)




Equipment




Equipment
is recorded at cost and amortized over its estimated useful
life.  Amortization is calculated at the following annual
rates:




Computer
      equipment
            - 30% declining
      balanceOffice
      equipment
            - 20% declining
      balance


Fair
Value Measurements




Effective
January 1, 2008, the Company adopted SFAS No. 157, 'Fair Value Measurements, for
all financial instruments and non-financial instruments accounted for at fair
value on a recurring basis. SFAS 157 establishes a single definition of fair
value and a framework for measuring fair value, sets out a fair value hierarchy
to be used to classify the source of information used in fair value measurement
and expands disclosures about fair value measurements required under other
accounting pronouncements. It does not change existing guidance as to whether or
not an instrument is carried at fair value.





SFAS 157
established market and observable inputs as the preferred source of values,
followed by assumptions based on hypothetical transaction in the absence of
market inputs.





The
valuation techniques required by SFAS 157 are based upon observable and
unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Company's market
assumptions. These two types of inputs create the following fair value
hierarchy:





Level 1 -
Quoted prices in active markets for identical asset or liabilities.





Level 2 -
Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for
identical or similar assets and liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market
data.




13




Level 3 -
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. This includes
certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.





In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3),
which clarifies the application of SFAS 157 when the market for a financial
asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’s
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker quotes
or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. The guidance in FSP
157-3 became effective immediately.




Fair
Value




The fair
value of cash and cash equivalents,, loan receivable and accounts payable and
accrued liabilities were estimated to approximate their carrying values due to
the immediate short-term maturity of these financial instruments.The
convertible debentures are being carried at amortized value on the balance sheet
but were recognized at fair value at the date of issuance.




Risks




Financial
instruments that potentially subject the Company to credit risk consist
principally of cash. Management does not believe the Company is exposed to
significant credit risk.




The
Company’s convertible debentures payable are subject to interest rate price
risk.   Management believes the degree of risk to be
insignificant.





The
Company is subject to currency risks, which management believes are
insignificant.





The
accompanying financial statements do not include any adjustments that might
result from the eventual outcome of the risks and uncertainties described
above.




Impairment
of Long-Lived Assets




The
Company reviews the carrying values of long-lived assets for existence of facts
or changes in circumstances that might indicate a condition of
impairment.  If estimates of undiscounted cash flows expected to
result from the use of an asset and its eventual disposition are less than the
carrying amount then the carrying amount of the asset is written down to its
fair value.




Translation
of Foreign Currency




The
functional currency of the Company is the Canadian dollar.  Foreign
currency balances are translated into Canadian dollars as follows:




14




Monetary
assets and liabilities of are translated into Canadian dollars at the rate of
exchange in effect at the balance sheet date.  Revenue and expense
items are translated at average rates of exchange in effect at the respective
transaction months.  The resulting exchange gains or losses are
included in earnings.  Non-monetary assets and liabilities, arising
from transactions denominated in foreign currencies, are translated at rates of
exchange in effect at the date of the transaction.





Assets
and liabilities of foreign subsidiary were translated into Canadian dollars at a
rate of exchange in effect at the balance sheet date and revenue and expenses at
the exchange rates in effect at the time the revenue or expense was
incurred.  Resulting translation adjustments, if material, are
accumulated as a separate component of accumulated other comprehensive income in
the statement of stockholders’ equity while foreign currency translation gains
and losses are included in operations.





Deferred
Taxes





The
Company accounts for and measures deferred tax assets and liabilities in
accordance with the asset and liability method.  Under this method,
deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be reversed or settled.  The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the date of enactment of the
change.  When the future realization of income tax assets does not
meet the test of being more likely than not to occur, a valuation allowance in
the amount of the potential future benefit is taken and no net asset is
recognized.





Stock-Based
Compensation Plan





Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
Board (“SFAS”) No. 123(R) “Share-Based Payment”, a revision to SFAS 123
“Accounting for Stock-Based Compensation”.  SFAS 123(R) requires the
Company to recognize in the income statement the grant date fair value of
share-based compensation awards granted to employees over the requisite service
period.  Compensation expense recognized reflects estimates of award
forfeitures and any change in estimates thereof are reflected in the period of
change.  The risk-free interest rate assumption is based upon observed
interest rates appropriate for the expected term of the Company’s employee stock
options.  The Company used its historical volatility as a basis to
estimate the expected volatility assumption used in the Black-Scholes model
consistent with SFAS 123(R). The Company has not paid any dividends on common
stock since its inception and does not anticipate paying dividends on its common
stock in the foreseeable future.  The expected life of employee stock
options is based on historic forfeiture rates.  Transactions in which
goods and services are received from non employees in exchange for the issuance
of shares are accounted for on the basis of the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more
reliably measured.





Direct
Costs





Direct
costs consist primarily of purchasing costs, freight, direct labour and other
specific costs.




15


Net
Income (loss) Per Common Share





Net
income (loss) per common share is calculated using the weighted average number
of common shares outstanding during the period.  Diluted net income
(loss) per common share is calculated using the treasury stock method which uses
the weighted average number of common shares outstanding during the period and
also includes the dilutive effect of potentially issuable common
shares.  Dilutive net income (loss) per share on the potential
exercise of the equity-based financial instruments is not presented where the
effect is anti-dilutive.





Comprehensive
Income





In
accordance with SFAS 130, "Reporting Comprehensive Income" ("SFAS 130"),
comprehensive income consists of net income and other gains and losses affecting
stockholder's equity that are excluded from net income, such as unrealized gains
and losses on investments available for sale, foreign currency translation gains
and losses and minimum pension liability.





Consolidation





The
Company has two wholly owned subsidiaries, Everwood Agricultural Products
International Inc. (“Everwood”) and Poly-Pacific Technologies Inc.
(“PPT”).  As discussed in Note 2, these companies have been classified
as discontinued operations, the Company no longer has control over their
operations and the accounts of those entities are not included in these
financial statements.





General
and Administrative





General
and administrative costs consist primarily of office expenses, management
salaries, administrative salaries and other expenses.





Advertising





The
Company expenses advertising costs as incurred.





Deposit





Deposit
consists of refundable amounts held by vendors.





Recent
Pronouncements





In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (“SFAS”) No. 141(R), "Business
Combinations”.  SFAS 141(R) establishes principles and requirements
for how the acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, an any non-controlling
interest in the acquiree, recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase, and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  SFAS
141(R) is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008.  As such, the Company
is required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2009.  The Company does not expect it to have a material
effect on the financial statements.




16




In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (“SFAS”) No. 160, "Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”.  SFAS
160 establishes accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary.  SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  As such, the Company is required to adopt these provisions at
the beginning of the fiscal year ended December 31, 2009.  The Company
does not expect it to have a material impact on its financial
statements.





In March,
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (“SFAS”) No 161. This Statement requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. This Statement is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged. This Statement
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption.   The Company is currently evaluating the
impact of SFAS 160 on its financial statements.





In May 2008, the FASB
issued SFAS 162, “The hierarchy of Generally Accepted Accounting
Principles”  (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the frame work for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting
principles.  This statement shall be effective 60 days after the SEC’s
approval of the Public Company Accounting Oversight Board amendment to AU
Section 411, “the Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.”  The Company is currently reviewing
the provisions of SFAS 162 on its financial statements but does not expect it to
have a material effect.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts – and interpretation of FASB Statement No. 60” (“SFAS
163”.  SFAS 163 interprets Statement 60 and amends existing accounting
pronouncements to clarify their application to the financial guarantee insurance
contracts included within the scope of that statement.  SFAS 163 is
effective for fifnancial statements issued for fiscal years beginning after
December 15, 2008, and all interim periods within those fiscal
years.  The Company is currently reviewing the provisions of SFAS 163
on its financial statements but does not expect it to have a material
effect.




17




Table 5.1—Summary of
Operations




2008
                                                                          
                                                                          
                                                                          2007
                                                                          
                                                                          
                                                                          2006Revenues
      from continuing operations
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -
                                                                          
                                                                          
                                                                          $
                                                                          -Loss
      from continuing operations
                                                                          
                                                                          
                                                                          (2,171,689
                                                                          )
                                                                          
                                                                          
                                                                          (2,761,927
                                                                          )
                                                                          
                                                                          
                                                                          (857,038
                                                                          )Loss
      from discontinued operations
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (213,546
                                                                          )
                                                                          
                                                                          
                                                                          (1,113,441
                                                                          )Net
      Loss for the year
                                                                          
                                                                          
                                                                          (2,171,689
                                                                          )
                                                                          
                                                                          
                                                                          (2,975,473
                                                                          )
                                                                          
                                                                          
                                                                          (1,970,479
                                                                          )Net
      loss per share
                                                                          
                                                                          
                                                                          (0.03
                                                                          )
                                                                          
                                                                          
                                                                          (0.06
                                                                          )
                                                                          
                                                                          
                                                                          (0.09
                                                                          )Loss
      per share from operations
                                                                          
                                                                          
                                                                          (0.03
                                                                          )
                                                                          
                                                                          
                                                                          (0.06
                                                                          )
                                                                          
                                                                          
                                                                          (0.04
                                                                          )Loss
      per share from discontinued operations
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          (0.05
                                                                          )Total
      assets
                                                                          
                                                                          
                                                                          173,822
                                                                          
                                                                          
                                                                          
                                                                          497,356
                                                                          
                                                                          
                                                                          
                                                                          1,313,837Bank
      loan, Long term debt and Debentures payableof
      continuing operations
                                                                          
                                                                          
                                                                          196,557
                                                                          
                                                                          
                                                                          
                                                                          171,749
                                                                          
                                                                          
                                                                          
                                                                          1,765,189Non-controlling
      interest of variable interest entity
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          280,589Total
      liabilities
                                                                          
                                                                          
                                                                          196,557
                                                                          
                                                                          
                                                                          
                                                                          171,749
                                                                          
                                                                          
                                                                          
                                                                          2,045,778Working
      Capital (Deficiency) of continuing operations
                                                                          
                                                                          
                                                                          (30,988
                                                                          )
                                                                          
                                                                          
                                                                          9,888
                                                                          
                                                                          
                                                                          
                                                                          (29,053
                                                                          )




Results
of Operations





Overall,
operating losses from continuing operations were $2,171,689 for the year ended
December 31, 2008 compared to $2,761.927 for the year ended December 31,
2007.  The decrease of $590,238 in operating expenses for the years
ending December 31, 2008 and 2007 are attributed to the following:





General
and administrative expenses decreased by $262,978 from $1,050,664 for the year
ended December 31, 2007 to $787,686 for the year ended December 31,
2008.  The decrease in mainly due to a reduction in corporate activity
during the year.  In addition, there were fewer expenses in regards to
the McAdoo reclamation project in 2008 than in 2007 contributing to this
decrease in General and administrative expenses.





Occupancy
costs decreased by $56,424 from $94,769 to $38,345 as the Company had closed its
satellite offices in Chilliwack and Burnaby, British Columbia.





Professional
fees decreased by $115,699 from $347,444 to $231,745.  Lower legal
fees were incurred as the Company had less general corporate matters to deal
with in 2008 as compared to the same period in 2007.  The Company also
had more private placements and other complex transactions in 2007 as compared
to in 2008.





Amortization
of equipment increased by $1,058 from $3,922 to $2,864.   There
were no additions or disposals of any capital assets during the
year.





Foreign
exchange loss for the year ended December 31, 2008 was $7,554 as compared to a
loss of $17,889 in the year ended December 31, 2007.  The exchange
rate loss is due to timing differences (difference in the amount recorded as
compared to the amount paid) in the foreign exchange rate between the Canadian
dollar and the US dollar.





Interest
expense decreased by $22,126 to $8,549 for the year ended December 31, 2008 as
compared to $30,675 for the year ended December 31, 2007.  This is
primarily due to the interest paid for the $300,000 convertible debenture during
2007.




18




Engineering
fees decreased by $32,670 to $149,569 for the year ended December 31, 2008 as
compared to $182,239 for the year ended December 31, 2007 as the Company had
more engineering fees in 2007 relating to the McAdoo project than in
2008.





Stock
compensation expense also decreased by $92,822 from $1,012,280 to $919,458 as
the Company issued less options in 2008 than it had in 2007.





Income
taxes:





The
Company had a $nil balance for current taxes due to losses for year ended
December 31, 2008.  The Company recognized a deferred income taxes
expense of $nil for the year ended December 31, 2008.





Contingencies





There are
claims totalling $143,067 against the Company’s subsidiaries, whose operations
are now discontinued.  As at the date of these statements, no claim
against the Company has been made in connection with its subsidiaries’
operations.  The likely outcome cannot be determined at this time and
no provision has been made in the statements for any potential
payment.




B.
Liquidity and Capital Resources




The
following table presents major Company financial data in summary form, as
reported pursuant to U.S. GAAP, as at the years ended December 31, 2008, 2007
and 2006:




Year
                  Current
      assets
                  Total
      assets
                  Current
      liabilities2008
                  165,569
                  173,822
                  196.5572007
                  181,637
                  497,356
                  171,7492006
                  409,486
                  1,313,837
                  1,765,189





As at
December 31, 2008, there was a working capital deficiency of $30,988 compared to
working capital of $9,888 as at December 31, 2007.   The decrease
in working capital was due to the reduction of private placements the company
was able to close during the fiscal year.





The
Company’s cash position increased by $94,518 as at December 31, 2008, as
compared to a cash balance of $101,389 as at December 31, 2007. The Company used
$919,259 to fund operations and received cash of $912,388 from financing
activities for the year ended December 31, 2008.  During the year, the
Company did not use or receive any funds from investing activities.




19




The
following table delineates the sources and uses of cash by the Company during
the most recent three years covered by the financial statements.





2008
                                                          
                                                          
                                                          2007
                                                          
                                                          
                                                          2006Operating
      ActivitiesNet
      loss for the year
                                                          
                                                          $
                                                          (2,171,689
                                                          )
                                                          
                                                          $
                                                          (2,761,927
                                                          )
                                                          
                                                          $
                                                          (857,038
                                                          )Items
      not involving cashAmortization
      of equipment
                                                          
                                                          
                                                          2,864
                                                          
                                                          
                                                          
                                                          3,922
                                                          
                                                          
                                                          
                                                          5,393Deferred
      income taxes expense
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (174,750
                                                          )Stock-based
      compensation
                                                          
                                                          
                                                          919,458
                                                          
                                                          
                                                          
                                                          1,012,280
                                                          
                                                          
                                                          
                                                          47,626Net
      change in non-cash operating assets andliabilities
      (Note 10 (ii))
                                                          
                                                          
                                                          330,108
                                                          
                                                          
                                                          
                                                          (627,264
                                                          )
                                                          
                                                          
                                                          221,969Funds
      used in continuing operations
                                                          
                                                          
                                                          (919,259
                                                          )
                                                          
                                                          
                                                          (2,372,989
                                                          )
                                                          
                                                          
                                                          (756,800
                                                          )Funds
      used in discontinued operations (Note 12)
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (638,276
                                                          )
                                                          
                                                          
                                                          (82,735
                                                          )Cash
      used in operating activities
                                                          
                                                          
                                                          (919,259
                                                          )
                                                          
                                                          
                                                          (3,011,265
                                                          )
                                                          
                                                          
                                                          (839,535
                                                          )Financing
      ActivitiesBank
      overdraft advances
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          19,131Funds
      provided by variable interest entity
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          280,589Issuance
      of common stock, net of share issue costs
                                                          
                                                          
                                                          903,888
                                                          
                                                          
                                                          
                                                          3,104,154
                                                          
                                                          
                                                          
                                                          469,064Debenture
      payable advances
                                                          
                                                          
                                                          8,500
                                                          
                                                          
                                                          
                                                          8,500
                                                          
                                                          
                                                          
                                                          17,000Funds
      provided by discontinued operations (Note 12)
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          48,304Cash
      provided by financing activities
                                                          
                                                          
                                                          912,388
                                                          
                                                          
                                                          
                                                          3,112,654
                                                          
                                                          
                                                          
                                                          834,088Increase
      (decrease) in cash
                                                          
                                                          
                                                          (6,871
                                                          )
                                                          
                                                          
                                                          101,389
                                                          
                                                          
                                                          
                                                          (5,447
                                                          )Cash,
      beginning of year
                                                          
                                                          
                                                          101,389
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          5,447Cash,
      end of year
                                                          
                                                          $
                                                          94,518
                                                          
                                                          
                                                          $
                                                          101,389
                                                          
                                                          
                                                          $
                                                          -




20




Capital
commitments:





The
Company has no commitments for property and equipment expenditures for
2008.  The Company has forecasted that any property and equipment
expenditures incurred in 2009, based on future needs, will be funded from
working capital and/or from operating or capital leases.





C.
Research and Development, Patents and Licenses





The
company has not incurred any research and development since 2005.
  The last costs incurred for research and development was in 2004 in
the amount of $115,340.





D.
Trend Information




No trends
that will impact upon the Company’s results this year are known at this
time.




E. Off Balance Sheet Arrangements




There are
no off balance sheet arrangements.




F.
Tabular Disclosure of Contractual Obligations





No
contractual obligations exists as of December 31, 2008.




ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES




A.
Directors and Senior Management




Randy
Hayward, B.Comm, LLB. – President, Chief Executive Officer, Acting Chief
Financial officer, and Director




Randy
Hayward maintained a successful law practice in Edmonton, Alberta for 20
years.   During the latter phase of his law practice, he founded and
managed Canadian Dispute Resolution (Alberta) Ltd and marketed the service of
mediation to the legal community and the insurance industry. Mr. Hayward also
earned his Diploma in Counseling at P.D. Seminars from the Haven Institute on
Gabriola Island, B.C. After relocating to the west coast from Edmonton, he has
worked with numerous private and public companies for 15 years. Recently, Mr.
Hayward  has been a consultant to 4 successful public companies trading on
the TSX –Venture, raising investment capital and working in corporate
communications, business development and investor relations. In March of
this year, Mr. Hayward became involved with Poly-Pacific as a major shareholder
and consultant and has worked with the company in a variety of capacities since
then until assuming the office of President on August 22nd,
2006.




Mr.
Richard Sharples - Director


Mr.
Richard Sharples of Gabriola Island, British Columbia brings over twenty-five
years of business and financial expertise to the board. Mr. Sharples previously
served a two year term on the board of Titan Trading Analytics Inc.
  21


Richard
Oravec, Director


Mr.
Richard Oravec, a resident of New York, holds an MBA from Fordham University and
a BA from Boston University. Mr. Oravec is a seasoned financial engineer of
emerging technology companies, having successfully structured corporate finance
syndications and private placements in small and medium sized public and private
companies. Through his diverse network in the public and private sectors, Mr.
Oravec brings to Poly-Pacific his experience and resources in the raising of
capital, creating investment structures, strategic planning, marketing and
development, and developing strategic business alliances for accelerated
growth.


Greg
Pendura, Director


Mr.
Pendura has more than 35 years of experience in founding, financing and advising
emerging private and public companies. Mr. Pendura has spent the last 12 years
in the public sector with Resin Systems Inc. An original founder of the company,
he recently retired as President, CEO and Chairman of the Board. During his
tenure with Resin Systems Inc., Mr. Pendura was instrumental in the company
achieving a market capitalization of over $200 million as well as raising more
than $100 million of investment capital during its formative years.


Rick
Gliege – Manager of Operations




Rick
Gliege comes to Poly-Pacific International Inc. with over 15 years experience as
a senior manager in the public and private sectors. As a provincial manager with
one of the largest automotive insurance company’s in North America, Mr. Gliege
was instrumental in the design, implementation and management of two new
divisions, Dispute Resolution and Road Improvement Strategies. Mr. Gliege, a
graduate from the University of Victoria and a certified commercial
mediator.  Mr. Gliege will now assume the position of Vice President
of Production and Sales for all of Poly-Pacific International’s subsidiary
companies in Canada and the United States.




Angus
Ross, M.Sc., P. Eng. - Director of Engineering


Angus
Ross, from Kingston, Ontario, Canada, is a municipal and environmental engineer
with over twenty year’s experience in teaching, management and consulting
engineering. Mr. Ross had a long and successful career as a professor and senior
manager holding positions as Dean of Development and of Engineering Technology
at the St. Lawrence College in Kingston, Ontario. Mr. Ross previously worked as
an Engineer for the municipality of the Township of Kingston during the 1970’s
and was responsible for the planning of the major water and sewer projects in
addition to managing the technological operations, which included the McAdoo’s
Lane Landfill Site for the municipality. Mr. Ross is a member of the
Professional Engineers of Ontario, Canada. He is the author of a number of
technical paper and training programs in the environmental field. He has
organized and delivered training sessions for the Ontario Ministry of the
Environment and for Environment Canada.
  22




B. Executive
Compensation




Summary
Compensation Table





The
following table sets forth all annual and long-term compensation for the three
(3) most recently completed financial years for services in all capacities to
the Corporation and its subsidiaries in respect of individual(s) who were acting
as, or were acting in a capacity similar to, a chief executive officer or chief
financial officer and the three most highly compensated executive officers whose
total salary and bonus exceeded $150,000 per annum (the “Named Executive
Officers”).




SUMMARY
      COMPENSATION TABLEName
      and
                                        Principal
                                        Position
                                      Period
      Ended December 31
                                      Annual
      Compensation
                                      Long-term
      Compensation
                                      All
      Other Compensation
                                        ($)Salary
      ($)
                                      Bonus
      ($)
                                      Other
                                        Annual
      Compensation
                                        ($)
                                      Awards
                                      PayoutsSecurities
      Under Options/ SARS (1)
                                        Granted
      (#)
                                      Shares
      or Units Subject to Resale Restrictions ($)
                                      LTIP
      (2)
      Payouts ($)D. Randy Hayward
      (3)
                                        President
      and Acting CFO
                                      2008
                                        2007
                                        2006
                                      120,000
                                        166,000 (4)
                                        62,000
                                      Nil
                                        Nil
                                        Nil
                                      Nil
                                        Nil
                                        Nil
                                      2,000,000
                                        500,000
                                        200,000
                                      Nil
                                        Nil
                                        Nil
                                      Nil
                                        Nil
                                        Nil
                                      Nil
                                        Nil
                                        Nil





Notes:


(1)
            “SAR” or “Stock Appreciation
      Right” means a right, granted by the Corporation or its
      subsidiaries as compensation for employment services or office to receive
      cash or an issue or transfer of securities based wholly or in part on
      changes in the trading price of publicly traded securities of the
      Corporation.


(2)
            “LTIP” or “Long-term Incentive
      Plan” means a plan providing compensation intended to motivate
      performance over a period greater than one financial year. LTIP’s do not
      include option or SAR plans or plans for compensation through shares or
      units that are subject to restrictions on
  resale.


(3)
            Randy
      Hayward was appointed President of the Corporation on November 4,
      2006.


(4)
            $26,500
      relates to amounts for 2006, which were paid in
  2007.




Long-Term
Incentive Plans - Awards in Most Recently Completed Fiscal Year




As of the
date hereof, the Corporation does not have any long-term incentive plans and no
long-term incentive plan awards were granted to the Named Executive Officers
during the Corporation’s most recently completed financial year ended December
31, 2008.  A “Long-Term Incentive Plan” is a plan under which awards
are made based on performance over a period longer than one fiscal year, other
than a plan for options, SARs or restricted share compensation.




23





Options
Granted During the Most Recently Completed Financial Year





The
following table provides a summary of the stock options granted to the Named
Executive Officers during the twelve-month period ended December 31,
2008.





Name
                      Securities
                        Under
                        Options
                        Granted
                        (#)
                      Percent
      of
                        Total
      Options
                        Granted
      to
                        Employees
      in
                        Financial
      Year
                      Exercise
      or
                        Base
      Price
                        ($/Security)
                      Market
      Value of
                        SecuritiesUnderlying
                        Options
      on the
                        Date
      of Grant
                        ($/Security)
                      ExpirationDateD.
      Randy Hayward
                        President
      and Acting CFO
                      600,000
                        200,000
                        1,200,000
                        2,000,000
                      5.88%
                        1.96%
                        11.76%
                        19.6%
                      $0.12
                        $0.10
                        $0.10
                      $0.12
                        $0.10
                        $0.035
                      Feb
      19, 2013
                        Mar
      10, 2010
                        Dec
      24,
2013





Notes:


(1)
            The
      total number of options granted during the twelve-month period ended
      December 31, 2008 was 10,205,000.





Option
Exercises and Year-end Option Values





The
following table sets out information concerning the exercise of options by the
Named Executive Officers during the year ended December 31, 2007 and the value
of unexercised options held by the Named Executive Officer as at December 31,
2007.




Name
                      Shares
                        Acquired
                        on
      Exercise
                        (#)
                      Aggregate
                        Value
                        Realized
                        ($)
                      Unexercised
      Options at
                        December
      31, 2008
                      Value
      of Unexercised in-the-money
                        Options
      atDecember
      31, 2008Exercisable
                        (#)
                      Unexercisable
                        (#)
                      Exercisable
                        ($)
                      Unexercisable
                        ($)D.
      Randy Hayward
                        President
      and Acting CFO
                      Nil
                      Nil
                      2,450,000
                      50,000
                      Nil
                      Nil




Long-term
Incentive Plans – Awards in Most Recently Completed Financial
Year





The
Corporation has not had and does not currently have any long-term incentive
plans.




Stock Appreciation Rights
and Restricted Shares





No stock
appreciation rights or restricted shares were granted by the Corporation to, or
exercised by, the Named Executive Officers of the Corporation since
incorporation. Furthermore, no stock appreciation rights have been
exercised.





24




Pension and Retirement Plans
and Payments Made Upon Termination of Employment





The
Corporation does not have in place any pension or retirement plan. The
Corporation has not provided compensation, monetary or otherwise, during the
preceding fiscal year, to any person who now acts or has previously acted as a
Named Executive Officer of the Corporation, in connection with or related to the
retirement, termination or resignation of such person and the Corporation has
provided no compensation to such persons as a result of a change of control of
the Corporation, its subsidiaries or affiliates. The Corporation is not party to
any compensation plan or arrangement with Named Executive Officers resulting
from the resignation, retirement or the termination of employment of such
person.




Employment
Contracts





During
the fiscal year ended December 31, 2008, the Corporation has an employment
contract with the President and Chief Executive Officer of the company for
providing management services at a rate of $120,000 per annum.




Other
Compensation





Other
than as set forth herein, the Corporation did not pay any other compensation to
executive officers or directors (including personal benefits and securities or
properties paid or distributed which compensation was not offered on the same
terms to all full-time employees) during the last completed financial year other
than benefits and perquisites which equaled less than $50,000 and 10 percent of
the total of the annual salary and bonus for each individual.




Compensation
of Directors




At
December 31, 2008, the Corporation had four (4) directors, one (1) of whom was
also an executive officer.  In the most recently completed financial
year, the Corporation paid each director, other than the President an annual
retainer of $5,000.  The President did not receive any compensation
for serving as a director.  Directors were also reimbursed for
reasonable expenses.




25




SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS




The
following table sets forth securities of the Corporation that are authorized for
issuance under equity compensation plans as at the end of the Corporation’s most
recently completed financial year.





Plan
      Category
                                            Number
      of Securities to
                                              be
      issued upon exercise of
                                              outstanding
      options,
                                              warrants
      and rights
                                            Weighted
      average
                                              exercise
      price of
                                              outstanding
      options,
                                              warrants
      and rights
                                            Number
      of securities remaining
                                              available
      for issuance under
                                              equity
      compensation plans
                                              (excluding
      outstandingsecurities
                                              reflected
      in Column 1)Equity
      compensation plans approved by securityholders
                                            10,205,000
      Common Shares
                                            $0.11
      per Common Share
                                            5,716,989Common
      SharesEquity
      compensation plans not approved by securityholders
                                            Nil
                                            Nil
                                            NilTotal
                                            10,205,000
      Common Shares
                                            $0.11
      per Common Share
                                            5,716,989
      Common
Shares




MANAGEMENT
CONTRACTS





Other
than as set forth herein, during the most recently completed financial year, no
management functions of the Corporation were to any substantial degree performed
by a person or company other than the directors or executive officers (or
private companies controlled by them, either directly or indirectly) of the
Corporation.




INDEBTEDNESS OF DIRECTORS,
EXECUTIVE OFFICERS AND SENIOR OFFICERS





Other
than advances for expected travel expenses to be incurred on behalf of the
Corporation, no director, executive officer, former director, or employee of the
Corporation or its subsidiaries nor any of their associates or affiliates, is,
or has been at any time since the beginning of the last completed financial
year, indebted to the Corporation or its subsidiaries nor has any such person
been indebted to any other entity where such indebtedness is the subject of a
guarantee, support agreement, letter of credit or similar arrangement or
understanding, provided by the Corporation.




INTERESTS OF INFORMED
PERSONS IN MATERIAL TRANSACTIONS





Other
than as set forth herein and below, or as previously disclosed, the Corporation
is not aware of any material interests, direct or indirect, of any director or
executive officer, proposed nominee for election as a director or any
shareholder holding more than 10% of the voting rights attached to the Common
Shares or any associate or affiliate of any of the foregoing in any transaction
in the preceding financial year or any proposed or ongoing transaction of the
Corporation which has or will materially affect the Corporation.




INTEREST OF CERTAIN PERSONS
OR COMPANIES IN MATTERS TO BE ACTED UPON





Except as
otherwise set out herein, no director or executive officer of the Corporation or
any proposed nominee of management of the Corporation for election as a director
of the Corporation, nor any associate or affiliate of the foregoing persons has
any material interest, direct or indirect, by way of beneficial ownership of
securities or otherwise, in matters to be acted upon at the
Meeting.




26




C.
Board Practices




National
Policy 58-201 Corporate
Governance Guidelines (the “National Policy”) recommends
that boards of directors of reporting issuers be composed of a majority of
independent directors.  The Board of Directors is currently comprised
of four (4) directors, each of whom is proposed for election at the
Meeting.  Pursuant to the Terms of Reference, the Board is responsible
for assessing director independence.  The Board of Directors has
assessed the independence of each director in accordance with National
Instrument 58-101 – Disclosure of Corporate Governance Practices and MI
52-110.  Following this assessment, the Board concluded that three of
four directors, being Messrs. Oravec, Sharples and Pendura are
independent.  Mr. Hayward is not considered independent by virtue of
his executive positions with the Corporation.





The
Corporation and the Board of Directors recognize the significant commitment
involved in being a member of the Board of Directors.  The Board of
Directors generally meets as the need arises.  The frequency and
length of meetings and the nature of agenda items depend upon the circumstances.
When held, meetings are generally lengthy, detailed and well attended, and are
conducted in an atmosphere that encourages participation and
independence.  In order to promote candid discussion among the
independent directors, the independent directors determine at every board
meeting whether an in-camera session is required, from which Mr. Hayward, the
non-independent director, and any management invitees in attendance are
excused.





In
accordance with the Articles of the Company the number of directors shall be
such number not less than one as the Company by ordinary resolution may from
time to time determine and each director shall hold office until the next annual
general meeting following his or her election or until his or her successor is
elected. The Company has five directors.




The
officers of the Company are elected by the Board of Directors as soon as
possible following each annual general meeting and shall hold office for such
period and on such terms as the board may determine.




The
members of the Company Audit Committee are appointed by the Board of Directors
as soon as possible following each annual general meeting.   The
current audit committee members are Randy Hayward, Gren Pendura (independent)
and Richard Oravec (independent). The Board of Directors does not have a
formally appointed compensation committee, but performs this function as a whole
in respect of compensation of officers of the corporation, with any officer who
is also a director being excluded from the deliberations of the other directors
in respect of that officer’s compensation.




D.
Employees




As at
December 31, 2008, the Company had the following full-time employees (or under
contract providing management, accounting and administrative):




Poly-Pacific
International Inc. -  3 management, 1 consultant, 1 accounting and 1
administration





E.
Share Ownership





The
authorized capital of the Company consists of an unlimited number of common
shares without nominal or par value and an unlimited number of preferred
shares.





Common Shares and
Warrants:


As at
December 31, 2008, the numbers of issued common shares are 79,609,946 as
compared to 58,720,279 as at December 31, 2007.  No preferred shares
have been issued.




As of
December 31, 2008, all directors, officers and key employees of the Company as a
group own and control approximately 2% of the Company's common shares
outstanding and could own and control approximately 3% of the Company's common
shares if all outstanding options and warrants were to be
exercised.




27




ITEM 7. MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




A.
Major Shareholders




The
Company is not owned or controlled, either directly or indirectly, by any other
corporation or by any government. There are no arrangements, known to the
Company, the operation of which may at a future date result in a change of
control of the Company.  The people identified in the table below are
the only registered owners of more than 10% of the Company’s voting securities,
as of December 31, 2008.




Identity of
      Owner
                                  Amount
      Owned and
                                    Controlled
                                  Percent
      of ClassNow
      Outstanding
                                  Fully Diluted(3)None
                                  -
                                  -
                                  -




B.
Related Party Transactions




During
the reporting years, the Company had the following related party transactions
with corporations under significant influence of the Company's
directors:




Year
      Ended December 31
                      2008
                      2007
                      2006Management
      Fees
                      --
                      --
                      48,300





The
management fees paid in 2006 related to the former CEO and President, Mr. Thomas
Lam.  During the 2008, the Company paid $120,000 to its current
President and Chief Executive Officer.





As
disclosed in the notes to the financial statements, these transactions are in
the normal course of operations and are measured at the exchange amount, which
is the amount of consideration established and agreed to by the related
parties.




C.
Interests of Experts and Counsel




Not
applicable.




28




ITEM 8. FINANCIAL
INFORMATION




A.
Consolidated Financial Statements and Other Financial Information




The
following financial statements of Poly-Pacific International Inc. for the years
ended December 31, 2008, 2007 and 2006 are incorporated with this Item 8 to this
report:





            Management
      Responsibility for Financial Reporting.
            Auditors'
      Report.



            Consolidated
      Balance Sheet at period end date.
            Consolidated
      Statement of Operations.



            Statement
      of Retained Earnings and Deficit.
            Consolidated
      Statement of Cash Flows.



            Notes
      to Consolidated Financial
Statements.




The
Company has neither declared nor paid any dividends to date on its outstanding
shares. The Company intends to retain any future earnings to finance the
development of its properties, and accordingly, does not anticipate paying any
dividends in the foreseeable future.




The
financial statements are presented on the immediately following
pages.







POLY-PACIFIC
INTERNATIONAL INC.


(Expressed
in Canadian Dollars)





Financial
Statements





December
31, 2008 and 2007







29




MANAGEMENT'S
RESPONSIBILITY FOR THE FINANCIAL STATEMENTS


The
accompanying financial statements of Poly-Pacific International Inc. for the
years ended December 31, 2008 and 2007 have been prepared by management in
accordance with U.S. generally accepted accounting principles.
 
 Management
maintains systems of internal control designed to provide reasonable assurance
that the assets are safeguarded, all transactions are authorized and duly
recorded, and financial records are properly maintained to facilitate the
preparation of the financial statements in a timely manner.  The Board
of Directors is responsible for ensuring that management fulfils its
responsibilities for financial reporting and is ultimately responsible for
reviewing and approving the financial statements.  The Board carries
out this responsibility principally through its Audit Committee.
 
 The Audit
Committee of the Board of Directors has reviewed the  financial
statements with management and the external auditors.  K.R. Margetson
Ltd., an independent firm of chartered accountant (British Columbia,
Canada)  and a Certified Public Accountant (Illinois, US) , appointed
as external auditors by the shareholders, have audited the consolidated
financial statements and their report is included herein.
 
 /s/
      Randy
      HaywardRandy
      Hayward
                            President,
      Chief Executive Officer
  February
15, 2009
  30


K. R. MARGETSON
      LTD.
                Chartered
      Accountant
 Keith@krmargetson.comPO Box 45, 5588 Inlet
      Avenue
              331 East 5th
      StreetSechelt
      BC  V0N 3A0
              North Vancouver
      BC  V7L 1M1Tel:  604.885.2810
              Tel:
      604.929.0819Toll Free Fax:
      1.877.874.9583
  Report
of Independent Registered Public Accounting Firm
 
 To the
Shareholders of
 Poly-Pacific
International Inc.
 
 We have
audited the accompanying balance sheets of Poly-Pacific International Inc. (the
“Company”) as at December 31, 2008 and 2007 and the related consolidated
statements of operations, stockholders’ equity and cash flows the years ended
December 31, 2008 and 2007.  These financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these financial statements based on our
audits.  The financial statements for the year ended December 31, 2006
were audited by other auditors whose report dated April 19, 2007 expressed an
unqualified opinion on those statements.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as at December 31, 2008
and 2007 and the results of its operations and its cash flows for each of the
years in the three year period ended December 31, 2008  in accordance
with U.S. generally accepted accounting principles.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raise substantial doubt about its
ability to continue as a going concern.  Management’s plans in regard
to these matters are also described in Note 1.  The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
  /s/
      K.R. Margetson Ltd.Chartered
      Accountant
                          
                          North
      Vancouver, Canada
                          April
      29, 2009
  31




POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Balance
Sheets
 As at
December 31, 2008 and 2007
  December
                                                    31,
      2008
                                                  
                                                  
                                                  December
                                                    31,
      2007ASSETSCurrent
      AssetsCash
      and cash equivalents
                                                  
                                                  $
                                                  94,518
                                                  
                                                  
                                                  $
                                                  101,389Sales
      tax receivable
                                                  
                                                  
                                                  16,107
                                                  
                                                  
                                                  
                                                  49,233Loans
      receivable (Note 3)
                                                  
                                                  
                                                  13,000
                                                  
                                                  
                                                  
                                                  17,149Prepaid
      expenses and advances
                                                  
                                                  
                                                  41,944
                                                  
                                                  
                                                  
                                                  13,866Total
      current assets
                                                  
                                                  
                                                  165,569
                                                  
                                                  
                                                  
                                                  181,637Security
      deposit
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  304,603Equipment(Note
      4)
                                                  
                                                  
                                                  8,253
                                                  
                                                  
                                                  
                                                  11,116Total
      assets
                                                  
                                                  $
                                                  173,822
                                                  
                                                  
                                                  $
                                                  497,356LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
                                                  
                                                  $
                                                  77,557
                                                  
                                                  
                                                  $
                                                  61,249Convertible
      debentures payable (Note 5)
                                                  
                                                  
                                                  119,000
                                                  
                                                  
                                                  
                                                  110,500Total
      current liabilities
                                                  
                                                  
                                                  196,557
                                                  
                                                  
                                                  
                                                  171,749Total
      liabilities
                                                  
                                                  
                                                  196,557
                                                  
                                                  
                                                  
                                                  171,749Contingencies(Note
      7)Going concern (Note
      1)STOCKHOLDERS'
      EQUITY (DEFICIENCY)Capital
      stock (Note 6) (Note 14) restated
                                                  
                                                  
                                                  5,678,396
                                                  
                                                  
                                                  
                                                  4,903,756Authorized:Unlimited
      common and preferred sharesCommon
      shared issued and outstandingDecember
      31, 2008 - 79,609,946December
      31, 2007 - 58,720,279December
      31, 2006 - 25,237,740Additional
      paid in capital (Note 13) restated
                                                  
                                                  
                                                  3,424,280
                                                  
                                                  
                                                  
                                                  2,375,573Accumulated
      deficit
                                                  
                                                  
                                                  (9,178,606
                                                  )
                                                  
                                                  
                                                  (7,006,917
                                                  )Accumulated
      other comprehensive income
                                                  
                                                  
                                                  53,195
                                                  
                                                  
                                                  
                                                  53,195Total
      stockholders' equity
                                                  
                                                  
                                                  (22,735
                                                  )
                                                  
                                                  
                                                  325,607Total
      liabilities and stockholders' equity
                                                  
                                                  $
                                                  173,822
                                                  
                                                  
                                                  $
                                                  497,356
  
 
 
 The
accompanying notes to the financial statements are an integral part of the
statements.
  Approved
on behalf of the Board
  /s/
      Richard Oravec
                          
                          
                          /s/
      Dick SharplesRichard
      Oravec
                            Director
                          
                          
                          Richard
      Oravec
                            Director


32




POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Statement
of Operations
 For the
Years Ended December 31, 2008, 2007 and 2006




2008
                                        
                                        
                                        2007
                                        
                                        
                                        2006ExpensesGeneral
      and administrative
                                        
                                        $
                                        787,686
                                        
                                        
                                        $
                                        1,050,664
                                        
                                        
                                        $
                                        516,952Occupancy
      costs
                                        
                                        
                                        38,345
                                        
                                        
                                        
                                        94,769
                                        
                                        
                                        
                                        26,421Professional
      fees
                                        
                                        
                                        231,745
                                        
                                        
                                        
                                        347,444
                                        
                                        
                                        
                                        229,701Amortization
      of equipment
                                        
                                        
                                        2,864
                                        
                                        
                                        
                                        3,922
                                        
                                        
                                        
                                        5,393Engineering
                                        
                                        
                                        149,569
                                        
                                        
                                        
                                        182,239
                                        
                                        
                                        
                                        -Foreign
      exchange loss
                                        
                                        
                                        7,554
                                        
                                        
                                        
                                        17,889
                                        
                                        
                                        
                                        1,458Regulatory
      costs
                                        
                                        
                                        33,960
                                        
                                        
                                        
                                        175,998
                                        
                                        
                                        
                                        26,248Consulting
                                        
                                        
                                        919,458
                                        
                                        
                                        
                                        1,012,280
                                        
                                        
                                        
                                        47,6262,171,181
                                        
                                        
                                        
                                        2,885,205
                                        
                                        
                                        
                                        853,799Operating
      loss from operations
                                        
                                        
                                        (2,171,181
                                        )
                                        
                                        
                                        (2,885,205
                                        )
                                        
                                        
                                        (853,799
                                        )Other
      income
                                        
                                        
                                        
                                        
                                        
                                        
                                        148,894
                                        
                                        
                                        
                                        -Interest
      income
                                        
                                        
                                        8,041
                                        
                                        
                                        
                                        5,059
                                        
                                        
                                        
                                        -Interest
      expense
                                        
                                        
                                        (8,549
                                        )
                                        
                                        
                                        (30,675
                                        )
                                        
                                        
                                        (3,239
                                        )Operating
      loss from continuing operations
                                        
                                        
                                        (2,171,689
                                        )
                                        
                                        
                                        (2,761,927
                                        )
                                        
                                        
                                        (857,038
                                        )before
      income taxesIncome
      taxes
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Loss
      from continuing operations
                                        
                                        
                                        (2,171,689
                                        )
                                        
                                        
                                        (2,761,927
                                        )
                                        
                                        
                                        (857,038
                                        )Loss
      from discontinued operations (Note 12)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (213,456
                                        )
                                        
                                        
                                        (1,113,441
                                        )Net
      loss for the year
                                        
                                        $
                                        (2,171,689
                                        )
                                        
                                        $
                                        (2,975,383
                                        )
                                        
                                        $
                                        (1,970,479
                                        )Net
      loss per share
                                        
                                        $
                                        (0.03
                                        )
                                        
                                        $
                                        (0.06
                                        )
                                        
                                        $
                                        (0.09
                                        )Loss
      per share from operations
                                        
                                        $
                                        (0.03
                                        )
                                        
                                        $
                                        (0.06
                                        )
                                        
                                        $
                                        (0.04
                                        )Loss
      per share from discontinued operations
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        (0.05
                                        )Weighted
      average of shares outstanding,basic
      and diluted (Note 9)
                                        
                                        
                                        63,493,042
                                        
                                        
                                        
                                        47,146,785
                                        
                                        
                                        
                                        22,817,241




The
accompanying notes to the financial statements are an integral part of the
statements.
  33
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Statement
of Stockholders’ Equity
 For the
Years Ended December 31, 2008, 2007 and 2006




Number
      of Shares
                                
                                
                                Number
      of Warrants
                                
                                
                                Common
      stock
                                
                                
                                Additional
      Paidin
                                  Capital
                                
                                
                                Accumulated
      Deficit
                                
                                
                                Accumulated
      Other Comprehensive Income
                                
                                
                                Shareholders'
      Equity (Deficit)Balance
      at December 31, 2005
                                
                                
                                18,885,456
                                
                                
                                
                                -
                                
                                
                                $
                                1,998,538
                                
                                
                                $
                                731,170
                                
                                
                                $
                                (2,061,055
                                )
                                
                                $
                                53,195
                                
                                
                                $
                                721,848Issuance
      of common shares - restated
                                
                                
                                6,352,284
                                
                                
                                
                                5,595,284
                                
                                
                                
                                294,884
                                
                                
                                
                                174,180
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                469,064Stock
      based compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                47,626
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                47,626Loss
      for the period
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (1,970,479
                                )
                                
                                
                                -
                                
                                
                                
                                (1,970,479
                                )Balance
      at December 31, 2006, restated
                                
                                
                                25,237,740
                                
                                
                                
                                5,595,284
                                
                                
                                $
                                2,293,422
                                
                                
                                $
                                952,976
                                
                                
                                $
                                (4,031,534
                                )
                                
                                $
                                53,195
                                
                                
                                $
                                (731,941
                                )Issuance
      of common shares - restated
                                
                                
                                16,385,987
                                
                                
                                
                                16,385,987
                                
                                
                                
                                883,034
                                
                                
                                
                                757,243
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,640,277Exercise
      of Options - restated
                                
                                
                                3,153,500
                                
                                
                                
                                -
                                
                                
                                
                                583,190
                                
                                
                                
                                (267,840
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                315,350Exercise
      of Warrants - restated
                                
                                
                                2,770,848
                                
                                
                                
                                (2,770,848
                                )
                                
                                
                                372,671
                                
                                
                                
                                (79,086
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                293,585Shares
      for debt settled
                                
                                
                                3,172,208
                                
                                
                                
                                -
                                
                                
                                
                                171,438
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                171,438Shares
      for Polyran
                                
                                
                                7,999,996
                                
                                
                                
                                -
                                
                                
                                
                                600,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                600,000Stock
      based compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,012,280
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,012,280Loss
      for the period
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (2,975,383
                                )
                                
                                
                                -
                                
                                
                                
                                (2,975,383
                                )Balance
      at December 31, 2007, restated
                                
                                
                                58,720,279
                                
                                
                                
                                19,210,423
                                
                                
                                $
                                4,903,756
                                
                                
                                $
                                2,375,573
                                
                                
                                $
                                (7,006,917
                                )
                                
                                $
                                53,195
                                
                                
                                $
                                325,607Issuance
      of common shares
                                
                                
                                15,441,564
                                
                                
                                
                                15,441,564
                                
                                
                                
                                317,199
                                
                                
                                
                                241,546
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                558,745Exercise
      of Options
                                
                                
                                850,000
                                
                                
                                
                                -
                                
                                
                                
                                165,609
                                
                                
                                
                                (74,409
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                91,200Exercise
      of Warrants
                                
                                
                                1,327,436
                                
                                
                                
                                (1,327,436
                                )
                                
                                
                                170,632
                                
                                
                                
                                (37,888
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                132,744Expired
      Warrants
                                
                                
                                -
                                
                                
                                
                                (1,497,000
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Shares
      for debt settled
                                
                                
                                3,270,667
                                
                                
                                
                                -
                                
                                
                                
                                121,200
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                121,200Stock
      based compensation
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                919,458
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                919,458Loss
      for the period
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (2,171,689
                                )
                                
                                
                                -
                                
                                
                                
                                (2,171,689
                                )Balance
      at December 31, 2008
                                
                                
                                79,609,946
                                
                                
                                
                                31,827,551
                                
                                
                                $
                                5,678,396
                                
                                
                                $
                                3,424,280
                                
                                
                                $
                                (9,178,606
                                )
                                
                                $
                                53,195
                                
                                
                                $
                                (22,735
                                )




The
accompanying notes to the financial statements are an integral part of the
statements.
  34
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Statement
of Cash Flows
 For the
Years Ended December 31, 2008, 2007 and 2006




2008
                                                
                                                
                                                2007
                                                
                                                
                                                2006Operating
      ActivitiesNet
      loss for the year
                                                
                                                $
                                                (2,171,689
                                                )
                                                
                                                $
                                                (2,761,927
                                                )
                                                
                                                $
                                                (857,038
                                                )Items
      not involving cashAmortization
      of equipment
                                                
                                                
                                                2,864
                                                
                                                
                                                
                                                3,922
                                                
                                                
                                                
                                                5,393Deferred
      income taxes expense
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (174,750
                                                )Stock-based
      compensation
                                                
                                                
                                                919,458
                                                
                                                
                                                
                                                1,012,280
                                                
                                                
                                                
                                                47,626Net
      change in non-cash operating assets andliabilities
      (Note 10 (ii))
                                                
                                                
                                                330,108
                                                
                                                
                                                
                                                (627,264
                                                )
                                                
                                                
                                                221,969Funds
      used in continuing operations
                                                
                                                
                                                (919,259
                                                )
                                                
                                                
                                                (2,372,989
                                                )
                                                
                                                
                                                (756,800
                                                )Funds
      used in discontinued operations (Note 12)
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (638,276
                                                )
                                                
                                                
                                                (82,735
                                                )Cash
      used in operating activities
                                                
                                                
                                                (919,259
                                                )
                                                
                                                
                                                (3,011,265
                                                )
                                                
                                                
                                                (839,535
                                                )Financing
      ActivitiesBank
      overdraft advances
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                19,131Funds
      provided by variable interest entity
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                280,589Issuance
      of common stock, net of share issue costs
                                                
                                                
                                                903,888
                                                
                                                
                                                
                                                3,104,154
                                                
                                                
                                                
                                                469,064Debenture
      payable advances
                                                
                                                
                                                8,500
                                                
                                                
                                                
                                                8,500
                                                
                                                
                                                
                                                17,000Funds
      provided by discontinued operations (Note 12)
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                48,304Cash
      provided by financing activities
                                                
                                                
                                                912,388
                                                
                                                
                                                
                                                3,112,654
                                                
                                                
                                                
                                                834,088Increase
      (decrease) in cash
                                                
                                                
                                                (6,871
                                                )
                                                
                                                
                                                101,389
                                                
                                                
                                                
                                                (5,447
                                                )Cash,
      beginning of year
                                                
                                                
                                                101,389
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                5,447Cash,
      end of year
                                                
                                                $
                                                94,518
                                                
                                                
                                                $
                                                101,389
                                                
                                                
                                                $
                                                -Supplemental
      cash flow information (Note 10)


The
accompanying notes to the financial statements are an integral part of the
statements.


35


POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 1.
              Nature of Business and Going
      Concern
 
 Nature
      of Business
 
 Poly-Pacific
International Inc. (“Poly Pacific” or the “Company”) was incorporated under the
Alberta Business Corporations Act on October 25, 1995.  The Company is
actively pursuing the reclamation of industrial polymers throughout the
world.  Poly Pacific is focused on exploring and pursuing new
environmentally sound methods and technologies in recycling, and in particular,
the reclamation sector.
 
 Going
      Concern
 
 These
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles on a going concern basis, which presumes that the
Company will be able to realize its assets and discharge its liabilities in the
normal course of business for the foreseeable future.
 
 The
Company incurred a net loss for the year ended December 31, 2008 of $2,171,689
with a total accumulated deficit of $9,178,606.  There is substantial
doubt about the Company’s ability to continue as a going concern.  The
Company’s continuation as a “going concern” is dependent upon its ability to
achieve profitable operations, upon the continued financial support of its
shareholders and upon its ability to obtain additional financing or
equity.  Management is implementing a plan to obtain additional equity
financing in amounts sufficient to sustain operations.  The outcome of
this matter cannot be determined at this time.
 
 These
financial statements do not include any adjustments to the amounts and
classification of assets and liabilities that may be necessary should the
Company be unable to continue as a going concern.
 
 2.
              Significant Accounting
      Policies
 
 Basis
of Presentation
 
 These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (U.S. GAAP).  All amounts
herein are expressed in Canadian dollars unless otherwise
noted.  These financial statements conform in all material respects
with Canadian generally accepted accounting principles (“Canadian GAAP”), except
as discussed in Note 14.
 
 Measurement uncertainty
 
 The
preparation of financial statements is in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  Actual results could differ
from those estimates.
 
 Through
the ordinary course of business, a number of claims are pending in which the
Company or its subsidiaries may be the plaintiff or defendant.  The
claims are discussed in Note 4 Convertible Debentures and Note 7 Contingencies.
The likely outcome of these claims is disclosed on a per claim basis, along with
any measurement uncertainty relating thereto.
  36
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
   2.
              Summary of Significant
      Accounting Policies
(continued)
 
 Revenue
Recognition
 
 Revenue
is recorded when significant risks and rewards of ownership have been
transferred to the customer.  This occurs at the time of shipment (FOB
shipping point) of the products from the Company’s warehouse and an invoice is
prepared.  Revenues are recognized only when the Company has
transferred to the customer the significant risk and rewards of ownership of the
goods, title to the products transfers, the amount is fixed and determinable,
evidence of an agreement exists, there is reasonable assurance of collection of
the sales proceeds, the Company has no future obligations and the customer bears
the risk of loss.
 
 Cash
and cash equivalents
 
 The
Company considers all highly liquid investments and short term debt instruments
with original maturities of three months or less to be cash
equivalents.  As at December 31, 2008, there were cash equivalents of
$nil (2007 - $20,000).  As at December 31, 2008, all amounts were
deposited in accounts that were federally insured.  (2007 - $15,328
were in accounts that were not insured.)
 
 Equipment
 
 Equipment
is recorded at cost and amortized over its estimated useful
life.  Amortization is calculated at the following annual
rates:
  Computer
      equipment
                - 30% declining
      balanceOffice
      equipment
                - 20% declining
      balance
 Fair
Value Measurements
 
 Effective
January 1, 2008, the Company adopted SFAS No. 157, 'Fair Value Measurements, for
all financial instruments and non-financial instruments accounted for at fair
value on a recurring basis. SFAS 157 establishes a single definition of fair
value and a framework for measuring fair value, sets out a fair value hierarchy
to be used to classify the source of information used in fair value measurement
and expands disclosures about fair value measurements required under other
accounting pronouncements. It does not change existing guidance as to whether or
not an instrument is carried at fair value.
 
 SFAS 157
established market and observable inputs as the preferred source of values,
followed by assumptions based on hypothetical transaction in the absence of
market inputs.
 
 The
valuation techniques required by SFAS 157 are based upon observable and
unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect the Company's market
assumptions. These two types of inputs create the following fair value
hierarchy:
 
 Level 1 -
Quoted prices in active markets for identical asset or liabilities.
 
 Level 2 -
Observable inputs other than quoted prices included in Level 1, such as quoted
prices for similar assets and liabilities in active markets; quoted prices for
identical or similar assets and liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market
data.
  37
 
 POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 2.
              Summary of Significant
      Accounting Policies
(continued)
 
 Fair Value Measurements(continued)
 
 Level 3 -
Unobservable inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities. This includes
certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
 
 In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3),
which clarifies the application of SFAS 157 when the market for a financial
asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’s
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker quotes
or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. The guidance in FSP
157-3 became effective immediately.
 
 Financial
Instruments
 
 Fair
Value:
 
 The fair
value of cash and cash equivalents,, loan receivable and accounts payable and
accrued liabilities were estimated to approximate their carrying values due to
the immediate short-term maturity of these financial instruments.The
convertible debentures are being carried at amortized value on the balance sheet
but were recognized at fair value at the date of issuance.
 
 Risks:
 
 Financial
instruments that potentially subject the Company to credit risk consist
principally of cash. Management does not believe the Company is exposed to
significant credit risk.
 
 The
Company’s convertible debentures payable are subject to interest rate price
risk.   Management believes the degree of risk to be
insignificant.
 
 The
Company is subject to currency risks, which management believes are
insignificant.
 
 The
accompanying financial statements do not include any adjustments that might
result from the eventual outcome of the risks and uncertainties described
above.
 
 Impairment
of Long-Lived Assets
 
 The
Company reviews the carrying values of long-lived assets for existence of facts
or changes in circumstances that might indicate a condition of
impairment.  If estimates of undiscounted cash flows expected to
result from the use of an asset and its eventual disposition are less than the
carrying amount then the carrying amount of the asset is written down to its
fair value.
 
 Translation
of Foreign Currency
 
 The
functional currency of the Company is the Canadian dollar.  Foreign
currency balances are translated into Canadian dollars as follows:
  38
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 2.
              Summary of Significant
      Accounting Policies
(continued)
 
 Translation of Foreign Currency(continued)
 
 Monetary
assets and liabilities of are translated into Canadian dollars at the rate of
exchange in effect at the balance sheet date.  Revenue and expense
items are translated at average rates of exchange in effect at the respective
transaction months.  The resulting exchange gains or losses are
included in earnings.  Non-monetary assets and liabilities, arising
from transactions denominated in foreign currencies, are translated at rates of
exchange in effect at the date of the transaction.
 
 Assets
and liabilities of foreign subsidiary were translated into Canadian dollars at a
rate of exchange in effect at the balance sheet date and revenue and expenses at
the exchange rates in effect at the time the revenue or expense was
incurred.  Resulting translation adjustments, if material, are
accumulated as a separate component of accumulated other comprehensive income in
the statement of stockholders’ equity while foreign currency translation gains
and losses are included in operations.
 
 Deferred
Taxes
 
 The
Company accounts for and measures deferred tax assets and liabilities in
accordance with the asset and liability method.  Under this method,
deferred tax assets and liabilities are recognized for future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be reversed or settled.  The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the date of enactment of the
change.  When the future realization of income tax assets does not
meet the test of being more likely than not to occur, a valuation allowance in
the amount of the potential future benefit is taken and no net asset is
recognized.
 
 Stock-Based
Compensation Plan
 
 Effective
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
Board (“SFAS”) No. 123(R) “Share-Based Payment”, a revision to SFAS 123
“Accounting for Stock-Based Compensation”.  SFAS 123(R) requires the
Company to recognize in the income statement the grant date fair value of
share-based compensation awards granted to employees over the requisite service
period.  Compensation expense recognized reflects estimates of award
forfeitures and any change in estimates thereof are reflected in the period of
change.  The risk-free interest rate assumption is based upon observed
interest rates appropriate for the expected term of the Company’s employee stock
options.  The Company used its historical volatility as a basis to
estimate the expected volatility assumption used in the Black-Scholes model
consistent with SFAS 123(R). The Company has not paid any dividends on common
stock since its inception and does not anticipate paying dividends on its common
stock in the foreseeable future.  The expected life of employee stock
options is based on historic forfeiture rates.  Transactions in which
goods and services are received from non employees in exchange for the issuance
of shares are accounted for on the basis of the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more
reliably measured.
 
 Direct
Costs
 
 Direct
costs consist primarily of purchasing costs, freight, direct labour and other
specific costs.
  39
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 2.
              Summary of Significant
      Accounting Policies
(continued)
 
 Net
Income (loss) Per Common Share
 
 Net
income (loss) per common share is calculated using the weighted average number
of common shares outstanding during the period.  Diluted net income
(loss) per common share is calculated using the treasury stock method which uses
the weighted average number of common shares outstanding during the period and
also includes the dilutive effect of potentially issuable common
shares.  Dilutive net income (loss) per share on the potential
exercise of the equity-based financial instruments is not presented where the
effect is anti-dilutive.
 
 Comprehensive
Income
 
 In
accordance with SFAS 130, "Reporting Comprehensive Income" ("SFAS 130"),
comprehensive income consists of net income and other gains and losses affecting
stockholder's equity that are excluded from net income, such as unrealized gains
and losses on investments available for sale, foreign currency translation gains
and losses and minimum pension liability.
 
 Consolidation
 
 The
Company has two wholly owned subsidiaries, Everwood Agricultural Products
International Inc. (“Everwood”) and Poly-Pacific Technologies Inc.
(“PPT”).  As discussed in Note 2, these companies have been classified
as discontinued operations, the Company no longer has control over their
operations and the accounts of those entities are not included in these
financial statements.
 
 General
and Administrative
 
 General
and administrative costs consist primarily of office expenses, management
salaries, administrative salaries and other expenses.
 
 Advertising
 
 The Company expenses advertising
costs as incurred.
 
 Deposit
 
 Deposit consists of refundable
amounts held by vendors.
 
 Recent
Pronouncements
 
 In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (“SFAS”) No. 141(R), "Business
Combinations”.  SFAS 141(R) establishes principles and requirements
for how the acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, an any non-controlling
interest in the acquiree, recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase, and determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  SFAS
141(R) is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008.  As such, the Company
is required to adopt these provisions at the beginning of the fiscal year ended
December 31, 2009.  The Company does not expect it to have a material
effect on the financial statements.
  40
 
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 2.
              Summary of Significant
      Accounting Policies
(continued)
 
 Recent Pronouncements(continued)
 
 In
December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (“SFAS”) No. 160, "Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”.  SFAS
160 establishes accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a
subsidiary.  SFAS 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  As such, the Company is required to adopt these provisions at
the beginning of the fiscal year ended December 31, 2009.  The Company
does not expect it to have a material impact on its financial
statements.
 
 In March,
2008, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard (“SFAS”) No 161. This Statement requires enhanced
disclosures about an entity’s derivative and hedging activities and thereby
improves the transparency of financial reporting. This Statement is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged. This Statement
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption.   The Company is currently evaluating the
impact of SFAS 160 on its financial statements.
 
 In May 2008, the FASB
issued SFAS 162, “The hierarchy of Generally Accepted Accounting
Principles”  (“SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the frame work for selecting the principles used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting
principles.  This statement shall be effective 60 days after the SEC’s
approval of the Public Company Accounting Oversight Board amendment to AU
Section 411, “the Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles.”  The Company is currently reviewing
the provisions of SFAS 162 on its financial statements but does not expect it to
have a material effect.
 
 In May 2008, the FASB issued SFAS No.
163, “Accounting for Financial Guarantee Insurance Contracts – and
interpretation of FASB Statement No. 60” (“SFAS 163”.  SFAS 163
interprets Statement 60 and amends existing accounting pronouncements to clarify
their application to the financial guarantee insurance contracts included within
the scope of that statement.  SFAS 163 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and all
interim periods within those fiscal years.  The Company is currently
reviewing the provisions of SFAS 163 on its financial statements but does not
expect it to have a material effect.
  3.
                Loans
      Receivable
 
 The loans
are unsecured and bear interest of 6% annually.  They are repayable
principal and interest in full, ten days after the Company provides the borrower
with a written notice of demand.
 
 4.
                Equipment
  December
      31, 2008Cost
                                                                              
                                                                              
                                                                              Accumulated
      Amortization
                                                                              
                                                                              NetComputer
      equipment
                                                                              
                                                                              $
                                                                              61,419
                                                                              
                                                                              
                                                                              $
                                                                              56,937
                                                                              
                                                                              
                                                                              $
                                                                              4,482Office
      equipment
                                                                              
                                                                              
                                                                              31,785
                                                                              
                                                                              
                                                                              
                                                                              28,015
                                                                              
                                                                              
                                                                              
                                                                              3,770$
                                                                              93,204
                                                                              
                                                                              
                                                                              $
                                                                              84,952
                                                                              
                                                                              
                                                                              $
                                                                              8,252
 41




POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 4.
              Equipment(continued)
 
 December
      31, 2007Cost
                                                                    
                                                                    
                                                                    Accumulated
      Amortization
                                                                    
                                                                    NetComputer
      equipment
                                                                    
                                                                    $
                                                                    61,419
                                                                    
                                                                    
                                                                    $
                                                                    55,016
                                                                    
                                                                    
                                                                    $
                                                                    6,403Office
      equipment
                                                                    
                                                                    
                                                                    31,785
                                                                    
                                                                    
                                                                    
                                                                    27,072
                                                                    
                                                                    
                                                                    
                                                                    4,713$
                                                                    93,204
                                                                    
                                                                    
                                                                    $
                                                                    82,088
                                                                    
                                                                    
                                                                    $
                                                                    11,116
 
 5.
              Convertible Debentures
      Payable
 
 A
$275,000 unsecured convertible debenture was issued during 2003.  The
convertible debenture bears interest at 10% per annum and was due on December
15, 2004.  The debenture is convertible at the option of the debenture
holder into fully paid, non-assessable common shares without par value in the
capital of the Company at a conversion price in the range of $0.15 to $0.20 per
common share.  The convertible debentures held by the public were
settled with the debenture holders during 2005 for cash consideration of
$161,856.  During 2005, a convertible debenture holder exercised his
option to convert his $10,000 convertible debenture to 161,332 common shares of
the Company at a negotiated price of $0.075 per share.  The remaining
convertible debentures of $119,000 are held by former directors of the
Company.  Of that amount, $70,424 has been demanded but the Company
has counterclaimed and refused payment.  The Company has provided
fully for the principal and interest.
  6.
              Capital
      Stock
 
 Authorized
 
 Unlimited
number of common voting shares and unlimited number of preferred non-voting
shares
 
 For
the fiscal year ended December 31, 2008
 
 Pursuant
to the private placement agreement dated March 10, 2008, the Company issued
1,862,500 units at a price of $0.08 per unit by way of a non-brokered private
placement for net proceeds of $137,920 (net of share issuance costs of $11,080).
Each unit comprises one common share and one share purchase warrant of the
Company.  Each share warrant entitles the holder to purchase one
common share at $0.15 until March 10, 2010.  The net proceeds from the
sale of these units has been allocated between share capital of $81,829 in
respect of the shares and $56,091 in respect of the warrants based on the fair
value of warrants as determined by  level 1 inputs.
 
 Pursuant
to the private placement agreement dated August 27, 2008, the Company issued
1,300,000 units at a price of $0.05 per unit by way of a non-brokered private
placement for net proceeds of $65,000 (net of share issuance costs of $nil).
Each unit comprises one common share and one share purchase warrant of the
Company.  Each share warrant entitles the holder to purchase one
common share at $0.10 until August 27, 2010.  The net proceeds from
the sale of these units has been allocated between share capital of $37,329 in
respect of the shares and $27,671 in respect of the warrants based on the fair
value of warrants as determined by  level 1 inputs.
 
 On
October 17, 2008, the Company settled certain debts with various creditors in
the total amount of $32,200 by issuing 644,000 common shares of the Company at a
price of $0.05 per common share.
  42
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 6.
              Capital Stock
      (continued)
 
 Pursuant
to the private placement agreement dated December 24, 2008, the Company issued
12,279,064 units at a price of $0.03 per unit by way of a non-brokered private
placement for net proceeds of $355,825 (net of share issuance costs of
$12,547.20).  Each unit comprises of one common share and one share
purchase warrant of the Company.  Each share warrant entitles the
holder to purchase one common share at $0.10 until December 24, 2009 or $0.20
thereafter until December 24, 2010.  The net proceeds from the sale of
these units has been allocated between share capital of $204,780 in respect of
the shares and $151,045 in respect of the warrants based on the fair value of
warrants as determined by  level 1 inputs.
 
 On
December 31, 2008, the Company settled additional debt with various creditors in
the total amount of $89,000 by issuing 2,626,667 common shares of the Company at
a price of $0.05 per common share.
 
 For
the fiscal year ended December 31, 2007
 
 On
January 4, 2007, the Company settled certain of its debt with various creditors
in the aggregate amount of $171,438 by issuing 3,172,208 common shares of the
Company ranging in price from $0.05 to $0.10 per common share.
 
 Pursuant
to the First private placement Agreement dated January 31, 2007, the Company
issued 6,000,000 units at a price of $0.05 per unit by way of a non-brokered
private placement for total proceeds of $290,906 (net of share issuance costs of
$9,094). Each unit comprises of one common share and one share purchase warrant
of the Company.  Each share warrant entitles the holder to purchase
one common share at $0.25 until Jan 31, 2009.  The net proceeds from
the sale of these units has been allocated between share capital of $161,159 in
respect of the shares and $129,747 in respect of the warrants based on the fair
value of warrants as determined by  level 1 inputs.
 
 Pursuant
to the Second private placement Agreement dated May 25, 2007, the Company issued
3,000,000 units at a price of $0.10 per unit by way of a non-brokered private
placement for total proceeds of $289,050 (net of share issuance costs of
$10,950).  Each unit comprises of one common share and one share
purchase warrant of the Company.  Each share warrant entitles the
holder to purchase one common share at $0.40 until May 25, 2009.  The
net proceeds from the sale of these units has been allocated between share
capital of $154,282 in respect of the shares and $134,768 in respect of the
warrants based on the fair value of warrants as determined by  level 1
inputs.
 
 On June
20, 2007, the Company purchased all of the issued and outstanding shares of
Polyran Reclamation Inc, (“Polyran”) pursuant to an exempt takeover
bid.  In consideration for the shares of Polyran, the Company has
issued an aggregate of 7,999,996 of its common shares at a deemed price of $0.23
per share pro rata to the shareholders of Polyran. The acquisition of the
Polyran shares was completed as an Expedited Acquisition under the policies of
the TSX Venture Exchange.
  43
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 6.
              Capital Stock
      (continued)
 
 Pursuant
to the Third private placement Agreement dated July 19, 2007, the Company issued
a total of 4,803,130 units at a price of $0.18 per unit by way of a non-brokered
private placement for total proceeds of $796,669 (net of share issuance costs of
$67,895).  This placement was completed in two separate closing dates
with 3,352,853 units being closed on July 19, 2007 and 1,450,277 units being
closed on August 2, 2007.  Each unit comprises of one common share and
one share purchase warrant of the Company.  Each share warrant
entitles the holder to purchase one common share at $0.30 until the first
anniversary of the closing date and at $0.40 upon the second anniversary from
the closing date. The net proceeds from the sale of these units has been
allocated between share capital of $420,513 in respect of the shares and
$376,156 in respect of the warrants based on the fair value of warrants as
determined by  level 1 inputs.
 
 Pursuant
to the Fourth private placement Agreement dated November 29, 2007, the Company
issued 2,582,857 units at a price of $0.105 per unit by way of a non-brokered
private placement for total proceeds of $263,654 (net of share issuance costs of
$7,546).  Each unit comprises of one common share and one share
purchase warrant of the Company.  Each share warrant entitles the
holder to purchase one common share at $0.14 until November 29,
2009.  The net proceeds from the sale of these units has been
allocated between share capital of $147,082 in respect of the shares and
$116,572 in respect of the warrants based on the fair value of warrants as
determined by  level 1 inputs.
 
 Stock-Based
Compensation Plan
 
 a)      
Summary of the stock option transactions are as follows:
  Number
      of Options
                                                                                    
                                                                                    
                                                                                    Weighted
      Average Exercise PriceOutstanding
      at December 31, 2005
                                                                                    
                                                                                    
                                                                                    1,086,600
                                                                                    
                                                                                    
                                                                                    $
                                                                                    0.10Granted
                                                                                    
                                                                                    
                                                                                    1,700,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.10Cancelled
                                                                                    
                                                                                    
                                                                                    (205,900
                                                                                    )
                                                                                    
                                                                                    
                                                                                    0.10Outstanding
      at December 31, 2006
                                                                                    
                                                                                    
                                                                                    2,580,700
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.10Granted
                                                                                    
                                                                                    
                                                                                    6,550,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.21Exercised
                                                                                    
                                                                                    
                                                                                    (3,153,500
                                                                                    )
                                                                                    
                                                                                    
                                                                                    0.10Cancelled
                                                                                    
                                                                                    
                                                                                    (717,200
                                                                                    )
                                                                                    
                                                                                    
                                                                                    0.10Balance
      at December 31, 2007
                                                                                    
                                                                                    
                                                                                    5,260,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.23Granted
                                                                                    
                                                                                    
                                                                                    10,205,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.11Exercised
                                                                                    
                                                                                    
                                                                                    (850,000
                                                                                    )
                                                                                    
                                                                                    
                                                                                    0.11Cancelled
                                                                                    
                                                                                    
                                                                                    (4,410,000
                                                                                    )
                                                                                    
                                                                                    
                                                                                    0.13Balance
      at September 30, 2008
                                                                                    
                                                                                    
                                                                                    10,205,000
                                                                                    
                                                                                    
                                                                                    $
                                                                                    0.16
 
 
 44
 
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008
 
 
 6.
              Capital Stock
      (continued)
 
 During
the year, a total of 10,205,000 options were granted to directors, officers and
consultants of the Company.
 
 On
February 19, 2008, 2,575,000 stock options, exercisable at $0.12, were granted
to directors, officers, employees and consultants of the
Company.  These options expire on February 19, 2013 and vest
immediately.
 
 On March
6, 2008, 910,000 stock options, exercisable at $0.10, were granted to employees
and consultants of the Company.  These options expire on March 6, 2010
and vest immediately.
 
 On March
10, 2008, 200,000 stock options, exercisable at $0.10, were granted to a
director and officer of the Company.  These options expire on March
10, 2010 and vest immediately.
 
 On April
21, 2008, 600,000 stock options, exercisable at $0.12, were granted to
consultants of the Company.  These options expire on April 21, 2010
and vest immediately.
 
 On June
19, 2008, 350,000 stock options, exercisable at $0.10 were granted to
consultants and an employee of the Company.  These options expire on
June 19, 2013 and all vested immediately except for  37,500 options
which vest equally and quarterly for the nine months following the date of
grant.
 
 On
September 4, 2008, 500,000 stock options, exercisable at $0.10 were granted to a
director of the Company.  These options expire on September 4, 2013
and all vested immediately.
 
 On
December 3, 2008, 500,000 stock options, exercisable at $0.10 were granted to
consultants of the Company.  These options expire on December 3, 2010
with 25% of the options vesting immediately and an additional 12.5% vesting
quarterly from the date of grant.  These options are subject to a
4-month hold period.
 
 On
December 18, 2008, 2,820,000 stock options, exercisable at $0.10 were granted to
consultants and employees of the Company.  These options expire
on  December 18, 2013 and all vested immediately.
 
 On
December 24, 2008, 1,750,000 stock options, exercisable at $0.10 were granted to
directors and officers of the Company.  These options expire on
December 18, 2013 and all vested immediately.  These options are
subject to a 4-month hold period.
 
 During
the year, 4,410,000 stock options were cancelled.
 
 b)  The
following table summarizes information about stock options outstanding at
December 31, 2008, 2007 and 2006.
  45
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 6.
              Capital Stock
      (continued)
 
 
 2008Options
      Outstanding
                                                                  
                                                                  
                                                                  Options
      ExercisableNumber
      of
                                                                    Options
                                                                  
                                                                  
                                                                  Weighted
      Average
                                                                    Exercise
      Price
                                                                  
                                                                  
                                                                  Weighted
      Average Remaining Contractual
                                                                    Life
      (Years)
                                                                  
                                                                  
                                                                  Number
      of
                                                                    Options
                                                                  
                                                                  
                                                                  Weighted
      Average
                                                                    Exercise
      Price4,570,000
                                                                  
                                                                  
                                                                  $
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  5.0
                                                                  
                                                                  
                                                                  
                                                                  4,570,000
                                                                  
                                                                  
                                                                  $
                                                                  0.10300,000
                                                                  
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  4.5
                                                                  
                                                                  
                                                                  
                                                                  300,000
                                                                  
                                                                  
                                                                  
                                                                  0.101,765,000
                                                                  
                                                                  
                                                                  
                                                                  0.12
                                                                  
                                                                  
                                                                  
                                                                  4.2
                                                                  
                                                                  
                                                                  
                                                                  1,765,000
                                                                  
                                                                  
                                                                  
                                                                  0.121,900,000
                                                                  
                                                                  
                                                                  
                                                                  0.11
                                                                  
                                                                  
                                                                  
                                                                  3.6
                                                                  
                                                                  
                                                                  
                                                                  1,900,000
                                                                  
                                                                  
                                                                  
                                                                  0.1150,000
                                                                  
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  3.3
                                                                  
                                                                  
                                                                  
                                                                  50,000
                                                                  
                                                                  
                                                                  
                                                                  0.10250,000
                                                                  
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  3.1
                                                                  
                                                                  
                                                                  
                                                                  250,000
                                                                  
                                                                  
                                                                  
                                                                  0.10500,000
                                                                  
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  2.0
                                                                  
                                                                  
                                                                  
                                                                  125,000
                                                                  
                                                                  
                                                                  
                                                                  0.10150,000
                                                                  
                                                                  
                                                                  
                                                                  0.15
                                                                  
                                                                  
                                                                  
                                                                  1.2
                                                                  
                                                                  
                                                                  
                                                                  150,000
                                                                  
                                                                  
                                                                  
                                                                  0.15230,000
                                                                  
                                                                  
                                                                  
                                                                  0.10
                                                                  
                                                                  
                                                                  
                                                                  1.3
                                                                  
                                                                  
                                                                  
                                                                  230,000
                                                                  
                                                                  
                                                                  
                                                                  0.10350,000
                                                                  
                                                                  
                                                                  
                                                                  0.14
                                                                  
                                                                  
                                                                  
                                                                  0.4
                                                                  
                                                                  
                                                                  
                                                                  350,000
                                                                  
                                                                  
                                                                  
                                                                  0.14140,000
                                                                  
                                                                  
                                                                  
                                                                  0.18
                                                                  
                                                                  
                                                                  
                                                                  0.2
                                                                  
                                                                  
                                                                  
                                                                  140,000
                                                                  
                                                                  
                                                                  
                                                                  0.1810,205,000
                                                                  
                                                                  
                                                                  
                                                                  0.11
                                                                  
                                                                  
                                                                  
                                                                  3.2
                                                                  
                                                                  
                                                                  
                                                                  9,830,000
                                                                  
                                                                  
                                                                  
                                                                  0.11
  2007Options
      Outstanding
                                                                                                  
                                                                                                  
                                                                                                  Options
      ExercisableNumber
      of
                                                                                                    Options
                                                                                                  
                                                                                                  
                                                                                                  Weighted
      Average
                                                                                                    Exercise
      Price
                                                                                                  
                                                                                                  
                                                                                                  Weighted
      Average Remaining Contractual
                                                                                                    Life
      (Years)
                                                                                                  
                                                                                                  
                                                                                                  Number
      of
                                                                                                    Options
                                                                                                  
                                                                                                  Weighted
      Average
                                                                                                    Exercise
      Price250,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.33
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.5
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,250,000
                                                                                                  
                                                                                                  0.33550,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.14
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.4
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  500,000
                                                                                                  
                                                                                                  0.141,400,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.18
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.1
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,400,000
                                                                                                  
                                                                                                  0.18810,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.10
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  4.0
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  560,000
                                                                                                  
                                                                                                  0.103,010,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  0.16
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3.2
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  3,710,000
                                                                                                  
                                                                                                  0.16
 2006Options
      Outstanding
                                                                                          
                                                                                          
                                                                                          Options
      ExercisableNumber
      of
                                                                                            Options
                                                                                          
                                                                                          
                                                                                          Weighted
      Average
                                                                                            Exercise
      Price
                                                                                          
                                                                                          
                                                                                          Weighted
      Average Remaining Contractual
                                                                                            Life
      (Years)
                                                                                          
                                                                                          
                                                                                          Number
      of
                                                                                            Options
                                                                                          
                                                                                          Weighted
      Average
                                                                                            Exercise
      Price1,500,000
                                                                                          
                                                                                          
                                                                                          
                                                                                          0.10
                                                                                          
                                                                                          
                                                                                          
                                                                                          1.3
                                                                                          
                                                                                          
                                                                                          
                                                                                          -
                                                                                          
                                                                                          0.10880,700
                                                                                          
                                                                                          
                                                                                          
                                                                                          0.10
                                                                                          
                                                                                          
                                                                                          
                                                                                          0.4
                                                                                          
                                                                                          
                                                                                          
                                                                                          880,700
                                                                                          
                                                                                          0.10200,000
                                                                                          
                                                                                          
                                                                                          
                                                                                          0.10
                                                                                          
                                                                                          
                                                                                          
                                                                                          0.2
                                                                                          
                                                                                          
                                                                                          
                                                                                          150,000
                                                                                          
                                                                                          0.102,580,700
                                                                                          
                                                                                          
                                                                                          
                                                                                          0.10
                                                                                          
                                                                                          
                                                                                          
                                                                                          3.2
                                                                                          
                                                                                          
                                                                                          
                                                                                          1,030,700
                                                                                          
                                                                                          0.10
 46
 
 POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 6.
              Capital Stock
      (continued)
 
 The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and is fully
transferable.  In addition, the valuation model calculates the
expected stock price volatility based on highly subjective
assumptions.
 
 Because
the Company’s employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimates, in management
opinion, the existing model does not necessarily provide a reliable single
measure of the fair value of its employee stock options.
 
 During
the year ended December 31, 2008, the Company recognized $919,458 (2007 -
$1,012,280 2006 - $47,626) in stock-based compensation expense.
 
 As at
December 31, 2008, there were $74,409 (2007 - $434,388) of unrecognized
compensation costs related to non-vested stock options.
 
 The fair
value for stock options expensed was estimated using the Black-Scholes option
pricing model assuming no expected dividends and the following weighted average
assumptions:
  December
      31
                                    2008
                                  
                                  
                                  December
      31
                                    2007
                                  
                                  
                                  December
      31
                                    2006
                                  
                                  
                                  2005Expected
      volatility
                                  
                                  
                                  163%-198
                                  %
                                  
                                  
                                  215
                                  %
                                  
                                  
                                  224
                                  %
                                  
                                  
                                  87
                                  %Interest
      rate
                                  
                                  
                                  1.10%-3.25
                                  
                                  
                                  
                                  4.39
                                  %
                                  
                                  
                                  4.15
                                  %
                                  
                                  
                                  2.58
                                  %Expected
      life options
                                  
                                  
                                  2
                                  
                                  
                                  
                                  2
                                  
                                  
                                  
                                  4.53
                                  
                                  
                                  
                                  5Fair
      value
                                  
                                  $
                                  .03-$.09
                                  
                                  
                                  $
                                  0.21
                                  
                                  
                                  $
                                  0.07
                                  
                                  
                                  $
                                  0.03
  Warrants
 
 A summary
of warrant transactions are as follows:
 
 Number
      of Warrants
                                            
                                            
                                            Weighted
      Average Exercise PriceBalance
      at December 31, 2006
                                            
                                            
                                            5,595,284
                                            
                                            
                                            
                                            0.12Issued:
                                            
                                            
                                            16,385,987
                                            
                                            
                                            
                                            0.26Exercised:
                                            
                                            
                                            (2,770,848
                                            )
                                            
                                            
                                            0.11Balance
      at December 31, 2007
                                            
                                            
                                            19,210,423
                                            
                                            
                                            
                                            0.24Issued:
                                            
                                            
                                            15,441,564
                                            
                                            
                                            
                                            0.11Expired:
                                            
                                            
                                            (1,497,000
                                            )
                                            
                                            
                                            0.22Exercised:
                                            
                                            
                                            (1,327,436
                                            )
                                            
                                            
                                            0.10Balance
      at December 31, 2008
                                            
                                            
                                            31,827,551
                                            
                                            
                                            $
                                            0.18
  47
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 7.
              Contingencies
 
 There are
claims totalling $143,067 against the Company’s subsidiaries, whose operations
are now discontinued.  As at the date of these statements, no claim
against the Company has been made in connection with its subsidiaries’
operations.  The likely outcome cannot be determined at this time and
no provision has been made in the statements for any potential
payment.
 
 
 8.
              Income
    Taxes
 
 The
difference between the computed expected income tax provision based on a
statutory tax rate of 31.0% (2007 – 34.12%; 2006 – 32.49%) and the actual income
tax provision are summarized as follows:
  2008
                                
                                
                                2007
                                
                                
                                2006Computed
      expected incometaxes
      (recovery)
                                
                                $
                                (673,224
                                )
                                
                                $
                                (1,015,200
                                )
                                
                                $
                                (640,209
                                )Increase
      (decrease) in tax resulting from:Non-deductible
      permanent costs
                                
                                
                                285,941
                                
                                
                                
                                354,026
                                
                                
                                
                                22,050Capital
      cost allowance for tax in excessof amortization
                                
                                
                                (3,108
                                )
                                
                                
                                (4,495
                                )
                                
                                
                                (4,584
                                )Loss
      on discontinued operations
                                
                                
                                -
                                
                                
                                
                                72,831
                                
                                
                                
                                361,757Unutilized
      loss carry forwards
                                
                                
                                390,391
                                
                                
                                
                                592,838
                                
                                
                                
                                260,986Total
      income taxes
                                
                                $
                                ---
                                
                                
                                $
                                ---
                                
                                
                                $
                                ---
  As at
December 31, 2008 the tax effect of temporary timing differences that give rise
to significant components of deferred income tax asset are noted
below.  A valuation allowance has been recorded as management believes
it is more likely than not that the deferred tax asset will not be
realized.  For the year ended December 31, 2008 the valuation
allowance increased by $228,121 (2007 - $634,509; 2006 – $416,415).
  2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006Assets:Tax
      benefits of losses carry forward Non–capital
                                    
                                    $
                                    1,778,713
                                    
                                    
                                    $
                                    1,528,050
                                    
                                    
                                    $
                                    890,979Capital
                                    
                                    
                                    164,630
                                    
                                    
                                    
                                    181,200
                                    
                                    
                                    
                                    181,200Difference
      between tax value andbook
      value of capital assets
                                    
                                    
                                    29,997
                                    
                                    
                                    
                                    35,969
                                    
                                    
                                    
                                    38,531Valuation
      allowance
                                    
                                    
                                    (1,973,340
                                    )
                                    
                                    
                                    (1,745,219
                                    )
                                    
                                    
                                    (1,110,710
                                    )Net
      future tax assets
                                    
                                    $
                                    ---
                                    
                                    
                                    $
                                    ---
                                    
                                    
                                    $
                                    ---
  48
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 
 
 8.
              Income Taxes(continued)
 
 As at
December 31, 2008, the Company has $5,737,785 in non-capital losses that may be
used to reduce future Canadian income taxes otherwise payable.  The
non – capital losses expire as follows:




2009
                                
                                $
                                195,2972010
                                
                                $
                                394,9012014
                                
                                $
                                696,8402015
                                
                                $
                                651,9982026
                                
                                $
                                803,2812027
                                
                                $
                                1,736,1422028
                                
                                $
                                1,259,326
 
 In
addition, the Company has $531,066 in taxable capital losses that have no expiry
date but may only be utilized to reduce future taxable capital
gains.


9.
              Net Loss per Common
      Share
 
 Diluted
net loss per common share is calculated using the treasury stock
method.  The effects of the potential exercise of options, warrants
and conversion of the convertible debentures are anti-dilutive for the year
ended December 31, 2008, 2007 and 2006 and were excluded from the calculation of
diluted net loss per common share.
  10.
              Supplemental Cash Flow
      Information
 
 2008
                              
                              
                              2007
                              
                              
                              2006Sales
      tax receivable
                              
                              $
                              33,126
                              
                              
                              $
                              (35,487
                              )
                              
                              $
                              11,448Loan
      receivable
                              
                              
                              4,149
                              
                              
                              
                              (17,149
                              )
                              
                              
                              -Prepaid
      expenses and advances
                              
                              
                              (28,078
                              )
                              
                              
                              (13,866
                              )
                              
                              
                              9,358Security
      deposit
                              
                              
                              304,603
                              
                              
                              
                              (304,603
                              )
                              
                              
                              -Accounts
      payable and accrued liabilities
                              
                              
                              16,308
                              
                              
                              
                              (256,159
                              )
                              
                              
                              201,163Net
      change in non-cash operatingassets
      and liabilities
                              
                              $
                              330,108
                              
                              
                              $
                              (627,264
                              )
                              
                              $
                              221,969b)
      InterestInterest
      paid
                              
                              $
                              49
                              
                              
                              $
                              2,423
                              
                              
                              $
                              3,239Interest
      received
                              
                              $
                              8,041
                              
                              
                              $
                              -
                              
                              
                              $
                              -
 
 Significant
non-cash transactions during the year ended December 31, 2008, 2007 and 2006
were as follows:
 
 a)  2008
- settlement of debt in the amount $121,200 by issuing 3,270,667 common
shares
  49
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
   10.
                  Supplemental Cash Flow
      Information(continued)
 
 b) 2007-
settlement of debt in the amount of $171,438 by issuing 3,172,208 common
shares
 
 c) 2006 -
none
 
 11.
                Related Party
      Transactions
 
 During
the year, the Company had no related party transactions with corporations under
significant influence of one of the Company's former directors:
  2008
                        
                        
                        2007
                        
                        
                        2006Management
      fees
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        48,300
  The
Company has paid or accrued management fees of $120,000 in 2008 (2007 -
$120,000).
 
 In
addition, during the year, director fees of $5,000 (2007 - $5,000) were paid to
each of three (3) individual directors of the Company.
 
 These
transactions were in the normal course of operations and were measured at the
exchange amount which is the amount of consideration established and agreed to
by the related parties.
 
 12.
                Discontinued
      Operations
  On
November 1, 2007, due to the continuing losses as a result of decreasing market
share and lack of demand for plastic media, the Company announced the closure of
its wholly owned subsidiary, Poly-Pacific Technologies Ltd. (“PPT”) and its
operations in Ontario California.
 In
addition, during fiscal 2006, as a result of continued losses and Everwood’s
inability to obtain an adequate supply of raw materials to make posts and attain
cost-efficient production, the Company decided to permanently cease Everwood’s
operations in St. Thomas, Ontario.
 
 As a
result of these discontinued operations, the Company’s principal focus is fibre
reclamation of industrial landfill sites.
 
 Discontinued
operations and their results of operations, financial position and cash flows
are shown separately for all periods presented.  Summarized financial
information for discontinued operations is set forth below:
 
 Summarized
Statement of Operations of discontinued operations:
  TOTAL
                                
                                2008
                                
                                
                                2007
                                
                                
                                2006Revenues
                                
                                $
                                -
                                
                                
                                $
                                300,632
                                
                                
                                $
                                1,470,357Cost
      of sales
                                
                                
                                -
                                
                                
                                
                                453,157
                                
                                
                                
                                1,269,440Expenses
                                
                                
                                -
                                
                                
                                
                                60,931
                                
                                
                                
                                1,314,358Net
      loss
                                
                                $
                                -
                                
                                
                                $
                                (213,456
                                )
                                
                                $
                                (1,113,441
                                )
  50
 
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
   12.
                  Discontinued Operations
      (continued)
 
 Summarized
Statement of Operations of discontinued operations
(continued)
  PTT
                                    
                                    2008
                                    
                                    
                                    2007
                                    
                                    
                                    2006Revenues
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    300,632
                                    
                                    
                                    $
                                    1,462,113Cost
      of sales
                                    
                                    
                                    -
                                    
                                    
                                    
                                    453,157
                                    
                                    
                                    
                                    1,142,352Expenses
                                    
                                    
                                    -
                                    
                                    
                                    
                                    60,931
                                    
                                    
                                    
                                    1,024,375Net
      loss
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    (213,456
                                    )
                                    
                                    $
                                    (704,614
                                    )
  EVERWOOD
                                  
                                  2008
                                  
                                  
                                  2007
                                  
                                  
                                  2006Revenues
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  8,244Cost
      of sales
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  127,088Expenses
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  289,983Net
      loss
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  (408,827
                                  )
  Summarized Balance Sheets
of discontinued operations:
  TOTAL
                                          
                                          2008
                                          
                                          
                                          2007
                                          
                                          
                                          2006Current
      Assets
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          395,740Equipment
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          889,312Current
      Liabilities
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          1,326,650PTT
                                          
                                          2008
                                          
                                          
                                          2007
                                          
                                          
                                          2006Current
      Assets
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          385,402Equipment
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          889,312Current
      Liabilities
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          1,196,828EVERWOOD
                                          
                                          2008
                                          
                                          
                                          2007
                                          
                                          
                                          2006Current
      Assets
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          10,338Equipment
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -Current
      Liabilities
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          129,822
  51
 POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 12.
                  Discontinued Operations
      (continued)
 
 Summarized
Statement of Cash Flows of discontinued operations:
 TOTAL
                                              
                                              2008
                                              
                                              
                                              2007
                                              
                                              
                                              2006Operating
      ActivitiesCash
      provided by (used in)operating
      activities
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (638,276
                                              )
                                              
                                              $
                                              (82,735
                                              )Financing
      ActivitiesCash
      provided by (used in)financing
      activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              48,304Investing
      activitiesCash
      provided by (used in)investing
      activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Increase
      (decrease) in cash
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (638,276
                                              )
                                              
                                              $
                                              (34,431
                                              )PPT
                                              
                                              2008
                                              
                                              
                                              2007
                                              
                                              
                                              2006Operating
      ActivitiesCash
      provided by (used in)operating
      activities
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (638,276
                                              )
                                              
                                              $
                                              224,688Financing
      ActivitiesCash
      provided by (used in)financing
      activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              48,304Investing
      activitiesCash
      provided by (used in)investing
      activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Increase
      (decrease) in cash
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (638,276
                                              )
                                              
                                              $
                                              272,992PPT
                                              
                                              2008
                                              
                                              
                                              2007
                                              
                                              
                                              2006Operating
      ActivitiesCash
      provided by (used in)operating
      activities
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (307,423
                                              )Financing
      ActivitiesCash
      provided by (used in)financing
      activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Investing
      activitiesCash
      provided by (used in)investing
      activities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Increase
      (decrease) in cash
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              (307,423
                                              )
  52
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
   13.
                  Restatement of prior years’
      financial statements
 
 (a) Share
warrants purchased and exercised
 
 During
the years ended December 31, 2006 and 2007, management used an incorrect method
for accounting for the proceeds on the issuance of its equity instruments that
included both a share and share warrant.  Although a differentiation
was made with respect to the relative fair value of each of the components, all
the proceeds were allocated to common stock.  Accordingly, on the sale
of units during the year ended December 31, 2006, common stock was overstated
and additional paid-in capital was understated by $174,180.  At the
end of that year, the balances in those accounts were similarly over and
understated.
 
 On the
sale of units during the year ended December 31, 2007, a similar error was made
and common stock was overstated and additional paid-in capital was understated
by $757,243.
 
 On the
exercise of warrants during the year ended December 31, 2007, as no amount had
been allocated to additional paid-in capital on issuance, no proportionate
reduction was made to that account upon exercise.  During the year
when warrants were exercised, common stock should have been increased and
additional paid-in capital should have been reduced by $79,086.
 
 As a
result of these errors, as at December 31, 2007, common stock was overstated and
additional paid in-capital was understated by $852,337.
 
 (b)
Options exercised
 
 During
the year ended December 31, 2007, management used an incorrect accounting method
when options were exercised.  The original cost of the option that was
charged to operations and credited to additional paid-in capital, was not
relieved out of that account and into common stock.  Accordingly, when
accounting for the exercise of options common stock was understated and
additional paid-in capital overstated by $267,840.  At the end of that
year, the balances in those accounts were similarly over and
understated.
 Number
      of
                      Shares
                    
                    
                    As
      Previously
                      Reported
                    
                    
                    Restatement
                      (a)
                    
                    
                    Restatement
                      (b)
                    
                    
                    As
  RestatedStatement of
      Stockholders' Equity
                    
                    
                    
                    
                    $
                    
                    
                    $
                    
                    
                    $
                    
                    
                    $Year ended December
      31, 2009Issuance of common
      shares
                    
                    
                    6,352,284Common
      Stock
                    
                    
                    
                    
                    
                    
                    469,064
                    
                    
                    
                    (174,180
                    )
                    
                    
                    -
                    
                    
                    
                    294,884Additional Paid-in
      Capital
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    174,180
                    
                    
                    
                    -
                    
                    
                    
                    174,180Closing balance,
      December 31, 2006
                    
                    
                    25,237,740Common
      Stock
                    
                    
                    
                    
                    
                    
                    2,467,602
                    
                    
                    
                    (174,180
                    )
                    
                    
                    -
                    
                    
                    
                    2,293,422Additional Paid-in
      Capital
                    
                    
                    
                    
                    
                    
                    778,796
                    
                    
                    
                    174,180
                    
                    
                    
                    -
                    
                    
                    
                    952,976
  53
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
 Number
      of
                                                          shares
                                                        
                                                        
                                                        As
      Previously Reported
                                                        
                                                        
                                                        Restatement
                                                          (a)
                                                        
                                                        
                                                        Restatement
                                                            (b)
                                                        
                                                        
                                                        As
                                                          RestatedStatement
      of Stockholder’s Equit
                                                        
                                                        
                                                        
                                                        
                                                        $
                                                        
                                                        
                                                        $
                                                        
                                                        
                                                        $
                                                        
                                                        
                                                        $Year
      ended December 31, 2007Issuance
      of common shares
                                                        
                                                        $
                                                        16,385,987Common
      Stock
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        1,640,278
                                                        
                                                        
                                                        
                                                        (757,243
                                                        )
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        883,035Additional
      Paid-in Capital
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        757,243
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        757,243Exercise
      of Option for common shares
                                                        
                                                        
                                                        3,153,500Common
      Stock
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        315,350
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        267,840
                                                        
                                                        
                                                        
                                                        583,190Additional
      Paid-in Capital
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (267,840
                                                        )
                                                        
                                                        
                                                        (267,840
                                                        )Exercise
      of Warrants common shares
                                                        
                                                        
                                                        2,770,848Common
      Stock
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        293,585
                                                        
                                                        
                                                        
                                                        79,086
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        372,671Additional
      Paid-in Capital
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (79,086
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        (79,086
                                                        )Closing
      Balance, December 31, 2007
                                                        
                                                        
                                                        58,720,279Common
      Stock
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        5,488,253
                                                        
                                                        
                                                        
                                                        (852,337
                                                        )
                                                        
                                                        
                                                        267,840
                                                        
                                                        
                                                        
                                                        4,903,756Additional
      Paid-in Capital
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        
                                                        1,791,076
                                                        
                                                        
                                                        
                                                        852,337
                                                        
                                                        
                                                        
                                                        (267,840
                                                        )
                                                        
                                                        
                                                        2,375,573
  Number
      of
                                                        Shares
                                                      
                                                      
                                                      As
      Previously Reported
                                                      
                                                      
                                                      Restatement
                                                        (a)
                                                      
                                                      
                                                      Restatement
                                                        (b)
                                                      
                                                      
                                                      As
                                                        RestatedBalance
      Sheet
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      
                                                      
                                                      $
                                                      
                                                      
                                                      $
                                                      
                                                      
                                                      $Closing
      Balance, December 31, 2007
                                                      
                                                      
                                                      58,720,279Common
      Stock
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      5,488,253
                                                      
                                                      
                                                      
                                                      (852,337
                                                      )
                                                      
                                                      
                                                      267,840
                                                      
                                                      
                                                      
                                                      4,903,756Additiona
      Paid-in Capital
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      1,791,076
                                                      
                                                      
                                                      
                                                      852,337
                                                      
                                                      
                                                      
                                                      (267,840
                                                      )
                                                      
                                                      
                                                      2,375,573
  14.
                      Differences Between United
      States and Canadian Generally Accepted Accounting
      Principles
 
 The
financial statements of the Company have been prepared in accordance with U.S.
generally accepted accounting principles which, as they apply to the Company,
differ in certain material respects from those applicable in
Canada.  Significant differences between U.S. GAAP and Canadian GAAP
are set forth below:
 2008
                                                
                                                
                                                2007
                                                
                                                
                                                2006Balance
      Sheet AdjustmentsAdditional
      Paid In Capital - as restatedBalance
      under U.S. GAAP
                                                
                                                $
                                                3,424,280
                                                
                                                
                                                $
                                                2,375,573
                                                
                                                
                                                $
                                                952,976Adjustment
      for stock compensation for employees (a)
                                                
                                                
                                                (58,396
                                                )
                                                
                                                
                                                (58,396
                                                )
                                                
                                                
                                                (58,396
                                                )Balance
      under Canadial GAAP
                                                
                                                $
                                                3,365,884
                                                
                                                
                                                $
                                                2,317,177
                                                
                                                
                                                $
                                                894,580
  54
  POLY-PACIFIC
INTERNATIONAL INC.
 (Expressed
in Canadian Dollars)
 Notes to
the Financial Statements
 December
31, 2008 and 2007
   14.
                        Differences Between United
      States and Canadian Generally Accepted Accounting Principles(continued)
  Accumulated
      Comprehensive IncomeBalance
      under U.S. GAAP
                                                  
                                                  $
                                                  53,195
                                                  
                                                  
                                                  $
                                                  53,195
                                                  
                                                  
                                                  $
                                                  53,195Translation
      adjustments (b)
                                                  
                                                  
                                                  (53,195
                                                  )
                                                  
                                                  
                                                  (53,195
                                                  )
                                                  
                                                  
                                                  (53,195
                                                  )Balance
      under Canadian GAAP
                                                  
                                                  $
                                                  ---
                                                  
                                                  
                                                  $
                                                  ---
                                                  
                                                  
                                                  $
                                                  ---Retained
      earnings (deficit)Balance
      under U.S. GAAP
                                                  
                                                  $
                                                  (9,178,606
                                                  )
                                                  
                                                  $
                                                  (7,006,917
                                                  )
                                                  
                                                  $
                                                  (4,031,534
                                                  )Translation
      adjustment (b)
                                                  
                                                  
                                                  53,195
                                                  
                                                  
                                                  
                                                  53,195
                                                  
                                                  
                                                  
                                                  53,195Cumulative
      adjustment of priorYears’
      differences
                                                  
                                                  
                                                  58,396
                                                  
                                                  
                                                  
                                                  58,396
                                                  
                                                  
                                                  
                                                  58,396Balance
      under Canadian GAAP
                                                  
                                                  $
                                                  (9,067,015
                                                  )
                                                  
                                                  $
                                                  (6,895,326
                                                  )
                                                  
                                                  $
                                                  (3,919,943
                                                  )Effect
      on statement of operationsNet
      loss under U.S. GAAP
                                                  
                                                  $
                                                  2,171,689
                                                  
                                                  
                                                  $
                                                  2,975,383
                                                  
                                                  
                                                  $
                                                  1,970,479Net
      loss under Canadian GAAP
                                                  
                                                  $
                                                  2,171,689
                                                  
                                                  
                                                  $
                                                  2,975,383
                                                  
                                                  
                                                  $
                                                  1,970,479Basic
      loss per share - Canadian GAAP
                                                  
                                                  $
                                                  0.03
                                                  
                                                  
                                                  $
                                                  0.06
                                                  
                                                  
                                                  $
                                                  0.09
  There are
no other differences between U.S. GAAP and Canadian GAAP in amounts reported as
cash flows provided by (used in) operating, financing or investing
activities.
  a)
                        Stock
      Based Compensation
 
 Under
Canadian GAAP, the Company did not adopt the policy of expensing stock options
until January 1, 2002.  Prior to this, no stock based compensation
expense was required to be recorded.
 
 b)
                        Translation
      Adjustment
 
 Under
former Canadian GAAP, the foreign currency translation adjustment would be
recorded as a cumulative translation adjustment rather than as accumulated other
comprehensive income


55




ITEM
9. THE OFFER AND LISTING




Not
applicable except for Item 9.A.4. and Item 9.C.




The
principal trading market for the Company's Common Shares is the TSX Venture
Exchange (TSX-V) under the symbol "PMB". The following table sets forth, for the
periods indicated, the high and low sales prices per share of the Company's
Common Shares on the TSX-V.




Table
9.1—History on TSX Venture Exchange (in Canadian Dollars)





Year
                                Period
                                High
                                Low2000
                                1
      Year
                                0.4
                                0.152001
                                1
      Year
                                0.35
                                0.142002
                                1
      Year
                                0.29
                                0.112003
                                1
      Year
                                0.24
                                0.112004
                                1
      Year
                                0.175
                                0.0752005
                                1
      Year
                                0.13
                                0.0452006
                                Quarter
      1
                                0.12
                                0.05Quarter
      2
                                0.13
                                0.06Quarter
      3
                                0.12
                                0.07Quarter
      4
                                0.08
                                0.05Annual
                                0..13
                                0.052007
                                Quarter
      1
                                0.65
                                0.06Quarter
      2
                                0.41
                                0.1Quarter
      3
                                0.41
                                0.17Quarter
      4
                                0.27
                                0.09Annual
                                0.65
                                0.062008
                                Quarter
      1
                                0.14
                                0.09Quarter
      2
                                0.14
                                0.08Quarter
      3
                                0.09
                                0.02Quarter
      4
                                0.04
                                0.01Annual
                                0.14
                                0.012009
                                Jan-09
                                0.05
                                0.03Feb-09
                                0.05
                                0.03Mar-09
                                0.06
                                0.04Apr-09
                                0.05
                                0.04May-09
                                0.05
                                0.03Jun-09
                                0.05
                                0.03


56




ITEM
10. ADDITIONAL INFORMATION




A.
Share Capital





The
following description is a summary of the material terms of the provisions of
our Articles of Incorporation.  The Articles of Incorporation have
been filed as exhibits to the registration statement.





Common
Shares





The
Company is authorized to issue an unlimited number of common shares with no par
value. As of December 31, 2008, there were 79,609,946 common shares issued
and outstanding that were held by approximately 66 shareholders of
record.





Each
share of common stock entitles the holder to one vote, either in person or by
proxy, at meetings of shareholders. The holders are not permitted to vote their
shares cumulatively. Accordingly, the shareholders of our common shares who
hold, in the aggregate, more than fifty percent of the total voting rights can
elect all of our directors and, in such event, the holders of the remaining
minority shares will not be able to elect any of the such directors. The vote of
the holders of a majority of the issued and outstanding common shares entitled
to vote thereon is sufficient to authorize, affirm, ratify or consent to such
act or action, except as otherwise provided by law.





Holders
of common shares are entitled to receive ratably such dividends, if any, as may
be declared by the Board of Directors out of funds legally available. We have
not paid any dividends since our inception, and we presently anticipate that all
earnings, if any, will be retained for development of our business. Any future
disposition of dividends will be at the discretion of our Board of Directors and
will depend upon, among other things, our future earnings, operating and
financial condition, capital requirements, and other factors.





Holders
of our common shares have no preemptive rights or other subscription rights,
conversion rights, redemption or sinking fund provisions. Upon our liquidation,
dissolution or winding up, the holders of our common shares will be entitled to
share ratably in the net assets legally available for distribution to
shareholders after the payment of all of our debts and other liabilities. There
are not any provisions in our Articles of Incorporation that would prevent or
delay change in our control.





The
authorized capital of the Company consists of an unlimited number of common
shares without nominal or par value and an unlimited number of preferred
shares.





Common Shares and
Warrants:





As at
December 31, 2008, the numbers of issued common shares are 79,609,946 as
compared to 58,720,279 as at December 31, 2007.  No preferred shares
have been issued.





During
fiscal year 2008, the Company had the following private placements:





Pursuant
to the private placement agreement dated March 10, 2008, the Company issued
1,862,500 units at a price of $0.08 per unit by way of a non-brokered private
placement for net proceeds of $137,920 (net of share issuance costs of $11,080).
Each unit comprises one common share and one share purchase warrant of the
Company.  Each share warrant entitles the holder to purchase one
common share at $0.15 until March 10, 2010.  The net proceeds from the
sale of these units has been allocated between share capital of $81,829 in
respect of the shares and $56,091 in respect of the warrants based on the fair
value of warrants as determined by  level 1 inputs.





Pursuant
to the private placement agreement dated August 27, 2008, the Company issued
1,300,000 units at a price of $0.05 per unit by way of a non-brokered private
placement for net proceeds of $65,000 (net of share issuance costs of $nil).
Each unit comprises one common share and one share purchase warrant of the
Company.  Each share warrant entitles the holder to purchase one
common share at $0.10 until August 27, 2010.  The net proceeds from
the sale of these units has been allocated between share capital of $37,329 in
respect of the shares and $27,671 in respect of the warrants based on the fair
value of warrants as determined by  level 1 inputs.




57





On
October 17, 2008, the Company settled certain debts with various creditors in
the total amount of $32,200 by issuing 644,000 common shares of the Company at a
price of $0.05 per common share.





Pursuant
to the private placement agreement dated December 24, 2008, the Company issued
12,279,064 units at a price of $0.03 per unit by way of a non-brokered private
placement for net proceeds of $355,825 (net of share issuance costs of
$12,547.20).  Each unit comprises of one common share and one share
purchase warrant of the Company.  Each share warrant entitles the
holder to purchase one common share at $0.10 until December 24, 2009 or $0.20
thereafter until December 24, 2010.  The net proceeds from the sale of
these units has been allocated between share capital of $204,780 in respect of
the shares and $151,045 in respect of the warrants based on the fair value of
warrants as determined by  level 1 inputs.





On
December 31, 2008, the Company settled additional debt with various creditors in
the total amount of $89,000 by issuing 2,626,667 common shares of the Company at
a price of $0.05 per common share.





Preferred
Shares





The
Company is authorized to issue an unlimited number of preferred shares in series
as fixed by the Directors without par value. As of the date of this registration
statement, there are no preferred shares outstanding.





Preferred
shares may be issued in series with preferences and designations as the Board of
Directors may from time to time determine. The board may, without shareholders
approval, issue preferred shares with voting, dividend, liquidation and
conversion rights that could dilute the voting strength of our common
shareholders and may assist management in impeding an unfriendly takeover or
attempted changes in control.  There are no restrictions on our
ability to repurchase or reclaim our preferred shares while there is any
arrearage in the payment of dividends on our preferred shares.





During
2003, a total of 3,030,200 preferred shares were redeemed at a value of
$2,353,230 in exchange for an unsecured, non-interest bearing debenture in the
amount of $1,586,250 USD.  There have been no preferred shares
issuances or redemptions by the Company since December 31, 2003.  The
authorization for preferred shares remains unlimited.




58




There is
a convertible debenture remaining as at the date of this report, for a total
principal value of $102,000, held by 2 subscribers, who are all former directors
of the Company, which is convertible to common shares of the Corporation at the
rate of $0.15 to $0.20 per share.




Stock
Options





During
the year, a total of 10,205,000 options were granted to directors, officers and
consultants of the Company.





On
February 19, 2008, 2,575,000 stock options, exercisable at $0.12, were granted
to directors, officers, employees and consultants of the
Company.  These options expire on February 19, 2013 and vest
immediately.





On March
6, 2008, 910,000 stock options, exercisable at $0.10, were granted to employees
and consultants of the Company.  These options expire on March 6, 2010
and vest immediately.





On March
10, 2008, 200,000 stock options, exercisable at $0.10, were granted to a
director and officer of the Company.  These options expire on March
10, 2010 and vest immediately.





On April
21, 2008, 600,000 stock options, exercisable at $0.12, were granted to
consultants of the Company.  These options expire on April 21, 2010
and vest immediately.





On June
19, 2008, 350,000 stock options, exercisable at $0.10 were granted to
consultants and an employee of the Company.  These options expire on
June 19, 2013 and all vested immediately except for  37,500 options
which vest equally and quarterly for the nine months following the date of
grant.





On
September 4, 2008, 500,000 stock options, exercisable at $0.10 were granted to a
director of the Company.  These options expire on September 4, 2013
and all vested immediately.





On
December 3, 2008, 500,000 stock options, exercisable at $0.10 were granted to
consultants of the Company.  These options expire on December 3, 2010
with 25% of the options vesting immediately and an additional 12.5% vesting
quarterly from the date of grant.  These options are subject to a
4-month hold period.





On
December 18, 2008, 2,820,000 stock options, exercisable at $0.10 were granted to
consultants and employees of the Company.  These options expire
on  December 18, 2013 and all vested immediately.





On
December 24, 2008, 1,750,000 stock options, exercisable at $0.10 were granted to
directors and officers of the Company.  These options expire on
December 18, 2013 and all vested immediately.  These options are
subject to a 4-month hold period.





During
the year, 4,410,000 stock options were cancelled.




59




Consolidated
Statement of Shareholders’ Equity


For
the Years Ended December 31, 2008, 2007 and 2006





Number
      of Shares
                            
                            
                            Number
      of Warrants
                            
                            
                            Common
      stock
                            
                            
                            Additional
      Paid in
                              Capital
                            
                            
                            Accumulated
      Deficit
                            
                            
                            Accumulated
      Other Comprehensive Income
                            
                            
                            Shareholders'
      Equity (Deficit)Balance
      at December 31, 2005
                            
                            
                            18,885,456
                            
                            
                            
                            -
                            
                            
                            $
                            1,998,538
                            
                            
                            $
                            731,170
                            
                            
                            $
                            (2,061,055
                            )
                            
                            $
                            53,195
                            
                            
                            $
                            721,848Issuance
      of common shares - restated
                            
                            
                            6,352,284
                            
                            
                            
                            5,595,284
                            
                            
                            
                            294,884
                            
                            
                            
                            174,180
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            469,064Stock
      based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            47,626
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            47,626Loss
      for the period
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (1,970,479
                            )
                            
                            
                            -
                            
                            
                            
                            (1,970,479
                            )Balance
      at December 31, 2006, restated
                            
                            
                            25,237,740
                            
                            
                            
                            5,595,284
                            
                            
                            $
                            2,293,422
                            
                            
                            $
                            952,976
                            
                            
                            $
                            (4,031,534
                            )
                            
                            $
                            53,195
                            
                            
                            $
                            (731,941
                            )Issuance
      of common shares - restated
                            
                            
                            16,385,987
                            
                            
                            
                            16,385,987
                            
                            
                            
                            883,034
                            
                            
                            
                            757,243
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,640,277Exercise
      of Options - restated
                            
                            
                            3,153,500
                            
                            
                            
                            -
                            
                            
                            
                            583,190
                            
                            
                            
                            (267,840
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            315,350Exercise
      of Warrants - restated
                            
                            
                            2,770,848
                            
                            
                            
                            (2,770,848
                            )
                            
                            
                            372,671
                            
                            
                            
                            (79,086
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            293,585Shares
      for debt settled
                            
                            
                            3,172,208
                            
                            
                            
                            -
                            
                            
                            
                            171,438
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            171,438Shares
      for Polyran
                            
                            
                            7,999,996
                            
                            
                            
                            -
                            
                            
                            
                            600,000
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            600,000Stock
      based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,012,280
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1,012,280Loss
      for the period
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (2,975,383
                            )
                            
                            
                            -
                            
                            
                            
                            (2,975,383
                            )Balance
      at December 31, 2007, restated
                            
                            
                            58,720,279
                            
                            
                            
                            19,210,423
                            
                            
                            $
                            4,903,756
                            
                            
                            $
                            2,375,573
                            
                            
                            $
                            (7,006,917
                            )
                            
                            $
                            53,195
                            
                            
                            $
                            325,607Issuance
      of common shares
                            
                            
                            15,441,564
                            
                            
                            
                            15,441,564
                            
                            
                            
                            317,199
                            
                            
                            
                            241,546
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            558,745Exercise
      of Options
                            
                            
                            850,000
                            
                            
                            
                            -
                            
                            
                            
                            165,609
                            
                            
                            
                            (74,409
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            91,200Exercise
      of Warrants
                            
                            
                            1,327,436
                            
                            
                            
                            (1,327,436
                            )
                            
                            
                            170,632
                            
                            
                            
                            (37,888
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            132,744Expired
      Warrants
                            
                            
                            -
                            
                            
                            
                            (1,497,000
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Shares
      for debt settled
                            
                            
                            3,270,667
                            
                            
                            
                            -
                            
                            
                            
                            121,200
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            121,200Stock
      based compensation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            919,458
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            919,458Loss
      for the period
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (2,171,689
                            )
                            
                            
                            -
                            
                            
                            
                            (2,171,689
                            )Balance
      at December 31, 2008
                            
                            
                            79,609,946
                            
                            
                            
                            31,827,551
                            
                            
                            $
                            5,678,396
                            
                            
                            $
                            3,424,280
                            
                            
                            $
                            (9,178,606
                            )
                            
                            $
                            53,195
                            
                            
                            $
                            (22,735
                            )




60




B.
Memorandum and Articles of Association




The
Articles of Association of the Company, as amended to date, has been filed as
Exhibit 1.0 to the Company's Registration Statement on Form 20-F, filed with the
Securities and Exchange Commission. The Articles of Association were approved by
shareholders on October 25, 1995.  Amendments were registered on April
23, 1999 and on June 12, 2003.




The
Company is incorporated pursuant to the Companies Act, Chapter 21, Revised
Statutes of Alberta 2000 (Companies Act), which provides for the powers,
rights and responsibilities of all corporations registered within the
jurisdiction of the Province of Alberta.




The
primary requirements and provisions of the Company’s articles of association are
included in the Companies Act and apply to the Company, subject only to changes
that have been made through Directors’ Resolutions that have been filed as
certificates and amendment and registration of restated articles, as included in
Exhibit 1.0.  Pursuant to the Companies Act, (a) a director may not
vote on a proposal, arrangement or contract in which the director has a material
interest; (b) the directors may not, in the absence of an independent quorum,
vote compensation to themselves or any members of their body; (c) the directors
may only exercise borrowing powers, or vary those powers, through the approval
of a majority of their number attendant at a duly convoked meeting of directors,
with the vote results being recorded in the minutes of the meeting; (d) there is
no age limit requirement in respect of retirement or non-retirement of
directors; and (e) ownership of shares is not required for director’s
qualification.




Any
change in the rights of holders of the stock, however proposed, must be approved
by at least a two-thirds majority vote of the common
shareholders.  Pursuant to the Companies Act and the regulations of
the Alberta Securities Commission, the vote may be conducted through a formal
polling of shareholders, or it may be taken at a duly convoked general or
special meeting of shareholders.   The law requires that at least
one general meeting of shareholders must be convoked each year.  The
notice for a general or extraordinary meeting must be promulgated at least 45
days in advance of the meeting date through delivery to all shareholders of
record as at a date, prior to the date of issuance of the notice, which must be
published with the notice.





C.   Disclosure
Controls and Procedures Update





Disclosure
controls and procedures have been designed to ensure that information required
to be disclosed by the Company is accumulated and communicated to its management
as appropriate to allow timely decisions regarding disclosure. The Company’s
Acting Chief Executive Officer and Acting Chief Financial Officer have
concluded, based on their evaluation as of the date of this Management’s
Discussion and Analysis that disclosure controls and procedures provide
reasonable assurance that material information is made known to them by others
within the Company.   It should be noted that while the Company’s
Acting Chief Executive Officer and Acting Chief Financial Officer believe that
disclosure controls and procedures provide a reasonable level of assurance and
that they are effective, they do not expect that the disclosure controls and
procedures would prevent all errors and fraud.  A control system, no
matter how well conceived or operated, can only provide reasonable assurance
that the objectives of the control system are met.




Internal
Controls over Financial Reporting





The
Acting Chief Executive Officer and Acting Chief Financial Officer of the Company
are responsible for designing internal controls over financial reporting or
causing them to be designed under their supervision in order to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
Canadian generally accepted accounting principles.




61





Further,
because the Company is a registrant under US securities legislation, the Acting
Chief Executive Officer and Acting Chief Financial Officer of the Company are
responsible for assessing the effectiveness of the internal controls over
financial reporting or causing them to be assessed under their supervision in
order to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with Canadian and United States generally accepted accounting
principles.





It should
be noted that while the Company’s Acting Chief Executive Officer and Acting
Chief Financial Officer believe that internal control over financial reporting
provides a reasonable level of assurance, they do not expect that the internal
controls over financial reporting would prevent all errors and
fraud.  A control system, no matter how well conceived or operated,
can only provide reasonable assurance that the objectives of the control system
are met.




D.
Material Contracts





Material
contracts, other than contracts entered into during the ordinary course of
business, entered into during the two years immediately preceding the date of
this submission are:





None.




E.
Exchange Controls




There are
no government laws,decrees or regulations
in Canada relating to restrictions on the import/export of capital, or affecting
the remittance of interest, dividends or other payments to non-residential
holders of the Company's shares. Any such remittances to United States
residents, however, may be subject to a 15% tax pursuant to Article X of the
reciprocal tax treaty between Canada and the United States. The applicable rate
is dependent on the type of entity receiving the dividends. See Item 10 E -
Taxation, below.




Except as
provided in the Investment
Canada Act (the "Act"), there are no limitations under the laws of
Canada, the Province of Alberta or in the charter or any other constituent
documents of the Corporation on the right of foreigners to hold and/or vote the
shares of the Company.





The purpose of the Act is to provide for the review of significant
investments in Canada by non-Canadians in order to ensure benefit to Canada. The
legislation describing the "review function" and associated rules are complex
and any non-Canadian considering an investment to which the Act might apply can
obtain information about the Act and regulations from the Government of Canada
athttp://strategis.ic.gc.ca/epic/internet/inica-lic.nsf/en/Home.




62




The
provisions of the Act apply to any person who is not a Canadian citizen or a
permanent resident, within the meaning of the Immigration Act (ie. a person
who has been ordinarily resident in Canada for not more than one year after the
time at which he/she first became eligible to apply for Canadian
citizenship).  For the purposes of the Act, a non-Canadian includes
any entity that is not controlled or beneficially owned by
Canadians.




Non-Canadians
must either file a Notification or an Application for Review of an investment
unless a specific exemption applies pursuant to section 10 of the
Act.  The determination of which action is required is dependent upon
the following conditions:




1.
            A
      Notification must be filed by a non-Canadian when commencing a new
      business activity in Canada and when acquiring control of an existing
      Canadian business where the establishment or acquisition of control is not
      a reviewable transaction.  Pursuant to the Act, a Notification
      must be filed no later than thirty days after the implementation of the
      investment.




2.
            An
      Application for Review of the investment must be submitted when it is for
      an acquisition of a Canadian business and the asset value of the Canadian
      business being acquired equals or exceeds any of the following
      thresholds:




(a)
            For
      an investor who is not from a World Trade Organization country, the
      threshold is $5 million for a direct acquisition and $50 million for an
      indirect acquisition; the $5 million threshold will apply, however, for an
      indirect acquisition if the asset value of the Canadian business being
      acquired exceeds 50% of the total assets of the
  business.




(b)
            Except
      as specified in paragraph (c) below, a threshold is calculated annually
      for reviewable direct acquisitions by investors who are from a World Trade
      Organization country, such as the United States of America. The threshold
      that was set for 2004 was $237 million. Pursuant to Canada's international
      commitments, indirect acquisitions by investors who are from World Trade
      Organization countries are not
reviewable.




(c)
            The
      limits set out in paragraph (a) apply to all non-Canadian investors for
      acquisitions of a Canadian business
that:




(i)
            engages
      in the production of uranium and owns an interest in a producing uranium
      property in Canada;




(ii)
            provides
      any financial service;




(iii)
            provides
      any transportation service; or




(iv)
            is
      a cultural business.




63





3.
            Notwithstanding
      the above, any investment for which only a Notification is usually
      required, including the establishment of a new Canadian business, and
      which falls within a specific business activity listed in Schedule IV of
      the Regulations
      Respecting Investment in Canada, may be reviewed if an
      Order-in-Council from the Government of Canada directing a review is made
      and a notice is sent to the non-Canadian investor within 21 days following
      the receipt of a certified complete notification.  The types of
      businesses included in Schedule IV are those involved
  in:




(a)
            The
      publication, distribution or sale of books, magazines, periodicals or
      newspapers in print or machine readable form.(b)
            The
      production, distribution, sale or exhibition of film or video
      products.




(c)
            The
      production, distribution, sale or exhibition of audio or video music
      recordings.




(d)
            The
      publication, distribution or sale of music in print or machine readable
      form.




F.
Taxation




The
discussion under this heading summarizes the material Canadian federal income
tax consequences of acquiring, holding and disposing of common shares of the
Registrant for a shareholder of the Registrant who is not resident in Canada and
who is resident in the United States. It is based on the current provisions of
the Income Tax Act
(Canada) (the "Tax Act") and the regulations thereunder. The provisions
of the Tax Act are subject to income tax treaties to which Canada is a party,
including the Canada-United States Income Tax Convention (1980) (the
Convention). Generally, dividends paid by Canadian corporations to non-resident
shareholders are subject to a withholding tax of 25% of the gross amount of such
dividends. However, Article X of the reciprocal tax treaty between Canada and
the United States reduced to 15% the withholding tax on the gross amount of
dividends paid to residents of the United States. A further 9% reduction, in
1996, and a 10% reduction in 1997 and thereafter, in the withholding tax rate on
the gross amount of dividends is applicable when a US corporation owns at least
10% of the voting  shares of the Canadian corporation paying the
dividends.




A
non-resident who holds shares of the Company as capital property will not be
subject to tax on capital gains realized on the disposition of such shares
unless such shares are "taxable Canadian Property" within the meaning of the
Income Tax Act (Canada)("Tax Act'), and no relief is afforded under any applicable tax treaty.
The shares of the Company would be taxable Canadian property of a non-resident
ifat any time
during the five year period immediately preceding a disposition
by the non-resident of such shares (a) not less than 25% of the issued shares of
any class of the Company belonged to the non-resident (b) the person with whom
the nonresident dealt did not deal at arm's length, or (c) to the non-resident
and any person with whom the non-resident did not deal at arm's
length.




As a
foreign corporation with US shareholders, the Company could be treated as a
passive foreign investment Corporation ("PFIC"), as definedin Section 1296 of the
Internal Revenue Code. This determination is dependent upon the percentage of
the Company's passive income, or the percentage of the Company's assets, which
are producing passive income. US shareholders owning shares of a PFIC may defer
the U.S. tax with respect to that investment until the US holder disposes of the
PFIC shares or receives certain distributions. At that time, the U.S. holder is
subject to US tax, plus interest, based on the value of the tax deferral for the
period during which the shares of the PFIC are owned, in addition to treatment
of any gain realized on the disposition of the shares of the PFIC as ordinary
income rather than as a capital gain.




64


Gain from
a disposition of PFIC shares or certain distributions are treated as income
earned ratably over the period during which the shareholder has held the shares.
That portion allocable to the current year and to years when the corporation was
not a PFIC is included in the shareholder's gross income in the year of
distribution as ordinary income, rather than as a capital gain. That portion of
the distribution or disposition which is not allocable to the current year is
subject to deferred U.S. tax (the amount of tax that wouldhave been owed if the
allocated amount had been included in income in the earlier year), plus
interest.




However,
if the U.S. shareholder makes a timely election to treat a PFIC as a qualified
electing fund ("QEF") with respect to such shareholder's interest therein, the
above-described rules generally will not apply. Instead, the electing U.S.
shareholder would include annually in his gross income his pro-rata share of the
PFIC's earnings and profits and any net capital gain, regardless of whether such
income or gain was actually distributed. A U.S. Holder of a QEF can, however,
elect to defer the payment of United States Federal Income tax on such income
inclusions income not currently received. Special rules apply to U.S.
shareholders who own their interests in a PFIC through intermediate entities or
persons.




This
section describes the material United States federal income tax consequences of
owning shares. The United States Taxation subsection applies to you only if you
hold your shares as capital assets for tax purposes. The United States Taxation
subsection does not apply to you if you are a member of a special class of
holders subject to special rules, including:





●
            a
      dealer in securities;





●
            a
      trader in securities that elects to use a mark-to-market method of
      accounting for your securities
holdings;





●
            a
      tax-exempt organization;





●
            a
      life insurance company;





●
            a
      person liable for alternative minimum
tax;





●
            a
      person that actually or constructively owns 10% or more of our voting
      stock;





●
            a
      person that holds shares as part of a straddle or a hedging or conversion
      transaction; or,





●
            a
      US holder (as defined below) whose functional currency is not the US
      dollar.




65




This
section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations, published rulings and
court decisions These laws are subject to change, possibly on a retroactive
basis.





You are a
"U.S. holder" if you are a beneficial owner of shares and you are:





●
            a
      citizen or resident of the United
States;





●
            a
      domestic corporation;





●
            an
      estate whose income is subject to United States federal income tax
      regardless of its source; or,




●
            a
      trust, if a United States court can exercise primary supervision over the
      trust's administration and one or more United States persons are
      authorized to control all substantial decisions of the
    trust.





Taxation
of dividends





Under the
United States federal income tax laws, and subject to the passive foreign
investment company, or PFIC, rules discussed below, if you are a United States
holder, you must include in your gross income the gross amount of any dividend
paid by us out of our current or accumulated earnings and profits (as determined
for United States federal income tax purposes). This includes any supplementary
dividend or any additional dividends that we may elect to distribute to
shareholders not tax resident in Canada, as explained in the Canada Taxation
subsection. Dividends paid by us will not constitute qualified dividend income
that would be eligible for the special tax rate applicable to qualified dividend
income. Withholding tax is deducted from the ordinary dividend, any
supplementary dividend and any additional dividend. You should include any
supplementary dividend and any additional dividends and Canada tax withheld from
the dividend payments in this gross amount even though you do not in fact
receive the withholding tax. Any dividend is taxable to you when you receive the
dividend, actually or constructively. Any such dividend will not be eligible for
the dividends-received deduction generally allowed to United States corporations
in respect of dividends received from other United States corporations. The
amount of the dividend distribution that you must include in your income as a
United States holder will be the US dollar value of the Canada dollar payments
made, determined at the spot Canada dollar/US dollar rate on the date the
dividend distribution is includible in your income, regardless of whether the
payment is in fact converted into US dollars. Generally, any gain or loss
resulting from currency exchange fluctuations during the period from the date
you include the dividend payment in income to the date you convert the payment
into US dollars will be treated as ordinary income or loss. The gain or loss
generally will be income or loss from sources within the United States for
foreign tax credit limitation purposes. Distributions in excess of current and
accumulated earnings and profits, as determined for United States federal income
tax purposes, will be treated as a non-taxable return of capital to the extent
of your basis in the shares and thereafter as capital gain.





Subject
to certain limitations, the Canada tax withheld and paid over to Canada should
be creditable against your United States federal income tax liability However,
it is not certain that withholding tax deemed paid from a supplementary dividend
will be creditable, because that tax may not be considered withheld or may be
considered a non-creditable subsidy.




66




Dividends
will be income from sources outside the United States. Dividends paid in taxable
years beginning before January 1, 2007 generally will be "passive" or "financial
services" income, and dividends paid in taxable years beginning after December
31, 2006 will, depending on your circumstances, be "passive" or "general" income
which, in either case, is treated separately from other types of income for
purposes of computing the foreign tax credit allowable to you.





Taxation
of capital gains





Subject
to the PFIC rules discussed above, if you are a United States holder and you
sell or otherwise dispose of your shares, you will recognize capital gain or
loss for United States federal income tax purposes equal to the difference
between the US dollar value of the amount that you realize and your tax basis,
determined in US dollars, in your shares. Capital gain of a non-corporate United
States holder that is recognized on or after May 6, 2003 and before January 1,
2009 is generally taxed at a maximum rate of 15% where the holder has a holding
period greater than one year.





The gain
or loss will generally be income or loss from sources within the United States
for foreign tax credit limitation purposes.




G.
Dividend and Paying Agents




The
Company has not declared any dividends in any of its years of operations, and
has therefore not appointed a dividend paying agent.  The Company’s
articles of association do not contain any provision to prohibit the payment of
dividends to its shareholders.  However, the Companies Act stipulates
that no dividend shall be declared if a company is insolvent, if the dividend
would render the company insolvent, or if the dividend would impair the capital
of the company.  Further, if a dividend was to be declared and paid by
a company under the preceding stated conditions, the directors of the company
would be jointly and severally liable to the company and its creditors for the
debts that would exist after the declaration and payment of such a
dividend.




H.
Statement by Experts




Included
as Exhibit 10.1 in respect of the audited financial statements of the Company
for the year ending December 31, 2008.




I.
Documents on Display




It is
possible to read and copy documents referred to in this annual report on Form
20-F that have been filed with the SEC at the SEC's public reference room
located at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms and their
copy charges.




Other
documents concerning the Company, which are referred to in this report, or which
are otherwise deemed to be public information, may be inspected during normal
business hours at the Principal Executive Offices of the Company located 1279 –
51st
Avenue; Vancouver, BC; V5X 1E9 Requests for documents from the Company may be
made at (604) 324-2110, by fax to (604) 677-6200, or by e-mail to
info@poly-pacific.com.




67




J.
Subsidiary Information





Not
applicable, since it is included in the financial statements pursuant to
generally accepted accounting principles.




ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Not
applicable.






ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES




Not
applicable.




PART
II




ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES




Not
applicable.




ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS




Not
applicable.




ITEM
15. CONTROL AND PROCEDURES




Not
applicable.




ITEM
16. RESERVED




A.
Audit Committee Financial Expert




Not
applicable.




B.
Code Of Ethics




Not
applicable.




C. Principal Accountant Fees And Services




External Auditor Service
Fees


The
aggregate fees billed by the Corporation’s external auditors in each of the last
two fiscal years for audit and other fees are as follows:





Financial
                  Year
      Ending
                Audit
                  Fees
                Audit
                  Related
      Fees
                Tax
                  Fees
                All
                  OtherFees2008
                $15,000
                Nil
                $5,000
                Nil2007
                $15,000
                Nil
                $5,000
                Nil





68




D.
Exemption From Listing Standards For Audit Committees




Not
applicable.








E.
Purchases Of Equity Securities By The Issuer And Affiliated Persons





Not
applicable.




PART
III




ITEM
17. FINANCIAL STATEMENTS




Incorporated
by Reference to Item 8.




ITEM
18. FINANCIAL STATEMENTS




Not
applicable.




69




ITEM
19. EXHIBITS





Number
                      Description
      of Exhibit10.1
                      Consent
      of accountants pursuant to Item 10.G12.1
                      Certification
      of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14
      of  the Securities Exchange Act of 1934, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of
  200212.2
                      Certification
      of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14
      of  the Securities Exchange Act of 1934, as adopted pursuant to
      Section 302 of the Sarbanes-Oxley Act of 200213.1
                      Certification
      of Chief Executive Officer pursuant to 18 U.S.C section
    135013.2
                      Certification
      of Chief Financial Officer pursuant to 18 U.S.C section
    1350




70
 
  SIGNATURE




The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.




Poly-Pacific International
      Inc.
                  (Registrant)
                  Pursuant
      to the requirements of the Securities Act of 1933, this Form 20-F Filing
      has
                  been
      signed by the following person in the capacity and on the date
      indicated.  
 Date: June
      29, 2009
                                  By:
                                  /s/ Randy
      HaywardRandy
      Hayward
                                    President
   71