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EX-31.2 - CERTIFICATION - TRISTAR WELLNESS SOLUTIONS, INC.exhibit31-2.htm
EX-32.1 - CERTIFICATION - TRISTAR WELLNESS SOLUTIONS, INC.exhibit32-1.htm
EX-31.1 - CERTIFICATION - TRISTAR WELLNESS SOLUTIONS, INC.exhibit31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 2 )

(Mark One)

[ x ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to________________

Commission file number 000-29981

BIOPACK ENVIRONMENTAL SOLUTIONS INC.
(Exact name of registrant as specified in its charter)

Nevada 91-2027724
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

Room 905, 9/F, Two Chinachem Exchange Square
338 King’s Road, North Point, Hong Kong

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code 852.3586.1383

Securities registered under Section 12(b) of the Act:

None N/A
Title of each class Name of each exchange on which registered

Securities registered under Section 12(g) of the Act:

Common Stock, $0.001 par value
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes[ ] No[ x ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes[ ] No [ x ]

Indicate by check mark whether the registrant has (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes[ x ] No[ ]


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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]   Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company) Smaller reporting company [ x ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes[ ] No[ x ]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $6,647,611 based on a price of $0.25 per share, being the average bid and asked price of such common equity as of June 30, 2009.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PAST FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 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.
Yes[ ] No[ ] N/A

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. 42,000,232 shares of common stock as of March 29, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1980). Not Applicable

-2-


Explanatory Note

We are filing this amendment to amend our annual report on Form 10-K for the fiscal year ended December 31, 2009, which was originally filed with the Securities and Exchange Commission on March 31, 2010. We are filing this amendment to add the description of the liquidation of certain dormant subsidiary during the fiscal year ended December 31, 2009 in the notes to the financial statements and Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.

All other information included in our annual report on Form 10-K for the fiscal year ended December 31, 2009 has not been amended. Except for the matter described above, this amendment does not modify or update disclosures in the originally filed annual report on Form 10-K, or reflect events occurring after March 31, 2010, which is the date of the filing of the originally filed annual report on Form 10-K.


PART I

FORWARD LOOKING STATEMENTS.

This report contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “intends”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in Item 1A “Risk Factors” commencing on page 11 of this report, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

In this report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to “common shares” refer to the common shares in our capital stock. Many of our obligations are payable in either Hong Kong dollars or in Renminbi (the currency of the People’s Republic of China). Throughout this document, we have converted those obligations from the native currency into U.S. dollars for purposes of making meaningful disclosure, though we have attempted to provide the amount paid in the native currency in parenthesis where appropriate. We have converted from Hong Kong dollars to U.S. dollars at a rate of 7.785 and from the Renminbi at a rate of 6.794. Both of these rates are based on the average 2009 closing middle market telegraphic transfer rates supplied by the Hang Seng Bank Limited.

As used in this report and unless otherwise indicated, the terms “we”, “us” and “our” refer to Biopack Environmental Solutions Inc. and our wholly-owned subsidiaries. For your convenience, we have included a company organization chart on page 3, below.

ITEM 1. BUSINESS.

Corporate History

We were incorporated on August 28, 2000 in the state of Nevada under the name “Quadric Acquisitions”. Following our incorporation we were not actively engaged in any business activities. On April 25, 2001, we were acquired by Zkid Network Company and changed our name to ZKid Network Co. As a result, we became engaged in the business of providing media content for children through the use of our proprietary software.

On February 8, 2006, we announced that we would be unable to raise the necessary funds to continue with our then-existing business model and plan. Accordingly, we decided to seek an active company to acquire.

On May 8, 2006, we closed a share exchange agreement with Star Metro Group Limited, which became our wholly-owned subsidiary. Under the terms of the share exchange agreement we exchanged 60,000,000 shares of our company for 100% of the issued and outstanding shares of Star Metro Group at a ratio of 1 share of our common stock for each 2,000 shares of Star Metro Group Limited’s stock. As a result of the share exchange agreement, we became engaged in the development, production and sale of a line of biodegradable, single use, food and beverage containers.

On March 20, 2006, we changed our name from ZKid Network Co. to Eatware Corporation.

On November 27, 2006, we changed our name from “Eatware Corporation” to “Star Metro Corp.”. We were required to effect this name change by the terms of an agreement we entered into on November 13, 2006, with Glory Team Industrial Limited and Eddie Chou, an ex-director of our company. We effected this name change by merging Star Metro Corp., our newly incorporated and wholly-owned subsidiary that was created for this purpose, into our company, with our company carrying on as the surviving corporation under the name “Star Metro Corp.”.

On February 26, 2007, we changed our name from “Star Metro Corp.” to “Biopack Environmental Solutions Inc.”. This name change was effected by merging Biopack Environmental Solutions Inc., our newly incorporated and wholly-owned subsidiary that was created for this purpose, into our company, with our company carrying on as the surviving corporation under the name “Biopack Environmental Solutions Inc.”.

On March 27, 2007, we completed a share exchange with the shareholders of Roots Biopack Group Limited, a company formed under the laws of the British Virgin Islands. Under the terms of the share exchange agreement we acquired all of the issued and outstanding common shares of Roots Biopack Group in exchange for the issuance by our company of 90,000,000 common shares to the former shareholders of Roots Biopack Group. As of the closing date of the share exchange agreement, the former shareholders of Roots Biopack Group held approximately 62.13% of the issued and outstanding common shares of our company.


Prior to our acquisition of the common shares of Roots Biopack Group, we had one wholly owned subsidiary, Starmetro Group Limited, a British Virgin Islands corporation. Starmetro Group Limited, in its turn, had two wholly owned subsidiaries: Biopack Environmental Ltd. (formerly named as E-ware Corporation Limited), a Hong Kong corporation, and Bioplanet Distribution Sdn Bhd, a Malaysian corporation.

Effective July 25, 2007, we filed a certificate of designation with the Secretary of State of Nevada, designating 1,000,000 Series B Preferred Shares. Each Series B Preferred Share has the right to thirty (30) votes at any meeting of our shareholders and the right to convert, at any time at the holder’s option, into five (5) common shares in the capital stock of our company. On February 25, 2008, we filed a certificate of designation with the Secretary of State of Nevada designating 2,000,000 Series C Preferred Shares. The rights and restrictions of these Series C Preferred Shares are identical to the rights and restrictions for our Series B Preferred Shares.

Effective June 11, 2008, the Secretary of State of Nevada accepted for filing a certificate of change with respect to a consolidation of our authorized and issued and outstanding shares of common stock on a one new for ten old basis, as approved by our board of directors on May 31, 2008. As a result, our authorized common share capital decreased from 500,000,000 shares of common stock to 50,000,000 shares of common stock and correspondingly our issued and outstanding common share capital decreased from 167,569,367 shares of common stock to approximately 16,756,937 shares of common stock. Fractional shares were rounded-up. Preferred shares and convertible securities were not consolidated. Except as otherwise expressly stated to the contrary, the disclosure of share data in this Form 10-K has been adjusted to reflect this consolidation.

During 2009, we restructured our organization to improve the efficiency of our corporate structure. On September 18, 2009, we dissolved Roots Biopack Group. The following table shows our current structure:


BIOPACK ENVIRONMENTAL SOLUTIONS INC.
Organization Structure as at 31.12.2009


Subsidiaries

The following is a list of our subsidiaries:



Name of Subsidiary
Corresponding
number on
diagram

Date of
Incorporation

Jurisdiction of
Incorporation


Purpose
Starmetro Group Limited

2

April 1, 2005

British Virgin
Islands
Serves as an investment holding company which holds all subsidiaries.
Biopack Environmental
Limited (formerly E-ware
Corporation Limited)


3




November 28, 2005




Hong Kong




Provided corporate administrative services until December 31, 2007; has served as a vehicle for sales and marketing of our biodegradable food containers and industrial packaging products since December 31, 2007.
Roots Biopack (Intellectual
Property) Limited

6


April 27, 2005


Hong Kong


Serves as a vehicle for the patent and trademark registration of our biodegradable food container and industrial packaging products.



Roots Biopark Limited

4

February 16, 2006

Hong Kong

Serves as an investment holding company which holds Jiangmen Roots Biopack Ltd.
Jiangmen Roots Biopack
Limited
5

March 30, 2006

The Peoples
Republic of China
(PRC)
Serves as an investment holding company for our manufacturing plant located in Jiangmen, China.

Our Business

We develop, manufacture, distribute and market bio-degradable food containers and disposable industrial packaging for consumer products. We supply our biodegradable food containers and industrial packaging products to multi-national corporations, supermarket chains and restaurants located across North America, Europe and Asia.

We manufacture our products in our own factory, known as Biopark, which is located in Jiangmen City in the Peoples Republic of China (“PRC”).

Factory Development:

By the end of 2007 we had 14 production machines, together with the boiler, transformer and compressor units necessary for their operation, installed and fully operational at our Biopark facility. Each production machine is fitted with a set of customer/product specific molds. These molds are designed by our customers to suit their specific product specifications (e.g., shape and size).

During 2008 we completed installation of a new wastewater treatment system at our Biopark facility. This system uses a seven stage process to treat up to 23,800 gallons per day of waste water, which permits us to reduce fresh water consumption while increasing efficiency and our production capacity for colored product.

During 2009, we installed two additional machines in our factory. These have been fitted with molds and are fully operational. With the 16 production machines currently installed and in operation, we are now capable of producing approximately 6,000,000 units per month.

We plan to add eight more production machines by the end of 2010 to the existing 16 machines currently installed. Our plan contemplates that six of these new machines will be fully automated and two will be semi-automated. When the new machines have been installed, we would have a total of 24 production machines. We plan to set up four production lines of five fully automated machines each, with the four semi-automated machines operating separately. We have found that the semi-automated machines provide greater flexibility when using different mixes of product moulds.

To accommodate the additional production capacity that these new machines will add to our factory, we also intend to add two additional mixing and pulping pools.

We estimate the cost of these improvements, including the new machines and the additional mixing and pulping pools, will be approximately $1,000,000. In addition, we believe that once all of the new machines are installed and in operation, we will need to add additional trimming machines but we cannot estimate the number needed until our expansion is complete. In the short term, we plan to handle any additional trimming needs by adding extra work shifts.

Over the next 12 months, we plan to increase sales of our existing products and add new products, including additional industrial packaging products and complementary products. Now that we have stabilized our production capabilities at our Biopark facility, we believe that the pace of our expansion will begin to increase. Our plan is to focus on increasing European orders and expansion into the North American market and the coated tray market.

We continue to see a difference in the environmental packaging market. Although the European market has shown a preference for environmentally sensitive products for some time now, we believe that the current U.S. administration’s focus on green technology for both economic and environmental reasons continues to influence a shift away from more traditional packaging products such as those made from Styrofoam, which has actually been banned in a number of U.S. cities, towards environmentally friendly products like ours. We believe that our products and our company can benefit from this trend.

Our sales and marketing team is located in Hong Kong. Through our sales and marketing team and our distributors, we supply our biodegradable food containers and industrial packaging products to multi-national corporations, supermarket chains and restaurants located across North America, Europe and Asia. During calendar year 2008 we were focused primarily on establishing and expanding our production capabilities and servicing existing accounts, primarily located in Europe. During calendar year 2009 we have continued to focus on the expansion of our production capabilities and we hope to expand our marketing efforts, focusing on an expansion of our sales, primarily in North America. During the year, we entered the U.S. packaging market through Biopack America and we entered into a distribution agreement with Sonray Sales Ltd., a Canadian company that distributes to wholesalers, retailers, supermarket chains and food service providers in Canada and abroad. In addition, we have begun to market our products in Asia and achieved entry into the Asian sustainable packaging market, through sales of our green fruit trays to city’super, a high end supermarket chain with stores in Hong Kong and Taiwan.


Our most significant achievement of 2009 was our reaction to a customer order for a water resistant or "coated" tray. We designed, tested, manufactured and shipped this new custom-made coated fish tray upon request to meet the packaging needs of a large international food retailer. Our eco-friendly, 100% biodegradable and compostable coated fish tray was specifically made to complement an existing product within this retailers Sustainable Seafood Program, a 10-point policy which dictates how seafood is purchased and sold based on social, ecological and economic considerations.

We spent considerable resources to develop this coated tray because we believe that the market for a more water and moisture resistant tray for large retailers represents a significant new opportunity for our company. Sustainable packaging for this new large market segment includes frozen food and entrees, ready-made meals, fresh and frozen meat, cut fruit and vegetables, baked goods and, of course, the seafood market. We believe that our coated trays can deliver advantages across a wide spectrum of applications.

Industry Overview

Currently, the majority of disposable packaging products are made from plastic, paper or polystyrene, which are typically non-recyclable and non-biodegradable. Consequently, millions of tons of plastic, paper, or polystyrene disposable packaging products are discarded in landfills across the world each year. In the last decade there has been increasing public concern over the harmful impact that plastic, paper, or polystyrene disposable packaging products have on the environment. Because of this public concern, governments have begun to adopt regulations intended to restrict and in some cases even ban the use of plastic, paper, or polystyrene disposable packaging products and multinational corporations, acknowledging the need for environmentally sound solutions, have begun to seek alternatives to plastic, paper, or polystyrene disposable packaging products that are less harmful to the environment. As these trends continue, we believe that market for biodegradable food containers and industrial packaging products will face rapid growth.

Principal Products

Our current product line-up of food containers and industrial packaging products include: plates, bowls, boxes, trays, shoe supporters and cases for electronic devices. We can fabricate any of these or other items to meet customer-specific requirements, including shape, size, color, density and the degree to which they are impervious to oil and water.

Each of our products is:

  • biodegradable.

  • made from natural materials (primarily sugarcane fiber, or bagasse, which is a renewable resource that is a by- product of the sugar refining process).

  • refrigerator, freezer, microwave and oven friendly in temperatures ranging from -25°C to 220°C.

  • sterilized by an ultraviolet light process.

Competitive Advantages

We believe that we have the following competitive advantages:

  • We employ our own research and development, sales and marketing, quality control team and customer service team.

  • Successful cultivation of long-term supplier relationships with our key distributors and consistent quality gives us a “first mover” advantage, which helps us maintain brand loyalty.

  • We have our own in-house production facilities and we manufacture our own proprietary product using fully automated machinery. This gives us versatility and permits us to react quickly to market demands for product design and development.

We have received a number of internationally recognized certifications and awards for our biodegradable food container and industrial packaging products, including: the “Good Manufacturing Practices” awarded by SGS Hong Kong Ltd. for compliance with international practices pertaining to quality and management systems; the “HACCP” awarded by the World Health Organization for compliance with the standards for food safety management systems set by World Health Organization & World Food and Agricultural Organization; the “BRC/Iop” awarded by the British Retail Consortium / Institute of Packaging for food packaging products (food contact items); the “ISO 9001/14001” awarded by the International Organization for Standardization for compliance with the standards for quality management systems and environmental management systems.


Sales and Marketing

Our sales and marketing efforts currently consist primarily of direct marketing, agents, legacy clients and attendance at trade shows and expositions. To enhance our corporate image and brand awareness we actively participate in various events. Our biodegradable food container and industrial packaging products were selected for use in the following events: 2006 Winter Olympics, 2005 World Youth Day, 2005 Winterfest, 2003 World Alpine Ski Championship, 2003 World Expo, 2002 World Expo.

Through our distributors we supply our biodegradable food containers and industrial packaging products to multinational corporations, supermarket chains and restaurants, located across North America, Europe and Asia. We have distributors in The Netherlands, Switzerland, Hong Kong, Sweden, South Africa, the United States, Japan, Taiwan and Israel. Although we have historically concentrated the bulk of our marketing efforts on the European market, we have recently decided to increase our efforts in North America during the next 12 months.

Manufacturing Process

We currently manufacture our products in our factory in Jiangmen City, PRC (see discussion, above).

The manufacturing process at our Biopark facility consists of the following stages:

Raw Material Preparation

Crunching/Shredding
Fine mixing (set correct concentration)
Dosing (adding additives)

These first 3 stages prepare the mixture for the pulp forming stage.

Pulp Formation

Forming
Cold press
Hot press

During these three phases the product is shaped. The mixture (fibers in water suspension) is poured into the forming mold. Wire mesh filters the water away leaving the fiber in the form of the product. The formed product is transferred through automation to the cold press, where additional water is squeezed out. The pressed product is then transferred through automation to the final drying stage where it is heat dried.

Trimming & Packing

Trimming
Ultra violet Sterilization/Sanitization
Packing

During the trimming stage, rough edges are trimmed from the finished product – the material that is removed will be reused for other product (returned to stage 1). Exposure to ultra violet ensures that all coliform, germs and bacteria that may have survived the prior processing is killed. Trimming and packaging are currently not automated (these tasks are currently performed manually by laborers in our factory) but we are currently developing an automatic trimming machine.

Competition

The market for disposable packaging products is competitive and subject to frequent product introductions with improved price and or performance characteristics. We face competition from companies who provide disposable packaging products which are made from plastic, paper or polystyrene. Many of these companies have greater financial, research and development, marketing and sales resources, offer a broader product line, have better brand recognition and have a larger customer base than we do. Examples of these companies include: Eastman Chemical Company, BASF Corporation - Apack AG, SK Chemicals, Showa and Highpolymer. We also face competition from companies who provide disposable packaging products which are made from bioplastics and other types of natural materials.


Example of these companies include: Earthshell Corp, Starch Tech Incorporated, Biocorp NA, KTM Industries Incorporated, Eco-Products Incorporated, Insulair, Incorporated, Novamont SPA, Green Shell Company Limited, Far East Green World Corporation, Sanshi Green Packaging Company and Green Eternity Company Limited.

Availability of Raw Materials

Our raw materials are sourced from the following regions:

Material Provided                                                                                      Region
Sugarcane Fiber
Guangdong Province (China)
Guangxi Province (China)
Palm Fiber Malaysia
PE/ PET Film Guangzhou (China)
Coloring Guangdong Province (China)
Water Repellent Guangdong Province (China)
Oil Repellent
Hong Kong
Canada
Carton Box
Guangdong Province (China)
Hong Kong
Machinery Guangdong Province (China)

Intellectual Property

We have not registered any patent or proprietary technology.

Trademarks

Our “Roots Biodegradable” trademark is currently registered in Switzerland, Hong Kong, India and the United States and it is also registered through the Community Trademark Registration, giving us rights in all 25 member states of the enlarged European single market, including Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. We are currently applying for trademark registration in Canada, Japan, India and China. We plan to apply for trademark registrations in; Australia, New Zealand, Malaysia, Israel, Saudi Arabia, Turkey. Details of our registered trademarks are below:

Date Country Registration Number
June 1, 2006 Hong Kong 200302488
September 1, 2006 Switzerland 548477
March 27, 2007 United States 3222538
September 13, 2007 European Union 005083101

Domain Names

We own and operate the following two registered internet domain names:

  • www.biopackenvironmental.com

The information contained on our website does not form part of this annual report.

Dependence on one or more main customers

Until August of 2007, we relied on our five largest customers for approximately 80% of our sales in 2007. In August of 2007, these five customers were effectively consolidated when they made the decision to rely on one importer to source all of their needs. The loss of any or all of these customers, or the loss of the one importer that sources their needs, would adversely affect revenues and results of operations.


Pension Plan

We participate in a defined contribution pension plan under the Mandatory Provident Fund Schemes Ordinance for all our eligible employees in Hong Kong. The Mandatory Provident Fund Scheme is available to all employees aged 18 to 64 with at least 80 days of employment in Hong Kong. Contributions are made at 5% of the participants’ relevant income with a ceiling of HK$20,000. The participants are entitled to 100% of our contributions together with accrued returns irrespective of their length of service with our company, but the benefits are required by law to be preserved until retirement age of 65. Our only obligation is to make the required contributions under the plan. The assets and the schemes are controlled by trustees and held separately from those of our company. Our total pension cost was $5,848 for the year ended December 31, 2009 and $12,495 for the year ended December 31, 2008.

Until January 31, 2008, we also participated in a compulsory savings scheme in Malaysia. All employees in Malaysia who have reached the age of 16 and employed under a contract of service whether express or implied, and whether oral or in writing must be registered as a member of the Employees Provident Fund. As an employer, we contributed 12% of the employee’s wages and the employee contributed 11% of the monthly wages towards the employee’s account. The total cost for this plan through our Malaysian subsidiary was $Nil in 2008 and $3,983 in 2007. On January 31, 2008, we closed our office in Malaysia and no longer participate in this plan.

Independent Testing

To ensure that our products meet health and safety and performance standards, we have them put through the tests described in the following table.

Criteria Objectives / Purpose Independent Testing Laboratories
Physical Performance Test - Temperature resistance, steamer, microwave and oven tests

- Water and oil proof tests

- Acid Resistance tests
Hong Kong Standards and Testing Centre

Hong Kong Standards and Testing Centre

Hong Kong Standards and Testing Centre
Food Safety Tests - Microbiological Tests, Coliform Bacteria, Pesticides Residues, Moulds and Yeasts Tests

- Overall Migration Test

- Heavy Metals Analysis,

- Hong Kong Q-Mark Product Award
SGS Hong Kong Limited


SGS Hong Kong Limited

SGS Hong Kong Limited

Hong Kong Q-Mark Council
Biodegradability - ASTM D6400 (USA), DIN V 54900 and DIN EN 13432 (European Countries)

- OK Compost and OK Compost Home Conformity Marks

- Hong Kong Green Label Scheme
DIN CERTCO, Belgium


AIB-Vincotte, Belgium

Hong Kong Green Council

Governmental Regulation

With the emergence of alternatives to disposable packaging products, which are made from plastic, paper and polystyrene, various standards and guidelines have been developed by government organizations to assess the performance of these substitutes. Through our quality assurance tests, we attempt to ensure that our biodegradable food containers and industrial packaging products meet or exceed the applicable government standards and guidelines.

Our products comply with the following international regulations:

  • German Regulation to the protection from dangerous materials – Gefhstoff-Verordnung (Oct 26, 1993);

  • U.S. CFR Title 21 (FDA Regulation);


  • Taiwan Hygienic Standard for Food Utensil, Container and Packaging (Revised 82.7.7); and,

  • Biodegradability and Food Standards of Hong Kong Environmental Protection Department (HKEPD).

Research and Development

Our research and development team consists of five employees, all of whom work from our Biopark factory in Jiangmen City, PRC. Three of the team members are engineers who focus on machine design and efficiency. The other two focus on ecological studies. The research and development expenses are mainly staff cost and product testing fees which are minimal at this stage.

Employees

We currently have 66 full time and no part time employees. Of these, 4 work in our Hong Kong administrative offices and 62 work in our Biopark factory in Jiangmen City, PRC.

ITEM 1A. RISK FACTORS.

Our audited annual consolidated financial statements have been prepared assuming that we will continue as a going concern.

We had net profit for the year ended December 31, 2009 of $867,547. On December 31, 2009, we had an accumulated deficit of $4,891,933 and a working capital deficit of $2,250,368. We anticipate that we will continue to incur operating expenses that will only partially be offset by operating revenues unless and until we increase our production capabilities and begin producing enough products to become profitable. On December 31, 2009, we had cash of $3,997. We estimate that our operating expenses over the next 12 months will be approximately $75,000 per month and we plan to spend approximately $1,000,000 to add additional production capacity to our Biopark facility. Therefore, we estimate that we will need approximately $1,900,000 over the next 12 months in order to continue our operations and complete construction of the Biopark facility. Although we believe that we will be able to pay some of these expenses from our sales revenue, we believe that we will need to raise additional funds to meet all of our currently budgeted operating requirements for the next 12 months. As we cannot assure a lender that we will be able to successfully increase our production capabilities and begin profitable operations, we will probably find it difficult to raise debt financing from traditional lending sources. We have traditionally raised our operating capital from sales of equity and, more recently, convertible debt securities but there can be no assurance that we will be able to continue to do so. If we cannot raise the money that we need in order to continue to operate and improve our production capabilities, we may be forced to delay, scale back or even eliminate some or all of our activities. If any of these were to occur, our business could fail. These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditor’s report on our consolidated financial statements for the year ended December 31, 2009, which are included in this annual report on Form 10-K. Although our consolidated financial statements raise substantial doubt about our ability to continue as a going concern, they do not include any adjustments relating to recoverability and classification of recorded assets, or the amounts or classifications of liabilities that might be necessary in the event our company cannot continue in existence.

We operate in a competitive industry and our failure to compete effectively may adversely affect our ability to generate revenue.

The disposable packaging industry is competitive and subject to frequent product introductions with improved price and or performance characteristics. Many companies, including those who manufacture their disposable packaging products out of plastic, paper or polystyrene, have greater financial, research and development, marketing and sales resources, offer a broader product line, have better brand recognition and have a larger customer base than we do. Increased competition in the disposable packaging industry could result in significant price competition, reduced profit margins or loss of market share, any one of which could have a material adverse effect on our ability to generate revenues and successfully operate our business.

Our competitors may reduce their prices or engage in advertising or marketing campaigns designed to protect their respective market shares and impede market acceptance of our disposable packaging products. We expect that many of our competitors may actively seek competitive alternatives to our disposable packaging products. The development of competitive disposable packaging products could render our disposable packaging products obsolete and could impair our ability to compete, which would have an adverse effect on our business, financial condition and results of operations.


We may suffer significant losses resulting from general product liability, which may harm our financial condition and result of operations.

As a manufacturer of disposable packaging products we are at risk for potentially significant product liability and associated losses. We cannot predict or protect against all potential losses or liabilities that may arise relating to our disposable food container and industrial packaging products. We maintain insurance against many, but not all, potential losses and liabilities, in accordance with customary industry practice and in amounts we believe to be necessary. If any losses or liabilities are not covered by insurance, or if the insurance is insufficient, we would be required to satisfy these losses and liabilities and our financial condition and results of operations may be adversely affected.

We rely on a number of different suppliers to supply us with the materials that we require to manufacture our disposable packaging products. We could be adversely affected by an increase in our suppliers prices or a significant decline in our suppliers financial condition. As a result, our business may fail and investors may lose their entire investment.

We rely on a number of different suppliers to supply our company with the materials that we require to manufacture our disposable packaging products. We could be adversely affected by an increase in any one of our suppliers prices or a significant decline in any one of our suppliers financial condition. If the relationship with any of our suppliers is terminated and we are unsuccessful in establishing a relationship with an alternative supplier who offers similar products at similar prices, our results of operations could be adversely affected. As a result, our business may fail and investors may lose their entire investment.

We rely on certain strategic raw materials for our operations. If the raw materials we use to manufacture our disposable packaging products increase substantially in price or for whatever reason becomes unavailable to us our business could fail and investors could lose their entire investment.

Although we believe that there are sufficient quantities of the raw materials we use to manufacture our disposable packaging products, the continuous existence and availability and price of these raw materials may be affected by natural disasters, domestic and world markets, political conditions, changes in government regulation and war or other outbreak of hostilities. If the raw materials we use to manufacture our disposable packaging products increase substantially in price or for any reason become unavailable to us our business could fail and investors could lose their entire investment.

Substantially all of our assets, all of our directors and all of our executive officers reside outside the United States. As a result it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or executive officers.

Substantially all of our assets are located outside the United States and we do not currently maintain a permanent place of business within the United States. In addition, all of our directors and executive officers are nationals and residents of countries other than the United States, and all or a substantial portion of such persons’ assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, investors may be effectively prevented from pursuing remedies under United States federal securities laws against us or any of our directors or executive officers.

Our ability to hire and retain qualified personnel will be an important factor in the success of our business and a failure to hire and retain key personnel may result in our inability to manage and implement our business plan.

Our ability to hire and retain qualified personnel will be an important factor in the success of our business. The competition for qualified personnel in the disposable packaging industry in which we operate is high. In addition, in order to manage growth effectively, we must implement management systems and continue to recruit and train new employees. We may not be able to attract and retain the necessary qualified personnel. If we are unable to retain or to hire qualified personnel as required, we may not be able to adequately manage and implement our business plan.

Our international operations subject us to a number of risks, including unfavorable political, regulatory, labor and tax conditions in foreign countries. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business and as a result our business could fail and investors could lose their entire investment.

Our international operations subject us to the legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent to international operations include the following:

  • difficulty in enforcing agreements in foreign legal systems;

  • foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs or adopt other restrictions on foreign trade and investment, including currency exchange controls;

  • fluctuations in exchange rates may affect product demand and may adversely affect our profitability in United States dollars to the extent the price of our products and cost of raw materials is denominated in a foreign currency;

  • Inability to obtain, maintain or enforce intellectual property rights;

  • Changes in general economic and political conditions in the countries in which we operate;

  • unexpected adverse changes in foreign laws or regulatory requirements, including those with respect to export duties and quotas;

  • difficulty with staffing and managing widespread operations;

  • trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make us less competitive in some countries; and,

  • difficulty of and costs relating to compliance with the different commercial and legal requirements of the overseas markets in which we offer and sell our products.

Our international operations require us to respond to rapid changes in market conditions in these countries. The success of our international operations depends, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business and as a result our business could fail and investors could lose their entire investment.

In addition, we source all of our manufacturing in China. China is experiencing very rapid economic growth which could have a negative impact on our business activities there. These include worsening inflation, fluctuations in currency and challenges to the nation’s electric power supply capacity. In addition, developments in China’s financial system and current legislative trends could pose future business risks, including changes to its laws that might prohibit or restrict foreign ownership.

The limitation of our available manufacturing capacity due to significant disruption in our manufacturing operation could have a material adverse effect on sales revenue and results of operations and financial condition.

We manufacture our disposable packaging products using complex processes that require technologically advanced equipment and continuous modification to improve yields and performance. From time to time, we have experienced minor disruptions in our manufacturing process as a result of power outages or equipment failures. If production at our manufacturing plant is disrupted for any number of reasons, manufacturing yields may be adversely affected and we may be unable to meet our customers requirements. Consequently, our customers may purchase disposable food packaging products from our competitors. This could result in a significant loss of revenues and damage to our customer relationships, which could materially adversely effect our business, results of operations or financial condition.

Our disposable packaging products may be perceived poorly by environmental groups, customers and government regulators, which could have an adverse effect on our business, causing us to cease operations.

Our success depends substantially on our ability to manufacture disposable packaging products that are less harmful to the environment than disposable packaging products made from plastic, paper or polystyrene. Although we believe that our disposable packaging products are less harmful to the environment than other disposable packaging products, which are made from paper, plastic and polystyrene, our disposable packaging products may also possess characteristics that environmental groups could perceive as negative for the environment. When biodegradable waste is disposed of in landfills, it breaks down under uncontrolled anaerobic conditions. This produces landfill gas which, if not harnessed, escapes into the atmosphere. Landfill gas contains methane, a more harmful greenhouse gas than carbon dioxide. The European Union Landfill Directive puts key requirements on member states for the management of biodegradable waste in order to stop global warming. Whether, on balance, our disposable packaging products are better for the environment than other disposable packaging products, which are made from either plastic, paper or polystyrene is a somewhat subjective judgment. Environmental groups, customers, and governmental regulators may not agree that our disposable packaging products have an advantage over other disposable packaging products, which are made from plastic, paper or polystyrene. If our disposable packaging products are perceived as being harmful to the environment, our revenues will likely suffer and as a result we could go out of business.


We have a stable customer base; however, loss of, or material financial weakness of, our largest distributor could adversely affect our financial condition and results of operations until such business is replaced and no assurances can be made that we would be able to regain or replace any lost customers. This could cause us to go out of business and investors could lose their entire investment.

We rely on one distributor for approximately 80% of our sales. The loss of this distributor would adversely affect revenues and results of operations, and the loss of any other significant customers could adversely affect revenues and results of operations unless and until the lost business is replaced. We believe that it is unlikely that we could replace this one distributor. If we were to lose this distributor and we did not replace it, we could be forced to cease operations and investors in our company could lose their entire investment.

Our business is subject to complex health, safety and environmental laws and industry regulations, which require and will continue to require significant expenditures to remain in compliance with such laws and regulations currently and in the future. Costs of such compliance will likely reduce our probability.

Our business is subject to complex health, safety and environmental laws and industry regulations, which require and will continue to require significant expenditures to remain in compliance with such laws and regulations currently and in the future. Unanticipated government enforcement action, or changes in health, safety and environmental laws and industrial regulations could result in higher costs which may negatively affect our profitability.

Because our executive officers, directors control a high percentage of our common stock, such insiders may have the ability to influence matters affecting our shareholders.

Our executive officers and directors, in the aggregate, beneficially own 30.42% of the issued and outstanding shares of our common stock. As a result, they have the ability to influence matters affecting our shareholders, including the election of our directors, the acquisition or disposition of our assets, and the future issuance of our shares. Because our executive officers, directors and principal shareholders control such shares, investors may find it difficult to replace our management if they disagree with the way our business is being operated. Because the influence by these insiders could result in management making decisions that are in the best interest of those insiders and not in the best interest of the investors, you may lose some or all of the value of your investment in our common stock.

RISKS RELATED TO OUR COMMON STOCK

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our ability to continue operations.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because a portion of our continued operations will be financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our operations. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. If our stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.

The market price for our common stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our common stock.

If we issue additional shares in the future, it will result in the dilution of our existing shareholders.

Our certificate of incorporation, as amended, authorizes the issuance of up to 50,000,000 shares of common stock with a par value of $0.0001 and 10,000,000 shares of preferred stock with a par value of $0.001. Our board of directors may choose to issue some or all of such shares to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our company.


Trading of our stock may be restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock.

The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.

Our common stock currently trades on a limited basis on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

Not applicable.

ITEM 2. PROPERTIES.

Offices

Our head office is located at Room 905, 9/F, Two Chinachem Exchange Square, 338 King’s Road, North Point, Hong Kong. Our telephone number is (852) 3586-1383. Our facsimile number is (852) 3586-2366. We lease this space, which consists of approximately 994 square feet, from an unrelated third party for the sum of approximately $1,788 per month (HK$ 13,916) for a term of two years expiring March 19, 2010. While this lease expired on March 19, 2010, we still maintain our head office at this location. We signed a new office lease in late March 2010 and we expect to move to a new office in early April 2010. Until we move to the new office, we expect to maintain our head office at our current location.


Factory

Our Peoples Republic of China (PRC) subsidiary, Jiangmen Roots Biopack Limited, leases 4 adjacent properties situated at No.3, Yangjiaokeng Industrial District, Tingyuan Village, Duruan Town, Jiangmen City, PRC. We call this area “Biopark”.

Biopark includes a factory, dormitories, a shop on the first floor, an office on the second floor, toilets, a garage, a storage shelter and land, a substation and an electricity transformer (315kW). The premises are equipped with kitchen appliances, water, electricity and fire prevention and fire fighting equipment. Biopark has a total area of 10,440 square meters, including a 2,700 square meter dormitory.

The lease term is 15 years from March 1, 2007, with one option to renew the term. A copy of the lease agreement and the translation of the lease agreement were attached as exhibits to our annual report filed on April 17, 2007. We have a right of first refusal to purchase the premises in the event that the landlord desires to sell.

We paid the sum of approximately $56,448 (Renminbi 390,000.00) as a rental deposit. Pursuant to the terms of our rental agreement, the rental deposit is to be refunded to us without interest upon the expiration of the lease.

From the first to the fifth year, our monthly rent is Renminbi 103,000 (approximately $13,720), or Renminbi 1,236,000 (approximately $164,646 per annum. From the sixth year onward, our rent will increase by 5% every 3 years.

The table reproduced below provides a summary of our lease commitments:

Name of Landlord
Property location
Rental Charges
Monthly
Duration
Lease Contract Under
Roco Investment Limited and Exact Grow Development Limited. Room 905, 9/F, Two Chinachem Exchange Square, 338 King’s Road, North Point, Hong Kong $1,788

20/3/2008 -
19/3/2010
Biopack Environmental Ltd.
(HK)
CHENG, Jin Yao
No.3, Yangjiaokeng Industrial District, Tingyuan Village, Duruan Town, Jiangmen City, PRC $14,908 01/03/2007 -
28/2/2022
Jiangmen Roots Biopack Ltd.
(China)

Twelve Months Ending Future Minimum
December 31: Lease Payments
  $
December 31, 2010 184,260
December 31, 2011 178,897
December 31, 2012 178,897

We believe our facilities are suitable to our current needs and for our needs in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

Other than as disclosed below, we know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.

By letter dated April 12, 2007 an attorney claiming to represent Good Value Galaxy Limited, a British Virgin Islands corporation that is a significant shareholder of our company, advised us that all of the issued shares of Good Value Galaxy Limited had been transferred. This attorney advised that the shares of Good Value Galaxy Limited, which had previously been beneficially owned by Gerald Lau, our President and Chairman of our board of directors, had been transferred to Oung Cheng Hai effective April 11, 2007. In addition, this attorney advised that Gerald Lau, who had previously been the sole director of Good Value Galaxy Limited, had resigned as a director of that company and Mr. Albert Oung had been appointed as the sole director of Good Value Galaxy Limited.

In a second letter, also dated April 12, 2007, this same attorney advised that he represented both Good Value Galaxy Limited and Joyful Services Limited and that these two companies owned in excess of 10% of our company’s issued and outstanding common shares. This attorney, allegedly on behalf of Good Value Galaxy Limited and Joyful Services Limited, demanded that our company convene a special meeting of our shareholders to consider and pass resolutions to remove Gerald Lau (our President and a director) and Edwin Chan (a director of our company), appointing Albert Oung and Patrick Oung to serve as directors from that date forward.

Upon our receipt of this correspondence, our attorneys asked Gerald Lau for confirmation of the alleged transfer of shares of Good Value Galaxy Limited and they asked the attorney making the allegations to provide us with credible evidence to support his allegations. Mr. Lau’s attorneys informed us that no such transfer had taken place and that Mr. Lau continued to be the sole shareholder of both Good Value Galaxy Limited and Joyful Services Limited.


The attorney making the allegation that the shares of Good Value Galaxy Limited were transferred to Oung Cheng Hai has not yet provided us with any credible evidence that this alleged transfer took place. In light of the absence of credible evidence of a transfer and the assertion from Gerald Lau, through his attorneys, that there has been no such transfer, we do not currently intend to comply with the requests of April 12, 2007.

On May 8, 2007, we received a letter from a different law firm asserting that it represented Good Value Galaxy Limited and Joyful Services Limited and enclosing a document alleged to be the written consent of Good Value Galaxy Limited and Joyful Services Limited. Albert Oung signed this alleged written consent on behalf of each of Good Value Galaxy Limited and Joyful Services Limited. The alleged written consent purports to appoint Albert Oung and Patrick Oung to our board of directors effective immediately and to amend and restate our Bylaws. Our attorneys replied to this letter of May 8, 2007, stating that we cannot accept the claim that ownership of the shares of Good Value Galaxy Limited and Joyful Services Limited has been transferred absent receipt of a persuasive explanation of the circumstances of the transfer and credible evidence showing how and why the alleged transfer took place. We have not yet received any such explanation or credible evidence. Until we do, we cannot accept the alleged written consent as the act of Good Value Galaxy Limited and Joyful Services Limited.

On May 31, 2007, our President and Chairman of our board of directors, Gerald Lau, filed a statement of claim in the High Court of the Hong Kong Special Administrative Region – Court of First Instance against Albert Oung, Oung Cheng Hai, Good Value Galaxy Limited and Joyful Services Limited regarding ownership of approximately 54.06% shares of our common stock.

In his statement of claim, Mr. Lau alleges that in or about January 2007, upon him learning of a severe medical condition that he developed, he agreed to execute a declaration of trust in favour of Mr. Oung Cheng Hai which was to take effect upon the completion of a number of conditions. Mr. Lau alleges that he signed a declaration of trust, an instrument of transfer in respect of the one (1) issued share in Good Value Galaxy Limited, a notice of resignation of Good Value Galaxy Limited, a written resolution of the sole director of Good Value Galaxy Limited approving the transfer of the share, the resignation of the sole director and the appointment of Mr. Oung Cheng Hai. Mr. Lau further alleges that all the executed documents were to remain undated and were not to take effect until the following conditions were met:

  • the declaration of trust was to give effect to Mr. Lau’s intentions that the shares in Good Value Galaxy Limited and any funds and benefits derived therefrom were to be utilized for charitable purposes;

  • the declaration of trust should not take effect or become operative until 12 to 18 months after the completion of the share exchange with the shareholders of Roots Biopack Group Limited and our company;

  • the declaration of trust should not take effect or become operative until after the approval and or clearance from the United State Securities and Exchange Commission is obtained for the transfer of the share in Good Value Galaxy Limited and for the resignation of Mr. Lau from our company; and

  • the declaration of trust was subject to Mr. Lau’s agreement and consent as to the date on which the documents shall take effect or become operative.

Mr. Lau further alleges that while the documents were held in escrow by Mr. Oung Cheng Hai and Mr. Albert Oung, the documents were dated and materially altered in breach of the agreement and the conditions referred to above without the agreement, knowledge or consent of Mr. Lau. In particular, Mr. Lau alleges that the declaration of trust was back-dated to the 17th of September 2003 and the instrument of transfer, notice of resignation and corporate resolution were dated the 11th of April 2007. Mr. Lau seeks redress from the court to declare such documents as ineffective and/or void and/or of no effect. No hearing in this matter has yet been scheduled.

On July 13, 2007, Foshan City Shunde District Ka Fook Recycle Products Ltd. with its legal representative Mr. Patrick Oung instituted civil proceedings against our wholly owned subsidiary Jiangmen Roots Biopack Limited. Foshan City Shunde District Ka Fook Recycle Products Ltd. and its legal representative Mr. Patrick Oung allege that we and our subsidiary authorized them to handle and establish early stage inspections, assessments, negotiations and all matters which were in the set-up process and to provide consultation services for setting up the factory. Foshan City Shunde District Ka Fook Recycle Products Ltd. and its legal representative Mr. Patrick Oung further allege that during this period our subsidiary had transferred a total of Renminbi 5,110,000 to Foshan City Shunde District Ka Fook Recycle Products Ltd. but because of conflicts arising during the course of the set-up processes between directors of our subsidiary, our subsidiary had not checked or reconciled the transactions with Foshan City Shunde District Ka Fook Recycle Products Ltd. Foshan City Shunde District Ka Fook Recycle Products Ltd. and its legal representative Mr. Patrick Oung have asked the court to confirm that Renminbi 5,110,000 has been paid to Foshan City Shunde District Ka Fook Recycle Products Ltd. and to order our subsidiary to check and reconcile these transactions.


On May 31, 2007, Foshan City Shunde District Ka Fook Recycle Products Ltd. with its legal representative Mr. Patrick Oung instituted civil proceedings against our wholly owned subsidiary Jiangmen Roots Biopack Limited. Foshan City Shunde District Ka Fook Recycle Products Ltd. and its legal representative Mr. Patrick Oung allege that in February 2007 they signed a rental agreement with our wholly owned subsidiary for the sublease of approximately 5,000 m2 in a factory located in Yangjiaokeng Industrial District, Tingyuan Village, Duran Town at a rate of 50,000 yans per month.

Foshan City Shunde District Ka Fook Recycle Products Ltd. and its legal representative Mr. Patrick Oung further allege that they had moved a number of machines inside the factory and established production of machines for environmentally friendly products. They further allege that on May 4, 2007 a dispute arose amongst the directors of our company, and that our subsidiary prohibited them from entering the factory, seized their assets and deliberately used and damaged these properties. Foshan City Shunde District Ka Fook Recycle Products Ltd. and its legal representative Mr. Patrick Oung have asked the court to order our subsidiary to return all machinery, production facilities, materials, products, tools, business data and information and any related property belonging to Foshan City Shunde District Ka Fook Recycle Products Ltd.

On June 4, 2007, pending the hearing of the case, the court ordered that the properties in dispute and Renminbi 2,800,000 be seized.

Also on June 4, 2007, the court ordered that all materials, including all business information such as accounting records, information registered under the name of Foshan City Green Machine Factory and placed at the factory area of our wholly owned subsidiary plus our subsidiary’s production equipment, products and business records seized, detained, photographed, video-taped, copied, investigated, and listed, in order to preserve the evidence. Included among this property placed for safekeeping at our Biopark factory facility are four new production machines that we cannot use in our production line until this dispute has been resolved.

On May 10, 2007, our wholly owned subsidiary, Jiangmen Roots Biopack Limited, and Gerald Lau as our subsidiary’s legal representative filed a report of crime with the Public Security Bureau of Jiangmen City. In the report of crime we alleged that Patrick Oung, a former director of our subsidiary, was given the authority to handle the early stages of the establishment of our factory in Jiangmen due to a serious illness to our president, Gerald Lau. We further alleged that in April 2007 we discovered that Patrick Oung had paid a total of Renminbi 1,000,000 for a factory lease guarantee through our subsidiary’s bank account by affixing our subsidiary’s company seal without proper authorization from its board of directors or legal representative, where the actual factory lease guarantee required was only Renminbi 309,000. Moreover, we discovered that a total of Renminbi 610,000 was transferred to Patrick Oung’s personal account on March 6, 7, and 8, 2007. For these reasons, we decided to file a criminal complaint and seek assistance from the Public Security Bureau of Jiangmen City. On August 1, 2007, the Public Security Bureau of Jiangmen City decided to prosecute Patrick Oung for embezzlement of our subsidiary’s funds. Mr. Oung was arrested on August 8, 2007, while entering the People’s Republic of China at Zhong Shan Port, and he was detained in the Jiangmen Detention Center. While under detention, Mr. Oung was examined at the hospital and found to be in serious physical condition. In view of his poor health and his promise to return all of the money he had embezzled from our company within three months of his release, Mr. Oung was released from detention on bail and for humanitarian grounds. Part of Mr. Oung’s bail consisted of 450,000 Renminbi and a condition that he return 750,000 Renminbi to our company’s subsidiary. Mr. Oung’s release includes a condition that he not be allowed to leave the People’s Republic of China. This criminal proceeding was to be adjudicated early in 2009 but, in contravention of the terms of his release from custody, Mr. Oung has fled the People’s Republic of China and the case cannot be tried in his absence. A warrant has been issued for his arrest if and when he re-enters the Peoples Republic of China.

On September 1, 2007 our Hong Kong subsidiary Roots Biopack Industry Limited filed suit against Patrick Oung in the High Court of the Hong Kong Special Administrative Region Court of First Instance (Action No. 1860) alleging that Mr. Oung acted as a shadow director of the plaintiff and that he breached fiduciary duties owed to the plaintiff by causing the plaintiff to engage in wrongful transactions that enriched the defendant. The plaintiff has demanded an accounting and return of all money misapplied and/or misappropriated by Mr. Oung.

ITEM 4. (REMOVED AND RESERVED).


PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Market for Securities

Our common shares are quoted for trading on the OTC Bulletin Board under the symbol “BPAC”.

The following quotations obtained from www.finance.yahoo.com reflect the highs and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission an may not represent actual transactions. The high and low bid prices of our common stock for the periods indicated below are as follows:

Quarter Ended High Low
December 31, 2009 $0.58 $0.46
September 30, 2009 $0.52 $0.25
June 30, 2009 $0.25 $0.10
March 31, 2009 $0.22 $0.08
December 31, 2008 $0.60 $0.14
September 30, 2008 $1.40 $0.55
June 30, 2008 $1.68 $0.90
March 31, 2008 $5.10 $1.10

The above share price has been adjusted for the 10 to 1 share consolidation effective on June 11, 2008.

On March 29, 2010, the closing price for the common stock as reported by the quotation service operated by the OTC Bulletin Board was $0.22.

Our transfer agent and registrar for our common stock is Madison Stock Transfer Inc. Their address is PO Box 145, Brooklyn, New York, USA 11229-0145. Their telephone number is 718.627.4453. Their fax number is 718.627.6341.

Holders of our Common Stock

As of March 29, 2010, there were approximately 1,412 registered holders of record of our common stock. As of such date, 42,000,232 common shares were issued and outstanding.

Dividends

We have not paid dividends on our common stock in the past and do not anticipate paying dividends in the near future. We intend to retain earnings, if any, for use in our business and do not anticipate paying any cash dividends. Our board of directors will determine if and when dividends should be declared and paid in the future based on our financial position at the relevant time. All of our shares of common stock are entitled to an equal share in any dividends declared and paid.

Recent Sales of Unregistered Securities

Since the beginning of the fourth quarter of our fiscal year ended December 31, 2009, we have not sold any equity securities that were not registered under the Securities Act of 1933 that were not previously reported in a quarterly report on Form 10-Q or in a current report on Form 8-K, with the exception of the following:

On December 16, 2009, we issued 1,750,000 shares of our common stock upon the conversion of 350,000 Series C Preferred Shares. The holder of these Series C Preferred Shares is not a U.S. person and this transaction did not occur in the United State. We issued these Series C Preferred Shares to this holder upon conversion of the convertible debenture dated December 27, 2007. In issuing these shares of our common stock, we relied on the registration exemption provided by Section 3(a)(9) of the Securities Act of 1933 and/or Regulation S, promulgated thereunder.


Securities Authorized for Issuance Under Equity Compensation Plans

The following table summarizes our equity compensation plan information for the fiscal year end December 31, 2009;

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
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column)
Equity compensation plans
approved by security
holders
Nil

Nil

Nil

Equity compensation plans
not approved by security
holders(1)
6,000,000

$Nil

Nil

Total 6,000,000 $Nil Nil

(1)

On July 8, 2005, we filed a registration statement on Form S-8 registering 6,000,000 shares at a proposed offering price of $0.013 per share or $78,000. Under this plan we issued 6,000,000 shares to five individuals in consideration for consulting services.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

We did not purchase any of our shares of common stock or other securities during our fiscal year ended December 31, 2009.

ITEM 6. SELECTED FINANCIAL DATA.

Not Applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Our management’s discussion and analysis of financial condition and results of operation provides a narrative about our financial performance and condition that should be read in conjunction with the audited consolidated financial statements and related notes thereto included in this annual report on Form 10-K. This discussion contains forward looking statements reflecting our current expectations and estimates and assumptions about events and trends that may affect our future operating results or financial position. Our actual results and the timing of certain events could differ materially from those discussed in these forward-looking statements due to a number of factors, including, but not limited to, those set forth in the sections of this Form 10-K titled “Risk Factors” and “Forward-Looking Statements”.

Our Business

We develop, manufacture, distribute and market bio-degradable food containers and disposable industrial packaging for consumer products. We supply our biodegradable food containers and industrial packaging products to multi-national corporations, supermarket chains and restaurants located across North America, Europe and Asia.

We manufacture our products in our own factory, known as Biopark, which is located in Jiangmen City in the PRC.

Result of Operations for the year ended December 31, 2009 as compared to the year ended December 31, 2008.

During the year ended December 31, 2009 we made a net profit of $867,547, compared to net loss of $1,867,330 for the year ended December 31, 2008. Among the net profit of $867,547 for the year ended December 31, 2009, $2,108,033 was contributed by gain on disposal of a subsidiary.

Our loss from operation was $1,197,451 for the year ended December 31, 2009 which was consistent to $1,088,125 for the year ended December 31, 2008. The slight increase in the amount of our operating loss was due primarily to increased depreciation expenses.


Net Sales and Cost of Sales

Net sales for the year ended December 31, 2009 were $921,281, compared to net sales of $793,474 for the year ended December 31, 2008. The increase in sales is primarily attributable to our sales team’s effort to secure the packaging orders in Europe market for the fruit season. We manufactured all products in the Jiangmen factory during the year ended December 31, 2009, compare to in 2008 while we mainly filled orders through OEM suppliers. With the increase in production capacity, we expect that future production from our factory in Jiangmen will increase dramatically.

Cost of sales for the year ended December 31, 2009 was $828,606, which provided a gross margin of $92,675 or a gross margin rae of 10.06%, compared to cost of sales of $775,588 for the year ended December 31, 2008, which provided a gross margin of $17,886, or a gross margin rate of 2.25% for the year ended December 31, 2008. The increase in gross margin is primarily due to the fact that the margins we realized by production in our factory is higher than the gross margin realized on OEM supplied product. With our increased production capacity we have eliminated all OEM suppliers for the year ended December 31, 2009. Our Jiangmen factory products provide higher quality products than previous OEM suppliers with better quality control and better raw material ingredient. As the factory facility’s infrastructure was designed to support up to 40 machines, we are expecting the gross margin to increase when we reach the economy of scale in the next 12 months.

Operating Expenses

Operating expenses for the year ended December 31, 2009 were $1,290,126, compared to $1,106,011 for the year ended December 31, 2008. The increase in operating expenses was due primarily to the increase in depreciation expenses.

Our depreciation expenses for the year ended December 31, 2009 were $218,322 compare to $65,305 for the year ended 2008. The increase in depreciation expenses was due to the fact that we have now manufactured most of our product by our own factory facility rather than OEM compare to the year ended December 31, 2008. Our depreciation is based on the usage of our factory facilities by the number of product we produced during the year.

Our legal and professional expenses for the year ended December 31, 2009 were $44,162, compared to $88,691 for the year ended December 31, 2008. The decrease in legal and professional expense was primarily due to the lack of activity in the litigation proceedings commenced during the year ended December 31, 2007 and described in the “Legal Proceedings” section of this annual report on Form 10-K, beginning above at page 53. Most of the legal expenses incurred this year are related to U.S. regulatory compliance and raising capital.

Our total general and administrative expenses were $1,071,804 for the year ended December 31, 2009 which is consistent to the total general and administrative expenses of $1,040,706 for the year ended December 31, 2008. The consistency in expenses is mainly due to a better financial control policy to cut back non-essential spending as well as reductions of salaries and administrative personnel.

Interest Expenses

We incurred interest expense of $43,034 during the year ended December 31, 2009, compared to $793,483 during the year ended December 31, 2008. Interest expense was incurred primarily due to the recognition of the conversion feature embedded in the convertible debentures issued by our company. Each convertible debenture is valued separately at issuance and recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. That amount is calculated as the difference in the conversion price and the fair value of the common stock into which the debenture is convertible, multiplied by the number of shares. The intrinsic value cannot exceed the proceeds. The decrease is primarily due to less convertible debenture were issued during the year ended 2009 compare to 2008.

Gain on disposal of subsidiaries

On September 18 2009, the Company has disposed Roots Biopack Group Limited, a wholly owned subsidiary, incorporated in British Virgin Island, by liquidation. There are 3 wholly owned subsidiaries under Roots Biopack Group Ltd. Limited, namely Eglinton Group Limited, Expert Results Group Limited and Roots Biopack Limited. All of them have been dormant since January 1, 2009. Roots Biopack Group Limited has an accumulated loss of $929,617 as at the liquidation date. Upon the completion of the liquidation, the Company write back gain of $2,083,487 as a result of the liquidation.

Liquidity and Capital Resources

Our principal cash requirements are for daily working capital, manufacturing and installation of plant and machinery and the cost of infrastructure at our leased factory in Jiangmen City, PRC. On December 31, 2009 we had cash and equivalents of $3,997, compared to $128,039 at December 31, 2008. We estimate that our operating expenses over the next 12 months will be approximately $75,000 per month and we plan to spend approximately $1,000,000 to add additional production capacity including mixing and pulping pools to our Biopark facility. Therefore, we estimate that we will need approximately $1,900,000 over the next 12 months in order to continue our operations and complete construction of the Biopark facility. We estimate that we will be able to source approximately $900,000 from our sales revenue in the next 12 months. We look to construct an equity and/or debt financing plan in the amount of approximately $1,000,000 over the next 12 months. There is currently no definitive offering of financing in place.

As at December 31, 2009 we had a working capital deficit of $2,250,368, compared to a working capital deficit of $2,359,764 at December 31, 2008. The increase in working capital for the period was primarily financed by the issuance of debentures and demand promissory notes.


Cash Flow Used in Operating Activities

For the year ended December 31, 2009 our operating activities provided net cash of $908,511, compared to $2,152,224 used for the year ended December 31, 2008. The decrease in cash outflow was primarily due to a reduction in trade deposits, decreases in receivables and increases in payables and accrual expense which were primarily due to better credit terms negotiated with suppliers.

Cash Flow Used in Investing Activities

For the year ended December 31, 2009 investing activities used net cash of $203,950 compared to $851,674 for the year ended December 31, 2008. The decrease in net cash used in investing activities this year was primarily due to the slower pace of construction progress in our new Biopark production facility compared to the pace of construction during the year ended December 31, 2008.

Cash Flow Provided by Financing Activities

For the year ended December 31, 2009, financing activities used cash of $828,603 compared to $3,035,477 cash provided in the year ended December 31, 2008. The cash flow used in financing activities in 2009 was primarily for the interest accrued on the debts as well as debts redemption. The cash flow provided by financing activities during 2008 was primarily from issuance of convertible debentures and promissory notes.

During the year ended December 31, 2009, we engaged in the following financing transactions:

On April 8, 2009, we sold one convertible debenture to one investor for gross proceeds of $60,000. This convertible debenture has a three year term and is convertible, at the option of the holder upon 90 days prior notice, into shares of our common stock at a price of six and two-thirds cents per share.

On May 15, 2009, we sold one convertible debenture to one investor for gross proceeds of $50,000. This convertible debenture has a face amount of $50,000, a three year term, earns interest at a rate of 1% per annum and is convertible, at the option of the holder upon not less than 61 days prior notice, into shares of our common stock at a price of ten cents per share.

On May 15, 2009, we sold one convertible debenture to one investor for gross proceeds of $48,000. This convertible debenture has a face amount of $48,000, a three year term, earns interest at a rate of 12% per annum and is convertible, at the option of the holder upon not less than 61 days prior notice, into shares of our common stock at a price of six and two-thirds cents per share.

On June 12, 2009, we issued 225,000 shares of our common stock to San Diego Torrey Hills Capital, Inc. pursuant to the consulting agreement.

On July 28, 2009, we issued 1,124,438 shares of our common stock to the holder of a convertible debenture dated March 3, 2008 pursuant to the conversion of a portion of the principal balance of that convertible debenture.

On July 28, 2009, we issued 1,125,001 shares of our common stock to the holder of a convertible debenture dated December 29, 2008 pursuant to the conversion of a portion of the principal balance of that convertible debenture.

On July 29, 2009, we issued 1,250,000 shares of our common stock to the holder of a convertible debenture dated December 27, 2007 pursuant to the conversion of a portion of the principal balance of that convertible debenture.

On July 31, 2009, we sold one convertible debenture to one investor for gross proceeds of $16,000. This convertible debenture has a face amount of $16,000, a three year term, earns interest at a rate of 1% per annum and is convertible, at the option of the holder upon not less than 61 days prior notice, into shares of our common stock at a price of ten cents per share.

On December 7, 2009, we issued 400,000 shares of our common stock to Dragon Gate Asia Ltd. pursuant to the consulting agreement.

On December 7, 2009, we issued 20,000 shares of our common stock to The Long Island Investment Banking Group pursuant to the consulting agreement.

On December 7, 2009, we sold 1,500,000 shares of our common stock to one investor at a price of $0.1417 per share, in consideration of the debt owed by our company to the investor of $212,500.


On December 16, 2009, we issued 1,750,000 shares of our common stock upon the conversion of 350,000 Series C Preferred Shares. We issued these Series C Preferred Shares upon conversion of the convertible debenture dated December 27, 2007.

On December 21, 2009, we issued 1,125,001 shares of our common stock to one person upon the conversion of the $75,000 principal balance due under a convertible debenture previously issued by us dated December 29, 2008, at a conversion price of $0.0666 per share.

On December 31, 2009, we issued 284,932 shares of our common stock to one investor at a price of $0.3819 per share in consideration of the debt owed by our company to the investor of $108,834.

On January 15, 2010, we issued 500,000 shares of our common stock to the holder of a convertible debenture dated May 15, 2009 upon conversion of the principal and interest due under that convertible debenture, at a conversion price of $0.10 per share.

On February 2, 2010, we issued an aggregate of 2,331,955 shares of our common stock to two investors in consideration of the debt owed by our company to the investors of an aggregate principal amount of $857,000 and an aggregate amount of accrued interest in the amount of $56,893, at a price of $0.3919 per share.

On February 22, 2010, we issued 3,651,672 shares of our common stock to one person upon the conversion of the remaining principal ($204,940) and accrued interest ($38,626.57) due under a convertible debenture previously issued by us dated March 3, 2008, at a conversion price of $0.0667 per share.

Capital Expenditures

During the year ended December 31, 2009, the bulk of our capital expenditure was focused on the development of our Biopark production facility. As of December 31, 2009, we do not have any material commitments for capital expenditures. Over the next twelve months, we plan to spend approximately $1,000,000 on the completion of the third production phases at our Biopark production facility.

Going Concern

The accompanying consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”), which contemplate the continuation of our company as a going concern. We made a net profit for the year ended December 31, 2009 of $867,547 and, on December 31, 2009 we had an accumulated deficit of $4,891,933 and a working capital deficit of $2,250,368. These conditions raise substantial doubt as to our company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should our company be unable to continue as a going concern.

The future of our company is dependent upon its attaining profitable operations and raising the capital it will require in order to achieve profitable operations through the issuance of equity securities, borrowings or a combination thereof.

Off-Balance Sheet Arrangements

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


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


BIOPACK ENVIRONMENTAL SOLUTIONS INC.

(INCORPORATED IN THE UNITED STATES OF AMERICA)

CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED 31 DECEMBER 2009

audit1


C O N T E N T S

  Page
   
   
Report of Independent Registered Public Accounting Firm 1
   
Consolidated Balance Sheets 2 - 3
   
Consolidated Statement of Operations 4
   
Consolidated Statement of Change in Shareholders’ Equity 5
   
Consolidated Statement of Cash Flow 6
   
Notes to the Consolidated Financial Statements 7 - 26

(All Amounts in United States Dollars unless otherwise stated)


audit2


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

BIOPACK ENVIRONMENTAL SOLUTIONS INC.
(INCORPORATED IN THE UNITED STATES OF AMERICA WITH LIMITED LIABILITY)

We have audited the accompanying consolidated balance sheets of Biopack Environmental Solutions Inc. and its subsidiaries, as of 31 December 2009, and the related consolidated statements of operations, change in shareholders’ equity and cash flows for the year ended 31 December 2009. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The financial statements of Biopack Environmental Solutions Inc. as of December 31, 2008, were audited by other auditors whose report dated March 31, 2009, expressed an unqualified opinion on those statements.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States of America). The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. 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 our audit provide a reasonable basis for our opinion.

In our opinion, the 2009 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Biopack Environmental Solutions Inc. and its subsidiaries as of 31 December 2009, and the results of its consolidated operations and its consolidated cash flows for each of the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 10 to the financial statements conditions exist which raise substantial doubt about the company’s ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Those conditions raise substantial doubt about its ability to continue as a going concern. Managements' plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Hong Kong, 29 March 2010

/S/ WONG LAM LEUNG & KWOK CPA LIMITED

audit3



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Biopack Environmental Solutions Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Biopack Environmental Solutions Inc. and Subsidiaries as of December 31, 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 consolidated statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of the Company’s 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Biopack Environmental Solutions Inc. and Subsidiaries as of December 31, 2008 and the results of its consolidated operations and its consolidated cash flows for the year ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 10 to the financial statements conditions exist which raise substantial doubt about the company’s ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Those conditions raise substantial doubt about its ability to continue as a going concern. Managements’ plans regarding those matters are also described in Note 10. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Gruber & Company, LLC

Gruber & Company, LLC
Lake Saint Louis, Missouri
March 30, 2009



2
 
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
(INCORPORATED IN UNITED STATES OF AMERICA)
 
CONSOLIDATED BALANCE SHEETS
AT 31 DECEMBER 2009 AND 2008

  Notes     2009     2008  
       $    $  
NON-CURRENT ASSETS                
Property, plant and equipments 3     2,139,536     2,091,229  
Construction in progress 3     111,747     174,426  
Deposits       52,963     56,056  
             
        2,304,246     2,321,711  
             
CURRENT ASSETS                
Inventories 4     100,725     376,773  
Prepaid expenses and other receivables 5     141,233     334,995  
Accounts receivable 6     103,375     69,777  
Cash and cash equivalents       3,997     128,039  
             
TOTAL CURRENT ASSETS       349,330     909,584  
             
TOTAL ASSETS       2,653,576     3,231,295  
             
EQUITY AND LIABILITIES                
CURRENT LIABILITIES                
Accounts payable and accrued expenses 7     1,294,304     1,394,230  
Amounts due to directors 8     21,761     59,752  
Amounts due to shareholders 8     -     625,589  
Short term debt 9     1,336,596     1,008,786  
Tax payable       -     237,047  
             
TOTAL CURRENT LIABILITIES       2,652,661     3,325,404  
             
NON-CURRENT LIABILITIES                
Long term debt 9     331,000     1,886,103  
Long term debt from a director 9     250,000     50,000  
             
TOTAL NON-CURRENT LIABILITIES       581,000     1,936,103  

The notes on pages 6 to 26 are an integral part of these consolidated financial statements



3
 
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
(INCORPORATED IN UNITED STATES OF AMERICA)
 
CONSOLIDATED BALANCE SHEETS
AT 31 DECEMBER 2009 AND 2008
(CONTINUED)

  Notes     2009     2008  
       $    
EQUITY                
Capital and reserves                
Preferred stock, $0.001 par value, 
     10,000,000 shares authorized; 
     1,620,000 shares issued and outstanding


16






1,620






1,620


Common stock, $0.0001 par value, 
     50,000,000 shares authorized; 
     34,391,188 shares issued and outstanding


16






3,438






2,483


Additional paid-in capital       4,082,773     3,557,227  
Stock issued at less than par value       (2,683 )   (2,683 )
Accumulated other comprehensive income       226,700     170,621  
Accumulated losses       (4,891,933 )   (5,759,480 )
             
TOTAL EQUITY       (580,085 )   (2,030,212 )
             
TOTAL EQUITY AND LIABILITIES       2,653,576     3,231,295  

The notes on pages 6 to 26 are an integral part of these consolidated financial statements



4
 
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
(INCORPORATED IN UNITED STATES OF AMERICA)
 
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED 31 DECEMBER 2009 AND 2008

  Notes     2009     2008  
       $    
                 
Turnover       921,281     793,474  
Cost of sales       (828,607 )   (775,588 )
             
Gross profit       92,674     17,886  
                 
General and administrative expenses       (1,071,804 )   (1,040,706 )
Depreciation       (218,322 )   (65,305 )
             
Loss from operations       (1,197,452 )   (1,088,125 )
                 
Other income       159,000     14,278  
Gain on disposal of subsidiaries 14     2,083,487     -  
Finance cost       (177,488 )   (793,483 )
             
PROFIT/(LOSS) BEFORE TAX       867,547     (1,867,330 )
Income tax 15     -     -  
             
NET PROFIT/(LOSS) FOR THE YEAR       867,547     (1,867,330 )
                 
Earnings/(loss) per share       0.03     (0.10 )
Weighted average common shares outstanding       26,801,863     19,241,414  
                 
Diluted earnings/(loss) per share       0.02     (0.10 )
Diluted weighted average common shares outstanding     37,329,307     19,241,414  

The notes on pages 6 to 26 are an integral part of these consolidated financial statements



5
 
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
(INCORPORATED IN UNITED STATES OF AMERICA)
 
CONSOLIDATED STATEMENT OF CHANGE IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2009

                                  Stock issued           Accumulated        
                            Additional     at Less     Retained     Other     Total  
    Preferred Stock     Common Stock     Paid-in     Than Par     Earnings     Comprehensive     Shareholders'    
    Shares     Amount     Shares     Amount     Capital     Value     (Deficit)     Income     Equity  
        $         $   $   $   $   $   $  
                                                       
Balance at 31 December 2006   -     -     108,000,000     10,800     -     (2,683 )   1,119,425     (787 )   1,126,755  
Recapitalization as result of reverse merger 27 March 2007   -     -     64,526,196     6,453     (800,824 )   -     -     6,599     (787,772 )
Stock issued to convert debt 27 March 2007   -     -     1,293,225     129     1,034,451     -     -     -     1,034,580  
Preferred share issued for repay debt owned by a subsidiary on 17 August 2007   2,000,000     2,000     -     -     1,232,795     -     -     -     1,234,795  
Translation adjsutment   -     -     -     -     -     -     -     130,261     130,261  
Net loss for the year ended 31 December 2007   -     -     -     -     -     -     (5,011,575 )   -     (5,011,575 )
                                                     
Balance at 31 December 2007   2,000,000     2,000     173,819,421     17,382     1,466,422     (2,683 )   (3,892,150 )   136,073     (2,272,956 )
Share cancellation 17 February 2008   -     -     (11,000,000 )   (1,100 )   866     -     -     -     (234 )
Convertion of Debt to Common Share 14 May 2008   -     -     4,758,212     476     665,664     -     -     -     666,140  
Reverse split 10 to 1 11 June 2008   -     -     (150,819,870 )   (15,082 )   15,082     -     -     -     -  
Convertion of Preferred A share to Common Share 14 July 2008   (380,000 )   (380 )   1,900,000     190     (190 )   -     -     -     (380 )
Convertion of Debt to Common Share 5 September 2008   -     -     1,492,537     149     99,851     -     -     -     100,000  
Convertion of Debt to Common Share 19 September 2008   -     -     1,800,000     180     119,820     -     -     -     120,000  
Convertion of Debt to Common Share 15 October 2008   -     -     2,750,000     275     399,725     -     -     -     400,000  
Common stock issued in exchange of consulting services 1 December 2008   -     -     125,000     13     (13 )   -     -     -     -  
Intrinsic value of convertible debt   -     -     -     -     790,000     -     -     -     790,000  
Translation adjustment   -     -     -     -     -     -     -     34,548     34,548  
Net loss for the year ended 31 December 2008   -     -     -     -     -     -     (1,867,330 )   -     (1,867,330 )
                                                     
Balance at 31 December 2008   1,620,000     1,620     24,825,300     2,483     3,557,227     (2,683 )   (5,759,480 )   170,621     (2,030,212 )
Common stock issued in exhange of consulting services 8th June 2009   -     -     2,145,000     214     (214 )   -     -     -     -  
Convertible of debt to common share   -     -     7,418,050     741     525,760                       526,501  
Translation adjustment   -     -     -     -     -     -     -     56,079     56,079  
Net income for the year ended 31 December 2009   -     -     -     -     -     -     867,547     -     867,547  
                                                     
Balance at 31 December 2009   1,620,000     1,620     34,388,350     3,438     4,082,773     (2,683 )   (4,891,933 )   226,700     (580,085 )

The notes on pages 6 to 26 are an integral part of these consolidated financial statements



6
 
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
(INCORPORATED IN UNITED STATES OF AMERICA)
 
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 31 DECEMBER 2009 AND 2008

    2009     2008  
  $    $  
Cash flows from operating activities            
   Net profit/(loss) for the year   867,547     (1,867,330 )
   Adjustments to reconcile net income to net cash            
         provided by operating activities :            
         Depreciation and amortisation   218,322     65,305  
         Gain on disposal of subsidiaries   (2,083,487 )   -  
         Interest expenses   177,488     793,483  
         Other comprehensive income   56,079     34,548  
   Changes in operating assets and liabilities :            
         Decrease/(increase) in inventory   276,048     (317,933 )
         Increase in accounts receivable   (33,598 )   (69,777 )
         Decrease/(increase) in prepaid expenses and other receivables   193,762     (76,614 )
         Decrease in amounts due to shareholders and directors   (663,580 )   (1,471,150 )
         Decrease/(increase) in deposits   3,093     (10,938 )
         Increase in accruals and other payables   2,133,883     769,580  
         Taxes payable   (237,047 )   (1,398 )
         
Net cash flows generated from/(used in) operating activities   908,510     (2,152,224 )
         
Cash flows from investing activities            
         Acquisition of plant and equipment   (266,629 )   (1,972,436 )
         Construction in progess   62,679     1,120,762  
         
Net cash flows used in investing activities   (203,950 )   (851,674 )
         
Cash flows from financing activities            
         Proceeds from note payable   50,000     1,008,786  
         Proceeds from issuance of debentures   174,000     744,649  
         Redemption of debts   (1,579,103 )   -  
         Additional paid up capital   525,546     1,297,322  
         Common stock $0.0001 par value   214     (16,360 )
Non-cash financing activities            
         Common stock issued to retire debentures   741     1,080  
         
Net cash flows (used in)/from financing activities   (828,602 )   3,035,477  
         
Net increase in cash and cash equivalents   (124,042 )   31,579  
Cash and cash equivalents - beginning of year   128,039     96,460  
         
Cash and cash equivalents - end of year   3,997     128,039  
         
Supplemental disclosure of cashflow information:            
   Cash paid for interest   -     26,155  

The notes on pages 6 to 26 are an integral part of these consolidated financial statements



7
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

1.

THE COMPANY

     

Biopack Environmental Solutions Inc. and its subsidiaries develop, manufacture, distribute and market bio-degradable food containers and disposable industrial packaging for consumer products made from natural materials.

     
2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     
(a)

Basis of Presentation

The consolidated financial statements include the accounts of Biopack Environmental Solutions Inc. and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated from the consolidated financial statements.

     

The Company evaluates consolidation of entities under FAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“FAS 167”), which changes the approach to determining the primary beneficiary of a variable interest entity (“VIE”), (Formerly known as Financial Accounting Standards Board (FASB) Interpretation No.46, “Consolidation of Variable Interest Entities” (FIN 46)). FAS 167 replaces the quantitative-based risks and rewards approach with a qualitative approach that focuses on identifying which enterprise has (i) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the entity that could potentially be significant to the VIE. FAS 167 also requires ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE, and requires additional disclosures about an enterprise’s involvement in VIEs. FAS 167 is effective for the Company as of the beginning of fiscal year 2011 and its adoption is not expected to have a material effect on the Company’s unaudited condensed consolidated financial statements.

     
(b)

Use of Estimates

In preparing consolidated financial statements in conformity with US GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported periods. Significant estimates include depreciation. Actual results could differ from those estimates.

     
(c)

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of December 31, 2009 and 2008, the Company had cash and cash equivalents of $3,997 and $128,039 respectively.



8
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     
(d)

Short-term Investment

The Company classifies its short-term investment as held-to-maturity debt securities and is measured at amortized cost (which approximates fair value) with interest and realized gains and losses, if any, reported in non-operating income in the income statement.

     
(e)

Accounts Receivable

Accounts receivable are stated at original amounts less an allowance made for doubtful receivables, if any, based on a review of all outstanding amounts at the end of the period. Full allowance for doubtful receivables are made when the receivables are overdue for one year and an allowance is made when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of a receivable. Bad debts are written against the allowance when identified. The Company extends credit to customers on an unsecured basis in the normal course of business and believes that all accounts receivable in excess of the allowance for doubtful accounts are fully collectible. The Company does not accrue interest on trade accounts receivable. The normal credit terms range from 15 to 60 days.

     
(f)

Allowance for Doubtful Accounts

The Company recognizes an allowance for doubtful accounts to ensure accounts receivable are not overstated due to uncollectibility. An allowance for doubtful accounts is maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligations, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to a customer change, estimates of the recoverability of receivables would be further adjusted.

     
(g)

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation is provided principally by use of the straight-line method over the useful lives of the related assets, except for leasehold properties, which are depreciated over the terms of their related leases or their estimated useful lives, whichever is less. Expenditures for maintenance and repairs, which do not improve or extend the expected useful life of the assets, are expensed to operations while major repairs are capitalized.



9
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     
(g)

Property, Plant and Equipment (continued) The estimated useful lives are as follows:


    Years
  Leasehold improvements 5
  Furniture, fixtures and office equipment 5
  Motor Vehicles 5 to 10
  Computer equipment 5
  Plant and Machinery 5 to 20

  (h)

Impairment of Assets

 

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets", the Company evaluates its long-lived assets to determine whether later events and circumstances warrant revised estimates of useful lives or a reduction in carrying value due to impairment. If indicators of impairment exist and if the value of the assets is impaired, an impairment loss would be recognized. There was no impairment loss made for property and equipment as of December 31, 2009.

     
  (i)

Income Taxes

 

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. 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 recovered 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 enactment date.

     
 

The FASB issued Accounting Standard Codification Topic 740 (ASC 740) “Income Taxes”, (Formerly known as interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of Statement of Financial Accounting Standards No. 109 (“FIN 48”)). ASC 740 clarifies the accounting for uncertainty in tax positions. This requires that an entity recognized in the consolidated financial statements the impact of a tax position, if that position is more likely than not of being sustained upon examination, based on the technical merits of the position. The adoption of ASC 740 did not have any impact on the Group’s results of operations or financial condition for the year ended December 31, 2009. As of the date of the adoption of ASC 740, the Group has no material unrecognized tax benefit which would favorably affect the effective income tax rate in future periods. The Group has elected to classify interest and penalties related to unrecognized tax benefits, if and when required, as part of income tax expense in the consolidated statements of operations.



10
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     
(j)

Foreign Currency Transactions

The Company’s functional currency is Hong Kong Dollars (“HKD”) and Renminbi (“RMB”) and its reporting currency is U.S. dollars. The Company’s consolidated balance sheet accounts are translated into U.S. dollars at the year-end exchange rates and all revenue and expenses are translated into U.S. dollars at the average exchange rates prevailing during the periods in which these items arise. Translation gains and losses are deferred and accumulated as a component of other comprehensive income in stockholders’ equity. Transaction gains and losses that arise from exchange rate fluctuations from transactions denominated in a currency other than the functional currency are included in the statement of operations as incurred.

     
(k)

Fair Value of Financial Instruments

SFAS No. 107, “Disclosures about Fair Values of Financial Instruments”, requires disclosing fair value to the extent practicable for financial instruments that are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

     

For certain financial instruments, including cash, accounts and other receivables, accounts payable, accruals and other payables, it was assumed that the carrying amounts approximate fair value because of the near term maturities of such obligations. The carrying amounts of long-term loans approximate fair value as the interest on these loans is minimal.

     
(l)

Earnings Per Share

The Company computes earnings per share (“EPS’) in accordance with FASB Accounting Standard Codification Topic 260 (ASC 260) “Earnings Per Share” (Formerly known as Statement of Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS No. 128”)), and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.



11
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     
(m)

Accumulated Other Comprehensive Income

Accumulated other comprehensive income represents the change in equity of the Company during the periods presented from foreign currency translation adjustments.

     
(n)

Stock-Based Compensation

In March 2004, the FASB issued a proposed statement, Share-Based Payment, which addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for equity instruments of the enterprise or liabilities that are based on the grant-date fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. The proposed statement would eliminate the ability to account for share-based compensation transactions using Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and generally would require instead that such transactions be accounted for using a fair-value-based method. In December 2004, the FASB issued SFAS No. 123(R), Share-Based Payment, which is a revision of SFAS No. 123. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their grant-date fair values. Pro forma disclosure is no longer an alternative.

     

As permitted by SFAS No. 123, for 2005, the Company accounted for share-based payments to employees using APB Opinion No. 25's intrinsic value method and, as such, generally recognized no compensation cost for employee stock options.

     

Effective January 1, 2006, the Company adopted SFAS No. 123(R)'s fair value method of accounting for share based payments. Accordingly, the adoption of SFAS No. 123(R)'s fair value method may have a significant impact on the Company's results of operations as it is required to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. SFAS No. 123(R) permits public companies to adopt its requirements using either the "modified prospective" method or the "modified retrospective" method.

     

The Company adopted SFAS No. 123(R) using the modified prospective method. In April 2005, the SEC delayed the effective date of SFAS No. 123(R), which is now effective for public companies for annual rather than interim periods that begin after September 15, 2005. The impact of the adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future.



12
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     
(o)

Revenue Recognition

Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”. The Company recognizes revenue when the significant risks and rewards of ownership have been transferred to the customer pursuant to applicable laws and regulations, including factors such as when there has been evidence of a sales arrangement, the performance has occurred, or service have been rendered, the price to the buyer is fixed or determinable, and collectability is reasonably assured.

     
(p)

Recently issued accounting pronouncements

In December 2007, ASC 805, Business Combinations (“ASC 805”) (formerly included under Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations) contains guidance that was issued by the FASB. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in a transaction at the acquisition-date fair value, with certain exceptions. Additionally, the guidance requires changes to the accounting treatment of acquisition related items, including, among other items, transaction costs, contingent consideration, restructuring costs, indemnification assets and tax benefits. ASC 805 also provides for a substantial number of new disclosure requirements. ASC 805 also contains guidance that was formerly issued as FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies which was intended to provide additional guidance clarifying application issues regarding initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. ASC 805 was effective for business combinations initiated on or after the first annual reporting period beginning after December 15, 2008. The Company implemented this guidance effective January 1, 2009. Implementing this guidance did not have an effect on the Company’s financial position or results of operations; however it will likely have an impact on the Company’s accounting for future business combinations, but the effect is dependent upon acquisitions, if any, that are made in the future.

     

In March 2008, the FASB issued ASC 815 (SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133) to amend and expand the disclosures about derivatives and hedging activities. The standard requires enhanced qualitative disclosures about an entity’s objectives and strategies for using derivatives, and tabular quantitative disclosures about the fair value of derivative instruments and gains and losses on derivatives during the reporting period. This standard is effective for both fiscal years and interim periods that begin after November 15, 2008. The adoption of this standard on December 29, 2008, the beginning of the Company’s fiscal year, did not have a material impact on its unaudited condensed consolidated financial statements.



13
 
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     
(p)

Recently issued accounting pronouncements (continued)

In December 2007, ASC 810, Consolidation (“ASC 810”) includes new guidance issued by the FASB governing the accounting for and reporting of noncontrolling interests (previously referred to as minority interests). This guidance established reporting requirements which include, among other things, that noncontrolling interests be reflected as a separate component of equity, not as a liability. It also requires that the interests of the parent and the noncontrolling interest be clearly identifiable. Additionally, increases and decreases in a parent’s ownership interest that leave control intact shall be reflected as equity transactions, rather than step acquisitions or dilution gains or losses. This guidance also requires changes to the presentation of information in the financial statements and provides for additional disclosure requirements. ASC 810 was effective for fiscal years beginning on or after December 15, 2008. The Company implemented this guidance as of January 1, 2009. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.

     

In May 2009, ASC 855, Subsequent Events (“ASC 855”) (formerly Statement of Financial Accounting Standards No. 165, Subsequent Events) includes guidance that was issued by the FASB, and is consistent with current auditing standards in defining a subsequent event. Additionally, the guidance provides for disclosure regarding the existence and timing of a company’s evaluation of its subsequent events. ASC 855 defines two types of subsequent events, “recognized” and “non-recognized”. Recognized subsequent events provide additional evidence about conditions that existed at the date of the balance sheet and are required to be reflected in the financial statements. Non-recognized subsequent events provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date and, therefore; are not required to be reflected in the financial statements. However, certain non-recognized subsequent events may require disclosure to prevent the financial statements from being misleading. This guidance was effective prospectively for interim or annual financial periods ending after June 15, 2009. The Company implemented the guidance included in ASC 855 as of April 1, 2009. The effect of implementing this guidance was not material to the Company’s financial position or results of operations.



14
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     
(p)

Recently issued accounting pronouncements (continued)

In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140 (“Statement No. 166”). Statement No. 166 revises FASB Statement of Financial Accounting Standards No.140, Accounting for Transfers and Extinguishment of Liabilities a replacement of FASB Statement 125 (“Statement No. 140”) and requires additional disclosures about transfers of financial assets, including securitization transactions, and any continuing exposure to the risks related to transferred financial assets. It also eliminates the concept of a “qualifying special-purpose entity”, changes the requirements for derecognizing financial assets, and enhances disclosure requirements. Statement No. 166 is effective prospectively, for annual periods beginning after November 15, 2009, and interim and annual periods thereafter. Although Statement No. 166 has not been incorporated into the Codification, in accordance with ASC 105, the standard shall remain authoritative until it is integrated. The Company does not expect the adoption of Statement No. 166 will have a material impact on its financial position or results of operations.

     

In September 2009, the FASB has published ASU 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted. The Company is in the process of evaluating the impact of this standard on its consolidated financial position and results of operations.



15
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     
(p)

Recently issued accounting pronouncements (continued)

In October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

     

ASC 105, Generally Accepted Accounting Principles (“ASC 105”) (formerly SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162), reorganized by topic existing accounting and reporting guidance issued by the Financial Accounting Standards Board (“FASB”) into a single source of authoritative generally accepted accounting principles (“GAAP”) to be applied by nongovernmental entities. All guidance contained in the Accounting Standards Codification (“ASC”) carries an equal level of authority. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. Accordingly, all other accounting literature will be deemed “non-authoritative”. ASC 105 is effective on a prospective basis for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has implemented the guidance included in ASC 105 as of July 1, 2009. The implementation of this guidance changed the Company’s references to GAAP authoritative guidance but did not impact the Company’s financial position or results of operations.



16
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     
(p)

Recently issued accounting pronouncements (continued)

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010 (the Company’s fiscal year 2012); early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2009-14 on its financial statements.

     
3.

PROPERTY, PLANT AND EQUIPMENT, NET


      2009     2008  
     $  $  
  Cost            
         Leasehold improvements   389,564     283,531  
         Motor Vehicles   47,616     78,010  
         Office furniture and equipment   36,349     74,283  
         Computer equipment   13,020     13,028  
         Plant and Machinery   1,951,903     1,762,498  
           
      2,438,452     2,211,350  
  Accumulated depreciation   (298,916 )   (120,122 )
           
      2,139,536     2,091,228  

Depreciation expense for the years ended December 31, 2009 and 2008 was $218,322 and $65,305.



17
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

3.

PROPERTY, PLANT AND EQUIPMENT, NET (CONTINUED)

   

(b) Construction in progress


      2009     2008  
       $  
               
  Opening as at 1 January   174,426     1,295,188  
  Additions   16,002     777,850  
  Transfer to plant and Machinery   (1,422 )   (1,675,626 )
  Transfer to lease hold improvement   (77,259 )   (222,986 )
           
  As at 31 December   111,747     174,426  

Construction in progress represents the expenditure incurred in the development project of a manufacturing plant by a subsidiary in Jiangmen, PRC. As of December 31, 2009, the Company had a balance of $111,747 on the construction. These costs are included on the balance sheet as property, plant and equipment costs. No depreciation will be provided until the plant is completed and operating. No interest has been capitalized in construction in progress for the year.

The Company believes that the carrying amount of construction in progress is approximate to its fair value.

4.

INVENTORIES

   

As at December 31, 2009, the Company’s subsidiary in Jiangmen, PRC held inventory of $100,725.


      2009 2008  
     
               
  Raw materials   51,655     70,906  
  Work-in-progress   9,893     68,979  
  Finished goods   39,177     236,888  
           
      100,725     376,773  


18
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

5.

PREPAID EXPENSES AND OTHER RECEIVABLES


    2009 2008  
    $ $  
               
  Prepaid expenses   124,029     169,359  
  Other receivables   17,204     165,636  
           
      141,233     334,995  

6.

ACCOUNTS RECEIVABLE

   

Accounts receivable consists of receivables on trade as follows:


      2009 2008  
    $ $  
  Ageing of trade and other receivables            
         0 - 30 days   2,990     69,777  
         Over 30 days   100,385     -  
           
      103,375     69,777  

As at December 31, 2009, the Company¡¯s subsidiaries had receivables total $103,375. The Company believes that there is no issue of recoverability and the balances receivable are indicative of fair value.

7.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES


      2009 2008  
    $ $  
               
  Accrued expense and other payables   935,264     1,112,709  
  Customers deposits received   -     126,315  
  Accounts payables   359,040     155,206  
           
      1,294,304     1,394,230  


19
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

8. DUE TO SHAREHOLDERS & DIRECTORS

      2009 2008  
     $ $  
               
  Amounts due to directors   21,761     59,752  
  Amounts due to shareholders   -     625,589  
           
      21,761     685,341  

Directors of the Company have advanced $21,761 in the form of unsecured, non-interest bearing advances with no due date.

9. LOAN PAYABLE

      2009 2008  
     $ $  
               
  Short term loans   1,336,596     1,008,786  

As at December 31, 2009, the Company has short term loans on demand of $1,336,596 including accrued interest of $204,833. The loans bear interest at the rate of 1% to 6% per annum.

      2009 2008  
    $ $  
  Long term loans            
  Tayna Environmental Technology Co. Limited   -     1,146,103  
  Convertible debenture issued to non related party   331,000     740,000  
  Convertible debenture issued to a director   250,000     50,000  
           
      581,000     1,936,103  


20
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

9.

LOANS PAYABLE (CONTINUED)

   

Long term loans (continued)

On March 30, 2008, the Company’s former subsidiary, Roots Biopack Group Limited, entered into a loan agreement with Tayna Environmental Technology Co. Limited, whereby Tayna Environmental agreed to advance to Roots Biopack Group Limited the sum of $1,146,103 for a three-year initial term expiring March 30, 2011. Our subsidiary has an option to extend this three-year initial term for an additional two calendar years by sending written notice to Tayna Environmental no later than three months prior to the original maturity date (i.e., no later than December 30, 2010). Principal due under the loan bears interest at the rate of 3%per annum.

   

On September 18, 2009, Roots Biopack Group Limited was dissolved and being detached from the Company. Tayna Environmental Technology Co. Limited has signed the waiver of debt on 30 June 2009 to waive to claim the sum of $1,146,103 together with the interest thereon.

   

Convertible Debts


      2009     2008  
       
               
  Opening Balance of Convertible Debentures   790,000     600,000  
   Plus : Convertible debentures issued during the year   374,000     810,000  
   Less : Debentures converted to common shares   583,000     620,000  
           
  Closing Balance Convertible Debentures   581,000     790,000  

The embedded beneficial conversion features present in the convertible debenture is valued separately at issuance and recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. That amount is calculated as the difference between the conversion price and the fair value of the common stock into which the debenture is convertible, multiplied by the no. of shares. The intrinsic value cannot exceed the proceeds.



21
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

10.

GOING CONCERN

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplate the continuation of the Company as a going concern. The Company made a net profit for the year ended December 31, 2009 of 867,547 and, on December 31, 2009 it had an accumulated deficits of $4,891,933 and a working capital deficit of $2,303,331. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classifications of recorded asset amounts, or amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

 

 

The future of the Company is dependent upon its attaining profitable operations and raising the capital it will require in order to achieve profitable operations through the issuance of equity securities, borrowings or a combination thereof.

     
11.

CONCENTRATIONS AND CREDIT RISK

Concentration of credit risk is limited to accounts receivable and is subject to the financial condition of major customers. The Company does not require collateral or other security to support accounts receivable. The Company conducts periodic reviews of its clients’ financial condition and customers’ payment practices to minimize collection risk on accounts receivable.

     
12.

COMMITMENTS AND CONTINGENCIES

     

(a) Operating Lease Arrangements

Minimum lease payments recognized as an expense under operating leases in respect of the premises and land use right in PRC during the Year Ended December 31, 2009:


      2009     2008  
     $    
               
  Premises   234,117     155,565  


22
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

12.

COMMITMENTS AND CONTINGENCIES (CONTINUED)

     
(a)

Operating Lease Arrangements (continued)

At December 31, 2009, the Company had outstanding commitments for future minimum lease payments under non-cancelable operating leases in respect of premises and land use rights in PRC, which fall due as follows:


      2009     2008  
    $    $   
               
  Within one year   181,915     200,352  
  In the second to fifth years, inclusive   753,432     748,399  
  After five years   1,475,877     1,665,482  
           
      2,411,224     2,614,233  

 

Operating leases relate to the Company’s manufacturing premises in PRC with a lease term of 15 years from 1 March 2007, with an option to extend the term. The Company does not have an option to purchase the leased asset at the expiry of the lease period.

     
  (b)

Capital Commitments


      2009     2008  
    $    $   
  Contracted for but not provided for            
   Construction projects in PRC   51,256     200,509  

13. RELATED PARTY TRANSACTIONS

      2009     2008  
    $    $   
  Amounts due to directors            
  CHOU Si Hou, Eddie - Former director   -     45,385  
  LAU Kin Chung, Gerald – Director   8,399     8,602  
  Sean Webster - Director   13,362     5,765  
           
      21,761     59,752  

The advances are unsecured, interest free and have no fixed terms of repayment. The respective parties are or were directors of the company.



23
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

13.

RELATED PARTY TRANSACTIONS (CONTINUED)


      Nature of   Connected     2009     2008  
  Name of company   transactions   part(ies)   $    $   
  Grand Power Express
     International Limited
 
Office rental
  Mr. Ricky
Chiu Tong
(Former director)
   
-

 
48,779

                         
 
InterPacific Capital
    Limited
 

Consultant fee
  Spouse of former
director -Mr. Ricky
Chiu Tong
   

-
   

12,850
 
                     
                -     61,629  

On May 14, 2008, the Company entered into a subscription agreement with four investors, whereby the company agreed to issue 4,758,212 shares of our common stock at a price of $0.14 per share to the four investors in consideration of the debt owned by our company to them in the aggregate amount of $666,140. Two of these investors are ex-directors of our company, one of these investors is a director of two of the Company’s subsidiaries and the fourth investor is our President and Chairman of the Company’s Board of Directors.

   
14. GAIN ON DISPOSAL OF SUBSIDIARIES
   
 
On September 18 2009, the Company has disposed Roots Biopack Group Limited, a wholly owned subsidiary, incorporated in British Virgin Island, by liquidation. There are 3 wholly owned subsidiaries under Roots Biopack Group Ltd. Limited, namely Eglinton Group Limited, Expert Results Group Limited and Roots Biopack Limited. All of them have been dormant since January 1, 2009. Roots Biopack Group Limited has an accumulated loss of $929,617 as at the liquidation date. Upon the completion of the liquidation, the Company write back gain of $2,083,487 as a result of the liquidation.
   
15.

INCOME TAX

No provision for HK Profits tax has been made in consolidated financial statements as the subsidiaries sustained loss for the year. The current year amount represented under provision of taxation in previous years.

   

No provision for PRC income tax has been made in the consolidated financial statements as the PRC subsidiary sustained loss during the year. No provision for deferred taxation has been recognized in the financial statements as the amount involved is insignificant.

   

No provision for US tax has been made for any of the year presented as the Company does not have any assessable profits during the year.

   

No deferred tax is recognized in the consolidated balance sheets as of December 31, 2009.

   
16.

SHARE CAPITAL

On February 17, 2008, pursuant to a Share Cancellation Agreement with Eddie Chou, one of the Company’s directors and its Chief Technical Officer, 1,200,000 shares of the Company’s common stock held by Mr. Chou were cancelled and returned to treasury.



24
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

16.

SHARE CAPITAL (CONTINUED)

On February 17, 2008, pursuant to a Share Cancellation Agreement with Ricky Chiu, an ex-director of the Company, 1,800,000 shares of the Company’s common stock held by Mr. Chiu were cancelled and returned to treasury.

On February 17, 2008, pursuant to a Share Cancellation Agreement with Legend View Limited, 8,000,000 shares of the Company’s common stock were cancelled and returned to treasury. The Company’s President and the chairman of its Board of Directors, Mr. Gerald Lau, owns a controlling interest in Legend View Limited.

On May 14, 2008, the Company entered into a subscription agreement with four investors, whereby we agreed to issue 4,758,212 shares of our common stock at a price of $0.14 per share to the four investors in consideration of the debt owned by our company to them in the aggregate amount of $666,140. Two of these investors are ex-directors of our company, one of these investors is a director of two of our subsidiaries and the fourth investor is our President and Chairman of our Board of Directors.

On July 4, 2008, the Company issued 1,900,000 shares of common stock to Begonia Participation Corp. pursuant to the conversion of 380,000 Series A Preferred Shares.

On September 5, 2008, the Company issued 1,492,537 shares of common stock pursuant to the conversion of a convertible debenture in the amount of $100,000.

On September 19, 2008, the Company issued 1,800,000 shares of common stock pursuant to the conversion of a convertible debenture in the amount of $120,000.

On October 1, 2008, we entered into a consulting agreement with San Diego Torrey Hills Capital, Inc., whereby San Diego Torrey Hills has agreed to provide consulting services to our company in consideration for, among other things: (i) a monthly cash fee of US$10,000, the first payment of which is due on October 1, 2008, with subsequent monthly payments due on the monthly anniversary dates of the consulting agreement; and (ii) the issuance of 125,000 shares of restricted common stock of the company. 125,000 shares of which are issued on October 1, 2008.

On October 15, 2008, the Company issued 500,000 shares of the Company’s common stock to Ma Cheng Ji pursuant to the conversion of a convertible debenture in the amount of $250,000.

On April 8, 2009, the Company sold one convertible debenture to one investor for gross proceeds of $60,000. This convertible debenture has a three year term and is convertible, at the option of the holder upon 90 days prior notice, into shares of our common stock at a price of six and two-thirds cents per share.



25
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

16.

SHARE CAPITAL (CONTINUED)

On May 15, 2009, the Company sold one convertible debenture to one investor for gross proceeds of $50,000. This convertible debenture has a face amount of $50,000, a three year term, earns interest at a rate of 1% per annum and is convertible, at the option of the holder upon not less than 61 days prior notice, into shares of our common stock at a price of ten cents per share.

On May 15, 2009, the Company sold one convertible debenture to one investor for gross proceeds of $48,000. This convertible debenture has a face amount of $48,000, a three year term, earns interest at a rate of 12% per annum and is convertible, at the option of the holder upon not less than 61 days prior notice, into shares of our common stock at a price of six and two-thirds cents per share.

On June 12, 2009, the Company issued 225,000 shares of our common stock to San Diego Torrey Hills Capital, Inc. pursuant to the consulting agreement.

On July 28, 2009, the Company issued 1,124,438 shares of our common stock to the holder of a convertible debenture dated March 3, 2008 pursuant to the conversion of a portion of the principal balance of that convertible debenture.

On July 28, 2009, the Company issued 1,125,001 shares of our common stock to the holder of a convertible debenture dated December 29, 2008 pursuant to the conversion of a portion of the principal balance of that convertible debenture.

On July 29, 2009, the Company issued 1,250,000 shares of our common stock to the holder of a convertible debenture dated December 27, 2007 pursuant to the conversion of a portion of the principal balance of that convertible debenture.

On July 31, 2009, the Company sold one convertible debenture to one investor for gross proceeds of $16,000. This convertible debenture has a face amount of $16,000, a three year term, earns interest at a rate of 1% per annum and is convertible, at the option of the holder upon not less than 61 days prior notice, into shares of our common stock at a price of ten cents per share.

On December 7, 2009, the Company issued 400,000 shares of our common stock to Dragon Gate Asia Ltd. pursuant to the consulting agreement.

On December 7, 2009, the Company issued 20,000 shares of our common stock to The Long Island Investment Banking Group pursuant to the consulting agreement.



26
BIOPACK ENVIRONMENTAL SOLUTIONS INC.
 
(INCORPORATED IN UNITED STATES OF AMERICA)
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
31 DECEMBER 2009

16.

SHARE CAPITAL (CONTINUED)

On December 7, 2009, the Company sold 1,500,000 shares of our common stock to one investor at a price of $0.1417 per share, in consideration of the debt owed by our company to the investor of $212,500.

   

On December 16, 2009, the Company issued 1,750,000 shares of our common stock to the holder of a convertible debenture dated December 27, 2007 pursuant to the conversion of the balance of that convertible debenture.

   

On December 21, 2009, the Company issued 1,125,001 shares of our common stock to one person upon the conversion of the $75,000 principal balance due under a convertible debenture previously issued by us dated December 29, 2008, at a conversion price of $0.0666 per share.

   

On December 31, 2009, the Company issued 284,932 shares of our common stock to one investor at a price of $0.3819 per share in consideration of the debt owed by our company to the investor of $108,834.

   
17.

SUBSEQUENT EVENTS

On January 15, 2010, the Company issued 500,000 shares of our common stock to the holder of a convertible debenture dated May 15, 2009 upon conversion of the principal and interest due under that convertible debenture, at a conversion price of $0.10 per share.

   

On February 2, 2010, the Company issued an aggregate of 2,331,955 shares of our common stock to two investors in consideration of the debt owed by our company to the investors of an aggregate principal amount of $857,000 and an aggregate amount of accrued interest in the amount of $56,893, at a price of $0.3919 per share.

   

On February 22, 2010, the Company issued 3,651,672 shares of our common stock to one person upon the conversion of the remaining principal ($204,940) and accrued interest ($38,626.57) due under a convertible debenture previously issued by us dated March 3, 2008, at a conversion price of $0.0667 per share.

   
18.

LEGAL PROCEEDINGS

The Company is involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of business. Although it is not possible to predict with certainty the outcome of these unresolved actions, the Company believes these unresolved legal actions will not have a material effect on its financial position or results of operation.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, our management, including our chief executive officer and our chief financial officer, performed an evaluation of the effectiveness of our disclosure controls and procedures, as that term is defined in Rules 13a-15(e) of the Exchange Act, as of the end of the period covered by this annual report. Based on that evaluation, our management has concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Report of Management on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management conducted an evaluation of the effectiveness of our company’s internal control over financial reporting as of December 31, 2009 based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2009.

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

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d), under the Exchange Act, our management, including our chief executive officer and our chief financial officer, also conducted an evaluation of our internal control over financial reporting to determine whether any changes occurred during our fourth fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, it has been determined that there has been no such change during our fourth fiscal quarter.

ITEM 9B. OTHER INFORMATION.

None.


PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors and Executive Officers

As at March 29, 2010, our directors and executive officers, their ages, positions held, and duration of such, are as follows:


Name

Position Held with our Company

Age
Date First
Elected or Appointed
Gerald Lau King Chung

President, Chief Executive Officer and
Director
Director of Jiangment Roots
Biopack Limited
53

March 27, 2007


March 30, 2006
Ma Cheng Ji

Director
Director of Biopack Environmental Limited
67

April 1, 2008
April 8, 2008
Michael Joseph Forster Director 44 April 29, 2008
James Yiu Yeung
Loong
Director
Director of Biopack Environmental Limited
56 April 1, 2008
March 25, 2008
Sean Webster


Chief Financial Officer, Secretary and Treasurer
Director
Director of Biopack Environmental Limited
37


October 6, 2008

August 6, 2008
October 1, 2008

Business Experience

The following is a brief account of the education and business experience of each director and executive officer during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which he was employed.

Gerald Lau – Chief Executive Officer and Director of our company and Director of our subsidiary Jiangmen Roots Biopack Ltd.

Gerald Lau was appointed as our Chief Executive Officer and a director upon the closing of the share exchange agreement with Roots Biopack Group, which occurred on March 27, 2007. He is responsible for accounting functions, as well as overall financial planning and management. During the period of November 2004 to June 2006, Mr. Lau served as a director for Good Value International Limited, Good Value Galaxy Limited and Joint Eagle Investment Limited. From November 2002 to October 2004, he served as an executive director of GIN International Limited, a Hong Kong based company specializing in SMS text messaging services. While with GIN International Limited, Mr. Lau was responsible for the general administration and accounting matters. Mr. Lau was awarded a bachelors degree in Business Administration majoring in Business Economics & Quantitative Methods at University of Hawaii at Manoa in August 1981.

We believe Mr. Lau is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his education and business experiences as described above.


Sean Webster – Secretary, Treasurer, Chief Financial Officer and Director of our company and Director of our subsidiary Jiangmen Roots Biopack Ltd.

Mr. Webster is currently a director of our company and was appointed as our Secretary, Treasurer and Chief Financial Officer on October 6, 2008. Mr. Webster had been in the financial services industry beginning with Yorkton Securities Inc. in January 1999 and finishing with the same company under the name Blackmont Capital Inc. in October of 2007. In his work there, he was a fully licensed Investment Advisor with the Investment Dealers Association of Canada, focusing on the raising of funds for small cap public companies and managing client portfolios. He was the lead broker for Grand Power Logistics Group Inc.’s (TSX-V:GPW) initial public offering in November 2004 on the TSX Venture Exchange, and is currently their Senior Vice President, Finance and Business Development. Grand Power is an air-freight forwarding and sea-freight services, customs brokerage, logistics, warehousing and distribution company with its main operations in Hong Kong and throughout Greater China. In addition, Mr. Webster is the President and Chief Financial Officer of Boashinn Corporation (OTCBB:BHNN.OB), a listed company which is based in Hong Kong and offers extended travel services primarily focused on wholesale business and corporate clients. In 1996, he received a B.A. in Economics and Management from the University of Calgary.

We believe Mr. Webster is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his education and business experiences as described above.

James Yiu Yeung Loong – Director of our company and our subsidiary Biopack Environmental Limited

Mr. Yiu was appointed a director of our subsidiaries Biopack Environmental Limited and Starmetro Group Limited on March 25, 2008 and a director of our company on April 1, 2008. Mr. Yiu is the Managing Director of a consulting company in Hong Kong providing consultancy services to both the private and public company sectors. Mr. Yiu specializes in raising capital, corporate and financial restructuring, mergers and acquisitions. Mr. Yiu is an experienced entrepreneur and is familiar with business practices in the Greater China region. Mr. Yiu graduated from the College of Education in Hong Kong in 1973.

We believe Mr. Yiu is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his education and business experiences as described above.

Ma Cheng Ji – Director of our company and our subsidiary Biopack Environmental Limited

Mr. Ma was appointed a director of our subsidiaries Biopack Environmental Limited and Starmetro Group Limited on April 8, 2008. Mr. Ma is the Director of Jiujiang Gaofeng Mining Industry, a production and exploration mining company focused in the Greater China region. Mr. Ma is also the President of Shanghai Trust Investment Consultant Co., Ltd, where he specializes in research and analysis of Asian public equity markets; he also provides management consultation to both public and private enterprises. Mr. Ma graduated in 1961 with a Bachelor’s degree in publishing from Shanghai Publishing College, and he received a postgraduate degree in comparative literature from Japan University in Tokyo in 1989.

We believe Mr. Ma is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his education and business experiences as described above.

Michael Joseph Forster - Director

Mr. Forster is the CEO/President/Chairman of Power-Save Energy Company (Symbol PWSV) whose shares of common stock are listed Over the Counter on the Bulletin Board (“OTCBB”). Mr. Forster is an experienced entrepreneur in all facets of business. He has organized and executed the start-up of companies. He has worked under contract in both the private and public company sectors to affect corporate and financial restructuring. As well, Mr. Forster has held senior management level positions at a Fortune 500 company. Mr. Forster holds a Bachelor of Science Degree in Aeronautical Engineering from California Polytechnic State University.


We believe Mr. Forster is qualified to serve on our board of directors because of his knowledge of our company’s history and current operations, which he gained from working for our company as described above, in addition to his education and business experiences as described above.

Term of Office

Our directors hold office until the next annual meeting or until their successors have been elected and qualified, or until they resign or are removed. Our board of directors appoints our officers, and our officers hold office until their successors are chosen and qualify, or until their resignation or their removal.

Family Relationships

There are no family relationships among our directors or officers.

Involvement in Certain Legal Proceedings

Our directors and executive officers have not been involved in any of the following events during the past ten years:

  1.

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

     
  2.

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

     
  3.

being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;

     
  4.

being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

     
  5.

being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

     
  6.

being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Committees

All proceedings of the board of directors for the year ended December 31, 2009 were conducted by resolutions consented to in writing by the board of directors and filed with the minutes of the proceedings of our board of directors. Our company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does our company have a written nominating, compensation or audit committee charter. Our board of directors does not believe that it is necessary to have such committees because it believes that the functions of such committees can be adequately performed by the board of directors.

Our company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for directors. The board of directors believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our company does not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.


A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our president at the address appearing on the first page of this annual report.

Audit Committee Financial Expert

Our board of directors has determined that it does not have an audit committee member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K. We believe that the audit committee members are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated revenues to date.

Nomination Procedures For Appointment of Directors

As of March 29, 2010, we did not effect any material changes to the procedures by which our stockholders may recommend nominees to our board of directors.

Code of Ethics

Effective March 26, 2003, our company’s board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, members of our board of directors, our company’s officers, contractors, consultants and advisors. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:

  (1)

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

     
  (2)

full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;

     
  (3)

compliance with applicable governmental laws, rules and regulations;

     
  (4)

the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and

     
  (5)

accountability for adherence to the Code of Business Conduct and Ethics.

Our Code of Business Conduct and Ethics requires, among other things, that all of our company's senior officers commit to timely, accurate and consistent disclosure of information; that they maintain confidential information; and that they act with honesty and integrity.

In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly senior officers, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal and state securities laws. Any senior officer who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to our company. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company's Code of Business Conduct and Ethics by another.


Our Code of Business Conduct and Ethics was filed with the Securities and Exchange Commission on April 15, 2003 as Exhibit 20.1 to our annual report. We will provide a copy of the Code of Business Conduct and Ethics to any person without charge, upon request. Requests can be sent to: Biopack Environmental Solutions Inc., Room 905, Two Chinachem Exchange Square, 338 King’s Road, North Point, Hong Kong, Att: President.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended December 31, 2009, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with, with the exception of the following:




Name


Number of Late
Reports
Number of
Transactions Not
Reported on a Timely
Basis


Failure to File
Requested Forms
Gerald Lau Nil Nil Nil
Sean Webster 1(1) Nil Nil
Ma Cheng Ji Nil Nil Nil
Michael Forster Nil Nil Nil
James Yiu Yeung
Loong
Nil
Nil
Nil
Begonia Participation Corp. Nil Nil Nil
Ladix Properties Inc. Nil Nil Nil

(1)

The named officer, director or greater than 10% stockholder, as applicable, filed a late Form 3 - Initial Statement of Beneficial Ownership of Securities.


ITEM 11. EXECUTIVE COMPENSATION.

The particulars of compensation paid to the following persons:

  (a)

all individuals serving as our principal executive officer during the year ended December 31, 2009;

     
  (b)

each of our two most highly compensated executive officers other than our principal executive officer who were serving as executive officers at December 31, 2009 who had total compensation exceeding $100,000; and

     
  (c)

up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at December 31, 2009,

who we will collectively refer to as the named executive officers, for the years ended December 31, 2009 and 2008, are set out in the following summary compensation table:


Summary Compensation

The following table provides a summary of the compensation received by the persons set out therein for each of our last two fiscal years:

   SUMMARY COMPENSATION TABLE   






Name
and Principal
Position








Year







Salary
($)







Bonus
($)






Stock
Awards
($)





Option
Awards
($) (4)



Non-Equity
Incentive
Plan
Compensa-
tion
($)

Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)




All
Other
Compensa
-tion
($)







Total
($)
Gerald Lau(1)
President, Chief Executive Officer
2009
2008
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Eddie Chou(2)
Former Secretary,
Treasurer, Chief
Financial Officer
and Chief
Technology Officer,
Chief Executive
Officer, E-Ware
Corporation Ltd.
2009
2008






Nil
17,989 (3)






Nil
Nil






Nil
Nil






Nil
Nil






Nil
Nil






Nil
Nil






Nil
Nil






Nil
17,989(3)






Sean Webster(3)
Secretary,
Treasurer, Chief
Financial Officer
2009
2008


Nil
Nil

Nil
Nil

Nil
Nil

Nil
Nil

Nil
Nil

Nil
Nil

Nil
Nil

Nil
Nil

James Yiu Yeung
Loong (4)
Director
2009
2008
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Ma Cheng Ji(5)
Director
2009
2008
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Michael Forster(6)
Director
2009
2008
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil

(1) Gerald Lau was appointed our President and Chief Executive Officer on March 27, 2007.

(2) Eddie Chou was appointed as our Secretary, Treasurer and Chief Financial Officer on February 6, 2006 and as our Chief Technology Officer on March 27, 2007. On July 24, 2007, Eddie Chou resigned as our Chief Financial Officer and was then reappointed as our Chief Financial Officer on October 2, 2007. Mr. Chou resigned as our Chief Financial Officer on October 1, 2008.

(3) Sean Webster was appointed as a director of our company on August 6, 2008 and as our Secretary, Treasurer and Chief Financial Officer on October 6, 2008.

(4) James Yiu Yeung Loong was appointed as a director of our company on April 1, 2008.

(5) Ma Cheng Ji was appointed as a director of our company on April 1, 2008.

(6) Michael Forster was appointed as a director of our company on April 29, 2008.

Outstanding Equity Awards at Fiscal Year-End

There were no outstanding stock options or stock appreciation rights granted to our executive officers and directors at December 31, 2009.


Aggregated Option Exercises

There were no options exercised by any officer or director of our company during our twelve month period ended December 31, 2009.

Long-Term Incentive Plan

Currently, our company does not have a long-term incentive plan in favor of any director, officer, consultant or employee of our company.

Directors Compensation

No director received compensation for the fiscal years December 31, 2009 and December 31, 2008. We have no formal plan for compensating our directors for their service in their capacity as directors, although such directors are expected in the future to receive stock options to purchase common shares as awarded by our board of directors or (as to future stock options) a compensation committee which may be established. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director undertaking any special services on our behalf other than services ordinarily required of a director.

Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide retirement or similar benefits for our directors or executive officers.

Resignation, Retirement, Other Termination, or Change in Control Arrangements

We have no contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to our directors or executive officers at, following, or in connection with the resignation, retirement or other termination of our directors or executive officers, or a change in control of our company or a change in our directors’ or executive officers’ responsibilities following a change in control.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

As of March 29, 2010, there were 42,000,232 shares of our common stock outstanding. The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of that date by (i) each of our directors, (ii) each of our executive officers, and (iii) all of our directors and executive officers as a group. Except as set forth in the table below, there is no person known to us who beneficially owns more than 5% of our common stock.

Title of Class

Name and Address of
Beneficial
Owner
Amount and Nature of
Beneficial Ownership(1)
Percentage
of Class(2)
Common Shares



Gerald Lau(3)(4)(5)
Unit 905, 9th Floor, Two
Chinachem Exchange
Square, 338 King’s Road,
North Point, Hong Kong
10,759,788



25.62%



Common Shares



Sean Webster
Unit 905, 9th Floor, Two
Chinachem Exchange
Square, 338 King’s Road,
North Point, Hong Kong
Nil



Nil






Common Shares



Ma Cheng Ji
Unit 905, 9th Floor, Two
Chinachem Exchange
Square, 338 King’s Road,
North Point, Hong Kong
500,000



1.19%



Common Shares



Michael Forster
Unit 905, 9th floor, two
Chinachem Exchange
Square, 338 King’s Road,
North Point, Hong Kong
Nil



Nil



Common Shares




James Yiu Yeung
Loong
Unit 905, 9th Floor, Two
Chinachem Exchange
Square, 338 King’s Road,
North Point, Hong Kong
Nil




Nil




Common Shares

Begonia Participation Corp.(6)
Pasea Estate
Road Town, Tortola
BVI
10,000,000(6)

19.96% of class

46.36% of voting
power
Common Shares


Ladix Properties Inc.
Swiss Tower
16th Floor, World Trade Centre
Panama City, Republic of Panama
2,250,000


5.61%


Common Shares
Directors and Executive Officers as a Group 11,259,788
26.81%

(1)

Regulation S-K promulgated under the Securities Exchange Act of 1934, defines a beneficial owner of a security as any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of shares of common stock actually outstanding on March 29, 2010, and the date of this annual report.

   
(2)

Calculated based on the basis of 42,000,232 issued and outstanding shares of common stock as of March 29, 2010 plus, for each person or group, any securities that person or group has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.

   
(3)

Gerald Lau, our President, Chief Executive Officer and Director, is 50% owner and controller of Legend View Holdings Ltd., which owns 280,000 common shares of our company.




(4)

Gerald Lau, our President, Chief Executive Officer and Director, owns and controls Good Value Galaxy Limited, which owns 7,560,000 common shares of our company.

   
(5)

Gerald Lau, our President, Chief Executive Officer and Director, owns and controls Joyful Services Ltd, which owns 1,836,000 common shares of our company.

   
(6)

Begonia Participation Corp. owns 1,900,000 common shares, 620,000 shares of our Series A Preferred Stock and 1,000,000 shares of our Series B Preferred Stock. Each share of Series A Preferred Stock and each share of Series B Preferred Stock is entitled to 30 votes at any meeting of our security holders and is convertible, at any time at the option of the holder, into 5 shares of our common stock. Therefore, Begonia Participation Corp. beneficially owns 10,000,000 shares of our common stock but, unless and until it elects to convert any of the Series A Preferred Stock or any of the Series B Preferred Stock it controls 50,500,000 votes at any meeting of our security holders.

Changes in Control

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Other than as set out below, we have not been a party to any transaction, proposed transaction, or series of transactions during the last two years in which the amount involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which, to our knowledge, any of the following persons had, or is to have, a direct or indirect material interest: a director or executive officer of our company; a nominee for election as a director of our company; a beneficial owner of more than five percent of the outstanding shares of our common stock; or any member of the immediate family of any such person.

On July 4, 2008, we issued 1,900,000 shares of our common stock to Begonia Participation Corp. upon the conversion of 380,000 shares of our Series A Preferred Stock. Begonia Participation Corp. is an affiliate of our company solely as a result of its beneficial ownership of equity in our company. After adjusting for this transaction, Begonia Participation Corp. was the registered owner of 1,900,000 shares of our common stock, 620,000 shares of our Series A Preferred Stock and 1,000,000 shares of our Series B Preferred Stock. Each share of our Series A Preferred Stock and each share of our Series B Preferred Stock carries 30 votes and is convertible into five shares of our common stock.

On October 15, 2008, we issued 500,000 shares of our common stock to Ma Cheng Ji, one of our directors, upon the conversion of a convertible debenture in the principal amount of $50,000.

On October 15, 2008, we issued 2,250,000 shares of our common stock to Ladix Properties Inc. upon the conversion of a convertible debenture in the principal amount of $150,000. Ladix Properties Inc. is an affiliate of our company solely as a result of its beneficial ownership of equity in our company.

As of December 31, 2009, $13,362 was due to Sean Webster, who is a director, Chief Financial Officer, Secretary, Treasurer of our company. $8,399 was due to Gerald Lau, who is a director and Chief Executive Officer of our company. This amount represents money advanced to our company which has not been repaid back to them. The amount is unsecured and bears no interest.

Corporate Governance

Our Board of Directors currently consists of: Gerald Lau, Sean Webster, Ma Cheng Ji, Michael Forster and James Yiu Yeung Loong. We do not have a board member that qualifies as “independent” as the term is used in NASDAQ rule 5605(a)(2).


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit fees

On April 30, 2009, we dismissed Gruber & Company, LLC as our principal independent accountant, and on April 30, 2009, we engaged Wong Lam Leung & Kwok CPA Limited as our principal independent accountant. Our board of directors approved the decisions to dismiss Gruber & Company, LLC and to appoint Wong Lam Leung & Kwok CPA Limited. Gruber & Company, LLC’s report dated March 31, 2009, on our financial statements for the most recent fiscal years ended December 31, 2008 and 2007 did not contain an adverse opinion or disclaimer of opinion, or qualification or modification as to uncertainty, audit scope, or accounting principles, except that Gruber & Company, LLC’s report contained an explanatory paragraph in respect to the substantial doubt as to our ability to continue as a going concern.

In connection with the audit of our financial statements for the two years ended December 31, 2008 and 2007 and in the subsequent interim period through the date of dismissal, there were no disagreements, resolved or not, with Gruber & Company, LLC on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of Gruber & Company, LLC, would have caused Gruber & Company, LLC to make reference to the subject matter of the disagreement in connection with its report on the financial statements for such years.

The aggregate fees billed for the two most recently completed fiscal periods ended December 31, 2009 and December 31, 2008 for professional services rendered by Wong Lam Leung & Kwok CPA Limited and Gruber & Company, LLC for the audit of our annual consolidated financial statements, quarterly reviews of our interim consolidated financial statements and services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:



Year Ended
December 31,
2009
Year Ended
December 31,
2008
Audit Fees and Audit Related Fees $56,048 $69,953
Tax Fees Nil $6,424
All Other Fees Nil Nil
Total $56,048 $76,377

In the above table, “audit fees” are fees billed by our company’s external auditor for services provided in auditing our company’s annual financial statements for the subject year. “Audit-related fees” are fees not included in audit fees that are billed by the auditor for assurance and related services that are reasonably related to the performance of the audit review of our company’s financial statements. “Tax fees” are fees billed by the auditor for professional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the auditor for products and services not included in the foregoing categories.

Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors

The board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors before the respective services were rendered.

The board of directors has considered the nature and amount of fees billed by Wong Lam Leung & Kwok CPA Limited and Gruber & Company, LLC, and believes that the provision of services for activities unrelated to the audit is compatible with maintaining Wong Lam Leung & Kwok CPA Limited and Gruber & Company, LLC.


PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

Exhibit  
Number Description
   
(2)

Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or Succession

 

2.1

Share exchange agreement dated February 8, 2007 between our company, Roots Biopack Group, Good Value Galaxy Limited, Joyful Services Ltd., Legend View Holdings Ltd, Erich Muller Holding AG, and Eddie Chou and Ricky Chiu (incorporated by reference from our Current Report on Form 8-K filed on January 11, 2007)

 

(3)

Articles of Incorporation and Bylaws

 

3.1

Articles of Incorporation (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)

 

3.2

Bylaws (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)

 

3.3

Certificate of Amendment of Articles of Incorporation (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)

 

3.4

Articles of Merger (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)

 

3.5

Certificate of Designation (incorporated by reference from our Current Report on Form 8-K filed on May 9, 2001)

 

3.6

Articles of Merger filed with the Secretary of State of Nevada on November 21, 2006 effective on November 26, 2006 (incorporated by reference from our Current Report on Form 8-K filed on November 28, 2006)

 

3.7

Articles of Merger filed with the Secretary of State of Nevada on February 21, 2007 effective on February 26, 2007 (incorporated by reference from our Current Report on Form 8-K filed on February 27, 2007)

 

3.8

Certificate of Correction filed with the Secretary of State of Nevada on June 27, 2007 (incorporated by reference from our Annual Report on Form 10-KSB filed on April 15, 2008)

 

3.9

Certificate of Designation filed with the Secretary of State of Nevada on July 27, 2007 (incorporated by reference from our Annual Report on Form 10-KSB filed on April 15, 2008)

 

3.10

Certificate of Change filed with the Secretary of State of Nevada on June 6, 2008 (incorporated by reference from our Current Report on Form 8-K filed on June 11, 2008)

 

(10)

Material Contracts

 

10.1

Technology License and Materials Purchase Agreement with Glory Team Industrial Ltd., Starmetro Group Limited dated December 7, 2005 (incorporated by reference from our quarterly report on Form 10-QSB filed on November 20, 2006)

 

10.2

Agreement dated effective November 13, 2006 with Glory Team Industrial Ltd. and Eddie Chou S. Hou (incorporated by reference from our Current Report on Form 8-K filed on November 17, 2006)




10.3

Share Exchange Agreement dated January 5, 2007 among our company, Roots, the Stockholders, Chou and Chiu (incorporated by reference from our Current Report on Form 8-K filed on January 10, 2007)

   
10.4

Agreement for Transfer of State-Owned Land Usage Right (incorporated by reference from our Current Report on Form 8-K filed on April 2, 2007)

   
10.5

Factory Leasing Agreement (incorporated by reference from our Current Report on Form 8-K filed on April 2, 2007)

   
10.6

Factory Leasing Agreement – Translation (incorporated by reference from our Current Report on Form 8-K filed on April 2, 2007)

   
10.7

Roots’ Tenancy Agreement (incorporated by reference from our Current Report on Form 8-K filed on April 2, 2007)

   
10.8

Sales and Purchase of Machinery, Technical Assistance and Factory Management Agreement dated August 19, 2007 between our company and Tayna Environmental Technology Co. Limited (incorporated by reference from our Quarterly Report on Form 8-K filed on August 21, 2007)

   
10.9

Distribution Agreement dated July 26, 2007 between our wholly owned subsidiary, Roots Biopack Limited and Packagegroup Moonen (incorporated by reference from our Current Report on Form 8-K filed on August 27, 2007)

   
10.10

Boiler Project Contract dated June 28, 2007 between our wholly owned subsidiary, Jiangmen Roots Biopack Limited and Dongguan Hongyuan Boiler Equipments Co., Ltd. (incorporated by reference from our Current Report on Form 8-K filed on August 27, 2007)

   
10.11

Construction Project Agreement dated June 11, 2007 between our wholly owned subsidiary, Jiangmen Roots Biopack Limited and Li Bailia (incorporated by reference from our Current Report on Form 8-K filed on August 27, 2007)

   
10.12

Compressor Project Contract dated June 6, 2007 between our wholly owned subsidiary, Jiangmen Roots Biopack Limited and Sky Blue (incorporated by reference from our Current Report on Form 8-K filed on August 27, 2007)

   
10.13

Debt Settlement and Subscription Agreement dated August 1, 2007 between our company and Begonia Participation Corp. (incorporated by reference from our Quarterly Report on Form 8-K filed on August 20, 2007)

   
10.14

Share Cancellation Agreement dated February 17, 2008 between our company and Eddie Chou (incorporated by reference from our Current Report on Form 8-K filed on March 5, 2008)

   
10.15

Share Cancellation Agreement dated February 17, 2008 between our company and Ricky Chiu (incorporated by reference from our Current Report on Form 8-K filed on March 5, 2008)

   
10.16

Share Cancellation Agreement dated February 17, 2008 between our company and Legend View Holdings Limited (incorporated by reference from our Current Report on Form 8-K filed on March 5, 2008)

   
10.17

Land Purchase Settlement Agreement dated April 8, 2008 (incorporated by reference from our Annual Report on Form 10-KSB filed on April 15, 2008)

   
10.18

Cancellation Agreement dated March 30, 2008 between Roots Biopack Group Limited and Tayna Environmental Technology Co. Limited (incorporated by reference from our Current Report on Form 8- K filed on April 3, 2008)




10.19 Loan Agreement dated March 30, 2008 between Roots Biopack Group Limited and Tayna Environmental Technology Co. Limited (incorporated by reference from our Current Report on Form 8- K filed on April 3, 2008)
   
10.20 Form of Subscription Agreement between our company and LAU Kin Chung (Gerald Lau), CHENG King Hung (King Cheng), CHAN Kam Fai (Edwin Chan) and CHU Wei Ling Hilary (Hilary Chu) (incorporated by reference from our Current Report on Form 8-K filed on May 30, 2008)
   
10.21 Consulting Agreement with San Diego Torrey Hills Capital, Inc. (incorporated by reference from our Current Report on Form 8-K filed on October 10, 2008)
   
10.22 Loan Amendment Agreement with Tayna Environmental Technology Co. Limited (incorporated by reference from our Current report on Form 8-K filed on March 31, 2009)
   
10.23 Demand Promissory Note with Lainey Advisors Inc. dated July 1, 2008 (incorporated by reference from our Current report on Form 8-K filed on March 31, 2009)
   
10.24 Demand Promissory Note with Creative Mind Assets Limited dated July 1, 2008 (incorporated by reference from our Current report on Form 8-K filed on March 31, 2009)
   
10.25 Demand Promissory Note with Lainey Advisors Inc. dated July 20, 2008 (incorporated by reference from our Current report on Form 8-K filed on March 31, 2009)
   
10.26 Demand Promissory Note with Kuo-Hsien Chen dated September 15, 2008 (incorporated by reference from our Current report on Form 8-K filed on March 31, 2009)
   
10.27 Demand Promissory Note with Creative Mind Assets Limited dated December 31, 2008 (incorporated by reference from our Current report on Form 8-K filed on March 31, 2009)
   
10.28 Demand Promissory Note with Kuo-Hsien Chen dated December 31, 2008(incorporated by reference from our Current report on Form 8-K filed on March 31, 2009)
   
(14) Code of Ethics
   
14.1 Code of Business Conduct and Ethics (incorporated by reference from our Annual Report on Form 10- KSB filed on April 15, 2003)
   
(21)




Subsidiaries
Roots Biopack (Intellectual Property) Limited, incorporated in Hong Kong
Roots Biopark Limited, incorporated in Hong Kong
Jiangmen Roots Biopack Ltd., incorporated in the People’s Republic of China
Starmetro Group Limited, incorporated in British Virgin Islands
Biopack Environmental Limited (f/k/a E-ware Corporation Limited), incorporated in Hong Kong
   
(31) Rule 13a-14(a)/15d-14(a) Certifications
   
31.1* Section 302 Certification under Sarbanes-Oxley Act of 2002 of Gerald Lau
   
31.2* Section 302 Certification under Sarbanes-Oxley Act of 2002 of Sean Webster
   
(32) Section 1350 Certifications



32.1* Section 906 Certification under Sarbanes-Oxley Act of 2002

* Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BIOPACK ENVIRONMENTAL SOLUTIONS INC.

By: /s/ Gerald Lau
Gerald Lau
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: October 8 , 2010

By: /s/ Sean Webster
Sean Webster
Chief Financial Officer, Chief Technology Officer, Secretary, Treasurer and Director
(Principal Financial Officer and Principal Accounting Officer)
Date: October 8 , 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Gerald Lau
Gerald Lau
President, Chief Executive Officer and Director
(Principal Executive Officer)
Date: October 8 , 2010

By: /s/ Sean Webster
Sean Webster
Chief Financial Officer, Chief Technology Officer, Secretary, Treasurer and Director
(Principal Financial Officer and Principal Accounting Officer)
Date: October 8 , 2010

By: /s/ James Yiu Yeung Leung
James Yiu Yeung Leung
Director
Date: October 8 , 2010