U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB

(MarkOne)
[X]  ANNUAL  REPORT  PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
     OF  1934.  For  the  fiscal  year  ended  May  31,  2002.

[_]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  or  15(d)  OF THE SECURITIES
     EXCHANGE ACT OF 1934. For the transition period from ______ to _______

                         Commission file number 0-27063

                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

            Nevada                                              82-0381904
-------------------------------                             ------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation  or  organization)                           Identification  No.)


3704 32nd Street, Suite 301 Vernon, BC               VIT  5N6
(Address of principal executive offices)            (Zip Code)

Registrant's Telephone number, including area code: (250) 552-5410
                                                    --------------

Securities  registered  under  12(b)  of  the  Exchange  Act:     None

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

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

Indicate  by  check mark if disclosure of delinquent filers pursuant to Item 405
Regulation  S-B  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-KSB or any amendment to
this  Form  10-KSB.
                     ---

The issuer had revenues of $32,904 for the fiscal year ended May 31, 2002.

The aggregate market value of the voting stock held by non-affiliates on May 31,
2002  was  approximately  $5,883,204  based  on the average of the bid and asked
prices  of the issuer's common stock in the over-the-counter market on such date
as reported by the OTC Bulletin Board.  As of May 31, 2002, 78,442,715 shares of
the  issuer's  common  stock  were  outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

1.  General Registration on Form 10-SB12G filed on November 2, 1999;
2.  Registration  on  Form  SB-2  filed  on August 21, 2000.  File NO: 333-44184
3.  Registration  on  Form  SB-2  filed  on  June  12,  2001  File No. 333-62824


                                      -1-
<PAGE>
                                     PART I

ITEM 1.          DESCRIPTION OF BUSINESS

AQUATIC CELLULOSE INTERNATIONAL CORP.

     Aquatic Cellulose International Corp. (" the "Company") is a Nevada
Corporation originally organized as Aquatic Cellulose Ltd. ("ACL") and was
incorporated in March of 1996.

     Located in Vernon, British Columbia, Canada, Aquatic Cellulose
International ("Aquatic") is a forest-based company focusing on what was once
considered a lost resource.   That resource is submerged timber.  AQCI has in
place the processes and equipment necessary to access and recover this valuable
resource.  Generally, submerged timber is of excellent quality and can be used
for plywood, sawn lumber, and a wide variety of wood fiber processes.
Aquatic's principal activity is the procurement of contracts for the salvage and
harvest of submerged timber and the sale of lumber derived from such timber.

     Aquatic harvests trees with a surface mounted robotic arm, called the
ATH-60, that has the ability to reach under water, extract a targeted submerged
tree and bring it to the surface.  This submerged timber is preserved by the
water and is typically of excellent quality making it attractive to be used for
plywood, sawn lumber (i.e. lumber used for constructing buildings), special cuts
for fine furniture building plus a wide variety of other wood fiber processes
such as chipping to create OSB plywood (chip board) or processed for the pulp
and paper industry.

Key to Aquatic's business
-------------------------

     Aquatic uses a simple but effective way to obtain timber and the rights to
harvest timber in Canada.  First, Aquatic researches a potential site to ensure
sufficient timber resources exist.  If the reserve is adequate, Aquatic meets
with the local government officials to determine the ownership of the wood
reserve.  In cases where the wood has sunk to the bottom of the water location,
the local government takes ownership of the wood to ensure that all local
environmental concerns are addressed.  Once ownership is determined, Aquatic
applies for an appropriate salvage permit.  To date Aquatic has acquired only
one salvage permit in Canada, on July 20th, 1998, allowing the salvaging of
timber at Monty Lake, in Central British Columbia, Canada.     Aquatic harvested
timber, pursuant to the salvage permit, within a designated area from July 21,
1998 to October 31, 1998.

     Obtaining timber and the rights to harvest in foreign countries is
approached slightly differently.  In this case, Aquatic meets with all
appropriate government officials to receive approval from the host country to
evaluate its inundated (flooded) forests.  Once approval is received, Aquatic
evaluates the target site to ensure sufficient volumes of timber exist.
Finally, Aquatic forms a strategic alliance in the applicable country with a
partner chosen for their ability to implement the project, operate the project
on an on going basis and put in place the down stream infrastructure to process
the timber.

     Aquatic also offers a unique method of harvesting timber.  Presently,
submerged forests are harvested by divers using hand-operated equipment.  This
method of harvesting has a slow wood recovery rate of approximately eight to ten
trees per day. The ATH60 is capable of harvesting approximately thirty to forty
trees per day.

Two main sources of underwater timber
-------------------------------------

     Aquatic's industry consists of two primary sources of underwater timber.
The first is standing timber that has been inundated (flooded) as a result of a
dam construction (hydroelectric or otherwise).   These standing trees are
submerged as the water level behind a dam rises, preserving them and preventing
degradation of the wood quality.  The second is salvage timber.  This source


                                      -2-
<PAGE>
consists of those trees that have already been cut and have sunk to the bottom
of the waterway en route to a mill or load out area.

     Inundated or salvage timber is viable for all types of finished product
production including paper. Furthermore, logs in deep, fresh water are not
subject to rot as bacteria requiring oxygen are not present, thus though there
may be some slight discoloration, the structural integrity of sunken wood is
sound. Also, in its travels to South America, our Management observed that
submerged hardwoods in the Amazon are currently being used in the production of
both plywood and sawn lumber.

     Aquatic has done an on-sight evaluation of the Tucurui reservoir in Brazil,
South America. The Tucurui reservoir, created in 1984, is located in the
northern interior of Brazil. When the reservoir was filled, it covered over an
estimated 100,000 hectares (one hectare equals approximately 2.6 acres) of old
growth rain forest. In 1997, Aquatic formed an alliance with Sulpam Madeira Ltda
(see exhibit 10.19), a Brazilian Company that has the rights to harvest the
timber in the Tucurui reservoirs. Pursuant to the terms of the alliance, in
addition to providing harvesting rights, Sulpam was to provide all the surface
support craft and provide all "downstream" support and milling services for the
timber harvested from the Tucurui reservoir by the ATH 60.

     The availability of milling services is important for two reasons:
          a.   the majority of the Company's customers require the logs to be
               processed into lumber; and
          b.   Brazil does not permit the export of raw logs.

     During 2001, it became evident that Sulpam was unable to provide the
necessary "downstream" support and milling services.  The lack of Sulpam's
support has had an adverse affect on operations.  There was a temporary shut
down of operations while Aquatic located and purchased the necessary water based
equipment and the hiring of local mills to process the harvested logs into
lumber.  Aquatic will continue to operate the Brazil operation under the
harvesting rights held by Sulpam.  The agreement covering the use of Sulpam's
timber harvesting rights is still effective and Sulpam is honoring the
agreement.   The harvesting rights agreement does not specify an expiration
date.

     Aquatic has also investigated underwater forests and salvage timber in
Canada, the United States and Central America.  In Canada, Aquatic completed a
physical examination of standing timber in reservoirs such as Ootsa Lake in B.C.
and salvage timber in waterways such as Lake Superior.  The wood examined in
these locations was in excellent condition and suitable for harvest and
processing.  Aquatic is presently concentrating all its efforts in Brazil.

Technological innovations
-------------------------

     Aquatic's timber harvesting system consists of a surface controlled robotic
arm that reaches down into the water and either cuts or retrieves the timber
from under the water.  This system utilizes three technological innovations.

     The first is the harvesting system's camera system.  The camera system
provides real time continuous surveillance of all underwater operations, even in
turbid water conditions.  This camera is readily available from Sony dealers
throughout the world.

     The second technology is the system's "Robotically Controlled Arms and
Heads".  The arm, is a mechanical arm, which has the head attached to it, and
reaches down into the water towards the target tree.  The head has two parts to
it, a cutting device that cuts the target tree and a claw which secures the
timber during the cutting process.  To accomplish this, Aquatic has software
that transmits the robots arm and head position into an accurate real time
graphical image allowing the operator to easily maneuver the robot under water.

     The third feature is two "Sonar Imaging" systems.  The first system
provides an image of the submerged terrain being harvested plus gives an
estimate of the depth and distance between the robot and the timber it is
viewing.  The second system is a sonar device which rotates with the harvester
head allowing the operator to target potential trees to harvest.


                                      -3-
<PAGE>
     All three technologies were incorporated in the development and
construction of a fully functional unit for log salvage operations called the
ATH-60. Currently the ATH-60 is harvesting timber at the Company's Brazil
project. The next generation of harvester, the ATH-120, is currently under
construction. Aquatic has not set an introduction date for its use.

Competition
-----------

     Aquatic competes for customers with other timber companies, many of which
have substantially greater assets and resources than those of our Company. Major
companies presently dominate the timber industry and have long-standing
distribution and marketing relationships, which may operate to the disadvantage
of Aquatic. However, because Aquatic accesses and supplies a unique alternate
wood source and it presently has minimal competition in this niche market.

Marketing and distribution Process
----------------------------------

     Upon receiving a purchase order for its goods, Aquatic manages the product
from the initial wood harvesting through manufacturing to the final point of
sale. The steps involved are as follows:

          -    the product is first marketed through wood distributors, which
               provide Aquatic with purchase orders;
          -    wood is then harvested and transported to a primary milling
               facility where the wood is cout to rough sawn lumber;
          -    the rough sawn lumber is then shipped to a secondary milling
               factory where the wood is milled into pre-finished wood products
               specified by the purchase order;
          -    the pre-finished wood is then bundled, wrapped and trucked to a
               ship loading yard.where it is placed aboard a cargo ship -
               freight on board ("FOB");
          -    Once the product is aboard the cargo ship the customer assumes
               liability for the product

     There is no requirement for government approval for the marketing or use of
Aquatic's principal products or services.

     There are no known environmental laws that currently control or prohibit
the present and forecasted activities of Aquatic.

Short Term Objectives
---------------------

     In the short term, Aquatic intends to continue operations in Brazil and to
finance the construction of an additional harvester to phase it into the Tucurui
project.  Pursuant to a manufacturing agreement with a company which is
controlled by the Company's CEO and largest shareholder, Aquatic has begun to
finance the construction of this additional harvester and will continue to do so
as revenue and or funding becomes available.

Long Term Objectives
--------------------

     Aquatic's long-term objectives are to secure additional harvesting rights
of inundated and salvage timber to ensure future stability and long-term growth.

Going Concern
-------------

     The  accompanying  consolidated  financial  statements  have  been prepared
assuming  that  the  Company  will continue as a going concern.  As discussed in
note  1  to  the  consolidated  financial  statements, the Company has a working
capital  deficiency of $1,110,367 and an accumulated deficit of $5,968,319 as at
May  31,  2002 and has suffered recurring losses from operations.  As of May 31,
2002,  the Company had scaled down operations pending new financing which raises
substantial  doubt  about  it's  ability  to  continue  as  a  going  concern.


                                      -4-
<PAGE>
Management's plans in regard to these matters are also discussed in note 1.  The
consolidated  financial  statements  do  not  include any adjustments that might
result  from  the  outcome  of  this  uncertainty.

Employees
---------

     Our Company employs a total of four full time employees in the corporate
office and 1 full time employees in Brazil. None of the employees are covered by
a union and there is presently no indication of union activity.


ITEM  2.     DESCRIPTION  OF  PROPERTY

     The Company's offices are located at 3704 32nd Street, Suite 301, Vernon,
British Columbia, V1T5N6.     The Company is committed through the year 2002
with annual lease payments under operating leases for office premises and
equipment of $12,370 per year.


ITEM  3.     LEGAL  PROCEEDINGS

     Our Company is not a party to any material pending legal proceedings and,
to the best of its knowledge, no such action by or against the Company has been
threatened.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

     None


                                      -5-
<PAGE>
                                     PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

     Our common stock trades on the Over-the Counter Bulletin Board, also called
the OTCBB, under the trading symbol "AQCI".  The following table set forth the
quarterly high and low bid prices per share for our common stock.  The bid
prices reflect inter-dealer prices, without retail markup, markdown, or
commission and may not represent actual transactions.

                               High Bid  Low Bid
Fiscal 2000:
------------
First Quarter 1999                  .72      .14
Second Quarter 1999                 .93      .25
Third Quarter 2000                  .90      .45
Fourth Quarter 2000 (5/31/00)      1.25      .50

Fiscal 2001
-----------
First Quarter 2001                  .75      .38
Second Quarter 2001                 .53      .15
Third Quarter 2001                 .175      .08
Fourth Quarter 2001 (5/31/01)      .099      .04

Fiscal 2002
-----------
First Quarter 2002                  .07      .02
Second Quarter 2002                 .05      .01
Third Quarter 2002                  .05      .01
Fourth Quarter (5/31/02)            .14      .06

          To  date, the Company has not declared or paid dividends on its common
stock.

          As  of  May  31,  2002,  there  were approximately 295 shareholders of
record  (that  are  not  in  street  name)  of  the  company's  Common  Stock.

Recent Sales of Unregistered Securities
---------------------------------------

     In May, 1999, Aquatic issued 500,000 restricted shares to Big Rock
Marketing Group valued at $0.03 per share (price reflected market price) for
public relations services rendered to the Company and these shares represented
fair value for services rendered.  These shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering."   The investors of
the stock at this time were accredited investors.

     In May, 2000, we issued 100,000 restricted Shares valued at $0.50 per share
(price reflected market value) for cash to Matt Lothian pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933 as
amended, as a "transaction not involving a public offering."   The investor of
the stock was an accredited investor.

     In December 1999 through May, 2000, the Aquatic issued 722,000 restricted
shares valued at an average of $0.642 per share (price reflected market price)
for services, pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933 as amended, as a "transaction not involving a public
offering."     The investors of the stock at this time were accredited
investors.


                                      -6-
<PAGE>
     In March, 2001, we issued 1,700,000 shares of restricted stock at $0.068
per share, of which 850,000 shares were issued to Creative Advertising
consultants (Ted Klar) and, 850,000 shares were issued to B&H (Ted Klar)
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933 as amended, as a "transaction not involving a public offering."   These
shares were issued for services rendered.
The investor of the stock was an accredited investor.

     At various times prior to May 31, 2001, Aquatic issued an aggregate of
587,000 shares of restricted stock at an average price of $0.14 per share (price
reflected market price) for services pursuant to the exemption provided for
under Section 4(2) of the Securities Act of 1933 as amended, as a "transaction
not involving a public offering."   These shares were issued for services
rendered. The investor of the stock was an accredited investor.

     At various times prior to May 31, 2001, Aquatic issued an aggregate of
227,000 shares of restricted stock at an average price of $0.58 per share for
the settlement of accounts payable and accrued liabilities (settlement
determined stock price)  pursuant to the exemption provided for under Section
4(2) of the Securities Act of 1933 as amended, as a "transaction not involving a
public offering."   These shares were issued for services rendered. The investor
of the stock was an accredited investor.

     Prior to May 31, 2001, Aquatic issued 100,000 shares of restricted stock to
Mathew Lathian at no cost pursuant to the exemption provided for under Section
4(2) of the Securities Act of 1933 as amended, as a "transaction not involving a
public offering."   These shares were issued for cash subscriptions for 200,000
common shares received during fiscal 2000.  100,000 of the common shares were
issued during fiscal 2000.   The investor of the stock was an accredited
investor.

     On June 5, 2001 Aquatic issued 2,500,000 shares of restricted stock at $.05
per share for deposit on the purchase of equipment, (price reflected market
price), pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933 as amended, as a "transaction not involving a public
offering."  The investor of the stock was an accredited investor.

     In July, 2001 Aquatic issued 400,000 shares of restricted stock at $.04 per
share for services, (price reflected market price), pursuant to the exemption
provided for under Section 4(2) of the Securities Act of 1933 as amended, as a
"transaction not involving a public offering."  The investor of the stock was an
accredited investor.

     In December 2001, Aquatic issued 900,000 shares of restricted stock to
Sheridan Westgarde and 200,000 shares to Keith Winder for salaries and services
at an average price of $0.02 per share pursuant to the exemption provided for
under Section 4(2) of the Securities Act of 1933 as amended, as a "transaction
not involving a public offering." The investors of the stock were sophisticated
investors.

     In January 2002, Aquatic issued 7,245,000 shares of restricted stock at
$.014 per share to Gary Ackles as per his employment agreement, pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933 as
amended, as a "transaction not involving a public offering."

     On February 5, 2002 Aquatic issued 300,000 shares of restricted stock at
$.02 per share for services, (price reflected market price), pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933 as
amended, as a "transaction not involving a public offering." The investor of the
stock was an accredited investor.

     In April and May 2002 Aquatic issued 1,500,000 shares of restricted stock
at $.05 per share to various investors pursuant to a subscription agreement,
pursuant to the exemption provided for under Rule 506 of the Securities Act of
1933, as amended, and Section 4(2) of the Securities Act of 1933 as amended, as
a "transaction not involving a public offering." The investors of the stock were
accredited investors.


                                      -7-
<PAGE>
     Prior to May 31, 2002 Aquatic issued 5,480,000 shares of restricted stock
at a per share price ranging from $.012 - $.078 for services, (price reflected
market price), pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933 as amended, as a "transaction not involving a public
offering." The investor of the stock was an accredited investor.

Convertible Notes issued (The investors of the securities were accredited
-------------------------------------------------------------------------
investors).
-----------

     On May 4, 2000, Aquatic issued two convertible debentures of $250,000 each
for a aggregate of $500,000 in accordance with Sec. 4(2) and Rule 506 under the
Securities Act of 1933, as amended (the "Securities Act")

     On September 27, 2000, Aquatic issued two convertible debentures of
$250,000 each for a aggregate of $500,000 in accordance with Sec. 4(2) and Rule
506 under the Securities Act of 1933, as amended (the "Securities Act").

     On  January  25, 2001, Aquatic issued two convertible debentures of $75,000
each  for  an  aggregate  of  $150,000 in accordance with Sec. 4(2) and Rule 506
under  the  Securities  Act  of  1933,  as  amended  (the  "Securities  Act").

     On  March  14,  2001,  Aquatic issued two convertible debentures of $50,000
each  for  an  aggregate  of  $100,000 in accordance with Sec. 4(2) and Rule 506
under  the  Securities  Act  of  1933,  as  amended  (the  "Securities  Act").

     On  December  4,  2001  Aquatic issued issued two convertible debentures of
$100,000  in cash each for an aggregate of $200,000 in accordance with Sec. 4(2)
and  Rule  506  under  the  Securities  Act of 1933, as amended (the "Securities
Act").  The  investors  of  these  securities  were  accredited  investors

Warrants and options issued (The investors of the securities were accredited
----------------------------------------------------------------------------
investors).
-----------

     On May 4, 2000, Aquatic issued a total of 250,000 warrants.  Each warrant
allows the holder to purchase 1 share of our common stock at an exercise price
equal to $0.69 per share, and expire May 4, 2003.
These warrants were issued in accordance with Sec. 4(2) and Rule 506 under the
Securities Act of 1933, as amended (the "Securities Act").

     As of July 31, 2000, there were a total of 1,425,250 options outstanding to
purchase Aquatic's common stock at an exercise price of $0.52 per share, which
was the market price of the options on the granting date of February 22, 2000.
These options expire on February 22, 2005.  These options were issued pursuant
to the exemption provided for under Section 4(2) of the Securities Act of 1933
as amended, as a "transaction not involving a public offering."   These option
were all exercised prior to May 31, 2001.

     On September 27, 2000, Aquatic issued a total of 250,000 warrants.  Each
warrant allows the holder to purchase 1 share of our common stock at an exercise
price equal to $0.69 per share and expire September 29, 2003.  These warrants
were issued in accordance with Sec. 4(2) and Rule 506 under the Securities Act
of 1933, as amended (the "Securities Act").

     On January 25, 2001, Aquatic issued common stock purchase warrants for the
right to purchase 50,000 shares of Common Stock of AQCI at $0.35 per share and
expire January 25, 2003.  These warrants were issued in accordance with Sec.
4(2) and Rule 506 under the Securities Act of 1933, as amended (the "Securities
Act").

On March 14, 2001, Aquatic issued common stock purchase warrants for the right
to purchase 50,000 shares of Common Stock of AQCI at $0.35 per share and expire
March 14, 2003.  These warrants were issued in accordance with Sec. 4(2) and
Rule 506 under the Securities Act of 1933, as amended (the "Securities Act").

     On December 4, 2001, Aquatic issued common stock purchase warrants for the
right to purchase 100,000 shares of Common Stock of AQCI at $.35 per share and
expire December 6, 2003.  These warrants were issued in accordance with Sec.


                                      -8-
<PAGE>
4(2) and Rule 506 under the Securities Act of 1933, as amended (the "Securities
Act"). The investors of these securities were accredited investors.

Transfer Agent and Registrar
----------------------------

The Company's transfer agent is Oxford Transfer & Registrar located at 317
Southwest Alder, Suite 1120, Portland, Oregon, 92704.

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

   Plan of Operation
   -----------------

     The short-term objectives of Aquatic are the following:

     1.   Continue expansion of the Brazilian harvesting project. This expansion
          will require additional equipment and labor plus training and support.
          Implementation  of  these  items  have  already  started.
     2.   Seek  out  and develop key alliances, acquisitions and joint ventures.
     3.   Establish  new  lumber  markets,  especially  with respect to rare and
          exotic  species.
     4.   Expand  international  operations  to  a  third  continent.
     5.   Purchase additional harvesting equipment to be placed into its current
          operations.

     Aquatic's long-term objectives are as follows:

     1.   To  increase  lumber  reserves to a level that will provide for future
          revenues  and  long-term  growth.
     2.   To  continue upgrades of the robotic technology and develop its global
          awareness.

     Over  the  next twelve months, Management is of the opinion that sufficient
working  capital  will be obtained from external financing to meet the Company's
liabilities and commitments as they become payable.  The Company has in the past
successfully relied on private placements of common stock securities, bank debt,
loans  from private investors and the exercise of common stock warrants in order
to  sustain  operations.

     There is no expected or planned sale of significant equipment by the
Company.  The Company's work force is expected to remain flat from the current
level over the next twelve months.

                              RESULTS OF OPERATIONS

Year Ended May 31, 2002 Compared to Year Ended May 31, 2001
-----------------------------------------------------------

     The company earned revenue of $32,904 for the year ended May 31, 2002,
compared with $280,042 for fiscal 2001 for a decrease of $247,138 or 88%.  The
decrease in sales is attributable to two main factors: first, Aquatic was
re-establishing working relationships and the downstream infrastructure in
Brazil, and second, Aquatic had substantially reduced the Brazil operations due
to a lack of working capital.   Currently Brazil operations are running in a
scaled down mode and does not anticipate revenues until third quarter (February
2003).

     Cost of sales for the year ended May 31, 2002 was $60,141 compared to
$528,834 for the year ended May 31, 2001, for a decrease of $468,693 or 89%.
The decrease in cost of sales is a direct result of the decrease in revenue and
the temporary shut down of the Brazil operations.

     Operating costs and expenses for the year ended May 31, 2002, were $729,866
and $955,397 for the year ended May 31, 2001 for a decrease of $225,531 or 24%.
The decrease in operating costs is attributable to a decrease in selling,
general and Administrative expenses of $119,780, which is a direct result of the


                                      -9-
<PAGE>
substantial reduction of Aquatic's Brazil operations, plus a decrease in bad
debt write-offs of $218,741 offset by selling, general and Administrative
expenses incurred by related parties of $113,383.

     Other expenses for the year ended May 31, 2002, were $698,403 and $769,423
for the year ended May 31, 2001 for a decrease of $71,020 or 9%.  The decrease
in other expenses was attributable to a decrease in interest expense of $456,025
offset by a foreign exchange transaction loss of $385,005 in the year ended May
31, 2002.

     The Company incurred a loss in fiscal 2002 of $1,455,506 compared with a
loss of $1,973,612 in fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     Net cash used in operating activities in fiscal 2002 amounted to $430,456
compared to $738,172 in fiscal 2001.  The decrease use of cash is mainly
attributable to the scaling down of the Brazil operations due to a lack of
working capital.

     Financing activities generated net cash of $421,383 in fiscal 2002 compared
with $602,947 in fiscal 2001.  The cash from financing activities for fiscal
year 2002 was generated from the issuance of $200,000 in convertible debentures,
the sale of common stock for $75,000, the exercise of options for $60,000 and a
note due to a stockholder for $113,383 less financing costs of $27,000.

     At May 31, 2002 the Company had cash of $10,819, accounts receivable of
$nil, inventory of $nil, prepaid expenses of $16,026 and other receivable of
$736 for total current assets of $27,581. Inventory decreased from $199,892 and
accounts receivable decreased from $54,963 at May 31, 2001 as a result of the
scaling down of the Brazil operations due to a lack of working capital.

     It is anticipated that the $200,000 convertible debentures payable issued
during 2002 will be converted into common shares in accordance with the terms of
these debentures.

Registration Statement on Form SB2 filed June 12, 2001 became effective in
--------------------------------------------------------------------------
December 2001
-------------

     Aquatic has registered with the Form SB2, 48,114,070 shares of common stock
(of  which  1,700,000  have  been  previously issued as restricted stock) all of
which  will be freely tradable without restriction or further registration under
the  Securities  Act.  This  includes:
          -    23,653,094 shares representing an adjustment to the number of
               shares held on reserve registered on the Form SB2, filed August
               21, 2000, file number 333-44184. These reserve shares that may be
               needed to account for market fluctuations in the price of the
               common stock prior to the conversion of the debentures
          -    22,560,976 shares representing the conversion of the aggregate of
               $450,000 of 12% debentures plus estimated interest at a price of
               $.041 per share
          -    200,000 shares underlying warrants to be registered in connection
               with the secured convertible debenture purchase agreement
          -    1,700,000 shares of other selling shareholders.

ITEM 7.     FINANCIAL STATEMENTS

     Please refer to pages beginning with F-1.

ITEM 8.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

A Form 8-K was filed on February 28, 2002, reporting a change in accounting
firms.


                                      -10-
<PAGE>
KPMG LLP was previously the independent auditors for Aquatic Cellulose
International Corporation (the "Registrant").  On February 28, 2002, the
Registrant terminated KPMG for financial reasons and engaged Merdinger,
Fruchter, Rosen & Corso, P.C., to serve as the Company's independent public
accountants and to be the principal accountants to conduct the audit of the
Company's financial statements for the fiscal year ending May 31, 2002.  The
decision to change was based on financial considerations and was approved by the
audit committee and the full Board of Directors of the Registrant.

     The audit reports of KPMG LLP on the financial statements of Aquatic
Cellulose International Corporation as of and for the fiscal years ended May 31,
2001 and 2000 did not contain an adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or accounting
principles, except as follows:

     KPMG LLP's report on the consolidated financial statements of Aquatic
Cellulose International Corporation as of and for the years ended May 31, 2001
and 2000, contained a separate paragraph stating "As discussed in note 1(a) to
the consolidated financial statements, the Company has a working capital
deficiency of $467,287 as at May 31, 2001 and has suffered recurring losses from
operations that raise substantial doubt about its ability to continue as a going
concern.  Management's plans in regard to these matters are also discussed in
note 1(a).  The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty."

     During the Registrant's fiscal years ended May 31, 1997 through May 31,
2001, and the subsequent interim period ending February 28, 2001, there were no
disagreements between the Registrant and KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures, which if not resolved to their satisfaction of KPMG LLP would have
caused KPMG LLP to make reference to the matter in their report.  The Company
has requested KPMG LLP to furnish it a letter addressed to the Commission
stating whether it agrees with the above statements.  A copy of that letter,
dated March 26, 2002, is filed as Exhibit 16 to this Form 8-K.

     There were no other "reportable events" as that term is described in Item
304(a)(1)(v) of Regulation S-K occurring within the Registrant's two most recent
fiscal years and the subsequent interim period ending February 28, 2002.

     During the Registrant's two most recent fiscal years ended May 31, 2001 and
the subsequent interim period through February 28, 2002, the Registrant did not
consult with Merdinger, Fruchter, Rosen & Corso, P.C. regarding any of the
matters or events set forth in Item 304 (a)(2)(i) and (ii) of Regulations S-K


                                      -11-
<PAGE>
                                    PART III

ITEM 9.     DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT


Executive  Officers  and  Directors

Name                     Age         Position
----                     ---         --------

Gary J. Ackles           47          President & Director
Shane Kerpan             31          Secretary & Treasurer
Claus Wagner-Bartak      63          Director

     The officers and Directors of Aquatic will devote only such time as they
deem appropriate in the business affairs of our Company.   It is, however,
expected that the officers will devote the time deemed necessary to perform
their duties for the business of our Company.  The amount devoted by each
director is discussed below.

     The directors of Aquatic are elected to hold office until the next annual
meeting of shareholders and until their respective successors have been elected
and qualified.

Biographies Of Our Executive Officers And Directors

     Gary J. Ackles:  Mr. Ackles was appointed to the Board of Directors on July
1,1997, to fill a vacancy.  Mr. Ackles was President and founder of Aquatic
Cellulose Ltd., and creator of the Aquatic Timber Harvester System.  Mr. Ackles
has over 25 years expertise in industries that manufacture and sell equipment,
with extensive international and domestic experience. Mr. Ackles is an
internationally recognized creator of aquatic technologies, and has been
involved with numerous equipment based industries including oil and mineral
exploration, logging, heavy construction, and aquatic environmental management.
Mr. Ackles has introduced and sold equipment in Canada, USA, Middle East,
Africa, and South America. Mr. Ackles does not sit on the Board of any other
public company. Mr. Ackles dedicates approximately 90% of his time to Aquatic.

     Shane Kerpan:  Mr. Kerpan earned a degree in Business Administration from
Simon Fraser University and has worked in a variety of staff management
positions in both the private and non-profit sectors. Mr. Kerpan also possesses
experience in project management and evaluation plus has provided the Company
with assistance in project research, development of multi-media presentations
and public relations. Mr. Kerpan does not sit on the Board of any other public
company. Mr. Kerpan dedicates approximately 5% of his time to Aquatic.

     Claus Wagner-Bartak--Dr. Claus Wagner-Bartak was appointed to the Board of
Directors in July, 1997, to fill a vacancy.  Dr. Wagner-Bartak was the founder
of Spar-Aerospace, the corporation contracted to develop and build the robotic
arm that is presently used on the NASA Space Shuttle, that arm being named the
"Canada-arm".  Mr. Wagner-Bartak does not sit on the Board of any other public
company.  Mr. Wagner-Bartak dedicates approximately 5% of his time to Aquatic.


                                      -12-
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934

     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.  Officers,
directors and greater than 10% shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.

     To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the company and written representations that no other
reports were required during the fiscal year ended May 31, 2001, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.


ITEM 10.     EXECUTIVE COMPENSATION

     The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered during the fiscal year
ended May 31, 2000 to the Company's Chief Executive Officer, Secretary and
Director during such period.

<TABLE>
<CAPTION>
                                          EXECUTIVE COMPENSATION

                                                                       Long Term Compensation
                             Annual Compensation                               Awards
Payouts
                     -----------------------------------  -----------------------------------------------
(a)                  (b)    (c)       (d)     (e)         (f)          (g)          (h)         (I)
Name                                          Other(1)                 Securities               All
and                                           Annual      Restricted   Underlying               Other
Principal                                     Compen      Stock        Options/     LTIP        Compen
Position             Year   Salary    Bonus   sation($)   Award($)     Sar(#)       Payouts($)  sation($)
<S>                  <C>    <C>       <C>     <C>         <C>          <C>          <C>         <C>
Gary Ackles
President/CEO         2000  $ 84,000       0           0            0            0           0           0
                      2001  $ 84,000       0           0            0    1,202,500           0           0
Shane Kerpan
Secretary             2000         0       0           0            0            0           0           0
                      2001         0       0           0            0      117,500           0           0
Claus Wagner-Barta
Director              2000         0       0           0            0            0           0           0
                      2001         0       0           0            0      105,250           0           0
</TABLE>


                                      -13-
<PAGE>
Chief Executive Officer Compensation:

     Mr. Ackles has a three-year employment agreement commencing November 1,
2000, providing for an annual salary of $107,134, plus certain benefits. The
agreement calls for a minimum increase in salary of 10% per annum

(1)  Long Term Incentive Plans (Options)

     There are no long- term incentive plans currently in effect. However, the
Board of Directors has granted the directors and officers of the Company stock
options that are intended to place each director and officer in an equity
position in our Company that roughly equates to their original percentage of
shares owned in our Company. These options were issued on February 22, 2000 and
are exercisable in whole or in part for five years from the date of issue at an
exercise price of $0.52. Closing market price of Aquatic's common stock as
quoted on the OTC:BB on February 22, 2000 was $.5156. The number of above
options issued were 1,425,250 and are as follows:

                    1.     Gary Ackles -              1,202,500
                    2.     Clause Wagner-Bartuk -       117,500
                    3.     Shane Kerpan -               105,250

These options have been exercised as of 5/31/01.

Compensation of Directors

     Directors receive no remuneration for their services as directors at this
time.


ITEM 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     \The following table sets forth information as of the date of this
Registration Statement regarding certain Ownership of our Company's outstanding
Common Stock by all officers and directors individually, all officers and
directors as a group, and all beneficial owners of more than five percent of the
common stock.

<TABLE>
<CAPTION>
Name and Address             Shares Owned Beneficially(1)  Percent of Class
----------------             ----------------------------  -----------------
<S>                          <C>                           <C>
Gary J. Ackles
3498 Salmon River Bench Rd                     12,000,000              15.3%
Vernon, B.C. V1T 8Z7

Claus Wagner-Bartak
4092 Lee Highway                                  435,000               0 6%
Arlington, VA 22207

Shane Kerpan
816 George Ann Street                             325,500               0.4%
Kamloops, B.C. V2C 1L5

Officer/Director as a Group                    12,435,000              15.8%


                                      -14-
<PAGE>
<FN>
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of the registration
statement upon the exercise of options or warrants.  Each beneficial owner's
percentage ownership is determined by assuming that options or warrants that are
held by such person and which are exercisable within 60 days of the date of this
registration statement have been exercised.  Unless otherwise indicated, the
company believes that all persons named in the table have voting and investment
power with respect to all shares of common stock beneficially owned by them.
</TABLE>


ITEM 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTION

     On February 22, 1999, the Board of Directors authorized the issuance of
stock options to certain officers and directors of our Company.  The options
were vested immediately and would have expired on February 22, 2004. The
exercise price was pegged at market price on the date the options were granted.
These options were exercised April 13, 1999 at $0.03 per share as follows: 1)
3,250,000 shares of common stock to Gary Ackles, 2) 115,000 shares of common
stock to Shane Kerpan, and 3)150,000 shares of common stock to Claus Wagner -
Bartak.

     On February 22, 2000, the Board of Directors authorized and granted the
issuance of stock options to certain officers and directors of our Company.  The
options were vested immediately and will be exercisable in whole or in part for
five years from the date of issue.  The exercise price was pegged at market
price on the date the options were granted.  The options granted on February 22,
2000 (at $0.52 per share) are as follows: 1) 1,202,500 shares of common stock to
Gary Ackles, 2) 105,250 shares of common stock to Shane Kerpan, and 3) 117,500
shares of common stock to Claus Wagner- Bartak.

     In January 2002, Aquatic issued 7,245,000 shares of restricted stock at
$.011 per share to Gary Ackles as per his employment agreement at $.01 per
share, pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933 as amended, as a "transaction not involving a public
offering."

     The  Company  has  a  service  agreement  with  Kathy  Ackles,  wife of the
president,  for  bookkeeping  and administrative services for $24,000 per annum.

     The  Company  has  an  employment agreement with Gary Ackles, the Company's
president,  providing  for  an  annual  salary of $107,134 and certain benefits.



ITEM 13.     EXHIBITS, LIST AND REPORTS IN FORM 8-K

     (a)  Exhibits

     Exhibit

Number          Description
------          -----------

3.1  Articles  of  Incorporation  of  the  Company  filed February 28, 1997. (1)
3.2  Certificate Amending Articles of Incorporation filed November 19, 1997. (1)
3.3  Bylaws  of  the  Company.  (1)
4.1  Form  of  Common  Stock  Certificate.  (2)
4.2  Form  of  Warrant  Agreement with Form of Warrant Election to Purchase. (2)
6.1  Lease  for  the  Premises  dated  November  1,  1996.  (1)
10.1 Form  of  Secured  Convertible  Debenture  Purchase  Agreement.  (2)


                                      -15-
<PAGE>
10.2 Form  of  Registration  Rights  Agreement.  (2)
10.3 Form  of  12%  Convertible  Debenture.  (2)
10.4 Form  of  Security  Agreement.  (2)
27.1 Financial  Data  Schedule

(1)  Previously filed with the Commission on August 16, 1999 as part of Aquatic
     Cellulose International Corp.'s Registration Statement (File N0.000-27063)
     on Form 10SB12G and incorporated by reference herein.
(2)  Previously filed with the Commission on August 21, 2000 as part of Aquatic
     Cellulose International Corp.'s Registration (File NO: 333-44184) on Form
     SB-2 filed on August 21, 2000 and incorporated by reference herein.


                                      -16-
<PAGE>
SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                     Aquatic Cellulose International Corp.
                     By:  /s/ Gary Ackles
                          ---------------
                          Gary Ackles
                          Director, Chief Executive Officer,
                          President and Chief Accounting Officer

                          Date September 13, 2002


In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

/s/ Gary Ackles           Director, Chief Executive Officer,  September 13, 2002
    --------------------  President and Chief Accounting
    Gary Ackles           Officer

/s/ Claus Wagner-Bartak   Director                            September 13, 2002
    -------------------
    Claus Wagner-Bartak


                                      -17-
<PAGE>
                      Consolidated Financial Statements of

                                AQUATIC CELLULOSE
                               INTERNATIONAL CORP.

                              May 31, 2002 and 2001


                                                                            Page
                                                                            ----

                      INDEX TO AUDITED FINANCIAL STATEMENTS


Independent Auditor's Report                                                 F-2

Consolidated Balance Sheets as of May 31, 2002 and 2001                      F-3

Consolidated Statements of Operations for the years
          ended May 31, 2002 and 2001                                        F-4

Consolidated Statements of Comprehensive Loss
          for the years ended May 31, 2002 and 2001                          F-5

Consolidated Statement of Stockholders' (Deficiency) Equity
          for the years ended May 31, 2002 and 2001                          F-6

Consolidated Statements of Cash Flows for the years ended
          May 31, 2001 and 2000                                              F-7

Notes to Consolidated financial Statements                                   F-8


                                       F-1




                                      -18-
<PAGE>


                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                              MAY 31, 2002 AND 2001





<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001


                                 C O N T E N T S
                                 ---------------


                                                                          PAGE
                                                                          ----



INDEPENDENT  AUDITORS'  REPORT                                              1


CONSOLIDATED  BALANCE  SHEETS                                               2


CONSOLIDATED  STATEMENTS  OF  OPERATIONS                                    3


CONSOLIDATED  STATEMENTS  OF  COMPREHENSIVE  LOSS                           4


CONSOLIDATED  STATEMENTS  OF  STOCKHOLDERS'  DEFICIENCY                     5


CONSOLIDATED  STATEMENTS  OF  CASH  FLOWS                                 6 - 7


NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS                            8 - 21



<PAGE>
                         INDEPENDENT AUDITORS' REPORT



TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF
AQUATIC CELLULOSE INTERNATIONAL CORP. AND SUBSIDIARY

We have audited the accompanying consolidated balance sheet of Aquatic Cellulose
International  Corp.  and  Subsidiary  as  of  May  31,  2002,  and  the related
consolidated  statement  of  operations,  comprehensive  loss,  stockholders'
deficiency  and  cash flows for the year then ended.  These financial statements
are  the  responsibility  of the Company's management.  Our responsibility is to
express  an  opinion  on  these  financial  statements  based on our audit.  The
financial  statements  of  Aquatic  Cellulose  International Corp. as of May 31,
2001,  were  audited  by  other  auditors,  whose  report  dated August 3, 2001,
expressed  an  unqualified  opinion  on  those  statements.

We  conducted our audit in accordance with auditing standards generally accepted
in  the  United  States  of  America.  Those  standards require that we plan and
perform  the  audit  to  obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the 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  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 Aquatic
Cellulose  International  Corp.  and  Subsidiary  as  of  May  31, 2002, and the
consolidated results of their operations and cash flows for the year then ended,
in conformity with accounting principles generally accepted in the United States
of  America.

The  accompanying  consolidated financial statements have been prepared assuming
that  the  Company  will continue as a going concern.  As discussed in Note 1 to
the  financial  statements,  the  Company  has  suffered  recurring  losses from
operations,  has  negative working capital and limited capital resources.  These
factors  raise  substantial  doubt  about  its  ability  to  continue as a going
concern.  Management's  plans  in  regard to these matters are also described in
Note  1.  The  financial  statements  do  not include any adjustments that might
result  from  the  outcome of this uncertainty.  As of May 31, 2002, the Company
had  substantially  reduced  operations  pending  new  financing.



                                      MERDINGER, FRUCHTER, ROSEN & COMPANY, P.C.
                                      Certified  Public  Accountants

New  York,  New  York
August  2,  2002


<PAGE>
<TABLE>
<CAPTION>
                        AQUATIC CELLULOSE INTERNATIONAL CORP.
                                     AND SUBSIDIARY
                              CONSOLIDATED BALANCE SHEETS


                                                                    May 31,
                                                           ----------------------------
     ASSETS                                                    2002           2001
                                                           -------------  -------------
<S>                                                        <C>            <C>
Current assets
  Cash and cash equivalents                                $     10,819   $     19,892
  Accounts receivable, net of allowance for doubtful
    accounts of $-0- and $-0-, respectively                           -         54,963
  Inventory                                                           -        199,892
  Prepaid expenses                                               16,026              -
  Other receivable                                                  736              -
                                                           -------------  -------------
    Total current assets                                         27,581        274,747

Property and equipment, less accumulated
  depreciation of $12,401 and $10,128                             8,084         10,357

Deferred financing costs, net of accumulated
 amortization of $135,411 and $103,136, respectively             19,189         19,364
Advance on equipment purchases                                  225,000        100,000
                                                           -------------  -------------

    TOTAL ASSETS                                           $    279,854   $    404,468
                                                           =============  =============

LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
  Accounts payable and accrued liabilities                 $    203,765   $    186,581
  Due to stockholders                                           113,383              -
  Convertible debentures payable                                820,800        574,817
                                                           -------------  -------------
    Total current liabilities                                 1,137,948        761,398
                                                           -------------  -------------

Stockholders' deficiency
  Preferred stock, par value $0.001 per share;
   10,000,000 shares authorized, no shares issued
   and outstanding
  Common stock, par value $0.001; 100,000,000 shares
   authorized; 78,442,715 and 47,019,315 shares issued
   and outstanding at May 31, 2002 and 2001, respectively        78,442         47,019
  Additional paid-in capital                                  4,996,727      4,073,808
  Accumulated deficit                                        (5,968,319)    (4,512,813)
  Foreign currency translation adjustment                        35,056         35,056
                                                           -------------  -------------
    Total stockholders' deficiency                          (   858,094)   (   356,930)
                                                           -------------  -------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY             $    279,854   $    404,468
                                                           =============  =============

The  accompanying  notes  are  an  integral part of these consolidated financial statements.
</TABLE>


                                      - 2 -
<PAGE>
<TABLE>
<CAPTION>
                            AQUATIC CELLULOSE INTERNATIONAL CORP.
                                      AND SUBSIDIARY
                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                    FOR THE YEARS ENDED


                                                                         May 31,
                                                                --------------------------
                                                                    2002          2001
                                                                ------------  ------------
<S>                                                             <C>           <C>
Sales                                                           $    32,904   $   280,042

Cost of sales                                                        60,141       528,834
                                                                ------------  ------------

Gross profit                                                        (27,237)     (248,792)
                                                                ------------  ------------

Operating expenses
  Selling, general and administrative                               607,495       727,275
  Selling, general and administrative to related parties            113,383             -
  Bad debt                                                            6,734       225,475
  Depreciation                                                        2,254         2,647
                                                                ------------  ------------
Total operating expenses                                            729,866       955,397
                                                                ------------  ------------

Loss from operations                                               (757,103)   (1,204,189)
                                                                ------------  ------------

Other expense
  Interest expense                                                  313,398       769,423
  Foreign exchange transaction loss                                 385,005             -
                                                                ------------  ------------
    Total other expense                                             698,403       769,423
                                                                ------------  ------------

Loss from operations before income taxes                         (1,455,506)   (1,973,612)

Provision for income taxes                                                -             -
                                                                ------------  ------------

Net loss                                                        $(1,455,506)  $(1,973,612)
                                                                ============  ============

Loss per share - basic and diluted                              $     (0.03)  $     (0.05)
                                                                ============  ============

Weighted average common shares outstanding - basic and diluted   60,854,801    40,762,532
                                                                ============  ============

The  accompanying  notes  are  an  integral part of these consolidated financial statements.
</TABLE>


                                      - 3 -
<PAGE>
<TABLE>
<CAPTION>
                     AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                               FOR THE YEARS ENDED

                                                                       May  31,
                                                              -----------------------------
                                                                  2002           2001
                                                              ------------  ---------------
<S>                                                           <C>           <C>
Net loss                                                      $(1,455,506)  $   (1,973,612)

Foreign exchange translation adjustment                                 -           (7,971)
                                                              ------------  ---------------

Comprehensive loss                                            $(1,455,506)  $   (1,981,583)
                                                              ============  ===============

The  accompanying  notes  are  an  integral part of these consolidated financial statements.
</TABLE>


                                      - 4 -
<PAGE>
<TABLE>
<CAPTION>
                                     AQUATIC CELLULOSE INTERNATIONAL CORP.
                              CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY

                                                                                                    Foreign          Total
                                                  Capital Stock          Additional                 Currency     Stockholders'
                                              -----------------------    Paid-in                   Translation       Equity
                                                Shares      Amount       Capital       Deficit      Adjustment    (Deficiency)
                                              ----------  -----------  ------------  ------------  ------------  ---------------
<S>                                           <C>         <C>          <C>           <C>           <C>           <C>
Balance, May 31, 2000                         37,425,985  $    37,426  $ 2,527,608   $(2,539,201)  $    43,027   $       68,860
Issued for services                            2,287,000        2,287      309,242             -             -          311,529
Issued for settlement of accounts payable
  and accrued liabilities                        227,000          227      133,273             -             -          133,500
Issued upon conversion of debentures           6,117,422        6,117      563,083             -             -          569,200
Issued for share subscriptions received
  in 2000                                        100,000          100         (100)            -             -                -
Issued in lieu of cash payment of
  interest on
  Convertible debentures payable                 861,908          862       62,255             -             -           63,117
Share issue costs                                      -            -      (24,553)            -             -          (24,553)
Financing cost of warrants granted in
  conjunction
  with convertible debentures                          -            -       55,000             -             -           55,000
Beneficial conversion feature of convertible
  debentures payable                                   -            -      448,000             -             -          448,000
Net loss                                               -            -            -    (1,973,612)            -       (1,973,612)
Foreign currency translation adjustment                -            -            -             -        (7,971)          (7,971)
                                              ----------  -----------  ------------  ------------  ------------  ---------------

Balance, May 31, 2001                         47,019,315       47,019    4,073,808    (4,512,813)       35,056         (356,930)
Issued for promotional services to
  Company's president                          7,245,000        7,245       94,185             -             -          101,430
Issued upon conversion of debentures           6,058,640        6,058       53,942             -             -           60,000
Issued in lieu of cash payment of interest
  on convertible debentures payable            2,234,760        2,235       38,460             -             -           40,695
Issued upon exercise of options                4,605,000        4,605       55,395             -             -           60,000
Fair value of options granted to
  non-employees                                        -            -      151,964             -             -          151,964
Issued for cash                                1,500,000        1,500       73,500             -             -           75,000
Issued for services                            6,980,000        6,980      241,870             -             -          248,850
Issued for financing fees                        300,000          300        5,700             -             -            6,000
Beneficial conversion feature of
  convertible
  debentures payable                                   -            -       85,403             -             -           85,403
Issued as deposit on equipment                 2,500,000        2,500      122,500             -             -          125,000
Net loss                                               -            -            -    (1,455,506)            -       (1,455,506)
                                              ----------  -----------  ------------  ------------  ------------  ---------------

Balance, May 31, 2002                         78,442,715  $    78,442  $ 4,996,727   $(5,968,319)  $    35,056   $     (858,094)
                                              ==========  ===========  ============  ============  ============  ===============

See accompanying notes to consolidated financial statements.
</TABLE>


                                      - 5 -
<PAGE>
<TABLE>
<CAPTION>
                               AQUATIC CELLULOSE INTERNATIONAL CORP.
                                         AND SUBSIDIARY
                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                     FOR THE YEARS ENDED

                                                                        May 31,
                                                           ---------------------------------
                                                                 2002             2001
                                                           ----------------  ---------------
<S>                                                        <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                 $    (1,455,506)  $   (1,973,612)
Non-cash items:
  Depreciation                                                       2,254            2,647
  Amortization of deferred financing costs                          33,175          176,807
  Amortization of financing cost of warrants                             -          152,728
  Amortization of beneficial conversion feature                    105,983          362,258
  Beneficial conversion feature of convertible debentures           85,403                -
  Bad debt expense                                                   6,734                -
  Inventory valuation adjustment                                    60,141                -
  Interest paid by issuance of common stock                         40,695           63,117
  Services paid by issuance of common stock                        248,850          311,529
  Inventory bartered for services                                  224,725                -
  Promotional services paid by issuance of common stock            101,430                -
  Options granted for services                                     151,964                -
Changes in assets and liabilities:
  Accounts receivable                                               48,229          213,850
  Inventory                                                        (84,974)        (199,892)
  Prepaid expenses                                                 (16,026)               -
  Other receivable                                                    (736)               -
  Accounts payable and accrued liabilities                          17,203          152,396
                                                           ----------------  ---------------
Net cash used in operating activities                             (430,456)        (738,172)
                                                           ----------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets                                                 -           (8,776)
Advance on equipment purchase                                            -         (100,000)
                                                           ----------------  ---------------
Net cash provided by investing activities                                -         (108,776)
                                                           ----------------  ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Sale of common stock                                              75,000                -
  Share issue cost                                                       -          (24,553)
  Issuance of convertible debentures payable                       200,000          750,000
  Exercise of options                                               60,000                -
  Due to stockholder                                               113,383                -
  Deferred financing cost                                          (27,000)        (122,500)
                                                           ----------------  ---------------
Net cash provided by financing activities                          421,383          602,947
                                                           ----------------  ---------------

Effect of exchange rate changes on cash balances                         -           (7,971)
                                                           ----------------  ---------------
Decrease in cash and cash equivalents                               (9,073)        (251,972)
                                                           ----------------  ---------------
Cash and cash equivalents, beginning of period                      19,892          271,864
Cash and cash equivalents, end of period                   $        10,819   $       19,892
                                                           ================  ===============

Supplementary information:
  Interest paid                                            $             -   $            -
                                                           ================  ===============
  Income taxes paid                                        $             -   $            -
                                                           ================  ===============

The  accompanying  notes  are  an  integral part of these consolidated financial statements.
</TABLE>


                                      - 6 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                    FOR THE YEARS ENDED MAY 31, 2002 AND 2001


SUPPLEMENTAL  SCHEDULE  OF  NON-CASH  ACTIVITIES:

During  the  year  ended  May  31,  2001,  the  Company:

-    Issued 2,287,000 shares of common stock, valued at $311,529, for services;

-    Issued 277,000 shares of common stock, valued at $133,500, for settlement
     of accounts payable and accrued expenses;

-    Issued 6,117,422 shares of common stock, valued at $569,200, upon
     conversion of debentures;

-    Issued 861,908 shares of common stock, valued at $63,117, in lieu of cash
     payment of interest, on convertible debentures; and

-    $55,000 fair value assigned to warrants issued in conjunction with
     convertible debentures.

During the year ended May 31, 2002, the Company:

-    Issued 7,245,000 shares of common stock, valued at $101,430, for
     promotional services;

-    Issued 6,058,640 shares of common stock, valued at $60,000, upon conversion
     of convertible debentures;

-    Issued 2,234,760 shares of common stock, valued at $40,695, in lieu of cash
     payment of interest on convertible debentures;

-    Granted options to non-employees, valued at $151,964;

-    Issued 6,980,000 shares of common stock, valued at $248,850, for services
     by employees, and consultants;

-    Issued 2,500,000 shares of common stock, valued at $125,000, as deposit on
     equipment purchase; and

-    Bartered inventory, valued at $224,725 in return for services, valued at
     $224,725, resulting in no gain or loss for the Company.

-    Issued 300,000 shares of common stock, valued at $6,000, for financing
     fees.


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


                                      - 7 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001



NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          Aquatic  Cellulose  International  Corp. (the "Company" or "ACIC") was
          incorporated  under  the  laws  of  the  State  of Nevada in 1996. The
          Company's  principal  activity  is  the  underwater  harvesting and/or
          salvaging  of  submerged  timber, and the sale of lumber produced from
          such  timber.

          Going  Concern
           -------------
          These  financial  statements  have  been prepared on the going concern
          basis,  which  assumes  the  realization  of assets and liquidation of
          liabilities  and  commitments  in the normal course of business. As of
          May  31,  2002,  the  Company  had  a  working  capital  deficiency of
          $1,110,367  and  a deficit of $5,968,319. The application of the going
          concern  concept  is  dependent  on  the Company's ability to generate
          future  profitable  operations and receive continued financial support
          from  its  shareholders  and  other  investors.  These  consolidated
          financial  statements do not give effect to any adjustments should the
          Company  be  unable  to continue as a going concern and, therefore, be
          required  to realize its assets and discharge its liabilities in other
          than the normal course of business and at amounts differing from those
          reflected  in  the  consolidated  financial  statements. As of May 31,
          2002,  the  Company  had  substantially reduced operations pending new
          financing.  Management plans to obtain sufficient working capital from
          external  financing  to meet the Company's liabilities and commitments
          as  they  become  payable  over  the  next  twelve  months as follows:

          The Company is negotiating for a loan from the Fundo Constitucional de
          Financiamento  do Norte (FNO Fund) for 6.2 million dollars through the
          Bank  of Amazonia. This fund supports socially responsible projects in
          the  Amazon  Region.  In  addition,  the  Company  is negotiating with
          funding  agencies  for  funding  of  the construction of equipment and
          project  implementation  of up to 75% of the value of purchase orders.

          There  can be no assurance that management's plans will be successful.
          Failure  to  obtain  sufficient  working  capital  from operations and
          external  financing  will  cause  the  Company  to curtail operations.

          Basis  of  Presentation
          -----------------------
          The  consolidated  financial  statements  include  the accounts of the
          Company  and  its  wholly-owned  subsidiary,  Aquatic  Cellulose  Ltd.
          ("ACL").  All  significant intercompany balances and transactions have
          been  eliminated.

          Business  Operations
          --------------------
          The  Company  operates  primarily  in  the  United States, Canada, and
          Brazil.

          The  primary  business  segments  and  a  description  of the business
          operations  of  each  company  are  as  follows:


                                      - 8 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Corporate
          ---------
          ACIC  provides management services to its wholly owned subsidiary, ACL
          and  its  operations  in Brazil. ACIC has no direct domestic operating
          assets  or  business  activities.

          ACL
          ---
          ACL  is  focusing  its  energies  and  management team on not only the
          Brazil  project  but also other wood recovery opportunities around the
          world.  ACL  is  also  working  closely  with  its manufacturer on the
          construction  of  the  next  generation  ATH  120  robotic  harvester.

          Brazil
          ------
          At  this time Ecomab is refining the overall Tucurui operational plan,
          to  be  implemented once full production has commenced. Ecomab is also
          working  other  Hydro facilities to expand their operations into other
          areas  of  Brazil,  and  also increase utilization of wood byproducts.

          Reclassifications
          -----------------
          Certain  of  the 2001 figures have been reclassified to conform to the
          2002  presentation.

          Management  Estimates
          ---------------------
          The  preparation of financial statements in conformity with accounting
          principles generally accepted in the United States of America requires
          management  to make estimates and assumptions that affect the reported
          amounts  of assets and liabilities and disclosure of contingent assets
          and  liabilities  at  the  date  of  the  financial statements and the
          reported  amount of revenues and expenses during the period presented.
          Actual  results  could  differ  from  those  estimates.

          The collectibility of accounts receivable and the determination of the
          lower  of  cost  and  net  realizable  value of inventory are based on
          management  estimates. Management reviews its estimates on a quarterly
          basis  and,  where  necessary,  makes  adjustments  prospectively.

          Revenue  Recognition
          --------------------
          The  Company  recognizes  sales when goods are shipped, and the title,
          risks  and rewards of ownership have been transferred from the Company
          to  the  customer.

          Cash  and  Cash  Equivalents
          ----------------------------
          The  Company  considers  all  highly liquid investments purchased with
          remaining  maturities  of three months or less to be cash equivalents.

          Concentration  of  Credit  Risk
          -------------------------------
          The  Company  places  its cash in what it believes to be credit-worthy
          financial institutions. However, cash balances may exceed FDIC insured
          levels  at  various  times  during  the  year.

          The  Company  grants  credit to customers throughout North America and
          routinely  assesses  the financial strength of them. As a consequence,
          concentrations  of  credit  risk  are  limited.


                                      - 9 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Allowance for Doubtful Accounts
          -------------------------------
          For  financial  reporting purposes, the Company utilizes the allowance
          method  of  accounting  for  doubtful  accounts.  The Company performs
          ongoing credit evaluations of its customers and maintains an allowance
          for  potential  credit losses. The allowance is based on an experience
          factor  and  review  of  current  accounts  receivable.  Uncollectible
          accounts  are  written  off against the allowance accounts when deemed
          uncollectible.

          Inventory
          ---------
          Inventory is recorded at the lower of cost or net realizable value, on
          a  first-in,  first-out  basis. Cost includes costs of material, labor
          and  manufacturing  overhead.

          Property  and  Equipment
          ------------------------
          Property  and  equipment  are stated at cost. Depreciation is provided
          for  in amounts sufficient to relate the cost of depreciable assets to
          operations  over their estimated service lives, on a declining balance
          and  straight-line  basis.  The  estimated  service  lives  used  in
          determining  depreciation  are  three  to four years for computers and
          five  years  for  furniture  and equipment. Leasehold improvements are
          amortized  over  the  shorter  of  the useful life of the asset or the
          lease  term.

          Maintenance  and repairs are charged to expense as incurred; additions
          and betterments are capitalized. Upon retirement or sale, the cost and
          related  accumulated  depreciation of the disposed assets are removed,
          and  any  resulting gain or loss is credited or charged to operations.

          Income  Taxes
          -------------
          Provisions  for  income taxes are based on taxes payable or refundable
          for  the  current  year  and  deferred  taxes on temporary differences
          between  the  amount of taxable income and pretax financial income and
          between  the  tax  bases  of assets and liabilities and their reported
          amounts  in  the  financial  statements.  Deferred  tax  assets  and
          liabilities  are  included  in  the  financial statements at currently
          enacted  income  tax  rates  applicable  to  the  period  in which the
          deferred  tax  assets  and  liabilities are expected to be realized or
          settled  as  prescribed by Statement of Financial Accounting Standards
          ("SFAS")  No.  109,  "Accounting  for Income Taxes." As changes in tax
          laws  or  rates  are  enacted, deferred tax assets and liabilities are
          adjusted  through  the  provision  for  income  taxes.

          Fair  Value  of  Financial  Instruments
          ---------------------------------------
          The  fair  values of the Company's cash, accounts receivable, accounts
          payable  and accrued liabilities approximate their carrying values due
          to  the relatively short periods to maturity of these instruments. The
          fair  value  of  the convertible debentures payable approximates their
          carrying  amount  due  to  the  fixed  interest rate of the debentures
          closely  approximating floating rates at the financial statement date.


                                     - 10 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001



NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Long-lived Assets
          -----------------
          Long-lived  assets  are  reviewed  for  impairment  whenever events or
          changes in circumstances indicate that the related carrying amount may
          not be recoverable. Recovery of assets to be held and used is measured
          by a comparison of the carrying amount of the assets to the future net
          cash  flows  expected to be generated by the asset. If such assets are
          considered to be impaired, the impairment to be recognized is measured
          by  the  amount by which the carrying amount of the assets exceeds the
          fair value of the assets. Assets to be disposed of are reported at the
          lower  of  the  carrying  amount  or fair value less the cost to sell.

          Translation of Foreign Currency
          -------------------------------
          The  Company's  functional  currency  is the United States dollar. The
          Company's  subsidiary,  ACL, operates in Canada and its operations are
          conducted  in  Canadian currency. However, its functional currency has
          been  determined  to  be  the  United  States  dollar.  The  method of
          translation  applied  is  as  follows:

          i)   Monetary  assets  and  liabilities  are translated at the rate of
               exchange  in  effect  at  the  balance  sheet  date.
          ii)  Non-monetary assets and liabilities are translated at the rate of
               exchange  in  effect  at  the  date  the  transactions  occurred.
          iii) Revenues  and  expenses are translated at the rate of exchange in
               effect  at  the  transaction  date.
          iv)  The  net  adjustment  arising from the translation is included in
               the  consolidated  statement  of  loss.

          Stock-Based  Compensation
          -------------------------
          SFAS  No.  123, "Accounting for Stock-Based Compensation," encourages,
          but  does  not  require,  companies  to  record  compensation cost for
          stock-based employee compensation plans at fair value. The Company has
          elected  to  continue to account for employee stock-based compensation
          using  the  intrinsic method prescribed in Accounting Principles Board
          Opinion  No.  25,  "Accounting  for  Stock  Issued  to Employees," and
          related  interpretations,  as  permitted by SFAS No. 123; accordingly,
          compensation  expense  for stock options is measured as the excess, if
          any,  of the quoted market price of the Company's stock at the date of
          the  grant  over the amount an employee must pay to acquire the stock.
          For  stock  options  issued  to  non-employees,  the issuance of stock
          options  is accounted for based on the fair value of the consideration
          received or the fair value of the equity instruments issued, whichever
          is more reliably measurable. Compensation expense is recognized in the
          financial statements for stock options granted to non-employees in the
          period  in  which the consideration is obtained from the non-employee.


                                     - 11 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001



NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Stock-Based Compensation (continued)
          ------------------------------------
          Compensation  expense  is  recognized  in the financial statements for
          issuances  of  common  shares to employees and non-employees that have
          rendered  services  to the Company. Compensation expense is recognized
          based  on the fair value of the services rendered or the fair value of
          the  common  stock,  whichever  is  more  readily  determinable.

          Earnings  Per  Share
          --------------------
          SFAS  No.  128,  "Earnings  Per Share," requires presentation of basic
          earnings  per  share  ("Basic  EPS")  and  diluted  earnings per share
          ("Diluted  EPS").

          Basic  EPS  is  computed  by  dividing  earnings  available  to common
          stockholders  by  the  weighted-average  number  of outstanding common
          shares during the period. The weighted average number of common shares
          outstanding  for computing Basic EPS was 60,854,801 for the year ended
          May  31,  2002.

          Diluted  EPS  reflects  the  potential  dilution  that  could occur if
          securities  or other contracts to issue common stock were exercised or
          converted  into  common  stock.  The weighted average number of common
          shares outstanding for computing Diluted EPS, including dilutive stock
          options  and warrants, was 62,688,130 for the year ended May 31, 2002.
          For  the  year  ended  May  31,  2002,  approximately  650,000  shares
          attributable  to the exercise of outstanding options and warrants were
          excluded  from  the  calculation of Diluted EPS because the effect was
          antidilutive.  No  adjustments were made to reported net income in the
          computation  of  EPS.

          Warrants  Issued  in  Conjunction  With  Convertible  Debt
          ----------------------------------------------------------
          The  Company  allocates  the  proceeds  received from convertible debt
          between  the liability and the warrants issued in conjunction with the
          debt,  based  on  their relative fair values, at the time of issuance.
          The amount allocated to the warrants is recorded as additional paid-in
          capital  and  as  a  discount  to  the  related  convertible debt. The
          discount  is  amortized  to interest expense on a yield basis over the
          term  of  the  related  convertible  debt.


                                     - 12 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001



NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          Recent  Accounting  Pronouncements
          ----------------------------------
          In July 2001, the Financial Accounting Standards Board ("FASB") issued
          SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and
          Other  Intangible  Assets."  SFAS  No.  141  requires  the  use of the
          purchase  method of accounting and prohibits the use of the pooling of
          interests  method  of  accounting  for business combinations initiated
          after  June  30,  2001.  SFAS  No.  141 also requires that the Company
          recognize  acquired  intangible  assets  apart  from  goodwill  if the
          acquired intangible assets meet certain criteria. SFAS No. 141 applies
          to  all  business  combinations initiated after June 30, 2001, and for
          purchase  business  combinations  completed  on or after July 1, 2001.
          Upon  adoption  of  SFAS  No.  142,  it also requires that the Company
          reclassify,  if  necessary,  the carrying amounts of intangible assets
          and  goodwill,  based  on  the  criteria in SFAS No. 141. SFAS No. 142
          requires,  among  other  things,  that  companies  no  longer amortize
          goodwill, but instead test goodwill for impairment, at least annually.
          In addition, SFAS No. 142 requires that the Company identify reporting
          units  for  the  purpose  of assessing potential future impairments of
          goodwill,  reassess  the  useful  lives  of  other existing recognized
          intangible assets, and cease amortization of intangible assets with an
          indefinite  useful life. Adoption of this statement is not expected to
          be  material.

          In  July  2001,  the  FASB  issued SFAS No. 143, "Accounting for Asset
          Retirement  Obligations."  SFAS  No. 143 is effective for fiscal years
          beginning  after June 15, 2002, and will require companies to record a
          liability  for asset retirement obligation in the period in which they
          are  incurred,  which  typically  could  be upon completion or shortly
          thereafter.  The  FASB  decided to limit the scope to legal obligation
          and  the  liability  will  be  recorded  at  fair value. The effect of
          adoption  of  this standard on the Company's results of operations and
          financial  position  is being evaluated. Adoption of this statement is
          not  expected  to  be  material.

          In  August  2001,  the  FASB  issued SFAS No. 144, "Accounting for the
          Impairment  or  Disposal of Long-Lived Assets," which is effective for
          fiscal  years  beginning after December 15, 2001. It provides a single
          accounting  model for long-lived assets to be disposed of and replaces
          SFAS  No.  121 "Accounting for the Impairment of Long-Lived Assets and
          Long-Lived  Assets  to Be Disposed Of." The effect of adoption of this
          standard on the Company's results of operations and financial position
          is  being  evaluated. Adoption of this statement is not expected to be
          material.


                                     - 13 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001



NOTE  2 - INVENTORY

          Inventory  consists  of  the  following:

                                                            May  31,
                                                       -----------------
                                                         2002     2001
                                                       -------  --------
            Logs                                       $     -  $ 91,982
            Rough cut lumber                                 -   107,910
                                                       -------  --------
                                                       $     -  $199,892
                                                       =======  ========

NOTE 3 -  DEFERRED FINANCING COSTS

          In  connection  with  the  sale  of $200,000 convertible debentures on
          December 4, 2001, the Company incurred financing fees in the amount of
          $33,000.  These  fees  are  amortized  over  the  12-month  life  of
          debentures.  The  unamortized balance of these fees was $19,189 at May
          31,  2002.

NOTE 4 -  ADVANCE ON EQUIPMENT PURCHASES

          Advance on equipment purchases consist of the following:

<TABLE>
<CAPTION>
                                                                        May 31,
                                                                   ------------------
                                                                     2002      2001
                                                                   --------  --------
<S>                                                                <C>       <C>
          Deposit for construction and acquisition
          of an Aquatic Timber Harvesting Machine from Affiliate  $100,000  $100,000
          Deposit via issuance of 2,500,000 shares of
          stock in lieu of cash for the purchase
          of a fleet of boats, valued at                           125,000         -
                                                                   --------  --------
                                                                   $225,000  $100,000
                                                                   ========  ========
</TABLE>

NOTE 5 -  NOTES RECEIVABLE

          During  the  year  ended  May 31, 1999, the Company loaned $105,450 to
          three Directors for the exercise of Company stock options. These loans
          are  unsecured, do not bear interest and are due on July 24, 2002. The
          notes  receivable  were  recorded as a reduction of additional paid-in
          capital  in  fiscal  1999.


                                     - 14 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001



NOTE 6 -  PROPERTY AND EQUIPMENT

          Property  and  equipment  is  summarized  as  follows  at:

                                                         May 31,
                                                     ----------------
                                                      2002     2001
                                                     -------  -------
          Computer equipment                         $ 3,931  $ 3,931
          Furniture and equipment                     11,701   11,701
          Leasehold improvements                       4,853    4,853
                                                     -------  -------
                                                      20,485   20,485
          Less: accumulated depreciation              12,401   10,128
                                                     -------  -------
          Property and equipment, net                $ 8,084  $10,357
                                                     =======  =======

          Depreciation expense was $2,254 and $2,647 for the years ended May 31,
          2002  and  2001,  respectively.

NOTE 7 -  DUE TO STOCKHOLDER

          Due  to  stockholder consists of accrued salaries due to the Company's
          president.

NOTE 8 -  CONVERTIBLE NOTES AND WARRANTS

          Convertible  debentures  payable  bear  interest  at  12%,  due  on  a
          quarterly  basis,  and are secured by a first priority interest in the
          Company's  accounts  receivable,  inventory,  fixed assets and general
          intangibles.  Debentures  aggregating  $503,300  at  May 31, 2002, are
          convertible  into  the  Company's common shares at the lesser of $0.60
          per  share  or  70% of the average of the lowest three inter-day sales
          prices  during  the  twenty  trading  days  immediately  preceding the
          conversion  date.  The remaining $317,500 of the debentures at May 31,
          2002  are  convertible  into common shares at the lesser of $0.083 per
          share  or  67.67%  of  the average of the lowers three inter-day sales
          prices  during  the  twenty  days immediately preceding the conversion
          date. If unpaid when due, $503,300 of the debentures can automatically
          convert  to common shares if certain conditions are met. The remaining
          $317,500  of  the  debentures  do  not automatically convert to common
          shares  on  their  due dates. $620,800 of the total debentures were in
          default  at  May  31,  2002.


                                     - 15 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001



NOTE 8 -  CONVERTIBLE NOTES AND WARRANTS (Continued)

          The debentures are due as follows:

<TABLE>
<CAPTION>
                                                    Outstanding                            Outstanding
                  Due Date                          May 31, 2001    Issued    Converted   May 31, 2002
          ------------------------                 --------------  --------  -----------  -------------
<S>                                                <C>             <C>       <C>          <C>
          May 4, 2002                              $      25,800   $      -  $  (22,500)  $       3,300
          September 29, 2001                             500,000          -           -         500,000
          January 25, 2002                                55,000          -     (37,500)         17,500
          March 14, 2002                                 100,000          -           -         100,000
          December 4, 2002                                     -    200,000           -         200,000
                                                   --------------  --------  -----------  -------------
                                                         680,800   $200,000  $  (60,000)  $     820,800
                                                                   ========  ===========  =============

          Unamortized discount related
          to warrants granted in conjunction
          with the issuance of the convertible
          debentures payable                             (20,241)
          Unamortized discount related to
          beneficial conversion option on the
          convertible debentures payable                 (85,742)
                                                   --------------
                                                   $     574,817
                                                   ==============
</TABLE>

          In  conjunction  with  the  above  debentures, the Company granted the
          following  common  share  purchase  warrants to the debenture holders:

<TABLE>
<CAPTION>
                              Exercise
                              Price per  Outstanding                      Outstanding
           Expiration Date     Share     May 31, 2001  Issued  Exercised  May 31, 2002
           -----------------  ---------  ------------  ------  ---------  ------------
<S>                           <C>        <C>           <C>     <C>        <C>
          May 4, 2003         $    0.69       250,000       -          -       250,000
          September 29, 2003       0.69       250,000       -          -       250,000
          January 25, 2003         0.35        50,000       -          -        50,000
          March 14, 2003           0.35        50,000       -          -        50,000
          December 4, 2003         0.35             -  50,000          -        50,000
                              ---------  ------------  ------  ---------  ------------
                                              600,000  50,000          -       650,000
                              =========  ============  ======  =========  ============
</TABLE>

          The convertible debentures all contain a beneficial conversion feature
          as  the  debentures  are convertible into common shares at prices that
          are less than the market price at the date of issuance. All debentures
          and  warrants  can  be  exercised anytime after issuance. Therefore, a
          total  of  $188,480  for  beneficial conversion features in connection
          with  the  debentures  and warrants have been charged to operations in
          the  current  fiscal  year.  Of  this  amount,  $105,983  relates  to
          debentures  issued  during  the  year  ended  May  31,  2002.


                                     - 16 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001



NOTE 8 -  CONVERTIBLE NOTES AND WARRANTS (Continued)

          In  connection  with  these  convertible  debentures,  the Company had
          $62,655  and  $14,513  of  accrued  interest at May 31, 2002 and 2001,
          respectively.

NOTE 9 -  COMMITMENTS AND CONTINGENCIES

          Operating leases
          ----------------
          The Company leases certain office equipment for varying periods and
          expects that in the normal course of business, leases will be renewed
          or replaced by other leases.

          The following is a schedule of future minimum lease payments for
          operating leases that had initial or remaining noncancelable lease
          terms in excess of one year as of May 31, 2002:

          2003                                         $6,024
          2004                                          6,024
          2005                                          5,542
          2006                                          3,433
                                                      -------
                                                       21,023
                                                      =======

          The  Company  leases  office  space  on  a  month-to-month  basis  for
          approximately  $509  (CDN  $798)  per  month.

          Rent  expense  under  operating leases for the year ended May 31, 2002
          was  $12,370.

          Service  and  Consulting  Agreements
          ------------------------------------
          The Company has entered into various service and consulting agreements
          as follows:

          -    A  three-year  employment  agreement commencing November 1, 2000,
               providing  for  an  annual  salary  of  $107,134,  plus  certain
               benefits. The agreement calls for a minimum increase in salary of
               10%  per  annum.

          -    A  one-year  agreement  commencing January 1, 2002, and renewable
               annually,  providing  for  an  annual  fee  of  $36,000.

          -    A  five-year  consulting  agreement  for  investor  relations
               commencing January 1, 2001, providing for annual fees of $36,400,
               plus  100,000  shares  of  the  Company's  common stock, and 2.5%
               commission  on  sales  of  the  Company's  common  stock.


                                     - 17 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001


NOTE 9 -  COMMITMENTS AND CONTINGENCIES (Continued)

          License  Agreement
          -----------------
          On  September  28,  2001,  the  Company  signed  an  exclusive license
          agreement  with  the  Company's  President for the use of his Patented
          Robotic  Technology.  The  technology  will  remain  exclusive  to the
          Company  as long as the Company purchases one robotic system per year.
          If  such  purchase  does  not  occur, an exclusivity fee of 10% of the
          market  value  of one ATH 120 will be paid to the President. As of May
          31,  2002,  no  purchase  had  occurred.

          Pursuant  to  a  manufacturing  agreement  with  a  company  that  is
          controlled  by  the Company's CEO and largest shareholder, the Company
          is  committed  to  providing  the  financing  for the construction and
          acquisition  of  an  Aquatic  Timber  Harvesting  Machine at a cost of
          $750,000.

          During  the  year ended May 31, 2001, the Company advanced $100,000 to
          finance the commencement of the construction of the new aquatic timber
          harvester  (see  Note  4).

NOTE 10 - COMMON STOCK

          During  the  fiscal  year  ended  May  31,  2002 and 2001, the Company
          entered  into various transactions that include issuance of its common
          stock.  The number of shares issued in each transaction was determined
          through  negotiations  among the parties. The per-share value of stock
          exchanged varied among transactions that were similar in nature, based
          on  the  time  the terms were agreed upon by the parties. Common stock
          was  valued  at  market.

NOTE 11 - STOCK OPTIONS

          On  September 24, 2001, the Company issued 2,500,000 options for legal
          services  to  be rendered to the Company. The options have an exercise
          price  of  $.016,  vest  immediately and expire 90 days from issuance.
          $28,074,  the market value of these options, was charged to operations
          during the current fiscal year. These options were exercised as of May
          31,  2002.

          On January 15, 2002, the Company issued 1,905,000 options for investor
          relations  services,  to  be rendered to the Company from January 15 -
          July  15,  2002.  The  options  have  an exercise price of $.015, vest
          immediately  and  expire  90 days from issuance. $16,110 of the market
          value  of  these options, was charged to operations during the current
          fiscal year, $2,265 is being amortized to operations for the remainder
          of  this  contract.  These  options were exercised as of May 31, 2002.


                                     - 18 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001


NOTE 11 - STOCK OPTIONS (Continued)

          On  March  2,  2002, the Company issued 4,800,000 options for investor
          relations  services to be rendered to the Company. The options have an
          exercise  price  of  $.05,  vest  immediately  and expire 90 days from
          issuance.  $91,636,  the market value of these options, was charged to
          operations  during  the  current  fiscal  year.  These  options  were
          outstanding  as  of  May  31,  2002.

          On  March  19,  2002,  the  Company  issued  200,000 options for legal
          services  to  be rendered to the Company. The options have an exercise
          price  of  $.095,  vest  immediately and expire 90 days from issuance.
          $13,878,  the market value of these options, was charged to operations
          during the current fiscal year. These options were exercised as of May
          31,  2002.

          The  following table summarizes the option activity for the year ended
          May  31,  2002:

<TABLE>
<CAPTION>
                                                                                Weighted-       Weighted-
                                                Number of                        Average      Average Fair
                                                 Shares     Exercise Price   Exercise Price       Value
                                               -----------  ---------------  ---------------  -------------
<S>                                            <C>          <C>              <C>              <C>
          Outstanding at May 31, 2001                   -   $             -  $             -  $           -
          Granted                               9,405,000     0.015 - 0.095            0.035          0.050
          Exercised                            (4,605,000)    0.015 - 0.095            0.019          0.035
          Canceled                             (4,800,000)             0.05             0.05          0.035
                                               -----------  ---------------  ---------------  -------------
          Outstanding at May 31, 2002                   -                 -                -              -
                                               -----------  ---------------  ---------------  -------------
          Options exercisable at May 31, 2002           -   $             -  $             -  $           -
                                               ===========  ===============  ===============  =============
</TABLE>

          The  Company  uses  the  intrinsic  value  method  (APB Opinion 25) to
          account  for  its  stock  options  granted to officers, directors, and
          employees.  Under  this  method, compensation expense is recorded over
          the  vesting period based on the difference between the exercise price
          and  quoted  market  price on the date the options are granted. During
          the  current  fiscal  year,  no  options  were  granted  to  officers,
          directors  or  employees.

          For  the  year  ended  May  31, 2002, the Black Scholes option-pricing
          model  with a risk-free interest rate of 1.71 - 2.03%, a volatility of
          348%,  zero  dividend  yield  and an expected life of 3 months for the
          options  was  used  to determine the fair value of options issued. The
          weighted  average fair value of the options issued during the year was
          $0.035.

NOTE 12 - RELATED PARTY TRANSACTIONS

          The  Company  has  a  service agreement with Kathy Ackles, wife of the
          president, for bookkeeping and administrative services for $36,000 per
          annum  (see  Note  9).


                                     - 19 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001



NOTE 12 - RELATED PARTY TRANSACTIONS (Continued)

          The  Company  has  an  employment  agreement  with  Gary  Ackles,  the
          Company's  president,  providing  for an annual salary of $107,134 and
          certain  benefits  (see  Note  9).

NOTE 13 - INCOME TAXES

          The  components  of  the  provision  for  income taxes are as follows:

          Current Tax Expense
            U.S. Federal                                   $            -
            State and Local                                             -
                                                           --------------
          Total Current                                                 -
                                                           --------------

          Deferred Tax Expense
            U.S. Federal                                                -
            State and Local                                             -
                                                           --------------
          Total Deferred                                                -
                                                           --------------

          Total Tax Provision (Benefit) from
           Continuing Operations                           $            -
                                                           ==============

          The  reconciliation  of  the  effective income tax rate to the Federal
          statutory  rate  is  as  follows  for  the  years  ended December 31,:

                                             2002         2001
                                         ------------  -----------

          Federal Income Tax Rate             (34.0)%      (34.0)%
          Effect of Valuation Allowance         34.0%        34.0%
                                         ------------  -----------
          Effective Income Tax Rate              0.0%         0.0%
                                         ============  ===========

          At  May  31,  2002,  the  Company  had  net  carry-forward  losses  of
          approximately  $1,960,558.  Because  of  the  current  uncertainty  of
          realizing the benefit of the tax carry-forwards, a valuation allowance
          equal  to the tax benefit for deferred taxes has been established. The
          full realization of the tax benefit associated with the carry-forwards
          depends  predominantly  upon the Company's ability to generate taxable
          income  during  the  carry-forward  period.

          Deferred  tax  assets  and  liabilities  reflect the net tax effect of
          temporary  differences  between  the  carrying  amount  of  assets and
          liabilities  for  financial  reporting  purposes  and amounts used for
          income  tax purposes. Significant components of the Company's deferred
          tax  assets  and  liabilities  are  as  follows:


                                     - 20 -
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.
                                 AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2002 AND 2001

NOTE 13 - INCOME TAXES (Continued)

          Deferred Tax Assets
            Loss Carry-forwards                      $ 666,590
            Less:  Valuation Allowance                (666,590)
                                                     ----------
          Net Deferred Tax Asset                     $       -
                                                     ==========

          Net  operating  loss  carry-forwards  expire  starting in 2011 through
          2022.  Per  year  availability  is  subject  to  change  of  ownership
          limitations  under  Internal  Revenue  Code  Section  382.

NOTE 14 - SEGMENT INFORMATION

          During  fiscal  years  ended  May 31, 2002 and 2001, respectively, the
          Company  had  foreign  operations  in Canada and Brazil. The following
          geographic area data for trade revenues is based on product or service
          delivery  location,  and  property,  plant,  and equipment is based on
          physical  location.

          Revenues  from  external  customers  at  May  31,:

                                                        2002      2001
                                                      --------  --------
          United States                               $      -  $ 86,894
          Canada                                             -         -
          Brazil                                        32,904   193,148
                                                      --------  --------
                                                      $ 32,904  $280,042
                                                      ========  ========

          Segment assets:

                                                        2002      2001
                                                      --------  --------
          United States                               $      -  $      -
          Canada                                       274,733   398,067
          Brazil                                         5,121     6,401
                                                      --------  --------
                                                      $279,854  $404,468
                                                      ========  ========

NOTE 15 - SUBSEQUENT EVENTS

          Subsequent  to  May  31, 2002, the Company issued the following common
          shares:

          -    4,800,000  shares,  valued  at  $191,950,  for  services;

          -    900,000  shares,  valued  at  $27,000, to board members for their
               services;

          -    660,060  shares  for  $10,000  cash;  and

          -    1,000,000  shares  for  the  conversion  of  $10,000  debentures.


                                     - 22 -
<PAGE>