U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB/A
                                Amendment No. 2

(Mark One)

[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.)

2504 - 43rd Street, suite 5, Vernon, British Columbia, Canada      VIT  6L1
-----------------------------------------------------------------------------
(Address of principal executive offices)                           (Zip Code)

Registrant's Telephone number, including area code: (250) 558-4216
                                                    --------------

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-
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                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS

AQUATIC CELLULOSE INTERNATIONAL CORP.

         Aquatic Cellulose International Corp. ("Aquatic") 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, up until March
27, 2003, was a forest-based company focusing on accessing and recovering
submerged timber. 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 was the procurement of contracts for the salvage
and harvest of submerged timber and the sale of lumber derived from such timber.

         Aquatic harvested 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.

         Aquatic used a simple way to obtain timber and the rights to harvest
timber in Canada. First, Aquatic researched a potential site to ensure
sufficient timber resources exist. If the reserve was adequate, Aquatic met 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 was determined, Aquatic applies for an
appropriate salvage permit. Aquatic had 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.

         In foreign countries Aquatic met with all appropriate government
officials to receive approval from the host country to evaluate its inundated
(flooded) forests. Once approval was received, Aquatic evaluated the target site
to ensure sufficient volumes of timber exist. Then Aquatic formed 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 harvested timber mechanically using the ATH60, a harvesting
system that is capable of harvesting approximately thirty to forty trees per
day.

         Aquatic's industry consisted of two primary sources of underwater
timber. The first was standing timber that had been inundated 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 was salvage timber. This source
consisted of those trees that have already been cut and have sunk to the bottom
of the waterway in 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.

         Aquatic did an on-sight evaluation of the Tucurui reservoir in Brazil,
South America, which covered over an estimated 100,000 hectares (one hectare
equals approximately 2.6 acres) of old growth rain forest. Aquatic, during



                                      -2-
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1977, in an attempt to harvest the reservoir, formed an alliance with Sulpam
Madeira Ltda, a Brazilian company with the harvesting right for the reservoir,

         During 2001, it became evident that Sulpam was unable to provide the
necessary support to harvest the reservoir. This resulted in Aquatic temporarily
shutting down its Brazilian operations while attempting to locate and purchase
the necessary water based equipment and the hiring of local mills to process the
harvested logs into lumber. Aquatic continued to operate the Brazil operations
as best as it could under the harvesting rights held by Sulpam which was still
in place.

(See subsequent events for additional updates.)

TECHNOLOGICAL INNOVATIONS

         Aquatic's timber harvesting system consisted 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 consists of 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.

         All three technologies were incorporated in the development and
construction of a fully functional unit for log salvage operations called the
ATH-60. The ATH-60 was the equipment harvesting timber at the AQCI's Brazil
project.

COMPETITION

         Aquatic competed for customers with other timber companies, many of
which have substantially greater assets and resources than those of AQCI. Major
companies dominate the timber industry and have long-standing distribution and
marketing relationships, which operated to the disadvantage of Aquatic. However,
because Aquatic accessed and supplied a unique alternate wood source it felt
that a niche market could have been developed.

MARKETING AND DISTRIBUTION PROCESS

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

          o    the product is first marketed through wood distributors, which
               provide Aquatic with purchase orders;

          o    wood is then harvested and transported to a primary milling
               facility where the wood is cut to rough sawn lumber;

          o    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;

                                      -3-
<PAGE>

          o    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");

          o    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.

SUBSEQUENT EVENTS (Subsequent to May 31, 2002)

          o    On February 20th, 2003 William Stephaniuk ceased his association
               with AQCI and no longer serves as Chief Operations Officer.

          o    On Feb 28th, 2003 AQCI cancelled the arrangement regarding the
               planned purchase of the fleet of Boats owned by Raymond Lefebvre.
               The agreement to cancel the 2,500,000 shares of common stock,
               that were valued at $125,000, held as deposit the equipment has
               been honored, however, AQCI has yet been unable to retrieve the
               restricted share certificates due to the untimely death of Mr.
               Raymond Lefebvre.

          o    On March 26th, 2003 Gary J. Ackles resigned as Director,
               President and CEO of AQCI and was succeeded by Sheridan B.
               Westgarde.

          o    Following March 27th, 2003 AQCI terminated its operations
               pertaining to the recovery of underwater timber to focus business
               efforts on the following: 1) pursue the acquisition of a revenue
               generating company or assets in the oil and gas industry and 2)
               the potential exploitation of the ATH large scale underwater
               technology (Now called Tiger.Lynk(TM)).

          o    On April 1st, 2003 AQCI acquired a loan in the amount of $44,000
               from Legacy Systems Corporation owned by Mr. Ackles. As security
               for this loan AQCI pledged the ATH-120 mechanical assembly
               constructed and stored at Beaver Manufacturing in Kamloops
               British Columbia.

          o    On May 31st, 2003 AQCI's activities in Brazil, including
               personnel and maintenance of the timber harvesting leases, was
               terminated.

          o    On May 31st 2003 all manufacturing agreements with Gary J.
               Ackles, owner of the ATH robotic technology, were also cancelled.

          o    On May 21st, 2003 AQCI signed a Memorandum of Understanding with
               Legacy Systems Corp., owned by AQCI's former president Gary J.
               Ackles, to merge AQCI with Legacy and the Tiger.Lynk(TM) robotic
               technology, also patented and owned by Mr. Ackles.

          o    AQCI's service agreement with Kathy Ackles, wife of the former
               president, for bookkeeping and administrative services for
               $36,000 per annum expired as of June 1st, 2003.

          o    On September 5th, 2003 AQCI and Legacy signed an initial
               Memorandum of Understanding followed by a Letter Of Intent (LOI)
               with Century Resources Inc. ("Century") of Houston Texas, owned
               by Edward R. DeStefano, for the acquisition of Century by AQCI.
               These latest agreements with Century negate and preclude all
               other agreements between Legacy, Century and AQCI.

          o    On December 20th, 2003 Mr. Shane Kerpan resigned as AQCI's
               Secretary and Treasurer.

          o    On February 24th, 2004 Mr. Claus Wagner-Bartak resigned as AQCI's
               Director.

                                      -4-
<PAGE>

GOING CONCERN

         The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
2 to the consolidated financial statements, the Company has a working capital
deficiency of $1,042,762 and an accumulated deficit of $5,907,321 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 its ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

EMPLOYEES

         AQCI employed a total of four full-time employees in the corporate
office and one full time employee in Brazil at May 31, 2002. Presently there is
only one full-time consultant.

ITEM 2.  DESCRIPTION OF PROPERTY

         As of August 2003, AQCI's offices are located at 2504 43rd Street,
Suite 5, Vernon, British Columbia, V1T6L1. The lease is a month to month lease
at $580.00 per month.

         Prior to August 2003, AQCI's offices were located at 3704 32nd Street,
Suite 301 Vernon, British Columbia, VIT 5N6. Annual lease payments under this
lease was $12,370 per year.


ITEM 3.  LEGAL PROCEEDINGS

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


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

         None

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         Our common stock currently trades on the Pink Sheets, 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

                                      -5-
<PAGE>

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, AQCI 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 AQCI's Common Stock.

RECENT SALES OF UNREGISTERED SECURITIES


         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 31st, 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 31st, 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 31st, 2001, Aquatic issued 100,000 shares of restricted
stock to Mathew 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." 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 5th, 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.

                                      -6-
<PAGE>

         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.

         Prior to May 31st , 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 4th, 2000, Aquatic issued two convertible debentures of $250,000
each for a aggregate of $500,000 in accordance with ss. 4(2) and Rule 506 under
the Securities Act of 1933, as amended

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

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

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

         On December 4th, 2001 Aquatic issued two convertible debentures of
$100,000 in cash each for an aggregate of $200,000 in accordance with ss. 4(2)
and Rule 506 under the Securities Act of 1933, as amended.

WARRANTS AND OPTIONS ISSUED (THE INVESTORS OF THE SECURITIES WERE ACCREDITED
INVESTORS).

         As of July 31st , 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


                                      -7-
<PAGE>

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 September 27th, 2000, Aquatic issued a total of 250,000 warrants.
Each warrant allows the holder to purchase one 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 ss. 4(2) and Rule 506 under the
Securities Act of 1933, as amended.

         On January 25th, 2001, Aquatic issued common stock purchase warrants
for the right to purchase 75,000 shares of Common Stock of AQCI at $0.35 per
share and expire January 25, 2004. These warrants were issued in accordance with
ss. 4(2) and Rule 506 under the Securities Act of 1933, as amended (the
"Securities Act").

         On March 14th, 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, 2004. These warrants were issued in accordance with ss.
4(2) and Rule 506 under the Securities Act of 1933, as amended.

         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 ss.
4(2) and Rule 506 under the Securities Act of 1933, as amended.

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. Reorganize the business of the company to shift from the
                  underwater wood business to that of oil & gas by acquiring
                  long-term, producing oil and natural gas property assets.

                  2. In addition, the company will seek to acquire the
                  Tiger.Lynk(TM) large scale manipulator technology, FORMERLY
                  KNOWN AS THE ATH TECHNOLOGY, as a wholly owned subsidiary. The
                  Company would then seek to develop the opportunities for the
                  technology in multiple industry sectors ( - Oil & Gas - Harbor
                  & Waterway Remediation - Military - Mining & Construction )


         Aquatic's long-term objectives are as follows:

                  1. Seek out and develop new oil and gas property assets
                  combined with balanced investment in oil and gas property
                  development drilling and exploitation of proven reserves.

                  2. With successful acquisition of the Tiger.Lynk(TM) large
                  scale manipulators, the company will pursue its continued
                  development by either maintaining the company as a wholly
                  owned subsidiary, developing the market and sales of the
                  technology or, pursuing a possible spin-off of the subsidiary
                  with the company holding a significant ownership of the new
                  entity.


                                      -8-
<PAGE>

                  3. Pursue other resource and technology companies currently
                  operating in the private sector who may be interested in being
                  acquired, merging or forming joint ventures with Aquatic.


         A merger will most likely require further investment, marketing and
sales development, associated costs of commercializing merged technologies, as
well as, additional personnel to fill critical roles and responsibilities.


         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
ceased all operations other than seeking potential merger candidates. 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 has been eliminated with the exception of one
full-time employee.

                              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 had to
temporarily shut down parts of it Brazilian operations due to the need to
replace its downstream infrastructure and second, Aquatic had substantially
reduced its Brazil operations due to a lack of working capital. As of March
2003, the Brazil operations have been terminated.

         Cost of sales for the year ended May 31, 2002 was $142,401 compared to
$750,926 for the year ended May 31, 2001, for a decrease of $608,525 or 81%. 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
$1,273,399 and $1,499,345 for the year ended May 31, 2001 for a decrease of
$255,946 or 15%. The decrease in operating costs is mainly attributable to a
decrease in financing fees of $397,961 offset by an increase in selling, general
and administrative expenses of $152,309, which is a direct result of the
temporary shutdown of Aquatic's Brazil operations.

         The Company incurred a loss in fiscal 2002 of $1,394,508 compared with
a loss of $1,970,229 in fiscal 2001.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash used in operating activities in fiscal 2002 amounted to
$320,577 compared to $738,172 in fiscal 2001. The decreased use of cash is
mainly attributable to the temporary shut down of the Brazil operations due to a
lack of a downstream infrastructure and a lack of working capital.

         Financing activities generated net cash of $269,790 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 and the exercise of options for
$50,000 less financing costs of $28,210.

         At May 31, 2002 the Company had cash of $10,838, accounts receivable of
$nil, inventory of $nil and prepaid expenses of $16,774 and deferred costs of
$19,189 for total current assets of $46,801. Inventory decreased from $199,892
and accounts receivable decreased from $54,963 at May 31, 2001 as a result of
the temporary shut down of the Brazil operations due to a lack of working
capital. Concerning the decrease in inventory, during the fiscal year ended May
31, 2002, as discussed previously, AQCI shut down its underwater timber
harvesting operations in Brazil and

                                      -9-
<PAGE>

Canada due to a lack of working capital. To settle some outstanding claims, the
Company bartered inventory, valued at $224,725 in return for services, valued at
$224,725, resulting in no gain or loss to the Company.


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.

         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

                                      -10-
<PAGE>

ITEM 8A. CONTROL AND PROCEDURES

(a)      Evaluation of Disclosure Controls and Procedures. Our Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of our disclosure controls and procedures (as such term is defined in Rules
13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) as of the end of the period covered by this annual report (the
"Evaluation Date"). Based on such evaluation, such officers have concluded that,
as of the Evaluation Date, our disclosure controls and procedures are effective
in alerting them on a timely basis to material information relating to our
Company (including our consolidated subsidiaries) required to be included in our
reports filed or submitted under the Exchange Act.

(b)      Changes in Internal Controls over Financial Reporting. During the most
recent fiscal year, there have not been any significant changes in our internal
controls over financial reporting or in other factors that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.





                                      -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        *1         47                  President & Director
----------------------------    ------------------- -------------------------
Shane Kerpan          *1          1                  Secretary & Treasurer
----------------------------    ------------------- -------------------------
Claus Wagner-Bartak   *2         63                  Director

----------------------------    ------------------- -------------------------

*1  Resigned in 2003
*2  Resigned in 2004

         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 1st,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.
Mr. Ackles resigned as Director, President and CEO on March 26th, 2003.

         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. Mr. Shane
Kerpan resigned as the Secretary and Treasurer on December 20th, 2003.


                                      -12-
<PAGE>

         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.
Mr. Claus Wagner-Bartak resigned as Director on February 24th, 2004.

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, 2002, 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, 2002 to the Company's Chief Executive Officer, Secretary and
Director during such period.

                             EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>

                                                                              Long Term Compensation
Payouts                             Annual Compensation                               Awards
---------               ----------------------------------------  -------------------------------------------------------
(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 *1
President/CEO            2000      $ 84,000        0         0       0                   0           0           0
                         2001      $ 84,000        0         0       0           1,202,500           0           0
                         2002      $107,134        0         0       0                   0           0           0

Shane Kerpan *1
Secretary                2000             0        0         0       0                    0          0           0
                         2001             0        0         0       0              117,500          0           0
                         2002             0        0         0       0                    0          0           0

Claus Wagner-Bartak
Director    *2           2000             0        0         0       0                    0          0           0
                         2001             0        0         0       0              105,250          0           0
                         2002             0        0         0       0                    0          0           0
</TABLE>

*1  Resigned in 2003.
*2  Resigned in 2004.

                                      -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 called 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 22nd, 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

To the date of this filing these options have not been exercised.

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>                              <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>
</TABLE>

(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.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION

         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
$.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."


         The Company has a service agreement with Kathy Ackles, wife of the
president, for bookkeeping and administrative services for $36,000 per annum.
(See SUBSEQUENT EVENTS (Subsequent to May 31, 2002)


         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
SUBSEQUENT EVENTS (Subsequent to May 31, 2002)



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)

                                      -15-
<PAGE>

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)
10.2     Form of Registration Rights Agreement. (2)
10.3     Form of 12% Convertible Debenture.  (2)
10.4     Form of Security Agreement.  (2)

23.1     Consent of KPMG LLP

31.1     Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)
            (Section 302 of the Sarbanes-Oxley Act of 2002)
31.2     Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)
            (Section 302 of the Sarbanes-Oxley Act of 2002)
32.1     Certification of the Chief Executive Officer pursuant to 18
            U.S.C.ss.1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
32.2     Certification of the Chief Financial Officer pursuant to 18
            U.S.C.ss.1350 (Section 906 of the Sarbanes-Oxley Act of 2002)

---------------
(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.

(B)      REPORTS ON FORM 8-K:

         Form 8-K dated February 28, 2002 reported that on February 28, 2002
AQCI terminated KPMG LLP for financial reasons and engaged Merdinger, Fruchter,
Rosen & Corso, P.C., to serve as the Company's independent public

ITEM 14. PRINCIPAL ACCOUNT FEES AND SERVICES

1) AUDIT FEES & AUDIT-RELATED FEES

During fiscal year 2000, the Company's principle accountant billed $36,027.97 in
fees that were directly associated with the preparation of annual audit reports,
quarterly reports, review and preparation regarding Form 10SB filing and review
and preparation regarding comments by the Securities Exchange Commission.

During fiscal year 2001, the Company's principle accountant billed $49,919.07 in
fees that were directly associated with the preparation of annual audit reports,
quarterly reports, review and preparation regarding Form SB-2 filing and review
and research & advise on accounting and reporting matters.

During fiscal year 2002, the Company's principle accountant billed $39,322.50 in
fees that were directly associated with the preparation of annual audit reports,
quarterly reports, review and preparation regarding SEC comment letters
pertaining to a Form SB-2 filing and review and discussion regarding 8K and
newly appointed auditors.

                                      -16-
<PAGE>

2) TAX FEES

During fiscal year 2000, the Company's principle accountant billed $551.05 in
fees that were directly associated with the preparation of tax filings.

During fiscal year 2001, the Company's principle accountant billed $5,938.50 in
fees that were directly associated with the preparation of tax filings.

During fiscal year 2002, there were no fees billed associated with the
preparation of tax filings.

3) ALL OTHER FEES

During fiscal year 2000, the Company's principle accountant billed $642.00 in
fees that were directly related to research on new registrant SEC filing
requirements and deadlines.

During fiscal year 2001, the Company's principle accountant billed $8,560.00 in
fees that were directly related to preparation of application for for financing
from Canadian International Development Agency.

During fiscal year 2002, there were no other fees billed by the Company's
principle accountant for services other than those reported for audit and audit
related fees.

AUDIT COMMITTEE'S PRE-APPROVAL POLICIES AND PROCEDURES

Due to the fact that Sheridan B. Westgarde is the Company's only active Officer
and Director the company does not have an audit committee at this time.

PERCENTAGE OF HOURS EXPENDED

The amount of hours expended on the principal accountant's engagement to audit
the registrant's financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal accountant's
full-time, permanent employees was less than 50%


                                      -17-
<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/ SHERIDAN WESTGARDE
                                          Sheridan Westgarde
                                          Director, Chief Executive Officer,
                                          President and Chief Accounting Officer

                                          Date:  February 27, 2004



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/ SHERIDAN WESTGARDE   Director, Chief Executive Officer,   February 27, 2004
    -----------------
    Sheridan Westgarde   President and Chief Accounting Officer




                                      -18-
<PAGE>

                      Consolidated Financial Statements of

                                AQUATIC CELLULOSE
                               INTERNATIONAL CORP.

                              May 31, 2002 and 2001

<TABLE>
<CAPTION>

                                                                                        PAGE
                                                                                        ----
                      INDEX TO AUDITED FINANCIAL STATEMENTS

<S>                                                                                      <C>

Independent Auditor's Report                                                          F-2

Independent Auditor's Report                                                             F-3

Consolidated Balance Sheet as of May 31, 2002 and 2001                                   F-4

Consolidated Statementof Operations for the years ended May 31, 2002 and 2001            F-5

Consolidated Statement of Comprehensive Loss for the years ended                         F-6
May 31, 2002 and 2001

Consolidated Statement of Stockholders' (Deficiency) Equity
for the years ended May 31, 2002 and 2001                                                F-7

Consolidated Statement of Cash Flows for the years ended May 31, 2002 and 2001           F-8

Notes to Consolidated financial Statements                                               F-9

</TABLE>

                                      F-1

<PAGE>

AUDITOR'S REPORT TO THE STOCKHOLDERS

We have audited the consolidated balance sheets of Aquatic Cellulose
International Corp. as at May 31, 2001 and 2000 and the consolidated statements
of loss, stockholders' (deficiency) equity and comprehensive loss and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits 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 audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of the Company as at
May 31, 2001 and 2000 and the results of its operations and its cash flows for
the years then ended in accordance 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(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.

The consolidated financial statements for the years ended May 31, 2001 and May
31, 2000 have been restated from those previously presented as explained in note
1(o)

[GRAPHIC OMITTED]
"signed KPMG LLP"

Chartered Accountants

Kelowna, Canada
August 3, 2001


                                      F-2

<PAGE>



                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Aquatic Cellulose International Corp.
Vernon, British Columbia, Canada

         We have audited the accompanying balance sheet of Aquatic Cellulose
International Corporation as of May 31, 2002, and the related statements of
operations, of comprehensive loss, of stockholders' deficiency and of cash flows
for the fiscal 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.

         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 financial statements referred to above present
fairly, in all material respects, the financial position of Aquatic Cellulose
International Corporation, as of May 31, 2002, and the results of their
operations and their cash flows for the fiscal year then ended in conformity
with accounting principles generally accepted in the United States of America.

         The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has incurred significant losses from
operations, has negative working capital and stockholders' deficit. These
factors raise substantive doubt about its ability to continue as a going
concern. Management's plans in regard to these matters is also disclosed in Note
2. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.


     /S/ WONG JOHNSON & ASSOCIATES

WONG JOHNSON & ASSOCIATES
A Professional Corporation
Temecula, California
February 20, 2004


                                      F-3

<PAGE>
<TABLE>
<CAPTION>
                                                                     AQUATIC CELLULOSE INTERNATIONAL

                                                                          Consolidated Balance Sheet


May 31,                                                                     2002              2001
-----------------------------------------------------------------------------------------------------
<S>                                                                     <C>              <C>
Assets

Current Assets
    Cash                                                                $    10,838      $    19,892
    Accounts receivable, net                                                                  54,963
    Inventory                                                                                199,892
    Prepaid expenses and other current assets                                                 16,774
    Deferred financing costs, net of accumulated
     amortization of $135,411 and $103,136                                   19,189           19,364
----------------------------------------------------------------------------------------------------
      Total current assets                                                   46,801          294,111

Property and equipment, less accumulated
     depreciation of $12,481 and $10,128                                      8,004           10,357
Advance on equipment purchase                                               225,000          100,000
----------------------------------------------------------------------------------------------------
    Total Assets                                                        $   279,805      $   404,468
====================================================================================================

Liabilities and Stockholders' Deficit

Current Liabilities
    Accounts payable and accrued liabilities                            $   230,998      $   186,581
    Due to stockholder                                                      113,383
    Convertible debentures                                                  745,182          574,817
----------------------------------------------------------------------------------------------------
      Total current liabilities                                           1,089,563          761,398
----------------------------------------------------------------------------------------------------
Long Term Liabilities
----------------------------------------------------------------------------------------------------
      Total Liabilities                                                   1,089,563          761,398

Stockholders' Deficit
    Preferred stock,$0.001 par value per share
      10,000,000 shares authorized. No shares
      issued and outstanding at May 31, 2002 and 2001, respectively            --               --
    Common stock, $0.001 par value, 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                                            4,942,332        4,073,808
    Accumulated deficit                                                  (5,907,321)      (4,512,813)
    Foreign currency translation adjustment                                  76,789           35,056
----------------------------------------------------------------------------------------------------
      Total stockholders' deficit                                          (809,758)        (356,930)
----------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Deficit                             $   279,805      $   404,468
====================================================================================================


                                                                              See accompanying notes.
</TABLE>
                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                                          AQUATIC CELLULOSE INTERNATIONAL

                                                     Consolidated Statement of Operations

------------------------------------------------------------------------------------------
                                                                Period from
                                                     June 1, 2001             June 1, 2000
                                                          To                       To
                                                     May 31, 2002             May 31, 2001
------------------------------------------------------------------------------------------

<S>                                                <C>                    <C>
Sales                                              $     32,904           $    280,042

Cost of sales                                           142,401                750,926
------------------------------------------------------------------------------------------

Gross profit (loss)                                    (109,497)              (470,884)
------------------------------------------------------------------------------------------

Operating expenses
      Selling, general and administrative               899,584                727,275
      Financing fees                                    371,462                769,423
      Depreciation                                        2,353                  2,647
------------------------------------------------------------------------------------------
           Total operating expenses                   1,273,399              1,499,345
------------------------------------------------------------------------------------------

Loss from operations                                 (1,382,896)            (1,970,229)
------------------------------------------------------------------------------------------

Other income (expense)
      Foreign currency translation                      (11,612)
------------------------------------------------------------------------------------------
Total other income (expense)                            (11,612)
------------------------------------------------------------------------------------------

Net loss                                           $ (1,394,508)          $ (1,970,229)
==========================================================================================


Weighted Average Shares                              60,854,801             40,762,532
                                                   =======================================

Loss Per Common Share                              $      (0.02)          $      (0.05)
                                                   =======================================


                                                                    See accompanying notes.
</TABLE>

                                       F-5
<PAGE>

<TABLE>
<CAPTION>
                                                          AQUATIC CELLULOSE INTERNATIONAL

                                             Consolidated Statement of Comprehensive Loss
-----------------------------------------------------------------------------------------

                                                                Period from
                                                    June 1, 2001             June 1, 2000
                                                         To                       To
                                                    May 31, 2002             May 31, 2001
------------------------------------------------------------------------------------------

<S>                                                       <C>                <C>
Net loss                                                  $ (1,394,508)      $ (1,970,229)

Foreign exchange translation adjustment                         41,733             (7,971)
------------------------------------------------------------------------------------------

Comprehensive loss                                        $ (1,352,775)      $ (1,978,200)
------------------------------------------------------------------------------------------

                                                                    See accompanying notes.
</TABLE>

                                       F-6
<PAGE>
<TABLE>
<CAPTION>

                                                                                                   AQUATIC CELLULOSE INTERNATIONAL


                                                                                  Consolidated Statements of Stockholders' Deficit
-----------------------------------------------------------------------------------------------------------------------------------



                                                                             Paid        Foreign                        Total
                                                Common         Common         In         Currency     Accumulated    Stockholders'
                                                Shares         Stock        Capital     Translation     Deficit        Deficit
----------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>         <C>            <C>           <C>           <C>                 <C>
Balance at May 31, 2000                        37,425,985  $    37,426    $ 2,527,608   $    43,027   $(2,542,584)        65,477

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 for conversion of debentures             6,117,422        6,117        563,083                                    569,200
Issued for share subcription received
     in 2000                                      100,000          100           (100)                                        --
Issued in lieu of cash payment of
     interest on convertible debentures           861,908          862         62,255                                      63,117
Share issue costs                                                             (24,553)                                    (24,553)
Financing costs of warrants granted in
     conjunction with convertible debentures                                   55,000                                      55,000
Beneficial conversion feature of
     convertible debenture payable                                            448,000                                     448,000
Net loss                                                                                                (1,970,229)    (1,970,229)
Foreign currency translation adjustment                                                      (7,971)                       (7,971)
                                               -----------------------------------------------------------------------------------
Balance at May 31, 2001                        47,019,315       47,019      4,073,808        35,056     (4,512,813)      (356,930)

Issued for promotional services to                                                                                             --
     Company's president                        7,245,000        7,245         65,205                                      72,450
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                 4,405,000        4,405         45,595                                      50,000
Issued for cash                                 1,500,000        1,500         73,500                                      75,000
Issued for services                             7,180,000        7,180        324,320                                     331,500
Issued for financing fees                         300,000          300          4,600                                       4,900
Value of warrants issued                                                       55,000                                      55,000
Beneficial conversion feature of
     convertible debenture payable                                             85,402                                      85,402
Issued as deposit on equipment                  2,500,000        2,500        122,500                                     125,000
Foreign currency translation adjustment                                                      41,733                        41,733
Net loss                                                                                               (1,394,508)     (1,394,508)
                                               -----------------------------------------------------------------------------------
Balance at May 31, 2002                        78,442,715  $    78,442    $ 4,942,332   $    76,789   $(5,907,321)   $   (809,758)
                                               ====================================================================================

                                                                                                             See accompanying notes.
</TABLE>
                                                                F-7
<PAGE>
<TABLE>
<CAPTION>
                                                                             AQUATIC CELLULOSE INTERNATIONAL


                                                                        Consolidated Statements of Cash Flows
-------------------------------------------------------------------------------------------------------------


                                                                                    Period from
                                                                         June 1, 2001           June 1, 2000
                                                                              To                      To
                                                                         May 31, 2002           May 31, 2001
---------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                  $ (1,394,508)         $ (1,970,229)
  Adjustments to reconcile net loss to
    net cash used by operating activities:
     Depreciation                                                                  2,353                 2,647
     Amortization of defered financing costs                                      32,275               176,807
     Amortization of financing costs of warrants                                                       152,728
     Amortization of beneficial conversion feature                               105,983               362,258
     Un-paid fees & expenses due to stockholders                                 113,383
     Bad debt expense                                                              6,734
     Inventory valuation write down                                               60,141
     Interest paid by issuance of common stock                                    40,695                63,117
     Services paid by issuance of common stock                                   331,500               311,529
     Inventory barted for services                                               224,725
     Promotional services paid by common stock                                    72,450
     Options granted for services                                                105,000
Increase (decrease) in liabilities
     Accounts receivable                                                          48,229               (11,625)
     Inventory                                                                   (84,974)               22,200
     Prepaid expenses                                                            (16,774)
     Accounts payable and accrued liabilties                                      32,211               152,396
---------------------------------------------------------------------------------------------------------------
     Net cash used by operating activities                                      (320,577)             (738,172)
---------------------------------------------------------------------------------------------------------------

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

CASH FLOWS FROM FINANCING ACTIVITIES:
  Sale of common stock                                                            75,000
  Share issue cost                                                               (28,210)              (24,553)
  Issuance of convertible debenture payable                                      200,000               750,000
  Exercise of options                                                             50,000
  Deferred financing costs                                                       (27,000)             (122,500)
---------------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                                   269,790               602,947
---------------------------------------------------------------------------------------------------------------

  Effect of exchange rate on cash balance                                         41,733                (7,971)
---------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash                                                   (9,054)             (251,972)

Cash at beginning of period                                                       19,892               271,864
---------------------------------------------------------------------------------------------------------------
Cash at end of period                                                         $   10,838              $ 19,892
===============================================================================================================

                                                                                       See accompanying notes.
</TABLE>

                                       F-8


<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION:

<S>                                                                           <C>                   <C>
   Interest paid                                                              $    --               $     --
   Taxes paid                                                                 $    --               $     --


SUPPLEMENTAL NON CASH INVESTING AND FINANCING ACTIVITIES:

   During the year ended May 31, 2001, the Company issued common stock:
   2,287,000 shares, valued at $311,529, for services
   277,000 shares, valued at $133,500 for settlement of accounts payable and accrued liabilities
   6,117422, shares, valued at $569,200, for conversion of convertible debentures
   861,908 shares, valued at $63,117, for payment of interest on convertible debentures
    $55,000 fair value assigned to warrants issued in conjunction with convertible debentures

   During the year ended May 31, 2002, the Company issued common stock:
   7,245,000 shares, valued at $72,450 for promotional services
   6,058,640 shares, valued at $60,000, for conversion of convertible debentures
   2,234,760 shares, valued at $40,695, for payment of interest on convertible debentures
   Granted options to non-employees, valued at $151,964
   7,180,000 shares, valued at $331,500, for services
   2,500,000 shares, valued at $125,000, as a deposit on equipment purchased
   Bartered inventory, valued at $224,725, in return for services, valued at $224,725
   300,000 shares, valued at $6,000, for financing fees

                                                                      See accompanying notes.
</TABLE>

                                       F-9
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


NOTE 1 - ORGANIZATION AND BUSINESS COMBINATION

Aquatic Cellulose International Corp. (the "Company") 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.

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:

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, a wholly owned subsidiary of ACIC, 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.



                                      F-10
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
---------------------

Aquactic Cellulose International Corporation (the "Company) has experienced
recurring losses, has a working capital deficiency of $1,042,762 and an
accumulated deficit of $5,907,321 as of May 31, 2002 and has reduced underwater
timber harvesting operations pending new financing. Additionally, during
November 2003, the Company received notice that they were in default of certain
obligations under the debentures (Note 16). These factors, among others, raise
substantial doubt as to its ability to continue as a going concern.

During the year ended May 31, 2002, management continued to seek additional
capital investment to support its business ventures and provide the capital
considered necessary to support operations.

Accordingly, the consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amount an classification of liabilities or other adjustments that
might be necessary should the Company be unable to continue as a going concern.

REVENUE RECOGNITION
------------------

The Company recognizes sales when timber is shipped, and the title, risks and
rewards of ownership have been transferred from the Company to the customer. As
previously noted, the Company reduced timber harvesting operations during the
fiscal year ended May 31, 2002 due to a lack of working capital.

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.

                                      F-11
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002



PROPERTY AND EQUIPMENT
----------------------

Property and equipment are stated at cost. Depreciation is computed using
declining balance and straight-line methods over the estimated useful lives of
the depreciable assets. The estimated useful 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. Management evaluates useful lives
regularly in order to determine recoverability taking into consideration current
technological conditions. 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.

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.

INCOME TAXES
------------

The Company utilizes Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," which requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based 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 As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.

                                      F-12
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002

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.

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
700,000 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.

                                      F-13
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


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.

COMPREHENSIVE INCOME
--------------------

During June 1999, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This pronouncement established standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income consists of net
income and unrealized gains on available-for-sale securities; foreign currency
translation adjustments; change in market value of futures contracts that
qualify as a hedge; and negative equity adjustments recognized in accordance
with SFAS No. 87. The Company evaluated SFAS No. 130 and determined that the
Company's foreign currency translation adjustments was the only comprehensive
income adjustment as of May 31, 2002 and 2001, respectively.

SEGMENT AND GEOGRAPHIC INFORMATION
----------------------------------

The Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" effective in 1998. SFAS No.
131 requires enterprises to report financial information and descriptive
information about reportable operating segments. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The Company evaluated SFAS No. 131 and determined that the Company
operates in only multiple segments (Note 14).

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.

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

                                      F-14
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


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.

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

RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------

In July 2001, the Financial Accounting Standards Board 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.

                                      F-15
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


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. Company
management has determined the effect of adoption of this standard on the
Company's results of operations and financial position is not material.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," in that it removes goodwill from its impairment scope and
allows for different approaches in cash flow estimation. However, SFAS No. 144
retains the fundamental provisions of SFAS No. 121 for (a) recognition and
measurement of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of. SFAS No. 144 also supersedes the business
segment concept in APB Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," in
that it permits presentation of a component of an entity, whether classified as
held for sale or disposed of, as a discontinued operation. However, SFAS No. 144
retains the requirement of APB Opinion No. 30 to report discontinued operations
separately from continuing operations. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001 with earlier application encouraged. Company management has
determined that implementation of SFAS No. 144 will not have a material effect
on the Company's results of operations or financial position.

On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS 145 rescinds SFAS No. 4, which required all gains and losses
from extinguishments of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. Early application of the
provisions of SFAS No. 145 may be as of the beginning of the fiscal year or as
of the beginning of the interim period in which SFAS No. 145 is issued. Company
management has determined that implementation of SFAS No. 145 will not have a
material effect on the Company's results of operations or financial position.


In July 2002, the Financial Accounting Standards Board issued SFAS, "Accounting
for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires
that a liability for costs associated with an exit or disposal activity be
recognized and measured initially

                                      F-16
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


at fair value only when the liability is incurred. SFAS No.146 is effective for
exit or disposal activities that are initiated after December 31, 2002. Company
management has determined that implementation of SFAS No. 146 will not have a
material effect on the Company's results of operations or financial position.

In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which amends SFAS 133 for
certain decisions made by the FASB Derivatives Implementation Group. In
particular, SFAS 149: (1) clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative, (2) clarifies
when a derivative contains a financing component, (3) amends the definition of
an underlying instrument to conform it to language used in FASB Interpretation
No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others," and (4) amends certain
other existing pronouncements. This Statement is effective for contracts entered
into or modified after June 30, 2003, and for hedging relationships designated
after June 30, 2003. In addition, most provisions of SFAS 149 are to be applied
prospectively. Management does not expect the adoption of SFAS 149 to have a
material impact on our financial position, cash flows or results of operations.


NOTE 3 - INVENTORY

Inventory consists of the following at May 31:

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

Logs                      $   --            $ 91,982
Rough cut lumber              --             107,910
                          --------          --------
                          $   --            $199,892
                          ========          ========

As previously noted in Note 1, during the fiscal year ended May 31, 2002, the
Company reduced underwater timber harvesting operations in Brazil and Canada due
to a lack of working capital. To settle some outstanding claims, the Company
bartered inventory, valued at $224,725 in return for services, valued at
$224,725, resulting in no gain or loss to the Company.


NOTE 4- PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows at May 31:

                                      F-17
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


                                                    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           12,481           10,128
                                                  -------          -------

                                                  $ 8,004          $10,357
                                                  =======          =======

Depreciation expense was $2,353 and $2,647 for the fiscal years ended May 31,
2002 and 2001, respectively.

NOTE 5 - ADVANCE ON EQUIPMENT PURCHASES

Advance on equipment purchases consist of the following at May 31:

                                                              2002       2001
                                                            --------   --------
     Deposit for construction and acquisition of an
          Aquatic Timber Harvesting Machine
          from  an Affiliated Company                       $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                                125,000        --
                                                            --------   --------

                                                            $225,000   $100,000
                                                            ========   ========



                                      F-18
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


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 fiscal year ended May 31, 2001, the
Company had advanced $100,000 towards the purchase of the machine and was
exploring outside financing opportunities to finance the remaining commitment.
As of May 2003, the manufacturing and license agreements were cancelled.

Subsequent to May 31, 2002, the Company was advanced approximately $44,000 from
the Affiliated Company collateralized by the aquatic timber harvesting equipment
(Note 16).

During the fiscal year ended May 31, 2002, the Company entered into an agreement
to purchase a fleet of boats for approximately $151,000. As a deposit on the
boats, the Company issued 2.5 million shares of common stock with an estimated
market value of approximately $125,000. Subsequent to May 31, 2002, the Company
began negotiations with the seller to reverse the transaction and believes that
it is probable the cancellation will occur. As of the date of this report,
pertaining to the cancellation with the seller, the negotiations with the seller
are not complete in as much as the Company has not yet received back from the
seller the 144 original restricted stock certificates that were issued.


NOTE 6- 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 7 - 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 is convertible into common shares at the lesser of $0.083 per share or
67.67% of the average of the lowest 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 (Note 16).

                                      F-19
<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


<TABLE>
<CAPTION>

The debentures are due as follows:

DUE DATE                                  MAY 31, 2001    ISSUED        CONVERTED      MAY 31, 2002
--------                                  ------------    ------        ---------      ------------

<S>       <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)                                     (17,293)

Unamortized discount related to
     beneficial conversion option on the
     convertible debentures payable         (85,742)                                     (58,325)
                                           --------                                      -------
                                           $574,817                                     $745,182
                                           ========                                     ========
</TABLE>


                                      F-20

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002



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>          <S>
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        --          100,000        -        100,000
                                      -------        -------     -------     -------
                                      600,000        100,000        -        700,000
                                      =======        =======     =======     =======
</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 $105,983 for beneficial
conversion features in connection with the debentures and warrants have been
charged to operations in the current fiscal year. Of this amount, $41,660
relates to debentures issued during the year ended May 31, 2002.

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 8 - 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.



                                      F-21

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002

Subsequent to May 31, 2002, approximately $100,000 of such loans was offset
against unpaid consulting fees due to one of the Directors. The remaining loans
were forgiven to the other two Directors during January 2004.

NOTE 9 - INCOME TAXES

The components of the provision for taxes based on income for the fiscal years
ended May 31 are as follows:

                                        2002               2001
                                        ----               ----

          Current
            Federal                  $    --          $     --
            State                         --                --
                                     ---------        ---------
          Total Current                   --                --
                                     ---------        ---------
          Deferred
            Federal                       --                --
            State                         --                --
                                     ---------        ---------
          Total Deferred                  --                --
                                     ---------        ---------
          Total Tax Provision        $    --          $     --
                                     =========        =========


                                      F-22

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002



The reconciliation of the effective income tax rate to the Federal statutory
rate is as follows for the fiscal years ended May 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:

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.


                                      F-23

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002



NOTE 10 - 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 non-cancelable 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 with one of the Company's
            Directors 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.

                                      F-24

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002



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
5).

NOTE 11 - COMMON STOCK

COMMON STOCK

The Company has authorized 100,000,000 shares of $0.001 par common stock. As of
May 31, 2002 and 2001, 78,442,715 and 47,019,315 were issued and outstanding,
respectively.

At various times during the fiscal year ended May 31, 2001, the Company 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).

At various times during the fiscal year ended May 31, 2001, the Company issued
an aggregate of 2,287,000 shares of restricted stock at an average price of
$0.136 per share for services rendered (price reflected market price).

During June 2001,the Company issued 2,500,000 shares of restricted stock at
$0.05 per share for deposit on the purchase of equipment (price reflected market
price). Subsequent to May 31, 2002, the Company was in negotiations to reverse
the transaction and have the seller return the issued shares.



                                      F-25

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


During January 2002, the Company issued 7,245,000 shares of restricted stock at
$0.014 per share to Gary Ackles as per his employment agreement.

During April and May 2002, the Company issued 1,500,000 shares of restricted
stock to various investors at $0.05 per share for cash of $75,000.

At various times during the fiscal year ended May 31, 2002, the Company issued
an aggregate of 6,058,640 shares of restricted stock at a price ranging from
$0.0134 to $0.028 per share for upon conversion of debentures (price reflected
market price).

At various times during the fiscal year ended May 31, 2002, the Company issued
an aggregate of 2,234,760 shares of restricted stock at a price ranging from
$0.005 to $0.0246 per share in lieu of cash payment of interest on convertible
debentures (price reflected market price).

At various times during the fiscal year ended May 31, 2002, the Company issued
an aggregate of 7,180,000 shares of restricted stock at a price ranging from
$0.012 to $0.078 per share for services rendered (price reflected market price).

PREFERRED STOCK
---------------

The Board of Directors has the authority to issue preferred stock and to fix and
determine its series, relative rights and preferences. As of May 31, 2002 and
2001, no classes of preferred stock were authorized, issued or outstanding.

NOTE 12 - STOCK OPTIONS

During July 2000, there were a total of 1,425,250 options outstanding to
purchase the Company's common stock at an exercise price of $0.52 per share,
which was the market price of the options on the date of grant. These options
expire on February 22, 2005. These options were outstanding as of May 31, 2002.

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. Approximately $10,000 of the
market value of these options was charged to operations during the current
fiscal year. These options were exercised as of May 31, 2002.

                                      F-26

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


On January 15, 2002, the Company issued 1,905,000 options for investor
relation's 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. Approximately $16,000 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.

On March 2, 2002, the Company issued 4,800,000 options for investor relation's
services to be rendered to the Company. The options have an exercise price of
$.05, vest immediately and expire 90 days from issuance. Approximately $92,000
of the market value of these options was charged to operations during the
current fiscal year. These options were canceled 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. Approximately $14,000 of 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>
May 31, 2001           1,425,250          $         0.52       $    0.52           0.52
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
                      ----------          --------------       ---------          -----

May 31, 2002           1,425,250          $         0.52       $    0.52           0.52
</TABLE>


                                     F-27

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002




For the fiscal 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.




                                     F-28

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002



NOTE 13 - 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 10).

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 10).

NOTE 14 - SEGMENT INFORMATION

During the 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                    273,684           398,067
Brazil                      5,121             6,401
                         --------           -------
                         $279,805          $404,468
                         ========          ========



                                    F-29

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2002


NOTE 15 - LITIGATION

The 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.

NOTE 16 - SUBSEQUENT EVENTS

During March 2003, Gary Ackles resigned as Director, President and CEO of the
Company and was succeeded by Sheridan Westgarde. Both Mr. Ackles and Mr.
Westgarde entered into consulting agreements ranging from 18 to 36 months
commencing April 1, 2003, providing for monthly consulting fees of $5,500 and
$7,500, respectively.

Following March 27th, 2003 AQCI terminated its operations pertaining to the
recovery of underwater timber to focus business efforts on the following: 1)
pursue the acquisition of a revenue generating company or assets in the oil and
gas industry and 2) the potential exploitation of the ATH large scale underwater
technology (Now called Tiger.Lynk(TM)).

During February 2003, Mr. William Stephaniuk ceased his association with the
Company and no longer serves as Chief Operations Officer.

During May 2003, the Company borrowed $44,000 from Legacy Systems Corporation
owned by Gary Ackles, former Director, President and CEO of the Company. As
security for the loan, the Company utilized the ATH equipment (Note 5).

During June 2003, the Company signed a Memorandum of Understanding with Legacy
Systems Corp. to merge the public Company with the Tiger-Lynk robotic
technology, also patented and owned by Mr. Ackles.

During October 2003, the Company entered into an agreement to sell the equipment
located in Brazil to Mr. Ackles for $70,000, the estimated value of the machine.
The Company applied the value of the machine against the unpaid amount due Mr.
Ackles.

During November 2003, the Company received notice that they were in default of
certain obligations under the debentures. During December 2003, the Company
entered into an amendment to the debentures and signed a $100,000 convertible
promissory note.

                                    F-30

<PAGE>
                     ACQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  MAY 31, 2002


During December 2003, the Company signed a Memorandum of Understanding with
Century Resources Inc. of Houston Texas for the acquisition of Century Resources
by the Company.

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

 - 14,219,100 shares, valued at $404,671, for services;
 - 900,000 shares, valued at $26,100, to board members for their services;
 - 3,868,880 shares for $42,500 cash; and
 - 4,189,412 shares for the conversion of $40,000 debentures.



                                      F-31