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

(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, 2003.

[ ]      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 $nil for the fiscal year ended May 31, 2003.

The aggregate market value of the voting stock held by non-affiliates on May 31,
2003 was approximately $350,260 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, 2003, 100,000,000 shares of
the issuer's common stock were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE



                                      -1-

<PAGE>
                                     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 Cellulose
International, up until March 27th, 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 21st, 1998 to October 31st,
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 1977,
in an


                                     - 2 -
<PAGE>

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 used in harvesting timber on 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;

          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");

                                     - 3 -
<PAGE>

          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.

IMPORTANT EVENTS

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

          o    On February 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, a C.A.S. Tech. graduate of UCC British Columbia and a
               well recognized technology specialist in the robotics and
               automation industry.

          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)
               potential exploitation of the ATH large scale underwater
               technology (Now called Tiger*Lynk(TM)).

          o    During October 2002, the Company entered into an agreement with
               Gary Ackles to sell the equipment located in Brazil with a net
               book value of $4,275 in addition to a prototype machine with a
               net book value of $-0- located on the Tucurci reservoir. Under
               the terms of the agreement, the Company received proceeds of
               $70,000 resulting in a pre-tax gain of approximately $65,700. The
               proceeds were used to reduce the unpaid license fees owed to Mr.
               Ackles.

          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 and licensing 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.

     SUBSEQUENT EVENT (AFTER MAY 31, 2003)

          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.

                                     - 4 -
<PAGE>

          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    During November 2003, the Company received notice that they were
               in default of certain debenture obligations.

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

          o    During December 2003, the Company entered into an agreement
               whereby, the repayment of the outstanding debentures in default
               will be made by an Equity Line of Credit instrument negotiated
               between the convertible debenture holders and the Company. Based
               on this arrangement, the Company and the convertible debenture
               holders further agreed to an additional funding of $900,000.
               While these new funds are secured as a convertible debt, the
               repayment is managed through the Equity Line of Credit. The
               Company signed a $100,000 convertible promissory note as an
               advance on the $900,000 and paid $80,000 as a deposit to acquire
               Century.

GOING CONCERN

     Aquatic Cellulose International Corporation has experienced recurring
losses, has a working capital deficiency of $1,782,354 and an accumulated
deficit of $7,155,171 as of May 31st, 2003. At the end of fiscal year ended May
31st, 2002 the Company had reduced its underwater timber harvesting operations
pending new financing and a lack of working capital. These factors, among
others, raise substantial doubt as to 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 1 full-time employee in Brazil at May 31, 2002. As of May 31st, 2003 there
was 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

                                     - 5 -
<PAGE>

                                     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 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

FISCAL 2003
-----------
First Quarter 2003                                   .09               .018
Second Quarter 2003                                  .033              .014
Third Quarter 2003                                   .014              .004
Fourth Quarter (5/31/03)                             .008              .002


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

         As of May 31st, 2003, there were approximately 361shareholders of
record (that are not in street name) of AQCI's Common Stock.

RECENT SALES OF UNREGISTERED SECURITIES

         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.

                                     - 6 -
<PAGE>

         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.

         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.

         At various times during the fiscal year ended May 31st, 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 conversion of debentures (price
reflected market price) for a total value of $60,000.

         At various times during the fiscal year ended May 31st, 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) for a total value of
$40,695.

         At various times during the fiscal year ended May 31st, 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) for a total value of $331,500.

         During the quarter ended August 31st, 2002, the Company issued an
aggregate of 900,000 shares of restricted stock at $0.029 per share for director
fees (price reflected market price) for a total value of $26,100.

         At various times during the fiscal year ended May 31st, 2003, the
Company issued an aggregate of 3,868,880 shares of restricted stock to various
investors at $0.05 per share for cash pursuant to various subscription
agreements for a total value of $42,500.

                                     - 7 -
<PAGE>

         At various times during the fiscal year ended May 31st, 2003, the
Company issued an aggregate of 4,189,412 shares of restricted stock at a price
ranging from $0.0091 to $0.01 per share for conversion of debentures (price
reflected market price) for a total value of $40,000.

         At various times during the fiscal year ended May 31st, 2003, the
Company issued an aggregate of 16,010,100 shares of restricted stock at a price
ranging from $0.027 to $0.04 per share for services rendered (price reflected
market price) for a total value of $482,679.

         During the fiscal year ended May 31st, 2003, the Company's former CEO
surrendered 3,620,107 shares of common stock for the purposes of compensating
professionals providing services to the Company. The shares at date of
cancellation had an estimated value of $144,804.

         During the fiscal year ended May 31st, 2003, Sheridan Westgarde, the
Company's current CEO surrendered 1,000,000 shares of common stock for the
purposes of compensating professionals providing services to the Company. The
shares at date of cancellation had an estimated value of $46,360.

         During the fiscal year ended May 31st, 2003, William Stephaniuk
surrendered 791,209 shares of common stock for the purposes of compensating
professionals providing services to the Company. The shares at date of
cancellation had an estimated value of $31,648.


CONVERTIBLE NOTES ISSUED (THE INVESTORS OF THE SECURITIES WERE ACCREDITED
INVESTORS).

         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. The investors of
these securities were accredited investors.

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

         On December 4th, 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 6th, 2003. These warrants were issued in accordance
with ss. 4(2) and Rule 506 under the Securities Act of 1933, as amended. The
investors of these securities were accredited investors.

TRANSFER AGENT AND REGISTRAR

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

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

     PLAN OF OPERATION

         The short-term objectives of Aquatic are the following:

                  1. 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 )

                                     - 8 -
<PAGE>

          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.

                  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.

         By selling the equipment located in Brazil the Company currently does
not own any significant equipment. The Company's work force has been eliminated
with the exception of one full-time consultant.

                              RESULTS OF OPERATIONS

YEAR ENDED MAY 31ST, 2003 COMPARED TO YEAR ENDED MAY 31ST, 2002

         The Company earned revenue of $nil for the year ended May 31st, 2003,
compared with $32,904 for fiscal 2002 for a decrease of $32,904. The decrease in
sales is attributable to shut down of the Brazil operations in the fiscal year
2003.

         Cost of sales for the year ended May 31st, 2003 was $nil compared to
$142,401 for the year ended May 31st, 2002, for a decrease of $142,401. The
decrease in cost of sales is a result of the shut down of the Brazil operations.

         Operating costs and expenses for the year ended May 31st, 2003, were
$1,333,314 and $1,273,399 for the year ended May 31st, 2002 for an increase of
$59,915. The increase was mainly due to an increase of $112,951 in accounting &
legal expenses and an increase of $100,718 in investor relations expenses.

         The Company incurred a loss in fiscal 2003 of $1,247,850 compared with
a loss of $1,394,508 in fiscal 2002.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash used in operating  activities  in fiscal 2003  amounted to $23,037
compared to $320,577 in fiscal 2002 for a decreased use of cash of $297,540. The
use of cash is mainly  attributable to the Company ceasing  operations in Brazil
as well as an overall reduction in general and administrative expenses.


         Financing activities generated net cash of $86,500 in fiscal 2003
compared with $269,790 in fiscal 2002. The cash from financing activities for
fiscal year 2003 was generated from notes due to affiliate entity of $44,000
plus the sale of common stock for $42,500.

                                     - 9 -
<PAGE>

         At May 31st, 2003 the Company had cash of $13,204 and prepaid expenses
of $290 for total current assets of $13,494. There was no inventory in fiscal
year 2003 and 2002 as a result of the shut down of the Brazil operations.

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

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

KPMG LLP was previously the independent auditors for Aquatic Cellulose
International Corporation (the "Registrant"). On February 28th, 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 31st, 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
31st, 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 for the years ended May 31st, 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 31st, 1997 through May
31st, 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 26th, 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 31st,
2001 and the subsequent interim period through February 28th, 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.

2. A Form 8-K was filed on January 10th, 2003, reporting a change in accounting
firms.

         On December 18th, 2002 Merdinger, Fruchter , Rosen and Company, P.C.
(the "Former Accountants") informed Aquatic Cellulose International Corporation
(the "Company") they have decided to cease auditing publicly traded companies
and have resigned as the Company's principal accountants.

                                     - 10 -
<PAGE>

         The 'Former Accountants' reports on the financial statements for the
fiscal years ended May 31st, 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.

         The Company's Board of Directors has approved the resignation of the
Former Accountants.

         During the last two fiscal years preceding the Former Accountants'
resignation, and for the interim period from June 1st, 2002 through January 8th,
2003, there were no disagreements with the Former Accountants, whether or not
resolved, on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of the Former Accountants, would have caused it
to make reference to the subject matter of the disagreements in connection with
its reports.

         During the last two fiscal years preceding the Former Accountants'
resignation, and for the interim period from June 1st, 2002 through January 8th,
2003, there were no "reportable events" as defined by Regulation S-K, Item
304(a)(1)(v)(A) through (D).

         On January 8th, 2003, the Company engaged Stonefield Josephson, Inc.,
(the "New Accountants") as our principal accountants to audit our financial
statements. The engagement of the new Accountants was approved by the Company's
Board of Directors.

         A letter from the Former Accountants addressed to the Securities and
Exchange Commission stating the Former Accountants agree with the statements
made by the Company in this report has been filed as an exhibit to this report.

3. A Form 8-K was filed on February 23rd, 2004, reporting a change in accounting
firms.

         Stonefield Josephson, Inc. (the "Former Accountants") was previously
the independent auditors for Aquatic Cellulose International Corporation
("AQCI"). On or about May 30th, 2003, Aquatic Cellulose International
Corporation and Stonefield Josephson, Inc., mutually parted ways. AQCI
officially engaged Wong Johnson & Associates on February 16, 2004, 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 31st, 2002 and May 31st, 2003. The decision to change was based on
financial considerations and was approved by the audit committee. There were no
disagreements with the Former Accountants, whether or not resolved, on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the Former Accountants, would have caused it to make reference
to the subject matter of the disagreements in connection with the AQCI's
reports.

         AQCI's Board of Directors has approved the change in Certifying
Accountants from the Former Accountants to Wong Johnson & Associates.

         The Former Accountants' performed interim reviews of the Form 10QSB's
and did not participate in auditing AQCI's financial statements for any fiscal
year and therefore could not extend an opinion of any nature on AQCI. During the
most recent two years ended May 31st, 2003 and 2002 and until the engagement of
Wong Johnson & Associates, the Registrant has not consulted with Wong Johnson &
Associates regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Registrant's financial statements, and
neither a written report was provided to the Registrant nor oral advice was
provided that Wong Johnson & Associates concluded was an important factor
considered by the Registrant in reaching a decision as to the accounting,
auditing or financial reporting issue; or (ii) any matter that was the subject
of a disagreement, as the term is defined in Item 304(a)(1)(iv) of Regulation
S-B and the related instructions to Item 304 of Regulation S-B.

         Fiscal year 2002 was originally audited by Merdinger, Fruchter, Rosen
and Company, P.C. who decided to cease auditing publicly traded companies and
informed ACQI of their decision on December 18th, 2002 (see Form 8-K filed
January 10th, 2003). Fiscal year 2001 was audited by KPMG LLP. AQCI's decision
to change auditors at this time was based on financial considerations (see Form
8-K filed March 27th, 2002. As reported in the referenced Form 8-K's filed,
there were no disagreements with the former accountants, whether or not
resolved, on any matter of accounting principles



                                     - 11 -
<PAGE>

or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of the former
accountants, would have caused it to make reference to the subject matter of the
disagreements in connection with its reports.

         As a result of Merdinger, Fruchter, Rosen and Company, P.C. decision
to cease auditing publicly traded companies, Wong Johnson & Associates will be
auditing fiscal year 2002 again and an amended Form 10KSB will be filed shortly.
Subsequently the Form 10KSB for fiscal year 2003 and all interim reports will be
filed.

         A letter from the Former Accountants addressed to the Securities and
Exchange Commission stating the Former Accountants agree with the statements
made by the Company in this report has been filed as an exhibit to this report.

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.


                                     - 12 -
<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
-------------------------------- ------------------ ---------------------------

Sheridan B. Westgarde             35                Director & President
-------------------------------- ------------------ ---------------------------
Gary J. Ackles   * 1              48                Director & President
-------------------------------- ------------------ ---------------------------
Shane Kerpan     *1               32                Secretary & Treasurer
-------------------------------- ------------------ ---------------------------
Claus Wagner-Bartak *2            64                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

         Sheridan B. Westgarde: Mr. Westgarde was appointed to the Board of
directors March 27th 2003. As a C.A.S. Tech. graduate of UCC British Columbia
and a recognized specialist in the robotics and automation industry, Mr.
Westgarde has been extensively involved in the design and development of the
Tiger*Lynk(TM) manipulator technology. In addition, Mr. Westgarde has valuable
knowledge and experience in the Oil and Gas industry, providing his technical
expertise in down-hole tool management and implementation. Mr. Westgarde does
not sit on the Board of any other public company. Mr. Westgarde dedicates
approximately 90% of his time to Aquatic.

         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 experience in industries that manufacture and sell
equipment, with extensive international and domestic experience. Mr. Ackles is
recognized as a creator of aquatic technologies, and has been involved with
numerous equipment based industries including oil and mineral exploration, heavy
construction, and aquatic environmental management. Mr. Ackles has introduced
and sold equipment in Canada, USA, Middle East, Africa, and South America. 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. Shane Kerpan resigned as the Secretary and Treasurer
on December 20th, 2003.

         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



                                     - 13 -
<PAGE>

robotic arm that is presently used on the NASA Space Shuttle, that arm being
named the "Canada-arm". Mr Bartak resigned as the 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 31st, 2003, 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 31st, 2003 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>

Sheridan B.              2003         15K                                                  0
Westgarde                2002          N/A                                                 0
President/CEO            2001          N/A                                                 0

Gary Ackles              2003         100K                                                 0
President/CEO            2002         107K                                                 0
*1                       2001          84K                                         1,202,500

Shane Kerpan             2003           0                                                  0
Secretary *1             2002           0                                                  0
                         2001           0                                            117,500

Claus                    2003           0                                                  0
Wagner-Bartak            2002           0                                                  0
Director *2              2001           0                                            105,250

*1  Resigned in 2003
*2  Resigned in 2004
</TABLE>


                                     - 14 -
<PAGE>

Chief Executive Officer Compensation:

         Mr. Westgarde has an annual consulting agreement commencing March 27th,
2003, providing for an annual compensation of $90,000. In addition, the Board of
Directors has committed to make Mr. Westgarde a significant shareholder in the
Company with a share position of 5% of the authorized share volume of the
Company issued over the course of three years. To the date of this filing these
shares have not been issued.

         Former Director and President Gary J. Ackles had a three-year
employment agreement that commenced November 1, 2000 and provided for an annual
salary of $107,134, plus certain benefits. The agreement called for a minimum
increase in salary of 10% per annum, as well as a severance package that was
exercised upon his resignation.

(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>
              Sheridan B. Westgarde                                    0                       0%
              2504 27th Avenue
              Vernon, BC  V1T 1T1

              Gary J. Ackles                                   3,500,000                     3.5%
              3498 Salmon River Bench Rd
              Vernon, B.C. V1T 8Z7

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

              Shane Kerpan                                       300,000                     0.3%
              816 George Ann Street
              Kamloops, B.C. V2C 1L5

              Officer/Director as a Group                      3,800,000                     3.8%
</TABLE>

                                     - 15 -
<PAGE>


(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. Based on the resignation of these
officers and directors these options have been canceled. To the date of this
filing these options have not been exercised.

         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 EVENT (AFTER MAY 31, 2003)

         The Company has an employment agreement with Gary Ackles, the Company's
former president, providing for an annual salary of $107,134 and severance
benefits. As of March 26th 2003 Mr. Ackles resigned from the Company and
exercised his severance package.

         As of March 27th, 2003, the Company has a consulting agreement with
Sheridan B. Westgarde the Company's Director and President/CEO, providing for an
annual compensation of $90,000.

         As of April 1st, 2003, the Company has a short-term consulting
agreement with former president Gary J. Ackles to act in an advisory capacity to
the Company during the transition to the new management. This agreement provide
for an annual compensation of $60,000.

         The Company had a license agreement with the Company's former President
for the use of his Patented Robotic Technology. On May 31st 2003 all
manufacturing and licensing agreements with Gary J. Ackles, owner of the ATH
robotic technology were cancelled.

         The Company borrowed $44,000 from Legacy Systems Corporation, owned by
Gary Ackles. The security for the loan was the ATH-120 mechanical assembly
constructed and stored at Beaver Manufacturing in Kamloops British Columbia.

         During October 2002, the Company entered into an agreement with Gary
Ackles to sell the equipment located in Brazil with a net book value of $4,275
in addition to a prototype machine with a net book value of $-0- located on the
Tucurci reservoir. Under the terms of the agreement, the Company received
proceeds of $70,000 resulting in a pre-tax gain of approximately $65,700. The
proceeds were used to reduce the unpaid license fees owed to Mr. Ackles.

                                     - 16 -
<PAGE>

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 28th, 1997. (1)
3.2    Certificate Amending Articles of Incorporation filed November 19th,
       1997.  (1)
3.3    Bylaws of the Company.  (1)
4.1    Form of Common Stock Certificate.  (2)
4.2    Form of Warrant Agreement with Form of Warrant Election to Purchase.(2)
6.1    Lease for the Premises dated November 1st, 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)
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 16th, 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 21st, 2000 as part of
         Aquatic Cellulose International Corp.'s Registration (File NO:
         333-44184) on Form SB-2 filed on August 21st, 2000 and incorporated by
         reference herein.

(B)      REPORTS ON FORM 8-K:

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

2. Form 8-K dated January 10th, 2003 reported that on December 18th, 2002
Merdinger, Fruchter, Rosen and Company, P.C. informed Aquatic Cellulose
International Corporation they have decided to cease auditing publicly traded
companies and have resigned as the Company's principal accountants. On January
8th, 2003, AQCI engaged Stonefield Josephson, Inc., as our principal accountants
to audit our financial statements. Stonefield Josephson, Inc.'s accountants'
performed interim reviews of the Form 10QSB's and did not participate in
auditing AQCI's financial statements for any fiscal year.

3. Form 8-K dated March 31st, 2003 reported Gary Ackles has resigned as Chairman
of Board of Directors and CEO of Aquatic Celluose International Corporation
effective March 26th, 2003 to dedicate his time to his technology and corporate
development for personal reasons.

                                     - 17 -
<PAGE>

         4. Form 8-K dated February 23rd, 2004 reported that on or about May
30th, 2003, Aquatic Cellulose International Corporation and Stonefield
Josephson, Inc., mutually parted ways. AQCI officially engaged Wong Johnson &
Associates, A Professional Corporation, on February 16th, 2004, 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 31st, 2002 and May 31st, 2003. The decision to change was based on
financial considerations and was approved by the Board of Directors.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

1) AUDIT FEES & AUDIT-RELATED FEES

During fiscal year 2001, the Company's principal accountant billed $49,919 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 principal accountant billed $39,322 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.

During fiscal year 2003, the Company's principal accountant billed $36,825 in
fees that were directly associated with the preparation of annual audit reports
and quarterly reports.

2) TAX FEES

During fiscal year 2001, the Company's principal accountant billed $5,938 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.

During fiscal year 2003, there were no fees billed associated with the
preparation of tax filings.

3) ALL OTHER FEES

During fiscal year 2001, the Company's principal accountant billed $8,560 in
fees that were directly related to preparation of application for financing from
Canadian International Development Agency.

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

During fiscal year 2003, there were no other fees billed by the Company's
principal 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%.



                                     - 18 -
<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:  March 4, 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,     March 4, 2004
    -----------------
    Sheridan Westgarde    President and Chief Accounting Officer




                                     - 19 -
<PAGE>
                      Consolidated Financial Statements of

                                AQUATIC CELLULOSE
                               INTERNATIONAL CORP.

                              May 31, 2003 and 2002


                                                                            PAGE
<TABLE>
<CAPTION>

                      INDEX TO AUDITED FINANCIAL STATEMENTS

<S>                                                                                       <C>
Independent Auditors' Report                                                              F-2

Consolidated Balance Sheet as of May 31, 2003 and 2002                                    F-3

Consolidated Statement of Operations for the years
     ended May 31, 2003 and 2002                                                          F-4

Consolidated Statement of Comprehensive Loss for the years ended                          F-5
     May 31, 2003 and 2002

Consolidated Statement of Stockholders' (Deficiency) Equity
      for the years ended May 31, 2003 and 2002                                           F-6

Consolidated Statement of Cash Flows for the years ended May 31, 2003 and 2002            F-8

Notes to Consolidated Financial Statements                                                F-10
</TABLE>



                                      F-1
<PAGE>


                          INDEPENDENT AUDITORS' 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, 2003 and 2002, and the related
statements of operations, of comprehensive loss, of stockholders' deficiency and
of cash flows for the fiscal years 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 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 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, 2003 and 2002, and the results of their operations
and their cash flows for the fiscal years 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
March 1, 2004


                                      F-2
<PAGE>
<TABLE>
<CAPTION>

                                                                       AQUATIC CELLULOSE INTERNATIONAL CORP.

                                                                                  Consolidated Balance Sheet
============================================================================================================

MAY 31,                                                                         2003                2002
------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                 <C>
ASSETS

Current Assets
    Cash                                                                      $  13,204           $  10,838
    Prepaid expenses and other current assets                                       290              16,774
    Deferred financing costs, net of accumulated
     amortization of $154,600 and $135,411                                                           19,189
------------------------------------------------------------------------------------------------------------
      Total current assets                                                       13,494              46,801

Property and equipment, less accumulated
     depreciation of $10,787 and $12,481                                          2,566               8,004
Advance on equipment purchase                                                   100,000             225,000
------------------------------------------------------------------------------------------------------------
    Total Assets                                                             $  116,060          $  279,805
============================================================================================================

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
    Accounts payable                                                         $  190,490          $  129,237
    Accrued liabilities                                                         202,454             101,761
    Amounts due to related parties                                              639,397             113,383
    Convertible debentures                                                      763,507             745,182
------------------------------------------------------------------------------------------------------------
      Total current liabilities                                               1,795,848           1,089,563
------------------------------------------------------------------------------------------------------------
Long Term Liabilities
------------------------------------------------------------------------------------------------------------

      Total Liabilities                                                       1,795,848           1,089,563

Stockholders' Deficit
    Preferred stock,$0.001 par value per share
      10,000,000 shares authorized. No shares
      issued and outstanding at May 31, 2003 and 2002, respectively                   -                   -
    Common stock, $0.001 par value, 100,000,000
        shares authorized, 100,000,000 and 78,442,715 shares
       issued and outstanding at May 31, 2003 and 2002,
       respectively                                                             100,000              78,442
    Advance on deposit of equipment                                            (125,000)
    Additional paid in capital                                                5,484,691           4,942,332
    Accumulated deficit                                                      (7,155,171)         (5,907,321)
    Foreign currency translation adjustment                                      15,692              76,789
-----------------------------------------------------------------------------------------------------------

      Total stockholders' deficit                                            (1,679,788)           (809,758)
------------------------------------------------------------------------------------------------------------

Total Liabilities and Stockholders' Deficit                                  $  116,060          $  279,805
============================================================================================================

                                                                                      See Accompanying Notes.
</TABLE>

                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                                                  AQUATIC CELLULOSE INTERNATIONAL CORP.

                                                   Consolidated Statement of Operations
========================================================================================

                                                                 PERIOD FROM
                                                     JUNE 1, 2002         JUNE 1, 2001
                                                          TO                    TO
                                                     MAY 31, 2003         MAY 31, 2002
----------------------------------------------------------------------------------------

<S>                                                                      <C>
Sales                                                                    $     32,904

Cost of sales                                                                 142,401
--------------------------------------------------------------------------------------

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

Operating expenses
      Selling, general and administrative             1,184,582                899,584
      Financing fees                                    147,569                371,462
      Depreciation                                        1,163                  2,353
--------------------------------------------------------------------------------------
           Total operating expenses                   1,333,314              1,273,399
--------------------------------------------------------------------------------------

Loss from operations                                 (1,333,314)            (1,382,896)
--------------------------------------------------------------------------------------

Other income (expense)
      Gain on disposal of equipment                      65,725
      Foreign currency translation                       19,739                (11,612)
--------------------------------------------------------------------------------------
Total other income (expense)                             85,464                (11,612)
--------------------------------------------------------------------------------------


Net loss                                           $ (1,247,850)          $ (1,394,508)
======================================================================================

Weighted Average Shares                              95,758,155             60,854,801
                                                   ===================================

Loss Per Common Share                              $      (0.01)          $      (0.02)
                                                   ===================================

                                                               See Accompanying Notes.
</TABLE>

                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                                                          AQUATIC CELLULOSE INTERNATIONAL

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

                                                                       Period from
                                                           June 1, 2002      June 1, 2001
                                                                To                 To
                                                           May 31, 2003      May 31, 2002
------------------------------------------------------------------------------------------

<S>                                                       <C>                <C>
Net loss                                                  $  (1,247,850)     $ (1,394,508)

Foreign exchange translation adjustment                         (61,097)           41,733
------------------------------------------------------------------------------------------

Comprehensive loss                                        $  (1,308,947)       (1,352,775
------------------------------------------------------------------------------------------

                                                                   See accompanying notes.
</TABLE>

                                       F-5
<PAGE>
<TABLE>
<CAPTION>

                                                                                                   AQUATIC CELLULOSE INTERNATIONAL

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



                                                                         Paid      Advance   Foreign                      Total
                                                Common       Common       In         on      Currency     Accumulated  Stockholders'
                                                Shares       Stock      Capital    Deposit  Translation     Deficit       Deficit
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>           <C>        <C>        <C>        <C>         <C>           <C>
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-6
<PAGE>
<TABLE>
<CAPTION>
                                                                                               AQUATIC CELLULOSE INTERNATIONAL

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

                                                                      Paid                   Foreign                      Total
                                               Common      Common      In       Advance on   Currency     Accumulated  Stockholders'
                                               Shares      Stock     Capital     Deposits   Translation     Deficit       Deficit
---------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>         <C>          <C>        <C>         <C>          <C>            <C>
Issued upon conversion of debentures          4,189,412     4,190     35,810                                                40,000
Issued for cash                               3,868,880     3,869     38,631                                                42,500
Issued for services                          16,010,100    16,010    466,669                                               482,679
Issued for repayment of loan                  2,000,000     2,000     88,000                                                90,000
Issued to board members for service             900,000       900     25,200                                                26,100
Notes receivable                                                     105,450                                               105,450
Shares cancelled                             (5,411,107)   (5,411)  (217,401)                                             (222,812)
Issued as deposit on equipment                                                   $ (125,000)                              (125,000)
Foreign currency translation adjustment                                                        (61,097)                    (61,097)
Net loss                                                                                                  (1,247,850)   (1,247,850)
                                            --------------------------------------------------------------------------------
Balance at May 31, 2003                     100,000,000 $ 100,000  $ 5,484,691   $ (125,000)  $ 15,692   $(7,155,171)  $(1,679,788)

                                            =================================================================================

                                                                                                          See accompanying notes.
</TABLE>
                                                                F-7
<PAGE>

<TABLE>
<CAPTION>
                                                                       AQUATIC CELLULOSE INTERNATIONAL CORP.

                                                                        Consolidated Statement of Cash Flows
-------------------------------------------------------------------------------------------------------------

                                                                                   PERIOD FROM
                                                                           JUNE 1, 2002         JUNE 1, 2001
                                                                                TO                    TO
                                                                           MAY 31, 2003         MAY 31, 2002
--------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                $ (1,247,850)         $ (1,394,508)
   Adjustments to reconcile net loss to
     net cash used by operating activities:
     Depreciation                                                                 1,163                 2,353
     Amortization of deferred financing costs                                    19,189                32,275
     Amortization of beneficial conversion feature                               58,325               105,983
     Unpaid fees and expenses due to stockholders                               742,114               113,383
     Value of shares cancelled                                                 (222,812)
     Gain on sale of equipment                                                  (65,725)
     Write off loan from directors                                                5,450
     Bad debt expense                                                                                   6,734
     Inventory valuation write down                                                                    60,141
     Interest paid by issuance of common stock                                                         40,695
     Services paid by issuance of common stock                                  482,679               331,500
     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
     Inventory                                                                                        (84,974)
     Prepaid expenses                                                            16,484               (16,774)
     Accounts payable and accrued liabilities                                   187,946                32,211
--------------------------------------------------------------------------------------------------------------
     Net cash used by operating activities                                      (23,037)             (320,577)
--------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Acquisition of equipment
   Advance on equipment purchase
--------------------------------------------------------------------------------------------------------------
     Net cash used by investing activities                                            -                     -
--------------------------------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Sale of common stock                                                          42,500                75,000
   Share issue cost                                                                                   (28,210)
   Issuance of convertible debenture payable                                                          200,000
   Exercise of options                                                                                 50,000
   Proceeds from loan from affiliated entity                                     44,000
   Deferred financing costs                                                                           (27,000)
--------------------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                                   86,500               269,790
--------------------------------------------------------------------------------------------------------------

   Effect of exchange rate on cash balance                                      (61,097)               41,733
--------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash                                                   2,366                (9,054)

Cash at beginning of period                                                      10,838                19,892
--------------------------------------------------------------------------------------------------------------
Cash at end of period                                                          $ 13,204              $ 10,838
--------------------------------------------------------------------------------------------------------------
                                                                                       See accompanying notes.
</TABLE>


                                      F-8
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL INFORMATION:

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



SUPPLEMENTAL NON CASH INVESTING AND FINANCING ACTIVITIES:

     During the year ended May 31, 2002, the Company issued common stock:
     7,245,000 shares, valued at $101,430 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

     During the year ended May 31, 2003, the Company issued common stock:
     16,010,100 shares, valued at $482,679, for services
     900,000 shares, valued at $26,100, for directors fees
     4,189,412 shares, valued at $40,000, for conversion of convertible
        debentures
     2,000,000 shares, valued at $90,000, for repayment of loan


                                                        See accompanying notes.

                                     F-9
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003

NOTE 1 - ORGANIZATION AND BUSINESS COMBINATION

Aquatic Cellulose International Corp. (the "Company" or "ACIC") was incorporated
under the laws of the State of Nevada in 1996. As of May 31, 2002, the Company's
principal activity was the underwater harvesting and/or salvaging of submerged
timber, and the sale of lumber produced from such timber. During the fiscal year
ended May 31, 2003, the Company ceased its underwater operations and decided to
focus on a new business direction in the oil and gas industry.

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

As of May 31, 2002, the Company operated 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 was focusing its energies and management team on not only the Brazil project
but also other wood recovery opportunities around the world. ACL was 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, was refining the overall
Tucurui operational plan, to be implemented once full production has commenced.
Ecomab was also working other Hydro facilities to expand their operations into
other areas of Brazil, and also increase utilization of wood byproducts.


                                      F-10
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Aquatic Cellulose International Corporation (the "Company") has experienced
recurring losses, has a working capital deficiency of $1,782,354 and an
accumulated deficit of $7,155,171 as of May 31, 2003 and at the end of fiscal
year ended May 31, 2002 had reduced its underwater timber harvesting operations
pending new financing and a lack of working capital. These factors, among
others, raise substantial doubt as to its ability to continue as a going
concern.

Management plans to obtain sufficient working capital from external financing to
meet the Company's liabilities and commitments as they become payable over the
next twelve months. The Company plans to obtain the approval of its shareholders
to increase the total number of authorized shares to allow for conversion of
debentures and sell additional common shares for cash. As of May 31, 2003, the
Company did not have any firm commitments to obtain adequate financing. There
can be no assurance that management's plans will be successful.

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 pending new financing and a lack of
working capital.

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


                                      F-11
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



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.

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

                                      F-12
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



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
95,758,155 and 60,854,801 for the fiscal years ended May 31, 2003 and 2002,
respectively.

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 97,533,405 and
62,688,130 for the fiscal years ended May 31, 2003 and 2002, respectively. For
the fiscal years ended May 31, 2003 and 2002, approximately 1,775,250 and
2,075,250 shares attributable to the exercise of outstanding options and
warrants were excluded from the calculation of Diluted EPS because the effect
was antidilutive. No adjustments were made to reported net income in the
computation of EPS.

WARRANTS ISSUED IN CONJUNCTION WITH CONVERTIBLE DEBT

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

                                      F-13
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



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 net income and foreign currency translation adjustments were the only
components of its comprehensive income as of May 31, 2003 and 2002,
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 multiple segments (Note 16).

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
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 operations.

                                      F-14
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



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.

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

                                      F-15
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



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 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.


                                      F-16
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which amends SFAS No. 133 for
certain decisions made by the FASB Derivatives Implementation Group. In
particular, SFAS No. 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 No. 149 are to be applied prospectively. Management does not expect the
adoption of SFAS No. 149 to have a material impact on our financial position,
cash flows or results of operations.

NOTE 3 - INVENTORY

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:

                                           2003           2002

  Computer equipment                     $ 3,931          $ 3,931
  Furniture and equipment                  4,569           11,701
  Leasehold improvements                   4,853            4,853
                                         -------          -------

                                          13,353           20,485
 Less: accumulated depreciation           10,787           12,481
                                         -------          -------
                                         $ 2,566          $ 8,004
                                         =======          =======

                                      F-17
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003


Depreciation expense was $1,163 and $2,353 for the fiscal years ended May 31,
2003 and 2002, respectively.

During October 2002, the Company entered into an agreement with Gary Ackles,
former CEO, to sell the equipment located in Brazil with a net book value of
$4,275 in addition to a prototype machine with a net book value of $-0- located
on the Tucurci reservoir. Under the terms of the agreement, the Company received
proceeds of $70,000 resulting in a pre-tax gain of approximately $65,700. The
Company applied the value of the machine against the unpaid license fee owed to
Mr. Ackles (Notes 8 & 15).

NOTE 5 - ADVANCE ON EQUIPMENT PURCHASES

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

                                                          2003             2002
                                                        --------        --------
Deposit for construction and acquisition of an
     Aquatic Timber Harvesting Machine
     from  an Affiliated Company                        $100,000        $100,000
Deposit  for the purchase
     of a fleet of boats                                    --           125,000
                                                        --------        --------
                                                        $100,000        $225,000
                                                        ========        ========


Pursuant to a manufacturing agreement with a company that is controlled by the
Company's former 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 (Notes 12 & 15). As of May 2003, the manufacturing and
license agreements were cancelled.

During the fiscal year ended May 31, 2003, the Company was advanced
approximately $44,000 from the Affiliated Company collateralized by the aquatic
timber harvesting equipment (Notes 8 & 15).


                                      F-18
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



During the fiscal year ended May 31, 2002, the Company made a deposit by issuing
2.5 million shares of common stock related to purchasing a fleet of boats. The
market value of the shares on the date of issuance totaled $125,000, which was
capitalized as Advances on Equipment. As of May 31, 2003, the Company was in
negotiations with the seller to reverse the transaction and believes that it is
probable the cancellation will occur. Therefore, the value of the shares of
$125,000 has been presented as a contra equity item, as the Company determined
that the amount no longer represents an asset as defined in Statement of
Financial Accounting Concepts No. 5 "Recognition and Measurement in Financial
Statements of Business Enterprises". As of the date of this report, the Company
has not finalized the negotiations, as the Company has not yet received back
from the seller the original 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 and was fully amortized during the fiscal
year ended May 31, 2003.

NOTE 7 - ACCRUED LIABILITIES

Accrued liabilities consist of the flowing at May 31:

                                               2003              2002
                                             --------          --------

Accrued interest                             $158,151          $ 62,655
Amount due to consultant for common
   stock returned to Treasury                  31,648
Other accruals                                 12,645            39,106
                                             --------          --------
                                             $202,454          $101,761
                                             ========          ========

                                      F-19
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003


NOTE 8 - AMOUNTS DUE TO RELATED PARTIES

Amounts due to related parties consist of the following at May 31:

                                                           2003           2002
                                                         --------       --------
Due to Gary Ackles for unpaid
   consulting fees; severance; and
   expenses paid on behalf of Company
   (Notes 12 & 15)                                       $298,233       $113,383
Due to Gary Ackles for shares returned
   to treasury (Note 13)                                  144,804
Unpaid license agreement between Gary
   Ackles and Company  (Notes 4, 12 & 15)                  80,000
Unpaid consulting fees due to  Sheridan Westgarde
    and Gary Ackles  (Notes 12 & 15)                       26,000
Due to Sheridan Westgarde for shares
   returned to treasury for professional
   services  (Note 13)                                     46,360
Funds borrowed from Legacy Systems
     (Notes 5 & 15)                                        44,000           --
                                                         --------       --------
                                                         $639,397       $113,383
                                                         --------       --------


All amounts due to related parties are non-interest bearing and are payable upon
demand.


                                      F-20
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



In connection with the proposed merger of Legacy Systems and the acquisition of
Century Resources Inc. all related party debt
will be converted to common stock (Note 18).

NOTE 9 - 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 $480,800 at May 31, 2003, 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 $300,000 of the debentures at May
31, 2003 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,
$480,800 of the debentures can automatically convert to common shares if certain
conditions are met. The remaining $300,000 of the debentures do not
automatically convert to common shares on their due dates. $780,800 of the total
debentures was in default at May 31, 2003.

During December 2003, the Company entered into an amendment to the debentures
outstanding as of May 31, 2003 and entered into another $100,000 convertible
promissory note (Note 18).




                                      F-21
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003


<TABLE>
<CAPTION>

The debentures are due as follows:

DUE DATE                                        MAY 31, 2002      ISSUED      CONVERTED        MAY 31, 2003
--------                                        ------------      ------      ---------        ------------
<S>                                             <C>               <C>          <C>              <C>
May 4, 2002                                     $   3,300         $    --      $ (3,300)        $     --
September 29, 2001                                500,000              --        (19,200)          480,800
January 25, 2002                                   17,500              --        (17,500)             --
March 14, 2002                                    100,000              --           --             100,000
December 4, 2002                                  200,000              --           --             200,000
                                                 --------         --------     ---------         ---------
                                                  820,800         $    --      $ (40,000)          780,800
                                                                  ========     =========
Unamortized discount related
      to warrants granted in conjunction
     with the issuance of the
     convertible debentures payable               (17,293)                                         (17,293)

Unamortized discount related to
     beneficial conversion option on the
     convertible debentures payable               (58,325)                                            --
                                                 --------                                         --------

                                                $ 745,182                                         $763,507
                                                =========                                         ========
</TABLE>




                                      F-22
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



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, 2002    Issued       Expired      May 31, 2003
---------------              -----       ------------    ------       -------      ------------

<S>                       <C>              <C>           <C>          <C>              <C>
May 4, 2003               $    0.69        250,000           --       (250,000)            --
September 29, 2003             0.69        250,000           --           --            250,000
January 25, 2003               0.35         50,000           --        (50,000)            --
March 14, 2003                 0.35         50,000           --        (50,000)            --
December 4, 2003               0.35        100,000           --           --            100,000
                                           -------       -------       -------          -------

                                           700,000           --       (350,000)         350,000
                                           =======       =======       =======          =======
</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 $58,325 and $105,983 for
beneficial conversion features in connection with the debentures and warrants
have been charged to operations during the fiscal years ended May 31, 2003 and
2002, respectively.

In connection with these convertible debentures, the Company had $158,151 and
$62,655 of accrued interest at May 31, 2003 and 2002, respectively.

All of the outstanding warrants as of May 31, 2003 subsequently expired
unexercised.

NOTE 10 - 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-23
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003

During the fiscal year ended May 31, 2003, approximately $100,000 of such loans
was offset against unpaid consulting fees due to Gary Ackles, former Director,
CEO and President (Note 8). The remaining loans were forgiven to the two other
Directors during January 2003.

NOTE 11 - INCOME TAXES

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


                                        2003               2002
                                        ----               ----

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


                                      F-24
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003

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

                                      2003            2002
                                     ------        ------

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, 2003, the Company had net carry-forward losses of approximately
$3,208,408. 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               $ 1,090,859
  Less:  Valuation Allowance         (1,090,859)
                                    -----------
Net Deferred Tax Asset              $      --
                                    ===========

Net operating loss carry-forwards expire starting in 2012 through 2023. Per year
availability is subject to change of ownership limitations under Internal
Revenue Code Section 382.

NOTE 12 - 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.



                                      F-25
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003

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, 2003:


2004                                        $6,024
2005                                         5,542
2006                                         3,433
                                             -----

                                           $14,999
                                           =======

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 Gary Ackles, the Company's
      former President, CEO and a Director, 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. As
      of May 31, 2003, approximately $298,000 was owed to Mr. Ackles for
      unpaid consulting fees (Note 8). The agreement was terminated effective
      March 30, 2003.

-     During March 2003, Gary Ackles resigned as Director, President and CEO
      of the Company and was succeeded by Sheridan B. 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 (Note 8).

-     A one-year agreement commencing January 1, 2002, and renewable
      annually, providing for an annual fee of $36,000. The agreement was
      terminated effective June 1, 2003.

-     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. The agreement was terminated during
      February 2003.


                                      F-26
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003

LICENSE AGREEMENT

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 (Notes 5 &
15).

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. During
the fiscal year ended May 31, 2003, the Company recorded an exclusivity fee
liability of $150,000 as no purchase had been made.

During April 2003, the Company desisted from pursuing operations to recover
underwater timber and to focus its efforts on 1) pursue the acquisition of a
revenue generating company or assets in the oil and gas industry and 2)
potential exploration of the ATH large scale underwater technology.

As of May 2003, the manufacturing and license agreements were canceled.

NOTE 13 - COMMON STOCK

COMMON STOCK
------------

The Company has authorized 100,000,000 shares of $0.001 par common stock. As of
May 31, 2003 and 2002, 100,000,000 and 78,442,715 were issued and outstanding,
respectively. The Company plans to obtain the approval of its shareholders to
increase the total number of authorized shares to allow for conversion of
debentures and sell additional common shares for cash.

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) for a total value of $125,000. As previously noted in Note 5, the Company
was in negotiations with the seller to reverse the transaction and believes that
it is probable the cancellation will occur.

During January 2002, the Company issued 7,245,000 shares of restricted stock at
$0.01 per share to Gary Ackles as per his employment agreement for a total value
of $72,450.



                                      F-27
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



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) for a total value of $60,000.

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) for a total value of $40,695.

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)
for a total value of $331,500.

During the quarter ended August 31, 2002, the Company issued an aggregate of
900,000 shares of restricted stock at $0.029 per share for director fees (price
reflected market price) for a total value of $26,100.

At various times during the fiscal year ended May 31, 2003, the Company issued
an aggregate of 3,868,880 shares of restricted stock to various investors at
$0.05 per share for cash pursuant to various subscription agreements for a total
value of $42,500. At various times during the fiscal year ended May 31, 2003,
the Company issued an aggregate of 4,189,412 shares of restricted stock at a
price ranging from $0.0091 to $0.01 per share for upon conversion of debentures
(price reflected market price) for a total value of $40,000.

At various times during the fiscal year ended May 31, 2003, the Company issued
an aggregate of 16,010,100 shares of restricted stock at a price ranging from
$0.027 to $0.04 per share for services rendered (price reflected market price)
for a total value of $482,679.

During the fiscal year ended May 31, 2003, the Company's former CEO surrendered
3,620,107 shares of common stock for the purposes of compensating professionals
providing services to the Company. The shares at date of cancellation had an
estimated value of $144,804. The Company also received 1,791,000 additional
surrendered shares



                                      F-28
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



from a stockholder and consultant for the purpose of compensating professionals
providing services to the Company. The shares at date of cancellation had an
estimated value of $78,008 (Notes 7 & 8).

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, 2003 and
2002, no classes of preferred stock were authorized, issued or outstanding.

NOTE 14 - STOCK OPTIONS

As of July 31, 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. The options
expire on February 22, 2005. These options were outstanding as of May 31,2003
and 2002, respectively.

The following table summarizes the option activity for the fiscal year ended May
31, 2003:

<TABLE>
<CAPTION>
                                                               Weighted-        Weighted-
                        Number of             Average          Average            Fair
                         Shares           Exercise Price    Exercise Price       Value
                         ------           --------------    --------------       -----

<S>                    <C>                <C>                  <C>                 <C>
May 31, 2002           1,425,250          $         0.52       $    0.52           0.52
Granted
Exercised
Canceled
                      ----------          --------------       ---------          -----

May 31, 2003           1,425,250          $         0.52       $    0.52           0.52
</TABLE>

                                      F-29
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



NOTE 15 - RELATED PARTY TRANSACTIONS

The Company has a service agreement with Kathy Ackles, wife of the former
President, for bookkeeping and administrative services for $36,000 per annum
(see Note 12). This agreement was terminated effective June 1, 2003.

The Company has an employment agreement with Gary Ackles, the Company's former
President, providing for an annual salary of $107,134 and certain benefits (see
Note 12). This agreement was terminated effective April 1, 2003.

The Company has a license agreement with the Company's former 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 (see
Note 12). The manufacturing and license agreements were cancelled as of May
2003.

The Company borrowed $44,000 from Legacy Systems Corporation, owned by Gary
Ackles. The security for the loan was the ATH equipment (Note 5).

During October 2002, the Company entered into an agreement with Gary Ackles to
sell the equipment located in Brazil with a net book value of $4,275 in addition
to a prototype machine with a net book value of $-0- located on the Tucurci
reservoir. Under the terms of the agreement, the Company received proceeds of
$70,000 resulting in a pre-tax gain of approximately $65,700. The proceeds were
used to reduce the unpaid license fees owed to Mr. Ackles (Note 4).

During the fiscal year ended May 31, 2003, approximately $100,000 of loans made
to a Director for the exercise of Company stock options was offset against
unpaid consulting fees due to Gary Ackles (Note 10). The remaining loans were
forgiven to the two other Directors during January 2003.

NOTE 16 - SEGMENT INFORMATION

During the fiscal years ended May 31, 2003 and 2002, 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.




                                      F-30
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003


Revenues from external customers at May 31,:


                           2003              2002
                         --------           -------

United States            $   --            $   --
Canada                       --                --
Brazil                       --              32,904
                         --------           -------
                         $   --            $ 32,904
                         ========          ========
Segment assets:


                           2003              2002
                         --------           -------

United States            $   --            $   --
Canada                    116,060           274,733
Brazil                       --               5,072
                         --------           -------
                         $116,060          $279,805
                         ========          ========


NOTE 17 - 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 18 - SUBSEQUENT EVENTS

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

During September 2003, the Company signed a Memorandum of Understanding,
followed in December 2003, by a Letter of Intent with Century Resources Inc.
("Century") of Houston, Texas, for the acquisition of Century by the Company.
These two agreements with Century negate and preclude all other agreements
between Legacy, Century and the Company and outline the intent to amalgamate
Century and the TigerLynk technology with the Company.

                                      F-31
<PAGE>
                      AQUATIC CELLULOSE INTERNATIONAL CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  MAY 31, 2003



Century and the Company and outline the intent to amalgamate Century and the
TigerLynk technology with the Company.

In September 2003 the Company signed an agreement with an investor to provide a
cash loan of approximately $28,000 that would be exchanged for shares should
shareholders approve the increase in authorized shares in the forthcoming proxy
vote.

In November of 2003 the Company signed a loan agreement with an investor for
$25,000, to be repaid in three equal payments over the course of 60 months. The
Company agreed to an additional incentive, to issue shares to the investor
should shareholders approve the increase in authorized shares in the forthcoming
proxy vote. The Company used $15,000 of these investment proceeds to engage
First Line Capital LLC of New York to perform legal services in relation to
future funding and financing of the Company.

During November 2003, the Company received notice that they were in default of
certain debenture obligations.

During December 2003, the Company entered into an agreement whereby, the
repayment of the outstanding debentures in default will be made by an Equity
Line of Credit instrument negotiated between the convertible debenture holders
and the Company. Based on this arrangement, the Company and the convertible
debenture holders further agreed to an additional funding of $900,000. While
these new funds are secured as a convertible debt, the repayment is managed
through the Equity Line of Credit. The Company signed a $100,000 convertible
promissory note as an advance on the $900,000 and paid $80,000 as a deposit to
acquire Century.

In connection with the proposed merger of Legacy Systems Corp. and the
acquisition of Century Resources Inc. all related party debt (Note 8) would be
converted to common stock.