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As filed with the Securities and Exchange Commission on September 22, 1999
Reg. No. 0-27063
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
AQUATIC CELLULOSE INTERNATIONAL CORP.
-------------------------------------
(Name of Small Business Issuer in its charter)
Nevada 82-0381904
- ------------------------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
3704 32nd Street, Suite 301 Vernon, B.C. VIT 5N6
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(Address of principal executive offices) (Zip code)
Registrant's telephone number: (800) 565-6544
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $.001 par value per share
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PART I.
ITEM 1. Description of Business
(a) Business Development:
Aquatic Cellulose International Corp. (" the "Company") is a Nevada
Corporation originally organized as Aquatic Cellulose Ltd. ("ACL") and was
incorporated in March of 1997. In July of 1997, ACL was acquired by American
Foods Marketing (OTC Symbol ANFM). Subsequently, ANFM changed its name and
symbol to Aquatic Cellulose International Corp. (OTC BB: "AQCI"). Aquatic
Cellulose Ltd., remained a wholly owned subsidiary.
(b) Business of Registrant:
Located in Vernon, British Columbia, Canada, the Company is a forest
industry based company focusing on what was once considered a lost resource.
That resource is submerged timber. AQCI has in place the processes and
equipment necessary to access and recover this valuable resource. This
submerged timber is still of excellent quality and can be used for plywood, sawn
lumber, and a wide variety of wood fiber processes.
The Company harvests trees with a surface mounted robotic arm 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 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.
The Company uses a simple but effective way to obtain timber and the rights
to harvest. First the Company researches a potential site to insure sufficient
timber is recoverable to warrant an on-site visit. Next the Company travels to
the site for more extensive evaluations of the timber reserve. If the reserve
is adequate, the Company meets with the local government officials to determine
the ownership of the wood reserve. In most cases once the wood has sunk to the
bottom of the water location, the government takes control to insure that all
environmental concerns are addressed. Once ownership is determined the Company
applies for the appropriate salvage permit.
Foreign countries are approached slightly differently. Here the Company
first meets with all appropriate government officials to receive approval from
the host country to evaluate its inundated forests. Once received the Company
evaluates the target site to insure sufficient volume of timber. Finally the
Company forms a joint venture 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 putting in place the down stream infrastructure to process the
timber.
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It is Management's belief that there is pressure to reduce the consumption
of land based timber. The Company believes it has strategically placed itself
as the answer to the pressure referenced above by being able to supply a unique
alternate wood source in which the Company is also the best source to access
that supply . Another plus is at the Company has entered into an industry with
minimal competition.
The Company also offers a unique method of harvesting timber. Presently
submerged forests are harvested by divers using hand operated equipment which
poses a high risk of injury to the divers plus this method has a slow wood
recovery rate (8 to ten trees per day recovered). The Company, with its
harvester, offers a method of wood recovery that has a higher rate of recovery,
is cost effective and is a safer method of wood recovery not requiring divers.
This industry consists of two primary sources of underwater timber. The
first of these is standing timber that has been inundated (flooded) as a result
of a dam construction (hydroelectric or otherwise). These standing trees are
submerged as the water level behind a dam rises, preserving them and preventing
degradation of the wood quality. The second source is salvage timber. This
source consists 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. The Company's
Management estimates that in general 17% of the logs on route by water to a mill
or load out area, sink to the bottom of the waterway before reaching there
destination.
Inundated or salvage timber is viable for all types of finished product
production including paper. Furthermore, logs in deep, fresh water are not
subject to rot as bacteria requiring oxygen are not present, thus though there
may be some slight discoloration, the structural integrity of sunken wood is
sound. Also, in its travels to South America Management observed that submerged
hardwoods in the Amazon are currently being used in the production of both
plywood and sawn lumber.
The Company has investigated underwater forests and salvage timber in
Canada, the United States, and Central and South America. In addition to
confirming the quality and location of the submerged forest, the Company also
completed a physical examination of standing timber in reservoirs such as Ootsa
lake in B.C. and salvage timber in water ways such as Lake Superior. The wood
examined was in excellent condition and suitable for harvest and processing.
The Company has also done on-sight evaluations of the Tucurui and Balbina
reservoirs in Brazil. The Tucurui reservoir, located in northern interior of
Brazil, was created in 1984. When the reservoir filled, it covered over 100,000
hectares of old growth rain forest. Local plywood and lumber producers have
harvested trees from these reservoir using divers. The wood recovered was found
to be excellent for processing, however, this recovery process was found to be
slow and inefficient and represented a significant danger to the workers due to
the inherent dangers associated with manually cutting trees using scuba divers.
Presently there is not one operation existing that can consistently and
systematically harvest or collect trees under water on a large scale,
commercially viable basis. Furthermore, not one company has focused on the
international market place.
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Existing operations typically focus on specific lakes with no stated plan to
move outside of their home territory.
Management and their technical staff in investigating the world market
potential for the Company's service have viewed significant submerged timber
resources and inundated forests in South and Central American, the United
States, Canada and South East Asia. In addition, in Management's opinion,
declining timber supply is one of the biggest threats to the forest industry.
Aquatic Cellulose International Corp. intend to be the provider of that source
of timber.
Additionally, the similar conditions are occurring internationally,
especially in tropical countries with precious hard woods. In its travels to
South America, it was communicated to Management that the governments of
developing countries are experiencing pressure to reduce the amount of rain
forest that is harvested each year. Some countries have even gone as far as
boycotting the purchase of certain timber to protest environmentally insensitive
logging practices. Bottom line, the Company is offering an environmentally
sound method of retrieving this lost resource as well as offering a product that
will be accepted as an alternative to harvesting the shrinking rain forest.
The Company's timber harvesting system utilizes three technological
innovations. The first is the harvesting system uses a camera system with
"vision enhancement". The camera system utilizes low lux digitally enhanced
optics (the ability to capture visual images in low light places) and lighting
which 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 "Robotically Controlled Arms and Heads". The
Company has software that transforms individual arm and head joint position feed
back data into an accurate real time graphical image. The software is
copyrighted by Gary Ackles. Additionally, true three-axis robotic control of
the arm position and head functions are incorporated. There is a patent pending
for the use of this visually enhanced robotically controlled arm in the recovery
of submerged timber. This pending patent belongs to the Company's president,
Mr. Gary Ackles and is anticipated to be finalized by early 2000. This software
is run on a system of four Intel Pentium based computers that are networked
together.
The third feature is "Sonar Imaging". The visual range provided by this
vision system is extended by three separate but complementary systems. The
first system is the bottom scan which gives the profile of the submerged terrain
plus the depth and distance between the head and the targets. The second
system, the polar sector scan, is an uninterrupted 360 degree sweep of the
harvesting area and provides the operator with a continuous overview of all
trees in the harvest area including a "nest tree" location data. The third
system is a state of the "real time" sonar which rotates with the harvester head
allowing the operator to target and capture individual trees.
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All three technologies were incorporated in the development and
construction of a fully functional unit for log salvage operations called the
ATH-60. In the fall of 1998, the ATH-60 performed a project on Monty Lake,
Southern Interior of Central British Columbia, Canada, in the recovery of sunken
timber. The project was a success and established that the ATH-60 could perform
and do so consistently. Currently the ATH-60 is in route by ship to the
Company's Brazil project. The Company is currently in the process of creating
the second unit, the ATH-120 which is specially designed for the deeper harvest
of large diameter submerged timber. Here all the ATH-120 CAD-drawings and
technical evaluations are done with construction to begin when funds become
available.
The short term ATH-120 objectives of the Company is to finalize shop
drawings (engineering is complete and detailed design 90% complete) and
subsequently build the ATH-120 harvester, complete pre-operation "lake trials",
and put the machine to work.
The company has two main target markets. The first is reservoirs,
including hydroelectric projects, irrigation dams, etc. There are over 38,000
large dams in the world and a significant number of these contain lumber. Thus,
this is the main source of standing inundated timber. The Company has done
evaluations of the Tucurui and Balbina reservoirs in Brazil and is investigating
other regions such as Chile, Argentina, Venezuela, Panama and Australia. These
evaluations revealed that Brazil's submerged forests contain a multitude of wood
species of which at a minimum, 60% of the wood can be used for sawwood and the
remaining 40% for plywood. Secondary markets in this arena would include
hydroelectric utility companies, forestry companies and governmental agencies
(i.e. those involved in power generation, foreign investment, economic
development and the environment).
The second market is salvage timber, much of which sank to the bottom of
lakes and rivers years many years ago. Some state and provinces treat these
logs as un-owned logs and consider them as Natural Resources, collecting a token
stumpage fee upon harvest.
There is no requirement for government approval for the marketing or use of
the Company's principal products or services. The Company's products and
services are usually thought of as improving environmental conditions through
the removal of trees that are no longer adding to the ecosystem.
There are no existing or probable governmental regulations on the Company's
business. Governmental agencies are generally in favor the Company's technology
and its by products.
Important Events
----------------
Some events that are in process and management believes are favorable to
the future of the Company are as follows:
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a. Brazil: In 1996 an agreement was signed in Brazil which gave the Company
the right to recover species of timber from the Tucurui Reservoir in Brazil.
There is currently a Company harvesting machine in route to Brazil and it is
expected that the recovery process will begin some time in the month of October
1999.
The Company estimates the value of this type of contract by looking at two
key factors, 1) the density and size of the submerged forest and 2) the
recoverable portion of this submerged forest. Once these factors are reasonably
determined, the recovery unit results are extended by the market value of wood.
The market value of the wood is kept current and published by the World Forest
Institution. The World forest Institution is recognized by the United States
Department of Natural Resources as a viable source to value wood species.
The profit the Company will receive from the sale of recovered wood is an
agreed upon calculation. Here the Company would receive an agreed upon rate per
quantity of wood recovered ($40 per cubic meter of wood recovered) plus fifty
percent (50%) of the value of the wood sale less the expenses incurred by the
operation. It is estimated by the Company that there is a potential profit
range somewhere between $7,000 to $28,000 per day. The ability to expand the
value of the contract to an amount estimated as $500 million over several years
is based on the use of up to ten harvesting machines.
Concurrently with the Brazil Agreement, Aquatic Cellulose formed a
strategic alliance with Ecomab, a Brazilian company. This relationship was
formed to facilitate the harvesting efforts referenced above.
b. American/Asian Consortium: In July of 1999 a group of American and Asian
businesses working together who are interested in harvesting the wood reserves
in South East Asia visited the Aquatic Cellulose facility in Canada to view the
harvesting equipment in operation. Subsequent to the visit, this consortium has
expressed great interest in the equipment and process and has also expressed an
interest in joint venturing with the Company to implement a harvesting project
by February 2000.
c. Gatineau river. Quebec: Syro Tech, a Quebec company with the ability to
obtain harvesting rights to the Gatineau River in Quebec has reached a tentative
agreement to harvest the Gatineau River. However, this project will be delayed
until the summer of year 2000 as a result of the necessary equipment required to
perform this project is not available and will not be available before the
Canadian winter arrives.
Accomplishments
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Mr. Ackles, the CEO/President of the Company, developed the robotic arm for
harvesting timber in 1995, prior to joining the Company. In 1996, upon joining
the Company, Mr. Ackles granted the Company the right to use his robotic arm in
the submerged forest industry for harvesting timber. Shortly afterward the
Company, under the direction of Gary Ackles, began developing the prototype of
the ATH-60 Aquatic Timber Harvester. With the ATH-60 under development, Mr.
Ackles began pursuing
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domestic and international projects. One of the Company's objective when
pursuing projects was to gain the rights to the submerged timber resources.
The Brazilian government, in March of 1997, requested Mr. Ackles to
consider the Tucurui reservoir as its first site to begin commercial harvesting
of timber. Mr. Ackles traveled to Brazil in June, 1997 to determine if there
was any potential in dealing with South America. Based on Brazil's
representations, it appeared that Brazil reservoir had vast potential and In
August 1997, it was announced that the Company would be moving forward on this
project.
In September 1998, the Company completed building the prototype model of
the ATH-60. The model was tested at Monty Lake, in the central interior of
British Colombia. The ATH-60test was successful and the Company was now able to
move forward in both securing projects and them the actual harvesting of the
timber.
A technical evaluation team was sent to Brazil in May of 1999 to evaluate
the Brazilian Tucurui reservoir. The team reported that the reservoir, which
encompassed approximately 400,000 acres of submerged timber, contained numerous
species of timber that was ideal for harvesting. However due to the large size
of the submerged timber, during the spring/summer of 1999, the ATH-60 was refit
with a larger head and joints which will enable it to handle the requirements of
the large Brazilian timber. The ATH-60 is presently on route via ship to Brazil
and harvesting is to begin in October 1999.
In the short term, the Company intends to build more harvesters and phase
then into the Tucurui project as the total matures and can handle larger volumes
of timber. The Company will begin the construction of these additional
harvesters as soon as it becomes commercially viable. Additionally, the Company
is continuing to form relationships both domestically and around the world.
Southeast Asia has expressed interest and is shaping up to be the Company's next
target.
The Company's long term objectives are to establish a reserve base of
inundated and salvage timber to ensure future stability and long term growth.
Also of key importance is the commitment to continued development of the
Company's technology and equipment to maintain our lead position in this
emerging industry.
Revenue Recognition, Start-up Costs and Licensing Fees Policies
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The Company will recognize revenue from the harvesting of salvage timber at
the point when the actual sale has been completed for the recovered timber.
Start-up costs have been expensed as incurred. Currently the Company does not
have plans to earn revenue from the licensing of equipment and therefore have
not developed or disclosed an accounting policy covering this area.
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Acquisition Strategy
--------------------
As the Company progresses in realizing its harvesting operation goals, it
will be necessary to expand the Company's operation in certain key areas to
facilitate further growth. These areas are in processing the wood species
harvested and in distributing the wood once processed. The Company anticipates
that these needs will require addressing some time in the middle to late year
2000.
Another area of future expansion that is needed to complement the Company's
product line is in the precious wood industry area. Many of the wood species
that will be harvested qualify as precious wood (high end wood). The precious
wood industry is a distinct industry and requires application and certification
with the easiest path of entry into the industry being via acquisition of an
existing company.
The Company employs a total of four full time employees.
The principles of the company include Mr. Gary Ackles and Dr. Claus Wagner-
Bartak. Mr. Ackles has many years experience in the aquatic environment, new
equipment development and corporate management. Dr. Claus Wagner-Bartak was on
the team of scientists that developed the "Canada - arm" used on NASA's Space
Shuttle.
Working Capital
Management is of the opinion that sufficient working capital will be
obtained from operations and external financing to meet the Company's
liabilities and commitments as they become payable. The Company has in the past
successfully relied on private placements of common stock securities, bank debt,
loans from private investors and the exercise of common stock warrants in order
to sustain operations. Though there is no guarantee that future funds other than
form operations will be available, it is anticipated that these same financing
methods as can be utilized on an as needed basis for any future cash needs.
ITEM 2. Management Discussion and Analysis or Plan of Operation
Plan of Operations
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The short term objectives of the Company is to finalize fabrication
drawings (engineering is complete and detailed design 90% complete) and
subsequently build the ATH-120 harvester, complete pre-operation "lake trials",
and put the machine to work.
The Company's long term objectives are to establish a reserve base of
inundated and salvage timber to ensure future stability and long term growth.
Also of key importance is the commitment to continued development of the
Company's technology and equipment to maintain our lead position in this
emerging industry.
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Over the next twelve months, Management is of the opinion that sufficient
working capital will be obtained from operations and external financing to meet
the Company's liabilities and commitments as they become payable. The Company
has in the past successfully relied on private placements of common stock
securities, bank debt, loans from private investors and the exercise of common
stock warrants in order to sustain operations and anticipates that these same
methods can be relied upon on an as needed basis for any future cash needs.
The Company has basically completed its current research and development
project (ATH-120) and does not have another project lined up nor planned in the
immediate future. However, the Company is committed to continued development of
the Company's technology and therefore the Company plans to provide for research
and development on an as needed basis.
There is no expected or planned sale of plant and/or significant equipment
by the Company.
The Company's work force is expected to remain the current level for the
next twelve months.
Management's Discussion and Analysis of Financial Condition and Results of
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Operations
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Full Year
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The Company had revenue (from timber sales) of $3,070 for the year ended
May 31, 1999 as compared to no revenue for the prior year ended May 31, 1998.
Operating costs and expenses were $486,539 for the year ended May 31, 1999 as
compared to $499,116 for the year ended May 31, 1998, a decrease of $12,577 or
3%.
Net cash (used) in Operating Activities for the years ended May 31, 1999
and 1998 was ($309,543) and ($494,147) respectively. The change in cash from
operating activities was $184,604.
Net cash used in investing activities was ($79) and ($4,161) for the years
ended May 31, 1999 and 1998 respectively, reflecting a change of $4,082. This
decrease was a result of the Company reducing expenditures and capital assets.
Net cash from financing activities was $383,323 and $435,580 for the years
ended May 31, 1999 and 1998 respectively, reflecting a change of $52,257.
Net (loss) decreased from a loss of $491,800 for the year ended May 31,
1998 to a loss of $483,469 for the year ended May 31, 1999, a decrease of $8,331
or 2%.
Year 2000 Issue
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The Company has attempted to evaluate the impact of the year 2000 issue on
its business and does not expect the amounts, if any, to be expensed to be
material. No such
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costs have been expensed to date, since the Company uses proprietary software
developed by the Company's CEO Gary Ackles.
Currently the Company anticipates commencing communication with its
significant vendors and customers to determine the extent that year 2000
compliance issues of such parties may effect the Company. At this time, the
Company believes there will be no disruption in business due to its customers'
or vendors' year 2000 readiness. The Company has not established a contingency
plan. There can be no guarantee that the systems of such other companies will be
timely converted without a material adverse effect on the Company's business,
financial condition or results of operations.
ITEM 3. Description of Property
The Company's offices are located at 3704 32nd Street, Suite 301, Vernon,
British Columbia, V1T5N6. The Company is committed through the year 2000
with annual lease payments under operating leases for office premises and
equipment of $12,165 per year.
ITEM 4. 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 the Company's outstanding
Common Stock by all officers and directors individually, all officers and
directors as a group, and all beneficial owners of more than five percent of the
common stock.
<TABLE>
<CAPTION>
Name and Address Shares Owned Beneficially(1) Percent of Class
- ---------------- ---------------------------- -----------------
<S> <C> <C>
Gary J. Ackles
3498 Salmon River Bench Rd 6,450,000 17.6%
Vernon, B.C. V1T 8Z7
Claus Wagner-Bartak
4092 Lee Highway 200,000 .5%
Arlington, VA 22207
Shane Kerpan
816 George Ann Street 115,000 .3%
Kamloops, B.C. V2C 1L5
Officer/Director as a Group 6,765,000 18.4%
</TABLE>
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of the registration
statement upon the exercise of options or warrants. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants that are
held by such person (but not those held by any other 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.
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ITEM 5. Directors, Executive Officers, Promoters and Control Persons
The directors and executive officers of the Company, and significant
employees of the Company are as follows:
<TABLE>
<CAPTION>
Name AGE Position
- ---- --------
<S> <C> <C>
Gary J. Ackles 46 President & Director
Shane Kerpan 29 Secretary & Treasurer
Claus Wagner-Bartak 62 Director
</TABLE>
The officers and Directors of the Company will devote only such time as
they deem appropriate in the business Affairs of the Company. It is, however,
expected that the officers will devote the time deemed necessary to perform
their duties for the business of the Company.
The directors of the company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified.
Gary J. Ackles: Mr. Ackles was appointed to the Board of Directors on July 1,
- ---------------
1997, to fill a vacancy. Mr. Ackles was President and founder of Aquatic
Cellulose Ltd., and creator of the Aquatic Timber Harvester System. Mr. Ackles
has over 25 years expertise in the industries that manufacture and sell
equipment with extensive international and domestic experience. Mr. Ackles is
an internationally recognized creator of aquatic technologies, and has been
involved with numerous equipment based industries including oil and mineral
exploration, logging, heavy construction, and aquatic environmental management.
Mr. Ackles has introduced and sold equipment in Canada, USA, Middle East,
Africa, and South America.
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.
Claus Wagner-Bartak--Dr. Claus Wagner-Bartak was appointed to the Board of
- -------------------
Directors in July, 1997, to fill a vacancy. Dr. Wagner-Bartak was the founder
of Spar-Aerospace, the corporation contracted to develop and build the robotic
arm that is presently used on the NASA Space Shuttle, that arm being named the
"Canada-arm".
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ITEM 6. Executive compensation
The following table sets forth the total remuneration to be paid to the
executive officers of the Company. (For the period June 1, 1998 through May 31,
1999)
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Name Other 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>
President/CEO 1999 $84,000 0 0 $ 97,500 0 0 0
Secretary 1999 0 0 $35,040 $ 4,500 0 0 0
Director 1999 0 0 0 $ 3,450 0 0 0
Key Personnel: 1999 0 0 0 0 0 0 0
Total: $94,500 0 $35,040 $105,450 0 0 0
Directors as a
Group $94,500 0 $35,040 $105,450 0 0 0
</TABLE>
Options/Sar Grants
There are no outstanding options or stock appreciation rights granted to
any executive officer or director at the time of this filing and there are no
plans to grant such rights in the near future.
Aggregated Option/Sar Exercises and Fiscal Year End Option/Sar Value Table
Not Applicable.
Long Term Incentive Plans
There are no long term incentive plans in currently in effect. The Board of
Directors is in the process of developing an executive and employee stock option
plan. The restricted stock listed in the long term compensation section were
options granted and subsequently exercised for present and past services
rendered in lieu of cash payment. These option were intended to be part of the
to be developed stock option plan.
Compensation of Directors
Directors receive no remuneration at this time. All Company Directors are
entitled to reimbursement of funds advanced to pay expenses in connection with
the Company's Business. The Company has not established committees of the Board
of Directors.
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ITEM 7. Certain Relationships and Related Transactions
On or about February 22, 1999, the Board of Directors authorized the
issuance of stock options to certain officers and directors of the Company based
under a stock option plan yet to be formalized. The options were granted on or
about April 13, 1999 at $0.03 per share as follows: 1) 3,250,000 shares of
common stock to Gary Ackles, 2) 115,000 shares of common stock to Shane Kerpan,
and 150,000 shares of common stock to Claus Wagner Bartak. The option were
vested immediately and would have expired on February 21, 2000. The exercise
price was pegged at market price on or about the date the options were granted
(see note 4 to the financial statements).
ITEM 8. Description of Securities
General
As of the date of this Registration Statement, the authorized capital stock
of the Company consists of 50,000,000 shares of Common Stock, $.001 par value,
of which 36,603,985 shares are outstanding. There are 257 shareholders that
are not in street name. The following is a description of the securities of the
Company taken from provisions of the Company's Articles of Incorporation and By-
laws, each as amended. The following description is a summary and is qualified
in its entirety by the above referenced provisions of the Articles of
Incorporation and By-laws as currently in effect.
Common Stock
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders, including the election of
directors. Accordingly, holders of a majority of shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they chose to do so. The Articles of Incorporation
does not provide for cumulative voting for the election of directors. Holders
of Common Stock will be entitled to receive ratably such dividends, if any, as
may be declared from time to time by the Board of Directors out of funds legally
available therefor, and will be entitled to receive, pro rata, all assets of
the Company available for distribution to such holders upon liquidation.
Holders Common Stock have no preemptive, subscription or redemption rights. All
outstanding shares of Common Stock are, and the shares offered hereby, upon
issuance, will be, fully paid and non assessable.
Preferred Stock
There are 10,000,000 shares of preferred stock, no par value authorized.
None are issued or outstanding at this time. The rights associated with the
preferred shares are still to be determined by the Board of directors of the
Company. There are no present plans by
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the company's Board of Directors to issue preferred shares or to address the
rights to be assigned to such shares.
Transfer Agent
The Company's transfer agent is Oxford Transfer & Registrar located at 317
Southwest Alder, Suite 1120, Portland, Oregon, 92704.
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PART II.
ITEM 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Market Price
- ------------
The Company's Common Stock has been quoted on the OTC:BB since July, 1997
under the symbol "AQCI". However, as of September 1, 1999 the Company's shares
trade only on the pink sheets. The following table set forth, the high and low
bid prices for the Common stock for the quarters indicated.
<TABLE>
<CAPTION>
High Bid Low Bid
-------- -------
<S> <C> <C>
Third Quarter 1998 .16 .13
Fourth Quarter 1998 .23 .06
First Quarter 1999 .06 .03
Second Quarter 1999 .47 .06
</TABLE>
Dividends
- ---------
The Company anticipates that for the foreseeable future, earnings will be
retained for the development of is business. Accordingly, the Company does no
anticipate paying dividends on the Common Stock in the foreseeable future. The
payment of future dividends will be at the sole discretion of the Company's
Board of Directors and will depend upon among other of the Company and general
business condition.
ITEM 2. Legal Proceedings
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.
ITEM 3. Recent Changes in and Disagreements with Accountants
During the Company's first fiscal year and up to the present time, the
principal independent accountant for the Company has neither resigned (or
declined to stand for reelection) nor been dismissed. The independent accountant
for the Company is KPMG LLP. This firm was engaged on or about September 10,
1997.
ITEM 4. Recent Sales of Unregistered Securities
A total of 26,426,336 shares of common stock, par value $.001 (the
"Shares"), have been issued by the Company within one year prior to the filing
of this Form 10-SB for cash or services rendered to the Company, absent
registration under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to the exemptions provided by Rule 504 of Regulation D
(10,523,336 Shares), where specifically indicated, pursuant to the exemption
provided in Section 4(2) of the Securities Act for transactions by an issuer not
involving a public offering. The Shares issued are as follows.
15
<PAGE>
In August, 1998, the Company issued 1,000,000 restricted Shares to Big Rock
Marketing Group and 720,000 restricted Shares to Chelsey Technology Corp. valued
at approximately $.03 per share (a 50% discount to market) as compensation for
public relations services rendered to the Company. The value was a negotiated
settlement amount. The shares were issued pursuant to the exemption provided
for under Section 4(2) of the Securities Act of 1933, as amended, as a
"transaction not involving a public offering."
In October, 1998, the Company issued 1,000,000 restricted Shares to Big
Rock Marketing Group and 500,000 restricted Shares to P. Daoust valued at
approximately $.03 per Share (approximately market value) as compensation for
public relations services rendered to the Company. The value was a negotiated
settlement amount. The shares were issued pursuant to the exemption provided for
under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction
not involving a public offering."
In November, 1998, the Company issued 1,028,000 restricted Shares to
various consultants for services rendered to the Company valued at approximately
$.03 per share (approximately market value). The value was a negotiated
settlement amount. The shares were issued pursuant to the exemption provided for
under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction
not involving a public offering."
In December, 1998, the Company issued 3,250,000 restricted shares to
various consultants for public relations services rendered valued at $.03 share
(approximately market value and represented fair value for services rendered)
per share and 240,000 restricted Shares valued at $0.146 (approximately market
value which was rising) to Sean Ackles as compensation rendered in his position
as an Officer of the Company. Mr. Ackles related services were performed in the
prior year. These shares were issued pursuant to the exemption provided for
under Section 4(2) of the Securities Act of 1933, as amended, as a "transaction
not involving a public offering."
In January, 1999, the Company issued 1,350,000 restricted shares to various
consultants and vendors for services and product rendered. These shares were
valued at approximately $.03 per share (approximately market value and
represented fair value for services rendered). These shares were issued pursuant
to the exemption provided for under Section 4(2) of the Securities Act of 1933,
as amended, as a "transaction not involving a public offering."
In February, 1999, the Company issued 10,523,336 shares to various
investors pursuant to the exemption to registration provided under Rule 504 of
Regulation D of the Securities Act of 1933, as amended. These shares were sold
at $.03 per share (sale price was set at approximately a 30% discount to market
at the time of filing).
In April, 1999, the Company issued 3,515,000 restricted shares to various
Officers of the Company for services rendered in their positions. These shares
were valued at $.03 per share (price was set to be the same as the Regulation.D,
Rule 504 offering). In
16
<PAGE>
addition the Company also issued 3,000,000 restricted shares valued at $.10 per
share to Consultants for public relations services rendered to the Company
(issuance price was a negotiated settlement price). These shares were issued
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933, as amended, as a "transaction not involving a public offering." (see
note 4 to the financial statements).
In May, 1999, the Company issued 500,000 restricted Shares valued at $.10
per share (the price was a negotiated settlement price) to a Consultant for
public relations services rendered to the Company. These shares were issued
pursuant to the exemption provided for under Section 4(2) of the Securities Act
of 1933, as amended, as a "transaction not involving a public offering."
ITEM 5. Indemnification of Directors and Officers
The corporation shall indemnify to the fullest extent not prohibited by law
any person who has or is a party or is threatened to be made a party to any
proceeding (as hereinafter defined) against all expenses (including attorney's
fees), judgements, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such proceeding.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore unenforceable.
17
<PAGE>
PART F/S:
FINANCIAL STATEMENTS
18
<PAGE>
Consolidated Financial Statements of
Aquatic Cellulose
International corp.
(A Development Stage Enterprise)
Year ended May 31, 1999
19
<PAGE>
AUDITORS' REPORT TO THE STOCKHOLDERS
We have audited the consolidated balance sheet of Aquatic Cellulose
International Corp. and subsidiary, a development stage enterprise, as at May
31, 1999 and the consolidated statements of loss and deficit, cash flows and
stockholders' equity and comprehensive income for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance 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, these consolidated financial statements, referred to above,
present fairly, in all material respects, the financial position of Aquatic
Cellulose International Corp. and subsidiary as at May 31, 1999 and the results
of its operations and its cash flows for the year then ended in accordance with
generally accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the consolidated
financial statements, the Company incurred a loss of $483,469 for the year ended
May 31, 1999. This factor, among others, as discussed in Note 1 a) raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
Signed "KPMG LLP"
Chartered Accountants
Kelowna, Canada
July 23, 1999
20
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Consolidated Balance Sheet
$ United States
May 31, 1999 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1999 1998
(Unaudited)
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash $ 100,906 $ 25,757
Accounts receivable 7,734 21,746
Share subscriptions receivable (note 8) 250,000 -
Deposit - 9,419
---------------------------------------------------------------------------------------
358,640 56,922
Capital assets (note 3) 6,226 8,458
- -----------------------------------------------------------------------------------------
$ 364,866 $ 65,380
=========================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 24,060 $ 63,771
Stockholders' equity
Capital stock (note 4) 1,561,034 739,665
Deficit accumulated during the development stage (1,254,793) (771,324)
Accumulated other comprehensive income 34,565 33,268
---------------------------------------------------------------------------------------
340,806 1,609
$ 364,866 $ 65,380
=========================================================================================
</TABLE>
See accompanying notes to financial statements
On behalf of the Board:
_____________________ Director
_____________________ Director
21
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Consolidated Statement of Loss and Deficit
$ United States
Year ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
From inception
(March 11, 1996) 1999 1998
to May 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Timber sales $ 3,070 $ 3,070 $ -
Expenses
Advertising and promotion 20,395 7,868 9,405
Amortization 5,811 2,160 2,162
Engineering design 67,448 34,443 33,005
Financial and promotional consulting 188,046 188,046 -
Interest and bank charges 7,387 1,180 2,840
Office rent 18,713 6,342 8,278
Office 27,401 13,319 10,694
Professional fees 34,778 9,963 17,831
Research and development 301,306 42,660 97,443
Shop and fabrication 7,024 3,185 3,839
Telephone 36,348 12,019 13,442
Travel 124,376 23,013 74,172
Vehicle and equipment leases 22,246 7,209 7,199
Wages and benefits 404,063 135,132 218,806
- --------------------------------------------------------------------------------------------------
1,265,342 486,539 499,116
Loss before other income (1,262,272) (483,469) (499,116)
Other income
Interest 184 - 21
Foreign exchange gain 7,295 - 7,295
- --------------------------------------------------------------------------------------------------
7,479 - 7,316
Loss (1,254,793) (483,469) (491,800)
==================================================================================================
Weighted average number of shares 9,014,620 9,167,802
Loss per share $ (0.03) $ (0.05)
==================================================================================================
</TABLE>
See accompanying notes to financial statements
22
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Consolidated Statement of Cash Flows
$ United States
Year ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
From inception
(March 11, 1996) 1999 1998
to May 31, 1999 (Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Cash received from timber sales $ 3,070 $ 3,070 $ -
Cash received from other income 7,479 - 7,316
Cash paid to suppliers and employees (1,055,159) (306,473) (501,463)
- ------------------------------------------------------------------------------------------------
(1,044,610) (309,543) (494,147)
Financing
Issuance of capital stock 1,122,988 383,323 653,239
Repayment of note payable - - (217,659)
- ------------------------------------------------------------------------------------------------
1,122,988 383,323 435,580
Investing
Purchase of capital assets (12,470) (79) (4,161)
Foreign currency translation adjustment 34,998 1,448 30,806
- ------------------------------------------------------------------------------------------------
Increase (decrease) in cash 100,906 75,149 (31,922)
Cash, beginning of year - 25,757 57,679
- ------------------------------------------------------------------------------------------------
Cash, end of year $ 100,906 $ 100,906 $ 25,757
================================================================================================
</TABLE>
See accompanying notes to financial statements
23
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Consolidated Statement of Stockholders' Equity and Comprehensive Income
$ United States
Year ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Capital Stock Other
------------------------ During the Accumulated Total
Number Development Comprehensive Stockholders
of Shares Amount Stage Income Equity
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACIC
ANFMI balance, May 31, 1997 145,649 $ 60,626 $ (279,524) $ 2,759 $(216,139)
Issued for cash 4,974,351 469,611 - - 469,611
----------------------------------------------------------------------------------------------------------------
ANFMI balance, July 12, 1997,
prior to business combination
with ACL 5,120,000 530,237 (279,524) 2,759 253,472
Adjustment to record business
combination
Reduction in the book value of
ANFMI's share capital
to that of ACL (note 2) - (458,254) - - (458,254)
----------------------------------------------------------------------------------------------------------------
5,120,000 71,983 (279,524) 2,759 (204,782)
Shares of ANFMI issued to
acquire shares of ACL (above)
recorded at the carrying value of
AMFMI net assets (note 2) 4,732,800 469,611 - - 469,611
----------------------------------------------------------------------------------------------------------------
ACIC balance, July 12, 1997,
after business combination 9,852,800 541,594 (279,524) 2,759 264,829
Issued during the period from
July 13, 1997 to May 31, 1998:
Conversion of note payable to
common shares 300,000 195,776 - - 195,776
Issued for cash 24,849 2,295 - - 2,295
----------------------------------------------------------------------------------------------------------------
10,177,649 739,665 (279,524) 2,759 462,900
Comprehensive income:
Loss - - (491,800) - (491,800)
Foreign currency translation
adjustment - - - 30,509 30,509
----------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) - - (491,800) 30,509 (461,291)
----------------------------------------------------------------------------------------------------------------
ACIC balance, May 31, 1998 10,177,649 739,665 (771,324) 33,268 1,609
Issued for cash 14,113,336 383,323 - - 383,323
Issued upon exercise of options 3,515,000 105,450 - - 105,450
Issued for services 6,798,000 188,046 - - 188,046
Subscribed shares 2,000,000 250,000 - - 250,000
Notes receivable (note 5) - (105,450) - - (105,450)
----------------------------------------------------------------------------------------------------------------
26,426,336 821,369 - - 821,369
Comprehensive income:
Loss - - (483,469) - (483,469)
Foreign currency translation
adjustment - - - 1,297 1,297
----------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) - - (483,469) 1,297 (482,172)
----------------------------------------------------------------------------------------------------------------
ACIC balance, May 31, 1999 36,603,985 $1,561,034 $(1,254,793) $34,565 $ 340,806
==================================================================================================================
</TABLE>
Refer to note 1c) for basis of presentation and consolidation.
24
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
$ United States
Year ended May 31, 1999
- --------------------------------------------------------------------------------
Aquatic Cellulose International Corp. was incorporated under the laws of the
State of Nevada. The Company's principal activity is the development under
authority, of equipment for underwater harvesting and/or salvaging of submerged
timber and the procurement of contracts for the harvest and salvage of submerged
timber.
1. Significant accounting policies:
a) Going concern
These financial statements have been prepared on the going concern
basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of business. The application of the
going concern concept is dependent on the Company's ability to generate
future profitable operations and receive continued financial support
from its shareholders and other investors. Management is of the opinion
that sufficient working capital will be obtained from operations and
external financing to meet the Company's liabilities and commitments as
they become payable.
b) Translation of Financial Statements
The Company's subsidiary, Aquatic Cellulose Ltd., operates in Canada
and its operations are conducted in Canadian currency.
The method of translation applied is as follows:
i) Assets and liabilities are translated a the rate of exchange in
effect at the balance sheet date, being US $1.00 per Cdn $1.474
(1998 - $1.457).
ii) Revenues and expenses are translated at the exchange rate in
effect at the transaction date.
iii) The net adjustment arising from the translation is included in
accumulated other comprehensive income.
c) Basis of presentation and consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Aquatic Cellulose Ltd.
25
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 2
$ United States
Year ended May 31, 1999
- --------------------------------------------------------------------------------
1. Significant accounting policies (continued):
c) Basis of presentation and consolidation (continued)
Effective July 12, 1997, the Company completed the acquisition of 100%
of the outstanding common shares of Aquatic Cellulose Ltd. ("ACL"). As
ACL shareholders obtained effective control of the Company through the
exchange of their shares of ACL for shares of the Company, the
acquisition of ACL has been accounted for in these consolidated
financial statements as a reverse acquisition. Consequently, the 1998
consolidated statements of loss and deficit and cash flows reflect the
results of operations and changes in financial position of ACL, the
legal subsidiary, for the year ended May 31, 1998, combined with those
of American Natural Foods Marketing, Inc. ("ANFMI"), the legal parent,
from acquisition on July 12, 1997, in accordance with generally accepted
accounting principles for reverse acquisitions. In addition, the figures
for the period from inception to May 31, 1999 presented in the
consolidated statements of loss and deficit and cash flows are those of
ACL, the legal subsidiary, together with those of ANFMI from July 12,
1997. Effective November 10, 1997, the Company changed it's name from
ANFMI to Aquatic Cellulose International Corp. ("ACIC").
In these notes to the consolidated financial statements, the Company,
prior to the business combination with ACL, is referred to as "ANFMI",
and after completion of the business combination and name change, is
referred to as "ACIC".
d) Capital assets
Capital assets are stated at cost. Amortization is provided using the
following methods and annual rates which are intended to amortize the
cost of assets over their estimated useful life:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Asset Method Rate
-----------------------------------------------------------------------
<S> <C> <C>
Computer equipment Declining balance 30%
Furniture and equipment Declining balance 20%
Leasehold improvements Straight-line 20%
-----------------------------------------------------------------------
</TABLE>
e) Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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. Actual results could
differ from those estimates.
f) Financial instruments
The fair values of the Company's cash, accounts and share subscriptions
receivable and accounts payable and accrued liabilities approximate
their carrying values due to the relatively short periods to maturity of
the instruments. It is not practicable to determine the fair value of
notes receivable due to the nature of the amount and the absence of a
market for such instruments. The maximum credit risk exposure for all
financial assets is the carrying amount of those assets.
26
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 3
$ United States
Year ended May 31, 1999
- --------------------------------------------------------------------------------
1. Significant accounting policies (continued):
g) Loss per share
Loss per common share is calculated based on the net income and the
weighted average number of shares outstanding during the year. For all
years, the computation of diluted loss per share was anti dilutive,
therefore, the amounts reported for basic and diluted loss were the
same.
h) Accounting standards change
In June, 1998, the Financial Accounting Standards board issued SFAS no.
133, "Accounting for Derivative Instruments and Hedging Activities."
Adoption of this statement is not expected to have a significant impact
on our results of operations or financial position.
2. Business Combination:
Effective July 12, 1997, ANFMI and ACL executed their business combination
agreement. ANFMI issued 4,732,800 common shares to the shareholders of ACL
in consideration for all of the issued and outstanding common shares of ACL
on the basis of 1 common share of ANFMI for each common share of ACL. As the
former shareholders of ACL obtained effective control of the Company through
the share exchange, this transaction has been accounted for in these
financial statements as a reverse acquisition and the purchase method of
accounting has been applied. Under reverse acquisition accounting, ACL is
considered to have acquired ANFMI with the results of ANFMI's operations
included in the consolidated financial statements from the date of
acquisition. ACL is considered the continuing entity and consequently, the
comparative figures are those of ACL.
The acquisition has been recorded at the estimated fair value of the
consideration given which, under reverse acquisition accounting, is the net
asset value of ANFMI at the date of acquisition. The acquisition details are
as follows:
<TABLE>
<S> <C>
Net assets acquired, at book values
Cash $ 469,611
Receivable from related company 217,313
Note payable (217,313)
--------------------------------------------------------------------------
$ 469,611
==========================================================================
Consideration given for net assets acquired
--------------------------------------------------------------------------
Common shares issued $ 469,611
==========================================================================
</TABLE>
27
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 4
$ United States
Year ended May 31, 1999
- --------------------------------------------------------------------------------
2. Business Combination (continued):
As the continuing entity is deemed to be ACL, share capital of ANFMI has
been reduced by $458,254 as a result of accounting for this combination as a
reverse acquisition.
The historical stockholders' equity of the acquirer prior to the merger is
retroactively restated for the equivalent number of shares received in the
merger after giving effect to any difference in par value of the issuers and
acquirer's stock with an offset to paid in capital. The retained earnings
(deficiency) of the acquirer is carried forward after the acquisition.
3. Capital assets:
<TABLE>
<CAPTION>
==========================================================================
1999 1998
--------------------------------------------------------------------------
Accumulated Net book Net book
Cost amortization value value
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer equipment $ 2,323 $1,356 $ 967 $1,397
Furniture and equipment 4,639 1,349 3,290 4,071
Leasehold improvements 4,927 2,958 1,969 2,990
--------------------------------------------------------------------------
$11,889 $5,663 $6,226 $8,458
==========================================================================
</TABLE>
4. Capital stock:
a) Authorized:
50,000,000 common shares with a par value of $0.001 per share
10,000,000 preferred shares with a par value of $0.001 per share,
issuable in series
b) Stock options
<TABLE>
<CAPTION>
===========================================================================================
Price per Outstanding Outstanding
Expiry Date share May 31, 1998 Issued Exercised May 31, 1999
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
February 22, 2004 $0.03 - 3,515,000 3,515,000 -
===========================================================================================
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its Stock Option
Plan and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company determined
compensation costs based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net loss would have been
increased to the proforma amounts below:
<TABLE>
<S> <C>
Net Loss
As reported $295,423
Proforma $317,300
Loss per share
As reported $ 0.02
Proforma $ 0.02
</TABLE>
28
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 5
$ United States
Year ended May 31, 1999
- --------------------------------------------------------------------------------
5. Notes receivable:
The Company loaned $105,450 to three Directors for the exercise of Company
stock options during the year (note 4b). These notes are unsecured, do not
bear interest and are due on July 24, 2001.
6. Statement of cash flows:
The operating activities on the Company's statement of cash flows prepared
under the indirect method is as follows:
<TABLE>
<CAPTION>
==========================================================================
1999 1998
--------------------------------------------------------------------------
<S> <C> <C>
Net loss $(463,469) $(491,800)
Non-cash items
Amortization 2,160 2,162
Financial and promotional consulting 188,046 -
Changes in non-cash working capital (16,280) (4,509)
--------------------------------------------------------------------------
$(309,543) $(494,147)
==========================================================================
</TABLE>
7. Income taxes:
The Company has non-capital losses available to reduce future years' income
for Canadian tax purposes. Management has determined that utilizing these
losses is unlikely, and therefore the benefit of which has not been recorded
in the accounts of the Company. These losses expire as follows:
<TABLE>
<CAPTION>
==========================================================================
$ Canada
<S> <C>
--------------------------------------------------------------------------
2003 159,077
2005 570,428
2006 382,035
--------------------------------------------------------------------------
$1,111,540
==========================================================================
</TABLE>
8. Subsequent event:
Subsequent to May 31, 1999, the share subscriptions receivable were
collected.
29
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
$ United States
Year ended May 31, 1999
- --------------------------------------------------------------------------------
9. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
30
<PAGE>
PART III.
Item 1. Index to Exhibits
Exhibit
Number Description
- ------ -----------
2.1* Articles of Incorporation of the Company filed February 28, 1997.
2.2* Certificate Amending Articles of Incorporation filed November 19, 1997
2.3* Bylaws of the Company.
6.1* Lease for the Premises dated November 1, 1996.
* Previously Filed
31
<PAGE>
Signatures
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Registrant: AQUATIC CELLULOSE INTERNATIONAL CORP.
Date: September 22, 1999
By: /s/ Gary Ackles
---------------
Gary Ackles - Chief Executive Officer
32
