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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(MarkOne)
[X] ANNUAL REPORT PURSUANT SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the fiscal year ended December 31, 1999.
[_] 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.
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(Name of small business issuer in its charter)
Nevada 82-0381904
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3704 32/nd/ Street, Suite 301 Vernon, BC VIT 5N6
(Address of principal executive offices)
(Zip Code)
Registrant's Telephone number, including area code: (800) 565-6544
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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___
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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 $353,125 for the fiscal year ended May 31, 2000.
The aggregate market value of the voting stock held by non-affiliates on May 31,
2000 was approximately $22,699,384 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, 2000, 37,425,985 shares of
the issuer's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. General Registration on Form 10-SB12G filed on November 02, 1999;
2. Registration on Form SB-2 filed on August 21, 2000. File NO: 333-44184
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PART I
ITEM 1. Description of Business
AQUATIC CELLULOSE INTERNATIONAL CORP.
Aquatic Cellulose International Corp. ("the Company") is a Nevada
Corporation originally organized as Aquatic Cellulose Ltd. ("ACL") and was
incorporated in March of 1997.
Located in Vernon, British Columbia, Canada, our Company is a forest-based
company focusing on what was once considered a lost resource. That resource is
submerged timber. AQCI has in place the processes and equipment necessary to
access and recover this valuable resource. This submerged timber is still of
excellent quality and can be used for plywood, sawn lumber, and a wide variety
of wood fiber processes. Our Company's principal activity is the development of
equipment for underwater harvesting, procurement of contracts for the salvage
and harvest of submerged timber and the harvesting and salvaging of submerged
timber.
Our 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.
Our Company uses a simple but effective way to obtain timber and the rights
to harvest timber in Canada and the United States. First, our Company researches
a potential site to insure sufficient timber is recoverable to warrant an on-
site visit. Next, our Company travels to the site for more extensive evaluations
of the timber reserve. If the reserve is adequate, our 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
local government takes ownership of the wood to insure that all environmental
concerns are addressed. Once ownership is determined, our Company applies for an
appropriate salvage permit.
Obtaining timber and the rights to harvest in foreign countries is
approached slightly differently. In this case our Company first meets with all
appropriate government officials to receive approval from the host country to
evaluate its inundated forests. Once received our Company evaluates the target
site to insure sufficient volume of timber. Finally our Company forms a
strategic alliance in the applicable country with a partner chosen for their
ability to implement the project, operate the project on an on going basis and
put in place the down stream infrastructure to process the timber.
It is our Company management's belief that there is pressure to reduce the
consumption of land base timber. We believe our Company is strategically
positioned by being able to access and supply a unique alternate wood source.
Another plus is that our Company has entered into a segment of the industry with
minimal competition.
Our 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). Our 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.
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This industry consists of two primary sources of underwater timber. The
first is standing timber that has been inundated (flooded) as a result of a dam
construction (hydroelectric or otherwise). These standing trees are submerged as
the water level behind a dam rises, preserving them and preventing degradation
of the wood quality. The second is salvage timber. This source consists of those
trees that have already been cut and have sunk to the bottom of the waterway en
route to a mill or load out area. The Company's management estimates that in
general 17% of the logs en route by water to a mill or load out area, sink to
the bottom of the waterway before reaching their 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, our Management observed that
submerged hardwoods in the Amazon are currently being used in the production of
both plywood and sawn lumber.
Our 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, our Company also
completed a physical examination of standing timber in reservoirs such as Ootsa
Lake in B.C. and salvage timber in waterways such as Lake Superior. The wood
examined was in excellent condition and suitable for harvest and processing. Our
Company has also done on-sight evaluations of the Tucurui and Balbina reservoirs
in Brazil. The Tucurui reservoir, located in the 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. Existing operations typically focus on specific
lakes with no stated plan to move outside of their home territory.
Our Company's Management and contracted technical staff in investigating
the world market potential for our 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 our Company
management's opinion, declining timber supply is one of the biggest threats to
the forest industry. We intend to be the company that supplements that source of
timber.
Additionally, timber supplies are declining internationally, especially in
tropical countries with precious hard woods. In our Company's travels to South
America, information was communicated to our management that the governments of
its developing countries are experiencing pressure to reduce the amount of rain
forest that is harvested each year. Aquatic Cellulose International Corp offers
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.
Our 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
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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". Our
Company has software that transforms individual arm and head joint position feed
back data into an accurate real time graphical image. This software is operated
on a system of two Intel Pentium based computers that are networked together
(the software is copyrighted by Gary Ackles.). Additionally, a true three-axis
robotic control of the arm position and head functions are incorporated. There
is a patent for the use of this visually enhanced robotically controlled arm in
the recovery of submerged timber. The patent number is 6,024,145, effective date
of 2/15/00, and belongs to our Company's president, Mr. Gary Ackles.
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.
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. Our Company is currently in the process of creating a
second unit referred to as the ATH-120, which is specially designed for the
deeper harvest of large diameter submerged timber. All the ATH-120 CAD-drawings
and technical evaluations are done with construction to begin when funds become
available.
Our 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 timber. Thus, this is the
main source of standing inundated timber. Our 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 saw wood and the remaining
40% for plywood. Secondary markets in this industry 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 states 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
our Company's principal products or services. Our 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 our Company's
business. Governmental agencies are generally in favor our Company's technology
and its by products.
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Important Events
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Some events that are in process and our Company's management believes
are favorable to the future of our Company are as follows:
a. Dispatch of Survey/evaluation Team: On May 12, 2000, our Company announced
that sometime in June, 2000, it would be dispatching a specialized team of
survey technicians to Brazil to explore and survey five major tributaries
throughout the Amazon region of Brazil to accurately assess the scope and value
of the regions timber reserves. Currently, the team has returned and is in the
process of filtering the data retrieved via the computer. The process of mapping
specific locations will begin soon.
b. Secured Convertible Debenture Purchase Agreement Executed: On May 4, 2000
our Company entered into a Secured Convertible Debenture Purchase Agreement
which calls for the issuance of two 12% secured convertible debentures with an
aggregate principal amount of $1,500,000, to be completed in two traunches, the
first traunche of $500,000 was received on the execution of the agreement and
the second traunche of $1,000,000 is due within thirty days after the effective
date of the registration on form SB-2 filed August 21. 2000. These debentures
are convertible (plus related interest expense) into the Company's common stock
at the lesser of (1) $.60 per share and (2) 70% of the average of the lowest
three inter-day prices during the twenty trading days immediately preceding the
conversion date. This transaction also calls for the issuance of two Warrants
due on the closing date of the first traunch, entitling each of the two
accredited investors to purchase up to 125,000 shares of common stock at an
exercise price of $0.69 per share and expire on or before May 4, 2003.
Additionally, our Company is to issue Warrants due after the effective date of
this registration, entitling each of the two accredited investors to purchase up
to 250,000 shares of common stock at an exercise price of $.69.
c. First Brazil Harvest Sent to U.S. For Processing: On May 2, 2000, our
Company announced that it shipped timber harvested in Brazil to the U.S. for
processing. The sale for this timber of$262,500 was recorded in February, 2000.
This is of particular importance for it confirms to our Company's Brazilian
customers as well as other potential customers that AQCI's diverless harvesting
system is commercially viable. The sale of the timber was a result of our
Company entering into an alliance with a U.S Manufacturer and Distributor for
the distribution of our Company's harvested hardwoods to the U.S. market.
d. Strategic Alliance Formed to Distribute Harvested Lumber: On April 25, 2000
our Company announced the forming of a Strategic Alliance with a Brazilian based
lumber company to distribute harvested timber to the South American and European
markets. This alliance improves our Company's existing distribution network.
e. AQCI Reaches Out to New Zealand: On April 18, 2000 our Company announced
that it reached an understanding with a New Zealand forest company for the
harvesting of aquatic timber from the waterways in the North Island of New
Zealand. A representative of our Company will travel to New Zealand in the fall
to establish the groundwork for implementing such an undertaking.
f. Tucurui , Brazil, Amazon River Project: On April 14, 2000, our Company
announced that it is in the final stages of negotiations for harvesting timber
along several tributaries of the Amazon River. This would be of particular
importance as it would represent the second potential long-term project in
Brazil. The evaluation process is underway to insure that the harvesting rights
presented are valid and also the surveying
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of locations to ensure that sufficient timber reserves exist. This surveying was
completed the first week of July and the data is under evaluation.
g. AQCI Increases Amazonian Production: On March 28, 2000 our Company
announced that it placed into service two additional non harvesting recovery
vehicles (service boats) to assist the recovery vehicles employed on the Amazon
project. Our Company estimates that the additional vehicles should increase
existing production as well as downstream efficiency.
h. Registration Form SB-2 Filed on August 21, 2000: An SB-2 Registration was
filed on August 21, 2000, filed NO. 333-44184, to register 6,377,000 shares of
the Company's common stock for resale. The total shares registered consists of
the following: 1) 2,800,000 shares representing the conversion of the 12%
debentures and related interest expense plus 2,500,00 shares representing
reserve shares that may be needed to account for market fluctuations in the
price of the common stock prior to the conversion of the debentures, 2) 750,000
shares underlying the above referenced warrants, and 3) 327,000 common shares of
current shareholders.
Accomplishments
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Mr. Ackles, the CEO/President of our Company, developed the robotic arm for
harvesting timber in 1995, prior to joining the Company. In 1996, upon joining
our Company, Mr. Ackles granted our Company the right to use his robotic arm in
the submerged forest industry for harvesting timber. Shortly afterward our
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 domestic and international projects. One of our Company's
objectives when pursuing projects was to gain the rights to the submerged timber
resources.
In March 1997, the Brazilian government asked Mr. Ackles to consider the
Tucurui reservoir as a possible site to begin commercial harvesting of timber.
Mr. Ackles traveled to Brazil in June 1997 to evaluate the Tucurui reservoir's
potential and in August 1997 announced that our Company would be moving forward
on this project once the construction of the harvester was completed.
In September 1998, our Company completed building the prototype model of
the ATH-60 harvestor. The model was tested at Monty Lake, in the central
interior of British Colombia. The ATH-60 test was successful and our Company was
then able to move forward in securing projects for harvesting of timber. The
first revenue derived from harvesting of timber was recognized in the fiscal
third quarter of 1999.
In May of 1999 our Company technical evaluation team was sent to Brazil to
evaluate the Brazilian Tucurui reservoir and reported that the reservoir
encompassed approximately 400,000 acres of submerged timber and contained
numerous species of timber that was ideal for harvesting.
During the summer of 1999, the ATH-60 was refit with a larger head and
joints, which enabled it to handle the requirements of the large Brazilian
timber.
Short Term Objectives
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In the short term, our Company intends to build more harvesters and phase
then into the Tucurui project. Our Company will begin the construction of these
additional harvesters as soon as funds become
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available. Additionally, our Company is continuing to form relationships both
domestically and around the world.
Long Term Objectives
--------------------
Our Company's long-term objectives are to secure additional harvesting
rights of inundated and salvage timber to ensure future stability and long-term
growth. Also of key importance is the commitment to continued development of our
Company's licensed technology and equipment to maintain our lead position in
this emerging industry.
Going Concern
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The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in note
1a) to the financial statements, the Company has suffered recurring losses from
operations which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to this matter are
also discussed in note 1a). The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Employees
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Our Company employs a total of four full time employees.
ITEM 2. Description of Property
The Company's offices are located at 3704 32nd Street, Suite 301, Vernon,
British Columbia, V1T5N6. The Company is committed through the year 2000 with
annual lease payments under operating leases for office premises and equipment
of $12,165 per year.
ITEM 3. Legal Proceedings
Our Company is not a party to any material pending legal proceedings and,
to the best of its knowledge, no such action by or against the Company has been
threatened.
ITEM 4. Submission of Matters to a Vote of Securities Holders
None
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PART II
ITEM 5. Market for Common Equity and Related Shareholder Matters
Our common stock trades on the Over-the Counter Bulletin Board, also called
the OTCBB, under the trading symbol "AQCI". The following table set forth the
quarterly high and low bid prices per share for our common stock. The bid prices
reflect inter-dealer prices, without retail markup, markdown, or commission and
may not represent actual transactions.
High Bid Low Bid
Fiscal 1999: ------- ------
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First Quarter 1998 .34 .10
Second Quarter 1998 .36 .09
Third Quarter 1999 .36 .025
Fourth Quarter 1999 (5/31/99) .235 .017
Fiscal 2000:
First Quarter 1999 .72 .14
Second Quarter 1999 .93 .25
Third Quarter 2000 .90 .45
Fourth Quarter 2000 (5/31/00) 1.25 .50
To date, the Company has not declared or paid dividends on its common stock.
Recent Sales of Unregistered Securities
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A total of 27,148,336 shares of common stock, par value $.001 (the
"Shares"), have been issued by the Company since July 31, 1998 for cash or
services rendered to the Company, absent registration under the Securities Act
of 1933, as amended (the "Securities Act"). Part of these shares were offered
pursuant to the exemption provided by Rule 504 of Regulation D (10,523,336
Shares) where such offering price in the aggregate did not exceed $1,000,000 and
all purchasers were accredited investors as defined in Rule 501(a) of Regulation
D, with the remaining shares offered pursuant to the exemption provided by
Section 4(2) of the Securities Act for transactions by an issuer not involving a
public offering for payment of services provided by vendors and/or consultants.
The Shares issued are as follows.
In August, 1998, the Company issued 1,000,000 restricted Shares to Big Rock
Marketing Group for cash at $.027 per share or $27,000. Additionally, 420,000
restricted Shares were issued to Chelsey Technology Corp. for services valued at
$.027 per share (a 55% discount to market) which amounted to $11,340 as payment
for public relations services rendered to the Company and represented fair value
for services rendered. The above 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 for cash at $.027 per share. 500,000 restricted Shares were
issued to P. Daoust valued at $.027 per Share
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(approximately 50% of market value) as compensation for public relations
services rendered to the Company and represented fair value for services
rendered. The above 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 500,000 restricted Shares to NIKA
Resources Ltd. for cash at $.10 per share (a negotiated settlement amount). The
Company issued 500,000 restricted Shares to Big Rock Marketing Inc. for cash at
$.027 per share and 28,000 restricted shares to Phoenix Media Group, Ltd. at
$.027 per share for services rendered to the Company ($.027 was approximately
market value and these shares represented fair value for services rendered). 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 3,000,000 restricted shares to
various consultants for public relations services rendered valued at $.027 share
per share, 240,000 restricted Shares to Sean Ackles for cash at $.10 per share
and 250,000 restricted shares to Big Rock Marketing Inc. for cash at $.053 per
share. The issuance price represented approximately market value of the shares
at the time of issuance. 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 $.027 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
for cash at $.024 per share (sale price was set at approximately a 30% discount
to market at the time of filing).
In April 1999, the Company issued 6,515,000 shares of restricted stock
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." as
follows: 1) the Company issued 3,515,000 restricted shares to various Officers
of the Company who exercised options granted in February, 1999 for services
rendered in their positions. These shares were valued at $.03 per share, which
was market value on the date the options were granted; 2) the Company issued
1,000,000 restricted shares valued at $.03 per share to Consultants for public
relations services rendered to the Company; 3) 1,500,000 and 500,000 restricted
shares were issued to Big Rock Marketing Group for cash at $.10 and $.20 per
share.
In May, 1999, the Company issued 500,000 restricted shares to Big Rock
Marketing Group valued at $.03 per share (price reflected market price) for
public relations services rendered to the Company and these shares represented
fair value for services rendered. These shares were issued pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933, as
amended, as a "transaction not involving a public offering."
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In May, 2000, we issued 100,000 restricted Shares valued at $.50 per share
(price reflected market value) for cash to Matt Lothian pursuant to the
exemption provided for under Section 4(2) of the Securities Act of 1933 as
amended, as a "transaction not involving a public offering."
In December through May, 2000, the Company issued 722,000 restricted shares
valued at an average of $.642 per share (price reflected market price) for
services, pursuant to the exemption provided for under Section 4(2) of the
Securities Act of 1933 as amended, as a "transaction not involving a public
offering."
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 the Company are the following:
1. Continue expansion of the Brazilian harvesting project. This expansion
will require additional equipment and labor plus training and support.
Implementation of these items have already started.
2. Seek out and develop key alliances, acquisitions and joint ventures.
3. Establish new lumber markets, especially with respect to rare and
exotic species.
4. Expand international operations to a third continent.
5. Purchase additional harvesting equipment to be placed into its current
operations.
The Company's long-term objectives are as follows:
1. To increase lumber reserves to a level that will provide for future
revenues and long-term growth.
2. To continue upgrades of the robotic technology.
Over the next twelve months, Management is of the opinion that sufficient
working capital will be obtained from operations and external financing (Secured
Convertible Debenture Agreement) to meet the Company's liabilities and
commitments as they become payable. The Company has in the past successfully
relied on private placements of common stock securities, bank debt, loans from
private investors and the exercise of common stock warrants in order to sustain
operations.
There is no expected or planned sale of significant equipment by the
Company. The Company's work force is expected to triple from the current level
over the next twelve months.
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Results of Operations
Year Ended May 31, 2000 Compared to Year Ended as of May 31, 1999
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The company realized revenue of $353,125 for the year ended May 31, 2000,
compared with $3,070 for fiscal 1999. Fiscal 2000 revenue included a sale to a
U.S. purchaser in the amount of $262,500 with the remainder of sales being to
several Brazilian buyers.
Cost of sales reflect certain inefficiencies typical to start-up operations, and
is comprised of the costs of harvesting and transporting timber, consisting
primarily of wages, fuel and supplies. Compensation of on-site management
included the issuance of 207,950 shares valued at $143,256. As fiscal 1999
revenue was from sundry sales there were no costs directly attributable to such
revenue.
Financing fees of $76,500 in fiscal 2000 relate to legal and other fees
incurred in connection with the Company's Secured Convertible Debenture Purchase
Agreement financing including the issuance of related Investor Warrants.
Engineering design expense consists of costs incurred to maintain and
improve the Company's harvesting equipment. This expense decreased from $80,288
in 1999 to $60,693 in 2000 as the harvester was in production in 2000 and
therefore less time was spent on research and development.
Selling, general and administration expenses increased from $404,091 in
1999 to $851,749 in 2000. There expenses consist primarily of advertising and
promotion, professional fees, travel, administrative salaries, office expenses
and investor relations expenses. All of these expenses increased in fiscal 2000
as the Company established operations in Brazil and investigated opportunities
elsewhere. These expenses were paid for in part, by the issuance of 514,050
shares and the commitment to issue an additional 227,000 shares, all valued at
$453,944. In fiscal 1999, a total of 6,798,000 shares were issued, valued at
$188,046, in respect of services included in selling, general and administrative
expenses.
The Company incurred a loss in fiscal 2000 of $985,748 compared with a loss
of $483,469 in fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Net cash used in operating activities in fiscal 2000 amounted to $561,098
compared to $309,543 in fiscal 1999. The increased use of cash is mainly
attributable to the costs incurred in setting up operations in Brazil and
increases in selling, general and administrative expenses.
Financing activities generated net cash of $723,500 in fiscal 2000 compared
with $383,323 in fiscal 1999. The issuance of shares for cash generated $50,000
in fiscal 2000 compared to $383,323 in fiscal 1999. Other sources of financing
in fiscal 2000 included receipt of the share subscription amount of $250,000
with respect to shares issued in fiscal 1999, and proceeds from the issuance of
debentures in the amount of $500,000 less financing fees related thereto of
$76,500.
At May 31,2000 the Company had cash of $271,864 and accounts receivable of
$268,813 for total liquid assets of $540,677. Accounts payable and accrued
liabilities at May 31, 2000 amounted to $167,685, of which $133,500 to be
settled by the issuance of 227,000 shares.
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It is anticipated that the $500,000 convertible debentures payable will be
converted into shares in accordance with the terms of these debentures.
ITEM 7. Financial Statements
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Index To Audited Financial Statements
<S> <C>
Independent Auditors' Report 13
Consolidated Balance Sheets as of May 31, 2000 and 1999 14
Consolidated Statements of Loss for the years ended May 31, 2000 and 1999 15
Consolidated Statement of Stockholders' Equity (Deficit) and Comprehensive Income
for the years ended May 31, 2000 and1999 16
Consolidated Statements of Cash Flows for the years ended May 31, 2000 and 1999 17
Notes to Consolidated financial Statements 18
</TABLE>
-12-
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders of Aquatic Cellulose International
Corp.
We have audited the consolidated balance sheets of Aquatic Cellulose
International Corp. and subsidiary, as at May 31, 2000 and 1999 and the
consolidated statements of loss, stockholders' equity (deficit) and
comprehensive income and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform an audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of Aquatic Cellulose
International Corp. and subsidiary as at May 31, 2000 and 1999 and the results
of their operations and their cash flows for the years then ended in accordance
with generally accepted accounting principles in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 1a) to
the financial statements, the Company has suffered recurring losses from
operations which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to this matter are
also discussed in note 1a). The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
"signed KPMG LLP"
Chartered Accountants
Kelowna, Canada
July 24, 2000
13
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Consolidated Balance Sheets
$ United States
May 31, 2000 and 1999
---------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------
Assets
Current assets
Cash $ 271,864 $ 100,906
Accounts receivable 268,813 7,734
Share subscriptions receivable - 250,000
---------------------------------------------------------------------------
540,677 358,640
Capital assets (note 2) 4,228 6,226
---------------------------------------------------------------------------
$ 544,905 $ 364,866
---------------------------------------------------------------------------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities
Accounts payable and accrued liabilities $ 167,685 $ 24,060
Convertible debentures payable (note 3) 500,000 -
---------------------------------------------------------------------------
667,685 24,060
Stockholders' equity (deficit)
Capital stock (note 4) 2,074,734 1,561,034
Deficit (2,240,541) (1,254,793)
Accumulated other comprehensive income
Foreign currency translation adjustment 43,027 34,565
---------------------------------------------------------------------------
(122,780) 340,806
Commitments (note 5)
---------------------------------------------------------------------------
$ 544,905 $ 364,866
---------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
On behalf of the Board:
_____________________ Director
_____________________ Director
14
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Consolidated Statements of Loss
$ United States
Years ended May 31, 2000 and 1999
-------------------------------------------------------------------
2000 1999
-------------------------------------------------------------------
Sales $ 353,125 $ 3,070
Cost of sales 347,827 -
-------------------------------------------------------------------
5,298 3,070
Expenses
Amortization 1,904 2,160
Financing fees 76,500 -
Engineering design 60,693 80,288
Selling, general and administrative 851,949 404,091
-------------------------------------------------------------------
991,046 486,539
-------------------------------------------------------------------
Loss for the year $ (985,748) $ (483,469)
-------------------------------------------------------------------
Weighted average number of shares 36,842,267 19,014,620
Loss per share - basic and diluted $(0.03) $(0.03)
-------------------------------------------------------------------
See accompanying notes to consolidated financial statements
15
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Consolidated Statement of Stockholders' Equity (Deficit) and Comprehensive
Income $ United States
Years ended May 31, 2000 and 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
Accumulated Total
Capital Stock Other Stockholders
----------------------------
Number Comprehensive Equity
of Shares Amount Deficit Income (Deficit)
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 6) - (105,450) - - (105,450)
--------------------------------------------------------------------------------------------------------------------
26,426,336 821,369 (771,324) 32,268 822,978
Comprehensive income:
Loss - - (483,469) - (483,469)
Foreign currency translation
adjustment - - - 1,297 1,297
--------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) (482,172)
--------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1999 36,603,985 1,561,034 (1,254,793) 34,565 340,806
Issued for cash (note 5) 100,000 50,000 - - 50,000
Issued for services (note 5) 722,000 463,700 - - 463,700
--------------------------------------------------------------------------------------------------------------------
37,425,985 2,074,734 (1,254,793) 34,565 854,506
Comprehensive income:
Loss - - (985,748) - (985,748)
Foreign currency translation
adjustment - - - 8,462 8,462
--------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) (843,786)
--------------------------------------------------------------------------------------------------------------------
Balance, May 31, 2000 37,425,985 $ 2,074,734 $ (2,240,541) $ 43,027 $ (122,780)
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Consolidated Statements of Cash Flows
$ United States
Years ended May 31, 2000 and 1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Cash received from customers $ 92,046 $ 3,070
Cash paid to suppliers, service providers and employees (653,144) (306,473)
------------------------------------------------------------------------------------------
(561,098) (309,543)
Financing
Issuance of capital stock 50,000 383,323
Receipt of share subscriptions receivable 250,000
Issuance of debenture 500,000
Financing fees paid (76,500)
------------------------------------------------------------------------------------------
723,500 383,323
Investing
Purchase of capital assets (79)
Effect of exchange rate changes on cash 8,556 1,448
---------------------------------------------------------------------------------------------
Increase in cash 170,958 75,149
Cash, beginning of year 100,906 25,757
---------------------------------------------------------------------------------------------
Cash, end of year $ 271,864 $ 100,906
---------------------------------------------------------------------------------------------
</TABLE>
Additional information disclosed in note 7.
See accompanying notes to consolidated financial statements
17
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Notes to Consolidated Financial Statements
$ United States
Years ended May 31, 2000 and 1999
--------------------------------------------------------------------------------
Aquatic Cellulose International Corp. (the "Company") was incorporated under the
laws of the State of Nevada. The Company's principal activity is the manufacture
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. In January 2000, the Company commenced significant harvesting
operations, and, as such, is no longer a development stage enterprise, as
disclosed in prior years.
1. Significant accounting policies:
a) Basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Aquatic Cellulose Ltd.
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. These consolidated financial statements
do not give effect to any adjustments should the Company be unable to
continue as a going concern and, therefore, be required to realize its
assets and discharge its liabilities in other than the normal course of
business and at amounts differing from those reflected in the consolidated
financial statements. Management plans to obtain sufficient working
capital 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 at the rate of exchange in
effect at the balance sheet date, being US $1.00 per Cdn $1.4965
(1999 - $1.474).
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) Capital assets
Capital assets are recorded 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:
-------------------------------------------------------------------------
Asset Method Rate
-------------------------------------------------------------------------
Computer equipment Declining balance 30%
Furniture and equipment Declining balance 20%
Leasehold improvements Straight-line 20%
-------------------------------------------------------------------------
18
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Notes to Consolidated Financial Statements, page 2
$ United States
Years ended May 31, 2000 and 1999
--------------------------------------------------------------------------------
1. Significant accounting policies (continued):
c) Capital assets (continued)
Costs incurred in the development of the Company's harvesting equipment
have been expensed in prior years.
d) Revenue recognition
The Company recognizes sales when goods are shipped and the title and the
risks and rewards of ownership have been transferred from the Company to
the buyer.
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.
The collectibility of accounts receivable is based on management
estimates. Management reviews its estimate on a quarterly basis and, where
necessary, makes adjustments prospectively.
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. The fair value of the debentures payable approximates their
carrying amount as a market rate of interest is attached to their
repayment.
Sales for the year ended May 31, 2000 and accounts receivable as at May
31, 2000 of $262,500 (1999 - $nil) are from one customer resulting from
the Company's harvesting project in Brazil. Accordingly, there is a
concentration of credit risk. The maximum credit risk exposure for all
financial assets is the carrying amount of those assets.
g) Loss per share
Loss per share is calculated based on the loss for the year and the
weighted average number of shares outstanding during the year. For all
years, the effect of potential common stock equivalents, was anti
dilutive.
h) Stock option plan
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations,
in accounting for its fixed plan stock options. As such, compensation
expense would be recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price.
19
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Notes to Consolidated Financial Statements, page 3
$ United States
Years ended May 31, 2000 and 1999
--------------------------------------------------------------------------------
1. Significant accounting policies (continued):
h) Stock option plan (continued)
SFAS No. 123, "Accounting for Stock-Based compensation," established
accounting and disclosure requirements using fair value-based method of
accounting for stock-based employee compensation plans. As allowed by SFAS
No. 123, the Company has elected to continue to apply the intrinsic value-
based method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123.
i) Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date. When it is not
considered to be more likely than not that a deferred tax asset will be
realized, a valuation allowance is provided for the excess.
j) Commitments and contingencies
Liabilities for loss contingencies, including environmental remediation
costs, arising from claims, assessments, litigation, fines and penalties
and other sources are recorded when it is probable that a liability has
been incurred and the amount of the assessment and/or remediation can be
reasonably estimated. Recoveries from third parties which are probable of
realization are separately recorded, and are not offset against the
related environmental liability, in accordance with Financial Accounting
Standards Board Interpretation No. 39, "Offsetting of Amounts Related to
Certain Contracts."
k) New accounting pronouncement
In June, 1998, the Financial Accounting Standards board issued SFAS no.
133, "Accounting for Derivative Instruments and Hedging Activities."
Adoption of this standard is not expected to have a significant impact on
the Company's results of operations or financial position.
2. Capital assets:
--------------------------------------------------------------------------
2000
--------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
--------------------------------------------------------------------------
Computer equipment $ 2,287 $1,620 $ 667
Furniture and equipment 4,569 1,977 2,592
Leasehold improvements 4,853 3,884 969
--------------------------------------------------------------------------
$11,709 $7,481 $4,228
--------------------------------------------------------------------------
20
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Notes to Consolidated Financial Statements, page 4
$ United States
Years ended May 31, 2000 and 1999
--------------------------------------------------------------------------------
2. Capital assets (continued):
-----------------------------------------------------------------------------
1999
-----------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
-----------------------------------------------------------------------------
Computer equipment $ 2,323 $1,356 $ 967
Furniture and equipment 4,639 1,349 3,290
Leasehold improvements 4,927 2,958 1,969
-----------------------------------------------------------------------------
$11,889 $5,663 $6,226
-----------------------------------------------------------------------------
3. Convertible debentures payable:
Convertible debentures payable bear interest at 12%, due on a quarterly basis
from June 30, 2000 and are secured by a first priority interest in the
Company's accounts receivable, inventories, capital assets and general
intangibles. The debentures are due on May 4, 2001 and are convertible into
the Company's common shares at the lesser of $0.60 per share and 70% of the
average of the lowest three inter-day prices during the twenty trading days
immediately preceding the conversion date. If unpaid as at May 4, 2001, the
debentures will automatically convert to common shares.
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 purchase warrants:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Price per Outstanding Outstanding
Expiry Date share May 31, 1999 Issued Exercised May 31, 2000
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
May 4, 2003 $0.69 - 250,000 - 250,000
---------------------------------------------------------------------------------
</TABLE>
c) Stock options:
The Company's stock options vested on the date of issue.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Price per Outstanding Outstanding
Expiry Date share May 31, 1999 Issued Exercised May 31, 2000
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
February 22, 2005 $0.52 - 1,425,250 - 1,425,250
-----------------------------------------------------------------------------------------
</TABLE>
<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 - 3,515,250 3,515,250 -
-----------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Notes to Consolidated Financial Statements, page 5
$ United States
Years ended May 31, 2000 and 1999
--------------------------------------------------------------------------------
4. Capital stock (continued):
c) Stock options (continued):
The Company applies APB Opinion No. 25 in accounting for its Stock Option
Plan and, accordingly, because options have been granted at the current
market price on the issue date, 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 loss for the year
would have been increased to the proforma amounts below:
--------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------
Loss for the year
As reported $ 985,748 $483,469
Proforma $1,424,955 $505,346
Loss per share
As reported $ 0.03 $ 0.03
Proforma $ 0.04 $ 0.03
--------------------------------------------------------------------------
The fair value of the options has been determined using the Black Scholes
Method using the expected life of the options, a volatility factor of 161%
(1999 - 139%), a risk-free rate of 6.22% (1999 - 4.50%) and no assumed
dividends.
5. Commitments:
a) Pursuant to a consulting agreement, the Company has committed to issuing
25,000 common shares and a minimum of 25,000 stock purchase warrants in
exchange for services to be provided in the next fiscal year. Under the
agreement an additional 75,000 stock purchase warrants may be issued if
the Company's stock price reaches certain thresholds. Each stock purchase
warrant would enable the holder to purchase one of the Company's common
shares at an exercise price of $0.75 per share until May 24, 2005.
b) Pursuant to agreements with two service providers, the Company is
committed to issuing an aggregate of 227,000 common shares in payment for
services rendered to the Company during the 2000 fiscal year. The value of
the services provided was determined to be $133,500 based upon the market
value of the shares earned on the applicable dates of entitlement. These
obligations are included in accounts payable and accrued liabilities at
May 31, 2000.
c) The Company is committed to issuing an additional 100,000 shares, without
further consideration, to an investor who purchased 100,000 shares for
$50,000 cash during the 2000 fiscal year.
22
<PAGE>
AQUATIC CELLULOSE INTERNATIONAL CORP.
Notes to Consolidated Financial Statements, page 6
$ United States
Years ended May 31, 2000 and 1999
--------------------------------------------------------------------------------
6. Notes receivable:
During the year ended May 31, 1999, the Company loaned $105,450 to three
Directors for the exercise of Company stock options (note 4c). These notes
are unsecured, do not bear interest and are due on July 24, 2001.
7. Statement of cash flows:
Cash flows from operating activities under the indirect method are as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss for the year $(985,748) $(463,469)
Non-cash items
Amortization 1,904 2,160
Common stock issued for services 463,700 188,046
Financing fees paid 76,500
(Increase) decrease in accounts receivable (261,079) 14,012
Decrease in deposit 9,419
Increase (decrease) in accounts payable and accrued liabilities 143,625 (39,711)
-----------------------------------------------------------------------------------------------------
Cash used in operating activities $(561,098) $(309,543)
-----------------------------------------------------------------------------------------------------
</TABLE>
During the fourth quarter, the Company issued common shares in exchange for
services amounting to $463,700. In the year ended May 31, 1999, the Company
issued common shares in exchange for services amounting to $188,046 and
issued shares on the exercise of stock options in the amount of $105,450 in
exchange for notes receivable. As these transactions did not involve cash,
they have not been reflected in the statements of cash flows.
8. Income taxes:
The Company has non-capital losses available to reduce future years' income
for income tax purposes. Management is unable to assert that it is more
likely than not that the Company will realize the benefit of these loss carry
forwards and, as such, a valuation allowance equal to the total loss carry
forwards has been provided. These losses expire as follows:
-----------------------------------------------------------------------------
2003 $ 253,000
2005 473,000
2006 484,000
2007 777,000
--------------------------------------------------------------------------------
$1,987,000
--------------------------------------------------------------------------------
9. Comparative figures:
Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current year.
23
<PAGE>
ITEM 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable
24
<PAGE>
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Executive Officers and Directors
Name Age Position
---- --- --------
Gary J. Ackles 46 President & Director
Shane Kerpan 30 Secretary & Treasurer
Claus Wagner-Bartak 62 Director
The officers and Directors of our Company 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 directors of our company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified.
Biographies Of Our Executive Officers And Directors
Gary J. Ackles: Mr. Ackles was appointed to the Board of Directors on July
1,1997, to fill a vacancy. Mr. Ackles was President and founder of Aquatic
Cellulose Ltd., and creator of the Aquatic Timber Harvester System. Mr. Ackles
has over 25 years experience in industries that manufacture and sell equipment,
with extensive international and domestic experience. Mr. Ackles is a 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".
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
25
<PAGE>
16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the company and written representations that no other
reports were required during the fiscal year ended May 31, 2000, all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
ITEM 10. Executive Compensation
The following table sets forth certain summary information regarding
compensation paid by the Company for services rendered during the fiscal year
ended May 31, 2000 to the Company's Chief Executive Officer, Secretary and
Director during such period.
Executive Compensation
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
Payouts
________________________________ ______________________________________________
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Name Other (1) Securities All
And Annual Restricted Underlying Other
Principal Compen Stock Options/ LTIP Compen
Position Year Salary Bonus sation($) Award($) Sar (#) Payouts($) sation ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
President/CEO 2000 $84,000 0 0 0 0 0 0
Secretary 2000 0 0 0 0 0 0 0
Director 2000 0 0 0 0 0 0 0
Key Personnel: 2000 0 0 0 0 0 0 0
Total: $84,000 0 0 0 0 0 0
Directors as a
Group $84,000 0 0 0 0 0 0
</TABLE>
Chief Executive Officer Compensation:
As of the filing date of this registration statement, Mr. Ackles'
employment agreement has been approved by the Board of Directors but has not
been formalized into a written document. Mr. Ackles has been granted an annual
salary of $84,000.
(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. The number of above options issued were 1,425,250 and
are as follows:
26
<PAGE>
1. Gary Ackles - 1,202,500
2. Clause Wagner-Bartuk - 117,500
3. Shane Kerpan - 105,250
To date none of these options have 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.
Name and Address Shares Owned Beneficially(1) Percent of Class
---------------- ---------------------------- ----------------
Gary J. Ackles
3498 Salmon River Bench Rd 5,652,500 12.5%
Vernon, B.C. V1T 8Z7
Claus Wagner-Bartak
4092 Lee Highway 317,500 0.7%
Arlington, VA 22207
Shane Kerpan
816 George Ann Street 220,250 0.5%
Kamloops, B.C. V2C 1L5
Officer/Director as a Group 6,190,250 13.7%
(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, 1999, the Board of Directors authorized the issuance of
stock options to certain officers and directors of our Company. The options
were vested immediately and would have expired on February 22, 2004. The
exercise price was pegged at market price on the date the options were granted.
These options were exercised April 13, 1999 at $0.03 per share as follows: 1)
3,250,000 shares of common stock to Gary Ackles, 2) 115,000 shares of common
stock to Shane Kerpan, and 3)150,000 shares of common stock to Claus Wagner -
Bartak.
27
<PAGE>
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.
ITEM 13. Exhibits, List and Reports in Form 8-K
(a) Exhibits
Exhibit
Number Description
------ -----------
3.1 Articles of Incorporation of the Company filed February 28, 1997. (1)
3.2 Certificate Amending Articles of Incorporation filed November 19, 1997.
(1)
3.3 Bylaws of the Company. (1)
4.1 Form of Common Stock Certificate. (2)
4.2 Form of Warrant Agreement with Form of Warrant Election to Purchase. (2)
6.1 Lease for the Premises dated November 1, 1996. (1)
10.1 Form of Secured Convertible Debenture Purchase Agreement. (2)
10.2 Form of Registration Rights Agreement. (2)
10.3 Form of 12% Convertible Debenture. (2)
10.4 Form of Security Agreement. (2)
27.1 Financial Data Schedule
(1) Previously filed with the Commission on August 16, 1999 as part of
Aquatic Cellulose International Corp.'s Registration Statement (File
N0.000-27063) on Form 10SB12G and incorporated by reference herein.
(2) Previously filed with the Commission on August 21, 2000 as part of
Aquatic Cellulose International Corp.'s Registration (File NO: 333-44184)
on Form SB-2 filed on August 21, 2000 and incorporated by reference
herein.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Aquatic Cellulose International Corp.
By: /s/ Gary Ackles
---------------
Gary Ackles
Director, Chief Executive Officer,
President and Chief Accounting Officer
Date August 25, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Gary Ackles Director, Chief Executive Officer, August 25, 2000
-----------
Gary Ackles President and Chief Accounting Officer
/s/ Claus Wagner-Bartak Director August 25, 2000
-------------------
Claus Wagner-Bartak
29
