<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement
Under
The Securities Act of 1933
AQUATIC CELLULOSE INTERNATIONAL CORP.
-------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Nevada 1600 82-0381904
------ ---- ----------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code Number identification number)
</TABLE>
3704 32nd Street, Suite 301 Vernon, B.C. VIT 5N6
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code:
Gary Ackles
3704 32/nd/ street, Suite 301
Vernon, B.C. VIT 5N6
(800) 565-6544
(Name, address and telephone number of agent for service)
Copies of communications to:
Owen Naccarato, Esq.
Naccarato & Associates
19600 Fairchild, Suite 260
Irvine, California 92612
(949) 851-9261
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Amount offering aggregate Exercise Proceeds
Title of each class of to be price Per offering price to the Amount of
securities to be registered registered (1) share price per share (3) Company registration fee
--------------------------- -------------- ------------ ------------ ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Common Shares, par value
$.001 underlying secured
convertible debenture 5,300,000 (4) $ 0.60 (2) $ 3,180,000 $ 839.52
-------------------------- -------------- ------------ ------------ ------------- ---------- -----------
Shares Underlying 750,000 $ 0.69 $ 517,500 $ 136.62
Warrants
-------------------------- -------------- ------------ ------------ ------------- ---------- -----------
Common Shares 327,000 $ 0.488 (5) $ 159,576 $ 42.13
-------------------------- -------------- ------------ ------------ ------------- ---------- -----------
Total Registration Fee 6,377,000 $ 1,018.27
-------------------------- -------------- ------------ ------------ ------------- ---------- -----------
</TABLE>
(1) Represents the shares of Common Stock being registered for offer by the
Company in connection with a proposed financing (the "Convertible Debenture
Purchase Agreement"). Pursuant to Rule 415, the shares of Common Stock
offered hereby also include such presently indeterminate number of shares
of Common Stock as shall be issued by the Company in connection with the
Financing Arrangement between the Company and the investor. Such number of
shares is subject to adjustment and could be materially less than such
estimated amount depending upon factors that cannot be predicted by the
Company at this time, including, among others, the future market price of
the Common Stock. This presentation is not intended to constitute a
prediction as to the future market price of the Common Stock or as to the
number of shares of Common Stock issuable upon exercise of the convertible
debenture. See "Risk Factors -- Dilution"
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) and (g) of the Securities Act of 1933, as amended
(the "Securities Act"); based on the of the price of $.60 as per the terms
indicated in Section 4 (c)(i) of the Convertible Debenture.
(3) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(g) of the Securities Act of 1933, as amended (the
"Securities Act"); based on the terms of the warrants, $0.69 per share.
(4) Includes: a) 2,800,000 shares representing the conversion of the 12%
debentures and related interest expense, and b) 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.
(5) Estimated solely for the purpose of calculating the registration fee.
Calculated pursuant to Rule 457(g) and based on the average of the high and
low bid on our common stock on August 15, 2000.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effectiveness date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said section 8(a), may determine.
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
The information in this prospectus in not complete and may be changed. The
selling security holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This prospectus is not an offer to
sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Subject to completion, dated August 18, 2000
AQUATIC CELLULOSE INTERNATIONAL CORP.
6,377,000 SHARES OF COMMON STOCK
This prospectus relates to the sale of our common stock to investors and
the resale of our common stock by selling stockholders listed on page 26.
Our common stock trades on the Over-the Counter Bulletin Board, also called
the OTCBB, under the trading symbol "AQCI". On August 15, 2000, the closing bid
for our common stock as reported on the OTCBB was $ .50 per share.
The Securities offered hereby are speculative and involves a high degree of
risk. You should carefully read and consider our risk factors section on page 8
before making an investment decision.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of the prospectus. Any representation to the contrary is a
criminal offense.
The Shares of our common stock being offered by the selling stockholders
have not been registered for sale under the securities laws of any state or
jurisdiction as of the date of this prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update or supersede this information. We
incorporate by reference the documents listed below and any future filing we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:
1. General Registration on Form 10-SB12G filed on November 02, 1999;
2. Quarterly Reports on Form 10-QSB for the periods ended August 31, 1999,
November 30, 1999 and February 29, 2000.
You may request a copy of these filings, at no cost, by writing to us at
3704 32/nd/ street, Suite 301, Vernon, B.C. VIT 5N6, phone (800) 565-6544,
attention Gary Ackles.
We have retained no underwriters in connection with this offering.
THE DATE OF THIS PROSPECTUS IS August 18, 2000
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling security holders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of common stock.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
Summary of Information in the Prospectus ......................................................... 1
Risk Factors ..................................................................................... 4
Use of Proceeds ................................................................................. 8
Price Range of Common Stock ..................................................................... 8
Our Dividend Policy ............................................................................. 9
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................ 10
Our Business ..................................................................................... 11
Management ....................................................................................... 16
Executive Compensation ........................................................................... 17
Certain Relationships and Related Transactions ................................................... 18
Principal Stockholders............................................................................ 18
Description of Securities ........................................................................ 19
Selling Stockholders.............................................................................. 21
Plan of Distribution.............................................................................. 23
Legal Proceedings ................................................................................ 24
Experts .......................................................................................... 24
Legal Matters .................................................................................... 24
Other Available Information ...................................................................... 24
Indemnification................................................................................... 25
Financial Statements.............................................................................. 26
</TABLE>
<PAGE>
SUMMARY OF INFORMATION IN THE PROSPECTUS
This prospectus summary highlights selected information contained in this
prospectus. To understand this offering fully, you should read the entire
prospectus carefully, including the risk factors beginning on page 8 and the
financial statements beginning on page F-1. Unless otherwise indicated, this
prospectus assumes that none of our outstanding options or warrants are
exercised into shares of our common stock.
AQUATIC CELLULOSE INTERNATIONAL CORP. CORPORATION
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 industry
based company whose resource is submerged timber. Our Company harvests submerged
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 key to our Company's business is obtaining timber and the rights to
harvest. 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 over ownership of the
wood to insure that its 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 there is a sufficient volume of timber. Finally, our 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,
put in place the down stream infrastructure to process the timber.
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 on
route to a mill or load out area. Our 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 their destination.
1
<PAGE>
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 Company's Management observed
that submerged hardwoods in the Amazon are currently being used in the
production of both plywood and sawn lumber.
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
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.
Our Company's timber harvesting system utilizes three technological
innovations. The first is the harvesting system's 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". Our
Company has software that transforms individual arm and head joint position feed
back data into an accurate real time graphical image. This software operates 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. Currently the ATH-60 is harvesting timber at the Company's Brazil
project.
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 have
2
<PAGE>
nearby reservoirs containing 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 New Zealand. 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 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 many years ago. Some state and provincial governments treat
this timber as un-owned and consider them Natural Resources, collecting a token
stumpage fee upon harvest.
Recent Events
-------------
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 this registration. 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.
The offering
Common stock outstanding...................37,425,985 shares of common stock
Common stock to be
Offered by our selling
investors ...... 6,377,000 shares, which includes 750,000 shares underlying
Warrants.
Market for our
common stock..... Our common stock trades on the Over-the Counter Bulletin
Board, also called OTCBB, under the trading symbol "AQCI".
The market for our common stock is highly volatile. We can
provide no assurance that there will be a market in the
future for our common stock.
3
<PAGE>
Risk Factors
Any investment in shares of our Company's common stock involves a high
degree of risk. You should carefully consider the following information about
these risks, together with the other information contained in this prospectus,
before you decide to buy our Company's common stock. If any of the following
risks actually occur, our Company's business would likely suffer. In these
circumstances, the market price of our common stock could decline, and you may
lose all or part of the money you paid to buy our Company's common stock.
The technology is new and subject to the risks of a new business. Our Company
----------------------------------------------------------------
began testing the ATH-60 technology in the fall 1998 in Monty Lake, Southern
Interior of Central British Columbia, Canada. Our company plans to contract out
for the construction of a second unit upon receipt of funding. Our Company has
only just begun to market our technology internationally. Without additional
funds for more equipment, our Company may not be able to increase its customer
base at a sufficient rate to fund operations and development.
More Financing Is Needed For Growth. Our Company has limited financial
-----------------------------------
resources. Until our operating results improve, we must obtain outside financing
to fund the expansion of our business. Any additional debt or equity financing
may be dilutive to our shareholders. Financing must be provided from our
operations, or from the sale of equity securities, borrowing, or other sources
of third party financing. The sale of equity securities could dilute our
existing stockholders' interest, and borrowings from third parties could result
in our assets being pledged as collateral and loan terms that would increase our
debt service requirements and could restrict our operations. There is no
assurance that capital will be available from any of these sources, or, if
available, upon terms and conditions acceptable to us.
Risk of Dilution. The issuance of these shares will have a dilutive effect on
-----------------------------------------------------------------------------
our common stock and may lower our stock price. We have reserved a significant
-------------------------------------------------------------------------------
number of shares of our common stock for issuance upon the conversion of
------------------------------------------------------------------------
convertible debentures, and the exercise of our warrants.
--------------------------------------------------------
As of July 31, 2000, we had outstanding $500,000 of convertible debentures
that can be converted into shares of our common stock. Within thirty days after
the effective date of this registration additional debentures amounting to
$1,000,000 will be issued. The number of shares we will issue upon the
conversion of these debentures fluctuates with our common stock market price,
cannot be determined until the day of conversion and is calculated by a formula
set forth in the convertible debenture section 4 "Conversion". There is no limit
on the number of shares of our common stock that may be issued upon the
conversion of these convertible debentures. These convertible debentures have a
conversion price that is the lesser of (1) $0.60 and (2) 70% of the lowest three
inter-day prices (which need not occur on consecutive trading days) during the
twenty trading days immediately preceding the applicable conversion date. Thus,
the debentures will be converted at prices below the current market price on the
conversion date. If conversions of the debentures occur, shareholders may be
subject to an immediate dilution in their per share net tangible book value. The
current convertible debentures may be converted into common stock at any time
prior to their maturity date of May 4, 2001.
As of July 31, 2000, we had outstanding a total of 250,000 warrants to
purchase our common stock at an exercise price of $0.69, which is above the
current market price. These warrants may be exercised any time and from time to
time up to and including May 4, 2003 If the exercise of these warrants occur at
below
4
<PAGE>
market prices, shareholders will be subject to an immediate dilution in their
per share net tangible book value.
We have reserved for a large number of shares to be issued on the
conversion of the convertible debentures and upon exercise of all outstanding
warrants. The issuance of these shares will dilute our common stock per share
net tangible book value and may result in a decline in our stock price.
As of July 31, 2000 we have reserved for 200% of the minimum number of
shares of common stock which would be issuable upon conversion in full of the
debentures, amounting to 5,000,000 shares of authorized and unissued common
stock. These reserve amounts are our good faith estimate of the number of shares
that we believe we need to reserve. We can provide no assurance as to how many
shares we will ultimately need to issue upon the conversion of the debentures.
If we are required to issue additional shares we will be required to file an
additional registration statement for those shares, a process which will be
costly and time consuming.
Limited Operating History. Our Company was incorporated in the State of Nevada
-------------------------
on February 28, 1997. Our Company has a limited operating history and is in its
emerging stages. There can be no assurance that our Company will continue to
develop or will be able to meet its objectives, or that there will be a market
for its products and services, or that our Company will operate at a profit, and
if the Company is not able to do so, investors risk losing their entire
investment.
Minimal Revenues From Operations. Our Company recently began operation with
--------------------------------
their ATH-60 Harvester. Although minimal revenue has started to be realized from
the Brazilian project, our management estimates that it will take approximately
three to four more months before significant revenue will commence.
Speculative Nature of Business. The profits of an enterprise involved in the
------------------------------
submerged timber industry are generally dependent upon the market price per
individual wood species, compared with the cost of the products recovery,
marketing and distribution. Our customer appeal depends upon factors, which
cannot be reliably ascertained in advance and over which the Company has no
control, such as among other things, unpredictable critical reviews and appeal
to the public.
Dependence upon Acquisition Rights to Properties & Recovery Financing. Our
----------------------------------------------------------------------
Company's profitability will be dependent upon its ability to successfully
locate, acquire rights and harvest submerged timber properties and market the
harvested timber.
Copyright Protection & Pirating. Our Company's technology is owned by our
-------------------------------
Company's President, who has granted our Company an exclusive right to its use.
This exclusive right is limited for use in the forestry industry. There is no
practical protection from the creative properties being illegally copied by
others.
Dependence Upon Management. The success of our Company is dependent upon the
--------------------------
continued services of Mr. Gary J. Ackles, its President and Chairman of the
Board. Although the Company has entered into an employment agreement with Mr.
Ackles, the loss to the Company of this individual's services may adversely
affect the Company's businesses.
Dependence of Offering. Even if the securities offered hereby are sold, no
----------------------
assurance can be given that the contemplated business activities of our Company
will prove successful or profitable and that our Company will be able to
generate adequate cash flow to continue its proposed business activities.
5
<PAGE>
Conflicts of Interest. Our Company has engaged in transactions with its
---------------------
management in the past, and it can be expected to engage in such transactions in
the future. In each case, the transactions are approved by our Board of
Directors and are considered to be fair to, and in the best interests of our
Company.
Competition Our Company faces keen competition in all aspects of its business.
-----------
Our Company will be competing for customers with other timber companies, many of
which have substantially greater assets and resources than those of our Company.
Major companies presently dominate the timber industry and have long-standing
distribution and marketing relationships, which may operate to the disadvantage
of our Company.
Use of All Proceeds not Specifically Allocated. This offering is not a Blind-
----------------------------------------------
Pool Offering, through which funds are only generally allocated to its purposes.
Thus, investors will entrust their funds with our management on whose judgment
the investors must depend with only limited information about our management's
specific intentions.
Dividends. Our Company has not paid or declared any cash dividends on its stock
---------
in the past, nor does it contemplate paying dividends in the foreseeable future
since it will use all of its earnings, if any, to finance expansion of its
operations. Future dividends will depend on earnings, if any, of our Company,
our financial requirements and other factors. Investors who anticipate the
need for income from dividends should refrain from the purchase of the
securities being offered hereby.
Current Capital. Our Company's current capital is not sufficient to enable it
---------------
to continue upon its proposed operations. Therefore its ability to do business
is contingent upon the successful offering and sale of the securities offered
hereby, of which there can be no assurance that such offering will be
successful. Additionally, there can be no assurance that even should our
Company be successful in raising funds, that we would be successful in ours
operations to generate enough revenues to continue as a going concern.
Employees. Many of the individuals associated with our Company have experience
---------
in the business, however, we rely heavily on our President Mr. Ackles for the
day to day operations of the business. If Mr. Ackles were to leave the Company,
we would have a difficult time continuing operations.
Marketing. The business of marketing requires new and innovative ideas. There
---------
is no assurance that any of our Company's products will be successfully received
in the marketplace.
"Penny Stock" Issues. The shares of the Common Stock are "penny stocks" as
-------------------
defined in the Exchange Act, which are traded in the over-the-counter market on
the OTC Bulletin Board. As a result, an investor may find it more difficult to
dispose of or obtain accurate quotations as to the price of the shares of the
Common Stock being registered hereby. In addition, the "penny stock" rules
adopted by the Commission under the Exchange Act subject the sale of the shares
of the Common Stock to certain regulations which impose sales practice
requirements on broker-dealers. For example, broker-dealers selling such
securities must, prior to effecting the transaction, provide their customers
with a document that discloses the risks of investing in such securities.
Furthermore, if the person purchasing the securities is someone other than an
accredited investor or an established customer of the broker-dealer, the broker-
dealer must also approve the potential customer's account by obtaining
information concerning the customer's financial situation, investment experience
and investment objectives. The broker-dealer must also make a determination
whether the
6
<PAGE>
transaction is suitable for the customer and whether the customer has sufficient
knowledge and experience in financial matters to be reasonably expected to be
capable of evaluating the risk of transactions in such securities. Accordingly,
the Commission's rules may limit the number of potential purchasers of the
shares of the Common Stock.
If our Company can meet the listing requirements in the future, management
intends to apply to include the shares of the Common Stock being registered
hereby for quotation on The NASDAQ SmallCap Market operated by The NASDAQ Stock
Market. Our Common Stock has not yet been approved for quotation on The NASDAQ
SmallCap Market and there can be no assurance that an active trading market will
develop or if such market is developed that it will be sustained. The NASDAQ
Stock Market recently approved changes to the standards for companies to become
listed on The NASDAQ SmallCap Market, including, without limitation, new
corporate governance standards, a new requirement that companies seeking listing
have net tangible assets of $2,000,000, market capitalization of $35,000,000 or
net income of $500,000 and other qualitative requirements. If our Company is
unable to satisfy the requirements for quotation on The NASDAQ SmallCap Market,
trading in the Common Stock being registered hereby would continue to be
conducted on the OTC Bulletin Board. Even if the shares of the Common Stock are
listed for quotation on The NASDAQ SmallCap Market, the market price of the
shares must remain above $5.00 per share or else such shares will be subject to
the "penny stock" rules of the Commission discussed above. If the market price
of such shares falls below $1.00 per share, such shares will be delisted from
The NASDAQ SmallCap Market and will once again be quoted on the OTC Bulletin
Board .
Resale Restrictions. Various state securities laws impose restrictions on
-------------------
transferring "penny stocks" and as a result, investors in the Common Stock may
have their ability to sell their shares of the Common Stock impaired. For
example, the Utah Securities Commission prohibits brokers from soliciting buyers
for "penny stocks", which makes selling them more difficult.
Information about Forward-Looking Statements
This Prospectus contains certain forward-looking statements, which involve
substantial risks and uncertainties. These forward-looking statements can
generally be identified because the context of the statement includes words such
as "may," "will," "except," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, this prospectus also contains
forward-looking statements about our future. Forward-looking statements include
statements about our:
Plans
Objectives
Goals
Strategies
Expectations for the future
Future performance and events
Underlying assumptions for all of the above
Other statements, which are not statements of historical facts
These forward-looking statements involve risks and uncertainties, which could
cause our actual results to materially differ from our forward-looking
statements. We make these forward-looking statements based on our analysis of
internal and external historical trends, but there can be no assurance that we
will achieve the
7
<PAGE>
results set forth in these forward-looking statements. Our forward-looking
statements are expressed in good faith and we believe that there is a reasonable
basis for us to make them.
In addition to other factors discussed in this prospectus, the following are
important factors that could cause our actual results to materially differ from
our forward-looking statements:
- Our ability to respond to changes in the marketplace
- Competitive factors
- The availability of financing on terms and conditions acceptable to us
- The availability of personnel with the appropriate technical skills
We have no obligation to update or revise these forward-looking statements to
reflect future events.
Use of Proceeds
The Company will not receive any proceeds upon the issuance of the common stock
that is the subject of this registration. However, within thirty days after the
effectiveness of this registration statement, pursuant to the Secured
Convertible Debenture Purchase Agreement, the Company is to receive $1,000,000.
If all the warrants in this offering are exercised, the net proceeds to us from
the exercise of warrants, after the deduction of offering expenses, will be
approximately $ 464,929. The Company intends to use the net proceeds to finance
the construction of additional harvesting equipment and to expand its operations
in Brazil. .
Price Range of Common Stock
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 1998: ------- ------
-------------
First Quarter 1998 .34 .10
Second Quarter 1998 .36 .09
Third Quarter 1998 .36 .025
Fourth Quarter 1998 (5/31/99) .235 .017
Fiscal 1999:
First Quarter 1999 .72 .14
Second Quarter 1999 .93 .25
Third Quarter 1999 .90 .45
Fourth Quarter 1999 (5/31/00) 1.25 .50
8
<PAGE>
Transfer Agent and Registrar
The Company's transfer agent is Oxford Transfer & Registrar located at 317
Southwest Alder, Suite 1120, Portland, Oregon, 92704.
Our Dividend Policy
The Company anticipates that for the foreseeable future, earnings will be
retained for the development of is business. Accordingly, the Company does not
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 the Company's general business condition.
Management's Discussion and Analysis or Plan of Operation
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 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.
9
<PAGE>
Results of Operations
Year Ended May 31, 2000
-----------------------
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.
10
<PAGE>
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.
It is anticipated that the $500,000 convertible debentures payable will be
converted into shares in accordance with the terms of these debentures.
Our Business
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
11
<PAGE>
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.
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
12
<PAGE>
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 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.
13
<PAGE>
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.
Important Events
----------------
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 11, 2000,
our Company announced that it completed an initial round of investment funding.
The form of this funding was set up as debentures convertible into common stock
plus warrants.
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
14
<PAGE>
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.
Accomplishments
---------------
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
---------------------
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 available. Additionally, our
Company is continuing to form relationships both domestically and around the
world.
15
<PAGE>
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.
Strategic Vision
Our Company's vision is to continue supplying viable supplemental sources
of timber. This vision will require that our Company establish a reserve base of
inundated and salvage timber, which will insure the future stability and long-
term growth of our Company. Our Company is also committed to continue being
involved in the development of the technology and equipment needed to maintain
its lead position in this emerging industry.
Employees
Our Company employs a total of four full time employees.
Management
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 expertise in industries that manufacture and sell equipment,
with extensive international and domestic experience. Mr. Ackles is an
internationally recognized creator of aquatic technologies, and has been
involved with numerous equipment based industries including oil and mineral
exploration, logging, heavy construction, and aquatic environmental management.
Mr. Ackles has introduced and sold equipment in Canada, USA, Middle East,
Africa, and South America.
16
<PAGE>
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".
Information concerning our Board of directors and its Committees
Directors receive no remuneration at this time. All Company Directors are
entitled to reimbursement of funds advanced to pay expenses in connection with
our Company's business. Our Company has not established committees of the Board
of Directors.
Executive Compensation
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
Payouts
----------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(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 ($)
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.
17
<PAGE>
(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:
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.
Certain Relationships and Related Transactions
On February 22, 1999, the Board of Directors authorized the issuance of
stock options to certain officers and directors of our Company. The options were
vested immediately and would have expired on February 22, 2004. The exercise
price was pegged at market price on the date the options were granted. These
options were exercised April 13, 1999 at $0.03 per share as follows: 1)
3,250,000 shares of common stock to Gary Ackles, 2) 115,000 shares of common
stock to Shane Kerpan, and 3)150,000 shares of common stock to Claus Wagner -
Bartak.
On February 22, 2000, the Board of Directors authorized and granted the
issuance of stock options to certain officers and directors of our Company. The
options were vested immediately and will be exercisable in whole or in part for
five years from the date of issue. The exercise price was pegged at market price
on the date the options were granted. The options granted on February 22, 2000
(at $0.52 per share) are as follows: 1) 1,202,500 shares of common stock to Gary
Ackles, 2) 105,250 shares of common stock to Shane Kerpan, and 3) 117,500 shares
of common stock to Claus Wagner- Bartak.
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.
18
<PAGE>
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.
Description of Securities
General
-------
As of the date of this Registration Statement, the authorized capital stock
of our Company consists of 50,000,000 shares of Common Stock, $.001 par value,
of which 37,425,985 shares are issued and outstanding plus 10,000,000 shares of
preferred stock, $0.001 par value, of which no shares are issued and
outstanding. There are approximately 257 shareholders that are not in street
name. The following is a description of the securities of our Company taken from
provisions of our 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
therefore, and will be entitled to receive, pro rata, all assets of the Company
available for distribution to such holders upon liquidation. Holders of Common
Stock have no preemptive, subscription or redemption rights. All
19
<PAGE>
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, $0.001 par value
authorized. The Articles of Incorporation provide that the Preferred stock may
be issued from time to time in one or more series, the shares of each series to
have voting powers, full or limited, and such designations, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof as are stated and expressed herein or in the
resolution or resolutions providing for the issue of such series adopted by the
board of directors. No Preferred Stock are issued or outstanding at this time.
There are no present plans by the Company's Board of Directors to issue
preferred shares or to address the rights to be assigned to such shares.
Warrant and Options:
-------------------
In May, 2000 our Company issued a total of 250,000 warrants. Each warrant
allows the holder to purchase 1 share of our common stock at an exercise price
equal to $.69 per share. These warrants expire May 4, 2003. The Warrant provides
that in no event shall the holder beneficially own more than 4.999% of our
outstanding common stock.
As of July 31, 2000, there were a total of 1,425,250 options outstanding to
purchase our Company's common stock at an exercise price of $0.52 per share,
which was the market price of the options on the granting date of February 22,
2000. These options expire on February 22, 2005.
Pursuant to a consulting agreement, our Company has also 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.
Shares Eligible for Future Sale
-------------------------------
On the date of this offering our Company has 37,425,985 shares of Common
Stock outstanding. Sales of a substantial number of shares of our Company's
Common Stock in the public market following this offering could adversely affect
the market price of the Common Stock. This offering is registering 6,377,000
shares of common stock all of which will be freely tradable without restriction
or further registration under the Securities Act. This includes: a) 2,800,000
shares representing the conversion of the 12% debentures and related interest
expense; b) 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, and c) 327,000 of other selling shareholders, plus
750,000 warrants to be registered in connection with the secured convertible
debenture purchase agreement.
20
<PAGE>
Selling Shareholders
--------------------
The Shares being offered for resale by our Selling Stockholders are
issuable to our Selling Stockholder pursuant to the secured convertible
debenture purchase agreement (see Exhibit 10.1). Additionally, certain shares
are being offered for sale by our Selling Stockholders with piggyback
registration rights.
Recent Financing
On May 4, 2000, pursuant to a Secured Convertible Debenture Purchase
Agreement, AJW Partners, LLC and New Millennium Capital Partners II, LLC agreed
to purchase an aggregate of $1,500,000 of 12% Convertible Debentures, 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 this registration. 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 plus warrants to purchase, respectively, a total of 250,000 and
500,000 shares of common stock from the Company. The warrants to be issued to
AJW Partners and New Millennium Capital Partners are each exercisable at an
exercise price per share of $0.69. Interest on the debentures is payable on a
quarterly basis on March 31, June 30, September 30 and December 31 of each year
while such debentures are outstanding and on each date of conversion, whichever
occurs earlier. Interest may be paid, at our option, in cash or common stock.
Any debentures outstanding on May 4, 2001, automatically convert into shares of
our common stock at the then applicable conversion price. The debentures are
redeemable under certain circumstances as stated in the Convertible Debenture
(see exhibit 10.3).
Each holder of the 12% convertible debenture may not convert its securities
into shares of the Company's common stock if after the conversion, such holders,
together with any of its affiliates, would beneficially own over 4.999% of the
outstanding shares of the Company's common stock. This percent ownership
restriction may be waived by each holder on not less than 61 days' notice to the
Company. Since the number of shares of the Company's common stock issuable upon
conversion of the debentures will change based upon fluctuations of the market
price of the Company's common stock prior to a conversion, the actual number of
shares of the Company's common stock that will be issued under the debentures,
and consequently the number of shares of the Company's common stock that will be
beneficially owned by AJW Partners and New Millennium Capital Partners II cannot
be determined at this time. Because of this fluctuating characteristic, we
agreed to register a number of shares of the Company's common stock that exceeds
the number of the Company's shares of common stock currently beneficially owned
by AJW Partners and New Millennium Capital Partners II. The number of shares of
the Company's common stock listed in the table below as being beneficially owned
by AJW Partners and New Millennium Capital Partners II includes the shares of
the Company's common stock that are issuable to AJW Partners and New Millennium
Capital Partners subject to the 4.999% limitation, upon conversion of their
debentures and exercise of their warrants. However, the 4.999% limitation would
not prevent AJW Partners and New Millennium Capital Partners from acquiring and
selling in excess of 4.999% of the Company's common stock through a series of
conversions and sales under the debentures and acquisitions and sales under the
warrants.
21
<PAGE>
The table below sets forth information concerning the resale of shares of
Common Stock by the Selling Stockholders. The table reflects: (1) the number of
shares issuable upon conversion of debentures pursuant to the secured
convertible debenture purchase agreement, (2) shares issuable upon exercise of
warrants pursuant to the secured convertible debenture purchase agreement and
(3) shares issuable upon conversion of certain convertible debentures with
piggyback registration rights. We will not receive any proceeds from the resale
of the common stock by the Selling Stockholders. We will receive proceeds from
the exercise of the warrants. Assuming all the shares registered below are sold
by the Selling Stockholders, none of the Selling Stockholders will continue to
own any shares of our Common Stock.
The following table also sets forth the name of each person who is offering
shares of common stock by this prospectus, the number of shares of common stock
beneficially owned by each person, the number of shares of common stock that may
be sold in this offering and the number of shares of common stock each person
will own after the offering, assuming they sell all of the shares offered.
Beneficial ownership is determined in accordance with SEC rules and generally
includes voting or investment power with respect to securities. Common shares
that are issuable upon the exercise of outstanding options, warrants,
convertible Preferred Stock or other purchase rights, to the extent exercisable
within 60 days of the date of this Prospectus, are treated as outstanding for
purposes of computing each Selling Shareholder's percentage ownership of
outstanding common shares.
<TABLE>
<CAPTION>
Shares Beneficially Shares Shares Beneficially Owned
Owned Offered After Offering
Selling Prior to the For If All Offered
Stockholder (1) Offering (2) Sale (3) Shares Are Sold (3)
-------------- --------------------------- -------- -------------------
Number of Shares Percentage Number of Shares Percentage
<S> <C> <C> <C> <C> <C>
Sean Nevitt 274,000 .604% 137,000 137,000 .302%
Matthew Lothian 200,000 .441% 100,000 100,000 .220%
Letchworth Investments 90,000 .197% 90,000 0 0%
AJW Partners, LLC 2,267,211 (4) 4.999% 3,025,000 0 0%
New Millennium Capital Partners, LLC 2,267,211 (4) 4.999% 3,025,000 0 0%
</TABLE>
(1) No Selling Stockholder has held any position or office, or has had any
material relationship with us or any of our affiliates within the past
three years.
(2) Assumes that all convertible debentures have been converted and that all
warrants have been exercised into common stock.
(3) Assumes no sales are effected by the Selling Stockholder during the
offering period other than pursuant to this offering and that all shares
offered will be issued and sold.
(4) Includes the shares of our common stock issuable to AJW Partner and New
Millennium Capital Partners, subject to the 4.999% limitation, upon
conversion of its debentures and exercise of its warrants.
(5) Percentages are based on 45,353,235 shares of our common stock outstanding
on a fully diluted basis as of August 16, 2000.
(6) Pursuant to the Registration Rights Agreement between us and the debenture
holders, we are required to register such number of shares of common stock
equal to the sum of (i) 200% of the number of shares of common stock
issuable upon conversion in full of their debentures, assuming for such
purposes that all interest is paid in shares of our common stock, that the
Debentures are outstanding for one year and that such conversion occurred
at a price equal to the lesser of (a) $0.60 and (b) 70% of the average of
the lowest three inter-day prices (which need not occur on consecutive
trading days)
22
<PAGE>
during the twenty trading days immediately preceding the conversion date
and (ii) the number of shares of Common Stock issuable upon exercise in
full of the warrants.
Plan of Distribution
The selling stockholders and any of their pledges, assignees, and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market, or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. There is no assurance that the selling stockholders will sell
any or all of the common stock in this offering. The selling stockholders may
use any one or more of the following methods when selling shares:
Ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers
Block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction.
Purchases by a broker-dealer as principal and resale by the broker-dealer
for its own account
An exchange distribution following the rules of the applicable exchange
Privately negotiated transactions
Short sales or sales of shares not previously owned by the seller
Broker-dealers may agree with the selling stockholders to sell a specified
number of such shares at a stipulated price per share
A combination of any such methods of sale
Any other lawful method
The Selling stockholders may also engage in:
Short selling against the box, which is making a short sale when the seller
already owns the shares
Buying puts, which is a contract whereby the person buying the contract may
sell shares at a specified price by a specified date.
Selling under Rule 144 under the Securities Act, if available, rather than
under this prospectus
Other transactions in our securities or in derivatives of our securities
and the subsequent sale or delivery of shares by the stockholder.
Pledging shares to their brokers under the margin provisions of customer
agreements. If a selling stockholder defaults on a margin loan, the broker
may, from time to time, offer to sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from selling stockholders in amounts to be negotiated. If any
broker-dealer acts as agent for the purchaser of shares, the broker-dealer may
receive commission from the purchaser in amounts to be negotiated. The selling
stockholders do not expect these commissions and discounts to exceed what is
customary in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that are involved
in selling the shares may be considered to be "underwriters" within the meaning
of the Securities Act for such sales. An underwriter is a person who has
purchased shares from an issuer with a view towards distributing the shares to
the public. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the
23
<PAGE>
shares purchased by them may be considered to be underwriting commissions or
discounts under the Securities Act.
We are required to pay all fees and expenses incident to the registration
of the shares in this offering. However, we will not pay any commissions or any
other fees in connection with the resale of the common stock in this offering.
We have agreed to indemnify the selling shareholders and their officers,
directors, employees and agents, and each person who controls any selling
shareholder, in certain circumstances against certain liabilities, including
liabilities arising under the Securities Act. Each selling shareholder has
agreed to indemnify the Company and its directors and officers in certain
circumstances against certain liabilities, including liabilities arising under
the Securities Act.
If we are notified by the selling stockholder that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholder and the broker-dealer.
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.
Experts
Our financial statements in the prospectus of this Form SB-2 registration
statement have been audited by KPMG, LLP Chartered Accountants, as disclosed in
their report appearing elsewhere in this registration statement.
Legal Matters
Legal matters concerning the issuance of shares of common stock offered in
this registration statement will be passed upon by Owen Naccarato, attorney at
law. Owen Naccarato does not beneficially own any shares of the company.
Other available information
We are subject to the reporting requirements of the Securities and Exchange
Commission (the "commission"). We file periodic reports, proxy statements and
other information with the commission under the Securities Exchange Act of 1934.
We will provide without charge to each person who receives a copy of this
prospectus, upon written or oral request, a copy of any information that is
incorporated by reference in this prospectus (not including exhibits to the
information that is incorporated by reference unless the exhibits are themselves
specifically incorporated by reference). Requests should be directed to Aquatic
Cellulose International Corp., Attn: Gary J. Ackles, 3704 32/nd/ Street Suite
301, Vernon, BC VIT5N6, Voice:1-800-565-6544.
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933 Act with the Commission in connection with the securities offered by
this prospectus. This prospectus does not contain all of the information that is
the registration statement, you may inspect without charge, and copy our
filings, at the public reference room maintained by the Commission at 450 Fifth
Street, N.W. Washington, D.C. 20549. Copies of this material may also be
obtained from the Public Reference Section of the Commission
24
<PAGE>
at 450 Fifth Street, N.W. Washington, D.C. 20549, at prescribe rates.
Information about the public reference room is available from the commission by
calling 1-800-SEC-0330.
The commission maintains a web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers that
file electronically with the commission. The address of the site is www.sec.gov.
------------
Visitors to the site may access such information by searching the EDGAR archives
on this web site.
Indemnification
The Company's Articles of Incorporation do not specifically address
indemnification of directors and officers, except to make a general reference
that the directors "may exercise all rights, powers, and privileges conferred
upon similar corporations organized under and by virtue of the laws of the State
of Nevada." Sections 78.751 and 78.752 of the Nevada Revised Statutes permit a
corporation to indemnify, among others, any officer or director against certain
liabilities under specified circumstances, and to purchase and maintain
insurance on behalf of its officers and directors.
Consistent with the overall scope of Section78.751 of the Nevada Revised
Statutes, Article VI of the Company's Bylaws, included in Exhibit 3.2 hereto and
incorporated herein by reference, provides, in general, that any director or
officer of the Company who is the subject of or a participant in a threatened,
pending or completed legal action by reason of the fact that such individual is
or was a director or officer shall be indemnified and held harmless by the
Company from and against the consequences of such action if it is determined
that he acted in good faith and reasonably believed (i) his conduct was in the
Company's best interest, (ii) in all other cases, that his conduct was not
opposed to the best interests of the Company, and (iii) with respect to criminal
proceedings, that he had no reasonable cause to believe his conduct was
unlawful; provided that if it is determined that such person is liable to the
Company or is found liable on the basis that personal benefit was improperly
received by such person, the indemnification is limited to reasonable expenses
actually incurred by such person in connection with the legal action and shall
not be made in respect of any legal action in which such person shall have been
found liable for willful or intentional misconduct in the performance of his
duty to the Company. Any indemnification (unless ordered by a court of competent
jurisdiction) shall be made by the Company only upon a determination that
indemnification of such person is proper in the circumstances by virtue of the
fact that it shall have been determined that such person has met the applicable
standard of conduct.
The Bylaws also provide that reasonable expenses, including court costs and
attorneys' fees, incurred by officers and directors in connection with a covered
legal action shall be paid by the Company at reasonable intervals in advance of
the final disposition of such action, upon receipt by the Company of a written
affirmation by such person of his good faith belief that he has met the standard
of conduct necessary for indemnification, and a written undertaking by or on
behalf of such person to repay the amount paid or reimbursed by the Company if
it is ultimately determined that he is not entitled to be indemnified.
The Board of Directors of the Company may also authorize the Company to
indemnify employees or agents of the Company, and to advance the reasonable
expenses of such persons, to the same extent, following the same determinations
and upon the same conditions as are required for the indemnification of
25
<PAGE>
and advancement of expenses to directors and officers of the Company. As of the
date of this Registration Statement, the Board of Directors has not extended
indemnification rights to persons other than directors and officers.
The Bylaws also provide that the Company has the power and authority to
purchase and maintain insurance or other arrangements on behalf of any director,
officer, employee, or agent of the Company or any affiliate of the Company on
similar terms as those described in Section 78.752 of the Nevada Revised
Statutes. The Company's Articles of Incorporation relieve its directors from
liability for monetary damages to the full extent permitted by Nevada law.
Sections 78.751 and 78.752 of the General Corporation Law of the State of Nevada
authorize a corporation to indemnify, among others, any officer or director
against certain liabilities under specified circumstances, and to purchase and
maintain insurance on behalf of its officers and directors.
Financial Statements
Our Financial Statements begin on page F-1
26
<PAGE>
Consolidated Financial Statements of
AQUATIC CELLULOSE
INTERNATIONAL CORP.
May 31, 2000 and 1999
Index To Audited Financial Statements
Independent Auditor's Report F-2
Consolidated Balance Sheets as of May 31, 2000 and 1999 F-3
Consolidated Statements of Loss for the years ended May 31,
2000 and 1999 F-4
Consolidated Statement of Stockholders' Equity (Deficit) and
Comprehensive Income for the years ended May 31, 2000 and1999 F-5
Consolidated Statements of Cash Flows for the years ended May 31,
2000 and 1999 F-6
Notes to Consolidated financial Statements F-7
F-1
<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
F-2
<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
F-3
<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
F-4
<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>
========================================================================================================
Capital Stock Accumulated Total
--------------------- 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.
F-5
<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
F-6
<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:
<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>
F-7
<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.
F-8
<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:
<TABLE>
<CAPTION>
=========================================================================
2000
-------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
-------------------------------------------------------------------------
<S> <C> <C> <C>
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
=========================================================================
</TABLE>
F-9
<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):
<TABLE>
<CAPTION>
==================================================================
1999
------------------------------------------------------------------
Accumulated Net book
Cost amortization value
------------------------------------------------------------------
<S> <C> <C> <C>
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
==================================================================
</TABLE>
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
==========================================================================================
<CAPTION>
==========================================================================================
Price per Outstanding Outstanding
Expiry Date share May 31, 1999 Issued Exercised May 31, 1999
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
February 22, 2004 $ 0.03 - 3,515,000 3,515,000 -
==========================================================================================
</TABLE>
F-10
<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:
<TABLE>
----------------------------------------------------------------------
2000 1999
----------------------------------------------------------------------
<S> <C> <C>
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
======================================================================
</TABLE>
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.
F-11
<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:
<TABLE>
===========================================================================
<S> <C>
2003 $ 253,000
2005 473,000
2006 484,000
2007 777,000
---------------------------------------------------------------------------
$1,987,000
===========================================================================
</TABLE>
9. Comparative figures:
Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current year.
F-12
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
-------------------------------------------------
Indemnification of Directors and Officers
Nevada Corporation Law permits a corporation organized under Nevada Law to
indemnify directors and officers with respect to any matter in which the
director or officer acted in good faith and in a manner he reasonably believed
to be not improper.
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.
Other Expenses of Issuance and Distribution
Related to the securities being registered. The expenses shall be paid by the
Registrant.
SEC Registration Fee $ 1,071.50
Printing and Engraving Expenses $ 2,000.00
Legal Fees and Expenses $ 25,000.00
Accounting Fees and Expenses $ 15.000.00
Transfer Agent Fees $ 2,000.00
Blue Sky Fees $ 2,000.00
Miscellaneous $ 5,000.00
------------
Total $ 52,071.50
Recent Sales of Unregistered Securities
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
<PAGE>
$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 (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.
<PAGE>
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."
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."
<PAGE>
Exhibits:
3.1.1 * Articles of Incorporation filed February 28, 1997
3.1.2 * Certificate Amending Articles of Incorporation filed on November 19,
1997
3.2 * Bylaws
4.1 Form of Common Stock Certificate
4.2 Form of Warrant Agreement with Form of Warrant Election to Purchase
5.1 Opinion re:Legality
10.1 Form of Secured Convertible Debenture Purchase Agreement
10.2 Form of Registration Rights Agreement
10.3 Form of 12% Convertible Debenture
10.4 Form of Security Agreement
23.1 Consent of Counsel, Owen Naccarato (included in Exhibit 5.1)
23.2 Consent of KPMG LLP
27.1 Financial Data Schedule
* 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.
<PAGE>
UNDERTAKINGS
The undersigned registrant hereby undertakes that it will:
Undertaking (a)
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information set forth in the
registration statement; and arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) ('230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of the
Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining any liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Undertaking (e)
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 small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as
<PAGE>
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Vernon,
B.C. VIT 5N6, on August 18, 2000.
Aquatic Cellulose International Corp.
By: /s/ Gary Ackles
---------------
Gary Ackles
Director, Chief Executive Officer,
President and Chief Accounting Officer
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates indicated:
/s/ Gary Ackles Director, Chief Executive Officer, August 18, 2000
-----------
Gary Ackles President and Chief Accounting Officer
/s/ Claus Wagner-Bartak Director August 18, 2000
-------------------
Claus Wagner-Bartak
<PAGE>
Exhibits
3.1.1 * Articles of Incorporation filed February 28, 1997
3.1.2 * Certificate Amending Articles of Incorporation filed on November
19, 1997
3.2 * Bylaws
4.1 Form of Common Stock Certificate
4.2 Form of Warrant Agreement with Form of Warrant Election to
Purchase
5.1 Opinion re:Legality
10.1 Form of Secured Convertible Debenture Purchase Agreement
10.2 Form of Registration Rights Agreement
10.3 Form of 12% Convertible Debenture
10.4 Form of Security Agreement
23.1 Consent of Counsel, Owen Naccarato (included in Exhibit 5.1)
23.2 Consent of KPMG LLP
27.1 Financial Data Schedule
* 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.
