<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended DECEMBER 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission file number 33-16110-D
SOUTHWESTERN WATER EXPLORATION CO.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1062895
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
615 MACLEOD TRAIL S.E., SUITE 1100, ROCKY
MOUNTAIN PLAZA, CALGARY, ALBERTA T2G 4T8
(Address of principal executive offices)
(403) 531-2630
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of January 31, 1998, the Registrant had 8,042,120 shares of common
stock outstanding.
Documents Incorporated by Reference: Exhibits in the Registration
Statement on Form 10-KSB dated May 4, 1998.
Transitional Small Business Disclosure Format: Yes No X
--- ---
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following financial statements are filed as a part of this Form
10-QSB:
<TABLE>
<CAPTION>
Financial Statements Page
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<S> <C>
Consolidated Balance Sheets
Consolidated Statements of Loss and Deficit
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
Southwestern Water Exploration Co. (the "Company"), was incorporated in
the State of Colorado on June 10, 1987. The Company's activities from inception
consisted primarily of reviewing possible business opportunities and
acquisitions, and maintaining the business entity. The Company had only nominal
net assets and no operational activities from the fiscal years 1987 through 1995
and all expenses incurred were solely related to maintaining the entity and
reviewing potential business opportunities.
The Company intends to develop and market potable water throughout the
American Southwest. During its development stage, the Company acquired the
Database which it believes will provide surface drilling locations to mine deep
(below 2,000 ft) subsurface aquifers.
The Company has identified a number of sites which it believes will
provide potable water, including a significant water reservoir in Nevada, by
utilizing the Database. Once developed, it is the intent of the Company to
market the water from these sites. If the marketing effort is unsuccessful, the
Company intends to sell the water rights to these sites. The Database provides
specific information including surface location, depth(s) of aquifers,
temperature, production capability, and mineral properties from wells previously
drilled for hydrocarbons and subsequently abandoned.
Management believes that the Company can satisfy its cash requirements
from existing funds for another three months. The Company intends to meet its
future capital needs by raising additional funds through a private placement of
its securities. The Company anticipates that funding of future operations will
be provided by the completion of this private placement for a minimum of $1.5
million. There can be no assurances, however, that the Company will be
successful in the completion of the private placement. In the event the private
placement is not successful, or fails to raise sufficient funds, the Company may
seek alternative financing in the form of short-term or long-term debt or
securities convertible into common stock of the Company.
In the event the private financing is successful, the Company intends
to engage Messrs. Misner and Webb as full-time employees and pay them monthly
salaries of approximately $5,000 per month, respectively. Even if the amount
raised in the private placement meets the Company's expectations, the Company
does not plan to hire additional employees or purchase or acquire plant or
significant equipment. The Company will meet its personnel, drilling and
pipeline requirements by contracting for these services with third parties.
<PAGE> 3
[KPMG LETTERHEAD]
Consolidated Financial Statements of
SOUTHWESTERN WATER
EXPLORATION CO.
Quarter ended December 31, 1998
(Unaudited - See Notice to Reader)
(Expressed in U.S. dollars)
<PAGE> 4
[KPMG LETTERHEAD]
NOTICE TO READER
We have compiled the consolidated balance sheet of Southwestern Water
Exploration Co. as at December 31, 1998 and the consolidated statement of loss
and deficit for the quarter then ended from information provided by management.
We have not audited, reviewed or otherwise attempted to verify the accuracy or
completeness of such information. Readers are cautioned that these statements
may not be appropriate for their purposes.
KPMG LLP
Chartered Accountants
Calgary, Canada
February 10, 1999
<PAGE> 5
SOUTHWESTERN WATER EXPLORATION CO.
Consolidated Balance Sheet
December 31, 1998, with comparative figures for 1997
(Unaudited - See Notice to Reader)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
==========================================================================================
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ - $ 768
Prepaid expenses 698 -
- ------------------------------------------------------------------------------------------
698 768
Property, plant and equipment, at cost less accumulated
depreciation 4,501 4,968
License and other assets 201 201
- ------------------------------------------------------------------------------------------
$ 5,400 $ 5,937
==========================================================================================
Liabilities and Shareholders' Deficiency
Current liabilities:
Bank overdraft $ 564 $ -
Accounts payable and accrued liabilities 54,962 23,446
- ------------------------------------------------------------------------------------------
55,526 23,446
Due to shareholder 7,931 -
Due to related company 758,702 574,253
Minority interest 24,975 850,956
Shareholders' deficiency:
Share capital 883,454 951
Deficit accumulated during development stage (1,725,188) (1,443,669)
- ------------------------------------------------------------------------------------------
(841,734) (1,442,718)
- ------------------------------------------------------------------------------------------
$ 5,400 $ 5,937
==========================================================================================
</TABLE>
<PAGE> 6
SOUTHWESTERN WATER EXPLORATION CO.
Consolidated Statement of Loss and Deficit
(Unaudited - See Notice to Reader)
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
==========================================================================================
Three months ended Nine months ended
December 31, December 31,
-------------------------- ---------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest revenue $ 17 $ 39 $ 39 $ 69
Expenses:
Development 53,400 53,400 160,200 160,200
Professional 29,174 7,806 44,113 12,806
Office expense 5,032 3,000 11,095 9,981
Bank charges 35 64 117 159
Miscellaneous - 1,245 - 1,720
Depreciation 237 292 748 876
- ------------------------------------------------------------------------------------------
87,878 65,807 216,273 185,742
- ------------------------------------------------------------------------------------------
Net loss 87,861 65,768 216,234 185,673
Deficit, beginning of period 1,637,327 1,377,901 1,508,954 1,257,996
- ------------------------------------------------------------------------------------------
Deficit, end of period $ 1,725,188 $ 1,443,669 $1,725,188 $1,443,669
==========================================================================================
</TABLE>
NOTE:
These financial statements do not contain certain disclosures required by
generally accepted accounting principles.
<PAGE> 7
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings which in the
opinion of Company's management are individually or collectively, material to
its business.
ITEM 2. CHANGES IN SECURITIES.
(c) Recent Sales of Unregistered Securities
From March to June 1998, the Company offered its stockholder the
opportunity to convert shares of Preferred Stock of AIFE into shares of Common
Stock of the Company and to convert their warrants of the Company into shares of
Common Stock of the Company. Shares of Preferred Stock of AIFE were converted
into shares of Common Stock of the Company on a one for one basis. Warrants of
the Company were converted into shares of Common Stock of the Company on a 1:.76
basis. No general form of advertising was used in connection with the exchange
of such securities. No underwriters were used in connection with the exchange of
these securities and no commissions were paid to any person. The Company relied
on the exemptions from registration contained in Sections 3(a)(9) of the
Securities Act of 1933 (the "1933 Act") and Regulation D promulgated under the
1933 Act. As a result of the conversion and exchange, 1,744,160 shares of Common
Stock of the Company were issued to existing stockholders.
From December 31, 1995 to December 31, 1998, the Company issued
approximately 507,000 Units to certain sophisticated individuals at a price per
Unit of $1.00 for a total offering of $507,000. Each Unit consisted of one share
of its $.001 par value common stock; a warrant to purchase one share of common
stock of the Company at an exercise price of $2.00 which expired on April 30,
1998; and a redeemable preferred share in the Company's subsidiary, AIFE. The
preferred share is redeemable at the option of the Company at any time or from
time to time at the discretion of AIFE's Board of Directors at a price of $1.00
per share. An overwhelming majority of investors were residents of Canada. The
securities comprising the Units were issued with a Rule 144 restrictive legend.
Each purchaser of a Unit was informed and advised about certain matters
concerning the Company including its business and financial affairs. No general
form of advertising was used in connection with the placement of such
securities. No underwriters were used in connection with the issuance of these
securities and no commissions were paid to any person. The Company relied on the
exemptions from registration contained in Sections 4(2) and 3(b) of the 1933 Act
and Regulation S and Regulation D promulgated under the 1933 Act.
<PAGE> 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title of Exhibit
- ------ ----------------
<S> <C>
2.1 Agreement and Plan of Reorganization between Star Acquisitions
Corporation and Southwestern Water Exploration Co., dated October 23,
1993, incorporated by reference to Exhibit 2.1 of registrant's Annual
Report on Form 10-KSB dated May 4, 1998.
3.1 Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 3.1 of registrant's Annual Report on Form 10-KSB
dated May 4, 1998.
3.2 By-laws, incorporated by reference to Exhibit 3.2 of registrant's
Annual Report on Form 10- KSB dated May 4, 1998.
10.1 License Agreement between American Institute of Formation Evaluation
Ltd. and American Institute of Formation Evaluation Co., dated
September 1, 1993, incorporated by reference to Exhibit 10.1 of
registrant's Annual Report on Form 10-KSB dated May 4, 1998.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the third
quarter of the 1998-1999 fiscal year.
<PAGE> 9
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Southwestern Water Exploration Co.
Date: February 12, 1999 By: /s/ Steven B. Misner
-------------------------------------
Steven B. Misner
President
In accordance with the requirements of the Exchange Act, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Steven B. Misner President and Director February 12, 1999
- ---------------------
Steven B. Misner
/s/ Barbara J. McAllister Chief Financial Officer (Principal February 12, 1999
- ------------------------- Accounting Officer), Secretary
Barbara J. McAllister and Director
</TABLE>
<PAGE> 10
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Title of Exhibit
- ------ ----------------
<S> <C>
2.1 Agreement and Plan of Reorganization between Star Acquisitions
Corporation and Southwestern Water Exploration Co., dated October 23,
1993, incorporated by reference to Exhibit 2.1 of registrant's Annual
Report on Form 10-KSB dated May 4, 1998.
3.1 Amended and Restated Articles of Incorporation, incorporated by
reference to Exhibit 3.1 of registrant's Annual Report on Form 10-KSB
dated May 4, 1998.
3.2 By-laws, incorporated by reference to Exhibit 3.2 of registrant's
Annual Report on Form 10-KSB dated May 4, 1998.
10.1 License Agreement between American Institute of Formation Evaluation
Ltd. and American Institute of Formation Evaluation Co., dated
September 1, 1993, incorporated by reference to Exhibit 10.1 of
registrant's Annual Report on Form 10-KSB dated May 4, 1998.
27.1 Financial Data Schedule.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> (564)
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 698
<PP&E> 14,452
<DEPRECIATION> (9,951)
<TOTAL-ASSETS> 5,400
<CURRENT-LIABILITIES> 55,526
<BONDS> 0
0
0
<COMMON> 883,454
<OTHER-SE> (1,725,188)
<TOTAL-LIABILITY-AND-EQUITY> 5,400
<SALES> 0
<TOTAL-REVENUES> 39
<CGS> 0
<TOTAL-COSTS> 160,200
<OTHER-EXPENSES> 56,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (216,234)
<INCOME-TAX> 0
<INCOME-CONTINUING> (216,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (216,234)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
