<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(FEE REQUIRED)
For the fiscal year ended MARCH 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(NO FEE REQUIRED)
For the transition period from ___ to ___
Commission file number 33-16110-D
SOUTHWESTERN WATER EXPLORATION CO.
--------------------------------------------
(Formerly Star Acquisitions Corporation)
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
COLORADO 84-1062895
------------------------------- ---------------------------------
<S> <C>
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
15 MACLEOD TRAIL S.E., SUITE 1100, ROCKY MOUNTAIN PLAZA,
CALGARY, ALBERTA T2G 4T8
- -------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
(403) 531-2630
-----------------------------------------------
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act: NONE.
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 No X
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
For the fiscal year ended March 31, 1999 the Issuer's revenues were
approximately $[FILL IN]
As of March 31, 1999, the aggregate market value of Issuer's voting stock
held by non-affiliates was approximately $[FILL IN]. No market currently exists
for any of the Issuer's equity securities.
As of [DATE] 1999, the Registrant had [FILL IN] shares of common stock
outstanding.[UPDATE]
Documents Incorporated by Reference: Exhibits in the Issuer's annual report
on Form 10-KSB dated May 4, 1998.
Transitional Small Business Disclosure Format: Yes No X
--- ---
================================================================================
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
Southwestern Water Exploration Co. (the "Company"), formerly Star
Acquisitions Corporation, was incorporated in the State of Colorado on July 10,
1987. The Company's principal offices are located at 1100 Rocky Mountain Plaza,
615 Macleod Trail, S.E., Calgary, Alberta T2G 4T8.
Pursuant to approval of its board of directors, the Company entered into an
Agreement and Plan of Reorganization with American Institute of Formation
Evaluation Co.("AIFE") on October 23, 1993 (the "Plan"). Under the Plan, the
Company acquired all of the issued and outstanding shares of AIFE in exchange
for 4,500,000 shares of restricted common stock of the Company and AIFE became a
wholly owned subsidiary of the Company. On November 12, 1993, the Company filed
Amended and Restated Articles of Incorporation, pursuant to which the Company's
name was changed to Southwestern Water Exploration Co.
Business Description
The Company intends to locate, develop and market potable water throughout
the American Southwest. The Company will do this by acquiring water rights to
deep reservoirs in order to provide supplies of fresh water to cities,
municipalities, and farmers in the Southwest. The Company has acquired a
proprietary copy of a historical computerized database with information
concerning water bearing strata (the "Database"). The Database contains
information concerning over 150,000 computerized drill stem tests. Such
information is not available from any other known sources. A drill stem test is
a test run on a well drilled for hydrocarbons to determine pressures, flow
rates, and chemical properties of fluids, gas, and temperatures. Drill stem
tests are the only type of preliminary test which is run that measures the
actual properties of the reservoir. Information in the Database, which dates to
the 1950's, has been enhanced often. Using information contained in the
Database, the Company has identified a potential drilling site close to the City
of Las Vegas. The Company has also retained a geology firm to undertake a
detailed hydrogeological study of deep water flow patterns to identify drill
sites close to Las Vegas. The study concluded that the site identified by the
Company close to Las Vegas was likely to contain deep water reserves. The
Company believes that the Database will provide information to locate additional
sources of potable water from deep reservoirs.
Projects
Using the information contained in the Database, the Company has identified
what it believes to be preferential drilling sites for significant reserves of
potable water in Lincoln County, Nevada. If significant reserves are located,
the Company intends to deliver water reserves to Clark County, Nevada, which
includes the cities of Las Vegas, Henderson, and Laughlin. The Company believes
that drilling sites in Lincoln County, Nevada (the "Nevada Project") will be its
principal source of revenue initially. The Company intends to pursue additional
projects in the American Southwest with information from the Database. The
Company has identified at least 10,000 potential well sites throughout the
American Southwest. The Company intends to extract water from some of these well
sites and sell water from those sites to large metropolitan communities.
Competition
The Company has identified a number of other companies, individuals, and
partnerships which market services similar to those of the Company. Many of
these competitors are better capitalized than the Company.
2
<PAGE> 3
Many of the Company's competitors, however, have advocated strategies which
focus on obtaining water from known water sources. There are relatively few
proposals to deliver subsurface water to municipalities, as planned by the
Company. While the Company believes that the information from the Database
provides it with a competitive advantage, there can be no assurance that the
Company will be able to compete effectively with others to locate sources of
potable water or to obtain favorable contracts for the sale of such water.
Government Regulation
The Nevada Project will be subject to significant government regulation and
a potentially lengthy government approval process. Other future projects may
face comparable government regulation and involve extensive governmental
approvals. Nevada law requires that a permit be issued before any water may be
diverted. The drilling site involved in the Nevada Project is located in an area
which may require the Company to obtain a permit to appropriate water or obtain
permission to drill an exploratory well.
The Nevada State Engineer (the "State Engineer") may issue a written waiver
to the permit requirements for wells drilled to determine the availability or
quality of water. The State Engineer may grant such a waiver upon a showing of
good cause. The Company believes that good cause exists to grant such a waiver
because it will likely be drilling for water at a depth and in an area where
there has been no prior drilling for deep water reserves of potable water. After
the Company submits its appropriation application, the State Engineer will
publish a notice of the application in a newspaper of general circulation. The
State Engineer would also be required to give notice to the counties from which
water would be diverted and to the counties to which it would be delivered.
County commissioners would then review the application and provide comments to
the State Engineer. Pursuant to Nevada law, comments and protests could also be
submitted by interested persons prior to the granting of a drilling permit for a
development well. This procedure may involve an open forum consultation process
lasting one year or more.
If the proposed use of the discovered unappropriated water does not tend to
impair the value of existing rights and is not detrimental to the public
interest, the State Engineer is required by statute (with some exceptions) to
approve a permit application within one year. The State Engineer, however, may
impose additional requirements. Most of these requirements relate to the
transfer of limited amounts of shallow subsurface groundwater. It is not
anticipated that these requirements will impede the timing of the Nevada Project
because the Company is developing deep water reserves.
Prior to the commencement of work on the Nevada Project, the Company will
have to comply with certain environmental regulations. Commencement of the
Nevada Project may require the completion of an Environmental Impact Study
("EIS"). The Company believes, based on its research, that the drilling program
and the proposed pipeline route of the Nevada Project would cause minimal
environmental impact. The Company may also be required to obtain approval from
the Bureau of Land Management and the U.S. Fish and Game Department, among
others. Construction of the pipeline may also require compliance with numerous
federal laws, including but not limited to the Endangered Species Act.
The construction of a pipeline to deliver water from the well site to the
end user will also be subject to government regulation and approval with regard
to property rights. The Company may need to purchase easements on property owned
by the State of Nevada or the federal government. The purchase of such easements
may require the Company to obtain governmental approvals and to comply with
federal and state regulations, which may result in significant delay. The
Company believes that construction of the pipeline and a pumping station will be
financed by an issuance of public-sector or other securities. The need for
governmental approval and compliance with federal or state regulations for such
financing may result in significant delays or render the Nevada Project or other
future projects prohibitively expensive. The failure to obtain such financing
may prevent
3
<PAGE> 4
the Company from completing the Nevada Project or other future projects. The
Company has not yet received a permit to drill for water for the Nevada Project
or to divert water. The Company has not received any waiver from the
aforementioned permit process or any approvals or permits for the construction
of the pipeline for the Nevada Project.
Existing or future state or federal regulations will play a critical role
in the Company's successful completion of the Nevada Project and other future
projects of the Company. Such existing or future legislation could prevent the
Company from undertaking the Nevada Project or other future projects or prohibit
the Company from profitably completing the Nevada Project or other future
projects.
Research and Development
For the period from March 31, 1996 to March 31, 1999, the Company expended
approximately $[FILL IN] on research and development. None of this amount was
borne directly by the Company's customers.
Environmental Compliance
The Company has not previously been subject to any material costs for
compliance with any environmental laws. The Company believes that the cost and
effect of environmental laws upon its proposed operations relating to the Nevada
Project will not be material. The Company does believe, however, that an
Environmental Impact Study ("EIS") will be required for the pipeline route in
the Nevada Project. The cost of the EIS is expected to be approximately $45,000.
[UPDATE]
Employees
At the present time, the Company has no full-time employees. The Company
plans to retain full-time employees in the future to implement its business
plan. See "Management's Discussion and Analysis or Plan of Operation."
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal place of business is located at Suite 1100, 615
Macleod Trail, S.E., Calgary, Alberta, T2G 4T8. The Company entered into a lease
agreement with the American Institute of Formation Evaluation, Ltd. ("AIFE
Ltd.") effective November 1, 1993, under a month to month lease. The Company
pays $1,000 to AIFE Ltd. for office services. See "Certain Relationships and
Related Transactions." The Company does not own or lease any other property.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the 1998-1999 fiscal year, the Company did not
submit any matter to a vote of security holders through the solicitation of
proxies or otherwise.
4
<PAGE> 5
[KPMG LOGO]
Consolidated Financial Statements of
SOUTHWESTERN WATER
EXPLORATION CO.
(A Development Stage Enterprise)
Years ended March 31, 1999 and 1998
(Expressed in U.S. dollars)
<PAGE> 6
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Southwestern
Water Exploration Co. as at March 31, 1999 and 1998 and the related consolidated
statements of loss and deficit and cash flows for the years then ended and for
the period from commencement of operations on April 1, 1992 to March 31, 1999.
These consolidated financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management as well as evaluating the overall financial statement
presentation. We believe that our 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 Southwestern Water
Exploration Co. as at March 31, 1999 and 1998 and the results of its operations
and its cash flows for the years then ended and for the period from commencement
of operations on April 1, 1992 to March 31, 1999 in conformity with United
States generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Corporation will continue as a going concern. As discussed in note 2 to
the financial statements, the Corporation has incurred recurring losses from
operations, has negative working capital and has a net capital deficiency that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are disclosed in note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG LLP
Chartered Accountants
Calgary, Canada
July 15, 1999
<PAGE> 7
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Consolidated Balance Sheets
March 31, 1999 and 1998
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Prepaid expenses $ - $ 698
Capital assets, at cost less accumulated depreciation
of $10,253 (1998 - $ 9,203) 4,199 5,249
License and other assets 201 201
- -------------------------------------------------------------------------------------------------------------------
$ 4,400 $ 6,148
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Deficiency
Current liabilities:
Cash overdraft $ 87 $ 175
Accounts payable and accrued liabilities 53,192 30,991
- -------------------------------------------------------------------------------------------------------------------
53,279 31,166
Advances from affiliated corporation (note 4) 695,938 622,029
Minority interest (note 5) 24,975 860,946
Shareholders' deficiency:
Share capital (note 6) 969,310 961
Deficit accumulated during development stage (1,447,862) (1,217,714)
Deficit accumulated prior to April 1, 1992 (291,240) (291,240)
- -------------------------------------------------------------------------------------------------------------------
(769,792) (1,507,993)
Subsequent events (note 6)
- -------------------------------------------------------------------------------------------------------------------
$ 4,400 $ 6,148
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
On behalf of the board:
Director
- -------------------------------------
Director
- -------------------------------------
</TABLE>
<PAGE> 8
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Consolidated Statements of Loss and Deficit
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Period from
commencement
of operations on
April 1, 1992
Years ended March 31, to March 31,
1999 1998 1999
- -------------------------------------------------------------------------------------------------------------------
(note 3)
<S> <C> <C> <C>
Interest revenue $ 58 $ 87 $ 485
Expenses:
Development 160,200 213,600 1,121,005
Professional 53,820 21,041 152,405
Office expense 14,612 14,433 108,114
Miscellaneous 297 466 2,231
Bank charges 227 327 7,553
Travel - - 16,569
Consulting fees - - 30,214
Depreciation 1,050 1,178 10,253
- -------------------------------------------------------------------------------------------------------------------
230,206 251,045 1,448,347
- -------------------------------------------------------------------------------------------------------------------
Net loss (230,148) (250,958) (1,447,862)
Deficit, beginning of period (1,217,714) (966,756) -
- -------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (1,447,862) $ (1,217,714) $ (1,447,862)
- -------------------------------------------------------------------------------------------------------------------
Net loss per Common Share $ (0.03) $ (0.04) $ (0.19)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Period from
commencement
of operations on
April 1, 1992
Years ended March 31, to March 31,
1999 1998 1999
- -------------------------------------------------------------------------------------------------------------------
(note 3)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (230,148) $ (250,958) $ (1,447,862)
Item not involving cash:
Depreciation 1,050 1,178 10,253
- -------------------------------------------------------------------------------------------------------------------
(229,098) (249,780) (1,437,609)
Net change in non-cash operating working capital:
Prepaid expenses 698 (698) -
Accounts payable and accrued liabilities 22,201 (2,608) 51,993
- -------------------------------------------------------------------------------------------------------------------
(206,199) (253,086) (1,385,616)
Cash flows from financing activities:
Issuance of share capital 119,078 126 997,358
Advances from affiliated corporation 87,209 126,021 623,098
Increase (decrease) in cash overdraft (88) 175 87
Minority interest - 125,874 (219,782)
- -------------------------------------------------------------------------------------------------------------------
206,199 252,196 1,400,761
Cash flows from investing activities:
Purchase of capital assets - (583) (15,145)
- -------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents - (1,473) -
Cash and cash equivalents, beginning of the period - 1,473 -
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ - $ - $ -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 10
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
Years ended March 31, 1999 and 1998
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
1. INCORPORATION AND BASIS OF PRESENTATION:
Southwestern Water Exploration Co. (the "Corporation") is incorporated
under the laws of the State of Colorado and is planning to develop projects
for the production of water reservoirs in the United States but has not
commenced active business.
These financial statements are presented using U.S. dollars as the
functional and reporting currency and have been prepared in accordance with
generally accepted accounting principles in the United States. They include
the accounts of the Corporation and its wholly-owned subsidiary, American
Institute of Formation Evaluation Co. ("AIFECO").
2. ORGANIZATION AND BUSINESS:
These financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assume that the Corporation
will continue in operations for the foreseeable future and will be able to
realize its assets and discharge its obligations in the normal course of
operations.
At March 31, 1999 the Corporation is in the development stage, has a
working capital deficiency, and has no history of generating cash flow from
its operations. The Corporation intends to develop and market potable water
throughout the southwest United States. During the development stage of the
Corporation it has acquired the rights to a proprietary computerized drill
stem test database (the "Database") which it believes will provide surface
drilling locations to access deep (below 2,000 ft) subsurface aquifers. 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.
The Corporation has identified a number of sites which it believes will
provide potable water, including a significant water reservoir in Nevada,
by utilizing the Database. In order to develop these sites the Corporation
needs to acquire access rights and raise financing in order to commence
drilling. Once developed, it is the intent of the Corporation to market the
water from these sites, or in the event it is unsuccessful, to sell the
water rights.
During its development stage, the Corporation has funded the acquisition of
the Database and its operating activities primarily by issuing equity and
other financial instruments. The Corporation anticipates that funding of
future activities will be provided by the completion of a private placement
of common stock for a minimum of $1.5 million. There can be no assurances,
however, that the Corporation will be successful in completing the private
placement.
<PAGE> 11
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, Page 2
Years ended March 31, 1999 and 1998
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
2. ORGANIZATION AND BUSINESS (CONTINUED):
In the event the private placement is not completed, the Corporation may
incur additional short or long term debt or seek to sell additional shares
of common stock or stock purchase warrants, as deemed necessary by the
Corporation, to generate working capital. There can be no assurance of the
Corporation's ability to continue as a going concern. The application of
the going concern concept is dependent upon the Corporation receiving the
continued support of its shareholders, its ability to raise new capital and
its ability to achieve a commercial level of production and sales and
profitable operations.
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) Capital assets:
Capital assets are stated at cost. Depreciation is provided using a
rate of 20% on a declining balance basis.
(b) Development costs:
Costs incurred in the development of water projects are expensed in
the period incurred.
(c) Foreign currency translation:
The functional currency of the Corporation is the U.S. dollar.
Monetary assets and liabilities expressed in other currencies are
translated at the year end rate and the resulting translation
adjustments are recognized in income. Operating statement items are
translated at the exchange rate in effect at the transaction date.
(d) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles 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 amounts of revenue
and expenses during the period. Actual results could differ from these
estimates.
(e) Cash and cash equivalents:
The Corporation considers deposits in banks and short-term investments
with original maturities of three months or less as cash and cash
equivalents.
(f) Financial instruments:
The book values of current monetary assets and liabilities approximate
their fair values due to their short-term nature. Management does not
consider it practical to determine the fair value of the advances from
affiliated corporation due to the absence of specific terms as to
interest and repayment (note 4).
<PAGE> 12
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, Page 3
Years ended March 31, 1999 and 1998
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONSOLIDATED):
(g) Period from commencement of operations:
April 1, 1992 is considered the commencement of the current development
stage activities of the Corporation. Prior to this date, the subsidiary
was involved in other unrelated activities. Accordingly, cumulative
amounts from April 1, 1992 to March 31, 1999 have been reported in the
statements of loss and deficit, cash flow and the share capital note.
4. RELATED PARTY TRANSACTIONS:
AIFE, American Institute of Formation Evaluation Ltd. ("AIFE Canada"), an
affiliate, provides updates to the Corporation's licensed proprietary data
base. During 1999 $160,200 (1998 - $213,600) was charged by AIFE Canada for
the updates, which costs are included in development expenses of the
Corporation. In addition, $12,000 (1998 - $12,000) of office expenses were
allocated by AIFE Canada to the Corporation. These transactions are in the
normal course of operations and are measured at the exchange amount, which
is the amount of consideration established and agreed to by the related
parties.
From time to time amounts are also advanced by AIFE Canada to the
Corporation as and when required for operating purposes. There is, however,
no obligation for AIFE Canada to make future advances. During 1999 a net
amount of $98,291 was repaid (1998 - $7,852 advanced).
On September 1, 1993 the Corporation acquired an exclusive 20 year license
to use data owned by AIFE Canada to explore for water in the Continental
United States. The license was acquired for $1 plus a license fee of 10% of
the annual net cash flow from operations of the Corporation, to a maximum
aggregate license fee of $1.5 million over the license term.
The advances from affiliated corporation (AIFE Canada) of $695,938 (1998 -
$622,029) is non-interest bearing with no fixed terms of repayment and is
classed as long term as the affiliate has agreed not to demand repayment
within the next year.
5. MINORITY INTEREST:
The minority interest consists of preferred shares issued by the
Corporation's operating subsidiary. During the year ended March 31, 1999
all except 25,000 preferred shares with a value of $24,975 were converted
to common shares of the Corporation (note 6). The outstanding preferred
shares are redeemable at the discretion of the subsidiary at the issued
value of $1 per share and dividends are payable at the discretion of the
subsidiary.
<PAGE> 13
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, Page 4
Years ended March 31, 1999 and 1998
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
6. SHARE CAPITAL:
(a) Authorized:
50,000,000 Preferred Shares with a par value of $.001 per share
150,000,000 Common Shares with a par value of $.001 per share
(b) Issued and outstanding:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Number of Subscriptions
Shares Amount Receivable
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Issued and outstanding, April 1, 1992 12,300,000 $ 492 $ -
Effective of reverse split, October 23, 1993 (11,808,000) - -
Elimination of deficit - (492) -
Shares issued in reverse takeover 4,500,000 325 15
----------------------------------------------------------------------------------------------------------
Balance, March 31, 1994 4,992,000 325 15
Issued for cash 30,000 30 -
Amounts receivable collected - 15 (15)
----------------------------------------------------------------------------------------------------------
Balance March 31, 1995 5,022,000 370 -
Issued for cash and subscriptions receivable 235,000 220 15
----------------------------------------------------------------------------------------------------------
Balance March 31, 1996 5,257,000 590 15
Issued for cash and subscriptions receivable 265,000 245 20
----------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 5,522,000 835 35
Issued for cash and subscriptions receivable 151,000 126 25
----------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 5,673,000 961 60
Issued on conversion of preferred shares 1,172,000 835,971 -
Issued on conversion of warrants 1,008,120 - -
Issued for cash 326,000 119,078 -
Issued in exchange for reduction of amount
due to affiliated corporation 20,000 13,300 -
Issued for consulting services rendered 360,000 - -
----------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 8,559,120 $ 969,310 $ -
----------------------------------------------------------------------------------------------------------
</TABLE>
Amounts receivable are not included in share capital on the balance
sheet until settled.
Subsequent to March 31, 1999 the Corporation issued 1,250,000 Common
Shares for proceeds of $1,205.
<PAGE> 14
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, Page 5
Years ended March 31, 1999 and 1998
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
6. SHARE CAPITAL (CONTINUED):
(c) Conversion of preferred shares and warrants:
During the year ended March 31, 1999 the Corporation offered its
shareholders the opportunity to convert their preferred shares in AIFE
to Common Shares in Southwestern Water Exploration Co. and to convert
their warrants of Southwestern Water Exploration Co. to Common Shares
in Southwestern Water Exploration Co. This resolution was passed by the
Board of Directors on June 19, 1998. Due to the conversion of the
preferred shares, the minority interest in the balance sheet has
decreased to $24,975 representing those shareholders who do not which
to convert their AIFE preferred shares. The option attached to the
outstanding warrants of the minority interest shares expired April 30,
1998 and no options were exercised.
(d) Stock options:
The Corporation has an incentive stock option plan which provides for
the granting of stock options to directors and officers. Subsequent to
March 31, 1999 the Corporation granted options to acquire 500,000
Common Shares at an exercise price of $0.30. These options expire May
27, 2002.
7. INCOME TAXES:
The Corporation has loss carry forwards for income tax purposes
approximating its cumulative deficit. However, these may be subject to
change following filing and assessment of current and prior year income tax
returns with U.S. tax authorities.
8. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on or after January 1, 2000 and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant system failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers or other
third parties, will be fully resolved.
<PAGE> 15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The following table sets forth the range of high and low bid quotations per
share for the Company's common stock for the periods indicated as reported by
the OTC Bulletin Board, where the stock trades under the symbol "SWY??." Such
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
YEAR CALENDAR PERIOD HIGH LOW
- ---- --------------- ---- ---
<S> <C> <C> <C>
1998 Fourth Quarter (from October 12, 1998)
1999 First Quarter
</TABLE>
On [DATE] 1999, there were approximately [FILL IN] shareholders of record
of the Company's common stock and [FILL IN] shares of common stock
outstanding.[UPDATE]
To date, the Company has not paid or declared any dividends with respect to
its common stock. The current policy of the Board of Directors is to retain
earnings, if any, in order to provide for growth of the Company. Consequently,
no cash dividend or any other dividend is expected to be paid on the common
stock in the foreseeable future. Furthermore, there can be no assurance that the
future operations of the company will generate the revenues and cash flow
necessary to declare a cash dividend or that the Company will have legally
available funds to pay dividends.
The Company's Transfer Agent is Securities Transfer Corporation located in
Dallas, Texas.
Recent Sales of Unregistered Securities
From March 31, 1996 to March 31, 1999, the Company issued approximately
[FILL IN] Units to certain sophisticated individuals at a price per Unit of
$1.00 for a total offering of $[FILL IN]. 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. [UPDATE]
5
<PAGE> 16
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
Southwestern Water Exploration Co. (the "Company"), formerly Star
Acquisitions Corp., 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 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.
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.
Management believes that the Company can satisfy its cash requirements from
existing funds for another three months. The Company intends to raise additional
funds to meet is cash requirements through a private placement of its
securities. The Company anticipates that funding of future operations will be
provided by the completion of a 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 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.
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements are filed as a part of this Form 10-KSB:
<TABLE>
<CAPTION>
Financial Statements Page
-------------------- ----
<S> <C>
Independent Auditors Report F-
Consolidated Balance Sheets F-
Consolidated Statements of Loss and Deficit F-
</TABLE>
6
<PAGE> 17
<TABLE>
<CAPTION>
Financial Statements Page
-------------------- ----
<S> <C>
Consolidated Statements of Cash Flow F-
Notes to Consolidated Financial Statements F-
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the last two fiscal years there have been no changes in or
disagreements with the Company's principal independent accountant on accounting
or financial disclosure. No principal independent accountant or subsidiary's
independent accountant on whom the principal accountant has expressed reliance
has resigned or been dismissed.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Officers and Directors
The Officers and Directors of the Company are:
<TABLE>
<CAPTION>
Officer and/or
Name and Addresses Age Position Director Since
------------------ --- -------- --------------
<S> <C> <C> <C>
Steven B. Misner 38 President and Director 1993
Suite 1100
615 MacLeod Trail, S.E.
Calgary, Alberta
Barbara J. McAllister 61 Secretary, 1993
Suite 1100 Chief Financial Officer,
615 MacLeod Trail, S.E. and Director
Calgary, Alberta
Arthur Webb 58 Vice-President of 1993
Suite 1100 Operations and Director
615 MacLeod Trail, S.E.
Calgary, Alberta
</TABLE>
All directors hold office until the next annual meeting of stockholders,
and until they or their successor have been elected and qualified. Officers
serve at the discretion of the Board of Directors.
7
<PAGE> 18
Steven B. Misner
Mr. Misner has served as the President and as a Director of the Company
since October, 1993. During the past five years, Mr. Misner has served as the
President of AIFE. In 1989, Mr. Misner initiated research into the viability of
utilizing underground water reservoirs which could meet the water requirements
of the American Southwest. In 1986, Mr. Misner negotiated the acquisition of the
Petroleum Research Corporation's database of the United States. In 1985, he
initiated a Hydrodynamics Division to study underground waterflow patterns. In
1983, Mr. Misner spearheaded the acquisition of the Canadian database. In 1978,
Mr. Misner joined the Research and Project Team where he initiated the creation
of a database containing historical drill stem test data on federal and
provincial lands of Canada. Mr. Misner has also served as a director of several
Canadian companies involved in Canadian data sales, oil and gas exploration, and
real estate development.
Barbara J. McAllister
Ms. McAllister has served as the Secretary, Chief Financial Officer, and as
a Director of the Company since October, 1993. During the past five years, Ms.
McAllister has also been the Executive Vice President and Treasurer of AIFE. Ms.
McAllister has been active in all areas of running the Company. Ms. McAllister
has participated in the gathering of drill stem test data and in negotiating
contracts with clients and others who utilize information from the Company's
Database. She administers a staff which analyzes data and maintains the
Company's Database. Ms. McAllister has a wide range of administrative skills
acquired through former employment as an educator, businesswoman, and realtor.
She has worked extensively overseas during her involvement in the petroleum
industry. Ms. McAllister received her graduate degrees from the University of
Calgary, in Calgary, Alberta.
Arthur Webb
Mr. Webb has been a director of the Company since October, 1993 and Vice
President of Operations since 1995. Mr. Webb has over 35 years of experience in
the oil business including, drilling, geological and land negotiation. During
the past twenty-five years, Mr. Webb has been the owner and served as the
President of A.J. Webb Oilfield Consultants and A&M Enterprises, Inc. During the
past five years, he served as a Director and Vice President of Craft Energy
Ltd., Director and Chief Financial Officer of St. Jude Resources, which is
listed on the Vancouver Stock Exchange, and Director and President of S.A.W.
Holdings Ltd.
ITEM 10. EXECUTIVE COMPENSATION.
No compensation was paid to any officer or director for the last three
fiscal years.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of the Company's common
stock beneficially owned by each person who, as of the date hereof, was known by
the Company to own beneficially more than five percent (5%) of its common stock,
all directors and nominees, each of the named executive officers as defined in
Item 402(a)(2), and directors and officers as a group.
8
<PAGE> 19
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
------------------- -------------------- --------
<S> <C> <C>
Steven B. Misner 1,205,176 22.7% [UPDATE]
Suite 1100
615 MacLeod Trail, S.E.
Calgary, Alberta
Barbara J. McAllister 1,303,507 24.5% [UPDATE]
Suite 1100
615 MacLeod Trail, S.E.
Calgary, Alberta
Arthur Webb 359,999(1) 6.7% [UPDATE]
Suite 1100
615 MacLeod Trail, S.E.
Calgary, Alberta
Landmark Corporation 966,667 18.2% [UPDATE]
Suite 1710, Bow Valley 2
Calgary, Alberta T2P 2V7
Officers and Directors 3,835,349 72.2% [UPDATE]
As a Group (3 persons)
</TABLE>
- ----------
(1) 200,000 of the 359,999 shares listed as held by Mr. Webb have not been
issued, but are subject to Mr. Webb's right to acquire such shares within
60 days from the date hereof. 33,333 of the 359,999 shares listed as held
by Mr. Webb are owned by his spouse. 116,666 of the 359,999 shares listed
as held by Mr. Webb are owned by Mr. Webb through A&M Enterprises, Inc.,
Suite 1100, 615 MacLeod Trail, S.E.,Calgary, Alberta.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company and its subsidiary, American Institute of Formation Evaluation
Co. ("AIFE"), share office space, telephone and certain office personnel with
AIFE Ltd., a Canadian company ("AIFE Ltd."). Mr. Misner and Mrs. McAllister are
controlling shareholders of AIFE Ltd. The Company and AIFE pay $1,000 per month
to AIFE Ltd. in exchange for office space, use of telephones and certain
personnel.
AIFE Ltd. has provided updates to the Company for the Database. Since April
1997, AIFE Ltd. has charged the Company $[UPDATE] for such updates. AIFE Ltd.
has billed the Company for these updates at the same rate as charged to third
parties.
AIFE Ltd. has from time to time advanced funds to the Company which were
used for working capital. Since March 31, 1999, AIFE Ltd. has advanced $[UPDATE]
to the Company. As of March 31, 1999, the Company was indebted to AIFE Ltd. in
the amount of $[UPDATE]. The amounts advanced by AIFE Ltd. are not evidenced by
a written instrument, do not bear interest and have no fixed maturity date.
9
<PAGE> 20
On September 1, 1993, AIFE entered into a license agreement with AIFE Ltd.
whereby AIFE Ltd. granted to AIFE a non-exclusive license to use certain drill
stem test reports and other oil and gas and water information until August 31,
2013 (the "License Agreement"). The license fee is 10% of the annual net cash
flow profits of AIFE with a one year maximum of $150,000 and a maximum
cumulative fee over the license term of $1,500,000. Neither AIFE nor the Company
have paid any amounts to AIFE Ltd. in connection with the License Agreement
during the fiscal years ended March 31, 1998 and March 31, 1999 [VERIFY]. The
Company intends to use the drill stem reports and other information subject to
the License Agreement to locate subterranean water in the American Southwest.
ITEM 13. 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.
21.1 A description of the Registrant's subsidiary is contained in this Registration Statement under the
caption "Business Development" which is incorporated herein by reference, incorporated by
reference to Exhibit 21.1 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 fourth quarter of the fiscal year ended March 31, 1999.
10
<PAGE> 21
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Southwestern Water Exploration Co.
Date: November 12, 1999 By: /s/ Steven B. Misner
------------------------------------
Steven B. Misner
President
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: November 12, 1999 By: /s/ Steven B. Misner
------------------------------------
Steven B. Misner
President and Director
Date: November 12, 1999 By: /s/ Barbara J. McAllister
------------------------------------
Barbara J. McAllister
Secretary, Chief Financial Officer
and Director
Date: November 12, 1999 By: /s/ Arthur Webb
------------------------------------
Arthur Webb
Vice-President of Operations
and Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
The issuer has not furnished any annual reports or proxy statements to its
security holders.
11
<PAGE> 22
INDEX TO 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.
21.1 A description of the Registrant's subsidiary is contained in this Registration Statement under the
caption "Business Development" which is incorporated herein by reference, incorporated by
reference to Exhibit 21.1 of registrant's Annual Report on Form 10-KSB dated May 4, 1998.
27.1 Financial Data Schedule.
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,452
<DEPRECIATION> (10,253)
<TOTAL-ASSETS> 4,400
<CURRENT-LIABILITIES> 53,279
<BONDS> 0
0
0
<COMMON> 969,310
<OTHER-SE> (1,739,102)
<TOTAL-LIABILITY-AND-EQUITY> 4,400
<SALES> 0
<TOTAL-REVENUES> 58
<CGS> 0
<TOTAL-COSTS> 160,200
<OTHER-EXPENSES> 70,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (230,148)
<INCOME-TAX> 0
<INCOME-CONTINUING> (230,148)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (230,148)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
