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SOUTHWESTERN WATER EXPLORATION CO. FORM 10-Q INDEX
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
ý | QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2000
| o | TRANSACTION 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.
(Formerly Star Acquistitons Corporation)
(Exact name of small business issuer as specified in its charter)
| COLORADO | 84-1062895 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
4391 S. PEARL STREET LAS VEGAS, NEVADA | 89121 | |
| (Address of principal executives offices) | (Zip Code) |
(800) 661-9169
(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 than the registrant required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No ý
As of July 1, 2002, the Registrant had 19,353,131 shares of common stock outstanding.
Transitional Small Business Disclosure Format: Yes o No ý
SOUTHWESTERN WATER EXPLORATION CO.
FORM 10-Q
INDEX
SOUTHWESTERN WATER EXPLORATION CO.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
September 30, 2000 and March 31, 2000
| | September 30, 2000 | March 31, 2000 | ||||||
|---|---|---|---|---|---|---|---|---|
| | (unaudited) | (audited) | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 176,661 | $ | 2,672 | ||||
| Capital assets, at cost less accumulated depreciation | 3,023 | 3,359 | ||||||
| License and other assets | 201 | 201 | ||||||
| $ | 179,885 | $ | 6,232 | |||||
| Liabilities and Shareholders' Deficiency | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 89,001 | $ | 99,752 | ||||
| Advances from shareholder | 13,266 | 13,266 | ||||||
| 102,267 | 113,018 | |||||||
| Advances from affiliated corporation | 598,257 | 691,131 | ||||||
| Minority interest | 24,975 | 24,975 | ||||||
| Shareholders' deficiency: | ||||||||
| Share capital | 1,548,973 | 1,092,710 | ||||||
| Deficit accumulated during development stage | (1,803,347 | ) | (1,624,362 | ) | ||||
| Deficit accumulated prior to April 1, 1992 | (291,240 | ) | (291,240 | ) | ||||
| (545,614 | ) | (822,892 | ) | |||||
| $ | 179,885 | $ | 6,232 | |||||
See accompanying notes to consolidated unaudited financial statements.
SOUTHWESTERN WATER EXPLORATION CO.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three and Six Months ended September 30, 2000 and 1999 and
For the period from April 1, 1992 (Inception) to September 30, 2000
(unaudited)
| | Three months ended September 30, | Six months ended September 30, | Cumulative amounts from inception to September 30, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | 2000 | 1999 | 2000 | ||||||||||||
| Interest revenue | $ | — | $ | — | $ | — | $ | 10 | $ | 503 | |||||||
| Expenses: | |||||||||||||||||
| Compensation expense on granting of stock options | — | — | — | — | 100,000 | ||||||||||||
| Financing fees | 127,270 | — | 127,270 | — | 127,270 | ||||||||||||
| Consulting fees | 1,682 | — | 1,682 | — | 33,255 | ||||||||||||
| Development | 25,000 | — | 25,000 | — | 1,146,005 | ||||||||||||
| Office expense | 12,080 | 3,860 | 20,872 | 7,785 | 149,133 | ||||||||||||
| Miscellaneous | 183 | (357 | ) | 358 | (298 | ) | 2,592 | ||||||||||
| Bank charges | 87 | 59 | 167 | 102 | 7,940 | ||||||||||||
| Professional | — | 4,677 | — | 5,210 | 200,317 | ||||||||||||
| Travel | 3,300 | — | 3,300 | 2,724 | 25,909 | ||||||||||||
| Depreciation | 168 | 210 | 336 | 420 | 11,429 | ||||||||||||
| 169,770 | 8,449 | 178,985 | 15,943 | 1,803,850 | |||||||||||||
| Net loss | (169,770 | ) | (8,449 | ) | (178,985 | ) | (15,933 | ) | (1,803,347 | ) | |||||||
| Deficit, beginning of period | (1,924,817 | ) | (1,746,586 | ) | (1,915,602 | ) | (1,739,102 | ) | — | ||||||||
| Deficit, end of period | $ | (2,094,587 | ) | $ | (1,755,035 | ) | $ | (2,094,587 | ) | $ | (1,755,035 | ) | $ | (1,803,347 | ) | ||
| Net loss per common share | $ | 0.02 | $ | 0.00 | $ | 0.02 | $ | 0.00 | |||||||||
See accompanying notes to consolidated unaudited financial statements.
SOUTHWESTERN WATER EXPLORATION CO.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three and Six Months ended September 30, 2000 and 1999 and
For the period from April 1, 1992 (Inception) to September 30, 2000
(Unaudited)
| | Three months ended September 30, | Six months ended September 30, | Cumulative amounts from inception to September 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2000 | 1999 | 2000 | 1999 | 2000 | |||||||||||||
| Cash flows from (used in) operating activities: | ||||||||||||||||||
| Operations: | ||||||||||||||||||
| Net loss | $ | (169,770 | ) | $ | (8,449 | ) | $ | (178,985 | ) | $ | (15,933 | ) | $ | (1,803,347 | ) | |||
| Items not involving cash: | ||||||||||||||||||
| Depreciation | 168 | 210 | 336 | 420 | 11,429 | |||||||||||||
| Stock issued for services | 135,000 | — | 135,000 | — | 135,000 | |||||||||||||
| Warrants issued for services | 63,249 | — | 63,249 | — | 63,249 | |||||||||||||
| Stock issuance costs | (40,986 | ) | — | (40,986 | ) | — | (40,986 | ) | ||||||||||
| Compensation expense on granting of stock options | — | — | — | — | 100,000 | |||||||||||||
| Net change in non-cash operating working capital: | ||||||||||||||||||
| Accounts payable and accrued liabilities | (5,938 | ) | 4,435 | (10,751 | ) | 4,445 | 89,002 | |||||||||||
| (18,277 | ) | (3,804 | ) | (32,137 | ) | (11,068 | ) | (1,445,653 | ) | |||||||||
| Financing: | ||||||||||||||||||
| Net advances (repayment) from (to) affiliated corporation | (103,807 | ) | (1,782 | ) | (92,874 | ) | 9,913 | 538,683 | ||||||||||
| Loan to shareholder | — | 5,539 | — | — | — | |||||||||||||
| Issuance of share capital | 299,000 | — | 299,000 | 1,200 | 482,587 | |||||||||||||
| Increase (decrease) in cash overdraft | (255 | ) | 42 | — | (45 | ) | — | |||||||||||
| Minority interest | — | — | — | — | 616,189 | |||||||||||||
| 194,938 | 3,799 | 206,126 | 11,068 | 1,637,459 | ||||||||||||||
| Investments: | ||||||||||||||||||
| Purchase of capital assets | — | (30 | ) | — | — | (15,145 | ) | |||||||||||
| Increase in cash and cash equivalents | 176,661 | (35 | ) | 173,989 | — | 176,661 | ||||||||||||
| Cash and cash equivalents, beginning of period | — | 35 | 2,672 | — | — | |||||||||||||
| Cash and cash equivalents, end of period | $ | 176,661 | $ | — | $ | 176,661 | $ | — | $ | 176,661 | ||||||||
See accompanying notes to consolidated unaudited financial statements.
SOUTHWESTERN WATER EXPLORATION CO.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
September 30, 2000
1. Incorporation and basis of presentation:
Southwestern Water Exploration Co. (the "Company") 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.
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. The financial information included herein is unaudited. These interim financial statements follow the same accounting policies and methods of application as the most recent annual audited financial statements dated March 31, 2000, and should be read in conjunction with those financial statements. The disclosures herein are incremental to those included within the annual financial statements. These interim financial statements should be read in conjunction with the annual statements.
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 Company 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 September 30, 2000 the Company is in the development stage and has no history of generating cash flow from its operations. The Company intends to develop and market potable water throughout the southwest United States and has identified a number of sites that it believes will provide potable water, including a significant water reservoir in Nevada. In order to develop these sites the Company needs to acquire access rights and raise financing in order to commence drilling. Once developed, it is the intent of the Company to market the water from these sites, or in the event it is unsuccessful, to sell the water rights.
During its development stage, the Company has funded its operating activities primarily by issuing equity. The Company anticipates that funding of future activities will continue to be provided by the completion of private placements of its common stock.
There can be no assurance that the Company will be successful in raising additional equity or of the Company's ability to continue as a going concern. The application of the going concern concept is dependent upon the Company 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. Related party transactions:
From time to time amounts are also advanced by AIFE Canada to the Company as and when required for operating purposes. There is, however, no obligation for AIFE Canada to make future advances. During the second quarter, the Company repaid $103,807, net of advances, to AIFE Canada, (1999—net repayment to AIFE Canada of $1,782).
The advances from AIFE Canada of $598,257 (March 31, 2000—$691,131) are non-interest bearing with no fixed terms of repayment and are classed as long-term as the affiliate has agreed not to demand repayment within the next year.
4. Share capital:
| | Number of shares | Amount | Subscriptions receivable | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Issued and outstanding, April 1, 1992 | 12,300,000 | $ | 492 | $ | — | ||||
| Effective of reverse spilt, October 23, 1993 | (11,808,000 | ) | — | — | |||||
| Elimination of deficit | — | (492 | ) | — | |||||
| Share 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 | 80,000 | 35,500 | — | ||||||
| Issued for consulting services rendered | 300,000 | — | — | ||||||
| Balance, March 31, 1999 | 8,559,120 | 991,510 | — | ||||||
| Issued for cash | 1,200,000 | 1,200 | — | ||||||
| Value attributed to compensation expense on granting of stock options | — | 100,000 | — | ||||||
| Balance, March 31, 2000 | 9,759,120 | 1,092,710 | — | ||||||
| Issued for cash | 1,500,000 | 299,000 | — | ||||||
| Issued for services rendered | 620,000 | 135,000 | — | ||||||
| Issued to correct prior period error | 55,200 | — | — | ||||||
| Value attributed to warrants issued for services rendered | — | 63,249 | — | ||||||
| Stock issuance costs | — | (40,986 | ) | — | |||||
| Balance, September 30, 2000 | 11,934,320 | $ | 1,548,973 | $ | — | ||||
During the quarter ended September 30, 2000, the Company issued 1,000,000 common shares for cash proceeds of $249,000.
During the quarter ended September 30, 2000, the Company issued 620,000 shares for services rendered. These shares were recorded at their fair value at the date on which the agreement for services was entered in to, if determinable, or otherwise at the date the shares were issued. Stock issuance costs included $nil of shares issued and $40,979 of value attributed to warrants issued for services rendered.
During the quarter ended September 30, 2000 the Company issued 1,730,000 warrants, each warrant entitling the holder to acquire one common share of the Company.
The warrants issued and outstanding at September 30, 2000 were as follows:
| Number of warrants | Exercise price | Expiration date | ||
|---|---|---|---|---|
| 200,000 | 0.25 | July 1, 2002 | ||
500,000 | 0.50 | July 11, 2002 | ||
1,430,000 | 0.50 | September 15, 2002 | ||
100,000 | 0.50 | November 15, 2002 | ||
2,230,000 | ||||
730,000 of these warrants were issued for services rendered, the fair value of the warrants determined to be $63,249, calculated using the Black Scholes pricing model with the following weighted average assumptions:
| Risk | 6 | % | |
| Volatility | 100 | % | |
| Life of the warrant | 2 years | ||
| Dividend yield | — |
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction with the financial statements and accompanying notes appearing elsewhere in this quarterly report for period ended September 30, 2000.
FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the Company's future financial performance. The Company intends the forward-looking statements throughout this quarterly report and the information incorporated by reference to be covered by the safe harbor provisions for forward-looking statements. All projections and statements regarding the Company's expected financial position and operating results, its business strategy, its financing plans and the outcome of any contingencies are forward-looking statements. These statements can sometimes be identified by the use of forward-looking words such as "may," "believe," "plan," "will," "anticipate," "estimate," "expect," "intend," and other words and phrases of similar meaning. Known and unknown risks, uncertainties and other factors could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on information available as of the date of this report on Form 10-QSB and on numerous assumptions and developments that are not within our control. Although the Company believes these forward-looking statements are reasonable, the Company cannot assure you they will turn out to be correct. Actual results could be materially different from our expectations due to a variety of factors, including the following:
This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere in this report.
General
Southwestern Water Exploration Co. (the "Company"), formerly Star Acquisitions Corporation, was incorporated in the State of Colorado on July 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 1993 and all expenses incurred were solely related to maintaining the entity and reviewing potential business opportunities.
As of September 30, 2000, the Company is in the development stage and has no history of generating cash flow from its operations. The Company intends to develop and market potable water throughout the southwest United States and has identified a number of sites which it believes will provide potable water, including a significant water reservoir in Nevada and other western states. In order to develop and commence drilling these sites the Company needs to acquire access rights and raise financing. Once developed, it is the intent of the Company to market the water from these sites, or in the event it is unsuccessful, to sell the water rights.
Results of Operation
The Company did not earn any revenues during the six months ended September 30, 2000. Moreover, the Company does not anticipate earning revenues until such time as it has successfully acquired water rights and marketed the water or sold the water rights. The Company had no revenues from operations for the three fiscal years ended March 31, 2000 and the six months ended September 30, 2000. The Company incurred expenses of $178,985 in the six months ended September 30, 2000 as compared to $15,943 in the same period in 1999. The increase in expense is due primarily to legal and accounting fees for services rendered during the fiscal year ended March 31, 2000.
The Company has incurred operating losses and negative cash flow each quarter and each year since 1993. The Company's accumulated deficit was $1,624,362 and $2,094,587 at March 31, 2000 and September 30, 2000, respectively. The Company believes it will continue to experience net losses on a quarterly and annual basis until and unless the Company is able to generate or develop business revenues for which there is no future assurance.
Liquidity and Capital Resources
During its development stage, the Company has funded its operating activities primarily by issuing equity as well as loans from shareholders and AIFE, American Institute of Formation Evaluation, Ltd. ("AIFE Canada"), a Canadian corporation controlled by Steven Misner and Barbara McAllister, each of which are officers and directors of the Company.
During the three months ended September 30, 2000, the Company received an aggregate of $299,000 in proceeds from two private placements of the Company's securities. From March 31, 2000 through March 31, 2002, the Company has raised an aggregate of $2.5 million in additional funds from a series of private placements to certain accredited investors, which the Company is currently using to pursue its leasing, drilling and marketing activities for the sites identified in Colorado. The Company anticipates that funding of future activities will continue to be provided by the completion of private placements of its common stock.
During the three months ended September 30, 2000, the Company repaid $103,807, net of advances, to AIFE Canada. On August 21, 2000, the Company's Board of Directors resolved to issue 2,979,880 shares of its common stock to AIFE Canada as repayment of $655,574 owed to AIFE Canada, at a value of $0.22 per share, which was determined by the Board to be the fair market value of the shares at that date. Currently, the Company has not issued such shares. See Note 3 to the Consolidated Unaudited Financial Statements—"Related party transactions."
The Company is not a party to any legal proceedings that management believes to be material, and there are no such proceedings which are known to be contemplated.
During the three months ended September 30, 2000 the Company issued the following securities in exchange for the services set forth below that were performed on behalf of the Company:
| Date Issued | Name of Shareholder | Number of Shares & Warrants Issued | Services Rendered | Valuation of Services | |||||
|---|---|---|---|---|---|---|---|---|---|
| 9/18/00 | Sidney Webb | 50,000 shares | Engineering | $ | 12,500 | ||||
9/18/00 | Tom Lenney | 50,000 shares | Geological | $ | 12,500 | ||||
9/18/00 | Valerie Kreuningen | 10,000 shares | Secretarial | $ | 2,500 | ||||
9/18/00 | Nina Moreau | 10,000 shares | Secretarial | $ | 2,500 | ||||
9/18/00 | Providence Capital | 100,000 shares & warrants to purchase 100,000 shares at $0.50 per share | Financial consulting | $ | 25,000 | ||||
9/18/00 | Eikon Inc. | 200,000 shares & warrants to purchase 200,000 shares at $0.50 per share | Financial consulting | $ | 50,000 | ||||
7/1/00 | Landmark Global Financial Corp. | 100,000 shares & warrants to purchase 100,000 shares at $0.50 per share | Financial consulting | $ | 15,000 | ||||
7/1/00 | Sinalta Investments | 100,000 shares & warrants to purchase 100,000 shares at $0.50 per share | Financial consulting | $ | 15,000 | ||||
The issuances of the foregoing securities were made in reliance upon the exemption from registration provided by Section 4(2) of the 1933 Act. No broker/dealers were involved in the sale and no commissions were paid. Moreover, each of the individuals and entities represented to the Company that they acquired the securities for investment and not with a view to distribution. Mr. Lenney currently serves on the Company's Board of Directors and as its President.
On September 18, 2000, the Company sold 1,000,000 units, each consisting of one share of common stock and one warrant to purchase an additional share at $0.35 per share for two years (the "Units"), to Sunrise Foundation Trust ("Sunrise") at a price of $0.25 per Unit for a total offering of $249,000. Although no broker/dealers were involved in the sale, the Company was obligated to issue a total of 230,000 Units to Mid-Ocean Investments, a Bermuda corporation ("Mid-Ocean"), as a finder's fee in connection with the Company's sale of securities to Sunrise. The Company issued the 230,000 warrants underlying the Units to Mid-Ocean on September 18, 2000, but the shares of common stock underlying the Units have not been issued to date.
The offer and sale in the foregoing transactions were made in reliance upon the exemption from registration provided by Section 4(2) of the 1933 Act and Regulation S and Regulation D adopted thereunder. Each of the purchasers represented that they acquired the Units for investment, and the certificates issued to each were impressed with a restrictive legend advising that the shares represented by the certificates may not be sold, transferred, pledged or hypothecated without having first been registered or the availability of an exemption from registration.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None during this reporting period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during this reporting period.
None during this reporting period.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
| Exhibit Number | Title of Exhibit | |
|---|---|---|
| 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 for fiscal year ended March 31, 1997, filed 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 for fiscal year ended March 31, 1997, filed May 4, 1998. | |
3.2 | By-laws, incorporated by reference to Exhibit 3.2 of registrant's Annual Report on Form 10-KSB for fiscal year ended March 31, 1997, filed 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 for fiscal year ended March 31, 1997, filed May 4, 1998. |
The Company did not file any reports on Form 8-K during the third quarter ended September 30, 2000.
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: July 25, 2002 | By: | /s/ STEVEN B. MISNER Steven B. Misner Chief Executive Officer | ||
By: | /s/ BARBARA MCALLISTER Barbara McAllister Chief Financial Officer (Principal Accounting Officer) and Director | |||
