Use these links to rapidly review the documentSOUTHWESTERN WATER EXPLORATION CO. FORM 10-Q INDEX

SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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 December 31, 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 Acquisitions 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



|        |  |                                                                   |                                                                                                                                                                  
|------- |  | ----------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|PART I  |  | FINANCIAL INFORMATION                                            
|        |  | Item 1Financial Statements                                      
|        |  |                                                                   | Consolidated Balance SheetDecember 31, 2000 (unaudited) and March 31, 2000 (audited)                                                                            
|        |  |                                                                   | Consolidated Statement of OperationsThree and Nine Months ended December 31, 2000 and 1999 and period April 1, 1992 (inception) to December 31, 2000 (unaudited)
|        |  |                                                                   | Consolidated Statement of Cash FlowsThree and Nine Months ended December 31, 2000 and 1999 and period April 1, 1992 (inception) to December 31, 2000 (unaudited)
|        |  |                                                                   | Notes to Consolidated Unaudited Financial Statements                                                                                                             
|        |  | Item 2Management's Discussion and Analysis or Plan of Operations
|PART II |  | OTHER INFORMATION                                                





PART IFINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOUTHWESTERN WATER EXPLORATION CO.  (A DEVELOPMENT STAGE COMPANY)        CONSOLIDATED BALANCE SHEET        December 31, 2000 and March 31, 2000

|                                                      |                                              | December 31,
2000 |          | March 31,
2000 |  
|----------------------------------------------------- | -------------------------------------------- | ----------------- | -------- | -------------- | -
|
|Assets                                                |                                              |                   |          |                |  
|Current assets:                                       |                                              |                   |          |                |  
|                                                      | Cash and cash equivalents                    |                   | $        | 298,295        |  
|                                                      | Interest receivable                          |                   |          | 5,892          |  
|                                                      |                                              |                   |          |                |  
|                                                      |                                              |                   | 304,187  |                |  
|Capital assets, at cost less accumulated depreciation |                                              |                   | 10,367   |                |  
|License and other assets                              |                                              |                   | 201      |                |  
|                                                      |                                              |                   |          |                |  
|                                                      |                                              | $                 | 314,755  |                | $
|                                                      |                                              |                   |          |                |  
|Liabilities and Shareholders' Deficiency              |                                              |                   |          |                |  
|Current liabilities:                                  |                                              |                   |          |                |  
|                                                      | Accounts payable and accrued liabilities     |                   | $        | 88,881         |  
|                                                      | Advances from shareholder                    |                   |          | 13,266         |  
|                                                      |                                              |                   |          |                |  
|                                                      |                                              |                   | 102,147  |                |  
|Advances from affiliated corporation                  |                                              |                   | 670,541  |                |  
|Minority interest                                     |                                              |                   | 24,975   |                |  
|Shareholders' deficiency:                             |                                              |                   |          |                |  
|                                                      | Share capital                                |                   |          | 1,948,973      |  
|                                                      | Deficit accumulated during development stage |                   |          | (2,140,641     | )
|                                                      | Deficit accumulated prior to April 1, 1992   |                   |          | (291,240       | )
|                                                      |                                              |                   |          |                |  
|                                                      |                                              |                   | (482,908 | )              |  
|                                                      |                                              |                   |          |                |  
|                                                      |                                              | $                 | 314,755  |                | $
|                                                      |                                              |                   |          |                |  

See
accompanying notes to consolidated unaudited financial statements.



SOUTHWESTERN WATER EXPLORATION CO.  (A DEVELOPMENT STAGE COMPANY)        CONSOLIDATED STATEMENT OF OPERATIONS        For the Three and Nine Months ended December 31, 2000 and 1999 and
For the period from April 1, 1992 (Inception) to December 31, 2000        (Unaudited)

|                             |                                                   | Three months ended
December 31, |            | Nine months ended
December 31, |   | Cumulative
Amount from
inception to
December 31, |       
|---------------------------- | ------------------------------------------------- | ------------------------------- | ---------- | ------------------------------ | - | ------------------------------------------------ | ------
|
|Interest revenue             |                                                   | $                               | 8,082      |                                | $ |                                                 |       
|Expenses:                    |                                                   |                                 |            |                                |   |                                                  |       
|                             | Compensation expense on granting of stock options |                                 |            |                               |   |                                                  |      
|                             | Financing fees                                    |                                 |            | 715                            |   |                                                  |      
|                             | Consulting fees                                   |                                 |            | 32,538                         |   |                                                  |      
|                             | Development                                       |                                 |            | 237,816                        |   |                                                  | 272   
|                             | Commission                                        |                                 |            | 20,055                         |   |                                                  |      
|                             | Business taxes                                    |                                 |            | 1,273                          |   |                                                  |      
|                             | Office expense                                    |                                 |            | 22,601                         |   |                                                  | 405   
|                             | Salary                                            |                                 |            | 1,490                          |   |                                                  |      
|                             | Miscellaneous                                     |                                 |            |                               |   |                                                  | 458   
|                             | Bank charges                                      |                                 |            | 92                             |   |                                                  | 56    
|                             | Professional                                      |                                 |            | 21,418                         |   |                                                  | 18,937
|                             | Travel                                            |                                 |            | 7,210                          |   |                                                  |      
|                             | Depreciation                                      |                                 |            | 168                            |   |                                                  | 210   
|                             |                                                   |                                 |            |                                |   |                                                  |       
|                             |                                                   |                                 | 345,376    |                                |   | 20,338                                           |       
|                             |                                                   |                                 |            |                                |   |                                                  |       
|Net loss                     |                                                   |                                 | (337,294   | )                              |   | (20,338                                          | )     
|Deficit, beginning of period |                                                   |                                 | (2,094,587 | )                              |   | (1,755,035                                       | )     
|                             |                                                   |                                 |            |                                |   |                                                  |       
|Deficit, end of period       |                                                   | $                               | (2,431,881 | )                              | $ | (1,775,373                                       | )     
|                             |                                                   |                                 |            |                                |   |                                                  |       
|Net loss per common share    |                                                   | $                               | 0.03       |                                | $ | 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 Nine Months ended December 31, 2000 and 1999 and
For the period from April 1, 1992 (Inception) to December 31, 2000        (unaudited)

|                                                |                                                         | Three months ended
December 31,                   |          | Nine months ended
December 31, |        | Cumulative
Amount from
inception to
December 31, |        
|----------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------- | -------- | ------------------------------ | ------ | ------------------------------------------------ | -------
|
|Cash flows from (used in) operating activities: |                                                         |                                                   |          |                                |        |                                                  |        
|Operations:                                     |                                                         |                                                   |          |                                |        |                                                  |        
|                                                | Net loss                                                |                                                   | $        | (337,294                       | )      | $                                                | (20,338
|                                                | Items not involving cash:                               |                                                   |          |                                |        |                                                  |        
|                                                |                                                         | Depreciation                                      |          |                                | 168    |                                                  |        
|                                                |                                                         | Stock issued for services                         |          |                                |       |                                                  |        
|                                                |                                                         | Warrants issued for services                      |          |                                |       |                                                  |        
|                                                |                                                         | Stock issuance costs                              |          |                                |       |                                                  |        
|                                                |                                                         | Compensation expense on granting of stock options |          |                                |       |                                                  |        
|                                                | Net change in non-cash operating working capital:       |                                                   |          |                                |        |                                                  |        
|                                                |                                                         | Interest receivable                               |          |                                | (5,892 | )                                                |        
|                                                |                                                         | Accounts payable and accrued liabilities          |          |                                | (120   | )                                                |        
|                                                |                                                         |                                                   |          |                                |        |                                                  |        
|                                                |                                                         |                                                   | (343,138 | )                              |        | (5,010                                           | )      
|Financing:                                      |                                                         |                                                   |          |                                |        |                                                  |        
|                                                | Net advances from (repayment to) affiliated corporation |                                                   |          | 72,284                         |        |                                                  | 13,999 
|                                                | Loan to shareholder                                     |                                                   |          |                               |        |                                                  | (8,637 
|                                                | Issuance of share capital                               |                                                   |          | 400,000                        |        |                                                  |       
|                                                | Increase (decrease) in cash overdraft                   |                                                   |          |                               |        |                                                  | (42    
|                                                | Minority interest                                       |                                                   |          |                               |        |                                                  |       
|                                                |                                                         |                                                   |          |                                |        |                                                  |        
|                                                |                                                         |                                                   | 472,284  |                                |        | 5,320                                            |        
|Investments:                                    |                                                         |                                                   |          |                                |        |                                                  |        
|                                                | Purchase of capital assets                              |                                                   |          | (7,512                         | )      |                                                  |       
|                                                |                                                         |                                                   |          |                                |        |                                                  |        
|Increase in cash and cash equivalents           |                                                         |                                                   | 121,634  |                                |        | 310                                              |        
|Cash and cash equivalents, beginning of period  |                                                         |                                                   | 176,661  |                                |        |                                                 |        
|                                                |                                                         |                                                   |          |                                |        |                                                  |        
|Cash and cash equivalents, end of period        |                                                         | $                                                 | 298,295  |                                | $      | 310                                              |        

See
accompanying notes to consolidated unaudited financial statements.





SOUTHWESTERN WATER EXPLORATION CO.  (A DEVELOPMENT STAGE COMPANY)        NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS        December 31, 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.

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
December 31, 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. 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:

AIFE, American Institute of Formation Evaluation Ltd. ("AIFE Canada"), an affiliate, provides updates to the Company's licensed proprietary database.
During the third quarter $237,816 (2000$nil) was charged by AIFE Canada for the updates, which costs are included in development expenses of the Company. 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 Company as and when required for operating purposes. There is, however, no obligation for AIFE Canada to make future advances. During the third quarter, the Company repaid $165,532, net of advances, to AIFE Canada, (1999net advances from AIFE Canada of $13,999).

The
advances from AIFE Canada of $670,541 (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       |                          |  
|                                                                         |  |                  |   |        |           |                          |  
|Balance, March 31, 1994                                                  |  | 4,992,000        |   |        | 325       |                          |  
|Issued for cash                                                          |  | 30,000           |   |        | 30        |                          |  
|Amounts receivable collected                                             |  |                 |   |        | 15        |                          |  
|                                                                         |  |                  |   |        |           |                          |  
|Balance, March 31, 1995                                                  |  | 5,022,000        |   |        | 370       |                          |  
|Issued for cash and subscriptions receivable                             |  | 235,000          |   |        | 220       |                          |  
|                                                                         |  |                  |   |        |           |                          |  
|Balance, March 31, 1996                                                  |  | 5,257,000        |   |        | 590       |                          |  
|Issued for cash and subscriptions receivable                             |  | 265,000          |   |        | 245       |                          |  
|                                                                         |  |                  |   |        |           |                          |  
|Balance, March 31, 1997                                                  |  | 5,522,000        |   |        | 835       |                          |  
|Issued for cash and subscriptions receivable                             |  | 151,000          |   |        | 126       |                          |  
|                                                                         |  |                  |   |        |           |                          |  
|Balance, March 31, 1998                                                  |  | 5,673,000        |   |        | 961       |                          |  
|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   | )                        |  
|Cash proceeds received for shares issued subsequent to December 31, 2000 |  |                 |   |        | 400,000   |                          |  
|                                                                         |  |                  |   |        |           |                          |  
|Balance, December 31, 2000                                               |  | 11,934,320       |   | $      | 1,948,973 |                          | $





Number of
warrants

Exercise
price

Expiration
date200,000

0.25

July 1, 2002500,000

0.50

July 11, 20021,430,000

0.50

September 15, 2002100,000

0.50

November 15, 20021,000,000

1.00

October 1, 20031,000,000

1.50

October 1, 20034,230,000






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 December 31, 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 Company, 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 December 31, 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 these sites and commence drilling 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 has a limited operating history that makes an evaluation of its business operations and future prospects difficult. The Company had no revenues from operations for the three
fiscal years
ended March 31, 2000 and nine months ended December 31, 2000. The Company incurred expenses of $524,361 in the nine months ended December 31, 2000 as compared to
$36,281 in the same period in 1999. The increase in expenses was primarily due to increased research and development expense of $237,816 incurred in connection with the Company's purchase of updates
for its Database from AIFE, American Institute of Formation Institute ("AIFE Canada"), a Canadian Company controlled by Steven Misner and Barbara McAllister.

Moreover,
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 $2,431,881 at
March 31, 2000 and December 31, 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. During the three months ended
December 31, 2000, the Company received an aggregate of $400,000 in proceeds from the sale to an accredited investor of 1,000,000 units of the Company's securities, each of which consisted of
one share of common stock and warrants to purchase one share of common stock at $1.00 per share and an additional share at $1.50 per share for three years.

From
March 31, 2000 through March 31, 2002, the Company has raised an aggregate of $2.25 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 nine months ended December 31, 2000, the Company repaid $165,532, net of advances, to AIFE Canada as compared to $13,999 for the comparable period in 1999. In
August 2000, the Company and AIFE agreed to convert $655,574 of the debt owed by the Company to AIFE Canada into 2,979,880 shares of the Company's common stock at $0.22 per share. As of the
date hereof, the AIFE Canada debt has not been converted into shares of the Company's common stock.





PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 2. CHANGES IN SECURITIES

On October 5, 2000, the Company sold 1,000,000 units, each consisting of one share of common stock and warrants to purchase one additional share at $1.00
per share and an additional share at $1.50 per share for three years (the "Units"), to an existing shareholder at a price of $.40 per Unit for a total offering of $400,000. This offer and sale
was made in reliance upon the exemption from registration provided by Section 4(2) of the 1933 Act and Regulation D adopted thereunder. No broker/dealers were involved in the sale
and no commissions were paid in connection with this transaction. The purchaser represented that the Units were acquired for investment, and the certificates issued 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.

ITEM 5. OTHER INFORMATION

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.







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: July 25, 2002 |  | By:                               
|                    |  | By: