NOTES TO FINANCIAL
STATEMENTS
DECEMBER 31,
2017
(Unaudited)
NOTE 1. NATURE OF OPERATIONS
Nature
of Business
Southwestern
Water Exploration Co., a Colorado corporation, (“Southwestern Water”, “We" or "Us") is a publicly
quoted shell company seeking to create value for our shareholders by merging with another entity with experienced management and
opportunities for growth in return for shares of our common stock. No potential merger candidate has been identified at this time.
Our mailing
address is PO Box 181062, Denver, Colorado, 80218. As we currently have no operations we do not maintain an office and a post
office box is sufficient to meet our requirements at this time.
History
Southwestern
Water, formerly Star Acquisitions Corporation, was incorporated in the State of Colorado on July 10, 1987.
On
November 12, 1993, we changed our name to Southwestern Water Exploration Co.
NOTE 2. GOING CONCERN
Our
financial statements are prepared using accounting principles generally accepted in the United States of America applicable to
a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.
We have no ongoing business or income and for the nine months ended December 31, 2017, we reported a net loss of $16,606 (unaudited)
and an accumulated deficit of $6,109,960 as of December 31, 2017 (unaudited). These conditions raise substantial doubt about our
ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from
the outcome of these uncertainties. Our ability to continue as a going concern is dependent upon our ability to raise additional
debt or equity funding to meet our ongoing operating expenses and ultimately in merging with another entity with experienced management
and profitable operations. No assurances can be given that we will be successful in achieving these objectives.
NOTE 3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis
of Presentation
The
summary of significant accounting policies is presented to assist in the understanding of the financial statements. These policies
conform to accounting principles generally accepted in the United States of America and have been consistently applied.
Interim
Financial Statements
The
accompanying unaudited interim condensed financial statements have been prepared in accordance with GAAP for interim financial
information in accordance with Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements.
The accompanying condensed
financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at
December 31, 2017 and for the related periods presented. The results for the three and nine-months ended December 31, 2017 are
not necessarily indicative of the results of operations for the full year. These financial statements and related footnotes should
be read in conjunction with the financial statements and footnotes thereto for the year ended March 31, 2017 included in the Form
10-12G/A on pages F-1 to F15, filed with the Securities and Exchange Commission on December 19, 2017.
Use of
Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and
Cash Equivalents
We
maintain cash balances in a non-interest-bearing account that currently does not exceed federally insured limits. For the purpose
of the statements of cash flows, all highly liquid investments with a maturity of three months or less are considered to be cash
equivalents. As of December 31, 2017, and 2016, we did not maintain any cash or bank balances.
Financial
Instruments
The
estimated fair values for financial instruments were determined at discrete points in time based on relevant market information.
These estimates involved uncertainties and could not be determined with precision. The carrying amounts of accounts payable, accrued
liabilities and loans payable approximate fair value because of the short-term maturities of these instruments. The fair value
of our shareholder loan payable approximates to its carrying value due to its short-term maturity.
Fair Value
Measurements:
ASC
Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), provides a comprehensive framework for measuring fair
value and expands disclosures which are required about fair value measurements. Specifically, ASC 820 sets forth a
definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority
to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. ASC
820 defines the hierarchy as follows:
Level
1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types
of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities
listed on the New York Stock Exchange.
Level
2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of
the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded
securities or contracts, or priced with models using highly observable inputs.
Level
3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities
included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective
models and forecasts used to determine the fair value of financial transmission rights.
Our
financial instruments consist of a single loan payable from one of our shareholders. The carrying values the loan payable
- shareholder approximates its fair value due to its short maturity.
Related
Party Transactions:
A
related party is generally defined as (i) any person that holds 10% or more of our membership interests including such person's
immediate families, (ii) our management, (iii) someone that directly or indirectly controls, is controlled by or is under common
control with Aquarius, or (iv) anyone who can significantly influence the financial and operating decisions of Aquarius. A transaction
is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
Fixed
Assets:
Fixed
assets are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight-line method over the shorter of their estimated useful lives or the related reasonably
assured lease term.
We
review our fixed assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets
may not be recoverable.
Maintenance
and repairs of fixed assets are charged to operations. Major improvements are capitalized. Upon retirement, sale or other disposition
of property and equipment, the cost and accumulated depreciation are eliminated from the accounts and any gain or loss is included
in operations.
Impairment
of Long-Lived and Intangible Assets:
In
the event that facts and circumstances indicated that the cost of long-lived and intangible assets may be impaired, an evaluation
of recoverability will be performed. If an evaluation was required, the estimated future undiscounted cash flows associated with
the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow
value was required. No impairment was recorded during the three and nine-month periods ended December 31, 2017 and 2016.
Deferred
Costs and Other:
Offering
costs with respect to issue of debt or equity by us are initially deferred and ultimately offset against the proceeds from these
debt or equity transactions if successful or expensed if the proposed debt or equity transaction is unsuccessful.
Income
Taxes:
The
provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of
assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured
using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected
to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely
than not to be realized.
Uncertain
Tax Positions:
We
evaluate tax positions in a two-step process. Wee first determines whether it is more likely than not that a tax position will
be sustained upon examination, based on the technical merits of the position. If a tax position meets the more-likely-than-not
recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax
position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
We classify gross interest and penalties and unrecognized tax benefits that are not expected to result in payment or receipt of
cash within one year as long-term liabilities in the financial statements.
Revenue
Recognition:
Four
basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria
(3) and (4) are based on our management's judgments regarding the fixed nature of the selling prices of the products and services
delivered and the collectability of those amounts.
During
the three and nine-month periods ended December 31, 2017 and 2016, we did not recognize any revenue.
Advertising
Costs:
We
expense advertising costs when advertisements occur. No advertising costs were incurred during the three and nine-month
periods ended December 31, 2017 or 2016.
Stock
Based Compensation:
The
cost of equity instruments issued to non-employees in return for goods and services is measured by the fair value of the goods
or services received or the measurement date fair value of the equity instruments issued, whichever is the more readily determinable.
Measurement date for non-employees is the earlier of performance commitment date or the completion of services. The cost of employee
services received in exchange for equity instruments is based on the grant date fair value of the equity instruments issued.
Net Loss
per Share Calculation:
Basic
net loss per common share ("EPS") is computed by dividing loss available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted
average shares outstanding, assuming all dilutive potential common shares were issued. Dilutive loss per share excludes all potential
common shares if their effect is anti-dilutive.
During
the three and nine-month periods ended December 31, 2017 and 2016, 200,000 stock options with an exercise price of $0.001 and
without an expiration date were issued and outstanding. The impact of these stock options was excluded from the calculation of
the net loss per share in both the three and nine-month periods ended December 31, 2017 and 2016 as it would have been anti-dilutive.
Subsequent
Events:
We
have evaluated all transactions from September 30, 2017 through January 27, 2018 for subsequent event disclosure consideration.
Recently
Accounting Pronouncements:
We
have reviewed all the recently issued, but not yet effective, accounting pronouncements and do not believe any of these pronouncements
will have a material impact on tour financial statements
.
NOTE 4. SHAREHOLDER LOAN PAYABLE
During
the three and nine months ended December 31, 2017 and 2016 we received $7,831 (2016- $15,300) and $16,606 (2016-$45,900) respectively,
by way of loan from our principal shareholder, a former officer and director of ours, to fund our working capital requirements
such as the compensation to the former officer and director, accounting, auditing, edgar filing, tax preparation, share transfer
agent fees and certain legal fees.
The
loan is interest free, unsecured and due on demand.
The
balance due to our principal shareholder as of December 31, 2017 (unaudited) and March 31, 2017 (audited) was $313,883 and $297,277
respectively.
NOTE
5. INCOME TAXES
We
did not provide any current or deferred US federal income tax provision or benefit for any of the periods presented in these financial
statements because we have experienced losses since Inception. When it is more likely than not, that a tax asset cannot be realized
through future income, we must record an allowance against any future potential future tax benefit. We have provided a full valuation
allowance against the net deferred tax asset, consisting of net operating loss carry forwards, because management has determined
that it is more likely than not that we will not earn income sufficient to realize the deferred tax assets during the carry forward
periods.
The
Company has not taken a tax position that, if challenged, would have a material effect on the financial statements for the three
and nine-month periods ended December 31, 2017 and 2016 as defined under ASC 740, "Accounting for Income Taxes." We
did not recognize any adjustment to the liability for uncertain tax position and therefore did not record any adjustment to the
beginning balance of the accumulated deficit on the balance sheet.
The
provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before
provision for income taxes.
The
sources and tax effects of the differences for the periods presented are as follows:
|
|
Three-month
periods
|
|
Nine-month
periods
|
|
|
Ended
December 31,
|
|
Ended
December 31,
|
|
|
2
017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Statutory U.S. Federal Income Tax Rate
|
|
|
21
|
%
|
|
|
21
|
%
|
|
|
21
|
%
|
|
|
21
|
%
|
State Income Taxes
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
Change
in Valuation Allowance
|
|
|
(25
|
)%
|
|
|
(25
|
)%
|
|
|
(25
|
)%
|
|
|
(25
|
)%
|
Effective
Income Tax Rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
A
reconciliation of the income taxes computed at the statutory rate is as follows:
|
|
Three-month periods
|
|
Nine-month periods,
|
|
|
Ended December 31,
|
|
Ended December 31,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Tax at statutory rate (21%)
|
|
$
|
1,958
|
|
|
$
|
3,825
|
|
|
$
|
4,151
|
|
|
$
|
11,475
|
|
Increase in valuation allowance
|
|
|
(1,958
|
)
|
|
|
(3,825
|
)
|
|
|
(4,151
|
)
|
|
|
(11,475
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
N
OTE 6. COMMITMENTS
& CONTINGENCIES
Legal
Proceedings
We
were not subject to any legal proceedings the three and nine-month periods ended December 31, 2017 and 2016, and, to the best
of our knowledge, no legal proceedings are pending or threatened.
NOTE 7. SHAREHOLDERS’
DEFICIT
Preferred
Stock
As
of December 31, 2017, we were authorized to issue 50,000,000 shares of preferred stock with a par value of $0.001.
No
shares of preferred stock were issued and outstanding during the three and nine-month periods ended December 31, 2017 and 2016.
Common
Stock
As
of December 31, 2017, we were authorized to issue 150,000,000 shares of common stock with a par value of $0.001.
As
of December 31, 2017, and March 31, 2017, 122,164,114 shares of common stock were issued and outstanding.
No
shares of common stock were issued during the three and nine-month periods ended December 31, 2017 and 2016.
Warrants
No
warrants were issued or outstanding during the three and nine-month periods ended December 31, 2017 and 2016.
Stock
Options
The
Corporation has an incentive stock option plan, which provides for the granting by the Board of Directors of stock options to
directors and officers for the purchase of authorized but unissued common shares.
Throughout
the three and nine-month periods ended of December 31, 2017 and 2016, 200,000 stock options with an exercise price
of $0.001 and that do not expire were issued and fully vested.
NOTE 8.
SUBSEQUENT EVENTS
The
Company evaluated subsequent events after September 30, 2017 through January 27, 2018 and has determined there have been no subsequent
events for which disclosure is required.