UNITED STATES 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 for the fiscal year ended September 30, 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: 000-09419
                             ---------

                             POWER EXPLORATION, INC.
                           ---------------------------
                 (Name of Small Business Issuer in Its Charter)


                Nevada                                  84-0811647
               --------                                -----------
 (State or Other Jurisdiction              (I.R.S. Employer Identification No.)
of Incorporation or Organization)


             5416 Birchman Avenue, Fort Worth, Texas     76107
            -----------------------------------------------------
             (Address of Principal Executive Offices)  (Zip Code)

                                 (817) 377-4464
                            ------------------------------------
                (Issuer's Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:

        Title of Each Class           Name of each Exchange on Which Registered
        -------------------           -----------------------------------------
        Common Stock ($0.02                             None
             Par Value)

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

                               Yes   X                    No
                                   -----

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  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 ].

The issuer's total consolidated  revenues for the year ended September 30, 1999,
were $268,397

The aggregate  market value of the  registrant's  Common Stock,  $0.02 par value
(the only  class of voting  stock),  held by  non-affiliates  was  approximately
$1,087,019  based on the  average  closing  bid and asked  prices for the Common
Stock on January 4, 2000.

At January 1, 2000, the number of shares outstanding of the registrant's  Common
Stock, $0.02 par value (the only class of voting stock), was 9,581,140.


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                                TABLE OF CONTENTS

                                                                            PAGE

                                     PART I

Item 1.       Description of Business..........................................1

Item 2.       Description of Property..........................................8

Item 3.       Legal Proceedings...............................................11

Item 4.       Submission of Matters to a Vote of Security-Holders.............11


                                     PART II

Item 5.       Market for Common Equity and Related Stockholder Matters........12

Item 6.       Management's Discussion and Analysis or Plan of Operation.......14

Item 7.       Financial Statements............................................21

Item 8.       Changes in and Disagreements With Accountants
              on Accounting and Financial Disclosure..........................22

                                    PART III

Item 9.       Directors and Executive Officers................................23

Item 10.      Executive Compensation..........................................23

Item 11.      Security Ownership of Certain Beneficial Owners and Management..24

Item 12.      Certain Relationships and Related Transactions..................24

Item 13.      Exhibits, List and Reports on Form 8-K..........................28









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FORWARD-LOOKING STATEMENTS

         THIS ANNUAL REPORT ON FORM 10-KSB INCLUDES "FORWARD-LOOKING STATEMENTS"
WITHIN THE  MEANING OF SECTION  27A OF THE  SECURITIES  ACT OF 1933,  AS AMENDED
(THE"SECURITIES  ACT"), AND SECTION 21E OF THE SECURITIES  EXCHANGE ACT OF 1934,
AS  AMENDED  (THE  "EXCHANGE  ACT"),  WHICH  CAN BE  IDENTIFIED  BY  THE  USE OF
FORWARD-LOOKING  TERMINOLOGY  SUCH AS,  "MAY,"  "BELIEVE,"  "EXPECT,"  "INTEND,"
"ANTICIPATE,"  "ESTIMATE"  OR  "CONTINUE"  OR  THE  NEGATIVE  THEREOF  OR  OTHER
VARIATIONS  THEREON  OR  COMPARABLE  TERMINOLOGY.   ALL  STATEMENTS  OTHER  THAN
STATEMENTS OF HISTORICAL  FACT INCLUDED IN THIS FORM 10-KSB,  INCLUDING  WITHOUT
LIMITATION,   THE  STATEMENTS  UNDER  "BUSINESS,"  "PROPERTIES,"   "MANAGEMENT'S
DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND  RESULTS OF  OPERATIONS
EXPLORATION--LIQUIDITY  AND CAPITAL  RESOURCES" AND "MARKET FOR THE REGISTRANT'S
COMMON  EQUITY  AND  RELATED  SHAREHOLDER   MATTERS"  LOCATED  ELSEWHERE  HEREIN
REGARDING THE FINANCIAL  POSITION AND LIQUIDITY OF POWER  EXPLORATION INC. ("THE
COMPANY"),  THE VOLUME OR  DISCOUNTED  PRESENT  VALUE OF ITS OIL AND NATURAL GAS
RESERVES, ITS ABILITY TO SERVICE ITS INDEBTEDNESS, ITS STRATEGIC PLANS INCLUDING
ITS ABILITY TO LOCATE AND COMPLETE  ACQUISITIONS  OF OIL AND NATURAL GAS ASSETS,
ITS ABILITY TO LIST ITS STOCK ON THE OVER THE COUNTER ELECTRONIC  BULLETIN BOARD
(OTC-EBB)  AND OTHER  MATTERS,  ARE  FORWARD-LOOKING  STATEMENTS.  ALTHOUGH  THE
COMPANY  BELIEVES  THAT  THE  EXPECTATIONS  REFLECTED  IN  SUCH  FORWARD-LOOKING
STATEMENTS ARE REASONABLE,  IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE  TO  HAVE  BEEN  CORRECT.  IMPORTANT  FACTORS  WITH  RESPECT  TO ANY  SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD
CAUSE  ACTUAL  RESULTS  TO DIFFER  MATERIALLY  FROM THE  COMPANY'S  EXPECTATIONS
("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS FORM 10-KSB, INCLUDING,  WITHOUT
LIMITATION, IN CONJUNCTION WITH THE FORWARD-LOOKING  STATEMENTS INCLUDED IN THIS
FORM  10-KSB.  IMPORTANT  FACTORS  THAT  COULD  CAUSE  ACTUAL  RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING  STATEMENTS HEREIN INCLUDE, BUT ARE
NOT LIMITED TO, THE TIMING AND EXTENT OF CHANGES IN COMMODITY PRICES FOR OIL AND
NATURAL  GAS,  THE NEED TO DEVELOP AND REPLACE  RESERVES,  ENVIRONMENTAL  RISKS,
DRILLING AND OPERATING  RISKS,  RISKS RELATED TO  EXPLORATION  AND  DEVELOPMENT,
UNCERTAINTIES   ABOUT  THE  ESTIMATES  OF  RESERVES,   COMPETITION,   GOVERNMENT
REGULATION AND THE ABILITY OF THE COMPANY TO MEET ITS STATED BUSINESS GOALS. ALL
SUBSEQUENT  WRITTEN  AND ORAL  FORWARD-LOOKING  STATEMENTS  ATTRIBUTABLE  TO THE
COMPANY  OR  PERSONS  ACTING ON ITS  BEHALF  ARE  EXPRESSLY  QUALIFIED  IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS.


<PAGE>



                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS

Business Development

As used herein, the term "Company" refers to Power  Exploration,  Inc., a Nevada
corporation, and its subsidiaries and predecessors, unless the context indicates
otherwise.  Originally  incorporated on October 31, 1979 in Colorado as Imperial
Energy Corp.,  the Company  adopted its present name in May of 1998.  During its
history,  the Company has changed its name several times. At different times the
Company has been known as Imperial Energy Corp.,  Funscape Corp.,  Oil Retrieval
Systems,  Inc., and Titan Energy Corp. Current management  obtained  controlling
ownership of the Company in October of 1999. The Company changed its domicile to
Nevada on May 31, 1998 through a merger of Titan Energy Corp.,  Inc., a Colorado
Corporation,  with a Nevada corporation bearing the name Power Exploration, Inc.
(the "Company").

The Company, along with its wholly owned subsidiaries, is a developmental global
resource company engaged in oil and gas exploration.  In addition to exploration
and development of new properties,  the Company redevelops  currently  producing
oil and gas fields.

Business of the Issuer

Oil and  natural  gas are  the  principal  products  currently  produced  by the
Company.  The Company does not refine or process the oil and natural gas that it
produces.  The Company sells the oil it produces under  short-term  contracts at
market  prices in the  areas in which  the  producing  properties  are  located,
generally at F.O.B.  field prices  posted by the  principal  purchaser of oil in
such areas.

The  Company  focuses its  exploration  efforts on its  significant  holdings in
Texas.  The Company is  developing  production  recovery  of existing  fields in
Corsicana,  Texas and other areas of the region where fields have been  depleted
by conventional lifting methods,  but where significant,  proven reserves of oil
still remain.  These fields can become commercially viable and provide long-term
revenue streams utilizing the latest technology.

Recovery methods employed by the Company have yielded positive results in recent
application  tests.  The  first  process  involves  the  use  of  a  controlled,
under-balanced  horizontal drilling technique in retrieving secondary production
from fields whose depletion  curves have  flattened.  This process has been used
extensively in the higher-pressure environments, like the Austin-Chalk,  however
it has not been widely applied to shallow depth, depleted reservoirs.

A supplemental process to the horizontal drilling methods described above is the
use of an  alkaline-surfactant  aided polymer flood.  Water floods have been the
predominate  method for  retrieving  oil from depleted  fields.  A polymer flood
builds a wall, which coupled with the alkaline-surfactant, helps "push" oil from
the reservoir into the well bore. The spacing and  permeability  characteristics
of the Company's  Corsicana  field are prime  candidates  for this process.  The
presence of the horizontal  well creates a larger well bore in which fluid (oil)
can enter and can increase production ten fold to that of a vertical well.

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The Company's  swabbing rig  manufacturing  unit, ORS,  produces a truck-mounted
portable  swabbing unit which  eliminates the need to rig up work-over units and
run tubing, rods, downhole pumps, packers and surface pump jacks, thus requiring
only one person to drive and operate.  The units are  completely  self-contained
with the  capacity  of up to 80 barrels of oil,  enabling  the  operator to swab
approximately 25 to 35 wells per day. The swabbing procedure takes approximately
10 minutes per well. In  comparison,  using  conventional  pump jacks,  the same
volume of fluid  removal  would take 14 to 24 hours and require a near  constant
source of electrical power.

On May 16,  1997 the  Company  acquired  Oil  Retrieval  Systems,  Inc.  and its
portable swabbing  technology,  assets and liabilities from Rife Oil Properties,
Inc. for 2,500,000 shares of the Company's restricted common stock.

With respect to its drilling  operations,  the Company plans to  concentrate  on
lower risk  development-type  properties  generally  consisting  of  drilling in
reservoirs  from which  production is or formerly was being  obtained while also
drilling some wildcat and developmental wells. The drilling of development wells
is  subject to the  normal  risk of dry holes or a failure  to  produce  oil and
natural gas in commercial quantities. The degree of risk varies depending, among
other things,  on the distance between the well and the nearest  producing well,
other available geological  information and the geological features of the area.
All  drilling  activities  are  subject to the risk of  encountering  unusual or
unexpected  formations  and  pressures and other  conditions  that may result in
financial losses or liabilities to third parties or governmental entities,  many
of which may not be covered by  insurance.  The number and type of wells drilled
by the  Company  will  vary  depending  on the  amount  of funds  available  for
drilling,  the cost of each well, the size of the fractional  working  interests
acquired  by the  Company in each well and the  estimated  recoverable  reserves
attributable to each well.

On June 17, 1997 the Company acquired 100% of the issued and outstanding  shares
of Oil Seeps, Inc. a Texas Corporation. Oil Seeps, Inc. was acquired for 400,000
shares  of  restricted  common  stock.  Oil  seeps  owned  certain  oil  and gas
concessions  located in Australia.  These  concessions  allowed  exploration for
petroleum products and required  production on or before September 30, 1999. Due
to its lack of capital for  exploration  and drilling in Australia,  the Company
was unable to drill a producing well on the property and the concessions expired
on September 30, 1999.

Because of the Company's  focus on the  acquisition  and  development of new and
currently  producing oil and gas  properties,  the Company will continue to seek
acquisition possibilities.

As of September 30, 1999, the Company employed 15 persons of whom 7 are involved
in  field  operations  and  manufacturing,  and 8 were  engaged  in  office  and
administrative activities.

Exploration and Development Activities

Historically,   the  Company  has  financed  its   exploration  and  development
expenditures primarily through bank borrowing, equity capital from private sales
of stock,  and  promoted  funds  from  industry  partners.  With  respect to its
acquisition  activities,  the  Company  intends to shift its  emphasis to larger
scale  acquisitions  of producing  properties  with  additional  development and
exploration potential. Initially, the Company plans to use a combination of debt
and equity financing to fund these larger acquisitions.

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The Company made  exploration and development  expenditures of $3,886 and $3,293
during  the fiscal  year  ended  September  30,  1998 and the fiscal  year ended
September 30, 1999,  respectively.  The Company made net lease  acquisitions  of
$348,130  for  proved and  unproved  properties  during  the  fiscal  year ended
September 30, 1998. Total lease acquisitions for proved and unproved  properties
was $450,993  during the fiscal year ended  September  30, 1999.  The  Company's
ability to continue to fund its exploration and development  activities  depends
upon cash  flow and its  ability  to secure  the  necessary  financing  for such
activities.

Products, Markets and Revenues

Oil and  natural  gas are  the  principal  products  currently  produced  by the
Company.  The Company does not refine or process the oil and natural gas that it
produces.  The Company sells the oil it produces under  short-term  contracts at
market  prices in the  areas in which  the  producing  properties  are  located,
generally at F.O.B.  field prices  posted by the  principal  purchaser of oil in
such areas.

The availability of a ready market for oil and natural gas and the prices of oil
and  natural  gas are  dependent  upon a number of  factors  that are beyond the
control of the Company.  These factors include, among other things, the level of
domestic  production  and  economic  activity  generally,  the  availability  of
imported oil and natural gas,  actions taken by foreign oil  producing  nations,
the  availability  of natural gas  pipelines  with  adequate  capacity and other
transportation  facilities,  the availability and marketing of other competitive
fuels, fluctuating and seasonal demand for oil, natural gas and refined products
and the extent of  governmental  regulation and taxation (under both present and
future legislation) of the production,  refining,  transportation,  pricing, use
and  allocation of oil,  natural gas,  refined  products and  substitute  fuels.
Accordingly,  in view of the many uncertainties  affecting the supply and demand
for oil,  natural  gas and refined  petroleum  products,  it is not  possible to
predict  accurately the prices or  marketability of the oil and natural gas from
any producing well in which the Company has or may acquire an interest.

Oil prices have been subject to significant  fluctuations  over the past decade.
Levels of  production  maintained  by the  Organization  of Petroleum  Exporting
Countries  ("OPEC")  member nations and other major oil producing  countries are
expected to continue to be a major  determinant  of oil price  movements  in the
future.  As a result,  future oil price  movements  cannot be predicted with any
certainty.  Similarly,  during the past  several  years,  the  market  price for
natural gas has been subject to significant  fluctuations  on a monthly basis as
well as from year to year.  These  frequent  changes in the market price make it
impossible  for the  Company to predict  natural  gas price  movements  with any
certainty.

The Company cannot  provide  assurance that it will be able to market all oil or
natural  gas that the  Company  produces  or, if such oil or natural  gas can be
marketed, that favorable price and contractual terms can be negotiated.  Changes
in oil and natural gas prices may  significantly  affect the  revenues  and cash
flow of the  Company  and the  value  of its oil  and  natural  gas  properties.
Further,  significant  declines  in the prices of oil and natural gas may have a
material adverse effect on the business and financial  condition of the Company.
(See "Management's Discussion and Analysis").

In certain areas in which the Company  engages in oil and natural gas production
activities,  the supply of oil and natural gas  available for delivery from time
to time  exceeds the demand.  During such times,  companies  purchasing  oil and
natural  gas in such areas  reduce the amount of oil and  natural  gas that they
will  purchase  or  "take."  If  buyers  cannot  be  readily  located  for newly
discovered  oil and natural gas  reserves,  newly  completed oil and natural gas
wells may be shut-in for various periods of time. As a result, the

                                        3


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over-supply  of oil and  natural  gas in certain  areas may cause the Company to
experience  "take"  problems or may adversely  affect the  Company's  ability to
obtain  contracts to market oil and natural gas discovered in wells in which the
Company owns an interest.

Competition

The oil and natural gas industry is highly  competitive.  The Company encounters
strong competition from other independent operators and from major oil companies
in acquiring  properties,  in contracting for drilling equipment and in securing
trained personnel. Many of these competitors have financial resources and staffs
substantially larger than those available to the Company. Therefore, competitors
may be able to pay  more  for  desirable  leases  and to  evaluate,  bid for and
purchase a greater  number of  properties  or  prospects  than the  financial or
personnel resources of the Company will permit.

Exploration  and  production  of  oil  and  natural  gas  is  also  affected  by
competition for drilling rigs and the  availability of tubular goods and certain
other  equipment.  While  the oil  and  natural  gas  industry  has  experienced
shortages of drilling rigs and  equipment,  pipe and personnel in the past,  the
Company is not  presently  experiencing  any  shortages and does not foresee any
such  shortages  in the near  future.  the Company is unable to predict how long
current market conditions will continue.

Competition for attractive oil and natural gas producing properties, undeveloped
leases and  drilling  rights is also  strong,  and the  Company  cannot  provide
assurance that it will be able to compete  satisfactorily  in the acquisition of
such  properties.  Many  major  oil  companies  have  publicly  indicated  their
decisions to concentrate on overseas activities and have been actively marketing
certain  of  their  existing  producing   properties  for  sale  to  independent
producers.  There can be no  assurance  that the Company will be  successful  in
acquiring any such properties.

Regulation.

The Company's  operations  are affected from time to time in varying  degrees by
political   developments  and  federal  and  state  laws  and  regulations.   In
particular, oil and natural gas production, operations and economics are or have
been  affected by price  controls,  taxes and other laws relating to the oil and
natural gas industry,  by changes in such laws and by changes in  administrative
regulations. The Company cannot predict how existing laws and regulations may be
interpreted by enforcement  agencies or court rulings,  whether  additional laws
and  regulations  will be adopted,  or the effect  such  changes may have on its
business or financial condition. Matters subject to regulation include discharge
permits  for  drilling  operations,  drilling  and  abandonment  bonds  or other
financial  responsibility  requirements,   reports  concerning  operations,  the
spacing of wells, unitization and pooling of properties, and taxation. There can
be no  assurance  that  new  laws or  regulations,  or  modifications  of or new
interpretations   of  existing   laws  and   regulations,   will  not   increase
substantially the cost of compliance or otherwise adversely affect the Company's
oil and  natural  gas  operations  and  financial  condition  or  that  material
indemnity  claims will not arise  against the Company with respect to properties
acquired by or from the Company.

The Company's operations are subject to numerous laws and regulations  governing
the  discharge  of  materials  into the  environment  or  otherwise  relating to
environmental protection.  These laws and regulations require the acquisition of
a  permit  before  drilling  commences,   restrict  the  types,  quantities  and
concentration of various substances that can be released into the environment in
connection with drilling and production  activities,  limit or prohibit drilling
activities on certain lands lying within wilderness,

                                        4


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wetlands and other  protected  areas,  and impose  substantial  liabilities  for
pollution which might result from the Company's operations. Moreover, the recent
trend toward stricter  standards in environmental  legislation and regulation is
likely to continue.

For instance,  legislation  has been proposed in Congress from time to time that
would  reclassify  certain crude oil and natural gas  exploration and production
wastes as "hazardous wastes" which would make the reclassified wastes subject to
much more  stringent  handling,  disposal  and  clean-up  requirements.  If such
legislation  were to be  enacted,  it could  have a  significant  impact  on the
operating  costs of the Company,  as well as the oil and natural gas industry in
general.  Initiatives to further  regulate the disposal of crude oil and natural
gas wastes are also pending in certain  states,  and these  various  initiatives
could have a similar impact on the Company.  The Company could incur substantial
costs  to  comply  with  environmental  laws and  regulations.  In  addition  to
compliance  costs,  government  entities  and other  third  parties  may  assert
substantial  liabilities  against  owners and  operators  of oil and natural gas
properties for oil spills,  discharge of hazardous  materials,  remediation  and
clean-up  costs and other  environmental  damages,  including  damages caused by
previous property owners. As a result,  substantial liabilities to third parties
or governmental  entities may be incurred,  the payment of which could reduce or
eliminate the funds  available  for project  investment or result in loss of the
Company's properties.

Although the Company maintains  insurance  coverage it considers to be customary
in the industry,  it is not fully insured against certain of these risks, either
because  such  insurance  is not  available  or because of high  premium  costs.
Accordingly,  the Company may be subject to  liability  or may lose  substantial
portions of properties due to hazards that cannot be insured against or have not
been insured against due to prohibitive premium costs or for other reasons.  The
imposition of any such  liabilities on the Company could have a material adverse
effect on the Company's financial condition and results of operations.

The Oil  Pollution  Act of 1990  ("OPA")  imposes a variety  of  regulations  on
"responsible   parties"   related  to  the   prevention   of  oil  spills.   The
implementation  of new, or the modification of existing,  environmental  laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on the Company.  While the Company
does not anticipate  incurring  material costs in connection with  environmental
compliance and remediation,  it cannot guarantee that material costs will not be
incurred.

Legislation  affecting the oil and natural gas industry is under constant review
for amendment or expansion,  frequently  increasing the regulatory burden. Also,
numerous  departments  and agencies,  both federal and state,  are authorized by
statute to issue and have issued  rules and  regulations  binding on the oil and
natural gas industry and its individual members,  compliance with which is often
difficult  and costly and certain of which carry  substantial  penalties for the
failure to comply.  The Company cannot predict how existing  regulations  may be
interpreted by  enforcement  agencies or the courts,  nor whether  amendments or
additional regulations will be adopted, nor what effect such interpretations and
changes may have on the Company's business or financial condition.

Historically,   interstate  pipeline  companies  generally  acted  as  wholesale
merchants by purchasing natural gas from producers and reselling the natural gas
to local  distribution  companies and large end users.  Commencing in late 1985,
the Federal Energy Regulatory  Commission (the "FERC") issued a series of orders
that have had a major  impact on  interstate  natural gas  pipeline  operations,
services, and rates, and thus have significantly altered the marketing and price
of natural gas. The FERC's key rule making action,  Order No. 636 ("Order 636"),
issued in April 1992, required each interstate pipeline to, among other

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things,  "unbundle" its  traditional  bundled sales services and create and make
available on an open and  nondiscriminatory  basis numerous constituent services
(such  as  gathering   services,   storage  services,   firm  and  interruptible
transportation  services, and standby sales and natural gas balancing services),
and to adopt a new rate making  methodology to determine  appropriate  rates for
those services.

To the extent the  pipeline  company or its sales  affiliate  makes  natural gas
sales as a merchant in the future,  it does so pursuant to private  contracts in
direct  competition  with  all  other  sellers,  such as the  Company;  however,
pipeline  companies and their affiliates were not required to remain "merchants"
of natural  gas,  and most of the  interstate  pipeline  companies  have  become
"transporters  only." In subsequent  orders, the FERC largely affirmed the major
features of Order 636 and denied a stay of the  implementation  of the new rules
pending  judicial  review.  By the end of 1994, the FERC had concluded the Order
636  restructuring   proceedings,   and,  in  general,   accepted  rate  filings
implementing Order 636 on every major interstate pipeline. However, even through
the  implementation  of  Order  636  on  individual   interstate   pipelines  is
essentially complete, many of the individual pipeline restructuring proceedings,
as well as Order 636  itself and the  regulations  promulgated  thereunder,  are
subject to pending appellate review and could possibly be changed as a result of
future court orders.

The Company cannot predict  whether the FERC's orders will be affirmed on appeal
or what the effects will be on its  business.  In recent years the FERC also has
pursued a number of other important policy initiatives which could significantly
affect  the  marketing  of  natural  gas.  Some of the  more  notable  of  these
regulatory  initiatives  include (i) a series of orders in  individual  pipeline
proceedings   articulating  a  policy  of  generally   approving  the  voluntary
divestiture  of interstate  pipeline  owned  gathering  facilities by interstate
pipelines to their affiliates (the so-called "spin down" of previously regulated
gathering  facilities  to  the  pipeline's  nonregulated  affiliate),  (ii)  the
completion of a rule making involving the regulation of pipelines with marketing
affiliates  under Order No. 497, (iii) the FERC's ongoing  efforts to promulgate
standards for pipeline  electronic bulletin boards and electronic data exchange,
(iv) a generic  inquiry into the pricing of interstate  pipeline  capacity,  (v)
efforts to refine the FERC's regulations  controlling operation of the secondary
market for released  pipeline  capacity,  and (vi) a policy statement  regarding
market  based  rates and other  non-cost-based  rates  for  interstate  pipeline
transmission and storage capacity.

Several of these initiatives are intended to enhance  competition in natural gas
markets,  although  some,  such as "spin downs," may have the adverse  effect of
increasing the cost of doing business on some in the industry as a result of the
monopolization of those facilities by their new,  unregulated  owners.  The FERC
has attempted to address some of these concerns in its orders  authorizing  such
"spin downs," but it remains to be seen what effect these  activities  will have
on access to markets and the cost to do business. As to all of these recent FERC
initiatives,  the ongoing, or in some instances,  preliminary evolving nature of
these regulatory  initiatives  makes it impossible at this time to predict their
ultimate impact on the Company's business.

The  federal  government  may propose  tax  initiatives  that affect the oil and
natural gas industry,  including the Company.  Due to the preliminary  nature of
these  proposals,  the Company is unable to determine  what effect,  if any, the
proposals would have on product demand or the Company's results of operations.

The  various  states in which the Company  conducts  or may  conduct  activities
regulate the drilling,  operation  and  production of oil and natural gas wells,
such as the method of developing  new fields,  spacing of wells,  the prevention
and clean-up of pollution,  and maximum  daily  production  allowables  based on
market demand and conservation considerations.

                                        6


<PAGE>



The Company's exploration,  development and production of oil and gas, including
its operation of saltwater  injection and disposal wells, are subject to various
federal,  state  and local  environmental  laws and  regulations.  Such laws and
regulations  can  increase  the costs of  planning,  designing,  installing  and
operating oil and gas wells. The Company's domestic  activities are subject to a
variety of environmental  laws and regulations,  including,  but not limited to,
the Oil  Pollution  Act of 1990  ("OPA"),  the  Clean  Water  Act  ("CWA"),  the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
the Resource  Conservation and Recovery Act ("RCRA"),  the Clean Air Act ("CAA")
and  the  Safe  Drinking  Water  Act  ("SDWA"),  as well  as  state  regulations
promulgated under comparable state statutes.

The  Company   also  is  subject  to   regulations   governing   the   handling,
transportation,   storage  and  disposal  of  naturally  occurring   radioactive
materials that are found in its oil and gas operations. Civil and criminal fines
and penalties may be imposed for  non-compliance  with these  environmental laws
and  regulations.   Additionally,   these  laws  and  regulations   require  the
acquisition of permits or other governmental  authorizations  before undertaking
certain  activities,  limit or prohibit  other  activities  because of protected
areas or species and impose substantial liabilities for cleanup of pollution.

Under the OPA,  a release  of oil into water or other  areas  designated  by the
statue  could  result in the  Company  being held  responsible  for the costs of
remediating such a release,  certain OPA specified  damages and natural resource
damages.  The extent of that liability  could be extensive,  as set forth in the
statute,  depending  on the nature of the  release.  A release of oil in harmful
quantities or other  materials  into water or other  specified  areas could also
result  in the  Company  being  held  responsible  under the CWA for the cost of
remediation, and civil and criminal fines and penalties.

CERCLA and comparable state statutes, also known as "Superfund" laws, can impose
joint and  several and  retroactive  liability,  without  regard to fault or the
legality of the original conduct,  on certain classes of persons for the release
of a "hazardous substance" into the environment.  In practice, cleanup costs are
usually allocated among various responsible parties.  Potentially liable parties
include  site  owners or  operators,  past  owners or  operators  under  certain
conditions  and  entities  that  arrange for the  disposal or  treatment  of, or
transport  hazardous  substances found at the site. Although CERCLA, as amended,
currently exempts petroleum,  including,  but not limited to, crude oil, gas and
natural gas liquids from the  definition of hazardous  substance,  the Company's
operations  may  involve  the use or  handling  of other  materials  that may be
classified as hazardous  substances under CERCLA.  Furthermore,  there can be no
assurance that the exemption will be preserved in future  amendments of the act,
if any.

RCRA and  comparable  state  and local  requirements  impose  standards  for the
management,  including  treatment,  storage and disposal of both  hazardous  and
nonhazardous  solid wastes.  The Company  generates  hazardous and  nonhazardous
solid  waste in  connection  with its  routine  operations.  From  time to time,
proposals  have been made that  would  reclassify  certain  oil and gas  wastes,
including wastes generated during pipeline,  drilling and production operations,
as "hazardous  wastes" under RCRA which would make such solid wastes  subject to
must more stringent  handling,  transportation,  storage,  disposal and clean-up
requirements.  This development could have a significant impact on the Company's
operating  costs.  While state laws vary on this  issue,  state  initiatives  to
further regulate oil and gas wastes could have a similar impact.

                                        7


<PAGE>



Because oil and gas exploration and production,  and possibly other  activities,
have been conducted at some of the Company's  properties by previous  owners and
operators,  materials from these operations remain on some of the properties and
in some instances require  remediation.  In addition,  the Company has agreed to
indemnify  Sellers of  producing  properties  from whom the Company has acquired
reserves against certain  liabilities for  environmental  claims associated with
such properties.  While the Company does not believe the costs to be incurred by
the Company for  compliance  and  remediating  previously or currently  owned or
operated properties will be material,  there can be no guarantee that such costs
will not result in material expenditures.

Additionally,  in the course of the  Company's  routine oil and gas  operations,
surface  spills and leaks,  including  casing leaks,  of oil or other  materials
occur,  and the  Company  incurs  costs for  waste  handling  and  environmental
compliance.  Moreover, the Company is able to control directly the operations of
only  those  wells  for  which  it acts  as the  operator.  Notwithstanding  the
Company's  lack of control  over wells  owned by the  Company  but  operated  by
others,  the failure of the  operator to comply  with  applicable  environmental
regulations may, in certain circumstances, be attributable to the Company.

It is not  anticipated  that the Company  will be required in the near future to
expend  amounts that are material in relation to its total capital  expenditures
program by reason of environmental  laws and  regulations,  but inasmuch as such
laws and  regulations are frequently  changed,  the Company is unable to predict
the ultimate cost of  compliance.  There can be no assurance that more stringent
laws and regulations  protecting the environment will not be adopted or that the
Company  will  not  otherwise   incur  material   expenses  in  connection  with
environmental laws and regulations in the future.

Proposed Legislation

In the  past,  Congress  has  been  very  active  in the  area  of  natural  gas
regulation.  Legislative  proposals  are  pending in various  states  which,  if
enacted,  could significantly affect the petroleum industry.  The Company cannot
predict which  proposals,  if any, may actually be enacted by Congress or any of
the state legislatures,  and what impact, if any, such proposals may have on the
Company's operations.

ITEM 2.  DESCRIPTION OF PROPERTIES

Facilities

The Company  leases  approximately  2,500  square  feet of office  space in Fort
Worth, Texas, for its corporate offices.  The 90-day lease is for and requires a
monthly rental payment of approximately $2,000. The Company considers this space
adequate for its present needs. In addition, Oil Retrieval Systems, Inc. located
in Fort  Worth,  Texas  leases  approximately  16,982  square feet for a monthly
payment of $4,118.  The Company also has a satellite office in Tyler, along with
a small field office and yard in Corsicana, Texas.

General Description of Oil and Gas Properties

The Company has  leasehold  interests  in  Corsicana,  Texas and in Polk County,
Texas.  The  Corsicana  Field is comprised  of 650  existing  wells of which the
Company has a leasehold interest in the underground  minerals.  The Company also
has a leasehold interest in 2,800 net acres located in Polk County, Texas.

                                        8


<PAGE>



Polk County

Currently,  the Company and its partners have assembled  12,000 net acres of oil
and gas leases in the Woodbine trend for its "Onalaska" prospect located in Polk
County,  Texas. The Company owns a 25% interest in these leases.  The leases are
typical  of oil and gas  leases in that they  require  production  of oil or gas
within a defined  period of time or the leases  expire.  Of the 12,000 net acres
located  in  the   Woodbine   Trend  in  which  the  Company  has  an  interest,
approximately 25% expire within the next 0ne (1) year. The balance expire within
two  (2)  years.  If the  Company  fails  to  produce  oil or gas in  production
quantities on any of these leases within the term of the lease,  such lease will
expire and the Company  will lose its rights to seek for and produce oil and gas
on that property.

The Alaska  Woodbine  Prospect is one of a series of down-dip  sandstone  lenses
that were  deposited  just  offshore of the  massive  "Harris"  reef,  which was
responsible for millions of barrels of oil and  commensurate  quantities of gas.
Costs, including land, land men, bonus & brokerage, are averaging $150 per acre.

Corsicana Field

On June 11, 1997 Oil Retrieval Systems,  Inc. (hereafter "ORS") acquired 650 oil
wells, each approximately 800' to 1000' deep,  situated on 4,500 acres of leases
in the Corsicana Field, located in Corsicana, Texas from Rife Oil Properties for
2,000,000  shares  of  restricted   common  stock  and  a  promissory  note  for
$1,300,000, bearing 6% interest per annum and due on November 11, 1997. The note
was secured by 1,000,000 shares of newly-issued  common stock of ORS and held by
an attorney as Trustee. The note for $1,300,000 plus $43,381 in accrued interest
was satisfied on December 15, 1997 by agreement of the parties,  with the shares
of  restricted  common  stock  which were held in  escrow.  All of the wells are
approximately  800 ft. to 1,000 ft. deep with 84.5 million  gross barrels of oil
in place.  The  Company  has split the field  into small  AMI's  (Area of Mutual
Interest) in order to facilitate  fund raising for the development of the field.
All of these  leases are  "Production  Leases."  Production  leases  continue in
perpetuity  so long as oil or gas is being  produced on the property  subject to
the lease.  So long as the  Company  continues  to  produce  oil or gas from the
leases in the Corsicana field, the leases will not expire.

A reserve  study was  performed by Ultra  Engineering  & Consulting  of Houston,
Texas.  The study,  which was performed as of September 30, 1998,  estimated net
reserves  of  21,744,477  recoverable  barrels of oil.  The value of future cash
flows,  discounted at 10% to present value, was estimated to be $63,868,634.  At
current  commodity  prices,  the estimated  future cash flow (not discounted) is
$125 million.

On October 21, 1999,  Pursuant to an agreement with Rife Oil  Properties,  Inc.,
the Company acquired oil properties and leases located on 3,933.72 acres located
in the Corsicana  shallow field located in Navarro County,  Texas.  All of these
leases are "Production Leases." Production leases continue in perpetuity so long
as oil or gas is being produced on the property subject to the lease. So long as
the Company  continues  to produce  oil or gas from the leases in the  Corsicana
field, the leases will not expire.

The  Company  is  Currently  Performing  tests  on some of its  Corsicana  field
properties.  Three Horizontal  wells have been drilled and completed.  Inert gas
(15%  CO2-85% N) is  presently  being  injected  into the  reservoir  around the
horizontal wells for  repressurization.  It is anticipated that these horizontal
wells will produce substantial  quantities of oil in the near future. The use of
lateral well bores (horizontal) will limit

                                        9


<PAGE>



the number of vertical  wells  required  to produce  the oil in place,  and thus
reduce overall drilling costs for the field.

Production from the Corsicana Field has a virtually flat decline curve,  thereby
holding the leases for the foreseeable  future.  The leases carry an average net
revenue interest of 80%

Oil and Gas Reserves

As of September  30, 1999,  the  Company's  oil and natural gas  interests  were
located in the state of Texas. The Company has no reserves offshore.

The following table summarizes the Company's reserves on September 30, 1998, and
September 30, 1999 and was prepared in accordance with the rules and regulations
of the Commission:

                                                               Oil (mbbls)
                                                                  -----
                                                        1999            1998
                                                        ----            ----
     Proved Developed and Undeveloped Reserves:

     Beginning of Year                                                    -
     Purchases of Minerals in Place                    21,744.5       22,528.5
     Revisions of previous estimates                   (3,305.0)        (779.9)
     Production                                            (2.2)          (4.1)
     End of Year                                       18,473.3       21,744.5
     Proved Developed Reserves: End of year             1,725.5        3,785.0


Operating Activities

Where possible,  the Company  prefers to have Rife Oil  Properties,  Inc. act as
operator of the oil and natural gas properties and prospects in which it owns an
interest.  M. O. Rife, a Director of the Company,  is the major  shareholder  of
Rife Oil  Properties,  Inc.  The  operator of an oil and  natural  gas  property
supervises production, maintains production records, employs field personnel and
performs other functions  required in the production and  administration of such
property.  The  fees for  such  services  customarily  vary  from  well to well,
depending  on the  nature,  depth  and  location  of the  well  being  operated.
Generally, the operator of an oil and natural gas prospect is determined by such
factors  as the  size  of the  working  interest  held by a  participant  in the
prospect,  a  participant's  knowledge and experience in the geological  area in
which the prospect is located and  geographical  considerations.  The  Company's
wells are drilled by independent drilling contractors.

Title to Properties

As is common industry  practice,  little or no investigation of title is made at
the time of  acquisition  of  undeveloped  properties,  other than a preliminary
review of local mineral  records.  Title  investigations  are made,  and in most
cases,  a title  opinion of local  counsel is obtained  before  commencement  of
drilling

                                       10


<PAGE>



operations.  The Company believes that the methods it utilizes for investigating
title prior to the  acquisition of any properties are consistent  with practices
customary  in the oil and gas industry and that such  practices  are  adequately
designed to enable the Company to acquire  good title to such  properties.  Some
title risks, however,  cannot be avoided,  despite the use of customary industry
practices.

The Company's leased  properties are generally  subject to customary royalty and
overriding royalty interests, liens incident to operating agreements,  liens for
current  taxes  and  other  burdens  and  minor   encumbrances,   easements  and
restrictions,  and may be mortgaged to secure  indebtedness of the Company.  The
Company believes that none of these burdens either  materially  detract from the
value of such properties or materially interfere with their use in the operation
of the Company's business.

The primary terms of the oil and gas leases  covering the Company's 25% interest
in undeveloped  acreage  located in Polk County,  Texas expire at various dates,
ranging from 1 to 2 years. Approximately 25% of the leases expire within one (1)
years with the  balance of the  leases due to expire  within two (2) years.  The
Company can retain its interest in undeveloped acreage by drilling activity that
establishes commercial reserves sufficient to maintain the lease. Certain of the
Company's undeveloped acreage in the Corsicana Field located in Corsicana, Texas
are being  "held by  production,"  for  which  expiration  will not occur  until
production ceases from all wells on the particular leases.

Sales of producing propreties and underdeveloped Acreage

         The Company  evaluates  properties on an ongoing basis to determine the
economic  viability  of the  property  and whether  such  property  enhances the
objectives of the Company. During the course of normal business, the Company may
dispose of producing  properties and undeveloped acreage if the Company believes
that such disposition is in its best interests.

ITEM 3.  LEGAL PROCEEDINGS

The following is the only material pending case involving the Company

TTP,LLP vs. Oil Retrieval Systems, Inc. Suit was filed in September, 1999 in the
189th  Judicial  District  Court of  Harris  County,  Texas,  Case No.  98-46438
alleging breach of contract and seeking damages of approximately  $120,000. This
relates to an alleged breach of an agreement to repurchase  equipment previously
sold by the Company.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the last 3 months of the fiscal year ended September 30, 1999, no matters
were submitted by the Company to a vote of its shareholders.




                      [THIS SPACE INTENTIONALLY LEFT BLANK]




                                       11


<PAGE>



ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS

Market Information

The Company's Common Stock is currently quoted on the Electronic  Bulletin Board
under the symbol "PWRX," but there is limited  trading in the Common Stock.  The
following  table  sets forth the high and low bid  prices  from  October 1, 1998
through September 30, 1999, based upon quotations  periodically published on the
OTC. All price  quotations  represent  prices  between  dealers,  without retail
mark-ups, mark-downs or commissions and may not represent actual transactions.

                                                    HIGH            LOW
Fiscal Year ended September 30, 1998
     October, November, & December                  1.88            0.63
     January, February, & March                     1.75            0.44
     April, May, & June                             1.75            0.43
     July, August, & September                      0.95            0.40

Fiscal Year ended September 30, 1999
     October, November, & December                  0.78            0.41
     January, February, & March                     2.09            0.33
     April, May, & June                             0.47            0.14
     July, August, & September                      0.24            0.10


The bid price for the Common  Stock was  $2.6875  on January 4, 2000.  The above
quotations reflect  inter-dealer  prices,  without retail mark-up,  mark-down or
commissions and may not necessarily represent actual transactions.

Shareholders

According  to the  records  of the  Company's  transfer  agent,  there were 2063
holders of record of the Common Stock on September 30, 1999  (including  nominee
holders  such as banks  and  brokerage  firms  who hold  shares  for  beneficial
holders).

Dividends

The Company has not paid any cash  dividends on its Common  Stock,  and does not
anticipate  paying  cash  dividends  on its Common  Stock in the next year.  The
Company  anticipates that any income generated in the foreseeable future will be
retained for the  development  and  expansion of its business.  Future  dividend
policy is subject to the  discretion  of the Board of Directors  and will depend
upon a number of factors,  including  future  earnings,  debt  service,  capital
requirements,  business  conditions,  the financial condition of the Company and
other factors that the Board of Directors deems relevant

                                       12


<PAGE>



Recent Sales of Unregistered Securities

The following is a list of all securities  sold by the Company within the period
covered by this report, including,  where applicable, the identity of the person
who purchased the securities, title of the securities, and the date sold.

In June,  1999,  the Company  issued 5,000 shares of common stock at $100.20 per
share to Benchmark  Equity  Group to satisfy a promissory  note in the amount of
$501,000  pursuant to section 4(2) of the  Securities Act of 1933 in an isolated
private transaction by the Company which did not involve a public offering.

In  November,  1998,  the Company  issued  6,500  shares of common  stock Carmax
Investments,  Ltd. in exchange for $150,000 in cash and  surrender of a $250,000
debenture with $30,917 in accrued  interest.  The shares were issued pursuant to
section 4(2) of the Securities Act of 1933 in an isolated private transaction by
the Company which did not involve a public offering.

In December,  1998,  the Company  issued 20,000 shares of common stock at $17.00
per share to Howard  Walsch,  Jr. in exchange  for oil and gas  properties.  The
transaction  was carried out pursuant to section 4(2) of the  Securities  Act of
1933 in an isolated  private  transaction by the Company which did not involve a
public offering.

In October,  1998, the Company issued 1,000 shares of common stock at $63.00 per
share to Trident III,  LLC, in exchange for granting a loan to the Company.  The
transaction  was carried out pursuant to section 4(2) of the  Securities  Act of
1933 in an isolated  private  transaction by the Company which did not involve a
public offering.

During the period April through  October,  1999, the Company issued 2,600 shares
of common  stock at $20.71  per share to  Trident  III,  LLC,  in  exchange  for
granting  extensions on a loan to the Company.  The  transaction was carried out
pursuant to section 4(2) of the  Securities  Act of 1933 in an isolated  private
transaction by the Company which did not involve a public offering.

In January, 1999, the Company issued 14,000 shares of common stock at $43.00 per
share to  Fontenelle,  LLC, in exchange for public  relations  work performed on
behalf of the Company.  The transaction was carried out pursuant to section 4(2)
of the Securities Act of 1933 in an isolated private  transaction by the Company
which did not involve a public offering.

In February, 1999, the Company issued 4,000 shares of common stock at $75.00 per
share to Banyon  Holdings,  LLC, in exchange for public relations work performed
on behalf of the Company.  The  transaction  was carried out pursuant to section
4(2) of the  Securities  Act of 1933 in an isolated  private  transaction by the
Company which did not involve a public offering.

In February, 1999, the Company issued 4,000 shares of common stock at $75.00 per
share to  Cornerstone,  LLC, in exchange for public  relations work performed on
behalf of the Company.  The transaction was carried out pursuant to section 4(2)
of the Securities Act of 1933 in an isolated private  transaction by the Company
which did not involve a public offering.

                                       13


<PAGE>



In February, 1999, the Company issued 4,000 shares of common stock at $95.00 per
share to DDW & Associates  in exchange for public  relations  work  performed on
behalf of the Company.  The transaction was carried out pursuant to section 4(2)
of the Securities Act of 1933 in an isolated private  transaction by the Company
which did not involve a public offering.

In September,  1999,  the Company  issued 4,000 shares of common stock at $18.75
per share to John Hileman in exchange  for public  relations  work  performed on
behalf of the Company.  The transaction was carried out pursuant to section 4(2)
of the Securities Act of 1933 in an isolated private  transaction by the Company
which did not involve a public offering.

In March,  1999,  the Company  issued  4,000 shares and in  September,  1999 the
Company issued 1339 shares of common stock at $39.25 per share to Warren Soloski
in  exchange  for  legal  services  performed  on  behalf  of the  Company.  The
transaction  was carried out pursuant to section 4(2) of the  Securities  Act of
1933 in an isolated  private  transaction by the Company which did not involve a
public offering.

In February,  1999, the Company issued 1,856 shares of common stock to Benchmark
Equity  Group,247  shares of common stock to Jeffrey Tomz,  495 shares of common
stock to Peter Zouvas, and 990 shares of common stock to Delphi Consulting group
at $1.98 per share The shares to  Benchmark  Equity  Group and Jeffrey Tomz were
issued in  consideration  of a loan made to the  Company.  The shares  issued to
Delphi  Consulting Group and Peter Zouvas were for consulting  services provided
to the Company.  The  transactions  were carried out pursuant to section 4(2) of
the  Securities  Act of 1933 in an isolated  private  transaction by the Company
which did not involve a public offering.

In November,  1999,  the Company issued 100 shares of common stock at $68.75 per
share to Company emoloyees,  in exchange for services performed for the Company.
The  transaction  was carried out pursuant to section 4(2) of the Securities Act
of 1933 in an isolated private  transaction by the Company which did not involve
a public offering.

ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The Company's operations consist primarily of exploration and development of oil
and gas properties, and redevelopment of currently producing oil and gas fields.
While Oil and natural gas are the principal  products  currently produced by the
Company.  The Company does not refine or process the oil and natural gas that it
produces.  The Company sells the oil it produces under  short-term  contracts at
market  prices in the  areas in which  the  producing  properties  are  located,
generally at F.O.B.  field prices  posted by the  principal  purchaser of oil in
such areas.

Results of Operations

Revenues

The Company's oil and gas sales  decreased  $23,297,  or 50%, to $23,841 for the
fiscal  year ended  September  30,  1999 from  $47,138 for the fiscal year ended
September 30, 1998. Equipment sales decreased $198,239,  or 50%, to $200,731 for
the fiscal year ended September 30, 1999 from $398,970 for the fiscal year ended
September 30, 1998. With these large decreases in revenue,  income was far short
of expenses.  To date, the Company has been putting the necessary  components in
place to create  ongoing  income,  and these efforts should begin to be realized
during the 2000 fiscal year.

                                       14


<PAGE>



Costs and expenses

The Company's general and administrative expenses increased $774,620, or 35%, to
$2,945,875 for the fiscal year ended  September 30, 1999 from $2,171,255 for the
fiscal year ended September 30, 1998. While this is a moderate increase, general
and administrative expenses as a percentage of net sales increased substantially
from 487% for 1998 to  1097.58%  for 1999.  The change in the  dollar  amount of
general and  administrative  expenses was due primarily to increased  consulting
fees which accounted for 53% of all general and administrative expenses, and 49%
of total expenses. Other major components of general and administrative expenses
included officer's salaries at 10%,  non-officer  salaries at 5%, and legal fees
at3%.  Separately,  lease operating  expenses  decreased $62,281 to $166,351 for
1999 from $228,632 in 1998  resulting  from  decreases in production  which were
caused in part by decreases in oil prices.

Net Income (Loss)

Net loss for the fiscal year ended September 30, 1999 was $3,214,670,  or $21.49
per share, compared to a loss of $2,695,817, or $25.83 per share, for the fiscal
year ended September 30, 1998.  This $518,853  increase was primarily the result
of the increase in general and  administrative  expenses as more fully described
above.  Net cash used in operating  activities  was $315,633 for the fiscal year
ended  September 30, 1999, and $877,942 for the fiscal year ended  September 30,
1998,  representing a decrease of 65% in cash usage.  All cash activities of the
business  produced  a  $128,818  decrease  in cash  for the  fiscal  year  ended
September 30, 1999, as compared to a $34,457  increase for the fiscal year ended
September 30, 1998.

Liquidity and Capital Resources

The  Company's  working  capital  deficit on September  30, 1999 was  $1,593,001
compared  to a deficit of  $1,002,390  on  September  30,  1998.  This  $590,611
decrease in working  capital  resulted  primarily  from the reduction in debt to
related parties;  this debt was eliminated through the issuance of shares of the
company's  stock.  The  Company  had a current  ratio of 0.4 for the fiscal year
ended September 30, 1998, as compared to 0.2 for the fiscal year ended September
30,1999. A comparison of other ratios that measure financial performance show no
change  in the  quick  ratio  of  0.2,  net  worth  to  assets  at 0.8  and  0.7
respectively,  and debt to net worth of (2.4) and (1.9) respectively.  This data
all highlights the Company's need to raise additional  capital,  to convert some
short-term debt into long-term debt, or to incur long-term debt.

Long-Term Debt

On September 30, 1999,  the Company had no long-term  debt.  Although 92% of the
Company's  assets are comprised of oil and gas properties that are not a current
asset, all of the Company's  borrowing have been short term in nature.  This has
aggravated  the Company's cash position and produced lower measures of financial
performance than would otherwise be possible.

Sale of Equity

The Company was indebted to Benchmark  Equity Group,  Inc. under terms of a line
of credit promissory note dated May 7, 1998 in the amount of $500,000. This line
of credit had an  interest  rate of 12% and a maturity  date of October 7, 1998.
The note was paid through the issuance of 500,000  common  shares ($1.00 of debt
per share) on October 7, 1998.

                                       15


<PAGE>





On October 21, 1998, the Company borrowed  $250,000 from Trident III, L.L.C. and
issued a promissory note the terms of which provide for interest  payable at 10%
per annum.  The note was payable April 20, 1999. The Company issued 1,000 of its
shares to Trident III,  L.L.C.  in connection  with this loan. The note has been
extended at various  time and has a current  maturity  date of October 30, 1999.
2,600 Shares of the Company's stock were issued to obtain the  extensions.  When
the note was extended to September 30, 1999, the Company agreed that if the note
was not paid by that date, it would issue 50,000 shares per day for each day the
note was outstanding  subsequent to September 30, 1999. The note remains unpaid.
The note is secured by all tangible assets of the Company.

Need to Raise Additional Capital

The growth of the  Company's  business  will  require  substantial  capital on a
continuing basis. There is no assurance that any such required  additional funds
would be available on  satisfactory  terms and  conditions,  if at all. There is
also no  assurance  that  the  Company  will  not  pursue,  from  time to  time,
opportunities  to acquire oil and natural gas properties and businesses that may
utilize  the  capital  currently  expected  to  be  available  for  its  present
operations.  The amount and timing of the Company's future capital requirements,
if any,  will  depend  upon a  number  of  factors,  including  drilling  costs,
transportation costs, equipment costs,  marketing expenses,  staffing levels and
competitive  conditions,  and any purchases or dispositions  of assets,  many of
which are not  within the  Company's  control.  Failure  to obtain any  required
additional financing could materially adversely affect the growth, cash flow and
earnings of the  Company.  In  addition,  the  Company's  pursuit of  additional
capital  could  result  in the  incurrence  of  additional  debt or  potentially
dilutive issuances of additional equity securities.

History of Losses

The  Company had net losses of  $2,695,817  and  $,214,670,  for the years ended
September 30, 1998 and September 30, 1999 respectively. The Company may continue
to incur net losses  and,  to the extent  that  natural gas and crude oil prices
remain low, such losses may be substantial.

Need for Additional Financing for Growth

The growth of the  Company's  business  will  require  substantial  capital on a
continuing  basis,  and there is no assurance that any such required  additional
capital will be available on satisfactory terms and conditions, if at all. There
is also no  assurance  that the  Company  will not  pursue,  from  time to time,
opportunities  to acquire oil and natural gas properties and businesses that may
utilize  the  capital  currently  expected  to  be  available  for  its  present
operations.  The amount and timing of the Company's future capital requirements,
if any,  will  depend  upon a  number  of  factors,  including  drilling  costs,
transportation costs, equipment costs,  marketing expenses,  staffing levels and
competitive  conditions,  and any purchases or dispositions  of assets,  many of
which are not  within the  Company's  control.  Failure  to obtain any  required
additional financing could materially adversely affect the growth, cash flow and
earnings of the  Company.  In  addition,  the  Company's  pursuit of  additional
capital  could  result  in the  incurrence  of  additional  debt or  potentially
dilutive issuances of additional equity securities.

                                       16


<PAGE>



The  Company's  ability  to meet any future  debt  service  obligations  will be
dependent upon the Company's  future  performance,  which will be subject to oil
and natural gas prices,  the Company's  level of  production,  general  economic
conditions and financial, business and other factors affecting the operations of
the  Company,  many of which are beyond its  control.  There can be no assurance
that the Company's  future  performance  will not be adversely  affected by such
changes in oil and natural gas prices  and/or  production  nor by such  economic
conditions and/or financial,  business and other factors. In addition, there can
be no assurance that the Company's  business will generate  sufficient cash flow
from  operations  or that future bank credit will be  available  in an amount to
enable the Company to service its  indebtedness or make necessary  expenditures.
In such event,  the Company would be required to obtain such  financing from the
sale of equity  securities  or other debt  financing.  There can be no assurance
that any such  financing  will be available on terms  acceptable to the Company.
Should  sufficient  capital  not be  available,  the  Company may not be able to
continue to implement its business strategy.

There is also no assurance that the Company will not pursue,  from time to time,
opportunities  to acquire oil and natural gas properties and businesses that may
utilize  the  capital  currently  expected  to  be  available  for  its  present
operations.  The amount and timing of the Company's future capital requirements,
if any,  will  depend  upon a  number  of  factors,  including  drilling  costs,
transportation costs, equipment costs,  marketing expenses,  staffing levels and
competitive  conditions,  and any purchases or dispositions  of assets,  many of
which are not  within the  Company's  control.  Failure  to obtain any  required
additional financing could materially adversely affect the growth, cash flow and
earnings of the  Company.  In  addition,  the  Company's  pursuit of  additional
capital could result in the incurrence of additional indebtedness or potentially
dilutive issuances of additional equity securities.

Acquisition Risks

The Company's  business strategy includes focused  acquisitions of producing oil
and  natural  gas  properties.  Any such  future  acquisitions  will  require an
assessment  of the  recoverable  reserves,  future oil and  natural  gas prices,
operating costs, potential environmental and other liabilities and other similar
factors.  It  generally  is not  feasible to review in detail  every  individual
property involved in an acquisition.  Ordinarily,  review efforts are focused on
the higher-valued properties.  However, even a detailed review of all properties
and records may not reveal  existing or potential  problems;  nor will it permit
the Company to become sufficiently  familiar with the properties to assess fully
their  deficiencies  and  capabilities.  Inspections are not always performed on
every well, and potential  problems,  such as mechanical  integrity of equipment
and environmental conditions that may require significant remedial expenditures,
are not necessarily  observable  even when an inspection is undertaken.  Even if
problems  are  identified,  the  seller  may be  unwilling  or unable to provide
effective contractual protection against all or part of such problems. There can
be no assurance that oil and natural gas properties acquired by the Company will
be successfully integrated into the Company's operations or will achieve desired
profitability objectives.

Drilling Risks

The  Company's  drilling  involves  numerous  risks,  including the risk that no
commercially  productive natural gas or oil reservoirs will be encountered.  The
Company  must  incur  significant   expenditures  for  the   identification  and
acquisition of properties and for the drilling and completion of wells. The cost
of drilling,  completing and operating  wells is often  uncertain,  and drilling
operations  may be  curtailed,  delayed or  canceled as a result of a variety of
factors, including unexpected drilling conditions, pressure or

                                       17


<PAGE>



irregularities  in  formations,   equipment   failures  or  accidents,   weather
conditions  and shortages or delays in the delivery of  equipment.  In addition,
any use by the Company of  3-dimensional  seismic and other advanced  technology
requires greater pre-drilling expenditures than traditional drilling strategies.
There can be no assurance  as to the success of the  Company's  future  drilling
activities.

Uncertainty of Estimates of Oil and Natural Gas Reserves

Numerous  uncertainties are inherent in estimating  quantities of proved oil and
natural gas reserves,  including many factors beyond the control of the Company.
This Form 10-KSB  contains an estimate of the  Company's  proved oil and natural
gas reserves and the estimated future net cash flows and revenue therefrom based
upon  reports  of  the  Company's   independent   petroleum   engineers   (Ultra
Engineering). Such reports rely upon various assumptions,  including assumptions
required by the Securities and Exchange  Commission  (the  "Commission"),  as to
constant oil and natural gas prices,  drilling and operating  expenses,  capital
expenditures,  taxes and  availability  of funds and such reports  should not be
construed as the current  market value of the  estimated  proved  reserves.  The
process of  estimating  oil and  natural  gas  reserves  is  complex,  requiring
significant decisions and assumptions in the evaluation of available geological,
engineering  and economic data for each reservoir.  As a result,  such estimates
are inherently an imprecise  evaluation of reserve quantities and the future net
revenue  therefrom.  Actual  future  production,   revenue,  taxes,  development
expenditures,  operating  expenses and quantities of recoverable oil and natural
gas reserves may vary  substantially  from those  assumed in the  estimate.  Any
significant  variance in these assumptions could materially affect the estimated
quantity and value of reserves set forth in this Form 10-KSB.  In addition,  the
Company's  reserves  may be subject to downward or upward  revision,  based upon
production  history,  results of future exploration and development,  prevailing
oil and natural gas prices and other factors.

Geographic Concentration of Operations

Virtually all of the Company's current operations are located in Texas.  Because
of this  concentration,  any regional events that increase costs or competition,
reduce availability of equipment or supplies,  reduce demand or limit production
will impact the Company more adversely  than if the Company were  geographically
diversified.

Concentration of Production

The  Company's  existing  proved  producing oil and natural gas reserves and its
production therefrom are located in a single field which consists of 4,500 acres
and contains 650 wells. Accordingly,  to the extent that the Company experiences
any operating  difficulties  in connection with such wells or that the estimated
proved  reserves  attributable  thereto  are less than those that are  currently
estimated to exist, the Company could be adversely affected.

Inability to Develop Additional Reserves

The Company's future success as an oil and natural gas producer, as is generally
the case in the industry,  depends upon its ability to find, develop and acquire
additional  oil and  natural gas  reserves  that are  economically  recoverable.
Except to the extent that the Company conducts successful development activities
or acquires properties containing proved reserves, the Company's proved reserves
will generally decline as reserves are produced.  There can be no assurance that
the Company will be able to locate additional  reserves or that the Company will
drill  economically  productive wells or acquire  properties  containing  proved
reserves.

                                       18


<PAGE>





Certain Industry and Marketing Risks

The Company's  operations are subject to the risks and uncertainties  associated
with  drilling  for,  producing  and  transporting  of oil and natural  gas. The
Company's  future  ability to market its  natural  gas and oil  production  will
depend upon the availability  and capacity of natural gas gathering  systems and
pipelines and other transportation  facilities.  Federal and state regulation of
oil and natural gas production and transportation,  general economic conditions,
changes  in supply  and in demand  all could  materially  adversely  affect  the
Company's ability to market its oil and natural gas production.

Effects of Changing Prices

The future  financial  condition and results of operations of the Company depend
upon  the  prices  it  receives  for its oil and  natural  gas and the  costs of
acquiring,  developing  and  producing  oil and natural gas. Oil and natural gas
prices  have  historically  been  volatile  and are subject to  fluctuations  in
response to changes in supply,  market  uncertainty  and a variety of additional
factors  that are also beyond the  Company's  control.  These  factors  include,
without  limitation,  the level of  domestic  production,  the  availability  of
imported  oil and  natural  gas,  actions  taken by foreign  oil and natural gas
producing  nations,  the  availability of  transportation  systems with adequate
capacity, the availability of competitive fuels, fluctuating and seasonal demand
for natural  gas,  conservation  and the extent of  governmental  regulation  of
production,  weather,  foreign and domestic government  relations,  the price of
domestic and imported oil and natural gas, and the overall economic environment.
A substantial or extended  decline in oil and/or natural gas prices could have a
material adverse effect on the Company's  estimated value of its natural gas and
oil reserves, and on its financial position, results of operations and access to
capital.  The Company's ability to maintain or increase its borrowing  capacity,
to repay  current or future  indebtedness  and to obtain  additional  capital on
attractive terms is substantially dependent upon oil and natural gas prices.

The Company uses the full cost method of  accounting  for its  investment in oil
and gas  properties.  Under the full cost  method  of  accounting,  all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
into a "full cost pool" as incurred, and properties in the pool are depleted and
charged to operations using the unit-of-production  method based on the ratio of
current production to total proved oil and gas reserves. To the extent that such
capitalized costs (net of accumulated depreciation,  depletion and amortization)
less deferred  taxes exceed the SEC PV-10  (present  value  discounted at 10% as
dictated by the SEC) of estimated  future net cash flow from proved  reserves of
oil and gas,  and the lower of cost or fair value of unproved  properties  after
income tax  effects,  such  excess  costs are  charged  against  earnings.  Once
incurred,  a write-down of oil and gas  properties is not  reversible at a later
date even if oil or gas prices increase.

Operating Hazards and Uninsured Risks

The  Company's  operations  are  subject  to the risks  inherent  in the oil and
natural gas industry,  including the risks of fire, explosions,  blow-outs, pipe
failure, abnormally pressured formations and environmental accidents such as oil
spills,  gas leaks,  ruptures or discharges of toxic gases, brine or well fluids
into the environment  (including groundwater  contamination).  The occurrence of
any of these  risks  could  result in  substantial  losses to the Company due to
injury or loss of life, severe damage to or destruction of property,

                                       19


<PAGE>



natural  resources  and,  equipment,  pollution or other  environmental  damage,
clean-up responsibilities, regulatory investigation and penalties and suspension
of operations.  In accordance  with  customary  industry  practice,  the Company
maintains  insurance  against some, but not all, of the risks  described  above.
There can be no assurance  that any insurance  maintained by the Company will be
adequate to cover any such losses or  liabilities.  Further,  the Company cannot
predict the continued availability of insurance, or availability at commercially
acceptable  premium  levels.  The Company does not carry  business  interruption
insurance. Losses and liabilities arising from uninsured or under-insured events
could have a material  adverse effect on the financial  condition and operations
of the Company.  From time to time,  due primarily to contract  terms,  pipeline
interruptions  or weather  conditions,  the producing wells in which the Company
owns an interest have been subject to production curtailments.  The curtailments
range from  production  being  partially  restricted  to wells being  completely
shut-in.  The duration of curtailments varies from a few days to several months.
In most cases the Company is provided only limited notice as to when  production
will be  curtailed  and the  duration of such  curtailments.  The Company is not
currently experiencing any material curtailment on its production.

Inflation and Changing Prices

The impact of inflation,  as always, is difficult to assess. In 1997 and through
the first  quarter of 1998,  the  Company has  experienced  a weakness in prices
received for its oil and natural gas production.  the Company cannot  anticipate
whether the present level of inflation will remain,  however,  a sudden increase
in inflation  and/or an increase in operating  costs or drilling  costs  coupled
with a  continuation  of low oil  prices  could  have an  adverse  effect on the
operations of the Company.

Year 2000 Compliance

The  Company's  management  conducted  a review of its  information  systems and
related  data-processing  activities  to assess  its  exposure  to the Year 2000
issue.  The Company  upgraded the operating  software on its computers to a Year
2000 compliant system. The Company purchased upgrades to its accounting software
that was Year 2000 compliant.

The Company currently uses Year 2000 compliant  engineering  evaluation software
for acquisition  analysis,  as well as internal  engineering  applications.  The
Company's spreadsheet and word processing software is also Year 2000 compliant.

As of January 13, 2000, the Company has not experienced any significant problems
related to the Year 2000 issue.

Events Subsequent to End of Fiscal Year

On October 5, 1999,  Guy Pyron,  Jack  Gallegher,  and Thom Schleim  resigned as
directors  of the  Company.  Mark Zouvas was elected as a Director to serve on a
three man Board of Directors with M. O. Rife III and Joe Bill Bennett.1


--------
     (1)The executive  officers and directors listed in Part III, Item 9 reflect
the changes made October 5, 1999.

                                       20


<PAGE>



On October 19,1999, the Company effected a 1 for 100 reverse split of its common
stock2

On October  21,  1999,  the  Company  entered  into an  agreement  with Rife Oil
Properties,  Inc.  to acquire  certain  oil  properties  and  leases  located on
3,933.72 acres located in the Corsicana shallow field located in Navarro County,
Texas, from Rife in exchange fro 8,000,000  post-reverse-split  shares of common
stock and to retire certain debt owed to Rife aggregating approximately $950,000
in exchange  for  1,000,000  shares of  post-reverse-split  common  stock.  This
agreement has been consummated.

On October 25, 1999, the Company adopted a Stock Benefit Plan which provides for
the  issuance of up to four  million  (4,000,000)  shares of common stock of the
Company according to the terms of the plan.

On October 27, 1999 the Company  entered into two advisory  agreements  covering
financial  and  investment  services  to be  provided  to the  Company on a best
efforts basis by Allen Z. Wolfson and Ronald Welborn. The agreements provide for
the Company to issue 75,000  shares of  post-reverse-split  common stock plus an
option to  purchase  75,000  shares of  post-reverse-split  common  stock of the
Company at an exercise price of $0.66667 per share for a period of one year, the
term of the  agreement,  to Allen Z. Wolfson,  and the same number of shares and
options to Ronald Welborn.

On November 23, 1999,  the Company  entered into an agreement to borrow  $25,000
from A-Z  Professional  Consultants,  a Utah  Corporation and Global  Universal,
Inc., a Nevada  Corporation.  As consideration  for making the loan, the Company
issued  150,000  post-reverse-split  shares of  common  stock to each of the two
corporations.

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following pages contain the audited  financial  statements and  accompanying
notes as prepared by the Company's independent auditors.

                      [THIS SPACE LEFT INTENTIONALLY BLANK]











--------
       (2)All  references  herein to number of  issued  and  outstanding  shares
reflect the 1 for 100 reverse split.

                                       21

<PAGE>



                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                        CONSOLIDATED FINANCIAL STATEMENTS



                                      INDEX


INDEPENDENT AUDITORS' REPORT                                                 F-2


CONSOLIDATED BALANCE SHEETS                                                  F-3


CONSOLIDATED STATEMENTS OF OPERATIONS                                        F-4


CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                               F-5


CONSOLIDATED STATEMENTS OF CASH FLOWS                                        F-6


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            F-7 - F-25

                                      F-1


<PAGE>











                          INDEPENDENT AUDITOR'S REPORT



TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
POWER EXPLORATION, INC. AND SUBSIDIARIES

We  have  audited  the  accompanying   consolidated   balance  sheets  of  POWER
EXPLORATION,  INC. AND  SUBSIDIARIES  as of September  30, 1999 and 1998 and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for the years then ended. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  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 consolidated  financial position of POWER
EXPLORATION,  INC. AND  SUBSIDIARIES  as of September  30, 1999 and 1998 and the
consolidated  results  of its  operations  and its cash flows for the years then
ended in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in Note 14 to the
financial statements,  the Company has suffered recurring losses from operations
and its limited capital  resources raise  substantial doubt about its ability to
continue as a going concern.  Management's  plans in regard to these matters are
also  described  in  Note  14.  The  financial  statements  do not  include  any
adjustments that might result from the outcome of this uncertainty.


                          MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
                          Certified Public Accountants

New York, New York
December 17, 1999


                                      F-2

<PAGE>

<TABLE>
<CAPTION>

                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                  SEPTEMBER 30,


         ASSETS                                               1999                    1998
                                                       ---------------            ---------
<S>                                                   <C>                   <C>
CURRENT ASSETS
  Cash                                                 $      1,083          $  129,901
  Accounts Receivable                                         8,563              11,477
Receivable - Related Parties                                 84,570             121,253
  Inventory                                                 323,486             352,462
  Prepaid Expenses                                              230             123,542
                                                       ------------         -----------
      Total Current Assets                                  417,932             738,635
                                                       ------------         -----------
OIL AND GAS PROPERTIES, FULL COST METHOD
  Properties being amortized                              7,134,910           5,396,496
  Properties not subject to amortization                          -           1,312,505
                                                       ------------         -----------
                                                          7,134,910           6,709,001
  Less: Accumulated depreciation, depletion
   and amortization                                         (10,491)             (5,220)
                                                       ------------         -----------
    Net Oil and Gas Properties                            7,124,419           6,703,781
                                                       ------------         -----------

PROPERTY AND EQUIPMENT, Net of Accumulated
 Depreciation of $93,581 and $46,037                        230,506             250,774
                                                       ------------         -----------
OTHER ASSETS                                                  6,037              13,846
                                                       ------------         -----------
      TOTAL ASSETS                                     $  7,778,894         $ 7,707,036
                                                        ===========         ===========
         LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts Payable and Accrued Expenses                $    825,466             416,217
  Accounts Payable - Related Party                          389,154                   -
  Customer Deposits 30,000                                 110,000
  Advances Payable 25,000                                   22,500
  Advances Payable - Related Party                          140,000                   -
  Debentures Payable, net of unamortized discount
   of  $7,692 and $130,500                                        -             242,308
  Notes Payable                                             500,000             900,000
  Notes Payable - Related Party                             101,313              50,000
                                                       ------------         -----------
      Total Liabilities                                   2,010,933           1,741,025
                                                        -----------         -----------

STOCKHOLDERS' EQUITY
  Common Stock, $.02 par value; 50,000,000 shares
   authorized, 177,650 and 110,609 shares
   issued and outstanding, respectively                       3,553               2,212
  Additional Paid-in Capital                             13,650,157          10,634,878
  Accumulated Deficit                                  (  7,885,749)        ( 4,671,079)
                                                       ------------         -----------
      Total Stockholders' Equity                          5,767,961           5,966,011
                                                       ------------         -----------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $  7,778,894         $ 7,707,036
                                                       ============         ===========
</TABLE>


                 The Accompanying Notes are an Integral Part of
                    These Consolidated Financial Statements.

                                       F-3


<PAGE>

<TABLE>
<CAPTION>
                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                        FOR THE YEARS ENDED SEPTEMBER 30,



                                                            1999                   1998
                                                      ---------------       ---------
<S>                                                <C>                     <C>
REVENUE

  Oil and Gas Sales                                    $     23,841        $   47,138
  Equipment Sales                                         200,731           398,970
  Equipment Sales                                          43,825                -
                                                     -------------     ------------
                                                          268,397           446,108
                                                     ------------      ------------
COST OF REVENUE

  Lease Operating                                         166,351           228,632
  Production Taxes                                            518             1,949
  Depreciation, Depletion and Amortization                  5,271             4,394
  Cost of Equipment Sales                                 158,506           290,062
                                                     ------------      ------------
                                                          330,646           525,037
                                                     ------------      ------------
GROSS PROFIT                                              (62,249)          (78,929)
                                                     -------------     ------------

EXPENSES
  General and Administrative                            2,945,875         2,171,255
  Interest Expense                                        232,139           445,633
                                                     -------------     ------------

TOTAL EXPENSES                                          3,178,014         2,616,888
                                                      ------------     ------------

LOSS BEFORE OTHER INCOME AND
 PROVISION FOR INCOME TAXES                            (3,240,263)       (2,695,817)

OTHER INCOME                                               25,593                 -
                                                     -------------     ------------

LOSS BEFORE PROVISION FOR INCOME TAXES                 (3,214,670)       (2,695,817)

PROVISION FOR INCOME TAXES                                      -                 -
                                                     -------------     -------------

NET LOSS                                              $(3,214,670)      $(2,695,817)
                                                       ===========      ===========

BASIC AND DILUTED LOSS PER SHARE                      $    (21.49)           (25.83)
                                                     =============      ============

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING             149,573           104,357
                                                     =============      ============
</TABLE>


                 The Accompanying Notes are an Integral Part of
                    These Consolidated Financial Statements.

                                      F-4


<PAGE>


<TABLE>
<CAPTION>
                                             POWER EXPLORATION, INC. AND SUBSIDIARIES
                                           STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                          FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998




                                                                     Common Stock          Additional
                                                           -----------------------------     Paid-In           Accumulated
                                                     Shares   *     Amount *   Capital *     Deficit              Total
                                                  ------------   ----------- -----------  --------------      ----------
<S>                                               <C>          <C>         <C>             <C>              <C>

Balance - September 30, 1997                         77,215    $   1,544   $  7,362,720     $(1,975,262)     $ 5,389,002

Issuance of Shares for Services                      11,000          220        687,280              -           687,500
Issuance of Shares in Conversion of Note Payable     10,000          200      1,343,181              -         1,343,381
Issuance of Shares in Conversion of Debentures       12,394          248        721,342              -           721,590
Issuance of Warrants                                     -            -         520,355              -           520,355
Net Loss                                                 -            -              -       (2,695,817)      (2,695,817)
                                                  ---------   ----------   ------------     -----------      -----------

Balance - September 30, 1998                        110,609        2,212     10,634,878      (4,671,079)       5,966,011

Issuance of Shares for Conversion of Debenture        6,500          130        430,787              -           430,917
Issuance of Shares in Conversion of Note Payable      5,000          100        500,900              -           501,000
Issuance of Shares for Services                      32,653          653      1,780,050              -         1,780,703
Issuance of Warrants                                     -            -         115,900              -           115,900
Cashless Exercise of Warrants                         3,588           72            (72)             -                 -
Issuance of Shares for Properties                    20,000          400        339,600              -           340,000
Issuance of Shares for Loan Fees                      1,000           20         62,980              -            63,000
Issuance of Shares for Loan Extension                 2,600           52         53,798              -            53,850
Cancellation of Shares Issued for Services           (4,300)         (86)      (268,664)             -          (268,750)
Net Loss                                                 -            -              -       (3,214,670)      (3,214,670)
                                                  ---------   ----------   -------------     -----------      -----------

Balance - September 30, 1999                        177,650    $   3,553   $ 13,650,157     $(7,885,749)     $ 5,767,961
                                                  =========   ===========   ============     ===========      ===========
</TABLE>


* Retroactively restated to reflect 1 for 100 reverse stock split.

                                The Accompanying Notes are an Integral Part of
                                     These Consolidated Financial Statements.


                                                           F-5

<PAGE>

<TABLE>
<CAPTION>

                                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                                           STATEMENT OF CASH FLOWS
                                       FOR THE YEARS ENDED SEPTEMBER 30,



                                                                              1999                  1998
                                                                       ----------------          -------------
<S>                                                                     <C>                      <C>

CASH FLOWS FROM OPERATING ACTIVITIES:
      Net Loss                                                           $(3,214,670)             $(2,695,817)

Adjustments to Reconcile Net Income to Net
 Cash Provided by Operating Activities:
      Interest Expense                                                       120,350                 290,233
      Bad Debt Expense (Recovery)                                             (3,355)                 47,180
      Depreciation, Depletion and Amortization                                52,815                  37,797
      Amortization of Loan Fees                                                6,826                 187,065
      Amortization of Discount on Bonds Payable                                7,692                  72,791
      Write-Down of Inventory                                                      -                 127,380
      Issuance of Shares and Warrants for Services                         1,627,853                 708,205
      (Increase) in Receivables                                              (40,911)                (23,175)
      Decrease (Increase) in Receivable - Related Party                       36,683                (121,253)
      Decrease in Inventory                                                   76,156                  73,312
      Decrease (Increase) in Prepaid Expenses and Other Assets               131,121                  (4,358)
      Increase in Accounts Payable and Accrued Expenses                      821,307                 397,498
      (Decrease) Increase in Customer Deposits                               (80,000)                  2,700
      Increase in Advances Payable                                           142,500                  22,500
                                                                        -------------            ------------
         Net Cash (Used) in Operating Activities                            (315,633)               (877,942)
                                                                        -------------            ------------
CASH FLOWS FROM INVESTING ACTIVITIES
      Sale of Oil and Gas Properties                                               -                 200,000
      Cost of Oil and Gas Properties                                         (85,909)               (348,130)
      Purchase of Property and Equipment                                     (27,276)                      -
                                                                        -------------            ------------
         Net Cash (Used) in Investing Activities                            (113,185)               (203,601)
                                                                        -------------            ------------
CASH FLOWS FROM FINANCING ACTIVITIES
      Proceeds from Borrowings                                               350,000               1,050,000
      Repayment of Borrowings                                               (200,000)               (110,000)
      Proceeds from Sale of Stock                                            150,000                       -
      Net Proceeds From Sale of Debentures                                         -                 176,000
                                                                        -------------            ------------
         Net Cash Provided by Financing Activities                           300,000               1,116,000
                                                                        -------------            ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                   (128,818)                 34,457

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD                              129,901                  95,444
                                                                        -------------             -----------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30,                              $       1,083              $  129,901
                                                                        =============             ===========
CASH PAID DURING THE YEAR FOR:
      Interest Expense                                                 $      12,526              $    4,581
      Income Taxes                                                                 -                       -
</TABLE>




                 The Accompanying Notes are an Integral Part of
                           These Financial Statements.

                                       F-6


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 1 -          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                  Nature of Operations

                  The Company is engaged primarily in the fields of acquisition,
                  development,  exploration for and sale of oil and gas, and the
                  construction and sale of oil and gas extraction equipment.

                  Basis of Consolidation

                  The consolidated financial statements include the accounts  of
                  Power Exploration, Inc. ("Power", formerly Titan Energy Corp.,
                  Inc.) and its 100% owned subsidiaries,  Oil Retrieval Systems,
                  Inc.("ORS"), acquired May 16, 1997 and Oil Seeps, Inc. ("OSI")
                  acquired  June  17,  1997.  Accordingly, all references herein
                  to Power or the  "Company"  include  the consolidated  results
                  of its subsidiaries. All significant intercompany accounts and
                  transactions have been eliminated in consolidation.

                  Cash and Cash Equivalents

                  The Company considers all highly liquid investments  purchased
                  with original  maturities  of three months  or less to be cash
                  equivalents.

                  Inventory

                  Inventory,  consisting  of  parts  and  materials  used in the
                  construction  of oil extraction  equipment,  are stated at the
                  lower of cost or market,  cost being determined by the average
                  cost method.

                  Oil and Gas Properties

                  The Company follows the full cost method of accounting for oil
                  and gas property acquisition,  exploration,  development,  and
                  production.

                  Capitalization Policies: All oil and gas property acquisition,
                  exploration,   and   development   costs  are  capitalized  as
                  incurred.  There were no internal costs directly  attributable
                  to such activities. Net capitalized costs of unproved property
                  and exploration well costs are reclassified as proved property
                  and well costs when related proved  reserves are found.  Costs
                  to operate and maintain wells and field equipment are expensed
                  as incurred.

                  Amortization  Policies:  Except  for cost of (1)  unevaluated,
                  unproved  properties  and (2) major  development  projects  in
                  progress,  all capitalized oil and gas property costs,  net of
                  prior accumulated amortization, are amortized by country using
                  the  unit-of-production  method based on proved reserves.  The
                  amortization  base includes  estimated future costs to develop
                  proved   reserves   and   estimated   future    dismantlement,
                  reclamation,  and abandonment  costs, net of equipment salvage
                  values.

                                       F-7


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998




NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  Impairment   Policies:   Costs   not   being   amortized   are
                  periodically assessed for impairment.  Any impairment is added
                  to the amortization base. Net capitalized costs of oil and gas
                  properties, less related deferred income taxes are limited, by
                  country,  to the sum of (1) future net revenues  (using prices
                  and cost  rates as of the  balance  sheet  date)  from  proved
                  reserves  and  discounted  at ten percent per annum,  plus (2)
                  costs  not  being  amortized,  less  (3)  related  income  tax
                  effects.   Excess   costs  are  charged  to  proved   property
                  impairment expense.

                  Sales and Retirements  Policies: No gain or loss is recognized
                  on the sale of oil and gas  properties  unless  nonrecognition
                  would significantly alter the relationship between capitalized
                  costs  and   remaining   proved   reserves  for  the  affected
                  amortization  base. When gain or loss is not  recognized,  the
                  amortization base is reduced by the amount of sales proceeds.

                  Revenue Recognition

                  Revenues  from  the  sale  of  oil  and  gas   production  are
                  recognized  when title passes,  net of royalties.  Natural gas
                  revenues  are  generally  recognized  under  the  entitlements
                  method of accounting for gas imbalances,  i.e.,  monthly sales
                  quantities  that do not match the Company's  entitled share of
                  joint  production.  Entitled  quantities  in  excess  of sales
                  quantities  are  recorded as a receivable  from joint  venture
                  partners.  The  receivable  is carried at the lower of current
                  market  price or the  market  price at the time the  imbalance
                  occurred.  Sales  quantities in excess of entitled  quantities
                  are  recorded  as deferred  revenue  carried at the gas market
                  price received at the time the imbalance occurred.

                  Hedging

                  The Company may enter into  derivative  contracts to hedge the
                  risk of future oil and gas price fluctuations.  Such contracts
                  may  either  fix or  support  oil or gas  prices  or limit the
                  impact of price  fluctuations  with  respect to the  Company's
                  sales  of oil and  gas.  Gains  and  losses  on  such  hedging
                  activities  are  recognized  in oil and gas revenues  when the
                  hedged  production is sold.  Hedged oil and gas prices used in
                  computing  the  year-end  standardized  measure of  discounted
                  future net cash flows  relating to proved oil and gas reserves
                  reflect the estimated effects of hedging contracts existing at
                  year end.

                                       F-8


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  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
                  amount 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  date.   Actual  results  could  differ  from  those
                  estimates.

                  Depreciation and Amortization

                  Property and equipment are stated at cost and are  depreciated
                  using the  straight-line  method over their  estimated  useful
                  lives.

                  The costs of  maintenance  and  repairs are charged to expense
                  when  incurred;   costs  of  renewals  and   betterments   are
                  capitalized.  Upon the sales or  retirement  of  property  and
                  equipment,  the cost and related accumulated  depreciation are
                  eliminated from the respective accounts and the resulting gain
                  or loss is included in operations.

                  Estimated useful lives are as follows:

                  Shop Equipment                                  5 years
                  Furniture and Office Equipment                  5 years
                  Machinery                                       5 - 7 years

                  Fair Value of Financial Instruments

                  The Company's financial  instruments consist of cash, accounts
                  receivable, accounts payable and short-term debt. The carrying
                  amounts of cash,  accounts  receivable,  accounts  payable and
                  short-term debt  approximate  fair value due to the relatively
                  short maturity of these instruments.

                  Long-Lived Assets

                  Long-lived  assets  to be  held  and  used  are  reviewed  for
                  impairment   whenever  events  or  changes  in   circumstances
                  indicate  that  the  related   carrying   amount  may  not  be
                  recoverable.  When required, impairment losses on assets to be
                  held and used are  recognized  based on the fair  value of the
                  assets and long-lived assets to be disposed of are reported at
                  the lower of carrying amount of fair value less cost to sell.

                                      F-9


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998


NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  Income Taxes

                  Provisions  for  income  taxes are based on taxes  payable  or
                  refundable   for  the  current  year  and  deferred  taxes  on
                  temporary differences between the amount of taxable income and
                  pretax  financial  income and  between the tax bases of assets
                  and  liabilities  and their reported  amounts in the financial
                  statements.  Deferred tax assets and  liabilities are included
                  in the financial  statements at currently  enacted  income tax
                  rates  applicable  to the  period  in which the  deferred  tax
                  assets and  liabilities are expected to be realized or settled
                  as prescribed in FASB Statement No. 109, Accounting for Income
                  Taxes.  As changes in tax laws or rates are enacted,  deferred
                  tax assets and liabilities are adjusted  through the provision
                  for income taxes.

                  Concentration of Credit Risk

                  The  Company  places  its  cash  in  what  it  believes  to be
                  credit-worthy financial  institutions.  However, cash balances
                  may exceed FDIC  insured  levels at various  times  during the
                  year.

                  Stock-Based Compensation

                  The  Company  has  adopted  the  intrinsic   value  method  of
                  accounting for  stock-based  compensation  in accordance  with
                  Accounting   Principles   Board   Opinion   ("APB")   No.  25,
                  "Accounting   for  Stock  Issued  to  Employees"  and  related
                  interpretations.

                  Comprehensive Income

                  In June 1997, SFAS No. 130, "Reporting  Comprehensive Income",
                  was  issued.  This  statement  establishes  standards  for the
                  reporting  and  display  of   comprehensive   income  and  its
                  components  in the financial  statements.  As of September 30,
                  1999 and 1998, the Company had no items that  represent  other
                  comprehensive  income  and,  therefore,  has  not  included  a
                  schedule of comprehensive income in the financial statements.

                  Per Share of Common Stock

                  Per share  amounts  have been  computed  based on the  average
                  number of common shares outstanding during the period.

                  In February 1997,  the Financial  Accounting  Standards  Board
                  issued a new statement  titled  "Earnings Per Share" (SFAS No.
                  128).  This statement is effective for both interim and annual
                  periods  ending  after  December  15, 1997 and  specifies  the
                  computation,  presentation,  and disclosure  requirements  for
                  earnings  per share for  entities  with  publicly  held common
                  stock or potential  common stock.  All  prior-period  EPS data
                  presented has been restated to conform with the provisions for
                  SFAS No. 128.

                  Potential  common stock has been excluded from the computation
                  of  earnings  per share  since the  inclusion  of options  and
                  warrants would be antidilutive.

                                      F-10

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998


NOTE 1 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

                  All  share  and  per  share   data  have  been   adjusted   to
                  retroactively  reflect  the  1 for  100  reverse  stock  split
                  effected on October 19, 1999.

                  Impact of Recently Issued Accounting Standards

                  During  1998,  the FASB  issued  No.  131,  "Disclosure  About
                  Segments  of an  Enterprise  and Related  Information",  which
                  changes  the way public  companies  report  information  about
                  segments. SFAS No. 131, which is based on the selected segment
                  information   quarterly  and  entity-wide   disclosures  about
                  products  and  services,  major  customers  and  the  material
                  countries  in  which  the  entity  holds  assets  and  reports
                  revenue.  This statement is effective for the Company's fiscal
                  year.  The  Company  is  in  the  process  of  evaluating  the
                  disclosure requirements under this standard.

                  Additionally,  during 1998, the America Institute of Certified
                  Accountants'  Executive Committee issued Statement of Position
                  Number 98-1 (SOP 98-1),  "Accounting  for the Cost of Computer
                  Software  Developed or Obtained for Internal Use". SOP 98-1 is
                  effective for fiscal years  beginning after December 15, 1998.
                  Management  believes  that the  Company  is  substantially  in
                  compliance    with   this    pronouncement    and   that   its
                  complementation  will  not  have  a  material  effect  on  the
                  Company's  financial  position,  results of operations or cash
                  flows.

NOTE 2 -     INVENTORY

                Inventory at September 30, consists of the following:

                                                      1999               1998
                                                 --------------      ---------
                Raw Material                     $  220,069         $  225,604
                Work in Process                     103,417            126,858
                                                -----------        -----------
                                                 $  323,486         $  352,462
                                                 ==========         ==========
NOTE 3 -        PROPERTY AND EQUIPMENT

                Property and equipment at September 30 consist of the following:

                                                         1999             1998
                                                   -------------    ------------
                Shop Equipment                       $   30,852      $   30,852
                Furniture and Office Equipment           24,068          22,887
                Machinery    269,167                    243,072
                          ----------                 ----------
                                                        324,087         296,811
                Less Accumulated Depreciation            93,581          46,037
                                                     ----------      ----------
                Property and Equipment - Net          $ 230,506       $ 250,774
                                                      =========       =========

                Depreciation Expense Recorded in

                 the Statement of Operations         $   47,544      $   33,403
                                                     ==========      ==========

                                      F-11


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 4 -     OIL AND GAS PROPERTIES NOT SUBJECT TO AMORTIZATION

                The Company's oil and gas  properties  are located in the United
                States and Australia.  Amortization  expense was $2.41 and $1.07
                per Bbl production during the years ended September 30, 1999 and
                1998, respectively.

                The  $1,312,505  cost of  unproved  oil and gas  leases  held at
                September 30, 1998 has been  excluded in computing  amortization
                of the full cost pool.

                Costs  excluded  from  amortization  consist of the following at
                September 30:

                                                    1999                1998
                                                -------------        -----------
                Acquisition Costs             $            -        $ 1,200,000
                Exploration Costs                          -            112,505
                                               --------------        -----------
                                              $            -        $ 1,312,505
                                               ==============        ===========

                All  excluded  costs  at  September  30,  1998  are  located  in
                Australia.

                At September 30, 1998, a  determination  could not be made about
                the extent of oil reserves  that should be  classified as proved
                reserves  for  this  prospect.   Consequently,   the  associated
                property  costs and  exploration  costs  have been  excluded  in
                computing  amortization  of the full cost pool.  Amortization of
                these costs began during fiscal 1999.

NOTE 5 -     PARTICIPATION AGREEMENT

                The Company had entered  into a  participation  agreement in the
                development  of the  Revilo  Glorieta  Unit  situated  in Scurry
                County, Texas. Under this agreement, the Company received an 18%
                net revenue  interest in the  property,  with no  liability  for
                expenses except as described  below. The agreement was effective
                January 15, 1997 and was  terminated  by the Company  during the
                year ended September 30, 1998.

                The  agreement  called  for the  Company  to  furnish  three oil
                retrieval  systems to  facilitate  production on the property in
                order to earn its 18% net revenue interest.  The Company bore no
                expense  in  the  operation  of the  units,  except  to  provide
                maintenance expense on the equipment.

                                      F-12

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 6 -     NOTES PAYABLE
<TABLE>
<CAPTION>

                Notes payable at September 30 consist of the following:

                                                                     1999             1998
                                                               ---------------  ----------
                <S>                                             <C>               <C>

                a) Note Payable - Trident III, LLC               $   250,000$              -
                b) Note Payable - Business Exchange
                   Investments, Inc.                                 250,000          250,000
                c) Note Payable - Related Party                      101,313               -
                d) Note Payable - Related Party                           -            50,000
                e) Note Payable - Bank of Commerce                        -           100,000
                f) Note Payable - Dallas Cady Family, LLP                 -            50,000
                g)Note Payable - Benchmark Equity Group, Inc.             -           500,000
                                                              --------------    -------------
                                                                 $   601,313     $    950,000
                                                                 ===========     ============
</TABLE>

          a)   The Company is indebted to Trident III,  L.L.C.  under terms of a
               promissory note dated October 21, 1998 in the amount of $250,000.
               Terms  of the  note  provide  for  interest  at a rate of 10% per
               annum,  with an original  maturity  date of April 20,  1999.  The
               Company  issued  1,000 shares of its common stock to Trident III,
               L.L.C.  in connection  with this loan. The loan has been extended
               at various  times  with a current  maturity  date of October  30,
               1999.  The Company  issued a total of 2,600  shares of its common
               stock in  consideration  of these  extensions.  When the note was
               extended to September  30, 1999,  the Company  agreed that if the
               note was not paid on or before  September 30, 1999,  then it will
               issue  50,000  shares  per day for  each  day  that  the  note is
               outstanding subsequent to September 30, 1999. Concurrent with the
               extension  to October  30, 1999 the  provision  was added that if
               payment of  outstanding  principal  and interest was made by that
               date,  the lender would not seek to receive the 50,000 shares per
               day due under the previous extension.  If payment was not made on
               or before  October 30,  then the full 50,000  shares per day from
               October 1, 1999 would be due. This note remains  outstanding;  no
               payments were made on or before October 30, 1999.

               The  note is  secured  by all of the fixed,  real,  tangible  and
               intangible assets of the Company.

          b)   The Company is indebted to  Business  Exchange  Investment,  Inc.
               under terms of a promissory note dated September 15, 1998.  Terms
               of the note  provide for interest at a rate of 10% per annum with
               an  extended  maturity  date  of  March  15,  2000.  The  note is
               collateralized by 100% of the shares of OSI (see Note 1).

          c)   The Company is indebted to the M.O. Rife III, Trust A under terms
               of a  promissory  note  dated  March  31,  1999 in the  amount of
               $101,313.  Terms of the note  provide  for  interest at a rate of
               8.75% per annum and the note is due upon demand.

                                      F-13


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 6 -     NOTES PAYABLE (continued)

          d)   The  Company  was  indebted  to M.O.  Rife IV  under  terms  of a
               promissory note dated April 7, 1998 in the amount of $50,000. Mr.
               Rife is the son of a principal stockholder of the Company.  Terms
               of the Note provide for interest at a rate of 12% per annum, with
               an  original  maturity  date of  October  6,  1998.  The note was
               extended and repaid in 1999.

          e)   The Company was indebted to the Bank of Commerce under terms of a
               promissory  note dated July 29,  1998 in the amount of  $100,000.
               Terms  of the note  provide  for  interest  at a rate of 9.5% per
               annum,  with an original  maturity  date of August 27, 1998.  The
               note has been  verbally  extended and was paid in full on October
               22, 1998. The note had been guaranteed by a principal stockholder
               of the Company.

          f)   The Company was  indebted to Dallas Cady Family , LLP under terms
               of a promissory  note dated  September  15, 1998 in the amount of
               $50,000. Terms of the note provide for interest to be paid in the
               form of 800 common stock purchase warrants with an exercise price
               of $1.00 per share. The warrants have been valued at $44,160. The
               maturity of the note was January 15, 1999.

          g)   The Company was indebted to Benchmark  Equity Group,  Inc.  under
               terms of a line of credit  promissory  note  dated May 7, 1998 in
               the amount of $500,000. Outstanding advances bear interest at 12%
               per annum  commencing  July 1, 1998. The maturity date is October
               7, 1998. At September 30, 1998,  $500,000 was  outstanding  under
               the note.  The note is payable  in shares of common  stock of the
               Company at a price of $1.00 of debt per share.  The note was paid
               through the issuance of 5,000 common shares on October 7, 1998.

NOTE 7 -     DEBENTURES PAYABLE

          a)   During July and August 1997,  the Company sold  $1,250,000 of 12%
               Convertible  Debentures,  in accordance  with Regulation D of the
               Securities Act of 1933, for net proceeds of $870,000.

               The  debentures  bore  interest at 12% per annum and were due and
               payable on  July 31, 1998, if not converted earlier. Interest was
               payable quarterly.

               The principal  amount of  the  debentures is  convertible  at the
               holders  option  anytime  28 days  after  the  closing  date into
               shares of the Company's  common stock  at a conversion  price for
               each share of Company common stock  equal to the lower of (a) 80%
               of the  closing bid price of  the common  stock for the  business
               day immediately preceding the  date of receipt by the Company and
               notice of  conversion  or (b) 80%  of the  average of the closing
               bid   price  of  the  common  stock  for  the  5  business   days
               immediately preceding the closing date.

                                      F-14


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 7 -     DEBENTURES PAYABLE (continued)

                Costs of $130,000  incurred in  connection  with the issuance of
                these  debentures  have  been  amortized  over  the  life of the
                debentures. Unamortized issuance costs are charged to additional
                paid-in capital as debentures are converted into common stock.

                As  of  September  30,  1997,   $467,000   principal  amount  of
                debentures had been converted into 4,347 shares of common stock.

                During the year ended September 30, 1998, the remaining $783,000
                principal  amount of debentures was converted into 12,394 shares
                of common stock.

                Accrued  interest  of  $38,607  has been  included  in the above
conversions.

          b)   On October 22, 1997, the Company sold $250,000 of 12% Convertible
               Debentures in accordance  with Regulation D of the Securities Act
               of 1933,  for net  proceeds  of  $176,000.  Conversion  terms are
               similar to those of the  debentures  described in (a) above.

               The Company and the buyer of the debenture  were in  disagreement
               concerning  the validity of the  debenture.  On October 29, 1998,
               the parties reached an agreement. The agreement provided that the
               buyer  would  remit  an  additional  amount  of  $150,000  to the
               Company.  The Company then issued 6,500 shares of common stock to
               convert the total advances of $400,000,  plus accrued interest of
               $30,917,  into equity.  This  conversion  occurred on October 30,
               1998.

NOTE 8 -     WARRANTS

                At September  30,  1999,  the Company had the  following  common
                stock purchase warrants outstanding:

         a)     1,000  warrants,  each of which entitles the  registered  holder
                thereof to purchase one share of Common  Stock,  exercisable  at
                any time on or before  August 31, 2002 at an  exercise  price of
                $2.50   per   share   (subject   to   customary    anti-dilution
                adjustments).  The exercise  price  exceeded the market price of
                the  underlying  common  stock  on the  date  of  issuance.  The
                warrants  were issued in  connection  with the  placement of the
                debt described in Note 7(a).

         b)     800  warrants,  each of which  entitles  the  registered  holder
                thereof to purchase one share of Common  Stock,  exercisable  at
                any time on or before  August 31, 2003 at an  exercise  price of
                $1.00   per   share   (subject   to   customary    anti-dilution
                adjustments).  The warrants were issued in  connection  with the
                debt described in Note 6(d) and have been valued at $44,160.

                                      F-15


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998


NOTE 8 -     WARRANTS (continued)

         c)     750  warrants,  each of which  entitles  the  registered  holder
                thereof to purchase one share of Common  Stock,  exercisable  at
                any time on or before  August 20, 2003 at an  exercise  price of
                $2.50   per   share   (subject   to   customary    anti-dilution
                adjustments).  The warrants  were issued as a fee in  connection
                with the debt  described  in Note 6(e) and have  been  valued at
                $103,575.

         d)     200  warrants,  each of which  entitles  the  registered  holder
                thereof to purchase one share of Common  Stock,  exercisable  at
                any time on or before June 1, 2003 at an exercise price of $2.50
                per share (subject to customary anti-dilution adjustments).  The
                warrants  were issued as payment for a consulting  agreement and
                have been valued at $27,620.

                The warrants  issued do not confer upon the holders  thereof any
                voting or other rights of a stockholder of the Company.

                The  warrants  described  in items  (b)  through  (d)  above are
                subject  to  a  "cashless   exercise"  provision  (the  "warrant
                exchange").

                In connection with any Warrant  Exchange,  the Holder's  Warrant
                certificate  shall  represent  the  right  to  subscribe  for an
                acquire  (I) the number of Warrant  Shares  (rounded to the next
                highest  integer)  equal to (A) the  number  of  Warrant  Shares
                specified  by the Holder in its Notice of  Exchange  (the "Total
                Share  Number")  less (B) the number of Warrant  Shares equal to
                the  quotient  obtained by dividing (i) the product of the Total
                Share  Number and the existing  Exercise  Price (as defined) per
                Share by (ii) the Market Price (as defined) of a share of Common
                Stock.

                During the year ended  September  30, 1999,  the Company  issued
                3,588 shares of its common stock in a cashless exercise of 7,250
                warrants.

NOTE 9 -     INCOME TAXES

                The components of the provision for income taxes is as follows:

                                                            September 31,
                                                  -----------------------
                                                      1999                 1998
                                                  -----------          --------
                   Current Tax Expense

                       U.S. Federal              $      -           $      -
                       State and Local                  -                  -
                                                 ------------         ----------
                   Total Current                        -                  -
                                                 ------------         ----------




                                      F-16


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998


NOTE 9 -        INCOME TAXES (continued)
                                                             September 31,
                                                        -----------------------
                                                       1999                 1998
                                                   -----------          --------
                   Deferred Tax Expense

                       U.S. Federal                         -                  -
                       State and Local                      -                  -
                                                  ------------        ----------
                   Total Deferred                           -                  -
                                                  ------------        ----------
                   Total Tax Provision from
                        Continuing Operations     $         -         $        -
                                                  ============        ==========

                The  reconciliation  of the  effective  income  tax  rate to the
                Federal statutory rate is as follows:

                                                    1999                 1998
                                                ------------          -------
                Federal Income Tax Rate            (   34.0)%       (   34.0)%
                Deferred Tax Charge (Credit)             -                -
                Effect of Valuation Allowance          34.0%            34.0%
                State Income Tax, Net of
                   Federal Benefit                       -                 -
                                                ------------      -----------

                Effective Income Tax Rate               0.0%             0.0%
                                                 ==========        =========

                At September 30, 1999, the Company had net  carryforward  losses
                of approximately  $6,568,000. A valuation allowance equal to the
                tax benefit for deferred taxes has been  established  due to the
                uncertainty of realizing the benefit of the tax carryforward.

                Deferred tax assets and  liabilities  reflect the net tax effect
                of temporary  differences  between the carrying amount of assets
                and  liabilities  for financial  reporting  purposes and amounts
                used for  income tax  purposes.  Significant  components  of the
                Company's  deferred tax assets and  liabilities  at September 30
                are as follows:
<TABLE>
<CAPTION>
                                                                        September 30,
                                                              ---------------------------
                                                                    1999               1998
                                                              ---------------    ----------
                <S>                                        <C>                  <C>
                Deferred Tax Assets (Liabilities):
                Loss Carryforwards                               $ 2,233,000       $ 1,118,000
                Consulting Fees                                       97,000           110,000
                Exploration Costs                               (     23,000)     (     28,000)
                Depreciation                                    (     29,000)     (     19,000)
                Less:  Valuation Allowance                        (2,278,000)       (1,181,000)
                                                                 -----------       -----------
                Net Deferred Tax Assets (Liabilities)          $          -     $           -
                                                               ==============     =============
</TABLE>

                Net operating  loss  carryforwards  expire in 2000 through 2019.
                Per year  availability  of losses  incurred  prior to October 1,
                1997 of approximately $324,000 is subject to change of ownership
                limitations under Internal Revenue Code Section 382.

                                      F-17

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 9 -        INCOME TAXES (continued)

                Expiration  dates of net  operating  loss  carryforwards  are as
                follows:

                September 30,
                                   2000                             72,000
                                   2001                             89,000
                                   2002                              8,000
                                   2003                             18,000
                                   2005                              5,000
                                   2007                             65,000
                                   2009                             16,000
                                   2010                              3,000
                                   2011                             28,000
                                   2012                            303,000
                                   2018                          2,329,000
                                   2019                          3,632,000
                                                                -----------
                                                               $ 6,568,000

NOTE 10 -       RELATED PARTY TRANSACTIONS

                During the year ended September 30, 1999:

          a)   The Company  issued a  promissory  note to M.O.  Rife III Trust A
               (the  "Rife  Trust"),  which is a  principal  stockholder  in the
               amount of $101,313. The proceeds of the note were used to repay a
               loan  to the  Company  from  the  Bank  of  Commerce,  which  the
               stockholder had guaranteed.

          b)   The  Company  was   advanced  a  net  of  $140,000  by  Rife  Oil
               Properties,  Inc., a company owned by the beneficiary to the Rife
               Trust.

          c)   The  Company   incurred  a  net  accounts  payable  to  Rife  Oil
               Properties, Inc. of $389,154.

          d)   The  Company  is  owned  an  aggregate  of  $84,570  in  accounts
               receivable by Rife Oil Properties, Inc.

          e)   The Company  leased its office space from the Rife Trust,  with a
               monthly rental of $3,325

               During the year ended September 30, 1998:

          f)   The Company  issued a  promissory  note to the son of a principal
               stockholder in the amount of $50,000. (See Note 6(d)).

                                      F-18

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 10 -       RELATED PARTY TRANSACTIONS (continued)

          g)   A  principal   stockholder   guaranteed   the  Bank  of  Commerce
               promissory note in the amount of $100,000. (See Note 6(e)).

          h)   The  Company  issued a  promissory  note to a  Trust,  one of the
               beneficiaries  of  which is an  officer  of the  Company,  in the
               amount of $100,000. This note has been repaid as of September 30,
               1998. 1,000 Common Stock purchase warrants were issued as payment
               of interest on the note.

          i)   The  Company   occupies   space  in  facilities   leased  by  the
               stockholder  mentioned  above.  The  Company  pays  rent  to  the
               stockholder  in the  amount of  $2,000  per  month.  The space is
               rented on a monthly basis.

          j)   The  stockholder  mentioned  above pledged 5,000 shares of common
               stock  of the  Company  as  collateral  for  the  Benchmark  note
               described in Note 6(g).

               Where  possible, the Company prefers to have Rife Oil Properties,
               Inc.  act as operator of the oil and natural gas   properties and
               prospects in which it owns an interest.

               M.O. Rife  III, the  Company's  Chairman,  owns 100% of  Rife Oil
               Properties, Inc. and is the Trustee and beneficiary of M.O.R. III
               Trust A is one of the Company's major stockholders.

NOTE 11 -       CONSULTING AGREEMENTS

                The Company  has  entered  into  various  cancelable  consulting
                agreements  with  third  parties.   Compensation   for  services
                provided  under these  agreements has been paid in either Common
                Shares or Common Share Purchase Warrants of the Company.  During
                the year ended  September  30, 1999,  the Company  issued 30,000
                shares of Common Stock,  valued at $1,657,000,  and 1,000 Common
                Share Purchase Warrants, valued at $115,900.

                During the year ended  September  30, 1998,  the Company  issued
                11,000  shares of Common  Stock,  valued at  $687,500  and 1,200
                common share purchase warrants,  valued at 82,820, in payment of
                consulting agreements.

NOTE 12 -       COMMITMENTS AND CONTINGENCIES

         a)     The Company has entered  into various  non-cancelable  operating
                lease agreements for office and warehouse space and equipment.

               1)   Warehouse facilities located in Fort Worth, Texas. The lease
                    term expires on September 30, 2001. - 18 -


                                      F-19


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 12 -       COMMITMENTS AND CONTINGENCIES (continued)

               2)   Various office  equipment  leases  expiring at various times
                    through March 2004.

                    Future  minimum lease  payments  under the lease  agreements
                    for each of the years ended September 30 are as follows:

                2000                                         $  109,319
                2001                                             77,790
                2002                                             11,639
                2003                                              8,731
                2004                                              2,368
                                                             ----------
                Total minimum lease payments                 $  209,847
                                                             ==========

                Rent expense  included in the financial  statements for the year
                ended September 30, 1998 totaled $158,800.

          b)   The Company has pledged 100% of the shares of Oil Seeps,  Inc., a
               wholly owned subsidiary,  as collateral for a $250,000 promissory
               note due on March 15, 2000. (See Note 6(b)).

          c)   The  Company has pledged  all of its fixed,  real,  tangible  and
               intangible  assets as collateral for a $250,000  promissory  note
               due on October 30, 1999. (See Note 6(a)).

          d)   A claim had been  filed  against  ORS by a former  employee.  The
               employee  had  demanded  $75,000 in exchange for a full and final
               release. The claim has been settled for $20,000 through mediation
               in December 1998.  The settlement  amount has been accrued in the
               financial statements. The settlement amount has not been paid and
               a suit is pending for breach of contract.

          e)   A suit has been filed  against  the  Company  alleging  breach of
               contract  and seeking  damages of  approximately  $120,000.  This
               relates  to  an  alleged   agreement  to   repurchase   equipment
               previously sold by the Company.  This amount has been recorded in
               the financial statements as of September 30, 1999 and 1998.

NOTE 13 -       SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES

                During the year ended September 30, 1999:

          a)   The Company  issued 6,500 shares of common stock in conversion of
               a  debenture  in  the  amount  of  $280,917,   including  accrued
               interest, plus an additional $150,000.


                                      F-20


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998




NOTE 13 -       SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES
                (continued)

          b)   The Company  issued 5,000 shares of common stock in  satisfaction
               of a note in the amount of $501,000, including accrued interest.

          c)   The Company  issued an aggregate of 32,653 shares of common stock
               for  various  consulting,  legal and public  relations  services.
               These shares have been valued at $1,780,703.

          d)   The Company  issued  warrants to purchase  1,000 shares of common
               stock for consulting services. These warrants have been valued at
               $115,900.

          e)   The Company  issued  3,588  shares of common  stock in a cashless
               exercise of warrants.

          f)   The  Company  issued  20,000  shares of common  stock to  acquire
               various oil and gas properties.  These shares have been valued at
               $340,000.

          g)   The Company  issued 1,000  shares of common  stock in  connection
               with the  issuance of a promissory  note.  These shares have been
               valued at $63,000.

          h)   The Company  issued 2,600  shares of common  stock in  connection
               with the  extension of the due date of a promissory  note.  These
               shares have been valued at $53,850.

          i)   The Company cancelled 4,300 shares of common stock which had been
               issued for  consulting  services in the year ended  September 30,
               1998. These shares have been valued at $268,750.

                During the year ended September 30, 1998:

          j)   A note payable plus accrued  interest was  satisfied  through the
               issuance of 10,000 shares of common stock. Principal and interest
               converted totaled $1,343,381.

          k)   Common stock  totaling  12,394 shares was issued on conversion of
               $783,000 of debentures, plus accrued interest.

          l)   Common  stock   warrants   valued  at  $382,335  were  issued  in
               connection with the placement of various debt agreements.

          m)   Common stock warrants valued at $82,820 were issued in connection
               with various consulting agreements.

                                      F-21


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998


NOTE 13 -       SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES
                (continued)

          n)   Common stock warrants valued at $55,200 were issued as payment of
               interest on a note.

          o)   Common stock  totaling  1,100,000  shares  valued at $687,500 was
               issued as payment for services.

NOTE 14 -    GOING CONCERN

                The  accompanying  consolidated  financial  statements have been
                prepared  assuming the company will continue as a going concern.
                As of  September  30,  1999,  the Company has a working  capital
                deficit of $1,593,001 and an accumulated  deficit of $7,885,749.
                Based  upon  the  Company's  plan  of  operation,   the  Company
                estimates that existing resources, together with funds generated
                from  operations  will not be  sufficient  to fund the Company's
                working  capital.  The  Company is actively  seeking  additional
                equity  financing.  There can be no assurances  that  sufficient
                financing  will be available on terms  acceptable to the Company
                or at all. If the  Company is unable to obtain  such  financing,
                the Company will be forced to scale back operations  which would
                have an adverse effect on the Company's  financial condition and
                results of operation.

NOTE 15 -    SUBSEQUENT EVENTS

               Subsequent to September 30, 1999, the Company

          a)   Effected,  on October 19,  1999 a 1 for 100 reverse  split of its
               common stock.

          b)   Consummated  an  agreement  with  Rife Oil  Properties,  Inc.  to
               acquire  certain oil  properties and leases from Rife in exchange
               for  8,000,000  post reverse  split shares of common stock and to
               retire  certain  debt  owed  to  Rife  aggregating  approximately
               $950,000 in exchange for  1,000,000  shares of post reverse split
               common stock.

          c)   Entered  into two  advisory  agreements  covering  financial  and
               investment  services  to be  provided  to the  Company  on a best
               efforts basis. The agreements provide for the Company to issue an
               aggregate of 1,500,000  shares of post reverse split common stock
               plus options to purchase an aggregate of 1,500,000 shares of post
               reverse  split common stock at an exercise  price of $0.66667 per
               share for a period of one year, the term of the agreements.

          d)   Entered  into an  agreement  to repay the note payable to Trident
               III,  LLC (see Note  6(a)),  plus  accrued  interest  of $29,861,
               through the  issuance  of 279,861  shares of post  reverse  split
               common stock.

          e)   Entered into a consulting  agreement.  Services would be paid for
               through the  issuance  of 500,000  shares of post  reverse  split
               common stock.

                                      F-22


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 16 -       SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS
                (UNAUDITED)
<TABLE>
<CAPTION>

                The following  supplemental  unaudited information regarding the
                Company's oil and gas  activities  is presented  pursuant to the
                disclosure  requirements  of Statement  of Financial  Accounting
                Standards No. 69.

                                                                                            September 30,
                                                                                       1998                  1997
                                                                                  ----------------      ---------
<S>                                                                             <C>                 <C>

                   Capitalized Costs Relating to Oil and Gas
                   Producing Activities at September 30,
                   Unproved Oil and Gas Properties                             $                -       $ 1,312,505
                   Proved Oil and Gas Properties                                        7,134,910         5,396,496
                                                                                      -----------       -----------
                                                                                        7,134,910        6,709,001
                   Less: Accumulated Amortization and Impairment                          (10,491)          (5,220)
                                                                                   --------------   ---------------
                       Net Capitalized Costs                                          $ 7,124,419       $ 6,703,781
                                                                                      ===========       ===========

                   Costs Incurred in Oil and Gas Producing Activities
                    for the Years Ending September 30,
                       Property Acquisition Costs:
                          Proved                                                      $   450,993      $    235,625
                          Exploration Costs                                                 3,293           112,505
                                                                                   --------------     -------------
                                                                                      $   454,286         $ 348,130
                                                                                      ===========         =========
                   Results of Operations for Oil and Gas Producing
                    Activities for the Years Ended September 30,
                       Oil and Gas Sales                                             $     23,841     $      47,138
                       Production (Lifting) Costs                                        (166,869)         (230,581)
                       Amortization Expenses                                               (5,271)           (4,394)
                                                                                   --------------    --------------
                                                                                         (148,299)         (187,837)
                   Income Tax Expense                                                           -                 -
                                                                               ------------------------------------
                       Results of Operations for Oil and Gas Producing
                        Activities (excluding corporate overhead and
                        financing costs)                                              $  (148,299)      $  (187,837)
                                                                                      ===========       ===========
</TABLE>











                                      F-23


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998


NOTE 16 -          SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS
                   (UNAUDITED) (continued)

                   Reserve  Information  and  Related  Standardized  Measure  of
                   Discounted Future Net Cash Flows

                   The following  supplemental  unaudited presentation of proved
                   and  proved   developed   reserve   quantities   and  related
                   standardized  measure  of  discounted  future  net cash  flow
                   provides  estimates  only  and does not  purport  to  reflect
                   realizable  values or fair  market  values  of the  Company's
                   reserves.  Volumes  reported for proved reserves are based on
                   reasonable  estimates.  These  estimates are consistent  with
                   current  knowledge  of  the  characteristics  and  production
                   history of the reserves.  The Company emphasizes that reserve
                   estimates are inherently  imprecise and that estimates of new
                   discoveries  are more  imprecise  than those of producing oil
                   and gas properties. Accordingly, significant changes to these
                   estimates   are  expected  as  future   information   becomes
                   available.  All of the Company's  reserves are located in the
                   United States.

                   Proved  reserves  are those  estimated  reserves of crude oil
                   (including  condensate  and natural gas  liquids) and natural
                   gas that geological and  engineering  data  demonstrate  with
                   reasonable  certainly to be  recoverable in future years from
                   known  reservoirs  under  existing   economic  and  operating
                   conditions.  Proved developed  reserves are those expected to
                   be recovered through existing wells, equipment, and operating
                   methods.

                   The standardized  measure of discounted future net cash flows
                   is computed by applying  year-end prices of oil and gas (with
                   consideration of price changes only to the extent provided by
                   contractual  arrangements) to the estimated future production
                   of  proved  oil  and  gas  reserves,  less  estimated  future
                   expenditures  (based on  year-end  costs) to be  incurred  in
                   developing and producing the proved reserves,  less estimated
                   related  future  income  tax  expenses   (based  on  year-end
                   statutory tax rates,  with  consideration of future tax rates
                   already  legislated),  and assuming  continuation of existing
                   economic  conditions.  Future income tax expenses give effect
                   to permanent  differences  and tax credits but do not reflect
                   the  impact  of  continuing   operations  including  property
                   acquisitions and exploration. The estimated future cash flows
                   are then  discounted  using a rate of ten  percent  a year to
                   reflect the estimated timing of the future cash flows.
<TABLE>
<CAPTION>
                                                                        Oil                 Oil
                                                                   (   mbbls  )        (   mbbls   )
                                                                   -----------        ------------
                   <S>                                            <C>                  <C>

                   Proved Developed and Undeveloped Reserves:           1999                1998
                                                                    -----------           --------
                       Beginning of Year                              21,744.5            22,528.5
                       Purchases of Minerals in Place                      -                   -
                       Revisions of Previous Estimates                (3,305.0)             (779.9)
                       Production                                         (2.2)              (4.1)
                                                                   ------------           ----------
                       End of Year                                    18,437.3            21,744.5
                                                                    ==========           ==========
                   Proved Developed Reserves:
                       End of Year                                     1,725.5             3,785.0
                                                                    ===========          ===========

                                    F-24
</TABLE>


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 1999 AND 1998



NOTE 16 -          SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS
                   (UNAUDITED) (continued)
<TABLE>
<CAPTION>

                   Standardized Measure of Discounted Future
                    Net Cash Flows at September 30,:
                  <S>                                                            <C>                 <C>

                       Future Cash Inflows                                        $ 433,276,000        $ 315,295,000
                       Future Production Costs                                     (135,355,000)        (171,519,000)
                       Future Development Costs                                   (  37,515,000)       (  18,135,000)
                       Future Income Tax Expenses                                  (104,162,000)       (  49,693,000)
                                                                                  -------------       --------------
                       Future Net Cash Flows                                        156,244,000           75,948,000
                       10% Annual Discount for Estimated Timing
                        of Cash Flows                                               108,146,000           37,063,000
                                                                                  -------------       --------------
                       Standardized Measure of Discounted Future
                        Net Cash Flows Relating to Proved Oil and

                        Gas Reserves                                              $  48,098,000        $  38,885,000
                                                                                  =============        =============

                   The  following  reconciles  the  change  in the  standardized
                   measure of  discounted  future  net cash  flows  from  proved
                   reserves during the years ended September 30,:

                                                                                     1999                   1998
                                                                                 ----------------        ---------

                   Beginning of Year                                               $ 38,885,005        $  63,735,243
                       Revenue from oil and gas production, net
                         of production costs                                             23,841              187,837
                       Net changes in prices and production and
                         development costs                                           92,247,186          (36,097,791)
                       Revisions of previous quantity estimates                     (23,744,147)          (2,395,456)
                       Purchases of minerals in place                                        -                     -
                       Discount                                                     (48,438,417)                   -
                       Net change in income taxes                                  (  8,018,204)          16,566,826
                       Other                                                       (  2,857,514)           3,111,655
                                                                                  -------------         -------------
                   End of Year                                                     $ 48,097,750        $  38,885,005
                                                                                   ============          ============
</TABLE>










                                      F-25







<PAGE>



ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

None.

                                   PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The  Issuer  has a  3-person  board of  directors,  all of which  positions  are
currently filled. The Directors and Executive Officers of the Issuer, their ages
and present positions held with the Issuer are:

NAME                      AGE      POSITION HELD

M. O. Trey Rife III       60       Chairman of the Board & Director
Joe Bill Bennett          53       Chief Executive Officer & Director
Mark Zouvas               37       Secretary, Chief Financial Officer & Director

The  Issuer's  Directors  were  elected  October  5, 1999 and will serve in such
capacity  until the next annual  meeting of the Issuer's  shareholders  or until
their  successors  have  been  elected  and  qualified.  There  are no  familial
relationships  among the  Issuer's  officers  and  directors,  nor are there any
arrangements or  understandings  between any of the officers or directors of the
Issuer or any other  person  pursuant to which any officer or director was or is
to be selected as an officer or director.

M.O. Rife III,  Chairman;  Director.  Mr. Rife was born in Fort Worth,  Texas in
1939.  He was elected to the  Company's  Board of Directors in May of 1997.  Mr.
Rife will  serve as a  Director  until  the next  regularly  held  shareholder's
meeting, or until his successor is elected and qualified. He currently serves as
the  Chairman of the Board.  His family has been in the oil  industry  for three
generations.   His   grandfather   retired   from  Gulf  Oil  as  a   production
superintendent  and his father was an independent  oil and gas operator for over
forty years.  Mr. Rife attended Texas Christian  University and began working in
the oil field when he was eighteen. He worked with his father for 15 years, then
started his own  company,  Rife Oil  Properties,  Inc.  For the past twenty five
years,  he has  served as  President  and Chief  Executive  Officer  of Rife Oil
Properties, Inc. He has been involved in the drilling,  completion and operating
of over 500  wells  throughout  the  mid-continent  Region.  Currently  Rife Oil
Properties, Inc. operates over 800 wells in Texas.

Joe Bennett,  Director, Chief Operating Officer. Mr. Bennett was born in Graham,
Texas in 1946.  He is 53 years old.  He was  elected to the  Company's  Board of
Directors in May of 1997.  Mr.  Bennett will serve as a Director  until the next
regularly scheduled shareholder's meeting, or until his successor is elected and
qualified. He currently serves as Chief Executive Officer of the Company. He has
worked for the Company since  September of 1994.  Prior to being appointed Chief
Executive  Officer in  September,  1999,  he served as a  Vice-President  of the
Company. His family has been involved in the oil industry as independent oil and
gas operators in North Texas for three  generations.  Mr.  Bennett  attended the
University  of Texas at Austin  studying  petroleum  engineering.  At the age of
sixteen he began working  summers in the oil field for the family  business.  He
has over 30 years of experience in developing exploration projects, drilling and
completing  wells,  and all phases of operations.  From 1976 to 1980 Mr. Bennett
helped  organize and start up an aircraft  overhaul  business that employed over
100 people. As C.O.O., he was

                                       22


<PAGE>



responsible  for all  operations  and  marketing.  In 1981  Mr.  Bennett  became
President and CEO of Bennett Resources,  Inc. As head of the family business, he
directed the  development of exploration  projects in Texas,  Oklahoma,  Kansas,
Illinois,   Kentucky  and  Tennessee.  In  1994  Mr.  Bennett  joined  Rife  Oil
Properties,  Inc. as VP Operations. His primary responsibilities were to oversee
the company's stripper well acquisition  program and to manage all operations of
these properties using new production technology.

Mark S. Zouvas,  Director,  Chief Financial Officer. Mr. Zouvas is 37 years old.
He was appointed to the Board of Directors of the Company on October 5, 1999. He
serves as the Company's  Chief Financial  Officer,  a position he has held since
September,  1997. From September 1993 to September,  1997, Mr. Zouvas worked for
Vantage Capital  Management  Company in Chicago,  Illinois.  Mr. Zouvas has a BA
from the University of California at Berkeley (Accounting and Real Estate). As a
staff auditor with Price  Waterhouse,  he performed  services for clients in the
banking  and real estate  industries.  Mr.  Zouvas has been  involved in several
venture  capital  transactions  over the past five years.  He is a Licensed Real
Estate  Broker and an  Accountant  in  California.  Mr Zouvas also serves on the
Board of Directors of Tech Nature,  Inc., a publicly trading company, and has so
served since May of 1999.

Compliance with Section 16(a) of the Exchange Act

         Based  solely  upon a  review  of  Forms  3, 4 and 5  furnished  to the
Company,  the  Company  is not aware of any  person  who at any time  during the
fiscal year ended December 31, 1998 was a director, officer, or beneficial owner
of more than ten percent of the Common Stock of the  Company,  and who failed to
file, on a timely  basis,  reports  required by Section 16(a) of the  Securities
Exchange Act of 1934 during such fiscal year.

ITEM 10. EXECUTIVE COMPENSATION

No  compensation in excess of $100,000 was awarded to, earned by, or paid to any
executive  officer  of the  Company  during  the fiscal  year  ending  September
30,1999.  The  following  table  and  the  accompanying  notes  provide  summary
information for the fiscal year concerning cash and non-cash  compensation  paid
or accrued by Joe Bill Bennett, the Company's chief executive officer.

<TABLE>
<CAPTION>

                                            SUMMARY COMPENSATION TABLE

                                    Annual Compensation                               Long Term Compensation
                                                                               Awards                       Payouts
                                                                     Restricted     Securities

Name and                                            Other Annual       Stock        Underlying       LTIP        All Other
Principal         Year      Salary       Bonus      Compensation      Award(s)       Options       payouts      Compensation
Position                     ($)          ($)           ($)             ($)          SARs(#)         ($)            ($)
<S>               <C>       <C>          <C>        <C>              <C>           <C>             <C>           <C>

Joe Bill         1999        90,000        -             -               -              -             -                 -
Bennett
Chief
Executive
Officer
</TABLE>

Compensation of Directors

         The Company's directors are not compensated for their services.

                                       23


<PAGE>



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

The following table sets forth certain  information  concerning the ownership of
the  Company's  Common  Stock as of January 6, 2000,  with  respect to: (i) each
person known to the Company to be the beneficial owner of more than five percent
of the  Company's  Common Stock;  (ii) all  directors;  and (iii)  directors and
executive  officers  of the  Company  as a group.  The  notes  accompanying  the
information in the table below are necessary for a complete understanding of the
figures  provided below. As of January 6, 2000,  there were 9,581,140  shares of
Common Stock issued and outstanding.


<TABLE>
<CAPTION>

                                                        Amount and Nature of
      Title of Class         Name and Address of       Beneficial Ownership          Percent of class
      --------------         -------------------       --------------------          ----------------
                              Beneficial Owner
<S>                      <C>                           <C>                           <C>

       Common Stock            M. O. Rife, III                   0                        0.0000%
    ($0.02) par value

       Common Stock           Joe Bill Bennett                26,668                       0.27%
    ($0.02) par value      13001 Mountainview Road
                             Aubrey, Texas 76227

       Common Stock              Mark Zouvas                 1,000,000                     10.4%
    ($0.02) par value           5601 El Campo
                           Fort Worth, Texas 76107

       Common Stock       Global Universal, Inc. of          8,150,000                      85%
    ($0.02) par value             Delaware
                             11701 South Freeway
                            Burlson, Texas 76028

       Common Stock        Directors and Executive           1,026,668                     10.7%
    ($0.02) par value      Officers as a Group (3
                                individuals)
</TABLE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

M. O.  Rife  III  Trust A,  which is  controlled  by Mr.  M. O.  Rife who is the
Chairman of the Board and a Director of the Issuer.  Mr. Rife  controls Rife Oil
Properties,  Inc.  which has  entered  into the  following  agreements  with the
Company.

(a) The Issuer  occupies  office  space  leased from Rife Oil  Properties,  Inc.
Commencing  October 1, 1998 and ending  September 30, 1999, the Issuer paid rent
in the amount of $3,325 per month.

                                       24


<PAGE>



(b) The M. O. Rife III,  Trust A Loaned  101,313  to the  Issuer  pursuant  to a
promissory  note dated March 31, 1999 on an interest rate of 8.75%.  The Note is
payable on demand.

(c) The Company was advanced a net of $140,000 by Rife Oil  Properties,  Inc., a
company owned by the beneficiary of the Rife Trust.

(d) The Company  incurred a net accounts  payable to Rife  Properties,  Inc., of
$389,154

(e)The  Company is owed an aggregate of $84,570 in accounts  receivable  by Rife
Oil Properties, Inc.

(f) The  Company  issued a  promissory  note to the son of M. O.  Rife  III,  an
officer and  director of the Issuer,  in the amount of $50,000.  (See Note 6(d),
Notes to Financial Statements).

(g) The M. O. Rife III, Trust A, guaranteed the Bank of Commerce promissory note
in the amount of $100,000. (See Note 6(e), Notes to Financial Statements).

(h) M. O. Rife III, the Company's  Chairman,  owns 100% of Rife Oil  Properties,
Inc. and is the Trustee and a beneficiary  of the Mo. O. Rife III Trust A, which
is a major  stockholder of the Company.  Where possible,  the Company prefers to
have Rife Properties, Inc. act as operator of the oil and natural gas properties
and prospects in which it owns an interest.

(i) The Company is indebted to the M. O. Rife III,  Trust A under the terms of a
promissory  note dated  March 31, 1999 in the amount of  $101,313.  Terms of the
note  provide  for  interest at a rate of 8.75% per annum and the note is due on
demand.  Mr. M. O. Rife III, a director of the Company,  is a beneficiary of the
said trust.

None of  the other  directors,  executive  officers  or senior  officers  of the
Issuer or any subsidiary,  or any associates or affiliates of any of them, is or
has been,  indebted  to the Issuer at any time since the  beginning  of the last
completed financial year of the Issuer.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits.  Exhibits  required to be attached by Item 601 of  Regulation
         S-B are listed in the Index to  Exhibits  beginning  on page 28 of this
         Form 10-KSB, which is incorporated herein by reference.

(b)      Reports on Form 8-K.  On January 19, 1999 the Company filed a Form  8-K
         disclosing the Company's  change of name from Titan Energy Corp.,  Inc.
         to Power  Exploration,  Inc. together  with a change of domicile to the
         State of Nevada.  The Company also  disclosed the  authorization by its
         Board of  Directors  to sell up to  one  million  shares of its  common
         stock at one dollar ($1.00) per  share pursuant to a private  placement
         memorandum.  On March 4, 1999  the Company filed a form 8-K  disclosing
         the change of its transfer  agent to Securities  Transfer  Corporation,
         16910 Dallas Parkway  Suite 100, Dallas, Texas 75248, The settlement of
         a lawsuit involving  a dispute over consulting services provided to the
         Company,  and a modification  of its prior  authorization  to sell two
         million of its shares  pursuant to a private placement memorandum.  The
         modification  changed  the terms of the proposed  private  placement of
         shares of the Company  to offer to sell up to four million  shares at a
         price of fifty  cents  ($0.50)  per  share.  On  December  13, 1999 the
         Company filed a  Form 8-K  disclosing  the  acquisition  of certain oil
         leases pursuant to an agreement with Rife

                                       25


<PAGE>



         Oil Properties,  Inc.  Pursuant to the agreement,  the Company acquired
         certain oil  properties and leases located on 3,933.72 acres located in
         the Corsicana shallow field located in Navarro County, Texas, from Rife
         in exchange for  8,000,000  post-reverse-split  shares of common stock.
         Under the terms of the  agreement,  the  Company  also agreed to retire
         certain  debt  owed  to  Rife  aggregating  approximately  $950,000  in
         exchange  for an  additional  1,000,000  shares  of  post-reverse-split
         common stock.

                           [THIS SPACE INTENTIONALLY LEFT BLANK]










                                       26


<PAGE>



                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 14th day of January, 2000.


Power Exploration, Inc.



       /s/Joe Bennett
------------------------------------------------
Joe Bennett, President and Chief Executive Officer

In  accordance  with the Exchange  Act, this report has been signed below by the
following  persons on behalf of the  registrant and in the capacities and on the
dates indicated.

Signature                Title                                  Date


    /s/ Joe Bennett      Chief Executive Officer and Director   January 14, 2000
----------------------
  Joe Bennett


   /s/ Mark S. Zouvas    Chief Financial Officer and Director   January 14, 2000
----------------------
  Mark S. Zouvas


   /s/ M. O. Rife III    Chairman, Director                     January 14, 2000
----------------------
  M. O. Rife, III






                                       27


<PAGE>



                                                 INDEX TO EXHIBITS

EXHIBIT         PAGE

NO.      NO.             DESCRIPTION

2.1  *   Plan of Reorganization and Change of Situs by which Titan Energy Corp.,
             and Power Exploration, Inc. Changes Its Place of Incorporation.

2.2  *   Agreement and Plan of Merger Between Power Exploration, Inc. (Nevada)
                   and Power Exploration, Inc. (Colorado).  August 1, 1998

2.3  *   Articles of Merger Between Power Exploration, Inc. (Nevada) and Power
                    Exploration, Inc. (Colorado).  August 1, 1998

2.4  *   Action by Incorporator.  Election of Officers and Directors of Power
                Exploration, Inc. (Nevada).  May 31, 1998

2.5  **  Special Action by the Executive Committee of Power Exploration, Inc.
         dated  January 11, 1999 (Incorporated herein by reference from Exhibits
         to the Company's  Form 8-K filed  January 19, 1999).

3.1   *  Articles of Incorporation of Imperial Energy dated October 31, 1979.

3.2   *  Amendment to Articles of Incorporation dated June 26, 1984

3.3   *  Amendment to Articles of Incorporation dated September 25, 1996

3.4   *  Minutes of Special Shareholders Meeting Changing Name to Oil Retrieval
         Systems, Inc. dated May 14, 1997

3.5   *  Amendment to Articles of Incorporation dated June 15, 1997, Changing
         Name to Oil Retrieval Systems, Inc.

3.6   *  By Laws of the Corporation

3.7   *  Articles of Incorporation of Power Exploration, Inc. (Nevada) dated May
         14, 1998

3.8   *  By Laws of Power Exploration, Inc.  (Nevada) Dated June 1, 1998

3.9   *  Minutes of the Annual Meeting of the Board of Directors in which
         Officers and Directors are Elected dated July 24, 1998

3.10  *  Minutes of a Special Meeting of the Board of Directors dated July 24,
         998, in which Officers and Directors are Elected

3.11  ** Special Action by the Board of Directors of Power Exploration, Inc.
         dated February  19, 1999

 (Incorporated  herein by reference  from  Exhibits  to the Company's  Form 8-K
     filed January 19, 1999).

               28


<PAGE>





3.12  ** Special Action by the Executive Committee of Power Exploration, Inc.
         Dated March 4, 1999 (Incorporated herein by reference from Exhibits to
         the Company's Form 8-K filed January 19, 1999).

10.1  *  Contract for Acquisition of Oil Leases in the Corsicana Oil Field Dated
         June 11, 1997

10.2  *  Contract with Power Exploration, Techstar Exploration and Roemer-
         Swanson Energy to Acquire Mineral Leases in Polk County, Texas Dated
         December 2, 1997

10.3  *  Agreement with Business Exchange Investments, Inc. dated September 15,
         1998 Regarding a $250,000 Loan

10.4  *  Agreement with the Dallas Cady Family LLP for a $50,000 Loan Secured
         by Two 1998 Kenworth Trucks Dated September 15, 1998

10.5  *  Agreement With Trident III, LLC for a $250,000 Loan Dated October 21,
         1998

10.6  *  Agreement to Sale and Purchase with MB Exploration, LLC Dated
             December 15, 1998

10.7  *  Agreement to Sale and Purchase Agreement with MB Exploration, LLC
             Dated December 15, 1998

10.8  ** Acquisition Agreement Dated December 8, 1999 between Power
         Exploration, Inc. and Rife Oil Properties, Inc. (Incorporated herein by
         reference from Exhibits to the Company's Form 8-K filed January 19,
         1999).

10.9  31  Agreement to Extend Repayment Obligation Between Power Exploration,
             Inc. and Trident III LLC Dated March 15, 1999

10.10 32 Agreement to Extend Repayment Obligation Between Power Exploration,
                Inc. and Trident III LLC Dated May 1, 1999

10.11 33 Advisory Agreement entered into between Power Exploration, Inc. and
                Ronald Welborn Dated October 21, 1999

21.1  *  Subsidiaries of the Issuer

99.1  *  Oil Lease Information Per Industry Guide for Corsicana Field Near
         Dallas Texas

                                       29


<PAGE>


99.2  *  Oil Lease Information Per Industry Guide for Polk County Texas Leases

*           Previously filed and incorporated  herein by reference from the Form
            10-KSB/A filed January 25, 1999 by the Company.

**       Previously filed as indicated and incorporated herein by reference from
         the referenced filings previously made by the Company


                                       30