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, 2000

     [ ] 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
of Incorporation or Organization)                       Identification No.)

                  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, 2000,
were $164,191.

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
$221,865 based on the average  closing bid and asked prices for the Common Stock
on January 3, 2001.

At January 3, 2001, the number of shares outstanding of the registrant's  Common
Stock, $0.02 par value (the only class of voting stock), was 13,977,781.




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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........11

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

Item 7.       Financial Statements............................................22

Item 8.       Changes in and Disagreements With Accountants on
              Accounting and Financial Disclosure.............................23

                                    PART III

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

Item 10.      Executive Compensation..........................................24

Item 11.      Security Ownership of Certain Beneficial Owners
              and Management..................................................25

Item 12.      Certain Relationships and Related Transactions..................26

Item 13.      Exhibits and Reports on Form 8-K................................27









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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 redeveloping existing fields in Corsicana, Texas and other
areas of the region where fields have been  partially  depleted by  conventional
production methods, but where significant,  proven reserves of oil and gas 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, pressure 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 partially 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.


                                        1

<PAGE>



The Company's  swabbing rig  manufacturing  unit, ORS,  produced 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. In September
of 2000, the Company  discontinued  the operations of its ORS unit due to a lack
of operational  funding.  The subsidiary  still  maintains an independent set of
accounting   records  that  reflect  the  ownership  of  the  portable  swabbing
technology,  however,  inventory  and related items have been  written-off.  The
Company  laid-off its ORS employees and canceled its facilities  lease,  without
penalty.  The Company plans on either  revitalizing  its ORS subsidiary  with an
infusion of operating  capital or selling the division and its  technology  to a
third party.

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, 2000, the Company employed 5 persons all of whom are 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.

                                        2

<PAGE>



With respect to its  acquisition  activities,  the Company  intends to shift its
emphasis to smaller 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 smaller acquisitions.

The Company made  exploration and  development  expenditures of $3,293 and $0.00
during the fiscal years ended  September  30, 1999 and 2000,  respectively.  The
Company made net lease acquisitions of $0.00 for proved and unproved  properties
during the fiscal year ended September 30, 1999.  Total lease  acquisitions  for
both  proved and  unproved  properties  was $0.00  during the fiscal  year ended
September 30, 2000.  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."

                                        3

<PAGE>



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 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

                                        4

<PAGE>



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,  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.

                                        5

<PAGE>



The FERC's key rule making action,  Order No. 636 ("Order 636"), issued in April
1992, required each interstate  pipeline to, among other 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  non-  regulated  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 previous owners and operators have conducted oil and gas exploration and
production,  and possibly other activities, at some of the Company's properties,
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 month-to-month lease requires a
monthly rental payment of $3,325.00.  The Company  considers this space adequate
for its present needs.

General Description of Oil and Gas Properties

The Company has leasehold interests in Corsicana,  Texas. The Corsicana Field is
comprised of 650 existing wells of which the Company has a leasehold interest in
the underground minerals.

Corsicana Field

On June 11, 1997, the Company 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.

                                        8

<PAGE>



The note was secured by 1,000,000  shares of newly-issued  common stock 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  that will  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, 2000,  estimated net
reserves  of  16,384,606  recoverable  barrels of oil.  The value of future cash
flows, discounted at 10% to present value, was estimated to be $113,629,272.  At
current  commodity  prices,  the estimated  future cash flow (not discounted) is
$381 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 that will 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 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, 2000,  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, 1999, and
September 30, 2000 and was prepared in accordance with the rules and regulations
of the Commission:



                                                     Oil             Oil
                                                   (mbbls)         (mbbls)
                                                    1999             2000
                                                 ------------    -------------
Proved Developed and Undeveloped Reserves:

    Beginning of Year
    Purchase of Minerals in Place                     21,744.5        18,473.3
    Revisions of Previous Estimates                   (3,305.0)       (2,078.7)
    Production                                            (2.2)            (10)
                                                    ----------     -----------

        End of Year                                    18,473.3       16,348.6
                                                    ==========     ===========

Proved Developed Reserves:
        End of Year                                    1,725.5             324
                                                    ==========     ===========




                                        9

<PAGE>



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 III, a Director of the Company,  is the  President 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  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.

Sales of producing properties 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 are the only material pending cases involving the Company:

PPP,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.  The Company  subsequently settled this lawsuit through the
issuance of 125,000  restricted shares of its common stock on July 26, 2000. The
Company settled the case without acknowledging fault.


                                       10

<PAGE>



Roberta Stacy vs. Oil  Retrieval  Systems,  Inc., A former  employee has filed a
claim against ORS. On June 20, 2000,  Roberta Stacy accepted  13,660  restricted
shares of the Company's  common stock as a complete and final  settlement of her
claims. The shares were valued at $22,112 at the time of issue.

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

During the last 3 months of the fiscal year ended September 30, 2000, no matters
were submitted by the Company to a vote of its shareholders.

                                     PART II

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, 1999
     October, November, & December, 1998            $0.78             $0.41
     January, February, & March, 1999               $2.09             $0.33
     April, May, & June, 1999                       $0.47             $0.14
     July, August, & September, 1999                $0.24             $0.10

Fiscal Year ended September 30, 2000
     October, November, & December, 1999            $0.75             $0.0
     January, February, & March, 2000               $10.50            $2.625
     April, May, & June, 2000                       $6.75             $1.00
     July, August, & September, 2000                $2.625            $0.3125

The bid price for the  Common  Stock was $0.14 on  January  2,  2001.  The above
quotations reflect  inter-dealer  prices,  without retail mark-up,  mark-down or
commissions and may not necessarily represent actual transactions.

ShareholdersAccording to the records of the Company's transfer agent, there were
2,162 holders of record who held 13,977,781 shares of the Company's Common Stock
on January 3, 2001 (including  nominee holders such as banks and brokerage firms
who hold shares for beneficial holders).(1)

--------------------------
     (1)Effective  October  19,  1999,  the  Company  carried  out a one for one
hundred  reverse split of its issued and outstanding  shares.  The shares issued
and outstanding on January 3, 2001, are post reverse split shares.

                                       11

<PAGE>



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.

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.

On February 9, 2000, the Company issued 279,861 shares to Trident III, L.L.C. as
payment in full,  and in settlement of all claims for principal and interest due
and owing pursuant to a promissory note  originally  dated October 21, 1998. 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. The Company made this offering based on the following factors: (1) the
issuance  was an  isolated  private  transaction  by the  Company  which did not
involve a public  offering;  (2) there was only one offeree who was issued stock
for the  cancellation  of a debt owed by the Company;  (3) the offeree stated an
intention  not to resell the stock and has continued to hold the stock since the
issue date; (4) there were no subsequent or contemporaneous  public offerings of
the stock; (5) the stock was not broken down into smaller denominations; and (6)
the  negotiations  for the sale of the stock took  place  directly  between  the
offeree and the Company.

On February 29, 2000, the Company  issued 10,000 shares to Steve Wooten,  Sr. as
payment in full of a bill in the amount of  $85,000  owed to him by the  Company
for consulting services.  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.  The Company made this offering based on the
following factors:  (1) the issuance was an isolated private  transaction by the
Company which did not involve a public offering;  (2) there was only one offeree
who was issued stock for the cancellation of a debt owed by the Company; (3) the
offeree  stated an intention  not to resell the stock and has  continued to hold
the stock since the issue date; (4) there were no subsequent or  contemporaneous
public  offerings  of the stock;  (5) the stock was not broken down into smaller
denominations;  and (6) the  negotiations  for the sale of the stock  took place
directly between the offeree and the Company.

On August 2, 2000,  the Company  issued  540,000  shares of common  stock to the
persons and entities  listed below for the purpose of acquiring oil leases known
as the "Corsicana Leases" and the "Central Lease" located in Corsicana, Texas.






                                       12

<PAGE>




Shares Issued To:                     Number of Shares Issued
----------------                      -----------------------

Morrison Supply Co.                   110,000
P.O. Box 70
Fort Worth, Texas 76101

Betty K. Wolfe Trust                  85,000
Betty K. Wolfe, Trustee
6632 Carston Street
Fort Worth, Texas 76180

Emerald Coast Energy, Inc.            100,000
6812 Battle Creek Rd.
Fort Worth, Texas 76116

Collinwood Energy, LLC                25,000
6812 Battle Creek Rd.
Fort Worth, Texas 76116

Thomas R. Schliem                     100,000
8 Stonebriar Way
Frisco, Texas 75034

Peter S. Zouvas                       100,000
3737 Garden Lane
San Diego, California 92106

Daniel Dunkelberg                     20,000
6809 Battle Creek Rd.
Fort Worth, Texas 76116

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. The Company made this offering based on the following factors: (1) The
issuance  was an  isolated  private  transaction  by the  Company  which did not
involve a public  offering;  (2) there were only seven offerrees who were issued
stock for oil leases  assigned to the  Company;  (3) the offerees did not resell
the stock but have continued to hold it since the date of issue;  (4) there were
no subsequent or  contemporaneous  public  offerings of the stock; (5) the stock
was not broken down into smaller denominations; and (6) the negotiations for the
sale of the stock took place directly between the offerees and the Company.

On June 20, 2000 the Company issued 13,660 shares to a former  employee that had
filed a claim against ORS. The employee's claim was settled by the Company,  but
the cash amount of the settlement  had not been paid by the Company.  The 13,660
shares  were  issued to settle all claims  against  the  Company  which had been
asserted by the  employee,  Roberta  Stacy.  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.  The  Company  made this
offering  based on the  following  factors:  (1) the  issuance  was an  isolated
private transaction by the Company which did not involve a public offering;  (2)
there was only one offeree who was issued stock for the  cancellation  of a debt
owed by the Company; (3) the offeree stated an intention not to resell the stock

                                       13

<PAGE>



and has  continued  to hold the stock  since the issue  date;  (4) there were no
subsequent or  contemporaneous  public offerings of the stock; (5) the stock was
not broken down into smaller  denominations;  and (6) the  negotiations  for the
sale of the stock took place directly between the offeree and the Company.

On July 26, 2000, the Company issued 125,000 shares of common stock to PPP, LLP,
a  Limited  Liability  Partnership  in  Houston,  Texas  at $1.00  per  share as
consideration  for the  cancellation of $125,000 in debt owed to the Partnership
by the  Company.  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.  The Company made this offering based on the
following factors:  (1) the issuance was an isolated private  transaction by the
Company which did not involve a public offering;  (2) there was only one offeree
who was issued stock for the cancellation of a debt owed by the Company; (3) the
offeree  stated an intention  not to resell the stock and has  continued to hold
the stock since the issue date; (4) there were no subsequent or  contemporaneous
public  offerings  of the stock;  (5) the stock was not broken down into smaller
denominations;  and (6) the  negotiations  for the sale of the stock  took place
directly between the offeree and the Company.

On September  18, 2000,  the Company  issued  300,000  shares of common stock to
Interwest  Associates  of Newport  Beach,  California  for  consulting  services
rendered  pursuant to an agreement  dated  September  14, 2000.  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.  The
Company made this offering based on the following factors:  (1) the issuance was
an isolated  private  transaction  by the Company which did not involve a public
offering;  (2) there was only one  offeree  who was  issued  stock for  services
rendered to the Company;  (3) the offeree  stated an intention not to resell the
stock and has  continued to hold the stock since the issue date;  (4) there were
no subsequent or  contemporaneous  public  offerings of the stock; (5) the stock
was not broken down into smaller denominations; and (6) the negotiations for the
sale of the stock took place directly between the offeree and the Company.

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 increased $140,350, or 589%, to $164,191 for the
fiscal  year ended  September  30,  2000 from  $23,841 for the fiscal year ended
September 30, 1999. Equipment sales decreased $43,825, or 100%, to $0.00 for the
fiscal  year ended  September  30,  2000 from  $43,825 for the fiscal year ended
September 30, 1999. Total revenues  increased $96,525 to $164,191 for the fiscal
year ended  September 30, 2000 from $67,666 for the fiscal year ended  September
30, 1999.

                                       14

<PAGE>



Revenues  from  the  sales of oil and gas  increased  primarily  because  of the
increase in the prices of those respective commodities,  and to a lesser degree,
from the increase in production generated from the Corsicana Field. The decrease
in the  sale  of  equipment  reflects  the  discontinued  operations  of the ORS
subsidiary as previously  mentioned above. The overall increase in the Company's
consolidated  revenues  therefore are directly  attributable  to the increase in
both the prices and  production  of oil and gas, as it related to the  Company's
Corsicana Field.

Costs and expenses

The Company's general and administrative expenses increased $9,725,374, or 361%,
to $12,419,137  for the fiscal year ended September 30, 2000 from $2,693,763 for
the fiscal year ended September 30, 1999. While this is a significant  increase,
general and  administrative  expenses  as a  percentage  of net sales  increased
substantially  from 3,981% for 1999 to 7,564% for 2000. 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 at 3%.  Separately,  lease  operating  expenses  increased
$126,943 to $293,294 for 2000 from $166,351 in 1999  resulting from decreases in
production which were caused in part by decreases in oil prices. The increase in
general and  administrative  expenses  directly reflects the valuation of shares
issued to consultants of the Company throughout the year.

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 $17,611,913, or $1.90 per share, for the fiscal
year ended  September  30, 2000.  This  $14,397,243  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 ($292,983) for the fiscal year ended
September  30,  2000,  representing  an increase  of 7% in cash usage.  All cash
activities of the business  produced a $101,033  decrease in cash for the fiscal
year ended  September 30, 1999, as compared to a $9,175  decrease for the fiscal
year ended September 30, 2000.

Liquidity and Capital Resources

The  Company's  working  capital  deficit on  September  30,  2000 was  $697,455
compared  to a deficit of  $1,584,308  on  September  30,  1999.  This  $886,853
increase  in  working  capital  resulted  primarily  from the  reduction  in the
Company's debt;  this debt was eliminated  through the issuance of shares of the
Company's  stock.  The Company  had a current  ratio of 0.03 for the fiscal year
ended  September  30,  2000,  as  compared  to 0.01 for the  fiscal  year  ended
September   30,1999.  A  comparison  of  other  ratios  that  measure  financial
performance  show no  significant  change in the net worth to assets at 0.92 and
0.78 for the years 2000 and 1999 respectively.  However,  the change in the debt
to net worth  ratio of 0.09 and 0.28 for the years 2000 and 1999,  respectively,
reflects  the effort  that the  Company  has made to convert its debt to equity.
This data all  highlights  the Company's need to raise  additional  capital,  to
provide for operational funding and to pay off its current liabilities.





                                       15

<PAGE>



Non Cash Transactions

On October 21, 1999, the Company canceled  1,000,000 shares On October 21, 1999,
the Company cancelled 1,000,000 shares (10,000 post reverse-split  shares) which
had  previously  been  issued to Mark S.  Zouvas  to  satisfy  accrued  salaries
incurred by the Company for his services.

On January 23, 2000, the Board of Directors  authorized the On January 23, 2000,
the Board of Directors  authorized  the Company to issue  100,000  shares of its
common stock to each of the  Company's  directors as  compensation  for services
rendered.  On  February  9,  2000,  the  Company  issued  25,000  shares  of its
restricted  common stock,  which the Company valued at $144,500,  to each of the
six members of the Board of Directors; James McGowan, Charles Barnhill, Reginald
Davis,  Richard Surber,  M.O. Rife III and Joe B. Bennett.  On June 1, 2000, the
Company issued 25,000 shares of its restricted  common stock,  which the Company
valued at $88,146,  to each of the six members of the Board of Directors;  James
McGowan, Charles Barnhill, Reginald Davis, Richard Surber, M.O. Rife III and Joe
B.  Bennett.  The total  value of the  300,000  shares  issued to  Directors  is
$1,395,876.

Pursuant to a January 23, 2000  Resolution of the Board of Pursuant to a January
23, 2000 Resolution of the Board of Directors, the Company issued 600,000 shares
of its common stock to Genesis  Capital Corp. for the  acquisition of all issued
and  outstanding  shares of Lincoln  Health Fund,  Inc., a Delaware  Corporation
whose sole asset was raw land located in Fort Worth,  Texas valued at $3,456,000
(see exhibit 10.12).

The Company  was  indebted  to  officers  for wages  accrued in year 1999 in the
amount of $254,820,  which incurred payroll tax accrual of $19,869. A settlement
was reached with the officers consisting of the Company issuing 30,000 shares of
the Company's  common stock each to the three  officers to extinguish  the debt.
These  shares  were  issued  on  February  29,  2000  (see  Notes  to  Financial
Statements).

On June 7, 2000, the Company issued an additional  30,000 shares of common stock
to  each  of the  officers  of the  Company,  valued  at  $27,600,  in  lieu  of
compensation  owed for wages accrued  during the current year. The Company has a
present liability for wages due to the three officers of $99,544 as of September
30, 2000 (see Notes to Financial Statements).

Between  December  15, 1999 and June 5, 2000,  the Company  issued  750,000 free
trading  shares of its common stock to Allen Z. Wolfson  pursuant to an advisory
agreement  dated December 12, 1999 (exhibit  10.14).  The shares were registered
pursuant to an S-8 Registration Statement filed with the Securities and Exchange
Commission  on  December  15,  1999.  The shares  were  valued by the Company at
$2,817,225.

Between  December 15, 1999 and April 26, 2000,  the Company  issued 750,000 free
trading  shares of its common  stock to Ronald  Welborn  pursuant to an advisory
agreement  dated December 12, 1999 (exhibit  10.13).  The shares were registered
pursuant to an S-8 Registration Statement filed with the Securities and Exchange
Commission  on  December  15,  1999.  The shares  were  valued by the Company at
$3,588,275.

Pursuant to its S-8  Registration  filed  December 15, 1999,  the Company issued
30,000  shares of common  stock to Henry  Simon for legal  services  on February
29,2000. This transaction was valued at $172,500.

The Company  issued 30,000 free trading shares of its common stock to Richard D.
Surber for legal  services  pursuant to an agreement  dated March 24, 2000.  The
shares were issued May 2, 2000 pursuant to an S-8  Registration  Statement filed
with the  Securities  and Exchange  Commission on December 15, 1999.  The shares
were valued by the Company at $150,000 (See exhibit 10.9).

                                       16

<PAGE>



The Company  issued  200,000 free  trading  shares of its common stock to Howard
Pence for consulting services pursuant to an agreement dated September 21, 2000.
The shares were issued May 2, 2000  pursuant  to an S-8  Registration  Statement
filed with the  Securities  and Exchange  Commission  on December 15, 1999.  The
shares were valued by the Company at $62,500 (See exhibit 10.11).

Long-Term Debt

On September 30, 2000,  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

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 100,000 of
its shares to Trident III,  L.L.C.  in connection  with this loan.  The note has
been  extended at various  times 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.  Concurrent with
the  extension of the note to October 30,  1999,the  provision was added that if
payment of outstanding principal and interest were made by that date, the 50,000
shares per day penalty provision would be waived. The lender subsequently waived
this  provision.  The Company  negotiated a settlement of the amounts due on the
Note wherein the lender agreed to accept 279,861 shares of the Company's  common
stock as full payment for all amounts due on the Note and  releasing  all claims
associated  with the previous  failure of the Company to timely pay the Note. On
February  9, 2000,  the Company  issued  279,861  shares of its common  stock to
Trident III L.L.C.  pursuant to the agreement to settle,  and in full payment of
the debt owed to Trident III L.L.C.

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.





                                       17

<PAGE>



History of Losses

The Company had net losses of  $17,611,913  and  3,214,670,  for the years ended
September  30,  2000 and  September  30,  1999,  respectively.  The  Company may
continue  to incur  net  losses  and,  to the  extent  that it  remains  without
operational funding, such losses may continue.

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.

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.






                                       18

<PAGE>



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 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  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  future  net  revenue.   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.


                                       19

<PAGE>



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  is 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.

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.

                                       20

<PAGE>



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,  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.  In the year 2000, the Company
experienced  a  significant  increase  in the  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 reversal of current
pricing could have an adverse effect on the operations of the Company.



                                       21

<PAGE>



Events Subsequent to End of Fiscal Year

On March 20,  2000,  the Company  entered  into an  agreement to acquire 100% of
Pepin Oil Company,  an Oklahoma oil and gas exploration  company in exchange for
3.358 million shares of its  restricted  common stock (see exhibit  10.15).  The
shares  were  issued on May 2, 2000 and held in escrow  pending  closing  of the
transaction.  Pepin has a working interest in a 500 well developmental  drilling
program located in Oklahoma. This transaction has not been consummated as of the
date of this  filing.  On November 8, 2000,  the  Company's  Board of  Directors
authorized  the  cancellation  of the said  shares  pending  the  closing of the
transaction.  The other parties to the transaction  have not taken the necessary
steps to close the transaction.  The Company is considering its options relative
to the agreement at this time.

On May 2, 2000,  pursuant to an agreement to obtain financing for its operations
through the sale of restricted stock, a certificate for five million (5,000,000)
shares of restricted stock was issued in the name of Hardin County  Investment &
Development de Mexico.  The  certificate was to be delivered upon the closing of
the transaction and was placed in escrow pending the closing of the transaction.
The  transaction  did not close and has been canceled.  On November 8, 2000, the
Company's Board of Directors authorized the cancellation of the said shares, and
the shares were returned to the Company's transfer agent for cancellation.

On November  8, 2000,  the Board of  Directors  of the  Company  authorized  the
cancellation  of 50,000  shares of the  Company's  common  stock  which had been
issued in the name of Simon,  Warner & Doby, LLC, as legal fees. The shares were
returned to the Company upon the termination of representation of the Company by
Simon,  Warner & Doby,  LLC. The shares were returned to the Company's  transfer
agent for cancellation.

Effective December 22, 2000, Fauniel D. Rowland, esq. resigned as counsel to the
Company and returned for  cancellation  20,000 shares of restricted  stock which
had  previously  been issued to her for fees.  On January 8, 2001,  the Board of
Directors of the Company  authorized the  cancellation  of the 20,000 shares and
they were returned to the Company's transfer agent for cancellation.

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]

                                       22

<PAGE>
                             POWER EXPLORATION, INC.
                                TABLE OF CONTENTS



                                                                            Page

Report of Independent Certified Public Accountants
Killman, Murrell & Co., P.C..................................................F-2

Merdinger, Fruchter, Rosen & Corso, P.C......................................F-3

Financial Statements

Consolidated Balance Sheets as of September 30, 2000 and 1999................F-4

Consolidated Statements of Operations for the Years Ended
September 30, 2000 and 1999..................................................F-6

Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 2000 and 1999......................................F-8

Consolidated Statements of Cash Flows for the Years
Ended September 30, 2000 and 1999............................................F-9

Notes to Consolidated Financial Statements..................................F-11








                                       F-1


<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders
Power Exploration, Inc. and Subsidiaries
Fort Worth, Texas

We  have  audited  the   accompanying   consolidated   balance  sheet  of  Power
Exploration,  Inc. and  Subsidiaries  as of September 30, 2000,  and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the  year  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 audit 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 audit provides 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,  2000,  and  the
consolidated  results  of its  operations  and its cash  flows for the year 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 9 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  9.  The  financial  statements  do  not  include  any
adjustments that might result form the outcome of this uncertainty.



/s/  KILLMAN, MURRELL & COMPANY, P.C.
-----------------------------------------
Dallas, Texas
December 6, 2000





<PAGE>

                                       F-2





               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Stockholders
Power Exploration, Inc. and Subsidiaries

We  have  audited  the   accompanying   consolidated   balance  sheet  of  Power
Exploration,  Inc. and  Subsidiaries  as of September 30, 1999,  and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the  year  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 audit 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 audit provides 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  the
consolidated  results  of its  operations  and its cash  flows for the year 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 9 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  9.  The  financial  statements  do  not  include  any
adjustments that might result form the outcome of this uncertainty.


/s/  MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
------------------------------------------------
Certified Public Accountants
New York, New York
December 17, 1999









                                       F-3

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>

                                     ASSETS

                                                           2000            1999
                                                       -------------   ------------
<S>                                                   <C>             <C>
CURRENT ASSETS
    Cash                                               $          -    $      9,175
    Receivable-Related Parties                               22,806           8,219
                                                       ------------    ------------

            TOTAL CURRENT ASSETS                             22,806          17,394
                                                       ------------    ------------

OIL AND GAS PROPERTIES,
    FULL COST METHOD - Note 10                            8,856,890       7,134,910
    Less: Accumulated Depreciation, Depletion and
        Amortization                                        (27,567)        (10,491)
                                                       ------------    ------------

            NET OIL AND GAS PROPERTIES                    8,829,323       7,124,419
                                                       ------------    ------------

OFFICE  EQUIPMENT, net of accumulated
    depreciation of $618 and $2,120                             756           7,005
                                                       ------------    ------------
OTHER ASSETS
    Net Assets of Discontinued Operations - Note 11          37,990         214,808
    Other                                                     6,037           6,037
                                                       ------------    ------------
            TOTAL OTHER ASSETS                               44,027         220,845
                                                       ------------    ------------
            TOTAL ASSETS                               $  8,896,912    $  7,369,663
                                                       ============    ============

</TABLE>













                           The accompanying notes are
                     an integral part of these consolidated
                              financial statements.

                                   (Continued)
                                       F-4


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Continued)
                           SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>


                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                  2000                   1999
                                                                              -------------          -------------
<S>                                                                         <C>                     <C>

CURRENT LIABILITIES
    Cash Overdraft                                                           $        7,960          $           -
    Accounts Payable and Accrued Expenses                                           267,188                611,235
    Accounts Payable - Related Party                                                165,113                389,154
    Notes Payable - Note 2                                                          250,000                500,000
    Notes Payable - Related Party - Note 2                                           30,000                101,313
                                                                              -------------          -------------
            TOTAL CURRENT LIABILITIES                                               720,261              1,601,702
                                                                              -------------          -------------
STOCKHOLDERS' EQUITY - Note 8
    Common Stock, $.02 par value, 50,000,000 shares
        authorized, 13,901,171 and 177,650 shares issued
        and outstanding, respectively                                               278,023                  3,553
    Additional Paid-In Capital                                                   33,396,290             13,650,157
    Retained Deficit                                                            (25,497,662)            (7,885,749)
                                                                              -------------          -------------
            TOTAL STOCKHOLDERS' EQUITY                                            8,176,651              5,767,961
                                                                              -------------          -------------
            TOTAL LIABILITIES AND
                STOCKHOLDERS' EQUITY                                          $   8,896,912          $   7,369,663
                                                                              =============          =============

</TABLE>








              The accompanying notes are an integral part of these
                             consolidated financial
                                   statements.


                                       F-5

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999


<TABLE>
<CAPTION>

                                                                                 2000                    1999
                                                                             --------------          -------------
<S>                                                                        <C>                      <C>
REVENUE
     Oil and Gas Sales                                                       $      164,191          $      23,841
     Equipment Sales                                                                      -                 43,825
                                                                             --------------          -------------
         TOTAL REVENUES                                                             164,191                 67,666
                                                                             --------------          -------------
COST OF REVENUE
     Lease Operating                                                                293,294                166,351
     Production Taxes                                                                 8,062                    518
     Depreciation, Depletion and Amortization                                        17,076                  5,271
                                                                             --------------          -------------
         TOTAL COST OF REVENUES                                                     318,432                172,140
                                                                             --------------          -------------
            GROSS LOSS                                                             (154,241)              (104,474)
                                                                             --------------          -------------
EXPENSES
     General and Administrative                                                  12,419,137              2,693,763
     Interest Expense                                                             1,367,752                232,139
                                                                             --------------          -------------
         TOTAL EXPENSES                                                          13,786,889              2,925,902
                                                                             --------------          -------------
             LOSS BEFORE OTHER INCOME
                (EXPENSES),INCOME TAXES AND
                 DISCONTINUED OPERATIONS                                        (13,941,130)            (3,030,376)

OTHER INCOME (EXPENSES)
     Loss on Disposal of Assets - Note 5                                         (3,308,459)                     -
     Other                                                                              483                 25,593
                                                                             --------------          -------------
              LOSS BEFORE INCOME TAXES
                 AND DISCONTINUED OPERATIONS                                    (17,249,106)            (3,004,783)
INCOME TAXES                                                                              -                      -
                                                                             --------------          -------------
             NET LOSS FROM CONTINUING                                           (17,249,106)            (3,004,783)
                 OPERATIONS
DISCONTINUED OPERATIONS - Note 11
     Operating Loss from Discontinued Operations                                   (362,807)              (209,887)
     Loss on Disposal of Discontinued Operations                                          -                      -
                                                                             --------------          -------------
                                                                                   (362,807)              (209,887)
                                                                             --------------          -------------
          NET LOSS                                                           $  (17,611,913)         $  (3,214,670)
                                                                             ==============          =============
</TABLE>


                 The accompanying notes are an integral part of
                    these consolidated financial statements.

                                       F-6

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Continued)
                 FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>

                                                                                  2000                   1999
                                                                              -------------          -------------
<S>                                                                          <C>                   <C>
WEIGHTED AVERAGE NUMBER OF
     SHARES OUTSTANDING                                                           9,257,141                149,573
                                                                              =============          =============

NET LOSS PER SHARE:
     Continuing Operations                                                    $       (1.86)         $      (20.09)
     Discontinuing Operations                                                          (.04)                 (1.40)
                                                                              -------------          -------------

         TOTAL LOSS PER SHARE                                                 $       (1.90)         $      (21.49)
                                                                              ==============         =============
</TABLE>













              The accompanying notes are an integral part of these
                             consolidated financial
                                   statements.


                                       F-7


<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                        STATEMENT OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>

                                                 Common Stock
                                           ------------------------------   Additional
                                            Number of                        Paid-In           Retained
                                             Shares          Amount           Capital          (Deficit)        Total
                                           ------------    -------------    -----------      -------------    -------
<S>                                      <C>             <C>              <C>              <C>               <C>
BALANCE, SEPTEMBER 30, 1998                  110,609         $  2,212       $10,634,878     $(4,671,079)      $5,966,011

   Issuance of Shares for Conversion
     of Debentures                             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                 2,600               52            53,798                -          53,850
Extensions
   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

   Sale of Shares                             45,000              900            89,100                -          90,000
   Issuance of Shares for Services         2,640,000           52,800        10,234,150                -      10,286,950
   Issuance of Shares for Employee
Compensation                                 480,000            9,600         1,757,232                -       1,766,832
   Issuance of Shares for Acquisition
     of Oil and Gas Properties             8,540,000          170,800         1,551,180                -       1,721,980
   Issuance of Shares for Real Estate        600,000           12,000         3,456,000                -       3,468,000
   Issuance of Shares in Settlement
     of Debts                              1,418,521           28,370         2,658,471                -       2,686,841
   Net Loss                                                                                  (17,611,913)     (17,611,913)
                                          ----------         --------       -----------     ------------      -----------

BALANCE, SEPTEMBER 30, 2000               13,901,171         $278,023       $33,396,290     $(25,497,662)     $8,176,651
                                          ==========         ========       ===========     ============      ==========
</TABLE>






              The accompanying notes are an integral part of these
                             consolidated financial
                                   statements.

                                       F-8

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                             STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>

                                                                                  2000                   1999
                                                                              -------------          --------------
<S>                                                                         <C>                    <C>
CASH FLOW FROM OPERATING ACTIVITIES
     Net (Loss)                                                               $ (17,611,913)         $  (3,214,670)
     Adjustments to Reconcile Net (Loss) to Net Cash
         From Operating Activities
             Interest Expense                                                     1,341,707                116,850
             Depreciation, Depletion and Amortization                                19,058                  7,155
             Amortization of Loan Fees                                                    -                  6,826
             Amortization of Discount on Bonds Payable                                    -                  7,692
             Issuance of Shares and Warrants for Services,
                Employee Compensation and Liability
                Settlements                                                      12,479,515              1,627,853
             Loss on Disposal of Assets                                           3,308,459                      -
     Changes in Operating Assets and Liabilities:
             Decrease in Receivables                                                      -                  6,881
             (Increase) Decrease in Receivable-Related Party                        (14,587)               113,034
             Decrease in Prepaid and Other Assets                                         -                117,200
             Increase in Accounts Payable and
                Accrued Expenses                                                          -                918,049
             Cash Overdraft                                                           7,960                      -
                                                                              -------------          -------------
                  NET CASH (USED) IN
                     CONTINUING OPERATIONS                                         (469,801)              (293,130)
                                                                              -------------          -------------
                  NET CASH PROVIDED (USED) BY
                     DISCONTINUED OPERATIONS                                        176,818                (22,127)
                                                                              -------------          -------------
                  NET CASH (USED) IN
                     OPERATING ACTIVITIES                                          (292,983)              (315,257)
                                                                              -------------          -------------
CASH FLOW FROM INVESTING ACTIVITIES
             Cost of Oil and Gas Properties                                               -                (85,909)
             Purchase of Office Equipment                                                 -                 (1,180)
             Proceeds from Sale of Real Estate                                      163,808                      -
                                                                              -------------          -------------
                  NET CASH PROVIDED (USED) IN
                     INVESTING ACTIVITIES                                           163,808                (87,089)
                                                                              -------------          -------------
</TABLE>




              The accompanying notes are an integral part of these
                       consolidated financial statements.
                                   (Continued)
                                       F-9

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                             STATEMENT OF CASH FLOWS
                                   (Continued)
                 FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                  2000                   1999
                                                                              -------------          -------------
<S>                                                                          <C>                   <C>
CASH FLOW FROM FINANCING ACTIVITIES
             Proceeds from Borrowings                                         $     130,000          $     151,313
             Repayments of Borrowings                                              (100,000)                     -
             Proceeds from Sale of Stock                                             90,000                150,000
                                                                              -------------          -------------
                  NET CASH PROVIDED (USED) IN
                     FINANCING ACTIVITIES                                           120,000                301,313
                                                                              -------------          -------------

NET DECREASE IN CASH                                                                 (9,175)              (101,033)

CASH AT BEGINNING OF PERIOD                                                           9,175                110,208
                                                                              -------------          -------------
CASH AT END OF YEAR                                                           $           -          $       9,175
                                                                              =============          =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW
     INFORMATION
             Cash Paid During the Period For:
                Interest                                                      $           -          $      12,526
                                                                              =============          =============
                Income Taxes                                                  $           -          $           -
                                                                              =============          =============
SUPPLEMENTAL SCHEDULE OF NONCASH
     INVESTING AND FINANCING ACTIVITIES:
             Purchase of Oil and Gas Properties                               $   1,721,980          $     340,000
             Purchase of Real Estate                                              3,468,000                      -
             Reduction in Accounts Payable and
                Accrued Expenses                                                    568,088                 31,917
             Notes Payable Settlements                                              351,313                500,000
             Settlement of Debenture Liability                                            -                250,000
             Issuance of Shares                                                  (6,109,381)            (1,121,917)
                                                                              -------------          -------------

                                                                              $           -          $           -
                                                                              =============          =============

</TABLE>






              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                      F-10

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999


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") and Oil Seeps, Inc. ("OSI").
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.

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.

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.


                                      F-11

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999


NOTE 1:  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Oil and Gas Properties (Continued)

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  in  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.

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

Office  equipment is stated at cost and is depreciated  using the  straight-line
method over its estimated useful lives of five (5) years.

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.

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.

                                   (Continued)
                                      F-12

<PAGE>

                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999


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, 2000
and 1999, 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.

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





                                      F-13

                                     <PAGE>
                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 2:  NOTES PAYABLE

Notes payable at September 30, 2000 and 1999 consist of the following:

                                                  2000            1999
                                              -------------   -----------

a) Note Payable - Trident III, L.L.C.          $        -      $  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                    30,000               -
                                               ----------      ----------

                                               $  280,000      $  601,313
                                               ==========      ==========

     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. In January 2000, the Company issued 279,861 shares of its common stock with
an aggregate  fair value of $1,617,597 to Trident III,  L.L.C.  in settlement of
the  $250,000  note payable plus  accrued  interest of $25,890.  The  difference
between the fair value of the share  issued and the note  balance,  plus accrued
interest  was  $1,341,707,  which was  recognized  as  interest  expense  in the
September 30, 2000 statement of operations.

     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. At September 30, 2000, the note remains  outstanding,  therefore,  the
Company is in default on this note.  The note is  collateralized  by 100% of the
shares of OSI.

     c) The Company was 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.  In December  1999, the Company  issued  1,000,000  shares of its common
shares in  settlement  of the  $101,313  note  payable  plus  $7,140 of  accrued
interest and $802,179 of accounts payable to Rife Oil Properties, Inc.

                                   (Continued)
                                      F-14

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 2: NOTES PAYABLE (Continued)

     d) The Company was  indebted to M.O.  Rife III,  Trust A under the terms of
promissory  notes  dated  September  14,  2000 and  September  20,  2000,  in an
aggregate amount of $30,000. Terms of the notes provide for interest at the rate
of 11% per annum, with original maturity dates of February 14, 2001 and February
20, 2001.

NOTE 3:  WARRANTS

At  September  30, 2000,  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 issued in 1999.

     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
issued in 1999.

     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 issued in 1999.

     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 a payment for a consulting  agreement
and have been valued at $27,620 in 1999.

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").






                                   (Continued)
                                      F-15

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 3: WARRANTS (Continued)

In connection with any Warrant Exchange,  the Holder's Warrant certificate shall
represent the right to subscribe for or 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.  No  warrants  were
exercised during the year ended September 30, 2000.

NOTE 4:  INCOME TAXES

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

                                                       September 30,
                                             -----------------------------------
                                                 2000                   1999
                                             -------------          ------------
     Current Tax Expense
         U.S. Federal                           $       -              $       -
         State and Local                                -                      -
                                                ---------              ---------

             Total Current                      $       -              $       -
                                                ---------              ---------

     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:

                                                     2000              1999
                                                 -------------     ------------
     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%
                                                    ==========       ==========


                                   (Continued)
                                      F-16

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 4:  INCOME TAXES (Continued)

At September 30, 2000, the Company had net carryforward  losses of approximately
$24,104,000.  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,
                                                          ------------------------------------
                                                              2000                   1999
                                                          -------------          -------------
<S>                                                      <C>                    <C>
     Deferred Tax Assets (Liabilities):
         Loss Carryforwards                               $   8,195,000          $  2,233,000
         Consulting Fees                                              -                97,000
         Exploration Costs                                      (23,000)              (23,000)
         Depreciation                                           (29,000)              (29,000)

             Less: Valuation Allowance                       (8,143,000)            (2,278,000)
                                                          -------------          -------------

                Net Deferred Tax Assets (Liabilities)     $           -           $          -
                                                          =============           ============
</TABLE>



Net  operating  loss  carryforwards  expire  in  2001  through  2020.  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.

Expiration dates of net operating loss carryforwards are as follows:

                         September 30,
                             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
                             2020                  17,608,000
                                               --------------
                                               $   24,104,000
                                               ==============


                                      F-17

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 5:  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 owed an  aggregate of $84,570 in accounts  receivable  by
Rife Oil Properties, Inc.

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

During the year ended September 30, 2000:

     a) The Company  issued 300,000 shares of its common stock to Members of the
Board of Directors as compensation with an aggregate value of $1,395,867.

     b) The  Company  purchased  additional  oil and  gas  leases  of a  company
controlled by a director by issuing 8,540,000 shares of its common stock with an
aggregate value of $1,721,980.

     c) The  Company  issued  1,000,000  shares of its common  stock to Rife Oil
Properties,  Inc. in settlement of a note payable,  plus accrued interest and an
account payable balance applicable to lease operating expense. These shares were
valued at $910,631.

     d) In February 2000, the Company  purchased all of the outstanding stock of
The Lincoln  Health Fund,  Inc.  ("Lincoln")  from a stockholder of the Company.
Lincoln's  only asset was a parcel of land located in Fort Worth,  Texas,  which
was subsequently sold in August 2000. The transaction is summarized as follows:

              Fair Value of 600,000 Shares Issued for
                Real Estate in February 2000                 $3,468,000
              Net Proceeds from Sale of
                Real Estate in August 2000                      163,808
                                                           ------------

              Loss on Disposal of Asset                    $  3,304,192
                                                           ============



                                   (Continued)
                                      F-18

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 5: RELATED PARTY TRANSACTIONS (Continued)

     e) Rife Oil Properties, Inc. ("Rife"), a Company owned by a director is the
operator  of all oil and gas  leases  owned by the  Company.  For the year ended
September  30,  2000,  Rife  charged  the Company  $277,022  for  operating  the
Company's oil and gas wells.

     f) The Company borrowed money from the M.O. Rife III, Trust A as follows:

                                         Interest
          Date            Amount           Rate                  Due Date
          ----            ------          ------                 --------
  May 3, 2000             $ 15,000          11%             October 3, 2000
  September 14, 2000        10,000          11%             February 14, 2000
  September 20, 2000         5,000          11%             February 20, 2000
                          --------
                          $ 30,000
                          ========

Interest expense on these notes for the year ended September 30, 2000 was $741.


     g) In June 2000, the Company's chief  financial  officer paid the Company's
auditor $12,547 for services rendered. The funds advanced by the chief financial
officer are  reflected  in the  September  30, 2000,  balance  sheet as accounts
payable to related party.

     h) The Company  issued 180,000 shares of its common stock with an aggregate
value of $370,956 to its executive officers as employee compensation.

     i) The Company leases its office space from the Rife Trust,  with a monthly
rental of $3,325.

NOTE 6:  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 stock 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, 2000, the company issued 2,510,000 shares of
its common stock with an  aggregate  value of  $9,559,850  in payment of various
consulting services.





                                   (Continued)
                                      F-19

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 7:  COMMITMENTS AND CONTINGENCIES

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

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

                             2001                              $18,827
                             2002                               15,799
                             2003                                9,423
                             2004                                  947
                                                              --------

                             Total minimum lease payments      $44,996
                                                               =======

     Rent  expense  included  in the  financial  statements  for the year  ended
September 30, 2000, totaled $92,417.

     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.

     c) 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 was
settled for $20,000  through  mediation in December 1998. The settlement  amount
was accrued in the September  30,1999,  financial  statements.  This accrual was
paid  through the  issuance of 13,660  shares of Company  common stock valued at
$22,112 in 2000.

     d) A suit was 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 was accrued
in the  financial  statements  as of September  30,  1999,  and paid through the
issuance of 125,000 shares of Company common stock valued at $136,500 in 2000.










                                   (Continued)
                                      F-20

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 8:  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.

     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.






                                   (Continued)
                                      F-21

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 8:  SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES (Continued)

During the year ended  September  30,  2000,  the company  issued the  following
shares of its common stock:

                                               Number of
              Reason For Issuance                Shares            Value
              -------------------              ---------           -----
  Acquisition of Oil and Gas Properties           8,540,000    $    1,721,980
  Acquisition of Real Estate                        600,000         3,468,000
  Compensation for Consulting Services            2,510,000         9,559,850
  Compensation to Board of Directors                300,000         1,395,876
  Employee Compensation                             180,000           370,956
  Settlement of Related Party Debts               1,000,000           910,632
  Legal Services                                    130,000           727,100
  Settle of Trident III, LLC Note Payable           279,861         1,617,597
  Settlement of Lawsuits                            138,660           158,612
                                               ------------    --------------

                                                 13,678,521    $   19,930,603
                                               ============    ==============

The fair value of the shares issued were  determined by discounting the reported
trading value on the date of issue discounted by twenty-five  percent (25%). The
trading value was discounted due to the limited  trading volume of the Company's
stock. The shares issued were not registered shares.


NOTE 9:  GOING CONCERN

The accompanying  consolidated  financial statements have been prepared assuming
the company will  continue as a going  concern.  As of September  30, 2000,  the
Company has a working capital deficit of $697,455 and an accumulated  deficit of
$25,497,662.  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  deficit.  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.









                                      F-22

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 10:  SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)

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.

<TABLE>
<CAPTION>
                                                                                        September 30,
                                                                              -----------------------------------
                                                                                  1999                   1998
                                                                              -------------          ------------
<S>                                                                           <C>                 <C>
     Capitalized Costs Relating to Oil and Gas
       Producing Activities at September 30:
         Proved Oil and Gas Properties                                         $  8,856,890         $   7,134,910
         Less: Accumulated Amortization and Impairment                              (27,567)              (10,491)
                                                                               -------------        -------------
             Net Capitalized Costs                                             $  8,829,323         $   7,124,419
                                                                               ============         =============
     Costs Incurred in Oil and Gas Producing Activities for
       the Year Ended September 30,
         Property Acquisition Costs:
             Proved                                                            $  1,721,980         $     450,993
             Exploration Costs                                                            -                 3,293
                                                                               ------------         -------------
                                                                               $  1,721,980         $     454,286
                                                                               ============         =============
     Results of Operations for Oil and Gas Producing
Activities for the Years Ended September 30,
         Oil and Gas Sales                                                     $    164,191         $      23,841
         Production (Lifting) Costs                                                (293,294)             (166,869)
         Amortization Expenses                                                      (17,076)               (5,271)
                                                                               -------------        -------------
                  Net Loss                                                         (146,179)             (148,299)

     Income Taxes                                                                         -                     -
                                                                               ------------         -------------
     Results of Operations for Oil and Gas Producing
       Activities (excluding corporate overhead and
       financing costs)                                                        $   (146,179)        $    (148,299)
                                                                               =============        =============
</TABLE>



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
reserves.  The Company  emphasizes  that reserve  estimates are inherently  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.
                                   (Continued)
                                      F-23

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999



NOTE  10:  SUPPLEMENTAL  INFORMATION  ON  OIL  AND  GAS  OPERATIONS  (UNAUDITED)
(Continued)

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 certainty to be recoverable in the 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.

                                                     Oil             Oil
                                                   (mbbls)         (mbbls)
                                                    2000             1999
                                                 ------------    -------------
Proved Developed and Undeveloped Reserves:

    Beginning of Year                                 18,437.3        21,744.5
    Purchase of Minerals in Place                          -               -
    Revisions of Previous Estimates                   (2,046.2)       (3,305.0)
    Production                                            (6.5)           (2.2)
                                                    ----------     -----------

        End of Year                                   16,384.6        18,437.3
                                                    ==========     ===========

Proved Developed Reserves:
        End of Year                                      323.7         1,725.5
                                                    ==========     ===========







                                   (Continued)
                                      F-24

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999



NOTE  10:  SUPPLEMENTAL  INFORMATION  ON  OIL  AND  GAS  OPERATIONS  (UNAUDITED)
(Continued)

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

Standardized Measure of Discounted Future
    Net Cash Flows at September 30:

<TABLE>
<CAPTION>
                                                       2000                   1999
                                                    ------------          --------------
<S>                                              <C>                     <C>
     Future Cash Inflows                          $   527,257,000         $   433,276,000
     Future Production Costs                         (109,876,000)           (135,355,000)
     Future Development Costs                         (36,000,000)            (37,515,000)
     Future Income Tax Expense                       (129,670,000)           (104,162,000)
                                                  ---------------         ---------------
                                                      251,711,000             156,244,000
     Future Net Cash Flows
       10% Annual Discount for Estimated
       Timing of Cash Flows                           138,082,000             108,146,000
                                                  ---------------         ---------------
     Standardized Measure of Discounted Future
       Net Cash Flows Relating to Proved
       Oil and Gas Reserves                       $   113,629,000         $    48,098,000
                                                  ===============         ===============
</TABLE>



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


<TABLE>
<CAPTION>
                                                                                   2000                 1999
                                                                              ---------------       -------------
<S>                                                                         <C>                    <C>
     Beginning of Year                                                       $    48,097,750        $   38,885,005
         Revenue from Oil and Gas Production, Net of
           Production Costs                                                         (137,165)               23,841
         Net Changes in Prices and Production and
             Development Costs                                                   169,177,415            92,247,186
         Revisions of Previous Quantity Estimates                                (48,065,000)          (23,744,147)
         Purchases of Minerals in Place                                                    -                     -
         Discount                                                                (29,936,000)          (48,438,417)
         Net Change in Income Taxes                                              (25,508,000)           (8,018,204)
         Other                                                                             -            (2,857,514)
                                                                             ---------------        --------------

     End of Year                                                             $   113,629,000        $   48,097,750
                                                                             ===============        ==============
</TABLE>



                                      F-25

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 11:  DISCONTINUED OPERATIONS

In  2000,  the  Company's  management  determined  that  the  operations  of Oil
Retrieval Systems,  Inc. were no longer viable;  therefore,  the manufacturer of
oil and gas construction  equipment ceased. The Company is currently  evaluating
its  options  for the  disposal  of  ORS's  assets  and the  liquidation  of its
liabilities. The net assets of the discontinued operations were as follows:

                                                  2000                  1999
                                              -------------         --------
                                ASSETS
    Cash                                        $      229           $   (8,091)
    Accounts Receivable                             17,050               84,915
    Inventory                                            -              323,485
    Prepaid Expenses                                   140                  230
                                                ----------           ----------

            TOTAL CURRENT ASSETS                    17,419              400,539
                                                ----------           ----------

    Property and Equipment                         340,718              314,962
        Less: Accumulated Depreciation            (139,731)             (91,461)
                                                ----------           ----------

            NET PROPERTY AND EQUIPMENT             200,987              223,501
                                                ----------           ----------

    Other Assets                                       490                    -
                                                ----------           ----------

            TOTAL ASSETS                           218,896              624,040
                                                ----------           ----------

                              LIABILITIES
    Accounts Payable                               119,770              228,911
    Advances - Related Party                        60,003              140,000
    Accrued Liabilities                              1,133               40,321
                                                ----------           ----------

            TOTAL LIABILITIES                      180,906              409,232
                                                ----------           ----------

            NET ASSETS                          $   37,990           $  214,808
                                                ==========           ==========









                                   (Continued)
                                      F-26

<PAGE>


                    POWER EXPLORATION, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           SEPTEMBER 30, 2000 AND 1999

NOTE 11:  DISCONTINUED OPERATIONS (Continued)

The results of operations for the years ended  September 30, 2000 and 1999, were
as follows:

                                                  2000              1999
                                              -------------     ------------

    Equipment Sale                            $     88,110      $    200,731
    Cost of Sale                                   272,464           156,780
                                              ------------      ------------

        Gross Profit (Loss)                       (184,354)           43,951

    General and Administrative Expenses           (186,178)         (253,451)
    Interest Expense                                (8,029)             (387)
    Other Income                                    15,754                 -
                                              ------------      ------------

                                              $   (362,807)     $   (209,887)
                                              ============      ============-

The September 30, 1999,  consolidated balance sheet, statement of operations and
statement of cash flows were restated to reflect the discontinued  operations in
2000.














                                      F-27




<PAGE>



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

On September 27, 2000, the Company engaged Killman,  Murrell, & Company, P.C. as
its independent  auditors to replace Merdinger,  Frutcher,  Rosen, & Corso, P.C.
Prior to the change of accountants,  there were no disputes  between  management
and the  auditors and the  auditors'  reports  contained  no adverse  opinion or
disclaimer  of opinion,  and were not  qualified or modified as to  uncertainty,
audit scope,  or  accounting  principles  other than the Account  qualified  its
opinion for the fiscal year ended  September 30, 1999,  based on the  assumption
that the registrant would continue as a going concern.  For more information see
Form 8-K filed October 4, 2000.

                                    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    61          Chairman of the Board & Director
Joe Bill Bennett       54          Chief Executive Officer & Director
Mark Zouvas            38          Secretary & Chief Financial Officer

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 is 61 years old. 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 Executive Officer. Mr. Bennett was born in Graham,
Texas in 1946.  He is 54 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.

                                       23

<PAGE>



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
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,  Chief Financial Officer.  Mr. Zouvas is 38 years old. 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 Knowledge Group, 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
September 30, 2000 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

The following table and the accompanying  notes provide summary  information for
the  fiscal  year  ended  September   30,2000,   concerning  cash  and  non-cash
compensation paid or accrued by Joe Bill Bennett,  the Company's Chief Executive
Officer and Mark Zouvas, the Company's Chief Financial Officer, and all officers
or directors who were paid in excess of $100,000





                      [THIS SPACE INTENTIONALLY LEFT BLANK]






                                       24

<PAGE>


<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(2)     Bonus      Compensation      Award(s)       Options       payouts      Compensation
Position                     ($)          ($)           ($)             ($)          SARs(#)         ($)            ($)
====================================================================================================================================
<S>              <C>      <C>           <C>         <C>              <C>            <C>            <C>          <C>
Joe Bill          1999        $90,000          -                 -             -               -           -                 -
Bennett           2000        $90,000                                   $232,646
CEO, Director

James             1999              -          -                 -             -               -           -                 -
McGowan,          2000                                                  $232,646
Director

Charles           1999              -          -                 -             -               -           -                 -
Barnhill,         2000                                                  $232,646
Director

Reginald          1999              -          -                 -             -               -           -                 -
Davis, Director   2000                                                  $232,646

Richard           1999              -          -                 -             -               -           -                 -
Surber,           2000                                                  $232,646
Director

M. O. Rife, III,  1999              -          -                 -             -               -           -                 -
Director          2000                                                  $232,646

Mark Zouvas       1999        $90,000          -                 -             -               -           -                 -
Chief Financial   2000        $90,000
Officer
====================================================================================================================================
</TABLE>


Compensation of Directors

The Company's directors were not compensated for their services prior to January
1, 2000. During the fiscal year ended September 30, 2000, each director received
fifty thousand  (50,000)  restricted  shares of the Company's common stock which
had been  Registered  pursuant to an S-8  Registration  Statement filed with the
Securities  and Exchange  Commission  on December 15, 1999.  The fifty  thousand
shares received by each director were valued at $232,646.

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.

---------------------
     (2)Mr. Bennett and Mr. Zouvas each received a total of 60,000 shares of the
Company's  common stock in lieu of a portion of their  salary  during the fiscal
year.  The shares  were issued as free  trading  shares  having been  registered
pursuant  to  S-8  filings  on  March  24,  and  June  15,  2000.  See  "Certain
Relationships and Related Transactions.

                                       25

<PAGE>


<TABLE>
<CAPTION>



                                                                     Amount and Nature of
      Title of Class               Name and Address of               Beneficial Ownership          Percent of class
      --------------               -------------------               --------------------          ----------------
<S>                            <C>                                  <C>                           <C>
                                    Beneficial Owner
       Common Stock                 Joe Bill Bennett                        88,668                       0.7%
    ($0.02) par value            13001 Mountainview Road
                                   Aubrey, Texas 76227

       Common Stock                    Mark Zouvas                          23,175                       0.2%
    ($0.02) par value                 5601 El Campo
                                 Fort Worth, Texas 76107

       Common Stock                  M. O. Rife, III                        62,000                       0.5%
    ($0.02) par value                 5601 El Campo
                                 Fort Worth, Texas 76107

       Common Stock              Directors and Executive                    173,843                      1.4%
    ($0.02) par value            Officers as a Group (3
                                      individuals)

       Common Stock             Global Universal, Inc. of                  8,000,000                      84%
    ($0.02) par value                   Delaware
                                   11701 South Freeway
                                  Burleson, Texas 76028
</TABLE>


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

During the year ended September 30, 2000:

(a) On January 23, 2000, the Board of Directors  authorized the Company to issue
100,000  shares  of its  common  stock  to each of the  Company's  directors  as
compensation  for services  rendered.  On February 9, 2000,  the Company  issued
25,000  shares of its  restricted  common  stock,  which the  Company  valued at
$144,500,  to each of the six members of the Board of Directors;  James McGowan,
Charles  Barnhill,  Reginald  Davis,  Richard  Surber,  M.O. Rife III and Joe B.
Bennett.  On June 1, 2000,  the Company  issued 25,000 shares of its  restricted
common stock, which the Company valued at $88,146, to each of the six members of
the Board of Directors; James McGowan, Charles Barnhill, Reginald Davis, Richard
Surber, M.O. Rife III and Joe B. Bennett.  The total value of the 300,000 shares
issued to Directors is $1,395,876.

(b)  The  Company  purchased  additional  oil  and  gas  leases  from  Rife  Oil
Properties,  which is controlled by M. O. Rife III, a Director of the Company by
issuing  8,000,000  shares  of its  common  stock  with an  aggregate  value  of
$1,721,980 (See exhibit 10.1).  For additional  information,  see Form 8-K filed
December 13, 1999.

(c) The  Company  issued  1,000,000  shares  of its  common  stock  to Rife  Oil
Properties,  Inc. in settlement of a note payable,  plus accrued interest and an
account  payable  balance   applicable  to  lease  operating  expenses  totaling
$910,631.  (See exhibit 10.1).  For additional  information,  see Form 8-K filed
December 13, 1999.

                                       26

<PAGE>



(d) In February, 2000, the Company purchased all of the outstanding stock of the
Lincoln  Health  Fund,  Inc.  ("Lincoln")  from a  stockholder  of the  Company.
Lincoln's  only asset was a parcel of land located in Fort Worth,  Texas,  which
was subsequently sold in August,  2000. The Company issued 600,000 shares of its
common stock valued at  $3,468,000  and  subsequently  sold the property for net
proceeds  of  $163,808  and  realized  a loss on the  disposal  of the  asset of
$3,304,192. (See exhibits 10.12 & 10.13).

(e) Rife Oil Properties,  Inc.  ("Rife") is owned by the M. O. Rife III Trust A,
which is  controlled  by M. O. Rife III, a Director of the Company.  Rife is the
operator  of all oil and gas  leases  owned by the  Company.  For the year ended
September  30,  2000,  Rife  charged  the Company  $277,022  for  operating  the
Company's oil and gas wells.

(f) The Company  borrowed $30,000 from M. O. Rife III, Trust A during the fiscal
year at an interest  rate of 11%. The term of the notes were for one year due at
various  dates in the next fiscal year.  (See note 5(f),  Notes to the Financial
Statements.)

(g) In June,  2000,  the Company's  Chief  Financial  Officer paid the Company's
Auditor $12,547 for services rendered. The funds advanced by the Chief Financial
Officer  are  reflected  in the  September  30, 2000  balance  sheet as accounts
payable to a related party.

(h) The Company  issued  180,000  shares of its common  stock with an  aggregate
value of  $370,956  to its three  executive  officers  as  payment  for  accrued
salaries,  which had been accruing  since 1998.  As of September  30, 2000,  the
Company has an accrued  liability of $99,544  representing  wages still owed the
executive officers.

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 26 of this Form
     10-KSB, which is incorporated herein by reference.

(b)  Reports on Form 8-K.  The  Company  filed no reports on form 8-K during the
     last quarter of the fiscal year ending September 30, 2000.

                                       27

<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 16th day of January, 2001.


Power Exploration,
Inc.




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         January 16, 2001
----------------------    and Director
Joe Bennett


/s/  Mark S. Zouvas        Chief Financial Officer         January 16, 2001
----------------------
Mark S. Zouvas


/s/  M. O. Rife, III       Chairman, Director              January 16, 2001
----------------------
M. O. Rife, III






                                       28

<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

10.1      *         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 December 13, 1999).

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

                                       29

<PAGE>



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

10.4      **        Compromise  Settlement  Agreement  and Mutual  Release dated
                    December  20,  1999  between  Power  Exploration,  Inc.  and
                    Benchmark Equity Group, Inc., Rife Oil Properties, Inc., and
                    Jeffrey W. Tomz.

10.5      **        Compromise  Settlement  Agreement  and Mutual  Release dated
                    December  20,  1999  between  Power  Exploration,  Inc.  and
                    Trident III, L.L.C.

10.6      **        Compromise  Settlement  Agreement  and Mutual  Release dated
                    December  20,  1999  between  Power  Exploration,  Inc.  and
                    Benchmark Equity Group, Inc.

10.7      **        Purchase  Agreement  dated  December 20, 1999 between  Power
                    Exploration, Inc. and Benchmark Equity Group, Inc.

10.8      **        Purchase  Agreement  dated  December 20, 1999 between  Power
                    Exploration, Inc. and Trident III, L.L.C.

10.9      32        Fee Agreement for Legal Services between Power  Exploration,
                    Inc. and Richard Surber dated March 24, 2000.

10.10     35        Contract for Financial  Public  Relations  Services  between
                    Power  Exploration,  Inc.  and  Interwest  Associates  dated
                    September 15, 2000.

10.11     42        Advisory  Agreement  dated  September 21, 2000 between Power
                    Exploration, Inc. and Howard A. Pence.

10.12     47        Agreement  between  Power  Exploration,   Inc.  and  Genesis
                    Capital Corp. dated February 9, 2000, for the acquisition of
                    Lincoln Health Fund, Inc.

10.13     58        Advisory  Agreement entered into between Power  Exploration,
                    Inc. and Ronald Welborn Dated December 8, 1999.

10.14     64        Advisory  Agreement entered into between Power  Exploration,
                    Inc. and Allen Z. Wolfson Dated December 8, 1999.

10.15     71        Merger and Acquisition Agreement dated March 20, 2000 (Pepin
                    Oil Company, Inc. Acquisition).

21.1      *         Subsidiaries of the Issuer

23        87        Consent of Auditor


                                       30

<PAGE>


27        88         Financial Data Schedule "CE"

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

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
filed January 14, 2000 by the Company.

** Previously  filed and  incorporated  herein by reference from the Form 10-QSB
filed February 22, 2000 by the Company.


                                       31