SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

                                  ANNUAL REPORT

                       Pursuant to Section 13 or 15 (d) of
                     the Securities and Exchange Act of 1934

For the fiscal year ended                                   Commission File
June 30, 1997                                                Number 0-15379
                                Power-Cell, Inc.
               (Exact name of registrant as specified in charter)

               Colorado                                      84-1029701
--------------------------------------------------------------------------------
        (State or other jurisdiction of     (I.R.S. Employer Identification No.)
        incorporation or organization)


 660 Preston Forest Center, Box 200
 Dallas, Texas                                         75230
--------------------------------------------------------------------------------
    (Address of principal executive offices)         (Zip Code)

                                 (214) 373-1887
               (Registrant's telephone number including area code)

Securities registered pursuant to Section 12(b) or 12(g) of the Act:
                          $.0001 par value common stock

Indicated  by check  mark  whether  the  registrant  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months and (2) has been  subject to such  filing
requirements for the past 90 days.

                                    Yes X No
                                       --   --
The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant is approximately $216,000. This calculation is based upon the average
of the bid and asked prices of the Registrant's Common Stock on June 30, 1997.

The  number  of  shares  of the  Registrant's  $.0001  par  value  Common  Stock
outstanding as of September 30, 1997 was 6,216,875.

 
                                                         
                                        1

<PAGE>


                                POWER CELL, INC.
                        (A Development Stage Enterprise)

                                     PART I

Item 1.   Business
        
     (a)  General Development of Business.
                                
          On December 27, 1988,  the United States  Patent and Trademark  Office
          issued a United States' Letter Patent to Power-Cell,  Inc., a Colorado
          corporation  (the  "Company")  relating  to  certain  features  of the
          Company's  replaceable  low-cost  reserve  battery  charger unit.  The
          patent entitles the Company to prohibit  others from making,  using or
          selling the  invention  claimed for a period of  seventeen  (17) years
          from  the  date  of  issue.  The  Company  filed a  Divisional  Patent
          Application  on September  19, 1988  relating to other  aspects of the
          battery  charger unit. The Company was advised on August 22, 1989 that
          certain of its claims contained in its Divisional  Patent  Application
          are allowable by the U.S.  Patent Examiner and the patent will advance
          to issue.  Based upon the results of a search  conducted of the Untied
          States  Patent and  Trademark  Office  records in March  1987,  it was
          determined that there were no U.S.  patents that would be infringed by
          the  manufacturing  and marketing of the Product,  and no patents have
          subsequently  come to the  attention  of the  Company  which  would be
          infringed.  In addition,  the Company has filed for patent  protection
          relating to the battery charger unit in thirteen foreign countries and
          was  advised on August 8, 1989 that its patent  application  in Spain,
          Italy,  Great  Britain,  Australia and Argentina has been approved for
          issue.   There  can  be  no  assurance  that  such  additional  patent
          protection can or will be obtained.

          On May 27,  1989,  the  Company  entered  into a letter of intent (the
          "Letter of Intent")  with Daewoo  Heavy  Industries,  Inc.,  of Seoul,
          Korea  ("DHI") to  complete  the  development  program for the Company
          reserve  battery  charger unit (the  "Product").  The Letter of Intent
          provided  that DHI would  bear  most  costs and  expenses  related  to
          development  of the  Product.  The  Company  would  provide  technical
          assistance and pay regulatory costs. Upon satisfactory  development of
          the Product pursuant to the development  program, the parties intended
          to  negotiate  a  definitive   agreement  for  the   manufacture   and
          distribution of the Product on a worldwide basis.

          Negotiations  pursuant  to the  Letter of Intent  were  terminated  in
          September,  1990. DHI informed the Company that DHI's prime bank would
          not approve a loan to DHI for the Product on the grounds of government
          policies to regulate the business  diversification of conglomerates in
          Korea.  In  addition,  DHI  informed  the Company  that DHI's Board of
          Directors decided to postpone  indefinitely DHI's participation in the
          project due to increased wage and material costs for cases and plates,
          the strength of the Korean won,  and the general  problem of oil price
          increases caused by the crises in the Persian Gulf.

 
                                        2

<PAGE>
 
          Power Cell, Inc.  entered into an Agreement of Limited  Partnership on
          October  9,  1992,  by and among  Reserve  Battery,  Inc.,  a Colorado
          corporation  as general  partner (the name of the general  partner was
          amended to read  "Reserve  Cell Limited  Liability  Company",  General
          Partner of Reserve Battery Cell, L.P.), and other parties at interest.

          The parties,  as above,  formed a limited partnership with the name of
          "Reserve  Battery Cell, L.P" subject to the provisions of the Colorado
          Uniform  Limited  Partnership  Act of 1981,  as  amended,  to develop,
          manufacture,  market and sell the reserve  battery  product lines;  to
          obtain financing and refinancing to accomplish the foregoing  purposes
          and other provisions normally required in such projects.

          Power Cell, Inc. has a  participation  of 7.35% percent in the Reserve
          Battery Cell, L.P., that may be increased or decreased, due to certain
          events  pending,  namely  the legal  action of  Reserve  vs.  Osmic et
          al.(See item 3, page 5). Should  Reserve  prevail in this matter,  the
          5.34%  interest of Osmic in the limited  partnership  will be canceled
          and re-allocated on a pro rata basis between Reserve, Power Cell, Inc.
          and  the  international   rights  holders.   Further,   the  right  to
          participate in 41% of the Power Cell, Inc.  domestic  royalties should
          also be  canceled.  The  three  year  option of Osmic to  acquire  200
          thousand  PCI  common  shares at $1.00 per share  expired  on March 5,
          1995.  (originally  20  million  shares at a one cent per share  cost,
          adjusted  for a 100/1  reverse  split of the common  shares  effective
          November 21, 1994). In addition,  PCI will receive royalty payments on
          all units produced and sold in the United States and its  possessions.
          Royalty  payments on  international  sales of the unit will be paid to
          individual  international  rights holders or their designees,  some of
          which are affiliates of PCI, and all of which are limited  partners in
          the partnership,  on the following basis: one-third (33 1/3%) to J. C.
          Rambin; one-third (33 1/3%) to Rudy Marich; one-third to Howard Farkas
          (75% of 1/3) and Burt Kanter (25% of 1/3).

          The company was  advised by  Reserved  Battery,  Inc. on June 30, 1997
          that litigation had been settled  between Reserve and OSMIC,  Inc. and
          furnished with a copy of the assignments.  OSMIC, Inc. has assigned to
          Reserve Battery, Inc. the above cited limited partnership interest and
          the  license  royalty  interest of Power Cell,  Inc./OSMIC,  Inc.  The
          Company is currently reviewing the release and assignment to determine
          the  adequacy of the legal  conveyance  of the royalty of (41%) of its
          domestic royalty provision; and its prorata portion of the 5.34% OSMIC
          interest in the limited partnership to Power Cell, Inc.

          Power Cell, Inc. entered into a License  Agreement on October 9, 1992,
          by  and  among  Reserve  Battery  Cell,   L.P.,  a  Colorado   limited
          partnership  (Reserve),  the  International  Rights  Holders and other
          parties at interest. The license agreement granted to Reserve included
          the  rights  to  the   patents,   technology   and  the  Domestic  and
          International  Rights,  to  develop,  produce,  market  and  sell  the
          product.
                                       3

<PAGE>
          The separate  license  royalty  agreement  between the Company and the
          Partnership provides that the Company will receive royalty payments on
          all Power Cell units  produced  and sold in the Untied  States and its
          territories from 5% to 20% of annual gross per unit.  Royalty payments
          on international  sales of Power Cell units will be paid to individual
          international  rights  holders,  some of which are  affiliates  of the
          Company (director and/or significant  shareholders),  and all of which
          are limited partners in the Partnership.

     (b)  Financial Information About Industry Segments.
              
          Not applicable.

     (C)  Narrative Description of Business.
           
          The  Company  was  organized  in April  1986 to seek out and  evaluate
          potential  business   opportunities.   It  received  $360,000  in  net
          proceeds,  before offering expenses of approximately $44,000, from its
          initial public offering of 400,000 Units of its Common Stock and Class
          A Warrants  ("Units") that closed in December 1986.  From the close of
          that offering until the Spring of 1987, the Company  evaluated various
          business   opportunities.   In  May  1987,   the  company  and  Balzac
          Investments,  Inc.  ("Balzac")  entered into a Merger  Agreement.  The
          Merger was  completed  on February 19, 1988 after the  declaration  of
          effectiveness  of the Company's Post Effective  Amendment  Number 6 to
          its  Registration  Statement of Form S-18.  Upon  consummation  of the
          Merger,  the Company  changed its name to Power-Cell,  Inc. The reason
          for this name change was that the primary  business of the Company was
          the development for eventual manufacture and marketing of the Product.

          In January  1987,  Balzac  purchased  the rights to a battery  charger
          product  (the  "Product").  As a result of the  Merger,  the rights to
          manufacture,  market  and  distribute  the  Product  and  all  related
          technology in the Untied States and its  territories now belong to the
          Company.   Other   individuals   and   entities  who  are  all  former
          shareholders  of  Balzac,  own all  the  international  rights  to the
          Product. The Product is a reserve battery  approximately 6 inches by 8
          inches  encased in hard form plastic that is designed to be carried in
          a car and used to  charge a "dead"  automotive  battery.  The  Product
          utilizes a lead acid cell  commonly used in marine  batteries.  Marine
          batteries  have been reported to have  retained  full  capacity  after
          storage for up to nine years.  Approximately 12 minutes after plugging
          the  Product  into the  cigarette  lighter  of a car,  the  Product is
          designed to transfer  enough  energy to the "dead"  battery to allow a
          normal  restart.  The  Product is designed to be used once and then be
          replaced. The Company does not consider the Product to be hazardous.

 
                                        4

<PAGE>
 
          The Company  believes the  potential  market for the Product  includes
          every  operator  of a car,  truck  or boat  that  uses a  battery  for
          starting  purposes.  The Company  intends to develop,  manufacture and
          market  the  Product  through  one  or  more   third-party   companies
          specializing  in  the   manufacture   and  national   distribution  of
          batteries.  Prior to the Merger,  Balzac executed a royalty  agreement
          with its  shareholders  and assigned the  international  rights to the
          Product to certain of its shareholders,  both of which were conditions
          precedent to the Merger.  The company is not entitled to international
          rights to the Product  and,  therefore,  has no right to  manufacture,
          market or  distribute  the Product  outside the United  States and its
          territories.  The  Company  is  also  obligated  to pay  the  expenses
          incurred in filing foreign patent  applications  for the Product which
          expenses will be reimbursed out of a royalty  interest  granted to the
          shareholders of Balzac prior to the Merger. These international rights
          are currently owned by four individuals and entities, all of which are
          principal shareholders of the Company.

          Management intends that the Product, if marketed and distributed, will
          compete with many other products including batteries, battery chargers
          and  jumper  cables.   Many   manufacturers   of  these  products  are
          established,  well-financed  entities with greater financial resources
          than  the  Company,   well-established  products,   existing  markets,
          customer lists and established distribution centers.

          The Company  has no  full-time  or  part-time  employees  but uses one
          consultant, who devotes substantially all of his time to the Company's
          business.

     (d)  Financial Information About Foreign and Domestic Operations and Export
          Sales.
             
          Not applicable.

Item 2.   Properties
             
          The Company owns no real estate.  The Company  currently shares office
          space in Dallas, Texas with J.C. Rambin on a deferred payment basis.

Item 3.   Legal Proceedings
            
          On December 23, 1993, a complaint  was filed,  and amended on December
          28, 1993, in District Court, County of Arapahoe, State of Colorado.


  
                                        5

<PAGE>

 
          o    The  plaintiffs  are Reserve Cell Limited  Liability  Company,  a
               Colorado limited  liability  company,  and as the General Partner
               for Reserve Battery Cell, L.P., a Colorado Limited Partnership.

          o    The defendants are National  Digital  Electronics,  Inc., a Texas
               corporation,  OSMIC, Inc., a Texas  corporation,  Onkar S. Modgil
               and  Ramon V.  Jarrell.The  allegations  and  claims  for  relief
               involve;  Disregard  of  Corporate  fictions,  civil  conspiracy,
               Breach of RBC Partnership contract,  Breach of License Agreement,
               Specific performance of License Agreement,  Breach of Development
               Contract,  Intentional Interference with Contractual obligations,
               Fraud  by  False  Representation,   Fraud  by  Non-disclosure  or
               Concealment,   Misappropriation  of  Trade  Secrets,   Breach  of
               Fiduciary Duty,  Aiding and Abetting Breach of Fiduciary Duty and
               Exemplary Damages.


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

          A special meeting of the  shareholders of Power Cell, Inc. was held in
          Dallas,  Texas on June 30, 1993.  Its purpose was to consider and vote
          to ratify,  approve and adopt the Agreement of Limited Partnership and
          the License Agreement, both dated October 9, 1992 by and among Reserve
          Battery  Cell L.P.  (the  partnership),  Power  Cell,  Inc.  and other
          parties at interest. The proposal was approved, ratified and adopted.

                                     PART II

Item 5.   Market for the Registrant's Common Equity and Related Stockholder 
          Matters.

          The initial public offering of Units of the Company's Common Stock and
          Class A Warrant was  completed on December 16, 1986 and,  between that
          time and May 16, 1988,  the date on which the Company's  Warrants were
          redeemed,  (Gross Proceeds received  $1,284,000 - Note C) Units of the
          Company's   Common   Stock   and   Warrants   were   traded   in   the
          over-the-counter  market.  The Company's Common Stock began trading in
          the   over-the-counter   market  on  March  4,  1987.   The  Company's
          outstanding common share were reduced by a reverse split at a ratio of
          100-1,  effective  November 21, 1994. As of June 30, 1995, the Company
          had 886 shareholders of record.

          The following table sets forth the range of quarterly high and low bid
          quotations for the Common stock for the periods indicated.  Quotations
          are  inter-dealer  quotations,  without retail  markups,  markdowns or
          commissions, and may not necessarily represent actual transactions.

                                        6

<PAGE>

 
                               PERIOD                     COMMON STOCK

                                                         High          Low
     A.  July 1, 1995 to September 30, 1995            $   .125    $    .125
         October 1, 1995 to December 31, 1995              .0625        .0625
         January 1, 1996 to March 31, 1996                 .09375       .08375
         April 1, 1996 to June 30, 1996                    .1875        .125

     B.  July 1, 1996 to September 30, 1996                .35          .16
         October 1, 1996 to December 31, 1996              .40          .155
         January 1, 1997 to March 31, 1997                 .34          .125
         April 1, 1997 to June 30, 1997                    .155         .155

Item 6.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations Liquidity and Capital Resources

          On October 21, 1992,  the company  entered into a limited  partnership
          agreement (see General  Development of Business section for outline of
          various  contract  terms and  conditions)  with several  other limited
          partners  and a  sole  general  partner  to  provide  for  management,
          funding, manufacturing and marketing of the Power Cell reserve battery
          unit on a worldwide basis. The company initially owned an 11% interest
          in the limited partnership,  which may increase or decrease due to the
          occurrence of certain events.  The interest  decreased to 7.35% during
          fiscal 1996 due to the addition of outside  investors,  resulting in a
          pro rata dilution.  In addition,  a separate license royalty agreement
          between  the Company and the  limited  partnership  provides  that the
          Company will receive royalty payments on all Power Cell units produced
          and sold in the United States and its territories. Royalty payments on
          international  sales of Power Cell  units  will be paid to  individual
          international  rights holders,  or their designees,  some of which are
          affiliates  of the Company,  and all of which are limited  partners in
          the  partnership,  as follows:  one-third  (33 1/3%) to J. C.  Rambin;
          one-third (33 1/3%) to Rudy Marich; one-third to Howard Farkas (75% of
          1/3) and Burt Kanter (25% of 1/3).

          The contract  agreement has no provision  for direct  funding of Power
          Cell,  Inc. Its earnings,  if any, will be derived from an interest in
          the limited  partnership  together  with  royalties,  if any, from the
          license royalty agreement.

          On  July  1,  1996,  Reserve  Battery  Cell,  L.P.  (Reserve  Battery)
          announced  initial  market  release in select cities of the Power Cell
          Reserve Battery unit.  According to Reserve Battery,  the product will
          plug into a cigarette  lighter or attach directly to battery terminals
          and recharge a battery even in extreme weather conditions (-10 degrees
          F to 100  degrees F) in a matter of minutes.  Also,  these small units
          can be stored for years,  do not need to be  recharged  and never lose
          their power prior to  activation.  The Power Cell has the  strength to
          recharge  a battery  more than once for a few weeks  after it has been
          activated.  It  is a  powerful  5  amp  Hour  battery  and,  with  the
          additional purchase of a Power Inverter,  will operate small household
          and other  electronic  appliances  for hours  during a power outage or
          emergency situation.

                                        7

<PAGE> 

          Reserve Battery is currently marketing the product line through Direct
          Response Television,  magazine print advertising, direct mail, and via
          their Web Site at www.safestart.com.

          Power Cell, Inc. has received  information  from Reserve Battery that,
          as of June 30, 1996,  funds in excess of $4,288,000  had been expended
          on product  development,  capital equipment,  operating  capital,  and
          marketing activities.

          The  Company  has been  informed  by Reserve  Battery,  Inc.  that all
          marketing and operations activities have been curtailed as a result of
          its inability to source sufficient  capital to sustain  operation.  If
          Reserve is  successful  in sourcing a minimum  funding  commitment  it
          plans to launch a sales program via home shopping network in December,
          1997.

          Management is currently  evaluating  its future  course of action.  To
          improve its liquidity, the Company is negotiating for a sale of common
          shares to an investor. Also, the developments herein should assist the
          Company  in  reviewing  the  possibility  of  affiliating  with  other
          companies  through  acquisition  or  merger  combinations  that  would
          provide a financial basis for a public or private placement of debt or
          equity.   There  are  ongoing  discussions  and  analysis  of  several
          potential  candidates  that could  provide a solution to the financial
          requirements  of Power Cell, Inc. to proceed as a viable entity and/or
          an integral part of an existing  operation.  The Company had a working
          capital deficit as of June 30, 1997 of $26,119.

          Results of Operations

          The company has been  engaged in  organizational  and capital  raising
          activities since inception  through June 30, 1997. It has not incurred
          major  operational  expenditures.  The losses incurred since inception
          primarily  reflect  legal,  accounting,  and  administrative  expenses
          associated   with  the   preparation  of  the  merger   documents  and
          registration  statement,  product  development  and  arranging for the
          manufacture  of  its  battery   charger  product  for  test  marketing
          purposes.

                                        8

<PAGE>
 
Item 7.  Financial Statements

         INDEX TO FINANCIAL STATEMENTS


                                                                   Page
                                                                   ----
Independent Auditor's Report                                         F-1

Balance Sheet - June 30, 1997                                        F-2

Statements of Operations - Years ended 
     June 30, 1997 and 1996 and for the period
     from January 21, 1987 (date of
     incorporation) to June 30, 1997                                 F-3

Statements of Shareholders' Deficit - For
     the period from January 21, 1987 (date
     of incorporation) through June 30, 1997                    F-4, F-5

Statements of Cash Flows - Years ended 
     June 30, 1997 and 1996 and for the period
     from January 21, 1987 (date of
     incorporation) to June 30, 1997                                 F-6

Notes to Financial Statements                                        F-7

 
                                        9

<PAGE>
 
Item 8.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
         Financial Disclosure Matters

         There  were no changes  in, nor  disagreements  with,  accountants  on
         accounting and financial  disclosure  matters required to be disclosed
         in this Item.


                                    PART III

Item 9.  Directors and Executive Officers of the Registrant

         The  following  table sets forth the name and age of each director
         and their position and offices with the Company:

          Names                 Age       Current                 Served as
                                          Position               Director Since
--------------------------------------------------------------------------------
Howard L. Farkas                73        Director               1988
Burton W. Kanter                67        Director               1988
Rudy Marich                     71        Director               1989
James C. Rambin                 73        Director, President    1988

          Howard L.  Farkas has been a director of the  Company  since  February
          1988.  From 1981 to the  present,  he has been a part  owner of Farkas
          Group, Inc., a general real estate brokerage company. In addition, Mr.
          Farkas, from 1962 to the present had been a director of the Union Bank
          and Trust,  Denver,  Colorado;  from 1964 to the present he has been a
          director of Windsor  Gardens  Realty,  Inc.,  a real estate  brokerage
          firm;  from 1980 to the  present he had been a director  of  Northwest
          Engineering  Company,  Rapid City,  South Dakota, a quarry and asphalt
          and concrete contractor; from 1980 to 1988 he was a director of Robert
          Halmi, New York, New York, a motion picture production  company;  from
          1983 to the present he has been a director  and  chairman of the board
          of Logic Devices, Inc., Sunnyvale,  California, a semiconductor design
          and  manufacturing  company;  from 1985 to the  present  he has been a
          director of Synthetech,  Inc., Albany,  Oregon, a publicly held enzyme
          process  manufacturing  company;  Mr.  Farkas is also an  officer  and
          director of Acquisition  Industries,  Inc., a blind pool company. From
          1969 through 1982,  Mr. Farkas served as president and chairman of the
          board of Environmental  Developers,  Inc., a company which established
          and built planned residential  communities.  Mr. Farkas graduated from
          the  University  of Denver and received his B.S.  degree in 1948,  and
          became a certified  public  accountant in 1951.  Mr. Farkas was a vice
          president of G.A.S.  Corp., the corporate general partner of a limited
          partnership  known as GAS Acquisition  Services  Limited  Partnership,
          which filed for  protection  under Chapter 11 of the Bankruptcy Act on
          June 22, 1990. On September 23, 1992,  Mr. Farkas filed for protection
          under Chapter 7 of the Bankruptcy Act.

                                       10

<PAGE>
 
          Burton W. Kanter is not currently an officer or principal  shareholder
          of  Company.  Mr.  Kanter has been a  director  of the  Company  since
          February 1988. Mr. Kanter has been of counsel to the law firm of Neal,
          Gerber & Eisenberg since February 1986.  Prior to 1986, Mr. Kanter was
          a senior partner of the law firm Kanter & Eisenberg from 1980 to 1985.
          In  addition,  Mr.  Kanter is Chairman of the Board of Walnut  Capital
          Corp.,  a Small  Business  Investment  Company which acts as a private
          venture  capital  firm.  Mr. Kanter serves as a director of Scientific
          Measurement  Systems,  Inc., a manufacturer of industrial  tomographic
          equipment,   HealthCareCOMPARE   Corp.  a  health  utilization  review
          company,  Channel America, LPTV, Inc., a low-power television company,
          and a number of privately held  companies.  Mr. Kanter has written and
          spoken  extensively  on Federal tax matters and is a faculty member of
          the University of Chicago Law School.

          Rudy  Marich has been a  principal  shareholder  of Company  since May
          1988. On April 3, 1989 his  shareholdings  were  transferred to Marich
          Investments,  Ltd. (a Colorado  limited  partnership).  Mr. Marich has
          over 30 years of experience in investment  banking.  For the past five
          years,  Mr.  Marich  has  been  President  of R.B.  Marich,  Inc.,  an
          investment bank and venture  capital  brokerage firm which is a member
          of the National  Association of Securities  Dealers and the Securities
          Investor  Protection Corp. R.B. Marich,  Inc. acted as underwriter for
          Company's initial public offering.  Mr. Marich earned a Master of Arts
          degree and a Bachelor of Arts degree from the  University  of Northern
          Colorado in 1952 and 1950,  respectively.  R.B.  Marich,  Inc.  ceased
          operations  in August,  1990.  Mr.  Marich is  currently  engaged as a
          private Investment Banking Consultant.

          James C. Rambin was a director of Balzac since its  inception  and has
          been a director of Company since  February  1988.  Mr. Rambin has also
          been  President  of  Company  since  February  1988.  From 1982 to the
          present,  he has been  President  and a director of Sandia  Financial,
          Inc., a Dallas,  Texas corporate  finance  consulting firm. Mr. Rambin
          was  President and a director of Oil City  Petroleum,  a publicly held
          oil  production  and  development  company,  from August 1978  through
          September 1982, when he resigned as president.  Mr. Rambin resigned as
          a director of Oil City in December 1983.

Item 10.  Executive Compensation

          During the fiscal year ended June 30, 1997,  no officer or director of
          the Company  received  any  compensation  for their  services as such.
          James C. Rambin  received $2,850  compensation  for his services as an
          independent consultant to the Company.
 
                                       11

<PAGE>
 

Item 11.  Security Ownership of Certain Beneficial Owners and Management

          The  following  table  sets  forth the  number of shares of  Company's
          Common Stock and  percentage  of the  outstanding  shares of Company's
          Common  Stock owned  beneficially  (1) by each  officer,  director and
          director  nominee of Company;  (2) by all  officers  and  directors of
          Company as a group;  and (3) by all other persons who are known to the
          Company  to own more  than 5% of  Company's  Common  Stock.  Except as
          noted,  each  shareholder has sole voting and investment  power of the
          shares listed.





 
                                       12

<PAGE>

<TABLE>
<S>                                          <C>                           <C>  <C>     <C>  


                                              Number of Shares               Percentage of
           Names and Addresses                Beneficially Owned           Outstanding Shares
---------------------------------------------------------------------------------------------

Howard L. Farkas (1, 2)
5460 S. Quebec Street, Suite 300         
Englewood, CO 80111-1918                                       0                        0.00%

S.A. Hellerstein
Trustee for the Farkas Trusts (2)
1139 Delaware Street
Denver, CO 80204                                       1,089,235                       17.25%

Burton W. Kanter (1, 3)
2 N. LaSalle Street, Suite 2410
Chicago, IL 60602                                              0                        0.00%

Windy City, Inc. (3)
8300 Boone Boulevard, Suite 780
Vienna, VA 22182                                         363,078                        5.84%

Rudy Marich (1, 5, 6)
Marich Investments, Ltd.
6025 S. Quebec, Suite 150
Englewood, CO 80111                                            0                        0.00%

Thomas M. Vickers (5)
Trustee of the Marich Family Trust
6025 S. Quebec, Suite 150
Englewood, CO 80111

James C. Rambin (1, 4, 6, 7)
5619 Ridgetown Circle
Dallas, Texas 75230                                    1,452,313                        0.00%

J.L. Rambin (6)
Trustee of the Rambin Family Trust
5619 Ridgetown Circle
Dallas, Texas 75230                                    1,452,314                       46.72%
</TABLE>


1.   Currently director of the company.

2.   The Farkas Trusts are a group of trusts of which the beneficiaries  include
     family members of Howard L. Farkas,  a director of the Company.  Mr. Farkas
     disclaims beneficial ownership of the shares owned by the Farkas Trusts.

3.   Windy City, Inc. is a corporation  composed of certain  interests of family
     member of Burton W. Kanter, a director of the Company. Mr. Kanter disclaims
     beneficial ownership of shares owned by Windy City, Inc.

                                       13

<PAGE>


4.  Currently an officer and director of the Company.

5.  Marich  Investments, Ltd. a Trust organized  under the laws of the State of
    Colorado.

6.  Rambin Family Trust, a Trust organized under the laws of the State of Texas.

7.  The Company has  received a copy of a  statement  on Schedule  13D filed by
    Messrs. Marich and Rambin reporting that on September 3, 1988, they entered
    into a voting  agreement with the intent of acting together  concerning the
    voting power held by them as  shareholders of the Company.  Messrs.  Marich
    and  Rambin  reported  that  they  have  shared  voting  power  and  shared
    dispositive  power  with  respect  to the  shares  owned by each of them of
    record.  Mr. Marich owned or had beneficial  ownership of 1,452,313 shares,
    and Mr. Rambin owned  1,452,313  shares of record.  Mr. Marich has informed
    the  Company  that  he  has  placed  these   1,452,313   shares  in  Marich
    Investments,  Ltd.,  a Trust  organized  under  the  laws of the  State  of
    Colorado.  Mr.  Rambin has  informed  the Company  that he has placed these
    shares in the Rambin Family Trust, a Trust  organized under the laws of the
    State of Texas.

Item 12.  Certain Relationships and Related Transactions.

          The  Company is  obligated  to pay a royalty  to various  individuals,
          including  James C.  Rambin,  on sales of the Product and all products
          produced and/or sold in connection with the technology  related to the
          Product.  This  royalty  pertains  to the initial  acquisition  of the
          technology.


                                     PART IV

Item 13.  Exhibits, Financial Statement, Schedules, and Reports on Form 8-K

   (a)   (1)   List of Financial Statements

               See Item 8.

         (2)   List of Financial Statement Schedules

               All  schedules  for  which  provision  is made in the  applicable
               accounting  regulations of the Securities and Exchange Commission
               are  not   required   under  the  related   instruction   or  are
               inapplicable, and therefore have been omitted.

         (3)   Listing of Exhibits

               The Exhibits  listed on the  accompanying  Exhibit Index are
               filed as part of this report.

     (b)       Reports on Form 8-K

               None.


                                       14

<PAGE>

 
     (c)      Exhibits

              The response to this portion of Item 14 is submitted as a separate
              section of this report.

     (d)      Financial Statement Schedules

              None.

























 


                                       15

<PAGE>


                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                POWER-CELL, INC.
                                  (Registrant)


                          By:   /s/ James C. Rambin
                              -------------------------------
                                James C. Rambin, President


                                Date: October 13, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities and on the dates indicated.


October 13, 1997                        /s/  James C. Rambin
                                        ---------------------------------------
                                        James C. Rambin, President and Director
                                       (Principal Executive Officer)


October 13, 1997                        /s/  Howard L. Farkas
                                        ---------------------------------------
                                        Howard L. Farkas, Director


October 13, 1997                        /s/  Rudy Marich
                                        ---------------------------------------
                                         Rudy Marich, Director


October 13, 1997                        /s/  Burton Kanter
                                        ---------------------------------------
                                         Burton Kanter, Director


                                       16

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT

Board of Directors
Power Cell, Inc.
Dallas, Texas

We  have  audited  the  accompanying  balance  sheet  of  Power  Cell,  Inc.  (a
development stage enterprise) as of June 30, 1997, and the related statements of
operations,  shareholders'  equity  (deficit) and cash flows for each of the two
years in the period ended June 30, 1997 and the period from July 1, 1989 through
June 30, 1997,  which is not  separately  presented.  The period from  inception
through  June 30,  1989,  which is not  separately  presented,  was  audited and
reported on by other auditors. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Power Cell, Inc. (a development
stage enterprise) as of June 30, 1997, and the results of its operations and its
cash flows for each of the two years in the period ended June 30, 1997,  and the
period  from  July 1,  1989  through  June 30,  1997,  which  is not  separately
presented, in conformity with generally accepted accounting principles.

We  have  also  audited  the  combination  of  the  accompanying  statements  of
operations  and cash  flows  for the  period  from  January  21,  1987  (date of
incorporation)  to June 30, 1989 into the period  from  January 21, 1987 to June
30, 1997. In our opinion, such statements have been properly combined.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.  As discussed in Note A, the Company's
significant  operating losses and limited financial  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 A. The accompanying financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.



HEIN + ASSOCIATES LLP

Dallas, Texas
October 8, 1997

                                       F-1

<PAGE>


                                POWER CELL, INC.
                        (A Development Stage Enterprise)

                                  BALANCE SHEET

                               As of June 30, 1997

                                     ASSETS
                                     ------ 


CURRENT ASSET -  Cash                                               $       942

INVESTMENT IN LIMITED PARTNERSHIP, at cost                               31,787
                                                                    -----------

       Total Assets                                                 $    32,729
                                                                    ===========


                      LIABILITIES AND SHAREHOLDERS' DEFICIT
                                                                    -----------

CURRENT LIABILITIES -  Accounts payable and
   accrued expenses                                                 $    27,061

ADVANCES PAYABLE                                                         20,000

COMMITMENTS AND CONTINGENCIES
   (Notes D, F, G and H)

SHAREHOLDERS' DEFICIT:
    Common stock, $.0001 par value, 750,000,000 shares
      authorized; 6,216,875 shares issued and outstanding                   622
    Additional paid-in capital                                        1,552,992
    Deficit accumulated in the development stage                     (1,567,946)
                                                                    -----------

         Total Shareholders' Deficit                                    (14,332)

         Total Liabilities and Stockholders' Deficit                $    32,729
                                                                    ===========









                 See accompanying notes to financial statements.

                                 

                                       F-2

<PAGE>

<TABLE>
<CAPTION>

                                POWER CELL, INC.
                        (A Development Stage Enterprise)

                            STATEMENTS OF OPERATIONS
<S>                                   <C>           <C>            <C>     


                                                                      For the period
                                                                    from January 21,
                                                                     1987 (Date of
                                        Years Ended June 30,         Incorporation)
                                       ---------------------
                                           1997           1996       to June 30,1997
                                      -----------   ----------      ----------------
REVENUE                                    
   Interest and other income          $       189    $      791       $   176,724

EXPENSES
   Product development                         --            --           225,478
   General and administrative              21,528        29,792         1,486,486
   Interest                                    --            --            32,706
                                      -----------    ----------      ----------------
                                           21,528        29,792         1,744,670
                                      -----------    ----------      ----------------

       NET LOSS                       $   (21,339)   $  (29,001)      $(1,567,946)
                                      ===========    ===========     ================

NET LOSS PER SHARE                    $    *         $       *
                                      ===========    ===========

WEIGHTED AVERAGE SHARES
   OUTSTANDING                          6,216,875      6,216,875
                                      ===========    ===========

</TABLE>

* Less than $ (.01)












                 See accompanying notes to financial statements.



                                       F-3

<PAGE>


                                POWER CELL, INC.
                        (A Development Stage Enterprise)
                                             

                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
          For the Period From January 21, 1987 (Date of Incorporation)
                              through June 30, 1997

<TABLE>
<S>                                         <C>   <C>     <C>                  <C>     <C>               <C>          <C>

                                                                                                                          Deficit
                                                                                                                       Accumulated
                                                                                Common Stock              Additional      in the
                                                   Common Stock                  Subscribed                Paid-in     Development
                                             ----------------------       --------------------------
                                              Shares          Amount         Shares       Amount           Capital        Stage
                                             ---------     ---------      ----------     -----------     ----------    ------------
Issuance of stock on January 21, 1987        4,356,942        $  436          -              -             $     564   $     -
Net loss                                          -            -              -              -                  -          (255,419)
                                             ---------     ---------      ----------     -----------       ----------- ------------
    BALANCE, June 30, 1987                   4,356,942           436          -              -                   564       (255,419)

Issuance of stock for legal services
  on February 17, 1988                         163,385            16          -              -                 1,234           -
Stock recorded upon reverse
  acquisition of Magellan                      925,850            93          -              -               285,427           -
Exercise of warrants                           560,698            56          -              -             1,195,194           -
Net loss                                          -            -              -              -                  -          (271,610)
                                            ----------    ----------      ----------      ----------      ----------    -----------
    BALANCE, June 30, 1988                   6,006,875           601          -              -             1,482,419       (527,029)

Net loss                                          -            -              -              -                  -          (273,357)
                                            ----------    ----------      ----------      ----------      ----------    -----------
    BALANCE, June 30, 1989                   6,006,875           601          -              -             1,482,419       (800,386)
Net loss                                          -            -              -              -                  -          (310,335)
                                            ----------    ----------     -----------      ----------      ----------    -----------
    BALANCE, June 30, 1990                   6,006,875           601          -              -             1,482,419     (1,110,721)
Net loss                                          -            -              -              -                  -          (199,455)
                                            ----------    ----------     -----------      ----------      ----------    -----------
    BALANCE, June 30, 1991                   6,006,875           601          -              -             1,482,419     (1,310,176)


</TABLE>

                                   -Continued-

                                       F-4

<PAGE>


                                POWER CELL, INC.
                        (A Development Stage Enterprise)
                                          
                  STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT), Continued 
          For the Period From January 21, 1987 (Date of Incorporation)
                              through June 30, 1997

<TABLE> 
<S>                                  <C>            <C>           <C>           <C>            <C>            <C>
                                                                                                                 Deficit
                                                                                                                Accumulated
                                                                        Common Stock            Additional        in the
                                            Common Stock                 Subscribed              Paid-in        Development
                                      -------------------------   --------------------------
                                         Shares        Amount        Shares         Amount        Capital          Stage
                                      -----------   -----------   -----------    -----------    -----------    -----------
Net loss                                     --     $      --            --      $      --      $      --      $   (87,993)
                                      -----------   -----------   -----------    -----------    -----------    -----------
     BALANCE, June 30, 1992             6,006,875           601          --             --        1,482,419     (1,398,169)

Net loss                                     --            --            --             --             --          (64,367)
                                      -----------   -----------   -----------    -----------    -----------    -----------
     BALANCE, June 30, 1993             6,006,875           601          --             --        1,482,419     (1,462,536)

Subscription of common stock
  on June 30, 1994                           --            --         100,000         25,000         (2,500)          --
Net loss                                     --            --            --             --             --          (31,876)
                                      -----------   -----------   -----------    -----------    -----------    -----------
     BALANCE, June 30, 1994             6,006,875           601       100,000         25,000      1,479,919     (1,494,412)

Issuance of stock subscribed on
   July 14, 1994                          100,000            10      (100,000)       (25,000)        24,990           --
Issuance of stock on July 14, 1994
   for commission on June 30,
   1994 stock offering                     10,000             1          --             --            2,499           --
Issuance of stock on July 14, 1994        100,000            10          --             --           24,990           --
Cost of stock issuance-legal fees
   and commissions                           --            --            --             --           (3,500)          --
Net loss                                     --            --            --             --             --          (23,194)
                                      -----------   -----------   -----------    -----------    -----------    -----------
     BALANCE, June 30, 1995             6,216,875           622          --             --        1,528,898     (1,517,606)

Issuance of stock options for
   legal fees                                --            --            --             --           12,985           --
Net loss                                     --            --            --             --             --          (29,001)
                                      -----------   -----------   -----------    -----------    -----------    -----------
     BALANCE, June 30, 1996             6,216,875           622          --             --        1,541,883     (1,546,607)

Issuance of stock options for legal
   fees                                      --            --            --             --           11,109           --
Net loss                                     --            --            --             --             --          (21,339)
                                      -----------   -----------   -----------    -----------    -----------    -----------
     BALANCE, June 30, 1997             6,216,875   $       622          --      $      --      $ 1,552,992    $(1,567,946)
                                      ===========   ===========   ===========    ===========    ===========    ===========

</TABLE>

                                    
                 See accompanying notes to financial statements.

                                       F-5
                                                          

<PAGE>


                                POWER CELL, INC.
                        (A Development Stage Enterprise)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<S>                                                       <C>                   <C>            <C>     

                                                                                                 For the Period
                                                                                               from January 21,
                                                                                                  1987 (Date of
                                                               Years Ended June 30,              Incorporation)
                                                          ------------------------------
                                                               1997              1996          to June 30, 1997
                                                          -----------        -----------       ----------------
OPERATING ACTIVITIES:
    Net loss                                              $   (21,339)      $    (29,001)         $ (1,567,946)
    Adjustments to reconcile net loss to
       net cash used in operating activities:
    Amortization and depreciation                               -                  -                    24,644
    Loss on theft of equipment                                  -                  -                       741
     Issuance of stock options for services                    11,109             12,985                24,094
    Changes in operating assets and liabilities:
        Decrease in other current assets                        -                    900                 -
        (Increase) in other assets                              -                  -                   (16,400)
        Increase (decrease) in accounts payable
        and accrued expenses                                      800             (1,800)               27,061
                                                         ------------         -----------         ------------
    NET CASH USED IN
     OPERATING ACTIVITIES                                       (9,430)          (16,916)           (1,507,806)
                                                         -------------     -------------          ------------

INVESTING ACTIVITIES:
 Investment in limited partnership                              -                  -                   (31,787)
 Purchase of office equipment                                   -                  -                    (8,985)
                                                         --------------    -------------          ------------
    NET CASH USED IN INVESTING
     ACTIVITIES                                                 -                  -                   (40,772)
                                                         --------------    -------------          ------------

FINANCING ACTIVITIES:
 Advance received                                               -                  -                    20,000
 Proceeds from issuance of common stock
   and exercise of warrants                                     -                  -                  1,533,020
 Cost of stock issuance                                         -                  -                     (3,500)
                                                        --------------    -------------           -------------
     NET CASH PROVIDED BY
     FINANCING ACTIVITIES                                       -                  -                  1,549,520
                                                        --------------    -------------            ------------

INCREASE (DECREASE) IN CASH                                     (9,430)        (16,916)                    942

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                                            10,372          27,288                    -
                                                       ---------------    ------------          --------------

CASH AND CASH EQUIVALENTS AT
 END OF PERIOD                                         $           942    $     10,372          $          942
                                                       ===============    ============          ==============

SUPPLEMENTAL INFORMATION - cash
 paid during the period for interest                   $          -       $      -              $       32,706
                                                       ===============    ============          ==============
</TABLE>


NONCASH  TRANSACTIONS  -  Common  stock  was  issued  for  services  and for the
acquisition of Magellan (Note B) in fiscal year 1988.


                 See accompanying notes to financial statements.

                                       F-6
                                    
                                                         

<PAGE>


                                POWER CELL, INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

    Organization
    ------------

    Magellan  Corporation  (Magellan) was  incorporated in Colorado on April 28,
    1986 for the purpose of raising  capital to seek and participate in business
    opportunities. Effective February 19, 1988, Magellan completed a merger with
    Balzac  Investments,  Inc.  (Balzac)  (see Note B),  which was  incorporated
    January 21, 1987, and the resulting entity adopted the name Power Cell, Inc.
    (the  Company).  The  Company  has had no revenues  from  operations  and is
    considered to be in the development stage. The Company has certain rights to
    a battery charger product (see Notes D and G).

    Loss per Common Share
    ---------------------

    Loss per common  share is based upon the weighted  average  number of common
    shares  outstanding.  Warrants  prior to exercise are not  considered in the
    computation as their effect would be antidilutive.

    Office Equipment
    ----------------

    Office  equipment is recorded at cost.  Depreciation is calculated using the
    straight-line  method over the  estimated  useful life of the assets.  As of
    June 30, 1994, the equipment had been fully depreciated.

    Organization Costs
    ------------------

    Costs incurred in connection with the  organization of Balzac ($16,400) were
    capitalized and amortized over five years using the straight-line method.

    Cash Equivalents
    ----------------

    For purposes of reporting cash flows, the Company considers demand deposits,
    money market accounts and certificates of deposits with an original maturity
    of three months or less to be cash equivalents.

    Investment in Partnership
    -------------------------

    The  Company  has  an  approximate  7.35%  limited  partner  interest  in  a
    partnership and the investment is carried at cost.

    Income Taxes
    ------------

    The Company  accounts  for  deferred  income  taxes on a  liability  method,
    whereby deferred income taxes are provided for temporary differences between
    financial statements and income tax reporting amounts.

    Long-Lived Assets
    -----------------

    The Company  accounts for long-lived  assets in accordance with Statement of
    Financial Accounting Standards (SFAS) No. 121.




                 See accompanying notes to financial statements.

                                       F-7
                                    

                                                       

<PAGE>


                                POWER CELL, INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

    Continuation as a Going Concern
    -------------------------------

    The  accompanying  financial  statements  and  related  footnotes  have been
    prepared assuming the Company will continue as a going concern.  The Company
    is in the  development  stage  and has  incurred  significant  losses  since
    inception  and  has  limited  financial   resources.   These  factors  raise
    substantial  doubt  about  the  Company's  ability  to  continue  as a going
    concern.  The Company will need to raise capital and/or  eventually  achieve
    profitable  operations in order for it to continue as a going  concern.  The
    Company  entered into a limited  partnership  agreement in October 1992 that
    management believes may result in successful  manufacturing and marketing of
    the Company's  product and the eventual  creation of a royalty stream to the
    Company  and  potential   earnings  from  the  Company's   interest  in  the
    partnership  (see note G). As of June 30,  1997,  the  general  partner  has
    reported to Company management that initial market release of the product in
    select  cities will commence upon  securing a  manufacturing  facility.  The
    Company has no obligation to provide  funding to the  partnership and has no
    management role in the partnership.


NOTE B - MERGER

    Effective  February 19, 1988,  Magellan exchanged shares of its common stock
    for all of the issued and  outstanding  common shares of Balzac.  The shares
    issued  represented  approximately 83% of the outstanding shares of Magellan
    after the merger,  and officers and  directors of Balzac became the officers
    and directors of Magellan.  Accordingly,  for financial  reporting purposes,
    Balzac is deemed to have acquired  Magellan.  The  transaction was accounted
    for using the purchase  method of accounting and was recorded based upon the
    value of Magellan's  identifiable  net assets,  net of offering  costs.  The
    accompanying  financial  statements,  during the period prior to the merger,
    reflect  the  historical  accounts  of  Balzac.  Magellan's  operations  are
    included in the accompanying  financial  statements  commencing February 19,
    1988.   Balzac's   equity  section  has  been  restated  from  the  date  of
    incorporation  to  reflect  the  number  of  shares  which  would  have been
    outstanding under Magellan's $.0001 par value capital structure.

    The merger agreement also entitles Balzac's  shareholders of record prior to
    the merger to a 10% royalty on gross sales of the battery charger product.

NOTE C - SHAREHOLDERS' EQUITY

    On December 6, 1986,  Magellan  received the net  proceeds  from the sale of
    400,000 units (each unit consisting of one share of Magellan's  common stock
    and one Class A warrant) at $.01 per unit. Each Class A warrant entitled the
    holder to  purchase  at a price of $.02,  one share of common  stock and one
    Class B warrant.  Each Class B warrant entitled the holder to purchase, at a
    price of $.03, one share of common stock and one Class C warrant. Each Class
    C warrant entitled the holder to purchase,  at a price of $.04, one share of
    common  stock and one Class D  warrant.  Each Class D warrant  entitled  the
    holder to purchase one share of common stock for $.05 per share.

    On April 13, 1988,  the Company  called all Class A, B, C and D warrants for
    redemption.  Certain  warrants  were  exercised  and  the  Company  received
    approximately  $1,284,000  net of escrow fees and the cost of redeeming  the
    remaining  warrants.  Other costs of  approximately  $88,000  related to the
    registration  of the  warrants  have been offset  against the  proceeds  and
    charged to additional paid in capital.  All outstanding  Class A, B, C and D
    warrants were redeemed on May 16, 1988.

                                       F-8
                                

<PAGE>
      
                                POWER CELL, INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

    During fiscal 1995, the Company issued 20,000,000 shares of common stock for
    $50,000,  $25,000  of  which  had  been  subscribed  as of  June  30,  1994.
    Commissions  and other expenses  related to the stock issuances of 1,000,000
    shares of stock and $3,500 of cash were paid.

    The Company's board of directors approved a 100 for 1 reverse stock split on
    October 25, 1994, which was effective for shareholders of record on November
    21, 1994. All shareholders' equity information in the accompanying financial
    statements  has been  restated  to reflect  the  reverse  split as if it had
    occurred at inception.

    During fiscal 1997,  the Company  granted  options to purchase up to 200,000
    shares  of its  common  stock for $100 in lieu of legal  services  valued at
    approximately  $24,000.  The options  expire August 31, 2000. The portion of
    the services  attributable to fiscal years 1997 and 1996 amounted to $11,109
    and  $12,985,   respectively,   and  were  charged  to   operations  in  the
    accompanying statements of operations.

NOTE D - ACQUISITION OF BATTERY CHARGER PRODUCT

    On January 22,  1987,  Balzac  entered  into an  agreement  to purchase  the
    product,  Power Cell, and all related technology from the developers.  Power
    Cell is the trade name of a reserve  battery  device  intended  to be stored
    until needed and immediately brought to full working capacity by activation.

    Balzac paid $150,000 cash  (including a total of $52,995 to a director and a
    former  officer of the  Company)  for the  product  and the  technology.  In
    addition,  Balzac agreed to make royalty payments to the former owners equal
    to $.10 per unit for the first 11.2 million units sold and $.05 per unit for
    the  next 18  million  units  sold  up to  $2,000,000.  The two  individuals
    referred to above are entitled to 45.2% of this royalty. The Company assumed
    this royalty obligation pursuant to the merger.

    The  purchase  price  was  funded by a note  payable  to a  director  of the
    Company.  The principal and accrued interest (total of $176,984) was paid in
    July 1988.

NOTE E - INCOME TAXES

    The components of the Company's deferred tax accounts are as follows:

                                                            June 30,
                                                       ---------------------
                                                         1997         1996
                                                       -------      -------

        Deferred tax asset - net operating loss
          carryforward                              $  420,000    $ 413,000
        Deferred tax asset valuation allowance        (420,000)    (413,000)
                                                    ----------   ----------
        Net deferred tax asset                      $        -    $       -
                                                    ==========   ========== 

    For  Federal  income tax  purposes at June 30,  1997,  the Company had a net
    operating loss carryover of approximately  $1,200,000.  If not utilized, the
    net operating loss will begin expiring in 2002 through 2012.

 
                                       F-9

<PAGE>


                                POWER CELL, INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

NOTE F - RELATED PARTY TRANSACTIONS

    During 1988, the Company used Corporate  Stock  Transfer,  Inc. (CST) as its
    transfer  agent.  An officer,  director  and  shareholder  of CST was also a
    director of the Company in 1988.  Total  payments to CST by the Company (and
    Magellan  prior to the  merger)  through  June 30,  1988 were  approximately
    $13,000.  The Company discontinued using CST in 1989. Effective February 19,
    1988, the Company  entered into a consulting  agreement  with  International
    Marketing Visions, Inc. (IMV), which required monthly payments of $1,000 for
    a term of thirty  months.  This  agreement  expired during fiscal year ended
    June 30, 1991 and was not renewed.  A family member of a former  director of
    the Company is a principal shareholder of IMV.

    The  Company  does not have  international  rights  to its  battery  charger
    product.  However,  the Company is obligated to pay for expenses incurred in
    filing  foreign  patent  applications  for the  product on behalf of certain
    directors of the Company and other  individuals  who hold the  international
    rights.  These amounts are to be repaid out of the 10% royalty  discussed in
    Note B. The total paid by the Company  pursuant to this  obligation  for the
    period from  January 21, 1987 (date of  incorporation)  to June 30, 1997 was
    $72,057.  These amounts were paid  primarily  prior to fiscal year 1993, and
    the general partner has since assumed the obligation.

NOTE G - LIMITED PARTNERSHIP TERMS

    In October 1992, the Company  entered into a limited  partnership  agreement
    with several other limited partners (including  directors and/or significant
    shareholders  of the Company) and a sole general  partner to provide for the
    initial testing, and potentially, the management, funding, manufacturing and
    marketing  of  the  Power  Cell  reserve   battery  unit.  In  exchange  for
    contribution of rights to the Power Cell unit the Company initially obtained
    an approximate 11% interest in the limited  partnership (the Partnership) as
    a limited partner,  which is subject to certain preference  distributions to
    the general partner. The Company's initial Partnership interest decreased to
    approximately  7.35%  at June  30,  1997 due to the  admittance  of  outside
    investors  into  the  Partnership.  The  Company  is  not  involved  in  the
    management of the Partnership.

    A separate license royalty agreement between the Company and the Partnership
    provides that the Company will be entitled to royalty  payments on all Power
    Cell units produced and sold in the United States and its territories  equal
    to 5% to 20% of the annual  gross sales of the  Partnership  up to a certain
    sales level as  specified  in the  agreement.  A portion of this royalty was
    assigned to another  party as described  below.  Royalties on  international
    sales of Power Cell units will be paid to  individual  international  rights
    holders,  some of which are  affiliates  of the  Company  (directors  and/or
    significant  shareholders),  and all of which are  limited  partners  in the
    Partnership.

    In  connection  with the  royalty and limited  partnership  agreements,  the
    engineering  firm that developed the battery product received an approximate
    41% of the Company's  royalty  rights and an  approximate 8% interest in the
    Partnership.  Subsequent  to June  30,  1997,  the  Partnership  received  a
    favorable  settlement  in  a  lawsuit  against  the  engineering  firm.  The
    settlement released the 41% royalty rights and the 8% Partnership  interest.
    Currently,  the  Company  is  reviewing  the  terms  and  conditions  of the
    settlement  to  determine  the  impact on the  Company  of the return of the
    royalty rights.

 
                                      F-10

<PAGE>


                                POWER CELL, INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

    During fiscal 1993, the Company  incurred  legal fees of $31,787  related to
    the  acquisition  of its interest in the  Partnership.  The general  partner
    advanced the Company  $20,000 to assist with the legal  costs.  The terms of
    the  agreement  between  the general  partner  and the  Company  require the
    advance to be repaid,  with interest at 10%, from the first royalty payments
    which the company may receive from the Partnership.

NOTE H - CONTINGENCIES

    In fiscal  1993,  a request for  additional  compensation  of  approximately
    $394,000  for the  president of the Company was  submitted to the  Company's
    board of directors for approval.  In addition,  the president of the Company
    intends  to  submit  to the  Company's  board of  directors  a  request  for
    additional  compensation  totaling  $213,000 for the fiscal years ended June
    30, 1994 through 1997.

    These amounts remain unpaid and are considered  contingent  liabilities  and
    have not been recorded in the accompanying financial statements,  because to
    date, none have been approved by the Company's board of directors.


 
                                      F-11

<PAGE>