<PAGE>   1
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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                               -----------------

                                  FORM 10-QSB

                               -----------------

(MARK ONE)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999; OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM          TO
                                                         --------    -------

COMMISSION FILE NO.
                   ------------------

                             POWER EXPLORATION, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                 NEVADA                                 84-0811647
    (STATE OR OTHER JURISDICTION OF                  (I.R.S. EMPLOYER
     INCORPORATION OR ORGANIZATION)                 IDENTIFICATION NO.)

                               5416 Birchman Ave.
                             Fort Worth, Texas 76107
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

               REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (817) 377-4464

INDICATE 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 (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRATION WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES [X]   NO [ ]

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:

            Class                          Outstanding as of June 30, 1999
------------------------------           ----------------------------------
Common stock, $0.02 par value                         17,231,194



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                                                                    Page 1 of 21
<PAGE>   2



                                INDEX

<TABLE>
<S>     <C>                                                                                      <C>
Cautionary Statements Relevant to Forward-Looking Information for the Purpose of                 3
"Safe Harbor" Provisions of the 3 Private Securities Litigation Reform Act of
1995

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements                                                                     4
         Consolidated Balance Sheet as of the date of this filing and most
          recent audited Balance Sheet statement                                                 4
         Consolidated Statement of Operations for the Two Most Recent
          financial Quarters of 1999                                                             5
         Consolidated Statement of Cash for the Two Most Recent financial
          Quarters of 1999                                                                       6
         Notes to Consolidated Financial Statements                                              7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
         General                                                                                15
         Overview                                                                               15
         History of Losses                                                                      15
         Financial Results                                                                      15
         Liquidity And Capital Resources                                                        16
         Operating Environment                                                                  17
         Year 2000 Compliance                                                                   17
         Uncertainties And Risk Factors                                                         17

PART II. OTHER INFORMATION

Item 1. Legal Proceedings                                                                       21


Signature

EXHIBITS
</TABLE>

                                                                    Page 2 of 21
<PAGE>   3


        CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR
                 THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE
                PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This quarterly report on Form 10-QSB contains forward-looking statements
relating to Power Exploration Inc.'s ("Power" or "the Company") operations that
are based on management's current expectations, estimates and projections about
the petroleum and chemicals industries. Words such as "expects," "intends,"
"plans," "projects," "believes," "estimates" and similar expressions are used to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions that
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements.

Among the factors that could cause actual results to differ materially are crude
oil and natural gas prices; potential failure to achieve, and potential delays
in achieving, expected production from existing and future oil and gas
development projects; potential disruption or interruption of the company's
production, manufacturing or transportation facilities due to accidents or
political events; potential disruption to the company's operations due to
untimely or incomplete resolution of Year 2000 issues by the company and other
entities with which it has material relationships; potential liability for
remedial actions under existing or future environmental regulations; and
potential liability resulting from pending or future litigation. In addition,
such statements could be affected by general domestic and international economic
and political conditions.

The Company undertakes no obligation to publicly release the results of any
revision to any forward-looking statement contained in this Report which may be
made to reflect events or circumstances occurring subsequent to the filing of
this Report with the Securities and Exchange Commission ("SEC"). Readers are
urged to carefully review and consider the various disclosures made by the
Company in this Report and in the Company's other Reports filed with the SEC
that attempt to advise interested parties of the risks and factors that may
affect the Company's business.


                                                                    Page 3 of 21
<PAGE>   4



PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
POWER EXPLORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
                                                              JUNE 30, 1999    SEPT. 30, 1998
                                                               UNAUDITED           AUDITED
                                                              -------------    --------------
<S>                                                           <C>              <C>
                            ASSETS
CURRENT ASSETS
Cash                                                          $     (2,810)     $    129,903
Accounts Receivable                                                 132339            11,477
Accounts Receivable - Related Party                                     --           121,253
Inventory                                                          279,513           385,534
Prepaid Expenses                                                   118,891           123,542
                                                              ------------      ------------
TOTAL CURRENT ASSETS                                          $    527,933      $    771,709

OIL & GAS PROPERTIES, FULL COST METHOD
Properties being amortized                                       5,491,918         5,396,496
Properties not subject to amortization                           1,303,805         1,312,505
                                                              ------------      ------------
                                                                 6,795,723         6,709,001
Less:  Accumulated depreciation, depletion & amortization           (6,057)           (2,222)
                                                              ------------      ------------
NET OIL AND GAS PROPERTIES                                       6,789,666         6,706,779

PROPERTY AND EQUIPMENT
Property and Equipment                                             324,086           283,739
Accumulated Depreciation                                           (80,908)          (46,037)
                                                              ------------      ------------
Total Property and Equipment                                       243,178           237,702
                                                              ------------      ------------

OTHER ASSETS                                                        17,898            13,846
                                                              ------------      ------------

TOTAL ASSETS                                                  $  7,578,675      $  7,730,036
                                                              ------------      ------------

             LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses                         $    752,990      $    414,669
Customer Deposits                                                       --           110,000
Debentures Payable                                                      --           250,000
Unamortized Discount on Debentures                                  (7,692)           (7,692)
Notes Payable                                                      500,000           950,000
Notes payable -- Related Parties                                   588,059                --
                                                              ------------      ------------
TOTAL CURRENT LIABILITIES                                     $  1,833,357      $  1,716,977
                                                              ------------      ------------

LONG TERM LIABILITIES                                                   --                --
                                                              ------------      ------------
TOTAL LIABILITIES                                             $  1,833,357      $  1,716,977
                                                              ------------      ------------

STOCKHOLDERS' EQUITY
Common Stock ($.02 par value; 50,000,000 shares
authorized, 17,231,194 shares issued & outstanding)                297,219           215,872
Additional Paid-In Capital                                      12,871,307        10,382,611
Accumulated Deficit                                             (7,423,208)       (4,585,424)
                                                              ------------      ------------
TOTAL STOCKHOLDERS' EQUITY                                    $  5,745,318      $  6,013,059
                                                              ============      ============
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $  7,578,675      $  7,730,036
                                                              ============      ============
</TABLE>

                                                                    Page 4 of 21
<PAGE>   5

POWER EXPLORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWO MOST RECENT QUARTERS

<TABLE>
<CAPTION>
                                           3 MONTHS ENDING   3 MONTHS ENDING
                                            JUNE 30, 1999     MAR. 31, 1999
                                              UNAUDITED         UNAUDITED
                                           ---------------   ---------------
<S>                                        <C>               <C>
REVENUE
Oil and Gas Sales                          $         9,152   $         1,785
Equipment Sales                                     67,764           189,398
                                           ---------------   ---------------
TOTAL REVENUE                                       76,916           191,398
                                           ---------------   ---------------

COST OF REVENUE
Lease Operating                                     92,249            28,055
Production Taxes                                         4                --
Depreciation, Depletion & Amortization                 279               279
Exploration                                             --                --
Cost of Equipment Sales                                424           142,080
                                           ---------------   ---------------
TOTAL COST OF REVENUE                               92,956           170,414
                                           ---------------   ---------------

GROSS PROFIT                                       (16,040)           20,769
                                           ---------------   ---------------

EXPENSES
General and Administrative                         186,931         2,018,547
Interest Expense                                     8,971             8,648
                                           ---------------   ---------------
TOTAL EXPENSES                                     195,902         2,027,195
                                           ---------------   ---------------
PROFIT (LOSS) BEFORE OTHER INCOME
AND PROVISION FOR INCOME TAXES                    (211,942)       (2,006,426)

OTHER INCOME                                       (75,858)               --

PROFIT (LOSS) BEFORE PROVISION
FOR INCOME TAXES                                  (287,800)       (2,006,426)
                                           ---------------   ---------------

PROVISION FOR INCOME TAXES                              --                --

NET PROFIT (LOSS)                          $      (287,800)       (2,006,426)
                                           ===============   ===============

PROFIT (LOSS) PER SHARE                    $         (0.02)            (0.14)
                                           ---------------   ---------------

WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING                              15,921,774        14,612,354
                                           ===============   ===============
</TABLE>


                                                                    Page 5 of 21
<PAGE>   6



POWER EXPLORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE TWO MOST RECENT QUARTERS

<TABLE>
<CAPTION>
                                                      3 MONTHS ENDING   3 MONTHS ENDING
                                                       JUNE 30, 1999     MAR. 31, 1999
                                                         UNAUDITED         UNAUDITED
                                                      ---------------   ---------------
<S>                                                   <C>               <C>

Profit (Loss) After Taxes                             $      (287,800)  $    (2,006,426)
Depreciation and Amortization
                                                               12,842            11,536
                                                      ---------------   ---------------
CASH FLOW FROM INCOME STATEMENT                              (274,958)       (1,994,890)
                                                      ===============   ===============

Accounts Receivable..................Decr(Incr)                76,983           (79,707)
Inventory............................Decr(Incr)                (7,566)          111,882
Prepaid & Deferred Exp...............Decr(Incr)                29,377           (17,591)
Accounts Payable.....................Incr(Decr)               188,567           149,450
Customer Deposits....................Incr(Decr)                    --          (230,000)
Notes Payable - Related Parties......Incr(Decr)               (31,254)          556,313
                                                      ---------------   ---------------
CASH FLOW FROM OPERATING ACTIVITIES                           256,107           490,346
                                                      ===============   ===============


Fixed Assets.........................Decr(Incr)                    --           (27,275)
Net Oil & Gas Prop...................Decr(Incr)                15,796           329,491
Other Assets.........................Decr(Incr)                 1,655                --
                                                      ---------------   ---------------
CASH FLOW FROM INVESTING ACTIVITIES                            17,451           302,216
                                                      ===============   ===============


New Borrowings
Repayments
Short Term Debt......................Incr(Decr)                    --          (450,000)
Long Term Debt.......................Incr(Decr)                    --                --
Common Stock.........................Incr(Decr)                    --            53,001
Additional Paid In Capital...........Incr(Decr)                    --         1,578,435
                                                      ---------------   ---------------
CASH FLOW FROM FINANCING ACTIVITIES                                --         1,181,436
                                                      ===============   ===============


Net Increase (Decrease) in Cash                                (1,400)          (20,892)
Beginning Cash                                                 (1,411)           19,481

                                                      ---------------   ---------------
ENDING CASH                                                    (2,811)           (1,411)
                                                      ===============   ===============
</TABLE>


                                                                    Page 6 of 21
<PAGE>   7



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

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


Basis of Consolidation

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


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.


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.


Per Share of Common Stock

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

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

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


                                                                    Page 7 of 21
<PAGE>   8


Impact of Recently Issued Accounting Standards

         In June 1997, the Financial Accounting Standards Board issued a new
statement titled "Reporting Comprehensive Income" (SFAS No. 130). This statement
is effective for both interim and annual periods beginning after March 15, 1997.
This statement uses the term "comprehensive income" to describe the total of all
components of comprehensive income, including net income. This statement uses
the term "other comprehensive net income" to refer to revenues, expenses, gains
or losses that under generally accepted accounting principles are included in
comprehensive income, but excluded from net income.

         The impact of SFAS No. 130 in the financial statements, had it been
adopted as of September 30, 1998 and 1997, is not applicable, since the Company
had no other comprehensive income.


NOTE 2 - INVENTORY

Inventory at June 30, 1999 and March 31, 1999 consists of the following:

<TABLE>
<CAPTION>
                                                        JUN. 30, 1999        MAR. 31, 1999
<S>                                                    <C>                  <C>
                 Raw Material                          $       224,141      $       224,871
                 Work in Process                                55,372               47,076
                                                       ---------------      ---------------
                                                               279,513      $       271,947
                                                       ===============      ===============
</TABLE>


NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment at June 30, 1999 and March 31, 1999 consist of the
following:

<TABLE>
<CAPTION>
                                                        JUN. 30, 1999        MAR. 31, 1999
<S>                                                    <C>                  <C>
                 Shop Equipment                        $        30,852      $        30,852
                 Furniture and Office Equipment                 24,067               24,067
                 Machinery                                     269,167              269,167
                                                       ---------------      ---------------
                                                               324,086              324,086

                 Less Accumulated Depreciation                  80,908               68,345
                                                       ---------------      ---------------
                 Property and Equipment - Net                  243,178      $       255,741
                                                       ===============      ===============
</TABLE>



NOTE 4 - OIL AND GAS PROPERTIES NOT SUBJECT TO AMORTIZATION

The Company's oil and gas properties are located in the United States and
Australia. The $1,303,805 and $1,312,505 cost of unproved oil and gas leases
held at June 30, 1999 and September 30, 1998, respectively, have been excluded
in computing amortization of the full cost pool. All excluded costs at June 30,
1999 are located in Australia.

A determination cannot be made about the extent of oil reserves that should be
classified as proved reserves for this prospect. Consequently, the associated
property costs and exploration costs have been excluded in computing
amortization of the full cost pool. The Company estimates that amortization of
these costs will begin during the calendar year 2000.


                                                                    Page 8 of 21
<PAGE>   9


NOTE 5 - PARTICIPATION AGREEMENTS

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

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

         The Company also entered into a participation agreement with Corsicana
Drilling Partners No. 2, G.P. This partnership arrangement provided
approximately $500,000 in proceeds to drill two lateral wells on the Company's
Barry lease located in Corsicana, Texas. The terms of the partnership include
payment of 70% of the net cash proceeds from the two-well production back to the
general partners until payback of initial proceeds plus a 12% rate of return and
50% of the net proceeds of the two-well production thereafter, in perpetuity. As
of the date of this filing, the partnership has not generated significant net
proceeds from the production generated by the two wells.

NOTE 6 - NOTES PAYABLE

Notes payable consist of the following:

<TABLE>
<CAPTION>
                                                    JUN. 30      MAR. 31
                                                      1999         1999
                                                    --------     --------
<S>                                                 <C>          <C>
Notes Payable
         a) Business Exchange Investments, Inc.      250,000      250,000
         b) Trident                                  250,000      250,000
                                                    --------     --------
Total                                               $500,000     $500,000
                                                    ========     ========

Notes Payable - Related Parties
        c) M.O. Rife IV                             $     --     $ 19,500
        d) Directors/Officers                         18,500       18,500
        e) Rife Oil Properties                       569,559      581,313
                                                    --------     --------
Total                                               $588,059     $619,313
                                                    ========     ========
</TABLE>

a) 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 original maturity date of January
15, 1999. The maturity has been extended to September 30, 1999 (See Note 13(a)).
The note is collateralized by 100% of the shares of OSI.

b) The Company is indebted to Trident III, LLC under terms of a promissory note
in the amount of $250,000. The note bears interest at 10% per annum and is due
on September 30, 1999. The Company has also issued 360,000 shares of Common
Stock to Trident III. 100,000 of which had originally been issued as
consideration for making the loan and 260,000 had been issued as consideration
for extending the loan.

c) The Company was indebted to M.O. Rife IV under terms of a promissory note
dated April 7, 1998 in the amount of $50,000. Mr. Rife is the son of a principal
stockholder of the Company. Terms of the note provide for interest at a


                                                                    Page 9 of 21
<PAGE>   10


a rate of 12% per annum, with an original maturity date of October 6, 1998. The
note was paid off on June 15, 1999.

d) The Company is indebted to two Directors in the amount of $18,500 which
consists of drilling advances and accounts payable.

e) The Company uses the services of Rife Oil Properties, which is owned by a
principal stockholder, to drill its wells; in addition, the Company rents its
Fort Worth, Texas office space from Rife Oil, and has received various cash
loans from Rife Oil during the quarter ending 6-30-99. During the past two
quarters, Rife Oil sold 756,000 shares of the Company's common stock for
$491,000, and loaned the Company those funds at annual interest rate of 8%. The
note will mature on March 31, 2000. Also included in this amount was the note
due to the Bank of Commerce for $100,000 which was paid by Rife Oil Properties,
Inc. in March of 1999. The terms of this note are one year accrued at an
interest rate of 8%. The Company has subsequently remitted funds back to Rife
Oil to reflect the outstanding amount due of $581,313.

NOTE 7 - DEBENTURES PAYABLE

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

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

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

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

         As of September 30, 1997, $467,000 principal amount of debentures had
been converted into 434,702 shares of common stock. During the year ended
September 30, 1998, the remaining $783,000 principal amount of debentures was
converted into 1,239,372 shares of common stock. Accrued interest of $38,607
has been included in the above conversions.

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

         The Company and the buyer of the debenture were in disagreement
concerning the validity of the debenture. On October 29, 1998, the parties
reached an agreement. The agreement provides that the buyer will remit an
additional amount of $150,000 to the Company. The Company will then issue
650,000 shares of common stock to convert the total advances of $400,000 plus
all accrued interest into equity. This conversion occurred on October 30, 1998.


                                                                  Page 10 of 21
<PAGE>   11

NOTE 8 - WARRANTS

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

(a.) 100,000 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 convertible debentures.

(b.) 80,000 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, 2003 at an exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants have been valued at $44,160.

(c.) 75,000 warrants, each of which entitles the registered holder thereof to
purchase one share of Common Stock, exercisable at any time on or before
October 31, 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 incurred through Benchmark Equity Group and have been valued at
$103,575.

(d.) 20,000 warrants, each of which entitles the registered holder thereof to
purchase one share of Common Stock, exercisable at any time on or before June
1, 2003 at an exercise price of $2.50 per share (subject to customary
anti-dilution adjustments). The warrants were issued as payment for a
consulting agreement and have been valued at $27,620.

The following warrants were converted into shares common shares:

(e.) 375,000 warrants, each of which entitles the registered holder thereof to
purchase one share of Common Stock, exercisable at any time on or before
October 31,2003 at an exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants are cashless and were issued as a fee
in connection with the Benchmark Equity debt. On February 1, 1999, notice was
given to the Company converting the cashless warrants to shares of the
Company's common stock at a price of $1.98. 185,607 shares of the Company's
common stock were issued to Benchmark Equity Group for the conversion of these
warrants.

(f.) 100,000 warrants, each of which entitles the registered holder thereof to
purchase one share of Common Stock, exercisable at anytime on or before June 1,
2003, at an exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants were issued as payment of interest on
a $100,000 note and have been valued at $55,200. On February 1, 1999, notice
was given to the Company converting the cashless warrants to shares of the
Company's common stock at conversion price of $1.98. 49,495 shares of the
Company's common stock were issued to Peter S. Zouvas for the conversion of
these warrants.

(g.) 200,000 warrants, each of which entitles the registered holder thereof to
purchase one share of Common Stock, exercisable at anytime on or before June 1,
2003, at an exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants were issued as payment for a
consulting agreement. On February 1, 1999, notice was given to the Company
converting the cashless warrants to shares of the Company's common stock at
conversion price of $1.98. 98,990 shares of the Company's common stock were
issued to Delphi Consulting, Inc. for the conversion of these warrants.


                                                                  Page 11 of 21
<PAGE>   12

(h.) 50,000 warrants, each of which entitles the registered holder thereof to
purchase one share of Common Stock, exercisable at any time on or before
October 31, 2003 at an exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants are cashless and were issued as a fee
in connection with the Benchmark Equity debt. On February 1, 1999, notice was
given to the Company converting the cashless warrants to shares of the
Company's common stock at a price of $1.98. 24,748 shares of the Company's
common stock were issued to Jeffrey W. Tomz for the conversion of these
warrants.

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 (a) through (d) above are not subject to a
"cashless exercise" provision (the "warrant exchange"), whereas items (e)
through (h), have already been converted into shares of common stock as
described.

NOTE 9 - RELATED PARTY TRANSACTIONS

During the quarter ended June 30, 1999:

         The Company repaid a promissory note to the son of a principal
stockholder in the amount of $19,500 with the exception of interest in the
amount of $4,500. (See Note 6(c)).

         The Company had liabilities to two directors totaling $18,500 which
consisted of drilling advances and accounts payable.

         A principal stockholder paid the Bank of Commerce promissory note in
the amount of $100,000 and this amount is not included in the notes payable -
related party classification. This same stockholder has sold part of his shares
in the Company on the open market and loaned the proceeds to the Company at an
interest rate of 8% for the period of one year. (See Note 6(e)).

         The Company occupies space in facilities owned by the stockholder
mentioned above. The Company pays rent to the stockholder in the amount of
$3,325 per month. The space is rented on a monthly basis.

         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.



NOTE 10 - COMMITMENTS AND CONTINGENCIES

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

Warehouse facilities are located in Fort Worth, Texas. The lease term expires
on September 30, 1999 and the Company has an option to review the lease for a
two-year period.

Various office equipment leases expire at various times through June 25, 2003.

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


                                                                  Page 12 of 21
<PAGE>   13
<TABLE>
<S>                                                         <C>
                                 1999                       $   24,736
                                 2000                           29,209
                                 2001                           17,421
                                 2002                            7,805
                                 2003                            3,048
                                                            ----------
                Total Minimum Lease Payments                $   82,219
                                                            ==========
</TABLE>

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 February
15, 1999. The note has been extended to September 30, 1999. (See Note 6(a) and
Note 13(a)). The collateral will be released upon payment of the note on
September 30, 1999.

d) A former employee of Oil Retrieval Systems, Inc. (a subsidiary of the
Company) filed a sexual harassment complaint with the City of Fort Worth. The
Company agreed to engage in mediation, which resulted in the Company paying
$20,000 in exchange for a full and final release from the employee.

e) The Company has filed an administrative claim with the Bankruptcy Court to
recover $30,000 from Southern Equipment that represents equipment that was
unduly confiscated.

f) Hughes Christensen has filed a property lien on a well in Navarro County,
Texas. The amount in question is $5,052.34 for work performed on the
aforementioned well. The Company expects to have this lien lifted and is not
disputing the amount owed.

g) The Company has entered into arbitration with Market Pathways Financial
Relations for $38,104.45 for services rendered. The Company believes that it is
not responsible for the full amount that claimant alleges.

h) The Company has an option to acquire Rife Oil Properties, Inc., for
3,000,000 shares of Company Common Stock. The option expires on August 31,
1999.


NOTE 11 - SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES

During the nine-months ended June 30, 1999:

         725,000 cashless warrants were converted into 358,840 shares of stock.

         Debentures payable of $250,000 were converted into shares of common
         stock (See Note 7(c)).

         Oil and gas properties were acquired in exchange for cash and a note
         for $300,000. Subsequently, the Company was unable to meet the terms
         of that note and this property is involved in foreclosure proceedings.

         The loan from Benchmark Equity Group for $500,000 was converted into
         500,000 shares of the Company's common stock on October 7, 1998.
         Additional consideration for this loan took the form of 425,000
         warrants at an exercise price of $1.00; these warrants were also
         converted, resulting in the issuance of 209,455 additional shares of
         the Company's common stock.


During the year ended September 30, 1998:


                                                                  Page 13 of 21
<PAGE>   14

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

         Common stock totaling 1,239,372 shares was issued on conversion of
         $783,000 of debentures, plus accrued interest.

         Common stock warrants valued at $382,335 were issued in connection
         with various debt agreements.

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

         Common stock warrants valued at $55,200 were issued as payment for
         services.

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


NOTE 12 - GOING CONCERN

         The accompanying consolidated financial statements have been prepared
assuming the company will continue as a going concern. As of June 30, 1999, the
Company has a working capital deficit of $1,047,917 and an accumulated deficit
of $7,135,408. Based upon the Company's plan of operation, the Company
estimates that existing resources, together with funds generated from
operations will not be sufficient to fund the Company's working capital. The
Company is actively seeking additional equity financing. There can be no
assurances that sufficient financing will be available on terms acceptable to
the Company or at all. If the Company is unable to obtain such financing, the
Company will be forced to scale back operations, which would have an adverse
effect on the Company's financial condition and results of operation.


NOTE 13 - SUBSEQUENT EVENTS

Subsequent to June 30, 1999, the Company:

a) Extended the maturity of the note to Business Exchange Investment, Inc. to
September 30, 1999.

b) Paid the note to M. O. Rife IV with the exception of interest in the amount
of $4,500.

c) Entered into three cancelable consulting agreements with third parties.
Compensation for services provided under these agreements has been paid in
Common Shares of the Company. The Company issued 2,600,000 shares of Common
Stock, valued at $1,582,000 in connection with these agreements.


                                                                  Page 14 of 21
<PAGE>   15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

General

         The following discussion of the consolidated financial condition and
results of operations of the Company should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto included
in Item 1 of Part I of this Report.


Overview

         Power, 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, Power redevelops currently
producing oil and gas fields, and researches and develops exploration and
recovery technologies, including the manufacture of new, cutting-edge oil
recovery equipment. (See "Glossary of Selected Oil and Natural Gas Terms" in
the Company's most recent 10-KSB/A for a definition of certain oil and gas
industry terms used in this report.)

         During its history, Power has changed its name several times. At
different times Power has been known as Imperial Energy Corp., Funscape Corp.,
Oil Retrieval Systems, Inc., and Titan Energy Corp. In this report, all of
these entities shall be referred to as Power.

         Power's business activity has stagnated due to current limited capital
resources and cash flow. The company is currently seeking financing that will
provide adequate capitalization. The Company has devised a two-stage financing
program to achieve its goals and financial forecasts. In the first stage, Power
will require approximately $3 million and in the second stage will require an
additional $7 million. The financing is expected to be secured through joint
venture participations for specific purposes.


History of Losses

         Power had a net loss of $287,800 for the three months ended June 30,
1999, and net losses of $628,961 and $2,695,817, for the years ended September
30, 1997 and 1998, respectively. Power may continue to incur net losses and, to
the extent that natural gas and crude oil prices remain low, such losses may be
substantial.


Financial Results

Revenues

         Oil and gas sales increased $7,367, or 413%, to $9,152 for the three
months ended June 30, 1999 from $1,785 for the three months ended March 31,
1999. Equipment sales decreased $121,634, or 64%, to $67,764 for the three
months ended June 30, 1999 from $189,398 for the three months ended March 31,
1999. Even with these increases in revenue and an increase in gross profit,
income was far short of expenses. To date, Power has been putting the necessary
components in place to create ongoing income, and these efforts should begin to
be realized during the fourth quarter of the 1999 fiscal year.


                                                                  Page 15 of 21
<PAGE>   16

Costs and Expenses

         Power's general and administrative expenses decreased $1,831,616, or
91%, to $186,931 for the three months ended June 30, 1999 from $2,018,547 for
the three months ended March 31, 1999. The change in general and administrative
expenses was due primarily to the significant decrease in consulting fees,
which were issued for stock under rule S-8 .

         Other major components of general and administrative expenses included
officer's salaries at 5%, non-officer salaries at 8%, and legal fees at 2%.
Separately, lease operating expenses increased $64,194 to $92,249 for the three
months ended June 30, 1999 from $28,055 for the three months ended March 31,
1999. This increase is due primarily to the increase in drilling activities
undertaken by the Company.

Net Loss

         Net loss for the three months ended June 30, 1999 was $287,800, or
$.02 per share, compared to a loss of $2,006,426, or $.17 per share, for the
three months ended March 31, 1999. Net cash used in operating activities was
$256,107 for the three months ended June 30, 1999, and $490,346 for the three
months ended March 31, 1998. All cash activities of the business produced a
$1,400 decrease in cash for the three months ended June 30, 1999.

Liquidity and Capital Resources

         Power's working capital deficit on June 30, 1999 was $1,047,917
compared to a deficit of $986,680 on December 31, 1998. Power had a current
ratio of 0.4 the three months ended June 30, 1999 as well as for the fiscal
year ended September 30, 1998. A comparison of other ratios that measure
financial performance show no change in the quick ratio of 0.2, no change in
the net worth to assets ratio of 0.8, and debt to net worth of (2.3) and (2.4)
respectively. This data all highlights Power's need to raise additional
capital, to convert some short-term debt into long-term debt, or to incur new
long-term debt.

         Cash and cash equivalents totaled $149,096 at March 31, 1999, a
$54,721 decrease from December 31, 1998. An increase in accounts payable caused
the company's debt to increase 72% totaling $2,953,635 at June 30, 1999, up
from September 30, 1998.

Long-Term Debt

         On June 30, 1999, Power had no long-term debt. Although 89% of Power's
assets are comprised of oil and gas properties that are not a current asset,
all of Power's borrowings 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.

Need to Raise Additional Capital

         The growth of Power'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 Power's future capital requirements, if
any, will depend upon a number of factors, including drilling costs,


                                                                  Page 16 of 21
<PAGE>   17

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 Power. In addition, Power's pursuit of additional capital could
result in additional debt or the issuance of additional equity securities which
would be dilutive to existing shareholders.


Operating Environment and Outlook

The Company's earnings are affected significantly by fluctuations in the price
of crude oil. During 1998, the spot price of West Texas Intermediate (WTI), the
industry benchmark for light crude, averaged $14.39 per barrel, representing a
30 percent decline from the corresponding 1997 period. For the first six months
1999, the WTI spot price averaged $16.75 per barrel.


Year 2000 Compliance

         The "Year 2000 problem" results from computer systems and other
equipment that contain embedded chips or processors, and which use two digits,
rather than four, to define a specific year. This creates the potential for the
equipment to be unable to accurately process certain data before, during or
after the year 2000. This could result in system failures or miscalculations,
causing disruptions to various activities and operations.

         The Company's management has conducted a review of its information
systems and related data-processing activities to assess its exposure to the
Year 2000 problem. As a result, Power has upgraded the operating software on
some of its computers to a Year 2000 compliant system, and has upgraded its
accounting software to a Year 2000 compliant version.

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

         Power has potential Year 2000 exposure with regard to its third party
relationships and services including its bank and bank accounts and other
vendor and/or service providers who utilize computers. Although the Company has
no control over Year 2000 compliance implementation by these parties, Power has
inquired and been assured that all of it's service providers currently are, or
will be, Year 2000 compliant.


Uncertainties and Risk Factors

         Concentration of Production

         Power's existing proved producing oil and natural gas reserves and its
production therefrom are located in a single field, which consists of 4,500
acres and contains 650 wells. Accordingly, to the extent that Power 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, Power could be adversely affected.

Geographic Restrictions


                                                                  Page 17 of 21
<PAGE>   18

         There are no geographic restrictions that would prevent Power from
acquiring or seeking to acquire any rights or interest in any properties.

         Inability to Develop Additional Reserves

         Power '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 Power conducts successful development
activities or acquires properties containing proved reserves, Power 's proved
reserves would generally decline as reserves are produced. There can be no
assurance that Power will be able to locate additional reserves or that Power
will drill economically productive wells or acquire properties containing
proved reserves.

         Acquisition Risks

         Power '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 Power 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 Power will be successfully integrated into Power 's operations or
will achieve desired profitability objectives.

         Drilling Risks

         Power 's drilling involves numerous risks, including the risk that no
commercially productive natural gas or oil reservoirs will be encountered.
Power 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 a well 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 Power 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 Power '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
Power. 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


                                                                  Page 18 of 21
<PAGE>   19

are inherently an imprecise evaluation of reserve quantities and the future net
revenue therefrom. Actual future production, revenue, taxes, development
expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves may vary substantially from those assumed in the estimate. Any
significant variance in these assumptions could materially affect the estimated
quantity and value of reserves. In addition, Power 's reserves may be subject
to downward or upward revision, based upon production history, results of
future exploration and development, prevailing oil and natural gas prices and
other factors.

         Geographic Concentration of Operations

         Virtually all of Power 's current operations are located in Texas and
Australia. 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 Power more adversely than if Power were
geographically diversified.

         Certain Industry and Marketing Risks

         Power's operations are subject to the risks and uncertainties
associated with drilling for, producing and transporting of oil and natural
gas. Power'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 Power's
ability to market its oil and natural gas production.

         Effects of Changing Prices

         The future financial condition and results of operations of Power
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 Power'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 Power's estimated value of its natural gas and oil
reserves, and on its financial position, results of operations and access to
capital. Power'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.

         Power 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)


                                                                  Page 19 of 21
<PAGE>   20

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

         Power'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 Power
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, Power
maintains insurance against some, but not all, of the risks described above.
There can be no assurance that any insurance maintained by Power will be
adequate to cover any such losses or liabilities. Further, Power cannot predict
the continued availability of insurance, or availability at commercially
acceptable premium levels. Power 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 Power. From time to time, due primarily to contract terms,
pipeline interruptions or weather conditions, the producing wells in which
Power 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 Power is provided only limited notice as to when
production will be curtailed and the duration of such curtailments. Power is
not currently experiencing any material curtailment on its production.

         Substantial Competition

         The oil and natural gas industry is highly competitive and there are
many other companies engaged in the oil and natural gas business. Power is
likely to encounter substantial competition from major oil companies, other
independent oil and natural gas concerns and individual producers and operators
in acquiring oil and natural gas properties suitable for exploration and
development. Many of the companies with which Power competes have substantially
greater financial, technical and other resources and may have greater
experience in the oil and natural gas business than Power. 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 Power will permit.

         Volatility of Stock Price

         The market price for shares of the Common Stock has varied
significantly and may be volatile depending on news announcements or changes in
general market conditions. In particular, news announcements, quarterly results
of operations, competitive developments, litigation or governmental regulatory
action impacting Power may adversely affect the Common Stock price. In
addition, because the number of shares of Common Stock held by the public is
relatively small, the


                                                                  Page 20 of 21
<PAGE>   21

sale of a substantial number of shares of the Common Stock in a short period of
time could adversely affect the market price of the Common Stock.


PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

A former employee of Oil Retrieval Systems, Inc. (a subsidiary of the Company)
filed a sexual harassment complaint with the City of Fort Worth. The Company
agreed to engage in mediation, which resulted in the Company paying $20,000 in
exchange for a full and final release from the employee. In other legal
matters, the Company has filed an administrative claim with the Bankruptcy
Court to recover $30,000 from Southern Equipment. A property lien has been
filed on a well in Navarro County, Texas. The amount in question is $5,052.34
for work performed on the aforementioned well. In addition, the Company has
entered into arbitration with Market Pathways Financial Relations for
$38,104.45 that the Company owes for services rendered.








SIGNATURE
                                   ---------

Pursuant to the requirements 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 EXPLORATION, INC.
                                            ------------------------------
                                                    (Registrant)




Date      August 19, 1999                         /s/ MARK S. ZOUVAS
      -------------------------             ------------------------------
                                        Mark S. Zouvas, Chief Financial Officer
                                          (Principal Accounting Officer and
                                               Duly Authorized Officer)


                                                                  Page 21 of 21