SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 2000.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to . ------------ to ----------.
Commission file number:000-09419
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POWER EXPLORATION, INC.
-----------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 84-0811647
-------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5416 Birchman Ave., Fort Worth, Texas 76107
-------------------------------------------
(Address of principal executive office) (Zip Code)
(817) 377-4464
---------------------
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes XX No
The number of outstanding shares of the issuer's common stock, $0.02
par value (the only class of voting stock), as of March 31, 2000 was 11,564,121
<PAGE>
TABLE OF CONTENTS
PART I
ITEM 1. FINANCIAL STATEMENTS.................................................3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.................................4
PART II
ITEM 1. LEGAL PROCEEDINGS....................................................5
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 6
ITEM 5. OTHER INFORMATION....................................................7
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................7
SIGNATURES....................................................................8
INDEX TO EXHIBITS.............................................................9
2
<PAGE>
PART I- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
As used herein, the term "Power" refers to Power Exploration, Inc., a Nevada
corporation, and its subsidiaries and predecessors unless otherwise indicated.
Consolidated, unaudited, condensed interim financial statements including a
balance sheet for Power as of the quarter ended March 31, 2000 and statements of
operations, and statements of cash flows for the interim period up to the date
of such balance sheet and the comparable period of the preceding year are
attached hereto as Pages F-1 through F-13 and are incorporated herein by this
reference.
[This Space Intentionally Left Blank]
3
<PAGE>
POWER EXPLORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 2000 Sept 30,1999
Unaudited Audited
-------------------------- --------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $9,688 $1,083
Accounts Receivable 13,148 8,563
Accounts Receivable - Related Party 10,257 84,570
Inventory 398,661 323,486
Prepaid Expenses - 230
-------------------------- --------------------------
Total Current Assets 431,754 417,932
-------------------------- --------------------------
OIL & GAS PROPERTIES, FULL COST METHOD
Properties being amortized 8,134,423 7,134,910
Properties not subject to amortization - -
-------------------------- --------------------------
Less: Accumulated depreciation, depletion & amortization (26,049) (10,491)
-------------------------- --------------------------
Net Oil and Gas Properties 8,108,374 7,124,419
-------------------------- --------------------------
PROPERTY AND EQUIPMENT
Property and Equipment 229,842 370,124
Accumulated Depreciation (118,707) (139,618)
-------------------------- --------------------------
Total Property and Equipment 111,135 230,506
-------------------------- --------------------------
OTHER ASSETS 11,028 6,037
INVESTMENT IN LAND 300,000 -
-------------------------- --------------------------
TOTAL ASSETS $8,962,291 $7,778,894
========================== ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable-Trade $314,111 $825,466
Accounts Payable-Related Parties 19,843 389,154
Payroll and Sales Taxes Payable 15,687 -
Accrued Expenses 20,000 -
Accrued Interest (38,020) -
Accrued Wages and Payroll Taxes Payable 37,016 -
Customer Deposits 55,000 30,000
Advances Payable - 25,000
Advances Payable-Related Parties - 140,000
Debentures Payable - -
Unamortized Discount on Debentures - -
Notes Payable 340,000 500,000
Notes payable -- Related Parties 11,160 101,313
-------------------------- --------------------------
Total Current Liabilities 774,797 2,010,933
-------------------------- --------------------------
LONG TERM LIABILITIES - -
-------------------------- --------------------------
Total Liabilities 774,797 2,010,933
-------------------------- --------------------------
STOCKHOLDERS' EQUITY
Common Stock ($.02 par value; 50,000,000 shares
authorized, 11,564,121 & 177,650 shares issued & outstanding) 231,282 3,553
Additional Paid-In Capital 28,681,414 13,650,157
Accumulated Deficit (20,725,202) (7,885,749)
-------------------------- --------------------------
Total Stockholders' Equity 8,187,494 5,767,961
-------------------------- --------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,962,291 $7,778,894
========================== ==========================
</TABLE>
F-1
<PAGE>
POWER EXPLORATION & SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
3 Months Ending 3 Months Ending 6 Months Ending 6 Months Ending
March 31, 2000 March 31, 1999 March 31, 2000 March 31, 1999
Unaudited Unaudited Unaudited Unaudited
---------------- ---------------- ------------------ -----------------
REVENUE
<S> <C> <C> <C> <C>
Oil and Gas Sales $47,110 $1,785 $62,254 $4,270
Rig Sales - 189,398 5,041 197,033
Drilling Revenue 18,050 - 24,377 -
---------------- ---------------- ------------------ -----------------
Total Revenue 65,160 191,183 91,672 201,303
---------------- ---------------- ------------------ -----------------
COST OF REVENUE
Lease Operating 68,162 28,055 137,173 72,933
Production Taxes 2,177 - 2,877 32
Depreciation, Depletion & Amortization 12,842 279 25,684 558
Exploration - - - -
Cost of Rig Sales & Drilling Revenue (1,637) 142,080 (1,637) 143,590
---------------- ---------------- ------------------ -----------------
Total Cost of Revenue 81,544 170,414 164,097 217,113
---------------- ---------------- ------------------ -----------------
GROSS PROFIT (16,384) 20,769 (72,425) (15,810)
---------------- ---------------- ------------------ -----------------
EXPENSES
General and Administrative 9,099,386 2,018,547 9,579,479 2,422,757
Interest Expense 9,512 8,648 19,726 25,763
Asset Impairment Expense 3,168,000 - 3,168,000 -
---------------- ---------------- ------------------ -----------------
Total Expenses 12,276,898 2,027,195 12,767,205 2,448,520
---------------- ---------------- ------------------ -----------------
PROFIT (LOSS) BEFORE OTHER INCOME
AND PROVISION FOR INCOME TAXES (12,293,282) (2,006,426) (12,839,630) (2,464,330)
RECOVERY OF BAD DEBT 178 - 178 -
OTHER INCOME/(LOSS) - - - -
---------------- ---------------- ------------------ -----------------
PROFIT (LOSS) BEFORE PROVISION
FOR INCOME TAXES (12,293,104) (2,006,426) (12,839,453) (2,464,330)
PROVISION FOR INCOME TAXES - - - -
---------------- ---------------- ------------------ -----------------
NET PROFIT (LOSS) $(12,293,104) $(2,006,426) $(12,839,453) $(2,464,330)
================ ================ ================== =================
PROFIT (LOSS) PER SHARE $(1.06) $(166.65) $(1.81) $(204.68)
================ ================ ================== =================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 11,564,121 12,040 7,091,699 12,040
================ ================ ================== =================
</TABLE>
F-2
<PAGE>
POWER EXPLORATION & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH
FLOWS
<TABLE>
<CAPTION>
6 Months Ending 6 Months Ending
March 31, 2000 March 31, 1999
Unaudited Unaudited
---------------- ----------------
<S> <C> <C>
Profit (Loss) After Taxes $(12,839,453) $(2,464,330)
Depreciation and Amortization 25,684 22,865
Non-Cash Compensation 9,168,157 0
Impairment Expense 3,184,045 0
Accounts Receivable Decrease (Increase) 69,728 (76,592)
Inventory Decrease (Increase) (75,175) 88,516
Other Current Assets Decrease (Increase) (4,991) 0
Prepaid & Deferred Exp Decrease (Increase) 230 (24,726)
Accounts Payable Increase (Decrease) 661,162 117,706
Other Current Liabilities Increase (Decrease) 0 (110,000)
-------------------- -------------------
Cash Flow from Operating 189,387 (2,446,561)
Activities -------------------- -------------------
Fixed Assets Decrease (Increase) 0 (27,553)
Net Oil & Gas Prop Decrease (Increase) 0 197,761
Other Investments Decrease (Increase) 0 (5,707)
-------------------- -------------------
Cash Flow from Investing 0 164,501
Activities -------------------- -------------------
Notes Payable Increase (Decrease) (110,782) 556,313
New Borrowings Increase (Decrease) 0 368,500
Repayments Decrease (Increase) 0 (105,500)
Short Term Debt Increase (Decrease) (160,000) (450,000)
Long Term Debt Increase (Decrease) 0 0
Common Stock Increase (Decrease) 900 53,001
Additional Paid In Capital Increase (Decrease) 89,100 1,728,435
-------------------- -------------------
Cash Flow from Financing (180,782) 2,150,749
Activities -------------------- -------------------
NET INCREASE (DECREASE) IN CASH 8,605 (131,311)
BEGINNING CASH 1,083 149,382
-------------------- -------------------
ENDING CASH 9,688 18,071
==================== ===================
</TABLE>
F-3
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO March 31, 2000 FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The interim consolidated financial statements at March 31, 2000 and for the
three month periods ended March 31, 2000 and 1999 are unaudited, but include all
adjustments which the management considers necessary for a fair presentation. .
The December 31, 1999 balance sheet was derived from the Company's audited
financial statements.
The accompanying unaudited consolidated financial statements are for the interim
periods and do not include all disclosures normally provided in annual financial
statements, and should be read in conjunction with the Company's Form 10-KSB for
the year ended December 31, 1999. The accompanying unaudited interi consolidated
financial statements for the three month periods ended March 31, 2000 and 1999
are not necessarily indicative of the results which can be expected for the
entire year.
The preparation of financial statements in conformity with generally accepted
accounting principle requires management to make estimates and assumptions that
affect the reported amounts of assets an liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with the original
maturity of three months or less to be cash equivalents.
Inventory
Inventory, consisting of parts and materials used in the construction of oil
extraction equipment, are stated at the lower of cost or market, cost being
determined by the average cost method.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas property
acquisition, exploration, development, and production.
Capitalization Policies: All oil and gas property acquisition, exploration, and
development costs are capitalized as incurred. There were no internal costs
directly attributable to such activities. Net capitalized costs of unproved
property and exploration well costs are reclassified as proven property and well
costs when related proven reserves are found. Costs to operate and maintain
wells and field equipment are expensed as incurred.
F-4
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Amortization Policies: Except for cost of (1) unevaluated, unproved properties
and (2) major development projects in progress, all capitalized oil and gas
property costs, net of prior accumulated amortization, are amortized by country
using the unit-of-production method based on proved reserves. The amortization
base includes estimated future costs to develop proved reserves and estimated
future dismantlement, reclamation, and abandonment costs, net of equipment
salvage values.
Impairment Policies: Costs not being amortized are periodically assessed for
impairment. Any impairment is added to the amortization base. Net capitalized
costs of oil and gas properties, less related deferred income taxes are limited,
by country, to the sum of (1) future net revenues (using prices and cost rates
as of the balance sheet date) from proved reserves and discounted at ten percent
per annum, plus (2) costs not being amortized, less (3) related income tax
effects. Excess costs are charged to proved property impairment expense.
Sales and Retirements Policies: No gain or loss is recognized on the sale of oil
and gas properties unless non-recognition would significantly alter the
relationship between capitalized costs and remaining proved reserves for the
affected amortization base. When gain or loss is not recognized, the
amortization base is reduced by the amount of sales proceeds.
Revenue Recognition
Revenues from the sale of oil and gas production are recognized when title
passes, net of royalties. Natural gas revenues are generally recognized under
the entitlement method of accounting for gas imbalances, i.e., monthly sales
quantities that do not match the Company's entitled share of joint production.
Entitled quantities in excess of sales quantities are recorded as a receivable
from joint venture partners. The receivable is carried at the lower of current
market price or the market price at the time the imbalance occurred. Sales
quantities in excess of entitled quantities are recorded as deferred revenue
carried at the gas market price received at the time the imbalance occurred.
Hedging
The Company may enter into derivative contracts to hedge the risk of future oil
and gas price fluctuations. Such contracts may either fix or support oil and gas
prices, limit the impact of price fluctuations with respect to the Company's
sales of oil and gas. Gains and losses on such hedging activities are recognized
in oil and gas revenues when the hedged production is sold. Hedged oil and gas
prices used in computing the year-end standardized measure of discounted future
net cash flows relating to proved oil and gas reserves reflect the estimated
effects of hedging contracts existing at year end.
F-5
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of the financial statements is in conformity with generally
accepted accounting principles, which requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities.
Disclosure of contingent assets and liabilities, at the date of the financial
statements are included along with the reported amounts of revenues and expenses
during the reporting date. Actual results could differ from those estimates.
Depreciation and Amortization
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives.
The costs of maintenance and repairs are charged to expense when incurred; costs
of renewals and enhancements are capitalized. Upon the sales or retirement of
property and equipment, the cost and related accumulated depreciation are
eliminated from the respective accounts and the resulting gain or loss is
included in operations.
Estimated useful lives are as follows:
Shop Equipment 5 years
Furniture and Office Equipment 5 years
Machinery 5 - 7 years
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable, and
accounts payable and short-term debt. The carrying amounts of cash, accounts
receivable, accounts payable and short-term debt approximate fair value due to
the relatively short maturity of these instruments.
Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amount may
not be recoverable. When required, impairment losses on assets to be held and
used are recognized based on the fair value of the assets and long-lived assets
to be disposed of are reported at the lower of carrying amount of fair value
less cost to sell.
F-6
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as prescribed in
FASB Statement No. 109, Accounting for Income Taxes. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Concentration of Credit Risk
The Company places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances may exceed FDIC insured levels at various
times during the year.
Stock-Based Compensation
The Company has adopted the intrinsic value method of accounting for stock-based
compensation in accordance with Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees" and related interpretations.
Comprehensive Income
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was issued. This
statement establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. As of September 30, 1999
and 1998, the Company had no items that represent other comprehensive income
and, therefore, has not included a schedule of comprehensive income in the
financial statements.
Per Share of Common Stock
Per share amounts have been computed based on the average number of common
shares outstanding during the period. In February 1997, the Financial Accounting
Standards Board issued a new statement titled "Earnings Per Share" (SFAS No.
128). This statement is effective for both interim and annual periods ending
after December 15, 1997 and specifies the computation, presentation, and
disclosure requirements for earnings per share for entities with publicly held
common stock or potential common stock. All prior-period EPS data presented has
been restated to conform with the provisions for SFAS No. 128.
Potential common stock has been excluded from the computation of earnings per
share since the inclusion of options and warrants would be anti-dilutive.
F-7
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
POWER EXNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
All share and per share data have been adjusted to retroactively reflect the 1
for 100 reverse stock split effected on October 19, 1999.
NOTE 2 - INVENTORY
Inventory at 9-30-99 & 03-31-00 consists of th following:
9-30-99 03-31-00
------- --------
Raw Material $ 220,069 $ 283,639
Work in Process 103,417 115,022
--------- ---------
$ 323,486 $ 398,661
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at 9-30-99 & 03-31-00 consist of the following:
9-30-99 03-31-00
------- --------
Shop Equipment $ 30,852 $ 49,002
Furniture and Office Equipment 24,068 24,067
Machinery 269,167 156,773
--------- ------------
324,087 229,842
--------- ------------
Less Accumulated Depreciation 93,581 118,707
--------- ------------
Property and Equipment - Net $ 230,506 $ 111,135
========== ============
Depreciation Expense Recorded in
the Statement of Operations $ 47,544 $ 25,684
========== ============
F-8
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
POWER EXNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
NOTE 4 - NOTES PAYABLE
Notes payable at March 31, 2000 consist of the following: 09-30-99 03-31-00
a) Note Payable - Trident III, LLC $ 250,000 -
b) Note Payable - BEI, Inc. 250,000 250,000
c) Note Payable - Related Party 101,313 -
d) Note Payable - Landmark Bank 90,000
------
$ 601,313 $ 340,000
========== ===========
a) The Company was indebted to Trident III, L.L.C. under terms of a promissory
note dated October 21, 1998 in the amount of $250,000. Terms of the note
provide for interest at a rate of 10% per annum, with an original maturity
date of April 20, 1999. The Company issued 1,000 shares of its common stock
to Trident III, L.L.C. in connection with this loan. The loan has been
extended at various times with a current maturity date of October 30, 1999.
The Company issued a total of 2,600 shares of its common stock in
consideration of these extensions. When the note was extended to September
30, 1999, the Company agreed that if the note was not paid on or before
September 30, 1999, then it would issue 50,000 shares per day for each day
that the note is outstanding subsequent to September 30, 1999. Concurrent
with the extension to October 30, 1999 the provision was added that if
payment of outstanding principal and interest were made by that date, the
lender would not seek to receive the 50,000 shares per day due under the
previous extension. The lender has waived this provision of the contract. A
settlement has been reached with the lender that consists of the company
issuing 279,861 common stock shares to Trident III, L.L.C. in exchange for
a full release from the debt and indemnity against any and all current and
future claims. The issuance of the Company's common stock shares on
February 9, 2000, eliminated the debt and satisfied the agreement in full.
b) The Company is indebted to Business Exchange Investment, Inc. under terms
of a promissory note dated September 15, 1998. Terms of the note provide
for interest at a rate of 10% per annum with a maturity date of June 30,
2000. The note is collateralized by 100% of the shares of OSI. The Company
hopes to satisfy this debt by issuing shares of its common stock. No
agreement has been reached at this date, however, the Company is active in
its attempt to resolve this debt.
c) The Company was indebted to the M.O. Rife III, Trust A under terms of a
promissory note date March 31, 1999 in the amount of $101,313. This note
was eliminated according to the terms of the December 7, 1999 Acquisition
Agreement of certain assets of Rife Oil Properties, Inc. and the
extinguishment of this debt.
d) The Company is indebted to Landmark Bank under terms of a promissory note
dated October 13. 1999. Terms of the note provide for interest at a rate of
10% per annum with a maturity date of June 15, 2000. The note is
collateralized by 100% of the assets of Oil Retrieval Systems, Inc. The
funds were used as working capital for Oil Retrieval Systems, Inc.
F-9
<PAGE>
NOTE 5 - RELATED PARTY TRANSACTIONS
During the quarter ending March 31, 2000:
a) The Company occupies space in facilities leased by M.O. Rife III. The
Company pays rent to the stockholder in the amount of $2,000 per month. The
space is rented on a monthly basis.
b) The Company was indebted to officers for wages accrued in year 1999 in the
amount of $254,820, which incurred payroll tax accrual of $19,869. A
settlement has been reached with the officers consisting of the Company
issuing 90,000 shares common stock to extinguish debt, which would
eliminate accrued payroll taxes. These shares were issued on February 29,
2000.
c) On January 23rd, 2000, the Board of Directors o the Company voted to issue
100,000 shares of its common stock to each of the directors as compensation
for services rendered. On February 9th, 2000 the Company issued 25,000
shares of its restricted common stock to the six members of the Board of
Directors; James McGowan, Charles Barnhill, Reginald Davis, Richard Surber,
M.O. Rife III and Joe B. Bennett. The remaining shares owed will be issued
on a pro-rata basis during the remainder of the year. This issuance
resulted in a G&A charge to the Company in the amount of $867,000 for the
period ending March 31, 2000. f
NOTE 6 - ADVISORY & CONSULTING AGREEMENTS
For the period ending 12-31-99, the Company entered into various cancelable
advisory agreements with third parties. Compensation for services provided under
these agreements will be paid in either Common Shares or Common Share Purchase
options of the Company. During the six months ended March 31, 2000, the Company
issued 610,000 shares of common stock under these advisory agreements, valued at
$3,156,850.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a) The Company has entered into various non- cancelable operating lease
agreements for office and warehouse space and equipment.
1) Warehouse facilities located in Fort Worth, Texas. The lease term expires
on September 30, 2001.
2) Various office equipment leases expiring through March 2004.
Future minimum lease payments under the lease agreements for each of the years
ended September 30 are as follows:
2000 $ 109,319
2001 77,790
2002 11,639
2003 8,731
2004 2,368
-------------
Total minimum lease payments $ 209,847
Rent expense included in the financial statements for the
quarter ended December 31, 1998 totaled $39,700.
f$ 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 June
30, 2000.
c) A former employee had filed a claim against ORS. The employee had demanded
$75,000 in exchange for a full and final release. The claim had been
settled as previously disclosed, however the terms of the settlement have
changed from a cash payment to payment of the Company's restricted stock.
The amount of shares to be granted under the terms of this settlement are
15,000 shares, which have not been issued as of the date of this filing.
F-10
<PAGE>
d) A suit has been filed against the Company alleging breach of contract and
seeking damages of approximately $120,000. This relates to an alleged
agreement to repurchase equipment previously sold by the Company. A
settlement has been reached in this matter which calls for the issuance of
125,000 shares of the Company's restricted common stock. These shares have
not been issued as of the date of this filing.
NOTE 8 - SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES
During the six-months ended March 31, 2000:
a) The Company issued 90,000 shares in the quarter ended December 31, 1999,
under an advisory agreements dated December 14, 1999 (the "Agreements").
The Agreements are between the Company and Allen Z. Wolfson and Ronald
Welborn. The 90,000 shares of the Issuer's common stock were issued to
Allen Z. Wolfson, under the Agreements. Under the Agreements, the
recipients are entitled to receive a total of 750,000 each for consulting
services provided to the Issuer. This transaction is valued at $236,250 and
charged to G & A for the quarter ending 12-31-99.
b) The Company issued 420,000 shares under the agreements in the second
quarter ended March 31, 2000. The shares were issued to Allen Z. Wolfson
(20,000 shares) and Ronald Welborn (400,000 shares), under the Agreements,
for consulting services provided to the Issuer. This transaction is valued
at $2.385 million and charged to G & A for the quarter ending 03-31-00.
c) The Company issued 300,000 shares of its common stock in order to secure a
loan by Global Universal, Inc. in the amount of $25,000. The loan was
subsequently forgiven and the shares were returned to the Company's
treasury during the second quarter of its fiscal year.
d) The Company cancelled 1,000,000 shares (10,000 post-split shares) issued to
Mark S. Zouvas on October 21, 1999. These shares had been issued to satisfy
accrued salaries incurred by the Company for his services.
e) On January 23rd, 2000, the Board of Directors o the Company voted to issue
100,000 shares of its common stock to each of the directors as compensation
for services rendered. On February 9th, 2000 the Company issued 25,000
shares of its restricted common stock to the six members of the Board of
Directors; James McGowan, Charles Barnhill, Reginald Davis, Richard Surber,
M.O. Rife III and Joe B. Bennett. The remaining shares owed will be issued
on a pro-rata basis during the remainder of the year. This issuance
resulted in a G&A charge to the Company in the amount of $867,000 for the
period ending March 31, 2000.
f) On January 23rd, 2000, the Board of Directors o the Company voted to issue
600,000 shares of its common stock to Genesis Capital Corporation for the
acquisition of 100% of the issued and outstanding shares of the Lincoln
Health Fund, Inc. a Delaware Corporation, a wholly owned subsidiary of
Genesis Capital Corporation. The major asset of Lincoln Health Fund, Inc.
is 10.687 acres of vacant land in Ft Worth, Texas. On February 9th, 2000
the Company issued 600,000 shares of its restricted common stock for said
shares and recorded the asset on its balance sheet at the price of its
common stock multiplied by the number of shares issued. A discount of 30%
was applied to the transaction to reflect the restriction of the securities
issued. This resulted in an addition to Net Assets of the Company of $3.456
million. The Company is currently negotiating a contract for the sale of
the real estate to a qualified buyer in the amount of $300,000. In
accordance with generally accepted accounting principals, the Company has
recorded an asset impairment expense in the amount of $3.156 million for
the period ending March 31, 2000, while concurrently establishing a
contra-asset account to appropriately reflect the value of the asset
recorded.
F-11
<PAGE>
g) On January 23rd, 2000, the Board of Directors o the Company voted to issue
20,000 shares of its common stock to Fauniel D. Rowland and 50,000 shares
of its common stock to Simon, Warner & Doby as compensation for legal
services rendered. On February 9th, 2000 the Company issued 70,000 shares
of its restricted common stock as described above. This issuance resulted
in a G&A charge to the Company in the amount of $404,600 for the period
ending March 31, 2000.
h) The Company was indebted to officers for wages accrued in year 1999 in the
amount of $254,820, which incurred payroll tax accrual of $19,869. A
settlement has been reached with the officers consisting of the Company
issuing 90,000 shares common stock to extinguish this debt, thereby
eliminating accrued payroll taxes. The issuance of the Company's common
stock shares occurred on February 29,2000. This settlement was ratified at
a meeting of the Company's Board of Director's on January 23, 2000.
i) A settlement has been reached with Trident III, L.L.C. that consists of the
company issuing 279,188 common stock shares to Trident III, L.L.C. in
exchange for a full release from the debt and indemnity against any and all
current and future claims. The issuance of the Company's common stock
shares for this matter will occur in the 2nd of this fiscal year. This
settlement was ratified at a meeting of the Company's Board of Director's
on January 23, 2000. This issuance resulted in a G&A charge to the Company
in the amount of $2,890,000 for the period ending March 31, 2000. This
amount was based on seventy percent (70%) of the value of the stock issued
on that day less the amount of the liability on the Company's books
j) On January 23rd, 2000, the Board of Directors o the Company voted to issue
500,000 shares of its common stock to Benchmark Equity Group as
compensation for current and future consulting services rendered. On
February 9th, 2000 the Company issued 500,000 shares of its restricted
common stock as described above. This issuance resulted in a G&A charge to
the Company in the amount of $2,890,000 for the period ending March 31,
2000.
k) The Company issued 9,000,000 shares to Rife Oil Properties for certain oil
leases and the relinquishment of certain debt owed by the issuer to Rife
Oil Properties, Inc.
l) The Company was indebted to Steve Wooten, Sr. for consulting services
rendered in the amount of $85,000. An agreement has been reached with Mr.
Wooten consisting of the Company issuing 10,000 shares of common stock. The
issuance of the Company's common stock shares occurred on February 29,2000.
This transaction is valued at $85,000 and charged to G & A for the quarter
ending 03-31-00.
m) The Company issued shares of its common stock t Henry Simon for current and
future legal services. An agreement has been reached with Mr. Simon to
provide legal and advisory services, which resulted in the Company issuing
30,000 shares of common stock. The issuance of the Company's common stock
shares occurred on February 29,2000. This transaction is valued at $172,500
and charged to G & A for the quarter ending 03-31-00.
n) The Company issued 45,000 shares of its common stock to Hudson Consulting
Group, Inc. for cash at $2.00 per share. This may be considered a related
party transaction because Richard D. Surber, a director of the Company, is
the president of and a director of Hudson Consulting Group, Inc.
F-12
<PAGE>
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to March 31, 2000, the Company
a) The Company is seeking to resolve debt payable burdens with the issuance of
shares in its common stock. Under this scenario, the Company is seeking to
negotiate a settlement with Business Exchange, Inc. for its debt of
$250,000. The Company is also seeking to eliminate the claim made by a
former employee of Oil Retrieval Systems, Inc.
b) The Company entered into two advisory agreement covering financial and
investment services to be provided to the Company on a best efforts basis.
The agreements provide for the Company to issue an aggregate of 1,500,000
shares of post reverse split common stock plus options to purchase an
aggregate of 1,500,000 shares of post reverse split common stock at an
exercise price of $0.66667 per share for a period of one year, the term of
the agreements. As of the end of the fiscal quarter ending 03-31-00, the
Company has issued 610,000 shares of its common stock under the
aforementioned agreements.
c) The Company entered into an agreement to acquire 100% Pepin Oil Company, an
Oklahoma oil and gas exploration company in exchange for 2.5 million shares
of its restricted common stock. Pepin has a working interest in a 500 well
developmental drilling program located in Oklahoma. This transaction has
not been consummated as of the date of this filing, however management of
the Company believes it will close during the third quarter of its fiscal
year.
NOTE 10 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As of March 31,
2000, the Company has a working capital deficit of $343,043 and an
accumulated deficit of $20,725,202. Based on 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 operations
NOTE 11 -
Additional footnotes included by reference Except as indicated in Notes
above, there have been no other material changes in the information
disclosed in the notes to the financial statements included in the
Company's Annual Report on Form 10-KSB for the year ended September 30,
1999. Therefore, those footnotes are included herein by reference.
F-13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The information herein contains certain forward looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E
of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward looking statements involve risks and uncertainty, including, without
limitation, the ability of Power Exploration, Inc. ("Power") to continue its
expansion strategy, changes in the real estate markets, labor and employee
benefits, as well as general market conditions, competition, and pricing.
Although Power believes that the assumptions underlying the forward looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward looking
statements included in the Form 10QSB will prove to be accurate. In view of the
significant uncertainties inherent in the forward looking statements included
herein, the inclusion of such information should not be regarded as a
representation by Power or any other person that the objectives and plans of
Power will be achieved.
General
During the second quarter of 2000,Power Exploration, Inc. and its subsidiaries
(hereinafter "Power" unless the context indicates otherwise) continued to pursue
capital financing alternatives and possible acquisition targets in order to
generate greater revenue and increase shareholder value.
The following discussion of the consolidated financial condition and results of
operations of Power should be read in conjunction with the consolidated
financial statements of Power and the notes thereto included in Item 1 of Part I
of this Report.
Results of Operations
Revenues
Gross revenues for the three and six months ended March 31, 2000, were $65,160
and $91,672 compared to $191,183 and $201,303 for the same periods in 1999, a
66% and 54% decrease in revenues for the respective periods in 1999. The gross
revenues for three months ended March 31, 2000, were lower than the comparable
quarter in 1999 due to a significant decrease in equipment sales.
Costs and Expenses
Costs of revenues for the three and six months ended March 31, 2000, were
$81,544 and $164,097 compared to $170,414 and $217,113 for the same periods in
1999. The decrease in the costs of revenues is primarily due to decreases in
lease operating expenses.
Interest and general, and administrative and asset reduction expenses were
$9,108,898 and $12,767,205 for the three and six months ended March 31, 2000
compared to $2,027,195, and $2,448,520 for the same period in 1999. The primary
reason for the increases was a significant
4
<PAGE>
increase in consulting fees paid by the Company through the issuance of its
common stock, which were valued and recorded at prevailing market share prices.
During the six months ended March 31, 1999 the company issued 100,000 shares of
common stock valued at $538,000 for consulting fees. During the six months ended
March 31, 2000, the Company issued 510,000 shares of common stock valued at
$2,621,250 for consulting fees.
Gross Loss
Gross losses for the three and six months ended March 31, 2000, were $16,384 and
$72,425 compared to a gross profit of $20,769 and a gross loss of $15,810 for
the same periods in 1999. Gross profit/loss as a percentage of revenues was -25%
and -36% for the three and six months ended March 31, 2000, compared to 10% and
- -8% for the same periods in 1999.
Net losses for the three and six months ended March 31, 2000, were $9,125,282
and $12,839,453 compared to net losses of $2,006,426 and $2,464,330 for the same
periods in 1999. Net loss as a percentage of revenues was 140% and 140% for the
three and six months ended March 31, 2000, compared to net losses as a
percentage of revenues of 12.2% and 10.5% for the same periods in 1999.
Liquidity and Capital Resources
At March 31, 2000, the Company had current assets of $431,755 and total assets
of $8,962,291 as compared to $417,932 and $7,778,894, respectively at September
30, 1999. The Company's working capital deficit of $343,022 at March 31, 2000
compared to a working capital deficit of $1,593,061 at September 30, 1999 shows
an improvement of $1,250,039 for the year to date from the figure for the year
ended September 30, 1999.
Net stockholders' equity in the Company was $8,187,494 as of March 31, 2000,
compared to $5,767,961 at year-end on September 30, 1999. This significant
increase is due to the increase in consulting fees paid by the Company through
the issuance of its common stock, which were valued and recorded at prevailing
market share prices.
Year 2000 Compliance
As of May 10, 2000, Power has experienced no significant year 2000 problems.
Power 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 currently has limited information concerning the Year 2000 compliance
status of its clients and associates. However, even if Power's clients are not
Year 2000 complaint Power does not anticipate that such noncompliance will have
a material adverse effect on Power's business, financial condition, results of
operations or cash flows.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
5
<PAGE>
During the second quarter ending March 31, 2000, no material developments
occurred regarding Power's legal proceedings. For more information please see
Power's Form 10KSB for the year ended September 30, 1999 which is incorporated
herein by reference.
ITEM 2. Changes in Securities and Use of Proceeds
Recent sales of Unregistered Securities
The following is a list of all securities sold by Power within the period
covered by this report, including, where applicable, the identity of the person
who purchased the securities, title of the securities, and the date sold.
On February 9, 2000, the Company issued a total of 220,000 shares of $0.02 par
value common stock at $5.78 per share to the following named persons and
entities for services rendered as directors and legal consultants of the
Company.
Name Number of Shares Price
Joe Bill Bennett 25,000 $144,500
Charles Barnhill 25,000 $144,500
James McGowan 25,000 $144,500
Reginald Davis 25,000 $144,500
Richard D. Surber 25,000 $144,500
M. O. Rife III 25,000 $144,500
Fauniel D. Rowland 20,000 115,600
Simon, Warner & Doby 50,000 $289,000
These shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933.The shares were issued pursuant to
section 4(2) of the Securities Act of 1933 in an isolated private transaction by
the Company which did not involve a public offering. The Company made this
offering based on the following factors: (1) The issuance was an isolated
private transaction by the Company which did not involve a public offering; (2)
there were only eight offerrees who were issued stock for services as Officers,
Directors and Employees of the Company; (3) the offerees did not resell the
stock but have continued to hold it since it was acquired; (4) there were no
subsequent or contemporaneous public offerings of the stock; (5) the stock was
not broken down into smaller denominations; and (6) the negotiations for the
sale of the stock took place directly between the offerees and the Company.
On February 9, 2000, the Company issued 600,000 shares of $0.02 par value common
stock at $5.78 per share to Genesis Capital Corporation in exchange for 100% of
the issued and outstanding shares of the Lincoln Health Fund, Inc. a Delaware
Corporation, a wholly owned subsidiary of Genesis Capital Corporation, for
600,000 shares of Power's common stock. The major asset of Lincoln is 10.687
6
<PAGE>
acres of vacant land in Ft Worth, Texas. These shares were issued pursuant to
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933. The shares were issued pursuant to section 4(2) of the Securities Act
of 1933 in an isolated private transaction by the Company which did not involve
a public offering. The Company made this offering based on the following
factors: (1) The issuance was an isolated private transaction by the Company
which did not involve a public offering; (2) there was only one offeree who was
issued stock in exchange for a 100% interest in Lincoln, (3) the offeree did not
resell the stock but has continued to hold it since it was acquired, a period of
three months; (4) there were no subsequent or contemporaneous public offerings
of the stock; (5) the stock was not broken down into smaller denominations; and
(6) the negotiations for the sale of the stock took place directly between the
offeree and the Company.
On February 9, 2000, the Company issued 500,000 shares of $0.02 par value common
stock to Benchmark Equity Group, Inc. and 279,881 shares of $0.02 par value
common stock to Trident III, LLC pursuant to Settlement Agreements entered into
by the Company on December 20, 1999 (See Form 10-QSB filed February 22, 2000).
These shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933. The shares were issued pursuant to
section 4(2) of the Securities Act of 1933 in an isolated private transaction by
the Company which did not involve a public offering. The Company made this
offering based on the following factors: (1) The issuance was an isolated
private transaction by the Company which did not involve a public offering; (2)
there were only two offerees who were issued stock in exchange for debt; (3) the
offerees did not resell the stock but have continued to hold it since it was
acquired, a period of three months; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations for the sale of the stock
took place directly between the offerees and the Company.
On March 16, 2000, the Company issued 45,000 shares of $0.02 par value common
stock for $2.00 per share in cash to Hudson Consulting Group, Inc. These shares
were issued pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act of 1933. The shares were issued pursuant to section 4(2)
of the Securities Act of 1933 in an isolated private transaction by the Company
which did not involve a public offering. The Company made this offering based on
the following factors: (1) The issuance was an isolated private transaction by
the Company which did not involve a public offering; (2) there was only one
offeree who was issued stock in exchange for cash; (3) the offeree did not
resell the stock but has continued to hold it since it was acquired, a period of
three months; (4) there were no subsequent or contemporaneous public offerings
of the stock; (5) the stock was not broken down into smaller denominations; and
(6) the negotiations for the sale of the stock took place directly between the
offeree and the Company.
ITEM 5. Other Information
On May 2, 2000, the Board of Directors of Power approved signing of a contract
dated March 20, 2000, which contract provides for the acquisition, by Power, of
100% of the issued and outstanding shares of Pepin Oil Company, Inc., an
Oklahoma corporation, from J. Paul Pepin, Art Pepin, Jill Pepin, Pam Bass and
Tom Pepin( the "Sellers"), in exchange for 2,500,000 shares of restricted common
shares of Power. The closing of the contract has not yet occurred and is subject
to the delivery of certain due diligence materials to Power by the Sellers. It
is expected that the closing on the contract will occur during the third fiscal
quarter.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits Exhibits required to be attached by Item 601 of Regulation S-B are
listed in the Index to Exhibits on page _ of this Form 10-QSB, and are
incorporated herein by this reference.
(b) Reports on Form 8-K. None.
-------------------
7
<PAGE>
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 May 22, 2000 /s/ Joe B. Bennett
---------------------------------------
Joe B. Bennett, Chief Executive Officer
Date May 22, 2000 /s/ Mark Zouvax
---------------------------------------
Mark Zouvas, Chief Financial Officer
8
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NO. DESCRIPTION
2.1 * Plan of Reorganization and Change of Situs by which Titan
Energy Corp., and Power Exploration, Inc. Changes Its Place
of Incorporation.
2.2 * Agreement and Plan of Merger Between Power Exploration, Inc.
(Nevada) and Power Exploration, Inc. (Colorado). August 1,
1998
2.3 * Articles of Merger Between Power Exploration, Inc. (Nevada)
and Power Exploration, Inc. (Colorado). August 1, 1998
3.1 * Articles of Incorporation of Imperial Energy dated October
31, 1979.
3.2 * Amendment to Articles of Incorporation dated June 26, 1984
3.3 * Amendment to Articles of Incorporation dated September 25,
1996
3.4 * Amendment to Articles of Incorporation dated June 15, 1997,
Changing Name to Oil Retrieval Systems, Inc.
3.5 * By Laws of the Corporation
3.6 * Articles of Incorporation of Power Exploration, Inc.
(Nevada) dated May 14, 1998
3.7 * By Laws of Power Exploration, Inc. (Nevada) Dated June 1,
1998
27 -- Financial Data Schedule
* Previously filed and incorporated herein by reference from the Form 10-KSB
filed January 14, 2000 by Power.
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2000 THAT
WERE WERE FILED WITH THE COMPANY'S REPORT ON FORM 10-QSB AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000316621
<NAME> Power Exploration, Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 9,688
<SECURITIES> 0
<RECEIVABLES> 23,405
<ALLOWANCES> 0
<INVENTORY> 398,661
<CURRENT-ASSETS> 431,754
<PP&E> 8,364,265
<DEPRECIATION> (144,756)
<TOTAL-ASSETS> 8,962,291
<CURRENT-LIABILITIES> 774,797
<BONDS> 0
0
0
<COMMON> 231,282
<OTHER-SE> 7,956,212
<TOTAL-LIABILITY-AND-EQUITY> 8,962,291
<SALES> 47,110
<TOTAL-REVENUES> 65,160
<CGS> 81,544
<TOTAL-COSTS> 81,544
<OTHER-EXPENSES> 12,267,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,512
<INCOME-PRETAX> (12,293,282)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,293,282)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,293,282)
<EPS-BASIC> (1.06)
<EPS-DILUTED> (1.06)
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