UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended September 30, 2000
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) for the transition period from ________ to
__________.
Commission file number: 000-09419
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POWER EXPLORATION, INC.
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(Name of Small Business Issuer in Its Charter)
Nevada 84-0811647
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
5416 Birchman Avenue, Fort Worth, Texas 76107
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(Address of Principal Executive Offices) (Zip Code)
(817) 377-4464
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of each Exchange on Which Registered
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Common Stock ($0.02 None
Par Value)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
The issuer's total consolidated revenues for the year ended September 30, 2000,
were $164,191.
The aggregate market value of the registrant's Common Stock, $0.02 par value
(the only class of voting stock), held by non-affiliates was approximately
$221,865 based on the average closing bid and asked prices for the Common Stock
on January 3, 2001.
At January 3, 2001, the number of shares outstanding of the registrant's Common
Stock, $0.02 par value (the only class of voting stock), was 13,977,781.
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TABLE OF CONTENTS
PAGE
PART I
Item 1. Description of Business..........................................1
Item 2. Description of Property..........................................8
Item 3. Legal Proceedings...............................................11
Item 4. Submission of Matters to a Vote of Security-Holders.............11
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........11
Item 6. Management's Discussion and Analysis or Plan of Operation.......14
Item 7. Financial Statements............................................22
Item 8. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.............................23
PART III
Item 9. Directors and Executive Officers................................23
Item 10. Executive Compensation..........................................24
Item 11. Security Ownership of Certain Beneficial Owners
and Management..................................................25
Item 12. Certain Relationships and Related Transactions..................26
Item 13. Exhibits and Reports on Form 8-K................................27
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FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-KSB INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED
(THE"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED (THE "EXCHANGE ACT"), WHICH CAN BE IDENTIFIED BY THE USE OF
FORWARD-LOOKING TERMINOLOGY SUCH AS, "MAY," "BELIEVE," "EXPECT," "INTEND,"
"ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS FORM 10-KSB, INCLUDING WITHOUT
LIMITATION, THE STATEMENTS UNDER "BUSINESS," "PROPERTIES," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXPLORATION--LIQUIDITY AND CAPITAL RESOURCES" AND "MARKET FOR THE REGISTRANT'S
COMMON EQUITY AND RELATED SHAREHOLDER MATTERS" LOCATED ELSEWHERE HEREIN
REGARDING THE FINANCIAL POSITION AND LIQUIDITY OF POWER EXPLORATION INC. ("THE
COMPANY"), THE VOLUME OR DISCOUNTED PRESENT VALUE OF ITS OIL AND NATURAL GAS
RESERVES, ITS ABILITY TO SERVICE ITS INDEBTEDNESS, ITS STRATEGIC PLANS INCLUDING
ITS ABILITY TO LOCATE AND COMPLETE ACQUISITIONS OF OIL AND NATURAL GAS ASSETS,
ITS ABILITY TO LIST ITS STOCK ON THE OVER THE COUNTER ELECTRONIC BULLETIN BOARD
(OTC-EBB) AND OTHER MATTERS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE
COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS WITH RESPECT TO ANY SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS
("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS FORM 10-KSB, INCLUDING, WITHOUT
LIMITATION, IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
FORM 10-KSB. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS HEREIN INCLUDE, BUT ARE
NOT LIMITED TO, THE TIMING AND EXTENT OF CHANGES IN COMMODITY PRICES FOR OIL AND
NATURAL GAS, THE NEED TO DEVELOP AND REPLACE RESERVES, ENVIRONMENTAL RISKS,
DRILLING AND OPERATING RISKS, RISKS RELATED TO EXPLORATION AND DEVELOPMENT,
UNCERTAINTIES ABOUT THE ESTIMATES OF RESERVES, COMPETITION, GOVERNMENT
REGULATION AND THE ABILITY OF THE COMPANY TO MEET ITS STATED BUSINESS GOALS. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
As used herein, the term "Company" refers to Power Exploration, Inc., a Nevada
corporation, and its subsidiaries and predecessors, unless the context indicates
otherwise. Originally incorporated on October 31, 1979 in Colorado as Imperial
Energy Corp., the Company adopted its present name in May of 1998. During its
history, the Company has changed its name several times. At different times the
Company has been known as Imperial Energy Corp., Funscape Corp., Oil Retrieval
Systems, Inc., and Titan Energy Corp. Current management obtained controlling
ownership of the Company in October of 1999. The Company changed its domicile to
Nevada on May 31, 1998 through a merger of Titan Energy Corp., Inc., a Colorado
Corporation, with a Nevada corporation bearing the name Power Exploration, Inc.
(the "Company").
The Company, along with its wholly owned subsidiaries, is a developmental global
resource company engaged in oil and gas exploration. In addition to exploration
and development of new properties, the Company redevelops currently producing
oil and gas fields.
Business of the Issuer
Oil and natural gas are the principal products currently produced by the
Company. The Company does not refine or process the oil and natural gas that it
produces. The Company sells the oil it produces under short-term contracts at
market prices in the areas in which the producing properties are located,
generally at F.O.B. field prices posted by the principal purchaser of oil in
such areas.
The Company focuses its exploration efforts on its significant holdings in
Texas. The Company is redeveloping existing fields in Corsicana, Texas and other
areas of the region where fields have been partially depleted by conventional
production methods, but where significant, proven reserves of oil and gas still
remain. These fields can become commercially viable and provide long-term
revenue streams utilizing the latest technology.
Recovery methods employed by the Company have yielded positive results in recent
application tests. The first process involves the use of a controlled,
under-balanced horizontal drilling technique in retrieving secondary production
from fields whose depletion curves have flattened. This process has been used
extensively in the higher-pressure environments, like the Austin-Chalk, however
it has not been widely applied to shallow depth, pressure depleted reservoirs.
A supplemental process to the horizontal drilling methods described above is the
use of an alkaline-surfactant aided polymer flood. Water floods have been the
predominate method for retrieving oil from partially depleted fields. A polymer
flood builds a wall, which coupled with the alkaline-surfactant, helps "push"
oil from the reservoir into the well bore. The spacing and permeability
characteristics of the Company's Corsicana field are prime candidates for this
process. The presence of the horizontal well creates a larger well bore in which
fluid (oil) can enter and can increase production ten fold to that of a vertical
well.
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The Company's swabbing rig manufacturing unit, ORS, produced a truck-mounted
portable swabbing unit which eliminates the need to rig up work-over units and
run tubing, rods, downhole pumps, packers and surface pump jacks, thus requiring
only one person to drive and operate. The units are completely self-contained
with the capacity of up to 80 barrels of oil, enabling the operator to swab
approximately 25 to 35 wells per day. The swabbing procedure takes approximately
10 minutes per well. In comparison, using conventional pump jacks, the same
volume of fluid removal would take 14 to 24 hours and require a near constant
source of electrical power.
On May 16, 1997 the Company acquired Oil Retrieval Systems, Inc. and its
portable swabbing technology, assets and liabilities from Rife Oil Properties,
Inc. for 2,500,000 shares of the Company's restricted common stock. In September
of 2000, the Company discontinued the operations of its ORS unit due to a lack
of operational funding. The subsidiary still maintains an independent set of
accounting records that reflect the ownership of the portable swabbing
technology, however, inventory and related items have been written-off. The
Company laid-off its ORS employees and canceled its facilities lease, without
penalty. The Company plans on either revitalizing its ORS subsidiary with an
infusion of operating capital or selling the division and its technology to a
third party.
With respect to its drilling operations, the Company plans to concentrate on
lower risk development-type properties generally consisting of drilling in
reservoirs from which production is or formerly was being obtained while also
drilling some wildcat and developmental wells. The drilling of development wells
is subject to the normal risk of dry holes or a failure to produce oil and
natural gas in commercial quantities. The degree of risk varies depending, among
other things, on the distance between the well and the nearest producing well,
other available geological information and the geological features of the area.
All drilling activities are subject to the risk of encountering unusual or
unexpected formations and pressures and other conditions that may result in
financial losses or liabilities to third parties or governmental entities, many
of which may not be covered by insurance. The number and type of wells drilled
by the Company will vary depending on the amount of funds available for
drilling, the cost of each well, the size of the fractional working interests
acquired by the Company in each well and the estimated recoverable reserves
attributable to each well.
On June 17, 1997 the Company acquired 100% of the issued and outstanding shares
of Oil Seeps, Inc. a Texas Corporation. Oil Seeps, Inc. was acquired for 400,000
shares of restricted common stock. Oil Seeps owned certain oil and gas
concessions located in Australia. These concessions allowed exploration for
petroleum products and required production on or before September 30, 1999. Due
to its lack of capital for exploration and drilling in Australia, the Company
was unable to drill a producing well on the property and the concessions expired
on September 30, 1999.
Because of the Company's focus on the acquisition and development of new and
currently producing oil and gas properties, the Company will continue to seek
acquisition possibilities.
As of September 30, 2000, the Company employed 5 persons all of whom are engaged
in office and administrative activities.
Exploration and Development Activities
Historically, the Company has financed its exploration and development
expenditures primarily through bank borrowing, equity capital from private sales
of stock, and promoted funds from industry partners.
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With respect to its acquisition activities, the Company intends to shift its
emphasis to smaller scale acquisitions of producing properties with additional
development and exploration potential. Initially, the Company plans to use a
combination of debt and equity financing to fund these smaller acquisitions.
The Company made exploration and development expenditures of $3,293 and $0.00
during the fiscal years ended September 30, 1999 and 2000, respectively. The
Company made net lease acquisitions of $0.00 for proved and unproved properties
during the fiscal year ended September 30, 1999. Total lease acquisitions for
both proved and unproved properties was $0.00 during the fiscal year ended
September 30, 2000. The Company's ability to continue to fund its exploration
and development activities depends upon cash flow and its ability to secure the
necessary financing for such activities.
Products, Markets and Revenues
Oil and natural gas are the principal products currently produced by the
Company. The Company does not refine or process the oil and natural gas that it
produces. The Company sells the oil it produces under short-term contracts at
market prices in the areas in which the producing properties are located,
generally at F.O.B. field prices posted by the principal purchaser of oil in
such areas.
The availability of a ready market for oil and natural gas and the prices of oil
and natural gas are dependent upon a number of factors that are beyond the
control of the Company. These factors include, among other things, the level of
domestic production and economic activity generally, the availability of
imported oil and natural gas, actions taken by foreign oil producing nations,
the availability of natural gas pipelines with adequate capacity and other
transportation facilities, the availability and marketing of other competitive
fuels, fluctuating and seasonal demand for oil, natural gas and refined products
and the extent of governmental regulation and taxation (under both present and
future legislation) of the production, refining, transportation, pricing, use
and allocation of oil, natural gas, refined products and substitute fuels.
Accordingly, in view of the many uncertainties affecting the supply and demand
for oil, natural gas and refined petroleum products, it is not possible to
predict accurately the prices or marketability of the oil and natural gas from
any producing well in which the Company has or may acquire an interest.
Oil prices have been subject to significant fluctuations over the past decade.
Levels of production maintained by the Organization of Petroleum Exporting
Countries ("OPEC") member nations and other major oil producing countries are
expected to continue to be a major determinant of oil price movements in the
future. As a result, future oil price movements cannot be predicted with any
certainty. Similarly, during the past several years, the market price for
natural gas has been subject to significant fluctuations on a monthly basis as
well as from year to year. These frequent changes in the market price make it
impossible for the Company to predict natural gas price movements with any
certainty.
The Company cannot provide assurance that it will be able to market all oil or
natural gas that the Company produces or, if such oil or natural gas can be
marketed, that favorable price and contractual terms can be negotiated. Changes
in oil and natural gas prices may significantly affect the revenues and cash
flow of the Company and the value of its oil and natural gas properties.
Further, significant declines in the prices of oil and natural gas may have a
material adverse effect on the business and financial condition of the Company.
(See "Management's Discussion and Analysis").
In certain areas in which the Company engages in oil and natural gas production
activities, the supply of oil and natural gas available for delivery from time
to time exceeds the demand. During such times, companies purchasing oil and
natural gas in such areas reduce the amount of oil and natural gas that they
will purchase or "take."
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If buyers cannot be readily located for newly discovered oil and natural gas
reserves, newly completed oil and natural gas wells may be shut-in for various
periods of time. As a result, the over-supply of oil and natural gas in certain
areas may cause the Company to experience "take" problems or may adversely
affect the Company's ability to obtain contracts to market oil and natural gas
discovered in wells in which the Company owns an interest.
Competition
The oil and natural gas industry is highly competitive. The Company encounters
strong competition from other independent operators and from major oil companies
in acquiring properties, in contracting for drilling equipment and in securing
trained personnel. Many of these competitors have financial resources and staffs
substantially larger than those available to the Company. Therefore, competitors
may be able to pay more for desirable leases and to evaluate, bid for and
purchase a greater number of properties or prospects than the financial or
personnel resources of the Company will permit.
Exploration and production of oil and natural gas is also affected by
competition for drilling rigs and the availability of tubular goods and certain
other equipment. While the oil and natural gas industry has experienced
shortages of drilling rigs and equipment, pipe and personnel in the past, the
Company is not presently experiencing any shortages and does not foresee any
such shortages in the near future. the Company is unable to predict how long
current market conditions will continue.
Competition for attractive oil and natural gas producing properties, undeveloped
leases and drilling rights is also strong, and the Company cannot provide
assurance that it will be able to compete satisfactorily in the acquisition of
such properties. Many major oil companies have publicly indicated their
decisions to concentrate on overseas activities and have been actively marketing
certain of their existing producing properties for sale to independent
producers. There can be no assurance that the Company will be successful in
acquiring any such properties.
Regulation
The Company's operations are affected from time to time in varying degrees by
political developments and federal and state laws and regulations. In
particular, oil and natural gas production, operations and economics are or have
been affected by price controls, taxes and other laws relating to the oil and
natural gas industry, by changes in such laws and by changes in administrative
regulations. The Company cannot predict how existing laws and regulations may be
interpreted by enforcement agencies or court rulings, whether additional laws
and regulations will be adopted, or the effect such changes may have on its
business or financial condition. Matters subject to regulation include discharge
permits for drilling operations, drilling and abandonment bonds or other
financial responsibility requirements, reports concerning operations, the
spacing of wells, unitization and pooling of properties, and taxation. There can
be no assurance that new laws or regulations, or modifications of or new
interpretations of existing laws and regulations, will not increase
substantially the cost of compliance or otherwise adversely affect the Company's
oil and natural gas operations and financial condition or that material
indemnity claims will not arise against the Company with respect to properties
acquired by or from the Company.
The Company's operations are subject to numerous laws and regulations governing
the discharge of materials into the environment or otherwise relating to
environmental protection. These laws and regulations require the acquisition of
a permit before drilling commences, restrict the types, quantities and
4
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concentration of various substances that can be released into the environment in
connection with drilling and production activities, limit or prohibit drilling
activities on certain lands lying within wilderness, wetlands and other
protected areas, and impose substantial liabilities for pollution which might
result from the Company's operations. Moreover, the recent trend toward stricter
standards in environmental legislation and regulation is likely to continue.
For instance, legislation has been proposed in Congress from time to time that
would reclassify certain crude oil and natural gas exploration and production
wastes as "hazardous wastes" which would make the reclassified wastes subject to
much more stringent handling, disposal and clean-up requirements. If such
legislation were to be enacted, it could have a significant impact on the
operating costs of the Company, as well as the oil and natural gas industry in
general. Initiatives to further regulate the disposal of crude oil and natural
gas wastes are also pending in certain states, and these various initiatives
could have a similar impact on the Company. The Company could incur substantial
costs to comply with environmental laws and regulations. In addition to
compliance costs, government entities and other third parties may assert
substantial liabilities against owners and operators of oil and natural gas
properties for oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages, including damages caused by
previous property owners. As a result, substantial liabilities to third parties
or governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for project investment or result in loss of the
Company's properties.
Although the Company maintains insurance coverage it considers to be customary
in the industry, it is not fully insured against certain of these risks, either
because such insurance is not available or because of high premium costs.
Accordingly, the Company may be subject to liability or may lose substantial
portions of properties due to hazards that cannot be insured against or have not
been insured against due to prohibitive premium costs or for other reasons. The
imposition of any such liabilities on the Company could have a material adverse
effect on the Company's financial condition and results of operations.
The Oil Pollution Act of 1990 ("OPA") imposes a variety of regulations on
"responsible parties" related to the prevention of oil spills. The
implementation of new, or the modification of existing, environmental laws or
regulations, including regulations promulgated pursuant to the Oil Pollution Act
of 1990, could have a material adverse impact on the Company. While the Company
does not anticipate incurring material costs in connection with environmental
compliance and remediation, it cannot guarantee that material costs will not be
incurred.
Legislation affecting the oil and natural gas industry is under constant review
for amendment or expansion, frequently increasing the regulatory burden. Also,
numerous departments and agencies, both federal and state, are authorized by
statute to issue and have issued rules and regulations binding on the oil and
natural gas industry and its individual members, compliance with which is often
difficult and costly and certain of which carry substantial penalties for the
failure to comply. The Company cannot predict how existing regulations may be
interpreted by enforcement agencies or the courts, nor whether amendments or
additional regulations will be adopted, nor what effect such interpretations and
changes may have on the Company's business or financial condition.
Historically, interstate pipeline companies generally acted as wholesale
merchants by purchasing natural gas from producers and reselling the natural gas
to local distribution companies and large end users. Commencing in late 1985,
the Federal Energy Regulatory Commission (the "FERC") issued a series of orders
that have had a major impact on interstate natural gas pipeline operations,
services, and rates, and thus have significantly altered the marketing and price
of natural gas.
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The FERC's key rule making action, Order No. 636 ("Order 636"), issued in April
1992, required each interstate pipeline to, among other things, "unbundle" its
traditional bundled sales services and create and make available on an open and
nondiscriminatory basis numerous constituent services (such as gathering
services, storage services, firm and interruptible transportation services, and
standby sales and natural gas balancing services), and to adopt a new rate
making methodology to determine appropriate rates for those services.
To the extent the pipeline company or its sales affiliate makes natural gas
sales as a merchant in the future, it does so pursuant to private contracts in
direct competition with all other sellers, such as the Company; however,
pipeline companies and their affiliates were not required to remain "merchants"
of natural gas, and most of the interstate pipeline companies have become
"transporters only." In subsequent orders, the FERC largely affirmed the major
features of Order 636 and denied a stay of the implementation of the new rules
pending judicial review. By the end of 1994, the FERC had concluded the Order
636 restructuring proceedings, and, in general, accepted rate filings
implementing Order 636 on every major interstate pipeline. However, even through
the implementation of Order 636 on individual interstate pipelines is
essentially complete, many of the individual pipeline restructuring proceedings,
as well as Order 636 itself and the regulations promulgated thereunder, are
subject to pending appellate review and could possibly be changed as a result of
future court orders.
The Company cannot predict whether the FERC's orders will be affirmed on appeal
or what the effects will be on its business. In recent years the FERC also has
pursued a number of other important policy initiatives which could significantly
affect the marketing of natural gas. Some of the more notable of these
regulatory initiatives include (i) a series of orders in individual pipeline
proceedings articulating a policy of generally approving the voluntary
divestiture of interstate pipeline owned gathering facilities by interstate
pipelines to their affiliates (the so-called "spin down" of previously regulated
gathering facilities to the pipeline's non- regulated affiliate), (ii) the
completion of a rule making involving the regulation of pipelines with marketing
affiliates under Order No. 497, (iii) the FERC's ongoing efforts to promulgate
standards for pipeline electronic bulletin boards and electronic data exchange,
(iv) a generic inquiry into the pricing of interstate pipeline capacity, (v)
efforts to refine the FERC's regulations controlling operation of the secondary
market for released pipeline capacity, and (vi) a policy statement regarding
market based rates and other non-cost-based rates for interstate pipeline
transmission and storage capacity.
Several of these initiatives are intended to enhance competition in natural gas
markets, although some, such as "spin downs," may have the adverse effect of
increasing the cost of doing business on some in the industry as a result of the
monopolization of those facilities by their new, unregulated owners. The FERC
has attempted to address some of these concerns in its orders authorizing such
"spin downs," but it remains to be seen what effect these activities will have
on access to markets and the cost to do business. As to all of these recent FERC
initiatives, the ongoing, or in some instances, preliminary evolving nature of
these regulatory initiatives makes it impossible at this time to predict their
ultimate impact on the Company's business.
The federal government may propose tax initiatives that affect the oil and
natural gas industry, including the Company. Due to the preliminary nature of
these proposals, the Company is unable to determine what effect, if any, the
proposals would have on product demand or the Company's results of operations.
The various states in which the Company conducts or may conduct activities
regulate the drilling, operation and production of oil and natural gas wells,
such as the method of developing new fields, spacing of wells, the prevention
and clean-up of pollution, and maximum daily production allowables based on
market demand and conservation considerations.
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The Company's exploration, development and production of oil and gas, including
its operation of saltwater injection and disposal wells, are subject to various
federal, state and local environmental laws and regulations. Such laws and
regulations can increase the costs of planning, designing, installing and
operating oil and gas wells. The Company's domestic activities are subject to a
variety of environmental laws and regulations, including, but not limited to,
the Oil Pollution Act of 1990 ("OPA"), the Clean Water Act ("CWA"), the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
the Resource Conservation and Recovery Act ("RCRA"), the Clean Air Act ("CAA")
and the Safe Drinking Water Act ("SDWA"), as well as state regulations
promulgated under comparable state statutes.
The Company also is subject to regulations governing the handling,
transportation, storage and disposal of naturally occurring radioactive
materials that are found in its oil and gas operations. Civil and criminal fines
and penalties may be imposed for non-compliance with these environmental laws
and regulations. Additionally, these laws and regulations require the
acquisition of permits or other governmental authorizations before undertaking
certain activities, limit or prohibit other activities because of protected
areas or species and impose substantial liabilities for cleanup of pollution.
Under the OPA, a release of oil into water or other areas designated by the
statue could result in the Company being held responsible for the costs of
remediating such a release, certain OPA specified damages and natural resource
damages. The extent of that liability could be extensive, as set forth in the
statute, depending on the nature of the release. A release of oil in harmful
quantities or other materials into water or other specified areas could also
result in the Company being held responsible under the CWA for the cost of
remediation, and civil and criminal fines and penalties.
CERCLA and comparable state statutes, also known as "Superfund" laws, can impose
joint and several and retroactive liability, without regard to fault or the
legality of the original conduct, on certain classes of persons for the release
of a "hazardous substance" into the environment. In practice, cleanup costs are
usually allocated among various responsible parties. Potentially liable parties
include site owners or operators, past owners or operators under certain
conditions and entities that arrange for the disposal or treatment of, or
transport hazardous substances found at the site. Although CERCLA, as amended,
currently exempts petroleum, including, but not limited to, crude oil, gas and
natural gas liquids from the definition of hazardous substance, the Company's
operations may involve the use or handling of other materials that may be
classified as hazardous substances under CERCLA. Furthermore, there can be no
assurance that the exemption will be preserved in future amendments of the act,
if any.
RCRA and comparable state and local requirements impose standards for the
management, including treatment, storage and disposal of both hazardous and
nonhazardous solid wastes. The Company generates hazardous and nonhazardous
solid waste in connection with its routine operations. From time to time,
proposals have been made that would reclassify certain oil and gas wastes,
including wastes generated during pipeline, drilling and production operations,
as "hazardous wastes" under RCRA which would make such solid wastes subject to
must more stringent handling, transportation, storage, disposal and clean-up
requirements. This development could have a significant impact on the Company's
operating costs. While state laws vary on this issue, state initiatives to
further regulate oil and gas wastes could have a similar impact.
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Because previous owners and operators have conducted oil and gas exploration and
production, and possibly other activities, at some of the Company's properties,
materials from these operations remain on some of the properties and in some
instances require remediation. In addition, the Company has agreed to indemnify
Sellers of producing properties from whom the Company has acquired reserves
against certain liabilities for environmental claims associated with such
properties. While the Company does not believe the costs to be incurred by the
Company for compliance and remediating previously or currently owned or operated
properties will be material, there can be no guarantee that such costs will not
result in material expenditures.
Additionally, in the course of the Company's routine oil and gas operations,
surface spills and leaks, including casing leaks, of oil or other materials
occur, and the Company incurs costs for waste handling and environmental
compliance. Moreover, the Company is able to control directly the operations of
only those wells for which it acts as the operator. Notwithstanding the
Company's lack of control over wells owned by the Company but operated by
others, the failure of the operator to comply with applicable environmental
regulations may, in certain circumstances, be attributable to the Company.
It is not anticipated that the Company will be required in the near future to
expend amounts that are material in relation to its total capital expenditures
program by reason of environmental laws and regulations, but inasmuch as such
laws and regulations are frequently changed, the Company is unable to predict
the ultimate cost of compliance. There can be no assurance that more stringent
laws and regulations protecting the environment will not be adopted or that the
Company will not otherwise incur material expenses in connection with
environmental laws and regulations in the future.
Proposed Legislation
In the past, Congress has been very active in the area of natural gas
regulation. Legislative proposals are pending in various states which, if
enacted, could significantly affect the petroleum industry. The Company cannot
predict which proposals, if any, may actually be enacted by Congress or any of
the state legislatures, and what impact, if any, such proposals may have on the
Company's operations.
ITEM 2. DESCRIPTION OF PROPERTIES
Facilities
The Company leases approximately 2,500 square feet of office space in Fort
Worth, Texas, for its corporate offices. The month-to-month lease requires a
monthly rental payment of $3,325.00. The Company considers this space adequate
for its present needs.
General Description of Oil and Gas Properties
The Company has leasehold interests in Corsicana, Texas. The Corsicana Field is
comprised of 650 existing wells of which the Company has a leasehold interest in
the underground minerals.
Corsicana Field
On June 11, 1997, the Company acquired 650 oil wells, each approximately 800' to
1000' deep, situated on 4,500 acres of leases in the Corsicana Field, located in
Corsicana, Texas from Rife Oil Properties for 2,000,000 shares of restricted
common stock and a promissory note for $1,300,000, bearing 6% interest per annum
and due on November 11, 1997.
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The note was secured by 1,000,000 shares of newly-issued common stock and held
by an attorney as Trustee. The note for $1,300,000 plus $43,381 in accrued
interest was satisfied on December 15, 1997, by agreement of the parties, with
the shares of restricted common stock which were held in escrow. All of the
wells are approximately 800 ft. to 1,000 ft. deep with 84.5 million gross
barrels of oil in place. The Company has split the field into small AMI's (Area
of Mutual Interest) in order to facilitate fund raising for the development of
the field. All of these leases are production leases that will continue in
perpetuity so long as oil or gas is being produced on the property subject to
the lease. So long as the Company continues to produce oil or gas from the
leases in the Corsicana field, the leases will not expire.
A reserve study was performed by Ultra Engineering & Consulting of Houston,
Texas. The study, which was performed as of September 30, 2000, estimated net
reserves of 16,384,606 recoverable barrels of oil. The value of future cash
flows, discounted at 10% to present value, was estimated to be $113,629,272. At
current commodity prices, the estimated future cash flow (not discounted) is
$381 million.
On October 21, 1999, pursuant to an agreement with Rife Oil Properties, Inc.,
the Company acquired oil properties and leases located on 3,933.72 acres located
in the Corsicana shallow field located in Navarro County, Texas. All of these
leases are production leases that will continue in perpetuity so long as oil or
gas is being produced on the property subject to the lease. So long as the
Company continues to produce oil or gas from the leases in the Corsicana field,
the leases will not expire.
The Company is currently performing tests on some of its Corsicana field
properties. Three horizontal wells have been drilled and completed. Inert gas
(15% CO2-85% N) is presently being injected into the reservoir around the
horizontal wells for repressurization. It is anticipated that these horizontal
wells will produce substantial quantities of oil in the near future. The use of
lateral well bores (horizontal) will limit the number of vertical wells required
to produce the oil in place, and thus reduce overall drilling costs for the
field.
Production from the Corsicana Field has a virtually flat decline curve, thereby
holding the leases for the foreseeable future. The leases carry an average net
revenue interest of 80%.
Oil and Gas Reserves
As of September 30, 2000, the Company's oil and natural gas interests were
located in the State of Texas. The Company has no reserves offshore.
The following table summarizes the Company's reserves on September 30, 1999, and
September 30, 2000 and was prepared in accordance with the rules and regulations
of the Commission:
Oil Oil
(mbbls) (mbbls)
1999 2000
------------ -------------
Proved Developed and Undeveloped Reserves:
Beginning of Year
Purchase of Minerals in Place 21,744.5 18,473.3
Revisions of Previous Estimates (3,305.0) (2,078.7)
Production (2.2) (10)
---------- -----------
End of Year 18,473.3 16,348.6
========== ===========
Proved Developed Reserves:
End of Year 1,725.5 324
========== ===========
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Operating Activities
Where possible, the Company prefers to have Rife Oil Properties, Inc. act as
operator of the oil and natural gas properties and prospects in which it owns an
interest. M. O. Rife III, a Director of the Company, is the President of Rife
Oil Properties, Inc. The operator of an oil and natural gas property supervises
production, maintains production records, employs field personnel and performs
other functions required in the production and administration of such property.
The fees for such services customarily vary from well to well, depending on the
nature, depth and location of the well being operated. Generally, the operator
of an oil and natural gas prospect is determined by such factors as the size of
the working interest held by a participant in the prospect, a participant's
knowledge and experience in the geological area in which the prospect is located
and geographical considerations. The Company's wells are drilled by independent
drilling contractors.
Title to Properties
As is common industry practice, little or no investigation of title is made at
the time of acquisition of undeveloped properties, other than a preliminary
review of local mineral records. Title investigations are made, and in most
cases, a title opinion of local counsel is obtained before commencement of
drilling operations. The Company believes that the methods it utilizes for
investigating title prior to the acquisition of any properties are consistent
with practices customary in the oil and gas industry and that such practices are
adequately designed to enable the Company to acquire good title to such
properties. Some title risks, however, cannot be avoided, despite the use of
customary industry practices.
The Company's leased properties are generally subject to customary royalty and
overriding royalty interests, liens incident to operating agreements, liens for
current taxes and other burdens and minor encumbrances, easements and
restrictions, and may be mortgaged to secure indebtedness of the Company. The
Company believes that none of these burdens either materially detract from the
value of such properties or materially interfere with their use in the operation
of the Company's business.
Sales of producing properties and underdeveloped Acreage
The Company evaluates properties on an ongoing basis to determine the economic
viability of the property and whether such property enhances the objectives of
the Company. During the course of normal business, the Company may dispose of
producing properties and undeveloped acreage if the Company believes that such
disposition is in its best interests.
ITEM 3. LEGAL PROCEEDINGS
The following are the only material pending cases involving the Company:
PPP,LLP vs. Oil Retrieval Systems, Inc. Suit was filed in September, 1999 in the
189th Judicial District Court of Harris County, Texas, Case No. 98-46438
alleging breach of contract and seeking damages of approximately $120,000. This
relates to an alleged breach of an agreement to repurchase equipment previously
sold by the Company. The Company subsequently settled this lawsuit through the
issuance of 125,000 restricted shares of its common stock on July 26, 2000. The
Company settled the case without acknowledging fault.
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Roberta Stacy vs. Oil Retrieval Systems, Inc., A former employee has filed a
claim against ORS. On June 20, 2000, Roberta Stacy accepted 13,660 restricted
shares of the Company's common stock as a complete and final settlement of her
claims. The shares were valued at $22,112 at the time of issue.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the last 3 months of the fiscal year ended September 30, 2000, no matters
were submitted by the Company to a vote of its shareholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Market Information
The Company's Common Stock is currently quoted on the Electronic Bulletin Board
under the symbol "PWRX," but there is limited trading in the Common Stock. The
following table sets forth the high and low bid prices from October 1, 1998
through September 30, 1999, based upon quotations periodically published on the
OTC. All price quotations represent prices between dealers, without retail
mark-ups, mark-downs or commissions and may not represent actual transactions.
HIGH LOW
---- ---
Fiscal Year ended September 30, 1999
October, November, & December, 1998 $0.78 $0.41
January, February, & March, 1999 $2.09 $0.33
April, May, & June, 1999 $0.47 $0.14
July, August, & September, 1999 $0.24 $0.10
Fiscal Year ended September 30, 2000
October, November, & December, 1999 $0.75 $0.0
January, February, & March, 2000 $10.50 $2.625
April, May, & June, 2000 $6.75 $1.00
July, August, & September, 2000 $2.625 $0.3125
The bid price for the Common Stock was $0.14 on January 2, 2001. The above
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commissions and may not necessarily represent actual transactions.
ShareholdersAccording to the records of the Company's transfer agent, there were
2,162 holders of record who held 13,977,781 shares of the Company's Common Stock
on January 3, 2001 (including nominee holders such as banks and brokerage firms
who hold shares for beneficial holders).(1)
--------------------------
(1)Effective October 19, 1999, the Company carried out a one for one
hundred reverse split of its issued and outstanding shares. The shares issued
and outstanding on January 3, 2001, are post reverse split shares.
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Dividends
The Company has not paid any cash dividends on its Common Stock, and does not
anticipate paying cash dividends on its Common Stock in the next year. The
Company anticipates that any income generated in the foreseeable future will be
retained for the development and expansion of its business. Future dividend
policy is subject to the discretion of the Board of Directors and will depend
upon a number of factors, including future earnings, debt service, capital
requirements, business conditions, the financial condition of the Company and
other factors that the Board of Directors deems relevant.
Recent Sales of Unregistered Securities
The following is a list of all securities sold by the Company within the period
covered by this report, including, where applicable, the identity of the person
who purchased the securities, title of the securities, and the date sold.
On February 9, 2000, the Company issued 279,861 shares to Trident III, L.L.C. as
payment in full, and in settlement of all claims for principal and interest due
and owing pursuant to a promissory note originally dated October 21, 1998. The
shares were issued pursuant to section 4(2) of the Securities Act of 1933 in an
isolated private transaction by the Company which did not involve a public
offering. The Company made this offering based on the following factors: (1) the
issuance was an isolated private transaction by the Company which did not
involve a public offering; (2) there was only one offeree who was issued stock
for the cancellation of a debt owed by the Company; (3) the offeree stated an
intention not to resell the stock and has continued to hold the stock since the
issue date; (4) there were no subsequent or contemporaneous public offerings of
the stock; (5) the stock was not broken down into smaller denominations; and (6)
the negotiations for the sale of the stock took place directly between the
offeree and the Company.
On February 29, 2000, the Company issued 10,000 shares to Steve Wooten, Sr. as
payment in full of a bill in the amount of $85,000 owed to him by the Company
for consulting services. The shares were issued pursuant to section 4(2) of the
Securities Act of 1933 in an isolated private transaction by the Company which
did not involve a public offering. The Company made this offering based on the
following factors: (1) the issuance was an isolated private transaction by the
Company which did not involve a public offering; (2) there was only one offeree
who was issued stock for the cancellation of a debt owed by the Company; (3) the
offeree stated an intention not to resell the stock and has continued to hold
the stock since the issue date; (4) there were no subsequent or contemporaneous
public offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offeree and the Company.
On August 2, 2000, the Company issued 540,000 shares of common stock to the
persons and entities listed below for the purpose of acquiring oil leases known
as the "Corsicana Leases" and the "Central Lease" located in Corsicana, Texas.
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Shares Issued To: Number of Shares Issued
---------------- -----------------------
Morrison Supply Co. 110,000
P.O. Box 70
Fort Worth, Texas 76101
Betty K. Wolfe Trust 85,000
Betty K. Wolfe, Trustee
6632 Carston Street
Fort Worth, Texas 76180
Emerald Coast Energy, Inc. 100,000
6812 Battle Creek Rd.
Fort Worth, Texas 76116
Collinwood Energy, LLC 25,000
6812 Battle Creek Rd.
Fort Worth, Texas 76116
Thomas R. Schliem 100,000
8 Stonebriar Way
Frisco, Texas 75034
Peter S. Zouvas 100,000
3737 Garden Lane
San Diego, California 92106
Daniel Dunkelberg 20,000
6809 Battle Creek Rd.
Fort Worth, Texas 76116
The shares were issued pursuant to section 4(2) of the Securities Act of 1933 in
an isolated private transaction by the Company which did not involve a public
offering. The Company made this offering based on the following factors: (1) The
issuance was an isolated private transaction by the Company which did not
involve a public offering; (2) there were only seven offerrees who were issued
stock for oil leases assigned to the Company; (3) the offerees did not resell
the stock but have continued to hold it since the date of issue; (4) there were
no subsequent or contemporaneous public offerings of the stock; (5) the stock
was not broken down into smaller denominations; and (6) the negotiations for the
sale of the stock took place directly between the offerees and the Company.
On June 20, 2000 the Company issued 13,660 shares to a former employee that had
filed a claim against ORS. The employee's claim was settled by the Company, but
the cash amount of the settlement had not been paid by the Company. The 13,660
shares were issued to settle all claims against the Company which had been
asserted by the employee, Roberta Stacy. The shares were issued pursuant to
section 4(2) of the Securities Act of 1933 in an isolated private transaction by
the Company which did not involve a public offering. The Company made this
offering based on the following factors: (1) the issuance was an isolated
private transaction by the Company which did not involve a public offering; (2)
there was only one offeree who was issued stock for the cancellation of a debt
owed by the Company; (3) the offeree stated an intention not to resell the stock
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<PAGE>
and has continued to hold the stock since the issue date; (4) there were no
subsequent or contemporaneous public offerings of the stock; (5) the stock was
not broken down into smaller denominations; and (6) the negotiations for the
sale of the stock took place directly between the offeree and the Company.
On July 26, 2000, the Company issued 125,000 shares of common stock to PPP, LLP,
a Limited Liability Partnership in Houston, Texas at $1.00 per share as
consideration for the cancellation of $125,000 in debt owed to the Partnership
by the Company. The shares were issued pursuant to section 4(2) of the
Securities Act of 1933 in an isolated private transaction by the Company which
did not involve a public offering. The Company made this offering based on the
following factors: (1) the issuance was an isolated private transaction by the
Company which did not involve a public offering; (2) there was only one offeree
who was issued stock for the cancellation of a debt owed by the Company; (3) the
offeree stated an intention not to resell the stock and has continued to hold
the stock since the issue date; (4) there were no subsequent or contemporaneous
public offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offeree and the Company.
On September 18, 2000, the Company issued 300,000 shares of common stock to
Interwest Associates of Newport Beach, California for consulting services
rendered pursuant to an agreement dated September 14, 2000. The shares were
issued pursuant to section 4(2) of the Securities Act of 1933 in an isolated
private transaction by the Company which did not involve a public offering. The
Company made this offering based on the following factors: (1) the issuance was
an isolated private transaction by the Company which did not involve a public
offering; (2) there was only one offeree who was issued stock for services
rendered to the Company; (3) the offeree stated an intention not to resell the
stock and has continued to hold the stock since the issue date; (4) there were
no subsequent or contemporaneous public offerings of the stock; (5) the stock
was not broken down into smaller denominations; and (6) the negotiations for the
sale of the stock took place directly between the offeree and the Company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company's operations consist primarily of exploration and development of oil
and gas properties, and redevelopment of currently producing oil and gas fields.
While oil and natural gas are the principal products currently produced by the
Company. The Company does not refine or process the oil and natural gas that it
produces. The Company sells the oil it produces under short-term contracts at
market prices in the areas in which the producing properties are located,
generally at F.O.B. field prices posted by the principal purchaser of oil in
such areas.
Results of Operations
Revenues
The Company's oil and gas sales increased $140,350, or 589%, to $164,191 for the
fiscal year ended September 30, 2000 from $23,841 for the fiscal year ended
September 30, 1999. Equipment sales decreased $43,825, or 100%, to $0.00 for the
fiscal year ended September 30, 2000 from $43,825 for the fiscal year ended
September 30, 1999. Total revenues increased $96,525 to $164,191 for the fiscal
year ended September 30, 2000 from $67,666 for the fiscal year ended September
30, 1999.
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<PAGE>
Revenues from the sales of oil and gas increased primarily because of the
increase in the prices of those respective commodities, and to a lesser degree,
from the increase in production generated from the Corsicana Field. The decrease
in the sale of equipment reflects the discontinued operations of the ORS
subsidiary as previously mentioned above. The overall increase in the Company's
consolidated revenues therefore are directly attributable to the increase in
both the prices and production of oil and gas, as it related to the Company's
Corsicana Field.
Costs and expenses
The Company's general and administrative expenses increased $9,725,374, or 361%,
to $12,419,137 for the fiscal year ended September 30, 2000 from $2,693,763 for
the fiscal year ended September 30, 1999. While this is a significant increase,
general and administrative expenses as a percentage of net sales increased
substantially from 3,981% for 1999 to 7,564% for 2000. The change in the dollar
amount of general and administrative expenses was due primarily to increased
consulting fees which accounted for 53% of all general and administrative
expenses, and 49% of total expenses. Other major components of general and
administrative expenses included officer's salaries at 10%, non-officer salaries
at 5%, and legal fees at 3%. Separately, lease operating expenses increased
$126,943 to $293,294 for 2000 from $166,351 in 1999 resulting from decreases in
production which were caused in part by decreases in oil prices. The increase in
general and administrative expenses directly reflects the valuation of shares
issued to consultants of the Company throughout the year.
Net Income (Loss)
Net loss for the fiscal year ended September 30, 1999 was $3,214,670, or $21.49
per share, compared to a loss of $17,611,913, or $1.90 per share, for the fiscal
year ended September 30, 2000. This $14,397,243 increase was primarily the
result of the increase in general and administrative expenses as more fully
described above. Net cash used in operating activities was ($315,633) for the
fiscal year ended September 30, 1999, and ($292,983) for the fiscal year ended
September 30, 2000, representing an increase of 7% in cash usage. All cash
activities of the business produced a $101,033 decrease in cash for the fiscal
year ended September 30, 1999, as compared to a $9,175 decrease for the fiscal
year ended September 30, 2000.
Liquidity and Capital Resources
The Company's working capital deficit on September 30, 2000 was $697,455
compared to a deficit of $1,584,308 on September 30, 1999. This $886,853
increase in working capital resulted primarily from the reduction in the
Company's debt; this debt was eliminated through the issuance of shares of the
Company's stock. The Company had a current ratio of 0.03 for the fiscal year
ended September 30, 2000, as compared to 0.01 for the fiscal year ended
September 30,1999. A comparison of other ratios that measure financial
performance show no significant change in the net worth to assets at 0.92 and
0.78 for the years 2000 and 1999 respectively. However, the change in the debt
to net worth ratio of 0.09 and 0.28 for the years 2000 and 1999, respectively,
reflects the effort that the Company has made to convert its debt to equity.
This data all highlights the Company's need to raise additional capital, to
provide for operational funding and to pay off its current liabilities.
15
<PAGE>
Non Cash Transactions
On October 21, 1999, the Company canceled 1,000,000 shares On October 21, 1999,
the Company cancelled 1,000,000 shares (10,000 post reverse-split shares) which
had previously been issued to Mark S. Zouvas to satisfy accrued salaries
incurred by the Company for his services.
On January 23, 2000, the Board of Directors authorized the On January 23, 2000,
the Board of Directors authorized the Company to issue 100,000 shares of its
common stock to each of the Company's directors as compensation for services
rendered. On February 9, 2000, the Company issued 25,000 shares of its
restricted common stock, which the Company valued at $144,500, to each of the
six members of the Board of Directors; James McGowan, Charles Barnhill, Reginald
Davis, Richard Surber, M.O. Rife III and Joe B. Bennett. On June 1, 2000, the
Company issued 25,000 shares of its restricted common stock, which the Company
valued at $88,146, to each of the six members of the Board of Directors; James
McGowan, Charles Barnhill, Reginald Davis, Richard Surber, M.O. Rife III and Joe
B. Bennett. The total value of the 300,000 shares issued to Directors is
$1,395,876.
Pursuant to a January 23, 2000 Resolution of the Board of Pursuant to a January
23, 2000 Resolution of the Board of Directors, the Company issued 600,000 shares
of its common stock to Genesis Capital Corp. for the acquisition of all issued
and outstanding shares of Lincoln Health Fund, Inc., a Delaware Corporation
whose sole asset was raw land located in Fort Worth, Texas valued at $3,456,000
(see exhibit 10.12).
The Company was indebted to officers for wages accrued in year 1999 in the
amount of $254,820, which incurred payroll tax accrual of $19,869. A settlement
was reached with the officers consisting of the Company issuing 30,000 shares of
the Company's common stock each to the three officers to extinguish the debt.
These shares were issued on February 29, 2000 (see Notes to Financial
Statements).
On June 7, 2000, the Company issued an additional 30,000 shares of common stock
to each of the officers of the Company, valued at $27,600, in lieu of
compensation owed for wages accrued during the current year. The Company has a
present liability for wages due to the three officers of $99,544 as of September
30, 2000 (see Notes to Financial Statements).
Between December 15, 1999 and June 5, 2000, the Company issued 750,000 free
trading shares of its common stock to Allen Z. Wolfson pursuant to an advisory
agreement dated December 12, 1999 (exhibit 10.14). The shares were registered
pursuant to an S-8 Registration Statement filed with the Securities and Exchange
Commission on December 15, 1999. The shares were valued by the Company at
$2,817,225.
Between December 15, 1999 and April 26, 2000, the Company issued 750,000 free
trading shares of its common stock to Ronald Welborn pursuant to an advisory
agreement dated December 12, 1999 (exhibit 10.13). The shares were registered
pursuant to an S-8 Registration Statement filed with the Securities and Exchange
Commission on December 15, 1999. The shares were valued by the Company at
$3,588,275.
Pursuant to its S-8 Registration filed December 15, 1999, the Company issued
30,000 shares of common stock to Henry Simon for legal services on February
29,2000. This transaction was valued at $172,500.
The Company issued 30,000 free trading shares of its common stock to Richard D.
Surber for legal services pursuant to an agreement dated March 24, 2000. The
shares were issued May 2, 2000 pursuant to an S-8 Registration Statement filed
with the Securities and Exchange Commission on December 15, 1999. The shares
were valued by the Company at $150,000 (See exhibit 10.9).
16
<PAGE>
The Company issued 200,000 free trading shares of its common stock to Howard
Pence for consulting services pursuant to an agreement dated September 21, 2000.
The shares were issued May 2, 2000 pursuant to an S-8 Registration Statement
filed with the Securities and Exchange Commission on December 15, 1999. The
shares were valued by the Company at $62,500 (See exhibit 10.11).
Long-Term Debt
On September 30, 2000, the Company had no long-term debt. Although 92% of the
Company's assets are comprised of oil and gas properties that are not a current
asset, all of the Company's borrowing have been short term in nature. This has
aggravated the Company's cash position and produced lower measures of financial
performance than would otherwise be possible.
Sale of Equity
On October 21, 1998, the Company borrowed $250,000 from Trident III, L.L.C. and
issued a promissory note the terms of which provide for interest payable at 10%
per annum. The note was payable April 20, 1999. The Company issued 100,000 of
its shares to Trident III, L.L.C. in connection with this loan. The note has
been extended at various times and has a current maturity date of October 30,
1999. 2,600 shares of the Company's stock were issued to obtain the extensions.
When the note was extended to September 30, 1999, the Company agreed that if the
note was not paid by that date, it would issue 50,000 shares per day for each
day the note was outstanding subsequent to September 30, 1999. Concurrent with
the extension of the note to October 30, 1999,the provision was added that if
payment of outstanding principal and interest were made by that date, the 50,000
shares per day penalty provision would be waived. The lender subsequently waived
this provision. The Company negotiated a settlement of the amounts due on the
Note wherein the lender agreed to accept 279,861 shares of the Company's common
stock as full payment for all amounts due on the Note and releasing all claims
associated with the previous failure of the Company to timely pay the Note. On
February 9, 2000, the Company issued 279,861 shares of its common stock to
Trident III L.L.C. pursuant to the agreement to settle, and in full payment of
the debt owed to Trident III L.L.C.
Need to Raise Additional Capital
The growth of the Company's business will require substantial capital on a
continuing basis. There is no assurance that any such required additional funds
would be available on satisfactory terms and conditions, if at all. There is
also no assurance that the Company will not pursue, from time to time,
opportunities to acquire oil and natural gas properties and businesses that may
utilize the capital currently expected to be available for its present
operations. The amount and timing of the Company's future capital requirements,
if any, will depend upon a number of factors, including drilling costs,
transportation costs, equipment costs, marketing expenses, staffing levels and
competitive conditions, and any purchases or dispositions of assets, many of
which are not within the Company's control. Failure to obtain any required
additional financing could materially adversely affect the growth, cash flow and
earnings of the Company. In addition, the Company's pursuit of additional
capital could result in the incurrence of additional debt or potentially
dilutive issuances of additional equity securities.
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<PAGE>
History of Losses
The Company had net losses of $17,611,913 and 3,214,670, for the years ended
September 30, 2000 and September 30, 1999, respectively. The Company may
continue to incur net losses and, to the extent that it remains without
operational funding, such losses may continue.
Need for Additional Financing for Growth
The growth of the Company's business will require substantial capital on a
continuing basis, and there is no assurance that any such required additional
capital will be available on satisfactory terms and conditions, if at all. There
is also no assurance that the Company will not pursue, from time to time,
opportunities to acquire oil and natural gas properties and businesses that may
utilize the capital currently expected to be available for its present
operations. The amount and timing of the Company's future capital requirements,
if any, will depend upon a number of factors, including drilling costs,
transportation costs, equipment costs, marketing expenses, staffing levels and
competitive conditions, and any purchases or dispositions of assets, many of
which are not within the Company's control. Failure to obtain any required
additional financing could materially adversely affect the growth, cash flow and
earnings of the Company. In addition, the Company's pursuit of additional
capital could result in the incurrence of additional debt or potentially
dilutive issuances of additional equity securities.
The Company's ability to meet any future debt service obligations will be
dependent upon the Company's future performance, which will be subject to oil
and natural gas prices, the Company's level of production, general economic
conditions and financial, business and other factors affecting the operations of
the Company, many of which are beyond its control. There can be no assurance
that the Company's future performance will not be adversely affected by such
changes in oil and natural gas prices and/or production nor by such economic
conditions and/or financial, business and other factors. In addition, there can
be no assurance that the Company's business will generate sufficient cash flow
from operations or that future bank credit will be available in an amount to
enable the Company to service its indebtedness or make necessary expenditures.
In such event, the Company would be required to obtain such financing from the
sale of equity securities or other debt financing. There can be no assurance
that any such financing will be available on terms acceptable to the Company.
Should sufficient capital not be available, the Company may not be able to
continue to implement its business strategy.
There is also no assurance that the Company will not pursue, from time to time,
opportunities to acquire oil and natural gas properties and businesses that may
utilize the capital currently expected to be available for its present
operations. The amount and timing of the Company's future capital requirements,
if any, will depend upon a number of factors, including drilling costs,
transportation costs, equipment costs, marketing expenses, staffing levels and
competitive conditions, and any purchases or dispositions of assets, many of
which are not within the Company's control. Failure to obtain any required
additional financing could materially adversely affect the growth, cash flow and
earnings of the Company. In addition, the Company's pursuit of additional
capital could result in the incurrence of additional indebtedness or potentially
dilutive issuances of additional equity securities.
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Acquisition Risks
The Company's business strategy includes focused acquisitions of producing oil
and natural gas properties. Any such future acquisitions will require an
assessment of the recoverable reserves, future oil and natural gas prices,
operating costs, potential environmental and other liabilities and other similar
factors. It generally is not feasible to review in detail every individual
property involved in an acquisition. Ordinarily, review efforts are focused on
the higher-valued properties. However, even a detailed review of all properties
and records may not reveal existing or potential problems; nor will it permit
the Company to become sufficiently familiar with the properties to assess fully
their deficiencies and capabilities. Inspections are not always performed on
every well, and potential problems, such as mechanical integrity of equipment
and environmental conditions that may require significant remedial expenditures,
are not necessarily observable even when an inspection is undertaken. Even if
problems are identified, the seller may be unwilling or unable to provide
effective contractual protection against all or part of such problems. There can
be no assurance that oil and natural gas properties acquired by the Company will
be successfully integrated into the Company's operations or will achieve desired
profitability objectives.
Drilling Risks
The Company's drilling involves numerous risks, including the risk that no
commercially productive natural gas or oil reservoirs will be encountered. The
Company must incur significant expenditures for the identification and
acquisition of properties and for the drilling and completion of wells. The cost
of drilling, completing and operating wells is often uncertain, and drilling
operations may be curtailed, delayed or canceled as a result of a variety of
factors, including unexpected drilling conditions, pressure or irregularities in
formations, equipment failures or accidents, weather conditions and shortages or
delays in the delivery of equipment. In addition, any use by the Company of
3-dimensional seismic and other advanced technology requires greater
pre-drilling expenditures than traditional drilling strategies. There can be no
assurance as to the success of the Company's future drilling activities.
Uncertainty of Estimates of Oil and Natural Gas Reserves
Numerous uncertainties are inherent in estimating quantities of proved oil and
natural gas reserves, including many factors beyond the control of the Company.
This Form 10-KSB contains an estimate of the Company's proved oil and natural
gas reserves and the estimated future net cash flows and revenue based upon
reports of the Company's independent petroleum engineers (Ultra Engineering).
Such reports rely upon various assumptions, including assumptions required by
the Securities and Exchange Commission (the "Commission"), as to constant oil
and natural gas prices, drilling and operating expenses, capital expenditures,
taxes and availability of funds and such reports should not be construed as the
current market value of the estimated proved reserves. The process of estimating
oil and natural gas reserves is complex, requiring significant decisions and
assumptions in the evaluation of available geological, engineering and economic
data for each reservoir. As a result, such estimates are inherently an imprecise
evaluation of reserve quantities and future net revenue. Actual future
production, revenue, taxes, development expenditures, operating expenses and
quantities of recoverable oil and natural gas reserves may vary substantially
from those assumed in the estimate. Any significant variance in these
assumptions could materially affect the estimated quantity and value of reserves
set forth in this Form 10-KSB. In addition, the Company's reserves may be
subject to downward or upward revision, based upon production history, results
of future exploration and development, prevailing oil and natural gas prices and
other factors.
19
<PAGE>
Geographic Concentration of Operations
Virtually all of the Company's current operations are located in Texas. Because
of this concentration, any regional events that increase costs or competition,
reduce availability of equipment or supplies, reduce demand or limit production
will impact the Company more adversely than if the Company were geographically
diversified.
Concentration of Production
The Company's existing proved producing oil and natural gas reserves and its
production is located in a single field which consists of 4,500 acres and
contains 650 wells. Accordingly, to the extent that the Company experiences any
operating difficulties in connection with such wells or that the estimated
proved reserves attributable thereto are less than those that are currently
estimated to exist, the Company could be adversely affected.
Inability to Develop Additional Reserves
The Company's future success as an oil and natural gas producer, as is generally
the case in the industry, depends upon its ability to find, develop and acquire
additional oil and natural gas reserves that are economically recoverable.
Except to the extent that the Company conducts successful development activities
or acquires properties containing proved reserves, the Company's proved reserves
will generally decline as reserves are produced. There can be no assurance that
the Company will be able to locate additional reserves or that the Company will
drill economically productive wells or acquire properties containing proved
reserves.
Certain Industry and Marketing Risks
The Company's operations are subject to the risks and uncertainties associated
with drilling for, producing and transporting of oil and natural gas. The
Company's future ability to market its natural gas and oil production will
depend upon the availability and capacity of natural gas gathering systems and
pipelines and other transportation facilities. Federal and state regulation of
oil and natural gas production and transportation, general economic conditions,
changes in supply and in demand all could materially adversely affect the
Company's ability to market its oil and natural gas production.
Effects of Changing Prices
The future financial condition and results of operations of the Company depend
upon the prices it receives for its oil and natural gas and the costs of
acquiring, developing and producing oil and natural gas. Oil and natural gas
prices have historically been volatile and are subject to fluctuations in
response to changes in supply, market uncertainty and a variety of additional
factors that are also beyond the Company's control. These factors include,
without limitation, the level of domestic production, the availability of
imported oil and natural gas, actions taken by foreign oil and natural gas
producing nations, the availability of transportation systems with adequate
capacity, the availability of competitive fuels, fluctuating and seasonal demand
for natural gas, conservation and the extent of governmental regulation of
production, weather, foreign and domestic government relations, the price of
domestic and imported oil and natural gas, and the overall economic environment.
A substantial or extended decline in oil and/or natural gas prices could have a
material adverse effect on the Company's estimated value of its natural gas and
oil reserves, and on its financial position, results of operations and access to
capital.
20
<PAGE>
The Company's ability to maintain or increase its borrowing capacity, to repay
current or future indebtedness and to obtain additional capital on attractive
terms is substantially dependent upon oil and natural gas prices.
The Company uses the full cost method of accounting for its investment in oil
and gas properties. Under the full cost method of accounting, all costs of
acquisition, exploration and development of oil and gas reserves are capitalized
into a "full cost pool" as incurred, and properties in the pool are depleted and
charged to operations using the unit-of-production method based on the ratio of
current production to total proved oil and gas reserves. To the extent that such
capitalized costs (net of accumulated depreciation, depletion and amortization)
less deferred taxes exceed the SEC PV-10 (present value discounted at 10% as
dictated by the SEC) of estimated future net cash flow from proved reserves of
oil and gas, and the lower of cost or fair value of unproved properties after
income tax effects, such excess costs are charged against earnings. Once
incurred, a write-down of oil and gas properties is not reversible at a later
date even if oil or gas prices increase.
Operating Hazards and Uninsured Risks
The Company's operations are subject to the risks inherent in the oil and
natural gas industry, including the risks of fire, explosions, blow-outs, pipe
failure, abnormally pressured formations and environmental accidents such as oil
spills, gas leaks, ruptures or discharges of toxic gases, brine or well fluids
into the environment (including groundwater contamination). The occurrence of
any of these risks could result in substantial losses to the Company due to
injury or loss of life, severe damage to or destruction of property, natural
resources and, equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and suspension of
operations. In accordance with customary industry practice, the Company
maintains insurance against some, but not all, of the risks described above.
There can be no assurance that any insurance maintained by the Company will be
adequate to cover any such losses or liabilities. Further, the Company cannot
predict the continued availability of insurance, or availability at commercially
acceptable premium levels. The Company does not carry business interruption
insurance. Losses and liabilities arising from uninsured or under-insured events
could have a material adverse effect on the financial condition and operations
of the Company. From time to time, due primarily to contract terms, pipeline
interruptions or weather conditions, the producing wells in which the Company
owns an interest have been subject to production curtailments. The curtailments
range from production being partially restricted to wells being completely
shut-in. The duration of curtailments varies from a few days to several months.
In most cases the Company is provided only limited notice as to when production
will be curtailed and the duration of such curtailments. The Company is not
currently experiencing any material curtailment on its production.
Inflation and Changing Prices
The impact of inflation, as always, is difficult to assess. In 1997 and through
the first quarter of 1998, the Company has experienced a weakness in prices
received for its oil and natural gas production. In the year 2000, the Company
experienced a significant increase in the prices received for its oil and
natural gas production. The Company cannot anticipate whether the present level
of inflation will remain, however, a sudden increase in inflation and/or an
increase in operating costs or drilling costs coupled with a reversal of current
pricing could have an adverse effect on the operations of the Company.
21
<PAGE>
Events Subsequent to End of Fiscal Year
On March 20, 2000, the Company entered into an agreement to acquire 100% of
Pepin Oil Company, an Oklahoma oil and gas exploration company in exchange for
3.358 million shares of its restricted common stock (see exhibit 10.15). The
shares were issued on May 2, 2000 and held in escrow pending closing of the
transaction. Pepin has a working interest in a 500 well developmental drilling
program located in Oklahoma. This transaction has not been consummated as of the
date of this filing. On November 8, 2000, the Company's Board of Directors
authorized the cancellation of the said shares pending the closing of the
transaction. The other parties to the transaction have not taken the necessary
steps to close the transaction. The Company is considering its options relative
to the agreement at this time.
On May 2, 2000, pursuant to an agreement to obtain financing for its operations
through the sale of restricted stock, a certificate for five million (5,000,000)
shares of restricted stock was issued in the name of Hardin County Investment &
Development de Mexico. The certificate was to be delivered upon the closing of
the transaction and was placed in escrow pending the closing of the transaction.
The transaction did not close and has been canceled. On November 8, 2000, the
Company's Board of Directors authorized the cancellation of the said shares, and
the shares were returned to the Company's transfer agent for cancellation.
On November 8, 2000, the Board of Directors of the Company authorized the
cancellation of 50,000 shares of the Company's common stock which had been
issued in the name of Simon, Warner & Doby, LLC, as legal fees. The shares were
returned to the Company upon the termination of representation of the Company by
Simon, Warner & Doby, LLC. The shares were returned to the Company's transfer
agent for cancellation.
Effective December 22, 2000, Fauniel D. Rowland, esq. resigned as counsel to the
Company and returned for cancellation 20,000 shares of restricted stock which
had previously been issued to her for fees. On January 8, 2001, the Board of
Directors of the Company authorized the cancellation of the 20,000 shares and
they were returned to the Company's transfer agent for cancellation.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages contain the audited financial statements and accompanying
notes as prepared by the Company's independent auditors.
[THIS SPACE LEFT INTENTIONALLY BLANK]
22
<PAGE>
POWER EXPLORATION, INC.
TABLE OF CONTENTS
Page
Report of Independent Certified Public Accountants
Killman, Murrell & Co., P.C..................................................F-2
Merdinger, Fruchter, Rosen & Corso, P.C......................................F-3
Financial Statements
Consolidated Balance Sheets as of September 30, 2000 and 1999................F-4
Consolidated Statements of Operations for the Years Ended
September 30, 2000 and 1999..................................................F-6
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 2000 and 1999......................................F-8
Consolidated Statements of Cash Flows for the Years
Ended September 30, 2000 and 1999............................................F-9
Notes to Consolidated Financial Statements..................................F-11
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Power Exploration, Inc. and Subsidiaries
Fort Worth, Texas
We have audited the accompanying consolidated balance sheet of Power
Exploration, Inc. and Subsidiaries as of September 30, 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Power
Exploration, Inc. and Subsidiaries as of September 30, 2000, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses from operations
and its limited capital resources raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 9. The financial statements do not include any
adjustments that might result form the outcome of this uncertainty.
/s/ KILLMAN, MURRELL & COMPANY, P.C.
-----------------------------------------
Dallas, Texas
December 6, 2000
<PAGE>
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Power Exploration, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Power
Exploration, Inc. and Subsidiaries as of September 30, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Power
Exploration, Inc. and Subsidiaries as of September 30, 1999, and the
consolidated results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses from operations
and its limited capital resources raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 9. The financial statements do not include any
adjustments that might result form the outcome of this uncertainty.
/s/ MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
------------------------------------------------
Certified Public Accountants
New York, New York
December 17, 1999
F-3
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS
2000 1999
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ - $ 9,175
Receivable-Related Parties 22,806 8,219
------------ ------------
TOTAL CURRENT ASSETS 22,806 17,394
------------ ------------
OIL AND GAS PROPERTIES,
FULL COST METHOD - Note 10 8,856,890 7,134,910
Less: Accumulated Depreciation, Depletion and
Amortization (27,567) (10,491)
------------ ------------
NET OIL AND GAS PROPERTIES 8,829,323 7,124,419
------------ ------------
OFFICE EQUIPMENT, net of accumulated
depreciation of $618 and $2,120 756 7,005
------------ ------------
OTHER ASSETS
Net Assets of Discontinued Operations - Note 11 37,990 214,808
Other 6,037 6,037
------------ ------------
TOTAL OTHER ASSETS 44,027 220,845
------------ ------------
TOTAL ASSETS $ 8,896,912 $ 7,369,663
============ ============
</TABLE>
The accompanying notes are
an integral part of these consolidated
financial statements.
(Continued)
F-4
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
------------- -------------
<S> <C> <C>
CURRENT LIABILITIES
Cash Overdraft $ 7,960 $ -
Accounts Payable and Accrued Expenses 267,188 611,235
Accounts Payable - Related Party 165,113 389,154
Notes Payable - Note 2 250,000 500,000
Notes Payable - Related Party - Note 2 30,000 101,313
------------- -------------
TOTAL CURRENT LIABILITIES 720,261 1,601,702
------------- -------------
STOCKHOLDERS' EQUITY - Note 8
Common Stock, $.02 par value, 50,000,000 shares
authorized, 13,901,171 and 177,650 shares issued
and outstanding, respectively 278,023 3,553
Additional Paid-In Capital 33,396,290 13,650,157
Retained Deficit (25,497,662) (7,885,749)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 8,176,651 5,767,961
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,896,912 $ 7,369,663
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial
statements.
F-5
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
-------------- -------------
<S> <C> <C>
REVENUE
Oil and Gas Sales $ 164,191 $ 23,841
Equipment Sales - 43,825
-------------- -------------
TOTAL REVENUES 164,191 67,666
-------------- -------------
COST OF REVENUE
Lease Operating 293,294 166,351
Production Taxes 8,062 518
Depreciation, Depletion and Amortization 17,076 5,271
-------------- -------------
TOTAL COST OF REVENUES 318,432 172,140
-------------- -------------
GROSS LOSS (154,241) (104,474)
-------------- -------------
EXPENSES
General and Administrative 12,419,137 2,693,763
Interest Expense 1,367,752 232,139
-------------- -------------
TOTAL EXPENSES 13,786,889 2,925,902
-------------- -------------
LOSS BEFORE OTHER INCOME
(EXPENSES),INCOME TAXES AND
DISCONTINUED OPERATIONS (13,941,130) (3,030,376)
OTHER INCOME (EXPENSES)
Loss on Disposal of Assets - Note 5 (3,308,459) -
Other 483 25,593
-------------- -------------
LOSS BEFORE INCOME TAXES
AND DISCONTINUED OPERATIONS (17,249,106) (3,004,783)
INCOME TAXES - -
-------------- -------------
NET LOSS FROM CONTINUING (17,249,106) (3,004,783)
OPERATIONS
DISCONTINUED OPERATIONS - Note 11
Operating Loss from Discontinued Operations (362,807) (209,887)
Loss on Disposal of Discontinued Operations - -
-------------- -------------
(362,807) (209,887)
-------------- -------------
NET LOSS $ (17,611,913) $ (3,214,670)
============== =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Continued)
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 9,257,141 149,573
============= =============
NET LOSS PER SHARE:
Continuing Operations $ (1.86) $ (20.09)
Discontinuing Operations (.04) (1.40)
------------- -------------
TOTAL LOSS PER SHARE $ (1.90) $ (21.49)
============== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial
statements.
F-7
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Common Stock
------------------------------ Additional
Number of Paid-In Retained
Shares Amount Capital (Deficit) Total
------------ ------------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1998 110,609 $ 2,212 $10,634,878 $(4,671,079) $5,966,011
Issuance of Shares for Conversion
of Debentures 6,500 130 430,787 - 430,917
Issuance of Shares in Conversion
of Note Payable 5,000 100 500,900 - 501,000
Issuance of Shares for Services 32,653 653 1,780,050 - 1,780,703
Issuance of Warrants - - 115,900 - 115,900
Cashless Exercise of Warrants 3,588 72 (72) - -
Issuance of Shares for Properties 20,000 400 339,600 - 340,000
Issuance of Shares for Loan Fees 1,000 20 62,980 - 63,000
Issuance of Shares for Loan 2,600 52 53,798 - 53,850
Extensions
Cancellation of Shares Issued for
Services (4,300) (86) (268,664) - (268,750)
Net Loss - - - (3,214,670) (3,214,670)
---------- -------- ----------- ------------ ----------
BALANCE, SEPTEMBER 30, 1999 177,650 3,553 13,650,157 (7,885,749) 5,767,961
Sale of Shares 45,000 900 89,100 - 90,000
Issuance of Shares for Services 2,640,000 52,800 10,234,150 - 10,286,950
Issuance of Shares for Employee
Compensation 480,000 9,600 1,757,232 - 1,766,832
Issuance of Shares for Acquisition
of Oil and Gas Properties 8,540,000 170,800 1,551,180 - 1,721,980
Issuance of Shares for Real Estate 600,000 12,000 3,456,000 - 3,468,000
Issuance of Shares in Settlement
of Debts 1,418,521 28,370 2,658,471 - 2,686,841
Net Loss (17,611,913) (17,611,913)
---------- -------- ----------- ------------ -----------
BALANCE, SEPTEMBER 30, 2000 13,901,171 $278,023 $33,396,290 $(25,497,662) $8,176,651
========== ======== =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial
statements.
F-8
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------- --------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net (Loss) $ (17,611,913) $ (3,214,670)
Adjustments to Reconcile Net (Loss) to Net Cash
From Operating Activities
Interest Expense 1,341,707 116,850
Depreciation, Depletion and Amortization 19,058 7,155
Amortization of Loan Fees - 6,826
Amortization of Discount on Bonds Payable - 7,692
Issuance of Shares and Warrants for Services,
Employee Compensation and Liability
Settlements 12,479,515 1,627,853
Loss on Disposal of Assets 3,308,459 -
Changes in Operating Assets and Liabilities:
Decrease in Receivables - 6,881
(Increase) Decrease in Receivable-Related Party (14,587) 113,034
Decrease in Prepaid and Other Assets - 117,200
Increase in Accounts Payable and
Accrued Expenses - 918,049
Cash Overdraft 7,960 -
------------- -------------
NET CASH (USED) IN
CONTINUING OPERATIONS (469,801) (293,130)
------------- -------------
NET CASH PROVIDED (USED) BY
DISCONTINUED OPERATIONS 176,818 (22,127)
------------- -------------
NET CASH (USED) IN
OPERATING ACTIVITIES (292,983) (315,257)
------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES
Cost of Oil and Gas Properties - (85,909)
Purchase of Office Equipment - (1,180)
Proceeds from Sale of Real Estate 163,808 -
------------- -------------
NET CASH PROVIDED (USED) IN
INVESTING ACTIVITIES 163,808 (87,089)
------------- -------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
(Continued)
F-9
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from Borrowings $ 130,000 $ 151,313
Repayments of Borrowings (100,000) -
Proceeds from Sale of Stock 90,000 150,000
------------- -------------
NET CASH PROVIDED (USED) IN
FINANCING ACTIVITIES 120,000 301,313
------------- -------------
NET DECREASE IN CASH (9,175) (101,033)
CASH AT BEGINNING OF PERIOD 9,175 110,208
------------- -------------
CASH AT END OF YEAR $ - $ 9,175
============= =============
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION
Cash Paid During the Period For:
Interest $ - $ 12,526
============= =============
Income Taxes $ - $ -
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Purchase of Oil and Gas Properties $ 1,721,980 $ 340,000
Purchase of Real Estate 3,468,000 -
Reduction in Accounts Payable and
Accrued Expenses 568,088 31,917
Notes Payable Settlements 351,313 500,000
Settlement of Debenture Liability - 250,000
Issuance of Shares (6,109,381) (1,121,917)
------------- -------------
$ - $ -
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is engaged primarily in the fields of acquisition, development,
exploration for and sale of oil and gas, and the construction and sale of oil
and gas extraction equipment.
Basis of Consolidation
The consolidated financial statements include the accounts of Power Exploration,
Inc. ("Power", formerly Titan Energy Corp., Inc.) and its 100% owned
subsidiaries, Oil Retrieval Systems, Inc. ("ORS") and Oil Seeps, Inc. ("OSI").
Accordingly, all references herein to Power or the "Company" include the
consolidated results of its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas property
acquisition, exploration, development, and production.
Capitalization Policies: All oil and gas property acquisition, exploration, and
development costs are capitalized as incurred. There were no internal costs
directly attributable to such activities. Net capitalized costs of unproved
property and exploration well costs are reclassified as proved property and well
costs when related proved reserves are found. Costs to operate and maintain
wells and field equipment are expensed as incurred.
Amortization Policies: Except for cost of (1) unevaluated, unproved properties
and (2) major development projects in progress, all capitalized oil and gas
property costs, net of prior accumulated amortization, are amortized by country
using the unit-of-production method based on proved reserves. The amortization
base includes estimated future costs to develop proved reserves and estimated
future dismantlement, reclamation, and abandonment costs, net of equipment
salvage values.
Impairment Policies: Costs not being amortized are periodically assessed for
impairment. Any impairment is added to the amortization base. Net capitalized
costs of oil and gas properties, less related deferred income taxes are limited,
by country, to the sum of (1) future net revenues (using prices and cost rates
as of the balance sheet date) from proved reserves and discounted at ten percent
per annum, plus (2) costs not being amortized, less (3) related income tax
effects. Excess costs are charged to proved property impairment expense.
F-11
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Oil and Gas Properties (Continued)
Sales and Retirements Policies: No gain or loss is recognized on the sale of oil
and gas properties unless nonrecognition would significantly alter the
relationship between capitalized costs and remaining proved reserves for the
affected amortization base. When gain or loss in not recognized, the
amortization base is reduced by the amount of sales proceeds.
Revenue Recognition
Revenues from the sale of oil and gas production are recognized when title
passes, net of royalties.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting date. Actual
results could differ from those estimates.
Depreciation and Amortization
Office equipment is stated at cost and is depreciated using the straight-line
method over its estimated useful lives of five (5) years.
The costs of maintenance and repairs are charged to expense when incurred; costs
of renewals and betterments are capitalized. Upon the sales or retirement of
property and equipment, the cost and related accumulated depreciation are
eliminated from the respective accounts and the resulting gain or loss is
included in operations.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and short-term debt. The carrying amounts of cash, accounts
receivable, accounts payable and short-term debt approximate fair value due to
the relatively short maturity of these instruments.
Long - Lived Assets
Long - lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the related carrying amount may
not be recoverable. When required, impairment losses on assets to be held and
used are recognized based on the fair value of the assets and long - lived
assets to be disposed of are reported at the lower of carrying amount of fair
value less cost to sell.
(Continued)
F-12
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred taxes on temporary differences between the amount of
taxable income and pretax financial income and between the tax bases of assets
and liabilities and their reported amounts in the financial statements. Deferred
tax assets and liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred tax
assets and liabilities are expected to be realized or settled as prescribed in
FASB Statement No. 109, Accounting for Income Taxes. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Concentration of Credit Risk
The Company places its cash in what it believes to be credit-worthy financial
institutions. However, cash balances may exceed FDIC insured levels at various
times during the year.
Stock-Based Compensation
The Company has adopted the intrinsic value method of accounting for stock-based
compensation in accordance with Accounting Principles Board Opinion ("APB") No.
25, "Accounting for Stock Issued to Employees" and related interpretations.
Comprehensive Income
In June 1997, SFAS No. 130, "Reporting Comprehensive Income", was issued. This
statement establishes standards for the reporting and display of comprehensive
income and its components in the financial statements. As of September 30, 2000
and 1999, the Company had no items that represent other comprehensive income
and, therefore, has not included a schedule of comprehensive income in the
financial statements.
Per Share of Common Stock
Per share amounts have been computed based on the average number of common
shares outstanding during the period.
Potential common stock has been excluded from the computation of earnings per
share since the inclusion of options and warrants would be antidilutive.
F-13
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 2: NOTES PAYABLE
Notes payable at September 30, 2000 and 1999 consist of the following:
2000 1999
------------- -----------
a) Note Payable - Trident III, L.L.C. $ - $ 250,000
b) Note Payable - Business Exchange
Investments, Inc. 250,000 250,000
c) Note Payable - Related Party - 101,313
d) Note Payable - Related Party 30,000 -
---------- ----------
$ 280,000 $ 601,313
========== ==========
a) The Company is indebted to Trident III, L.L.C. under terms of a
promissory note dated October 21, 1998 in the amount of $250,000. Terms of the
note provide for interest at a rate of 10% per annum, with an original maturity
date of April 20, 1999. The Company issued 1,000 shares of its common stock to
Trident III, L.L.C. in connection with this loan. The loan has been extended at
various times with a current maturity date of October 30, 1999. The Company
issued a total of 2,600 shares of its common stock in consideration of these
extensions. When the note was extended to September 30, 1999, the Company agreed
that if the note was not paid on or before September 30, 1999, then it will
issue 50,000 shares per day for each day that the note is outstanding subsequent
to September 30, 1999. Concurrent with the extension to October 30, 1999 the
provision was added that if payment of outstanding principal and interest was
made by that date, the lender would not seek to receive the 50,000 shares per
day due under the previous extension. If payment was not made on or before
October 30, then the full 50,000 shares per day from October 1, 1999 would be
due. In January 2000, the Company issued 279,861 shares of its common stock with
an aggregate fair value of $1,617,597 to Trident III, L.L.C. in settlement of
the $250,000 note payable plus accrued interest of $25,890. The difference
between the fair value of the share issued and the note balance, plus accrued
interest was $1,341,707, which was recognized as interest expense in the
September 30, 2000 statement of operations.
b) The Company is indebted to Business Exchange Investment, Inc. under
terms of a promissory note dated September 15, 1998. Terms of the note provide
for interest at a rate of 10% per annum with an extended maturity date of March
15, 2000. At September 30, 2000, the note remains outstanding, therefore, the
Company is in default on this note. The note is collateralized by 100% of the
shares of OSI.
c) The Company was indebted to the M.O. Rife III, Trust A under terms of a
promissory note dated March 31, 1999 in the amount of $101,313. Terms of the
note provide for interest at a rate of 8.75% per annum, and the note is due upon
demand. In December 1999, the Company issued 1,000,000 shares of its common
shares in settlement of the $101,313 note payable plus $7,140 of accrued
interest and $802,179 of accounts payable to Rife Oil Properties, Inc.
(Continued)
F-14
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 2: NOTES PAYABLE (Continued)
d) The Company was indebted to M.O. Rife III, Trust A under the terms of
promissory notes dated September 14, 2000 and September 20, 2000, in an
aggregate amount of $30,000. Terms of the notes provide for interest at the rate
of 11% per annum, with original maturity dates of February 14, 2001 and February
20, 2001.
NOTE 3: WARRANTS
At September 30, 2000, the Company had the following common stock purchase
warrants outstanding:
a) 1,000 warrants, each of which entitles the registered holder thereof to
purchase one share of common stock, exercisable at any time on or before August
31, 2002 at an exercise price of $2.50 per share (subject to customary
anti-dilution adjustments). The exercise price exceeded the market price of the
underlying common stock on the date of issuance. The warrants were issued in
connection with the placement of the debt issued in 1999.
b) 800 warrants, each of which entitles the registered holder thereof to
purchase one share of common stock, exercisable at any time on or before August
31, 2003 at an exercise price of $1.00 per share (subject to customary
anti-dilution adjustments). The warrants were issued in connection with the debt
issued in 1999.
c) 750 warrants, each of which entitles the registered holder thereof to
purchase one share of common stock, exercisable at any time on or before August
20, 2003 at an exercise price of $2.50 per share (subject to customary
anti-dilution adjustments). The warrants were issued as a fee in connection with
the debt issued in 1999.
d) 200 warrants, each of which entitles the registered holder thereof to
purchase one share of common stock, exercisable at any time on or before June 1,
2003 at an exercise price of $2.50 per share (subject to customary anti-dilution
adjustments). The warrants were issued as a payment for a consulting agreement
and have been valued at $27,620 in 1999.
The warrants issued do not confer upon the holders thereof any voting or other
rights of a stockholder of the Company.
The warrants described in items (b) through (d) above are subject to a "cashless
exercise" provision (the "warrant exchange").
(Continued)
F-15
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 3: WARRANTS (Continued)
In connection with any Warrant Exchange, the Holder's Warrant certificate shall
represent the right to subscribe for or acquire (I) the number of Warrant Shares
(rounded to the next highest integer) equal to (A) the number of Warrant Shares
specified by the Holder in its Notice of Exchange (the "Total Share Number")
less (B) the number of Warrant Shares equal to the quotient obtained by dividing
(i) the product of the Total Share Number and the existing Exercise Price (as
Defined) per Share by (ii) the Market Price (as defined) of a share of Common
Stock.
During the year ended September 30, 1999, the Company issued 3,588 shares of its
common stock in a cashless exercise of 7,250 warrants. No warrants were
exercised during the year ended September 30, 2000.
NOTE 4: INCOME TAXES
The components of the provision for income taxes is as follows:
September 30,
-----------------------------------
2000 1999
------------- ------------
Current Tax Expense
U.S. Federal $ - $ -
State and Local - -
--------- ---------
Total Current $ - $ -
--------- ---------
Deferred Tax Expense
U.S. Federal $ - $ -
State and Local - -
--------- ---------
Total Deferred $ - $ -
--------- ---------
Total Tax Provision from
Continuing Operations $ - $ -
========= =========
The reconciliation of the effective income tax rate to the Federal statutory
rate is as follows:
2000 1999
------------- ------------
Federal Income Tax Rate (34.0)% (34.0)%
Deferred Tax Charge (Credit) - -
Effect of Valuation Allowance 34.0% 34.0%
State Income Tax, Net of Federal Benefit - -
-------- ---------
Effective Income Tax Rate 0.0% 0.0%
========== ==========
(Continued)
F-16
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 4: INCOME TAXES (Continued)
At September 30, 2000, the Company had net carryforward losses of approximately
$24,104,000. A valuation allowance equal to the tax benefit for deferred taxes
has been established due to the uncertainty of realizing the benefit of the tax
carryforward.
Deferred tax assets and liabilities reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities at September 30
are as follows:
<TABLE>
<CAPTION>
September 30,
------------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Deferred Tax Assets (Liabilities):
Loss Carryforwards $ 8,195,000 $ 2,233,000
Consulting Fees - 97,000
Exploration Costs (23,000) (23,000)
Depreciation (29,000) (29,000)
Less: Valuation Allowance (8,143,000) (2,278,000)
------------- -------------
Net Deferred Tax Assets (Liabilities) $ - $ -
============= ============
</TABLE>
Net operating loss carryforwards expire in 2001 through 2020. Per year
availability of losses incurred prior to October 1, 1997 of approximately
$324,000 is subject to change of ownership limitations under Internal Revenue
Code Section 382.
Expiration dates of net operating loss carryforwards are as follows:
September 30,
2001 $ 89,000
2002 8,000
2003 18,000
2005 5,000
2007 65,000
2009 16,000
2010 3,000
2011 28,000
2012 303,000
2018 2,329,000
2019 3,632,000
2020 17,608,000
--------------
$ 24,104,000
==============
F-17
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 5: RELATED PARTY TRANSACTIONS
During the year ended September 30, 1999:
a) The Company issued a promissory note to M.O. Rife III Trust A (the "Rife
Trust"), which is a principal stockholder in the amount of $101,313. The
proceeds of the note were used to repay a loan to the Company from the Bank of
Commerce, which the stockholder had guaranteed.
b) The Company was advanced a net of $140,000 by Rife Oil Properties, Inc.,
a company owned by the beneficiary to the Rife Trust.
c) The Company incurred a net accounts payable to Rife Oil Properties, Inc.
of $389,154.
d) The Company is owed an aggregate of $84,570 in accounts receivable by
Rife Oil Properties, Inc.
e) The Company leases its office space from the Rife Trust, with a monthly
rental of $3,325.
During the year ended September 30, 2000:
a) The Company issued 300,000 shares of its common stock to Members of the
Board of Directors as compensation with an aggregate value of $1,395,867.
b) The Company purchased additional oil and gas leases of a company
controlled by a director by issuing 8,540,000 shares of its common stock with an
aggregate value of $1,721,980.
c) The Company issued 1,000,000 shares of its common stock to Rife Oil
Properties, Inc. in settlement of a note payable, plus accrued interest and an
account payable balance applicable to lease operating expense. These shares were
valued at $910,631.
d) In February 2000, the Company purchased all of the outstanding stock of
The Lincoln Health Fund, Inc. ("Lincoln") from a stockholder of the Company.
Lincoln's only asset was a parcel of land located in Fort Worth, Texas, which
was subsequently sold in August 2000. The transaction is summarized as follows:
Fair Value of 600,000 Shares Issued for
Real Estate in February 2000 $3,468,000
Net Proceeds from Sale of
Real Estate in August 2000 163,808
------------
Loss on Disposal of Asset $ 3,304,192
============
(Continued)
F-18
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 5: RELATED PARTY TRANSACTIONS (Continued)
e) Rife Oil Properties, Inc. ("Rife"), a Company owned by a director is the
operator of all oil and gas leases owned by the Company. For the year ended
September 30, 2000, Rife charged the Company $277,022 for operating the
Company's oil and gas wells.
f) The Company borrowed money from the M.O. Rife III, Trust A as follows:
Interest
Date Amount Rate Due Date
---- ------ ------ --------
May 3, 2000 $ 15,000 11% October 3, 2000
September 14, 2000 10,000 11% February 14, 2000
September 20, 2000 5,000 11% February 20, 2000
--------
$ 30,000
========
Interest expense on these notes for the year ended September 30, 2000 was $741.
g) In June 2000, the Company's chief financial officer paid the Company's
auditor $12,547 for services rendered. The funds advanced by the chief financial
officer are reflected in the September 30, 2000, balance sheet as accounts
payable to related party.
h) The Company issued 180,000 shares of its common stock with an aggregate
value of $370,956 to its executive officers as employee compensation.
i) The Company leases its office space from the Rife Trust, with a monthly
rental of $3,325.
NOTE 6: CONSULTING AGREEMENTS
The Company has entered into various cancelable consulting agreements with third
parties. Compensation for services provided under these agreements has been paid
in either common shares or common stock purchase warrants of the Company. During
the year ended September 30, 1999, the Company issued 30,000 shares of common
stock, valued at $1,657,000, and 1,000 common share purchase warrants valued at
$115,900.
During the year ended September 30, 2000, the company issued 2,510,000 shares of
its common stock with an aggregate value of $9,559,850 in payment of various
consulting services.
(Continued)
F-19
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 7: COMMITMENTS AND CONTINGENCIES
a) The Company has entered into various non-cancelable operating lease
agreements for office equipment.
Future minimum lease payments under these lease agreements for each of the years
ended September 30 are as follows:
2001 $18,827
2002 15,799
2003 9,423
2004 947
--------
Total minimum lease payments $44,996
=======
Rent expense included in the financial statements for the year ended
September 30, 2000, totaled $92,417.
b) The Company has pledged 100% of the shares of Oil Seeps, Inc., a wholly
owned subsidiary, as collateral for a $250,000 promissory note due on March 15,
2000.
c) A claim had been filed against ORS by a former employee. The employee
had demanded $75,000 in exchange for a full and final release. The claim was
settled for $20,000 through mediation in December 1998. The settlement amount
was accrued in the September 30,1999, financial statements. This accrual was
paid through the issuance of 13,660 shares of Company common stock valued at
$22,112 in 2000.
d) A suit was filed against the Company alleging breach of contract and
seeking damages of approximately $120,000. This relates to an alleged agreement
to repurchase equipment previously sold by the Company. This amount was accrued
in the financial statements as of September 30, 1999, and paid through the
issuance of 125,000 shares of Company common stock valued at $136,500 in 2000.
(Continued)
F-20
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 8: SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES
During the year ended September 30, 1999:
a) The Company issued 6,500 shares of common stock in conversion of a
debenture in the amount of $280,917, including accrued interest, plus an
additional $150,000.
b) The Company issued 5,000 shares of common stock in satisfaction of a
note in the amount of $501,000, including accrued interest.
c) The Company issued an aggregate of 32,653 shares of common stock for
various consulting, legal and public relations services. These shares have been
valued at $1,780,703.
d) The Company issued warrants to purchase 1,000 shares of common stock for
consulting services. These warrants have been valued at $115,900.
e) The Company issued 3,588 shares of common stock in a cashless exercise
of warrants.
f) The Company issued 20,000 shares of common stock to acquire various oil
and gas properties. These shares have been valued at $340,000.
g) The Company issued 1,000 shares of common stock in connection with the
issuance of a promissory note. These shares have been valued at $63,000.
h) The Company issued 2,600 shares of common stock in connection with the
extension of the due date of a promissory note. These shares have been valued at
$53,850.
i) The Company cancelled 4,300 shares of common stock which had been issued
for consulting services in the year ended September 30, 1998. These shares have
been valued at $268,750.
(Continued)
F-21
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 8: SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES (Continued)
During the year ended September 30, 2000, the company issued the following
shares of its common stock:
Number of
Reason For Issuance Shares Value
------------------- --------- -----
Acquisition of Oil and Gas Properties 8,540,000 $ 1,721,980
Acquisition of Real Estate 600,000 3,468,000
Compensation for Consulting Services 2,510,000 9,559,850
Compensation to Board of Directors 300,000 1,395,876
Employee Compensation 180,000 370,956
Settlement of Related Party Debts 1,000,000 910,632
Legal Services 130,000 727,100
Settle of Trident III, LLC Note Payable 279,861 1,617,597
Settlement of Lawsuits 138,660 158,612
------------ --------------
13,678,521 $ 19,930,603
============ ==============
The fair value of the shares issued were determined by discounting the reported
trading value on the date of issue discounted by twenty-five percent (25%). The
trading value was discounted due to the limited trading volume of the Company's
stock. The shares issued were not registered shares.
NOTE 9: GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
the company will continue as a going concern. As of September 30, 2000, the
Company has a working capital deficit of $697,455 and an accumulated deficit of
$25,497,662. Based upon the Company's plan of operation, the Company estimates
that existing resources, together with funds generated from operations will not
be sufficient to fund the Company's working capital deficit. The Company is
actively seeking additional equity financing. There can be no assurances that
sufficient financing will be available on terms acceptable to the Company or at
all. If the Company is unable to obtain such financing, the Company will be
forced to scale back operations which would have an adverse effect on the
Company's financial condition and results of operation.
F-22
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 10: SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
The following supplemental unaudited information regarding the Company's oil and
gas activities is presented pursuant to the disclosure requirements of Statement
of Financial Accounting Standards No. 69.
<TABLE>
<CAPTION>
September 30,
-----------------------------------
1999 1998
------------- ------------
<S> <C> <C>
Capitalized Costs Relating to Oil and Gas
Producing Activities at September 30:
Proved Oil and Gas Properties $ 8,856,890 $ 7,134,910
Less: Accumulated Amortization and Impairment (27,567) (10,491)
------------- -------------
Net Capitalized Costs $ 8,829,323 $ 7,124,419
============ =============
Costs Incurred in Oil and Gas Producing Activities for
the Year Ended September 30,
Property Acquisition Costs:
Proved $ 1,721,980 $ 450,993
Exploration Costs - 3,293
------------ -------------
$ 1,721,980 $ 454,286
============ =============
Results of Operations for Oil and Gas Producing
Activities for the Years Ended September 30,
Oil and Gas Sales $ 164,191 $ 23,841
Production (Lifting) Costs (293,294) (166,869)
Amortization Expenses (17,076) (5,271)
------------- -------------
Net Loss (146,179) (148,299)
Income Taxes - -
------------ -------------
Results of Operations for Oil and Gas Producing
Activities (excluding corporate overhead and
financing costs) $ (146,179) $ (148,299)
============= =============
</TABLE>
Reserve Information and Related Standardized Measure of Discounted Future Net
Cash Flows
The following supplemental unaudited presentation of proved and proved developed
reserve quantities and related standardized measure of discounted future net
cash flow provides estimates only and does not purport to reflect realizable
values or fair market values of the Company's reserves. Volumes reported for
proved reserves are based on reasonable estimates. These estimates are
consistent with current knowledge of the characteristics and production history
reserves. The Company emphasizes that reserve estimates are inherently more
imprecise than those of producing oil and gas properties. Accordingly,
significant changes to these estimates are expected as future information
becomes available. All of the Company's reserves are located in the United
States.
(Continued)
F-23
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 10: SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
(Continued)
Proved reserves are those estimated reserves of crude oil (including condensate
and natural gas liquids) and natural gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in the future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves, less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, less estimated related future income tax expenses (based on year-end
statutory tax rates, with consideration of future tax rates already legislated),
and assuming continuation of existing economic conditions. Future income tax
expenses give effect to permanent differences and tax credits but do not reflect
the impact of continuing operations including property acquisitions and
exploration. The estimated future cash flows are then discounted using a rate of
ten percent a year to reflect the estimated timing of the future cash flows.
Oil Oil
(mbbls) (mbbls)
2000 1999
------------ -------------
Proved Developed and Undeveloped Reserves:
Beginning of Year 18,437.3 21,744.5
Purchase of Minerals in Place - -
Revisions of Previous Estimates (2,046.2) (3,305.0)
Production (6.5) (2.2)
---------- -----------
End of Year 16,384.6 18,437.3
========== ===========
Proved Developed Reserves:
End of Year 323.7 1,725.5
========== ===========
(Continued)
F-24
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 10: SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
(Continued)
Reserve Information and Related Standardized Measure of Discounted Future Net
Cash Flows (Continued)
Standardized Measure of Discounted Future
Net Cash Flows at September 30:
<TABLE>
<CAPTION>
2000 1999
------------ --------------
<S> <C> <C>
Future Cash Inflows $ 527,257,000 $ 433,276,000
Future Production Costs (109,876,000) (135,355,000)
Future Development Costs (36,000,000) (37,515,000)
Future Income Tax Expense (129,670,000) (104,162,000)
--------------- ---------------
251,711,000 156,244,000
Future Net Cash Flows
10% Annual Discount for Estimated
Timing of Cash Flows 138,082,000 108,146,000
--------------- ---------------
Standardized Measure of Discounted Future
Net Cash Flows Relating to Proved
Oil and Gas Reserves $ 113,629,000 $ 48,098,000
=============== ===============
</TABLE>
The following reconciles the change in the standardized measure of discounted
future net cash flows from proved reserves during the years ended September 30:
<TABLE>
<CAPTION>
2000 1999
--------------- -------------
<S> <C> <C>
Beginning of Year $ 48,097,750 $ 38,885,005
Revenue from Oil and Gas Production, Net of
Production Costs (137,165) 23,841
Net Changes in Prices and Production and
Development Costs 169,177,415 92,247,186
Revisions of Previous Quantity Estimates (48,065,000) (23,744,147)
Purchases of Minerals in Place - -
Discount (29,936,000) (48,438,417)
Net Change in Income Taxes (25,508,000) (8,018,204)
Other - (2,857,514)
--------------- --------------
End of Year $ 113,629,000 $ 48,097,750
=============== ==============
</TABLE>
F-25
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 11: DISCONTINUED OPERATIONS
In 2000, the Company's management determined that the operations of Oil
Retrieval Systems, Inc. were no longer viable; therefore, the manufacturer of
oil and gas construction equipment ceased. The Company is currently evaluating
its options for the disposal of ORS's assets and the liquidation of its
liabilities. The net assets of the discontinued operations were as follows:
2000 1999
------------- --------
ASSETS
Cash $ 229 $ (8,091)
Accounts Receivable 17,050 84,915
Inventory - 323,485
Prepaid Expenses 140 230
---------- ----------
TOTAL CURRENT ASSETS 17,419 400,539
---------- ----------
Property and Equipment 340,718 314,962
Less: Accumulated Depreciation (139,731) (91,461)
---------- ----------
NET PROPERTY AND EQUIPMENT 200,987 223,501
---------- ----------
Other Assets 490 -
---------- ----------
TOTAL ASSETS 218,896 624,040
---------- ----------
LIABILITIES
Accounts Payable 119,770 228,911
Advances - Related Party 60,003 140,000
Accrued Liabilities 1,133 40,321
---------- ----------
TOTAL LIABILITIES 180,906 409,232
---------- ----------
NET ASSETS $ 37,990 $ 214,808
========== ==========
(Continued)
F-26
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
NOTE 11: DISCONTINUED OPERATIONS (Continued)
The results of operations for the years ended September 30, 2000 and 1999, were
as follows:
2000 1999
------------- ------------
Equipment Sale $ 88,110 $ 200,731
Cost of Sale 272,464 156,780
------------ ------------
Gross Profit (Loss) (184,354) 43,951
General and Administrative Expenses (186,178) (253,451)
Interest Expense (8,029) (387)
Other Income 15,754 -
------------ ------------
$ (362,807) $ (209,887)
============ ============-
The September 30, 1999, consolidated balance sheet, statement of operations and
statement of cash flows were restated to reflect the discontinued operations in
2000.
F-27
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On September 27, 2000, the Company engaged Killman, Murrell, & Company, P.C. as
its independent auditors to replace Merdinger, Frutcher, Rosen, & Corso, P.C.
Prior to the change of accountants, there were no disputes between management
and the auditors and the auditors' reports contained no adverse opinion or
disclaimer of opinion, and were not qualified or modified as to uncertainty,
audit scope, or accounting principles other than the Account qualified its
opinion for the fiscal year ended September 30, 1999, based on the assumption
that the registrant would continue as a going concern. For more information see
Form 8-K filed October 4, 2000.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Issuer has a 3-person board of directors, all of which positions are
currently filled. The Directors and Executive Officers of the Issuer, their ages
and present positions held with the Issuer are:
NAME AGE POSITION HELD
---- --- -------------
M. O. Trey Rife III 61 Chairman of the Board & Director
Joe Bill Bennett 54 Chief Executive Officer & Director
Mark Zouvas 38 Secretary & Chief Financial Officer
The Issuer's Directors were elected October 5, 1999 and will serve in such
capacity until the next annual meeting of the Issuer's shareholders or until
their successors have been elected and qualified. There are no familial
relationships among the Issuer's officers and directors, nor are there any
arrangements or understandings between any of the officers or directors of the
Issuer or any other person pursuant to which any officer or director was or is
to be selected as an officer or director.
M.O. Rife III, Chairman; Director. Mr. Rife was born in Fort Worth, Texas in
1939. He is 61 years old. He was elected to the Company's Board of Directors in
May of 1997. Mr. Rife will serve as a Director until the next regularly held
shareholder's meeting, or until his successor is elected and qualified. He
currently serves as the Chairman of the Board. His family has been in the oil
industry for three generations. His grandfather retired from Gulf Oil as a
production superintendent and his father was an independent oil and gas operator
for over forty years. Mr. Rife attended Texas Christian University and began
working in the oil field when he was eighteen. He worked with his father for 15
years, then started his own company, Rife Oil Properties, Inc. For the past
twenty five years, he has served as President and Chief Executive Officer of
Rife Oil Properties, Inc. He has been involved in the drilling, completion and
operating of over 500 wells throughout the mid-continent Region. Currently Rife
Oil Properties, Inc. operates over 800 wells in Texas.
Joe Bennett, Director, Chief Executive Officer. Mr. Bennett was born in Graham,
Texas in 1946. He is 54 years old. He was elected to the Company's Board of
Directors in May of 1997. Mr. Bennett will serve as a Director until the next
regularly scheduled shareholder's meeting, or until his successor is elected and
qualified. He currently serves as Chief Executive Officer of the Company. He has
worked for the Company since September of 1994.
23
<PAGE>
Prior to being appointed Chief Executive Officer in September, 1999, he served
as a Vice-President of the Company. His family has been involved in the oil
industry as independent oil and gas operators in North Texas for three
generations. Mr. Bennett attended the University of Texas at Austin studying
petroleum engineering. At the age of sixteen he began working summers in the oil
field for the family business. He has over 30 years of experience in developing
exploration projects, drilling and completing wells, and all phases of
operations. From 1976 to 1980 Mr. Bennett helped organize and start up an
aircraft overhaul business that employed over 100 people. As C.O.O., he was
responsible for all operations and marketing. In 1981 Mr. Bennett became
President and CEO of Bennett Resources, Inc. As head of the family business, he
directed the development of exploration projects in Texas, Oklahoma, Kansas,
Illinois, Kentucky and Tennessee. In 1994 Mr. Bennett joined Rife Oil
Properties, Inc. as VP Operations. His primary responsibilities were to oversee
the company's stripper well acquisition program and to manage all operations of
these properties using new production technology.
Mark S. Zouvas, Chief Financial Officer. Mr. Zouvas is 38 years old. He serves
as the Company's Chief Financial Officer, a position he has held since
September, 1997. From September 1993 to September, 1997, Mr. Zouvas worked for
Vantage Capital Management Company in Chicago, Illinois. Mr. Zouvas has a BA
from the University of California at Berkeley (Accounting and Real Estate). As a
staff auditor with Price Waterhouse, he performed services for clients in the
banking and real estate industries. Mr. Zouvas has been involved in several
venture capital transactions over the past five years. He is a Licensed Real
Estate Broker and an Accountant in California. Mr. Zouvas also serves on the
Board of Directors of Knowledge Group, Inc., a publicly trading company, and has
so served since May of 1999.
Compliance with Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, the
Company is not aware of any person who at any time during the fiscal year ended
September 30, 2000 was a director, officer, or beneficial owner of more than ten
percent of the Common Stock of the Company, and who failed to file, on a timely
basis, reports required by Section 16(a) of the Securities Exchange Act of 1934
during such fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
The following table and the accompanying notes provide summary information for
the fiscal year ended September 30,2000, concerning cash and non-cash
compensation paid or accrued by Joe Bill Bennett, the Company's Chief Executive
Officer and Mark Zouvas, the Company's Chief Financial Officer, and all officers
or directors who were paid in excess of $100,000
[THIS SPACE INTENTIONALLY LEFT BLANK]
24
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Year Salary(2) Bonus Compensation Award(s) Options payouts Compensation
Position ($) ($) ($) ($) SARs(#) ($) ($)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joe Bill 1999 $90,000 - - - - - -
Bennett 2000 $90,000 $232,646
CEO, Director
James 1999 - - - - - - -
McGowan, 2000 $232,646
Director
Charles 1999 - - - - - - -
Barnhill, 2000 $232,646
Director
Reginald 1999 - - - - - - -
Davis, Director 2000 $232,646
Richard 1999 - - - - - - -
Surber, 2000 $232,646
Director
M. O. Rife, III, 1999 - - - - - - -
Director 2000 $232,646
Mark Zouvas 1999 $90,000 - - - - - -
Chief Financial 2000 $90,000
Officer
====================================================================================================================================
</TABLE>
Compensation of Directors
The Company's directors were not compensated for their services prior to January
1, 2000. During the fiscal year ended September 30, 2000, each director received
fifty thousand (50,000) restricted shares of the Company's common stock which
had been Registered pursuant to an S-8 Registration Statement filed with the
Securities and Exchange Commission on December 15, 1999. The fifty thousand
shares received by each director were valued at $232,646.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information concerning the ownership of
the Company's Common Stock as of January 6, 2000, with respect to: (i) each
person known to the Company to be the beneficial owner of more than five percent
of the Company's Common Stock; (ii) all directors; and (iii) directors and
executive officers of the Company as a group. The notes accompanying the
information in the table below are necessary for a complete understanding of the
figures provided below. As of January 6, 2000, there were 9,581,140 shares of
Common Stock issued and outstanding.
---------------------
(2)Mr. Bennett and Mr. Zouvas each received a total of 60,000 shares of the
Company's common stock in lieu of a portion of their salary during the fiscal
year. The shares were issued as free trading shares having been registered
pursuant to S-8 filings on March 24, and June 15, 2000. See "Certain
Relationships and Related Transactions.
25
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of
Title of Class Name and Address of Beneficial Ownership Percent of class
-------------- ------------------- -------------------- ----------------
<S> <C> <C> <C>
Beneficial Owner
Common Stock Joe Bill Bennett 88,668 0.7%
($0.02) par value 13001 Mountainview Road
Aubrey, Texas 76227
Common Stock Mark Zouvas 23,175 0.2%
($0.02) par value 5601 El Campo
Fort Worth, Texas 76107
Common Stock M. O. Rife, III 62,000 0.5%
($0.02) par value 5601 El Campo
Fort Worth, Texas 76107
Common Stock Directors and Executive 173,843 1.4%
($0.02) par value Officers as a Group (3
individuals)
Common Stock Global Universal, Inc. of 8,000,000 84%
($0.02) par value Delaware
11701 South Freeway
Burleson, Texas 76028
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended September 30, 2000:
(a) On January 23, 2000, the Board of Directors authorized the Company to issue
100,000 shares of its common stock to each of the Company's directors as
compensation for services rendered. On February 9, 2000, the Company issued
25,000 shares of its restricted common stock, which the Company valued at
$144,500, to each of the six members of the Board of Directors; James McGowan,
Charles Barnhill, Reginald Davis, Richard Surber, M.O. Rife III and Joe B.
Bennett. On June 1, 2000, the Company issued 25,000 shares of its restricted
common stock, which the Company valued at $88,146, to each of the six members of
the Board of Directors; James McGowan, Charles Barnhill, Reginald Davis, Richard
Surber, M.O. Rife III and Joe B. Bennett. The total value of the 300,000 shares
issued to Directors is $1,395,876.
(b) The Company purchased additional oil and gas leases from Rife Oil
Properties, which is controlled by M. O. Rife III, a Director of the Company by
issuing 8,000,000 shares of its common stock with an aggregate value of
$1,721,980 (See exhibit 10.1). For additional information, see Form 8-K filed
December 13, 1999.
(c) The Company issued 1,000,000 shares of its common stock to Rife Oil
Properties, Inc. in settlement of a note payable, plus accrued interest and an
account payable balance applicable to lease operating expenses totaling
$910,631. (See exhibit 10.1). For additional information, see Form 8-K filed
December 13, 1999.
26
<PAGE>
(d) In February, 2000, the Company purchased all of the outstanding stock of the
Lincoln Health Fund, Inc. ("Lincoln") from a stockholder of the Company.
Lincoln's only asset was a parcel of land located in Fort Worth, Texas, which
was subsequently sold in August, 2000. The Company issued 600,000 shares of its
common stock valued at $3,468,000 and subsequently sold the property for net
proceeds of $163,808 and realized a loss on the disposal of the asset of
$3,304,192. (See exhibits 10.12 & 10.13).
(e) Rife Oil Properties, Inc. ("Rife") is owned by the M. O. Rife III Trust A,
which is controlled by M. O. Rife III, a Director of the Company. Rife is the
operator of all oil and gas leases owned by the Company. For the year ended
September 30, 2000, Rife charged the Company $277,022 for operating the
Company's oil and gas wells.
(f) The Company borrowed $30,000 from M. O. Rife III, Trust A during the fiscal
year at an interest rate of 11%. The term of the notes were for one year due at
various dates in the next fiscal year. (See note 5(f), Notes to the Financial
Statements.)
(g) In June, 2000, the Company's Chief Financial Officer paid the Company's
Auditor $12,547 for services rendered. The funds advanced by the Chief Financial
Officer are reflected in the September 30, 2000 balance sheet as accounts
payable to a related party.
(h) The Company issued 180,000 shares of its common stock with an aggregate
value of $370,956 to its three executive officers as payment for accrued
salaries, which had been accruing since 1998. As of September 30, 2000, the
Company has an accrued liability of $99,544 representing wages still owed the
executive officers.
None of the other directors, executive officers or senior officers of the Issuer
or any subsidiary, or any associates or affiliates of any of them, is or has
been, indebted to the Issuer at any time since the beginning of the last
completed financial year of the Issuer.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation S-B
are listed in the Index to Exhibits beginning on page 26 of this Form
10-KSB, which is incorporated herein by reference.
(b) Reports on Form 8-K. The Company filed no reports on form 8-K during the
last quarter of the fiscal year ending September 30, 2000.
27
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 16th day of January, 2001.
Power Exploration,
Inc.
Joe Bennett, President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Joe Bennett Chief Executive Officer January 16, 2001
---------------------- and Director
Joe Bennett
/s/ Mark S. Zouvas Chief Financial Officer January 16, 2001
----------------------
Mark S. Zouvas
/s/ M. O. Rife, III Chairman, Director January 16, 2001
----------------------
M. O. Rife, III
28
<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. NO. DESCRIPTION
------- ---- -----------
2.1 * Plan of Reorganization and Change of Situs by which Titan
Energy Corp., and Power Exploration, Inc. Changes Its Place
of Incorporation.
2.2 * Agreement and Plan of Merger Between Power Exploration, Inc.
(Nevada) and Power Exploration, Inc. (Colorado). August 1,
1998
2.3 * Articles of Merger Between Power Exploration, Inc. (Nevada)
and Power Exploration, Inc. (Colorado). August 1, 1998
2.4 * Action by Incorporator. Election of Officers and Directors
of Power Exploration, Inc. (Nevada). May 31, 1998
2.5 * Special Action by the Executive Committee of Power
Exploration, Inc. dated January 11, 1999 (Incorporated
herein by reference from Exhibits to the Company's Form 8-K
filed January 19, 1999).
3.1 * Articles of Incorporation of Imperial Energy dated October
31, 1979.
3.2 * Amendment to Articles of Incorporation dated June 26, 1984
3.3 * Amendment to Articles of Incorporation dated September 25,
1996
3.4 * Minutes of Special Shareholders Meeting Changing Name to Oil
Retrieval Systems, Inc. dated May 14, 1997
3.5 * Amendment to Articles of Incorporation dated June 15, 1997,
Changing Name to Oil Retrieval Systems, Inc.
3.6 * By Laws of the Corporation
3.7 * Articles of Incorporation of Power Exploration, Inc.
(Nevada) dated May 14, 1998
3.8 * By Laws of Power Exploration, Inc. (Nevada) Dated June 1,
1998
10.1 * Acquisition Agreement Dated December 8, 1999 between Power
exploration, Inc. and Rife Oil Properties, Inc.
(Incorporated herein by reference from Exhibits to the
Company's Form 8-K filed December 13, 1999).
10.2 * Agreement to Extend Repayment Obligation Between Power
Exploration, Inc. and Trident III LLC Dated May 1, 1999
29
<PAGE>
10.3 * Advisory Agreement entered into between Power Exploration,
Inc. and Ronald Welborn Dated October 21, 1999
10.4 ** Compromise Settlement Agreement and Mutual Release dated
December 20, 1999 between Power Exploration, Inc. and
Benchmark Equity Group, Inc., Rife Oil Properties, Inc., and
Jeffrey W. Tomz.
10.5 ** Compromise Settlement Agreement and Mutual Release dated
December 20, 1999 between Power Exploration, Inc. and
Trident III, L.L.C.
10.6 ** Compromise Settlement Agreement and Mutual Release dated
December 20, 1999 between Power Exploration, Inc. and
Benchmark Equity Group, Inc.
10.7 ** Purchase Agreement dated December 20, 1999 between Power
Exploration, Inc. and Benchmark Equity Group, Inc.
10.8 ** Purchase Agreement dated December 20, 1999 between Power
Exploration, Inc. and Trident III, L.L.C.
10.9 32 Fee Agreement for Legal Services between Power Exploration,
Inc. and Richard Surber dated March 24, 2000.
10.10 35 Contract for Financial Public Relations Services between
Power Exploration, Inc. and Interwest Associates dated
September 15, 2000.
10.11 42 Advisory Agreement dated September 21, 2000 between Power
Exploration, Inc. and Howard A. Pence.
10.12 47 Agreement between Power Exploration, Inc. and Genesis
Capital Corp. dated February 9, 2000, for the acquisition of
Lincoln Health Fund, Inc.
10.13 58 Advisory Agreement entered into between Power Exploration,
Inc. and Ronald Welborn Dated December 8, 1999.
10.14 64 Advisory Agreement entered into between Power Exploration,
Inc. and Allen Z. Wolfson Dated December 8, 1999.
10.15 71 Merger and Acquisition Agreement dated March 20, 2000 (Pepin
Oil Company, Inc. Acquisition).
21.1 * Subsidiaries of the Issuer
23 87 Consent of Auditor
30
<PAGE>
27 88 Financial Data Schedule "CE"
99.1 * Oil Lease Information Per Industry Guide for Corsicana Field
Near Dallas Texas
99.2 * Oil Lease Information Per Industry Guide for Polk County
Texas Leases
* Previously filed and incorporated herein by reference from the Form 10-KSB
filed January 14, 2000 by the Company.
** Previously filed and incorporated herein by reference from the Form 10-QSB
filed February 22, 2000 by the Company.
31
