<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                          -----------------------------
                                   FORM 10-QSB
                          -----------------------------

                   Quarterly Report Under Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934


For Quarter Ended June 30, 2001
Commission File Number 001-15071


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

                             PowerSource Corporation

                 (Name of Small Business Issuer in its charter)

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


         Nevada                                          61-1180504
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)


3660 Wilshire Blvd, Suite 1104
Los Angeles, CA 90010
(Address of principal executive office)

                                 (213) 383-4443
                         (Registrant's Telephone Number)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or of 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 ( )     No ( * )

The number of shares outstanding of each of the issuer's classes of common
stock, as of 6/30/01

6,817,008 shares of common stock, $.001 par value




================================================================================
<PAGE>

                             PowerSource Corporation

                    INDEX TO QUARTERLY REPORT ON FORM 10-QSB
                           QUARTER ENDED JUNE 30, 2001


                              ITEMS IN FORM 10-QSB


Facing Page


PART I   FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements.

         Condensed consolidated balance sheets.
         June 30, 2001 (unaudited) and December 31, 2000

         Condensed consolidated statements of operations.
         for the three months ended June 30, 2001 and 2000 (unaudited)

         Condensed consolidated statements of cash flows.
         for the three months ended June 30, 2001 and 2000 (unaudited)

         Condensed consolidated statements of changes in stockholders' (deficit)
         for the three months ended June 30, 2001 (unaudited)

         Notes to condensed consolidated financial statements.

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations


PART II  OTHER INFORMATION

Item 1.  Legal Proceedings.

Item 2.  Changes in Securities and Use of Proceeds.

Item 3.  Defaults Upon Senior Securities.

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

Item 5.  Other Information.

Item 6.  Exhibits and Reports on Form 8-K.


================================================================================
<PAGE>

PART I.           FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS
<TABLE>

                             POWERSOURCE CORPORATION

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                       June 30, 2001 and December 31, 2000

<CAPTION>
                              ASSETS
                                                                  06/30/01      12/31/00
                                                                (unaudited)
                                                                ------------   ------------
<S>                                                             <C>            <C>
Current assets
      Cash                                                      $   434,944    $   143,651
      Accounts receivable, net                                       54,960        348,028
      Prepaid expenses                                               45,456         12,411
                                                                ------------   ------------
                Total current assets                                535,360        504,090
                                                                ------------   ------------

Property and equipment, net                                         170,664         41,792
                                                                ------------   ------------

Other assets
      Notes receivable - officers                                    30,000         30,000
      Interest receivable - officers                                  1,750              -
      Investment in EHG technology, LLC                              25,000         25,000
      Investment in oil and gas properties                           13,375         13,375
      Deposits                                                        3,013          1,774
                                                                ------------   ------------
                Total other assets                                   73,138         70,149
                                                                ------------   ------------

                Total assets                                    $   779,162    $   616,031
                                                                ============   ============

                     LIABILITIES AND STOCKHOLDERS' (DEFICIT)

 Current liabilities
      Accounts payable and accrued expenses                     $   474,218    $   804,616
      Accrued wages                                                 801,508         97,453
      Income taxes payable                                              800            800
      Interest payable                                               41,247         24,411
      Notes payable - in default at 06/30/01                        210,000        210,000
      Loan payable - automobiles                                     15,942              -
      Notes payable - computer equipment                             17,238         15,788
                                                                ------------   ------------
                Total current liabilities                         1,560,953      1,153,068
                                                                ------------   ------------

 Long-term liabilities
      Notes payable - computer equipment                             13,295         22,292
      Loan payable - automobiles                                     32,890              -
      Senior notes payable                                           47,000              -
      Deferred revenue                                              342,860        510,860
      Long term wages and salaries payable                                -        704,055
                                                                ------------   ------------
                Total long-term liabilities                         436,045      1,237,207
                                                                ------------   ------------

Stockholders' (deficit)
      Common stock, par value $.001, 40,000,000 authorized,
       6,817,008 and 6,147,008 shares issued and outstanding          6,817          6,147
      Paid-in capital in excess of par value                      1,058,570        925,240
      Preferred stock, par value $100, 10,000,000 authorized,
       5,350 shares issued and outstanding                           13,375         13,375
      Accumulated deficit                                        (2,296,598)    (2,719,006)
                                                                ------------   ------------
                Total stockholders' (deficit)                    (1,217,836)    (1,774,244)
                                                                ------------   ------------

                Total liabilities and stockholders' (deficit)   $   779,162    $   616,031
                                                                ============   ============

</TABLE>


See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>

                             POWERSOURCE CORPORATION

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
           Three and Six Months Ended June 30, 2001 and June 30, 2000
                                   (Unaudited)
<CAPTION>

                                               3 Months Ended 6 Months Ended 3 Months Ended 6 Months Ended
                                                  06/30/01       06/30/01      06/30/00        06/30/00
                                                ------------   ------------   ------------   ------------
<S>                                             <C>            <C>            <C>            <C>
Revenue
  Electricity sales                             $   377,632    $ 2,165,625    $    75,285    $   111,847
  Cost of sales                                     166,630        950,747         48,249         70,713
                                                ------------   ------------   ------------   ------------
      Gross margin on electricity sales             211,002      1,214,878         27,036         41,134
                                                ------------   ------------   ------------   ------------

  Sales of marketing territory                      210,000        210,000              -              -
                                                ------------   ------------   ------------   ------------
                                                    421,002      1,424,878         27,036         41,134
                                                ------------   ------------   ------------   ------------

Expenses
  Selling expenses                                   11,895         29,827         45,290         50,818
  General and administrative expenses               398,122        959,351        341,393        574,005
                                                ------------   ------------   ------------   ------------
      Total expenses                                410,017        989,178        386,683        624,823
                                                ------------   ------------   ------------   ------------

Income (loss) from operations                        10,985        435,700       (359,647)      (583,689)
                                                ------------   ------------   ------------   ------------

Other expense (income)
  Interest revenue                                   (5,203)        (7,312)             -              -
  Interest expense                                   11,241         20,605          9,020         11,171
                                                ------------   ------------   ------------   ------------
      Total other expense (income)                    6,038         13,293          9,020         11,171
                                                ------------   ------------   ------------   ------------

Income loss before provision for income taxes         4,947        422,407       (368,667)      (594,860)
                                                ------------   ------------   ------------   ------------

Net income (loss)                               $     4,947    $   422,407    $  (368,667)   $  (594,860)
                                                ============   ============   ============   ============

Net income (loss) per common share              $      0.00    $      0.06    $     (0.06)   $     (0.10)
                                                ============   ============   ============   ============

Weighted average
Shares outstanding                                6,811,074      6,646,064      6,145,424      6,006,825
                                                ============   ============   ============   ============



</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>
<TABLE>

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
           Three and Six Months Ended June 30, 2001 and June 30, 2000
                                   (Unaudited)

<CAPTION>

                                                                      6 Months Ended
                                                                  06/30/01     06/30/00
                                                                 ----------   ----------
<S>                                                              <C>          <C>
Cash flows from operating activities
  Net loss                                                       $ 422,407    $(594,860)
  Adjustments to reconcile net income (loss) to net cash
    provided (used) by operating activities
       Depreciation                                                 12,847        7,073
       Shares  issued for payment of consulting services           134,000
       Changes in operating assets and liabilities
           Accounts receivable                                     293,068       (8,623)
           Note receivable                                               -      (30,000)
           Interest receivable                                      (1,750)
           Prepaid expenses                                        (33,045)     (30,937)
           Deposits                                                 (1,239)           -
           Accounts payable and accrued expenses                  (330,398)     227,049
           Accrued wages                                                 -         (625)
           Interest payable                                         16,836        8,532
           Deferred revenue                                       (168,000)     182,725
                                                                 ----------   ----------
              Net cash provided (used) by operating activities     344,726     (239,666)
                                                                 ----------   ----------

Cash flows from investing activities
  Acquisition of assets                                           (141,719)           -
                                                                 ----------   ----------
              Net cash used by investing activities               (141,719)           -
                                                                 ----------   ----------

Cash flows from financing activities
      Loan payable (computer lease)                                 (7,547)      (9,925)
      Loan payable (automobiles)                                    48,832            -
      Notes payable, net                                            47,000      210,000
      Common stock issued                                                -       53,506
                                                                 ----------   ----------
              Net cash provided by financing activities             88,285      253,581
                                                                 ----------   ----------

Net increase (decrease) in cash                                  $ 291,292    $  13,915
                                                                 ----------   ----------

Cash - beginning of period                                         143,652        1,408
                                                                 ----------   ----------

Cash - end of period                                             $ 434,944    $  15,323
                                                                 ==========   ==========

</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>
<TABLE>

                             POWERSOURCE CORPORATION

     CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                         Six Months Ended June 30, 2001
                                   (Unaudited)

<CAPTION>

                                                 Common Stock
                               Preferred   -----------------------  Paid-in Capital in    Accumulated
                                 Stock        Shares       Amount   Excess of Par Value     Deficit           Total
                               ----------  ------------  ---------  -------------------  -------------  -------------
<S>                            <C>           <C>         <C>            <C>              <C>            <C>
Balance January 1, 2001        $  13,375     6,147,008   $  6,147       $   925,240      $ (2,719,006)  $ (1,774,244)

Shares issued for consulting
  services                                     650,000        650           129,350                          130,000

Net Income                                                                                    417,460        417,460
                               ----------  ------------  ---------  -------------------  -------------  -------------
Balance March 31, 2001            13,375     6,797,008      6,797         1,054,590        (2,301,546)    (1,226,784)

Shares issued for consulting
  services                                      20,000         20             3,980                            4,000

Net Income                                                                                      4,947          4,947
                               ----------  ------------  ---------  -------------------  -------------  -------------
Balance June 30, 2001          $  13,375     6,817,008   $  6,817       $ 1,058,570      $ (2,296,598)  $ (1,217,836)
                               ==========  ============  =========  ===================  =============  =============


</TABLE>



See accompanying notes to condensed financial statements.
<PAGE>

                             POWERSOURCE CORPORATION
                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                         JUNE 30, 2000 AND JUNE 30, 1999
                                   (UNAUDITED)


Note 1 - Basis of presentation
------------------------------

The consolidated financial statements included herein have been prepared by
PowerSource Corporation (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations; however, the Company believes
that the disclosures are adequate to make the information presented not
misleading.

In the opinion of management, all adjustments necessary to present fairly the
financial position of the Company as of June 30, 2001 and December 31, 2000, and
the results of operations and cash flows for the period ended June 30, 2001 and
June 30, 2000 have been included and are of a normal recurring nature.

Note 2 - Property and equipment
-------------------------------

Property and equipment consist of the following:

                                                   6/30/01        12/31/00
                                                  ----------     ----------

         Stabilux Equipment                       $  30,906      $       -
         Automobiles                                 97,360
         Furniture and fixtures                       1,906          1,906
         Office Equipment                            84,776         71,323
                                                  ----------     ----------
                                                    214,948         73,229
         Less: Accumulated depreciation             (44,284)       (31,437)
                                                  ----------     ----------

                                                  $ 170,664      $  41,792
                                                  ==========     ==========

Note 3 - Loan payable
---------------------

As of June 30, 2001, the Company had a loan that was due August, 2000, from
Earth Co in the amount of $210,000 at a simple interest rate of 15%. The Company
is currently in default, but the note is convertible into common stock. In
addition, the Company had loans on two automobiles payable over 36 months
commencing May, 2001, at an interest rate of 8.2% each. The payments are $836.45
and 780.61, respectively and the respective principal balances as of June 30,
2001, were $25,258 and 23,574.

<PAGE>

Note 4 - Notes payable
----------------------

Notes payable consist of:

                                                    6/30/01       12/31/00
                                                  ----------     ----------

         Capital lease obligation
         due in 48 monthly installments
         of $1,774 per month including
         principal and interest at 13.7%

         Total                                    $  30,533      $  38,080
         Less amount current portion                 17,238         15,788
                                                  ----------     ----------
                                                  $  13,295      $  22,292
                                                  ----------     ----------

         Senior Convertible Note                  $  20,000      $       -
         to Herbert Dornbush
         due February 28, 2003
         interest at 10%

         Senior Convertible Note                  $  20,000      $       -
         to Daniel S. Allen
         due April 5, 2003
         interest at 10%

         Senior Convertible Note                  $   2,000      $       -
         to Gordon Livingston
         due May 14, 2003
         interest at 10%

         Senior Convertible Note                  $   5,000      $       -
         to Matossian Family
         due June 6, 2003
         interest at 10%
                                                  ----------     ----------
            Senior Convertible Note Total         $  47,000      $       -
                                                  ==========     ==========

<PAGE>


Note 5 - Litigation
-------------------

The Company has no current, threatened or pending litigation.

Note 6 - Deferred Revenues
--------------------------

Revenue from sales of marketing territories is deferred until such time as the
specified purchase price is received and any options to exchange interests in
the related limited liability partnerships for equity interests in the Company
have expired or have been waived by the option holder.





================================================================================



                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 Statements in this filing which are not
historical facts may be considered "forward-looking statements" within the
meaning of Section 21E of the Securities Act of 1934, as amended, including
projected sales based on orders, estimated cost savings and savings that may be
generated from restructuring. The words "believe", "expect", "anticipate",
"estimate", and similar expressions identify forward-looking statements. Any
forward-looking statement involves risk and uncertainties that could cause
actual events or results to differ, perhaps materially, from the events
described in the forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements. The Company undertakes no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise. The risks associated
with the Company's forward-looking statements include, but are not limited to,
risks associated with the Company's history of losses and uncertain
profitability, reliance on a large customer, risks associated with competition,
general economic conditions, reliance on key management and production people,
future capital needs, dilution, effects of outstanding notes and convertible
debentures, limited public market, low stock price, and lack of liquidity.



================================================================================
<PAGE>



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

         The following discussion and analysis should be read in conjunction
with the Company's financial statements, related notes, and other information
included in this quarterly report of Form 10-QSB.

RESULTS OF OPERATIONS

         For the three months and six months ended June 30, 2001, revenues
totaled approximately $588,000 and $2.4 million, respectively. This compares to
revenue of approximately $75,000 and $112,000, respectively, for the same
periods in 2000. The increase in revenue was due to the fact that the Company
had just started selling energy in 2000, and the revenue in 2001 stems from a
full year of selling. This revenue, although higher than the prior year, was
significantly lower than the preceding quarter. This was attributable to the
Company turning customers back to the utilities as a result of the unregulated
wholesale prices exceeding the regulated retail prices.

         Expenses for the three months and six months ended June 30, 2001 were
approximately $410,000 and $989,000, respectively, compared with approximately
$387,000 and $625,000 for the same period in 2000. The increase was as a result
of higher salaries and consulting fees incurred in the first quarter as the
Company evolved to an operating company from a start-up.

         Net Income for the three months and six months ended June 30, 2001 was
approximately $5,000 and $422,000, respectively, compared with a loss of
approximately ($369,000) and ($595,000), respectively, for the same period in
2000. This is attributable to the Company's evolution from a start-up to a going
concern. Although higher than last year, the net income is lower than the
preceding quarter due to the Company turning back customers to the utilities as
a result of the disparity between wholesale and retail prices triggered by the
energy crisis in California.

Liquidity and Capital Resources
-------------------------------
         On March 8, 2000, PowerSource obtained a surety bond with Cascade
Surety and Bonding, Inc. in the amount of $1.5 million to satisfy Automated
Power Exchange requirements for purchasing power in California. On June 10, 2000
a bond for $100,000 was obtained from Cascade Surety and Bonding, Inc. to
satisfy the CPUC. These bonds remain in effect at this time.

         Cash balance as of 6/30/01 was approximately $435,000.

Inflation
---------
         The rate of inflation does not have a material impact on the Company's
results of operations and is not expected to have much of an impact in the
future. The primary cost component in energy sold to customers subject to
inflationary pressures, is electrical power. The Company has a contract with its
customers whereby it automatically passes along these costs to the end-use
customers, as the Company incurs them.

Risk Factors
------------
         California was one of the first states to deregulate the electric
industry to create competition in that industry. Management believes that the
Company has a window of opportunity to develop a network dedicated to providing
electricity at competitive rates. There is no assurance, however, that the
Company will be successful in developing a network of electricity suppliers and
purchasers.


<PAGE>

The Company recently commenced its business operations with respect to the
marketing of electricity. There can be no assurance at this time that the
Company will operate profitably or that it will have adequate working capital to
meet its obligations as they become due. The Company believes that its success
will depend in large part on its ability to pool individuals and businesses
together into a common buying group to make larger, more economical purchases of
energy. The Company must implement sophisticated purchasing and billing hardware
systems to conduct its business. There is no assurance that a malfunction of or
failure to properly develop or operate one or more of its computer systems will
not have a material adverse affect on the Company. Because of the Company's
limited resources, it is unlikely that the Company will conduct an exhaustive
investigation and analysis of a power marketing opportunity before the Company
commits its capital or other resources. Management decisions may be made without
detailed feasibility studies, independent analysis, and market surveys which the
Company would likely conduct if the Company had sufficient resources. Management
decisions will be particularly dependent on information provided by the
promoter, owner, sponsor or others associated with a particular power marketing
opportunity seeking the Company's participation.

The Company's business is speculative and dependent upon the acceptance of the
Company's products and the effectiveness of its marketing program. There can be
no assurance that the Company will be successful or that its business will earn
any revenues or profit.

The Company reflects deferred revenue from affiliated distributors from the sale
of geographic territories in California to independent affiliated and
unaffiliated marketing companies in consideration for a single one time payment.
The Company also expects to earn revenues by selling power to the distributors'
customers at a profit. The deferred revenue on the Company's financial
statements represent the one time initial payment of the distributors to the
Company. There is no assurance that the Company will earn significant revenues
or that investors will not lose their entire investment.

Since the passage of recent utility deregulation laws by the California
legislature, the market for electrical power in the State of California is
intensely competitive. The market is also intensely competitive throughout the
United States. The Company's principal competitors include large utility
companies and a myriad of other independent licensed purchasers and sellers of
electrical power. These competitors have longer operating histories, greater
name recognition, larger installed customer bases, and substantially greater
financial, technical, and marketing resources than the Company. The Company
believes that the principal factors affecting competition in its proposed market
include name recognition, the ability to aggregate customers and purchase and
sell power at a profit, the ability to attract and service customers, and the
ability to find low cost, reliable suppliers. Other than licensing requirements
and the time necessary to enter the market, there are no significant proprietary
or other barriers of entry that could keep potential competitors from providing
competing services in the Company's proposed market. There can be no assurance
that the Company will be able to compete successfully in the future, or that
future competition will not have a material adverse effect on the business,
operating results, and financial condition of the Company.

To manage growth effectively, the Company will need to continue to improve its
operational, financial and management information systems and to hire, train,
motivate and manage a growing number of employees. Competition is intense for
qualified technical, marketing and management personnel. There can be no
assurance that the Company will be able to effectively achieve or management any
future growth, and its failure to do so could have a material adverse effect on
the Company's financial condition and results of operations.


<PAGE>

As of the date of this filing, (August, 2001), the State of California has been
in the midst of an energy crisis, with the result being that wholesale prices
increased dramatically. Due to the "regulations" surrounding the de-regulation
of the energy market, a situation was created whereby the retail (consumer)
prices were fixed, but wholesale prices fluctuated with the market. With the
prospects of "guaranteed" losses, the Company exercised its right to move the
customer base back to the respective utilities until such time that the market
stabilizes at a level where the providers of energy can make a profit. We expect
this to occur during the second half of 2001, but the Company will hold off
until there is assurance that this regulatory situation has been rectified.


================================================================================

PART II.          OTHER INFORMATION

Item 1.           LEGAL PROCEEDINGS

There is no pending or threatened litigation against the Company.


Item 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS...........  None

Item 3.           DEFAULTS UPON SENIOR SECURITIES.....................  None

Item 4.           SUBMISSION OF MATTERS
                  TO A VOTE OF SECURITY HOLDERS.......................  None

Item 5.           OTHER INFORMATION...................................  None

Item 6.           EXHIBITS AND REPORTS................................  None



<PAGE>



                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.




POWERSOURCE CORPORATION


/s/ Illya Bond
--------------------------------
Chief Executive Officer



/s/ E. Douglas Mitchell
--------------------------------
President




Dated:  August 15, 2001
Los Angeles, California