**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549




**FORM
      10-K**




**x** **ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE**


**ACT
      OF 1934**




**FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2007**




**o** **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE**


**ACT
      OF 1934**




**FOR
      THE TRANSITION PERIOD FROM ______________
      TO________________**




**Commission
      file number 0-21864**




**TELEGEN
      CORPORATION**


(Exact
      name of registrant as specified in its charter)





**California**
            **84-0672714****(State
                or other jurisdiction of incorporation or
                organization)**
            **(I.R.S.
                Employer Identification
                No.)**




**1840
      GATEWAY DRIVE, SUITE 200, SAN MATEO, CALIFORNIA 94404**


(Address
      of principal executive offices)




(650)
      292-9658


(Registrant’s
      telephone number, including area code)




Securities
      registered pursuant to Section 12(b) of the Exchange Act: NONE.





Securities
      registered pursuant to Section 12(g) of the Exchange Act: COMMON STOCK, NO
      PAR
      VALUE





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x





Indicate
      by c heck
      mark
      if the registrant is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.     Yes o No x




Indicate
      by check mark whether the registrant (1) filed all reports required to be filed
      by Section 13 or 15(d) of the Exchange Act during the preceding 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 o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not 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-K or any amendment to
      this
      Form 10-K. o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company. See
      definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
                  accelerated filer o
              Accelerated
                  filer oNon-accelerated
                  filer o
              Smaller
                  reporting company x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x




The
      aggregate market value of issuer’s voting stock held by non-affiliates on June
      29, 2007, the last business day of the registrant’s most recently completed
      second fiscal quarter, was $19,775,871 based on the average of the bid and
      ask
      prices of such stock on that date of $0.50, as reported on the OTC Bulletin
      Board.




On
      March
      28, 2008 there were 65,496,850 shares of Registrant’s common stock, no par
      value, issued and outstanding.





**Documents
      Incorporated By Reference** :    None










TABLE
      OF
      CONTENTS





Page
                NumberPART
                IItem
                1.
            Our
                Business
            1Item
                1A
            Risk
                Factors
            3Item
                1B
            Unresolved
                Staff Comments
            9Item
                2.
            Properties
            9Item
                3.
            Legal
                Proceedings
            9Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            9PART
                IIItem
                5.
            Market
                for Common Equity, Related Stockholder Matters and Issuer Purchases
                of
                Equity Securities
            10Item
                6.
            Selected
                Financial Data
            12Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            12Item
                7.A
            Quantitative
                and Qualitative Disclosures About Market Risk
            15Item
                8.
            Financial
                Statements and Supplementary Data
            15Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            15Item
                9A(T).
            Controls
                and Procedures
            15Item
                9B.
            Other
                Information
            16PART
                IIIItem
                10.
            Directors,
                Executive Officers and Corporate Governance
            17Item
                11.
            Executive
                Compensation
            19Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            22Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            23Item
                14.
            Principal
                Accountant Fees and Services
            24PART
                IVItem
                15.
            Exhibits
                and Financial Statement Supplements
            25Signatures
            
            27








**EXPLANATORY
      NOTE**





Unless
      otherwise indicated or the context otherwise requires, all references in this
      Annual Report on Form 10-K to “we,” “us,” “our,” and the “Company” are to
      Telegen Corporation, Sendio, s.r.o., our Czech subsidiary, and our four inactive
      subsidiaries Telegen Display Corporation, Telegen Communications Corporation,
      Telegen Display Laboratories, Inc. and Telisar Corporation.




**CAUTIONARY
      NOTE REGARDING FORWARD LOOKING STATEMENTS**




We
      are
      including the following cautionary statement in this Annual Report on Form
      10-K
      to make applicable and take advantage of the safe harbor provisions of the
      Private Securities Litigation Reform Act of 1995 for any forward-looking
      statements. All statements other than statements of historical fact, including
      statements concerning plans, objectives, goals, strategies, future events or
      performance and underlying assumptions, future results of operations or
      financial position, made in this Annual Report on Form 10-K are forward looking.
      In particular, the words “believe,” “expect,” “intend,” “anticipate,”
“estimate,” “may,” “will,” variations of such words, and similar expressions
      identify forward-looking statements, but are not the exclusive means of
      identifying such statements and their absence does not mean that the statement
      is not forward-looking.




The
      forward-looking statements contained herein involve risks and uncertainties
      which could cause actual results or outcomes to differ materially from those
      expressed in the forward-looking statements. Our expectations, beliefs and
      projections are expressed in good faith and are believed by management to have
      a
      reasonable basis, including without limitation, management’s examination of
      historical operating trends, data contained in our records and other data
      available from third parties; however, management’s expectations, beliefs and
      projections may not be achieved or accomplished. In addition to other factors
      and matters discussed elsewhere herein, the following are important factors
      that, in our view, could cause actual results to differ materially from those
      discussed in the forward-looking statements:





·
            our
                lack of working capital and lack of
                revenues;


·
            the
                availability of capital to us, in the amount and time needed, to
                fund our
                development programs and operations, and the terms and dilutive effect
                of
                any such financings;


·
            our
                ability be successful in our product development and testing
                efforts;


·
            our
                ability to obtain commercial development for our planned
                products;


·
            our
                ability to obtain manufacturing for our planned products in a
                cost-effective manner and at the times and in the volumes required,
                while
                maintaining quality assurance;


·
            market
                demand for and acceptance of our planned products, and other factors
                affecting market conditions;


·
            technological
                advances and competitive pressure by our competitors;


·
            governmental
                regulations imposed on us in the United States and European Union;
                and


·
            the
                loss of any of our key employees or
                consultants.





For
      a
      discussion of these and other factors that may affect our business, results
      and
      prospects, see “ITEM 1. OUR BUSINESS” and “ITEM 1A. RISK FACTORS.”
Readers are urged to carefully review and consider the various disclosures
      made
      by us in this Report and in our other reports filed with the Securities and
      Exchange Commission, and those described from time to time in our press releases
      and other communications, which attempt to advise interested parties of the
      risks and factors that may affect our business, prospects and results of
      operations. We do not undertake any obligation to update or revise any
      forward-looking statements to reflect any future events or
      circumstances.







**PART
      I**





**ITEM
      1. OUR BUSINESS**




**Overview**




Telegen
      Corporation is focused on developing, manufacturing and selling a line of
      mercury free, energy efficient light bulbs based on our proprietary
      light-emitting technology. For the past several years, we have primarily focused
      on research and development efforts for our technology. In September, 2007,
      we
      formed Sendio s.r.o. (“Sendio”) in the Czech Republic as a wholly owned
      subsidiary. Sendio was formed to enter into a lease for certain facilities
      for
      the continued development and operation as a pilot plant for manufacturing
      of
      our product line. The commercial viability of our light bulb technology will
      largely depend on research and development results, our ability to manufacture
      our product at commercially feasible levels, market acceptance of the product
      and other factors. During fiscal 2007, we had no commercial products and no
      revenues.





Peterson
      Sullivan, PLLC, our independent registered public accounting firm, in their
      opinion on our financial statements for the year ended December 31, 2007, raised
      substantial doubt about our ability to continue as a going concern. For further
      information, see Note 3 to our Consolidated Financial Statements included in
      this Annual Report on Form 10-K.





We
      are a
      California corporation, originally incorporated on August 30, 1996. Our shares
      of common stock are presently quoted on the OTC Bulletin Board under the symbol
      “TEGN”. We have an accumulated deficit of $48,530,613 as of December 31, 2007.
      Our corporate offices are located at 1840 Gateway Drive, Suite 200, San Mateo,
      California, 94404 and our telephone number is 650-292-9658.





**Products
      Under Development, Our Proprietary Technology and Our Research and Development
      Efforts**





We
      are
      currently performing methods research and manufacturing proof of concept
      prototypes for a light bulb utilizing our proprietary technology. During 2007,
      we obtained manufacturing equipment and facilities and hired employees to begin
      the operation of a pilot plant in the Czech Republic. The planned feature set
      for the light bulb includes energy efficiency to meet or exceed the existing
      standards of compact fluorescent light bulbs. In addition, our light bulb will
      not contain mercury. Other key design features of our planned light bulb are
      that it be fully dimmable, illuminates immediately when switched on and have
      a
      color quality that is warm and similar to incandescent light. We have not yet
      completed the design and manufacture of our product prototype, and we expect
      there will be adjustments to our current designs. However, we may not be able
      to
      successfully develop the full feature set for our planned light bulb or
      commercially manufacture our planned product.





Our
      emphasis on the development of our product prototype and commercial
      manufacturing of our line of light bulbs will command management’s primary
      attention during fiscal 2008. It will also comprise the primary use of our
      limited financial resources. In 2008, our success will depend on our ability
      to
      develop a product prototype for our light bulb technology that meet industry
      standards, obtain commercial manufacturing, generate market awareness and
      acceptance of our planned products, protect our technology through patents
      and
      trade secrets, and obtain funding to finance our operations. If we are unable,
      for technological, financial, competitive, or other reasons, to successfully
      meet these factors, our business and operations will be materially adversely
      affected.





**The
      Lighting Industry**





We
      believe the primary market for our planned light bulb is the commercial and
      residential General Illumination Market, where incandescent, halogen,
      fluorescent and LED light emitters are utilized. According to Strategies
      Unlimited of Mountain View California, the General Illumination Market was
      an estimated $12 to $15 billion market segment in 2005. This market segment
      is
      highly competitive and traditionally dominated by several large competitors
      such
      as General Electric Company, Phillips Electronics NV, Osram Sylvania, the North
      American operation of OSRAM GmbH, Germany, Siemens AG and Ushio Inc. These
      entities possess far more substantial financial, human and other resources
      than
      we do. In the past decade, other smaller rapidly growing companies have entered
      this market due to the outsourcing of manufacturing on a non-exclusive basis
      by
      these large corporations and other market factors. Distribution in this market
      segment is primarily through distributors (typically regional) or directly
      from
      manufacturers to larger retailers.





1




Significant
      lighting market drivers are size, shape, cost, brightness, color rendering,
      mercury free, dimming capability and energy efficiency. We are directing our
      product development efforts with awareness of these features.





Telegen
      intends to initially enter the energy efficient General Illumination Market
      in
      United States and the countries of the European Union.





**Our
      Intellectual Property, Patents and Proprietary Rights**





We
      are
      developing the necessary documentation, and we have applied for patent
      protection on our proprietary light-emitting technology. We have filed a total
      of 4 U.S. patent applications and international patent filings, and we expect
      to
      apply for additional patent protection both domestically and internationally
      in
      the future. We believe that our technology has unique aspects that are
      patentable; however, there can be no assurances that any patent will be issued
      or if issued that it will be defensible.





In
      addition, we currently have one issued U.S. patent on our prior technology
      in
      flat panel displays and embedding of digital data in an RF signal. In the first
      quarter of 2005, we suspended all further development efforts relating to this
      prior technology. Although currently we have no plans, in the future we may
      review this patent for potentially viable markets and commercial
      applications.





We
      protect our intellectual property rights through a combination of trademark,
      copyright, trade secret laws and other methods of restricting disclosure, and
      requiring our independent consultants, strategic vendors and suppliers to sign
      non-disclosure agreements as well as an assignment of inventions agreement
      when
      appropriate.





**Regulatory
      Issues**





Any
      commercial light bulb products that we develop may require certifications from
      Underwriters Laboratories for sale in the U.S. or Canada, or obtaining CE
      Marking for sale in the European Union. In addition, we may be subject to other
      certifying agencies and other regulatory approvals. The approvals and
      certifications required will be determined based upon the market that we enter.
      We are designing our light bulb to meet the standards for certification from
      Underwriters Laboratories, and we intend to submit an application to
      Underwriters Laboratories once our product prototype has been developed. We
      cannot predict whether we will obtain certification from Underwriters
      Laboratories or any other regulatory agency.





**Competition**





This
      market segment is highly competitive and traditionally dominated by several
      large international competitors such as General Electric Company, Phillips
      Electronics NV, Osram Sylvania, the North American operation of OSRAM GmbH,
      Germany, Siemens AG and Ushio Inc. These entities possess far more substantial
      financial, human and other resources than we do. The Company is aware of the
      existence of foreign competition which exports their products into our
      anticipated markets. We intend to compete based on the feature set of our light
      bulb technology.





**Suppliers**





Currently
      we are able to obtain the supplies used in our development process from a number
      of vendors. We believe that we will be able to readily find sources for the
      glass and other materials for our planned light bulb product.





2




**Research
      and Development**





We
      have
      spent an aggregate of approximately $2 million during fiscal 2007 and 2006
      in
      our methods research and developing manufacturing proof of concept capabilities.
      See “Products Under Development, Our Proprietary Technology and Our Research and
      Development Efforts” above.





**Environmental
      Compliance**





We
      will
      be subject to certain environmental requirements and laws in the Czech Republic
      that are presently being identified. We may be subject to additional
      environmental requirements in the future.





**Marketing
      and Sales**





During
      2007 we initiated certain marketing initiatives to determine our preliminary
      marketing strategy and research and to begin branding and corporate positioning
      issues. Our marketing efforts have included market research to determine market
      size, competition, product features, consumer attitudes, pricing,
      certifications, government agencies, grants, target channels and retailers,
      branding and creation of initial marketing collateral. We have also had
      strategic meetings with certain retailers, potential channel and distribution
      partners to determine levels of interest in our light bulb and the underlying
      technology. We believe that the results of these meetings were positive but
      no
      agreements have been entered into. Based on the information we have obtained
      we
      believe that the technology could prove to have a viable market, but can give
      no
      assurances that any such market will develop.





In
      the
      state of California, certain utilities are required by law to invest 0.15%
      of
      their gross revenue to introduce energy saving devices to the market. They
      do so
      by providing incentives to all market channel levels. One form of incentives
      is
      by providing cash rebates to manufacturers, stores and consumer. We intend
      to
      pursue incentives that we identify and qualify for, but there can be no
      assurances that these incentives will be obtained. As part of our market and
      sales due diligence, in November 2006, we attended the California Lighting
      Technology Forum attended by all major California utilities and the director
      of
      the California Energy Commission, and in 2005 and 2006 we attended LightFair,
      the largest lighting related trade show in the U.S.





We
      believe that initial sales would most likely occur though independent regional
      distributors and direct purchases by utility companies and retailers. However,
      we currently do not have any distribution relationships, and these may never
      develop.





**Employees**





As
      of
      December 31, 2007 we had 50 full time employees in the Czech Republic through
      our subsidiary Sendio. In addition, we have no employees in the United States.
      Our executive officers, Richard Herring, Richard Sellers and Matthew DeVries
      are
      consultants.





We
      routinely use consultants in our U.S. operations and strategic vendors on a
      work
      for hire contract basis.





**ITEM
      1A. RISK FACTORS**





In
      addition to the other information in this Report on Form 10-K, the following
      risk factors should be considered carefully in evaluating our business and
      an
      investment in our stock.





**Risk
      Factors Relating to Our Company and Our Business**





**We
      are a research and development company. We have a limited operating history,
      we
      have generated no revenues since 1998, and it is difficult to evaluate our
      business and prospects.**





3




We
      have
      been engaged in the research and development of our new line of energy
      efficient, mercury free light bulbs since May 2004, and have incurred
      significant operating losses in every fiscal year since our inception in 1996.
      We have not completed the design and manufacture of our product prototype and
      have not commenced commercial manufacturing. We have not generated any revenues
      since 1998 and we depend on third-party financing to fund operations. We have
      no
      operating history upon which an investor can evaluate our business and
      prospects, and we may never be successful or achieve profitability.





**Our
      business may fail if we are unable to obtain financing for our working capital
      needs.**





Our
      cash
      and cash equivalents of $1,014,512 as of December 31, 2007 are not sufficient
      to
      support our operations through fiscal 2008 and it will be necessary for us
      to
      seek additional financing. During 2008, we expect to continue to incur operating
      losses as we continue research and development expenditures on our light bulb
      technology, pursue product development, patent protection and enforcement,
      marketing and sales, and establishment and expansion of manufacturing and
      distribution capabilities. Our ability to implement our business plan for 2008
      and our future operating success will be significantly impaired or delayed
      if we
      are unable to secure financing in the amounts and at the times needed to fund
      our working capital. We may seek to obtain funds through equity or debt
      financings, as well as through strategic financial partners. If we raise funds
      through the issuance of equity, equity-related or debt securities, these
      securities may have rights, preferences or privileges senior to those of the
      rights of the common stock. The sale of additional equity or convertible debt
      securities could result in additional dilution to our stockholders. In addition,
      the issuance of debt securities could increase our risk or perceived risk.
      Such
      additional financing may not be available to us on acceptable terms, if at
      all.
      If we are unable to obtain sufficient cash to continue to fund operations or
      if
      we are unable to locate a strategic partner, we may be forced to seek protection
      from creditors under the bankruptcy laws or cease operations. Our auditors
      added
      an explanatory paragraph to their opinion on our fiscal 2007 financial
      statements stating that there was substantial doubt about our ability to
      continue as a going concern.





**We
      have a number of technology issues to resolve before we will be able to
      manufacture a commercially viable product.**





Although
      we have completed initial engineering of our light bulb, further development
      work and field testing will be necessary before the technology can be deployed.
      If we are unable to solve current and future technology issues, we will not
      be
      able to manufacture a commercially viable product. In addition, if we encounter
      unanticipated difficulty in solving technology issues, our research and
      development costs could substantially exceed budgeted amounts, and it may take
      longer to produce a commercially viable product.





Our
      future operating results may depend upon our ability to manufacture our products
      at a competitive cost. To do so, we may have to develop manufacturing processes
      and the manufacturing capability that will allow us to produce high volumes
      of
      products at commercially viable yields. Because we have no experience with
      manufacturing our products, we may not be able to establish manufacturing
      capacity at a reasonable cost, maintain the quality of our products as
      production increases, or develop the administrative and operational
      infrastructure necessary to support expanded operations. If we fail to achieve
      volume production of its products with competitive yields at acceptable costs,
      our business, financial condition, and results of operations may be materially
      and adversely affected.





**We
      must successfully develop, introduce, manufacture, market, and sell products
      and
      manage our operating expenses.**





To
      be a
      viable business, we must successfully develop commercial applications for our
      technology, introduce, manufacture market, and sell products and manage our
      operating expenses. Our products are in development and are subject to the
      risks
      inherent in the development of technology products, including unforeseen delays,
      expenses, patent challenges and complications frequently encountered in the
      development and commercialization of technology products, the dependence on
      and
      attempts to apply new and rapidly changing technology, and the competitive
      environment of the industry. Many of these events are beyond our control, such
      as unanticipated development requirements, delays in submitting documentation
      for and being granted patents and manufacturing problems. Our success also
      depends on our ability to maintain high levels of employee utilization, manage
      our production costs, sales and marketing costs and general and administrative
      expenses, and otherwise execute on our business plan. We may not be able to
      effectively and efficiently manage our development and growth. Any inability
      to
      do so could increase our expenses and negatively impact our results of
      operations.





4




**We
      have incurred historical losses and as a result, may not be able to generate
      profits, support our operations, or establish a return on invested
      capital.**





We
      incurred losses in fiscal 2007 of $3,108,380 and have an accumulated deficit
      of
      $48,530,613 as of December 31, 2007. In addition, we expect to increase
      infrastructure and operating expenses to fund our anticipated growth. We cannot
      predict when or whether we will ever generate a profit or otherwise establish
      a
      return on invested capital. Our business strategies may not be successful and
      we
      may never generate significant revenues or profitability, in any future fiscal
      period or at all.





**Our
      future operating results are difficult to predict.**





Due
      to
      our limited operating history and the significant development and manufacturing
      objectives that it must achieve to be successful, our quarterly operating
      results will be difficult to predict and may vary significantly from quarter
      to
      quarter. In addition, the amount and duration of losses will be extended if
      we
      are unable to develop and manufacture our products in a timely manner. Factors
      that could inhibit our product and manufacturing development and future
      operating results include:





·
            failure
                to solve existing or future technology-related issues in a timely
                manner;


·
            failure
                to obtain sufficient financing when
                needed;


·
            failure
                to secure key manufacturing or other strategic partnerships;
                and


·
            competitive
                factors, including the introduction of new products, product enhancements
                and the introduction of new or improved technologies by our competitors,
                the entry of new competitors into the lighting markets and pricing
                pressures.





**We
      may fail to continue as a going concern, in which event you may lose your entire
      investment in our shares.**





Our
      audited financial statements have been prepared on the assumption that we will
      continue as a going concern. Our independent registered public accounting firm
      has stated in their report on our 2007 financial statements that our recurring
      losses from operations and our difficulties in generating cash flow to meet
      our obligations and sustain our current level of operations raise substantial
      doubt about our ability to continue as a going concern.





**We
      rely heavily on a few consultants and employees, the loss of which could have
      a
      material**  **adverse
      effect on our business, operating results and financial
      condition.**





Our
      future success will depend in significant part upon the continued services
      of
      our officers and directors and certain key consultants, and our ability to
      attract, assimilate and retain highly qualified technical, managerial and sales
      and marketing personnel when needed. Competition for quality personnel is
      intense, and there can be no assurance that we can retain our existing key
      personnel or that we will be able to attract, assimilate and retain such
      employees in the future when needed. The loss of key personnel or the inability
      to hire, assimilate or retain qualified personnel in the future could have
      a
      material adverse effect upon our business.





**We
      face currency risks associated with fluctuating foreign currency
      valuations.**





With
      our
      operations in the Czech Republic through Sendio, Sendio’s accounts, which
      currently primarily consist of lease payments, compensation, and other R&D
      and administration expenses, are denominated in the Czech Koruna (CZK) and
      the
      EUR. An increase in the value of the CZK and EUR in relation to the U.S. dollar
      would have an adverse effect on our operating expenses. In addition, we may
      engage in business in other counties, including in the European Union, and
      our
      operating results will be subject to fluctuations in the value of those
      currencies against the U.S. dollar. In addition, the financial statements for
      our Czech subsidiary are denominated in the CZK; accordingly, on a consolidated
      financial statement reporting basis, these numbers are translated into U.S.
      dollars and are affected by currency conversion rates. As of December 31,
      2007, we have not entered into foreign currency contracts or other derivatives
      to mitigate the potential impact of foreign currency fluctuations.





5




**Risk
      Factors Related to Our Industry**





**We
      may be materially disadvantaged if we fail to keep pace with technological
      changes.**





The
      lighting industry is characterized by rapid technological change and evolving
      industry standards and is highly competitive with respect to timely product
      innovation. The introduction of products embodying new technology and the
      emergence of new industry standards can render existing products and
      technologies obsolete and unmarketable. Our success will depend in part on
      our
      ability to successfully develop commercial applications for our technology,
      anticipate and respond to technology developments and changes in industry
      standards, and obtain market acceptance on any products we introduce. We may
      not
      be successful in the development of our technology, and we encounter technical
      or other serious difficulties in our development or commercialization that
      would
      materially adversely affect our results of operations.





**We
      face intense competition.**





The
      lighting industry is very competitive and we expect this competition to continue
      to increase. The General Illumination Market segment within the lighting
      industry is dominated by a number of well-funded multi-national companies,
      such
      as General Electric Company, Phillips Electronics NV, Osram Sylvania, the North
      American operation of OSRAM GmbH, Germany, Siemens AG and Ushio Inc., have
      established products and are developing new products that compete with the
      products we are developing. We may not be able to compete effectively against
      these or other competitors, most of whom have substantially greater financial
      resources and operating experience than us. Many of our current and future
      competitors may have advantages over us, including:





·
            well
                established products that dominate the
                market;


·
            longer
                operating histories;


·
            established
                customer bases;


·
            substantially
                greater financial resources;


·
            well
                established and significantly greater technical, research and development,
                manufacturing, sales and marketing resources, capabilities, and
                experience; and


·
            greater
                name recognition.





Our
      current and potential competitors have established, and may continue to
      establish in the future, cooperative relationships among themselves or with
      third-parties that would increase their market dominance and negatively impact
      our ability to compete with them. In addition, competitors may be able to adapt
      more quickly than we can to new or emerging technologies and changes in customer
      needs, or to devote more resources to promoting and selling their products.
      If
      we fail to adapt to market demands and to compete successfully with existing
      and
      new competitors, our results of operations could be materially adversely
      affected.




The
      market for lighting technology is changing rapidly and there can be no assurance
      that we will be able to compete, especially in light of our limited resources.
      There can be no assurance that any products that we develop and technologies
      can
      compete successfully on a cost, quality or market acceptance basis with these
      other products and technologies.





**We
      depend on our intellectual property. If we are unable to protect our
      intellectual property, we may be unable to compete and our business may
      fail.**





Our
      success and ability to develop our technology and create new products and
      eventually compete depends to a significant degree on our ability to protect
      our
      proprietary technology, particularly any patentable material. We rely on a
      combination of patents, trade secret and other intellectual property law,
      nondisclosure agreements and other protective measures to preserve our rights
      pertaining to our technology. We have several patent applications pending;
      however, we cannot predict when or whether these patents will be granted.
      However, any intellectual property protection we seek may not preclude
      competitors from developing products similar to ours. In addition, the laws
      of
      certain foreign countries do not protect our intellectual property rights to
      the
      same extent as do the laws of the United States.





6




We
      do not
      have sufficient available resources to defend a lawsuit challenging our
      intellectual property rights or to prosecute others who may be infringing our
      rights. We compete in industries where competitors pursue patent prosecution
      worldwide and patent litigation is customary. At any given time, there may
      be
      one or more patent applications filed or patents that are the subject of
      litigation, which, if granted or upheld, could impair our ability to conduct
      our
      business without first obtaining licenses or granting cross-licenses, which
      may
      not be available on commercially reasonable terms, if at all. We do not perform
      worldwide patent searches as a matter of custom and, at any given time, there
      could be patent applications pending or patents issued that may have a material
      adverse effect on our business, financial condition, and results of operations.





Other
      parties may assert intellectual property infringement claims against us, and
      our
      products may infringe upon the intellectual property rights of third parties.
      Intellectual property litigation is expensive and time consuming and could
      divert management’s attention from our business and could result in the loss of
      significant rights. If there is a successful claim of infringement, we may
      be
      required to develop non-infringing technology or enter into royalty or license
      agreements which may not be available on acceptable terms, if at all. In
      addition, we could be required to cease selling any of our products that
      infringe upon the intellectual property rights of others. Successful claims
      of
      intellectual property infringement against us may have a material adverse effect
      on our business, financial condition, and results of operations. Even successful
      defense and prosecution of patent suits is costly and time
      consuming.





We
      rely
      in part on unpatented proprietary technology, and others may independently
      develop the same or similar technology or otherwise obtain access to our
      unpatented technology. To protect our trade secrets and other proprietary
      information, we require employees, consultants, advisors and strategic partners
      to enter into confidentiality agreements. These agreements may not provide
      meaningful protection for our trade secrets, know-how or other proprietary
      information in the event of any unauthorized use, misappropriation or disclosure
      of those trade secrets, know-how or other proprietary information. In
      particular, we may not be able to protect our proprietary information as we
      conduct discussions with potential strategic partners. If we are unable to
      protect the proprietary nature of our technologies, it may have a material
      adverse effect on our business, financial condition, and results of
      operations.





**Any
      commercial products we develop will be subject to extensive regulation, which
      will be costly.**





If
      our
      research and development efforts are successful, any commercial products that
      we
      develop will be subject to extensive regulation, both in the U.S. and
      internationally. Compliance with these laws and regulations will be costly
      and
      will incur significant management time. Failure to comply with applicable laws
      and regulations could have a material adverse effect on our
      business.





**Our
      ability to manufacture products will depend on the continuous supply and
      availability of raw materials.**





The
      principal raw materials that we expect to use in manufacturing our light bulbs
      include glass, electronic components and other required materials. Our business
      will be adversely affected by any impairment in the supply of these raw
      materials or by price increases. Also, because we are developing a new product,
      it is difficult to estimate market acceptance and demand for our products.
      If we
      materially underestimate demand for our products or are unable to secure
      sufficient raw materials, we might not be able to satisfy demand on a short-term
      basis. We do not have supply agreements in place for raw materials, and we
      will
      be subject to risk of fluctuations in supply and price.




7




**Risks
      Relating to our Common Stock**





**We
      do not intend to pay dividends** , **so any return on investment must come from appreciation**





We
      have
      never declared or paid any cash dividends on our capital stock and do not intend
      to pay dividends in the foreseeable future. We intend to invest all future
      earnings, if any, to fund our growth. Therefore, any investment return in our
      common stock must come from increases in the fair market value and trading
      price
      of our common stock.





**Our
      common stock is thinly traded.**





The
      trading volume of our common stock is thin. Therefore, there may not be a large
      number of potential purchasers ready to buy shares whenever a shareholder
      desires to sell. The public stock markets generally, and our shares
      specifically, are volatile and unpredictable. There can be no assurance that
      a
      shareholder will be able to dispose of his or her shares at the time he or
      she
      desires to do so or at the desired selling price. ****





**We
      have the right to issue up to 10,000,000 shares of “blank check” preferred
      stock, which may adversely affect the voting power of the holders of other
      of
      our securities and may deter hostile takeovers or delay changes in management
      control.**





Our
      Articles of Incorporation allow us to issue up to 10,000,000 shares of preferred
      stock without further stockholder approval and upon such terms and conditions,
      and having such rights, preferences, privileges, and restrictions as the board
      of directors may determine. The rights of the holders of common stock will
      be
      subject to, and may be adversely affected by, the rights of holders of any
      preferred stock that may be issued in the future. In addition, the issuance
      of
      preferred stock could have the effect of making it more difficult for a third
      party to acquire control of, or of discouraging bids for control of our company.
      This could limit the price that certain investors might be willing to pay in
      the
      future for shares of common stock. We have no current plans to issue any shares
      of preferred stock.





**Our
      common stock is considered a “penny stock.”**





Our
      common stock is subject to certain rules and regulations relating to “penny
      stock.” A “penny stock” is generally defined as any equity security that has a
      price less than $5.00 per share and that is not quoted on the NASDAQ Stock
      Market or a national securities exchange. Being a penny stock generally means
      that any broker who wants to trade in our shares (other than with established
      clients and certain institutional investors) must comply with certain “sales
      practice requirements,” including delivery to the prospective purchaser of the
      penny stock a risk disclosure document describing the penny stock market and
      the
      risks associated therewith. These penny stock rules make it more difficult
      for
      broker-dealers to recommend our common stock, and as a result, our stock holders
      may have difficulty in selling their shares in the secondary trading market.
      This lack of liquidity may also make it more difficult for us to raise capital
      in the future through the sale of equity securities.





**We
      may be subject to sanctions from the SEC or NASD due to our failure to timely
      file periodic reports with the SEC.**





From
      2003
      through December 2006, we were not in compliance with our reporting obligations
      under the Securities Exchange Act of 1934. In particular, we have failed to
      file
      any required annual, quarterly and other periodic reports since January 2003.
      We
      may be subject to sanctions from the SEC or from the NASD as a result of our
      deficient filings. Any such action may have an adverse effect on us or on the
      trading of our common stock. In December 2006, we filed with the SEC our annual
      report on Form 10-K for the year ended December 31, 2005 and our quarterly
      reports on Form 10-QSB for each of the quarterly periods during fiscal 2006.
      We
      believe that we are current with our quarterly and annual filings through the
      date of this report on Form 10-K.




8




**ITEM
      1B. UNRESOLVED STAFF COMMENTS**





Not
      Applicable.





**ITEM
      2. PROPERTIES**





We
      own no
      real property. Our corporate headquarters are leased on a month-to-month
      basis.





On
      October 31, 2007, Sendio, our wholly-owned subsidiary, entered into a
      non-residential premises lease agreement with Multidisplay, s.r.o., a company
      formed under the laws of the Czech Republic (“Multidisplay”) for certain
      facilities located in the Czech Republic. We are presently using the facilities
      to develop and assess the feasibility of manufacturing of our light bulbs.
      This
      lease is for approximately 420,000 square feet of office and manufacturing
      facilities in the city of Hranice, in the Czech Republic. The lease became
      effective on November 1, 2007 and the initial term expires on June 30, 2008,
      although Sendio has the right to extend the initial term of the lease, no later
      than April 30, 2008, for an additional nine years and three months, which such
      term shall end on October 31, 2017. Our decision whether to extend the term
      of
      the lease will depend, among other things, on our ability to obtain additional
      financing and the results of our manufacturing assessment. The rent for the
      initial term is EUR 1,575,000 (approximately $2,318,222 USD), and we issued
      6,100,000 shares of common stock as payment in full of all amounts owing under
      the lease for the initial term. If the lease is extended for the extended term,
      the annual rent will be EUR 2,100,000 (approximately $3,091,000 USD), subject
      to
      annual increases of 2% commencing on January 1, 2009. Sendio is responsible
      for
      certain insurance, utilities, maintenance and other costs as described in the
      lease.





**ITEM
      3. LEGAL PROCEEDINGS**





We
      have
      no pending legal proceedings.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to a vote of our security holders during the fourth
      quarter of the fiscal year ended December 31, 2007.




9




**PART
      II**





**ITEM
      5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
      ISSUER PURCHASES OF EQUITY SECURITIES**





Our
      shares of common stock are presently quoted on the OTC Bulletin Board under
      the
      symbol TEGN. Listed below are the high and low sale prices for the shares of
      our
      common stock during the years ended December 31, 2007 and 2006. These quotations
      reflect inter-dealer prices, without mark-up, mark-down or commission and may
      not represent actual transactions.





**High**
            
            **Low****Fiscal
                2006**First
                Quarter (ended March 31, 2006)
            
            $
            0.38
            
            $
            0.16Second
                Quarter (ended June 30, 2006)
            
            
            0.30
            
            
            0.12Third
                Quarter (ended September 30, 2006)
            
            
            0.25
            
            
            0.12Fourth
                Quarter (ended December 31, 2006)
            
            
            0.30
            
            
            0.12**Fiscal
                2007**First
                Quarter (ended March 31, 2007)
            
            
            0.45
            
            
            0.25Second
                Quarter (ended June 30, 2007)
            
            
            0.50
            
            
            0.25Third
                Quarter (ended September 30, 2007)
            
            
            1.01
            
            
            0.36Fourth
                Quarter (ended December 31, 2007)
            
            
            0.51
            
            
            0.23





As
      of
      December 31, 2007, there were 64,663,517 shares issued and outstanding and
      approximately 680 holders of record of our common stock. We believe that a
      significant number of beneficial owners of our common stock hold shares in
      street name. No dividends have ever been paid to holders of our common stock,
      and we do not anticipate paying dividends in the future.





**Securities
      Authorized for Issuance Under Equity Compensations Plans**





On
      October 26, 2007, our Board of Directors approved the Telegen Corporation 2007
      Stock Incentive Plan. A total of 10,000,000 shares of our common stock were
      authorized for issuance under the plan. The following table gives information
      as
      of December 31, 2007, the end of the most recently completed fiscal year,
      about shares of common stock that may be issued upon the exercise of options,
      warrants and rights under our 2007 Stock Incentive Plan.




10




**Equity
                Compensation Plan
                Information**




**Plan**
              **category**
            
            **Number
                of securities**
              **to
                be issued upon**
              **exercise
                of**
              **outstanding
                options,**
              **warrants
                and rights**
            
            **Weighted-average**
              **exercise
                price of**
              **outstanding**
              **options,
                warrants**
              **and
                rights**
            
            **Number
                of securities**
              **remaining
                available**
              **for
                future issuance**
              **under
                equity**
              **compensation
                plans**
              **(excluding
                securities**
              **reflected
                in column**
              **(a))**(a)
            
            (b)
            
            (c)Equity
                compensation plans approved by security holders
            
            
            -
            
            
            -
            
            
            -Equity
                compensation plans not approved by security holders
            
            
            1,950,000
            
            $
            0.33
            
            
            6,250,500Totals
            
            
            1,950,000
            
            $
            0.33
            
            
            6,250,500





A
      description of the Telegen Corporation 2007 Stock Incentive Plan can be found
      in
      Note 7 to the financial statements contained in this report on Form
      10-K.





**Sales
      of Unregistered Securities**




The
      following provides information regarding sales of equity securities by us during
      the fiscal year ended December 31, 2007, which were not registered under the
      Securities Act.





·
            From
                January 4, 2007 to March 31, 2007, we sold an aggregate of 1,000,000
                shares of common stock to a group of 3 accredited investors at a
                purchase
                price of $0.125 per share for gross proceeds of $125,000 to be used
                for
                working capital. Mark Weber, one of our directors, participated in
                the
                private placement, purchasing 400,000 shares and Richard Sellers,
                an
                officer and director, purchased 400,000 shares. The purchases by
                Mr. Weber
                and Mr. Sellers were made on identical terms to all other investors
                in the
                private placement. No commissions were paid in the private placement.
                The
                shares were offered and sold pursuant to the exemption from registration
                under Rule 506 of Regulation D of the Securities
                Act.





·
            From
                June to September, 2007, we sold an aggregate of 8,333,334 shares
                of
                common stock to a group of twenty accredited investors at a purchase
                price
                of $0.30 per share for gross proceeds of $2,500,000 in a private
                placement. No commissions were paid in the private placement. The
                shares
                were offered and sold pursuant to the exemption from registration
                under
                Rule 506 of Regulation D of the Securities
                Act.





·
            Effective
                November 1, 2007, we issued 6,100,000 shares of common stock to a
                foreign
                investor. We issued the shares as payment in full for all amounts,
                including rent, taxes, levies and other fees or payments of EUR 1,575,000
                (approximately $2,275,000 USD), owing for the initial term under
                the
                premises lease entered into by our wholly-owned subsidiary, Sendio.
                See
                “Item 2. PROPERTIES” above.****The
                shares were offered and sold pursuant to the exemption from registration
                under Regulation S of the Securities
                Act.




11




·
            On
                November 16, 2007, we issued options to purchase 1,300,000 shares
                of
                common stock at an exercise price of $0.38 per share pursuant to
                the
                Telegen Corporation 2007 Stock Incentive Plan. The exercise price
                reflects
                the closing market price as of the date of
                grant.





·
            On
                December 17, 2007, we issued options to purchase 650,000 shares of
                common
                stock at an exercise price of $0.23 per share pursuant to the Telegen
                Corporation 2007 Stock Incentive Plan. The exercise price reflects
                the
                closing market price as of the date of
                grant.





·
            On
                December 17, 2007, we issued 1,799,500 shares of common stock to
                employees
                and consultants as compensation pursuant to the Telegen Corporation
                2007
                Stock Incentive Plan. The shares were valued at $0.23 per share,
                the
                market price on the date of issuance. The shares were issued pursuant
                to
                the exemption from registration provided by Section 4(2) under the
                Securities Act.





**ITEM
      6. SELECTED FINANCIAL DATA**





Not
      Applicable.





**ITEM
      7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





The
      following discussion and analysis should be read in conjunction with the
      Consolidated Financial Statements and notes thereto appearing elsewhere in
      this
      Report. Except for historical information, the following discussion contains
      forward-looking statements within the meaning of the Private Securities
      Litigation Reform Act of 1995. See “FORWARD LOOKING STATEMENTS” and “RISK
      FACTORS.”





At
      December 31, 2007 our independent registered public accounting firm, Peterson
      Sullivan, PLLC has raised substantial doubt about our ability to continue as
      a
      going concern. See “Note 3” to our Consolidated Financial
      Statements.





**Overview**





We
      are
      focused on developing, manufacturing and selling a line of mercury free, energy
      efficient light bulbs. The commercial viability of our light bulb technology
      is
      largely dependent on research and development results, our ability to
      manufacture our product at commercially feasible levels, market acceptance
      of
      the product and other factors. We currently have no commercial products and
      no
      revenues, and we have no firmly established timeline to bring a commercial
      product to market or generate revenue.





Our
      independent registered public accounting firm has issued a “going concern”
statement in its report on our financial statements for the fiscal year ended
      December 31, 2007, stating that we had a net loss and negative cash flows from
      operations in fiscal 2007, and that we have an accumulated deficit. Accordingly,
      those conditions raise substantial doubt about our ability to continue as a
      going concern. Our consolidated financial statements do not include any
      adjustments that might result from this going-concern uncertainty.





Our
      cash
      and cash equivalents as of December 31, 2007 are not sufficient to support
      our
      operations through fiscal 2008 and it will be necessary for us to seek
      additional financing. See “Liquidity and Capital Resources”
below.**





**Plan
      of Operations**





We
      had no
      revenues in either fiscal 2007 or 2006, and we have made significant
      expenditures for research and development. We expect to continue to make
      significant expenditures in research and development and manufacturing in fiscal
      2008 as we attempt to move forward with our proof of concept prototypes for a
      light bulb utilizing our proprietary technology. Our future success and
      operating results will depend in large part on the results of these
      efforts.




12




For
      fiscal 2008, we anticipate that we will continue our research and development
      efforts and the operation of a pilot plant for our line of light bulbs. On
      October 31, 2007, Sendio, our wholly-owned subsidiary, entered into a
      non-residential premises lease agreement with Multidisplay for certain
      facilities located in the Czech Republic. We are presently using the facilities
      to assess the feasibility of manufacturing of our line of light bulbs. The
      base
      rent through June 30, 2008 of EUR 1,575,000 (approximately $2,275,000 USD),
      under the lease has been paid for by the issuance of 6,100,000 shares of our
      common stock. At its option, Sendio has the right to extend the lease by
      providing written notice to Multidisplay no later than April 30, 2008, for
      an
      additional nine years and three months, which such term shall end October 31,
      2017. If the lease is extended for the extended term, the annual rent will
      be
      EUR 2,100,000 (approximately $3,091,000 USD), subject to annual increases of
      2%
      commencing on January 1, 2009. Our ability to enter into the extended term
      is
      dependant, among other things on our ability to obtain additional financing
      and
      there can be no assurances that this will be the case.





Our
      anticipated expenditures related to our operations in fiscal 2008 will primarily
      depend on personnel costs and additional equipment needs for continued research
      into the feasibility of the manufacturing process. In addition, we may incur
      additional costs for office space and any operating equipment required at that
      time. An overall estimate of our capital expenditures is primarily dependant
      upon the success of our development and manufacturing results for our prototype,
      and as such cannot presently be estimated. Any additional capital expenditures
      will be dependant upon our ability to obtain additional financing.





In
      November 2007, Sendio hired 50 engineering, technical and administrative
      employees. We anticipate that Sendio may begin to hire additional employees
      in
      the first half of fiscal 2008, but the number of employees is not known.





The
      number of employees added for either Sendio or in the US operations will be
      determined primarily by our ability to successfully develop the technology
      and
      our available funding to hire employees.





Our
      anticipated costs in fiscal 2008 for the completion of our line of light bulbs
      cannot be reasonably estimated due to the inherent uncertainty of the research
      and feasibility of the manufacturing processes. No additional projects are
      planned, but there can be no assurances that changes to this plan will not
      occur. There can be no assurances that this development process will be
      successful or, if successful, that the technology will find a market and achieve
      sales that can sustain our operations without additional funding.





We
      are
      presently seeking office space for our operations in the United States and
      anticipate that we will open an office in or around Seattle, Washington during
      the next twelve months. No specific location has been identified.





**Results
      of Operations for the Fiscal Years ended December 31, 2007 and
      2006**





**Research
      and Development Expenses**





For
      the
      years ended December 31, 2007 and 2006 we were involved in a single project
      to
      develop and commercialize our proprietary technology. Research and development
      expenses increased $1,563,400 to $1,879,822 for the year ended December 31,
      2007
      compared to $316,422 for the year ended December 31, 2006. For the years ended
      December 31, 2007 and 2006, research and development expenses consisted
      primarily of technical consulting expenses, legal expenses for the development
      and protection of intellectual property and travel. Also included in research
      and development expenses for the year ended December 31, 2007 were the following
      expenses related to the operation of the pilot plant at Sendio: a non-cash
      charge of approximately $690,000 resulting from the 6,100,000 shares we issued
      as payment for the initial term under the lease of Sendio’s premises; salary and
      related costs of approximately $260,000; and other operating costs of
      approximately $200,000. Also included in research and development expense is
      a
      non-cash charge for compensation expense of $161,936 for the year ended December
      31, 2007 resulting from our issuance of common stock and options to purchase
      common stock under our 2007 Stock Incentive Plan. By comparison, for the year
      ended December 31, 2006, we had a non-cash compensation charge of $60,000 for
      the issuance of 300,000 shares of common stock to Charles Hunt, a member of
      our
      board of directors and one of our technical consultants. The increase in
      research and development expenses for the twelve months ended December 31,
      2007
      is due to increased compensation expenses, as well as increased technical
      consulting expenses related to the ramp up of the development of our light
      bulb
      and the expenses of Sendio of approximately $1,150,000.




13




We
      do not
      have an established timeline for the completion of our light bulb line, as
      the
      results are not certain and as such, cannot estimate the costs that are required
      to develop a commercially viable product. If we are unable to develop a product
      that is commercially viable with the resources available to us, we will need
      to
      discontinue our current development efforts and either seek alternative projects
      or possibly curtail or cease our operations.





**General
      and Administrative Expenses**





General
      and administrative expenses for the years ended December 31, 2007 and 2006
      consisted of compensation expenses related to stock and options issuances,
      professional and legal fees, consulting expenses, insurance, travel, rent,
      general corporate related overheads and office expenses. Also included in the
      year ended December 31, 2007 are Sendio’s administrative staff salaries,
      occupancy related costs and general overhead. General and administrative
      expenses increased by $955,726 to $1,367,031 for the year ended December 31,
      2007 compared to $411,305 for the year ended December 31, 2006. The increase
      is
      due to increases in non-cash compensation expenses, the expenses of Sendio
      of
      approximately $227,000, and increases in legal and consulting fees. In fiscal
      2007, we had non-cash compensation expense of $737,288 resulting from the
      issuance of common stock and options to purchase common stock, compared to
      non-cash compensation expense of $190,000 for fiscal 2006. Included in Sendio’s
      general and administrative expenses is a non-cash charge related to the shares
      issued for the lease of the Sendio premises of approximately $77,000, salary
      and
      related costs of approximately $77,000 and other operating costs of
      approximately $73,000.





**Other
      Income**





Other
      income and expense for fiscal 2007 included interest income of $34,615, an
      increase of $30,758 when compared to $3,857 for fiscal 2006. The increase in
      interest income is due to higher average cash balances for fiscal 2007 when
      compared to fiscal 2006. Other income also includes a gain from the write off
      of
      certain accounts payable in the amount of $237,545 for which the statute of
      limitations had expired.





**Liquidity
      and Capital Resources**





Our
      cash
      and cash equivalents of $1,014,512 as of December 31, 2007 are not sufficient
      to
      support our operations through fiscal 2008 and it will be necessary for us
      to
      seek additional financing.





Historically,
      we have funded our operations primarily through private placements of shares
      of
      unregistered common stock with accredited individual and institutional investors
      and advances from our officers and directors.





On
      March
      25, 2008 the Company sold 833,333 shares of common stock to an accredited
      investor at a purchase price of $0.30 per share for gross proceeds of $250,000
      in a private placement.





We
      will
      need to raise working capital to fund our on-going and planned research,
      development, manufacturing and other planned operations through one or more
      debt
      or equity financings. Our efforts to raise capital may not be successful, and
      even if we are able to obtain additional financing, the terms of any such
      financing may be unfavorable to us and may be highly dilutive to existing
      stockholders. Our officers or directors may make further cash advances to us
      to
      fund operations from time to time; however, no officer or director is obligated
      to make any such advances. Any future debt or equity financings, when and if
      made, may not be sufficient to sustain our required levels of operations. In
      addition, if necessary, we may explore strategic alternatives, which may include
      a merger, asset sale, joint venture or another comparable transaction. If we
      are
      unable to obtain sufficient cash to continue to fund operations or if we are
      unable to locate a strategic partner, we may be forced to seek protection from
      creditors under the bankruptcy laws or cease operations. Any inability to obtain
      additional cash as needed would have a material adverse effect on our financial
      position, results of operations and our ability to continue in existence. Our
      auditors added an explanatory paragraph to their opinion on our fiscal 2007
      financial statements stating that there was substantial doubt about our ability
      to continue as a going concern.




14




**Off-Balance
      Sheet Arrangements**





We
      have
      no off-balance sheet arrangements.





**Critical
      Accounting Estimates and Policies**





The
      discussion and analysis of our financial condition and results of operations
      are
      based upon our financial statements, which have been prepared in accordance
      with
      accounting principles generally accepted in the United States. The preparation
      of these financial statements requires the use of estimates that affect the
      reported amounts of assets, liabilities and expenses. We evaluate our estimates
      on an ongoing basis and base our estimates on historical experience and on
      various assumptions that we believe to be reasonable under the circumstances
      at
      that time. The discussion below is intended as a brief discussion of some of
      the
      judgments and uncertainties that can impact the application of these policies
      and the dollar amounts reported on our financial statements. Actual results
      may
      differ from these estimates under different assumptions or conditions. We
      believe that the following critical accounting policy affects our more
      significant estimates used in the preparation of our financial statements and
      is
      important to the understanding of our results of operations. This is not a
      complete list of all of our accounting policies, and there may be other
      accounting policies that are significant your understanding of our company.
      For
      a detailed discussion on the application of these and our other accounting
      policies, see Note 2 to our Consolidated Financial Statements included in this
      Report.





**Share
      Based Payments**





We
      account for share-based compensation expense in accordance with Statement of
      Financial Accounting Standards (SFAS) No. 123(R), “Share-Based
      Payment” (SFAS 123R). Under SFAS 123R, share-based compensation expense reflects
      the fair value of share-based awards measured at the grant date, is recognized
      over the relevant service period, and is adjusted each period for anticipated
      forfeitures. We estimate the fair value of each share-based award on the date
      of
      grant using the Black-Scholes option valuation model. The Black-Scholes option
      valuation model incorporates assumptions as to stock price volatility, the
      expected life of options, a risk-free interest rate and dividend yield. If
      we
      had used different assumptions particularly as to stock price volatility and
      the
      expected life of options, the amount of compensation expense we recognized
      would
      have been different.





**ITEM 7A.
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK.**





Not
      Applicable.





**ITEM
      8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





The
      information required by this Item is set forth in our Consolidated Financial
      Statements and Notes thereto beginning at page F-1 of this Annual Report on
      Form
      10-K.





**ITEM
      9. CHANGES IN AND DISAGREEMENTS WITH THE ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None





**ITEM
      9A(T). CONTROLS AND PROCEDURES**





**Disclosure
      Control and Procedures**





We
      maintain disclosure controls and procedures designed to ensure that information
      required to be disclosed in our filings under the Securities Exchange Act of
      1934 is (1) recorded, processed, summarized and reported within the time
      periods specified in the Securities and Exchange Commission’s rules and forms
      and (2) accumulated and communicated to management, including our Chief
      Executive Officer and Chief Financial Officer, as appropriate, to allow timely
      decisions regarding required disclosure.




15




As
      required by Rule 13a-15 under the Exchange Act, as of the end of the fiscal
      year
      covered by this Annual Report on Form 10-K, we have carried out an
      evaluation of the effectiveness of the design and operation of our disclosure
      controls and procedures. This evaluation was carried out under the supervision
      and with the participation of our management, including our Chief Executive
      Officer and Chief Financial Officer. Based upon that evaluation, our Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures are effective at December 31, 2007.





There
      have been no changes in our internal controls over financial reporting (as
      defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
      during the fourth quarter of fiscal 2007 that has materially affected, or is
      reasonably likely to materially affect, our internal control over financial
      reporting.





**Management’s
      Annual Report on Internal Control Over Financial Reporting**





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting (as defined in Exchange Act Rule 13a-15(f)).
      Under the supervision and with the participation of our management, including
      our Chief Executive Officer and Chief Financial Officer, we conducted an
      evaluation of our internal control over financial reporting as of
      December 31, 2007, based on the framework in Internal Control Integrated
      Framework issued by the Committee of Sponsoring Organizations (COSO) of the
      Treadway Commission. Based on our evaluation under the framework in Internal
      Control - Integrated Framework, management concluded that our internal control
      over financial reporting was effective as of December 31,
      2007.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Therefore, even those systems determined to
      be
      effective can provide only reasonable assurance with respect to financial
      statement preparation and presentation.





This
      Annual Report on Form 10-K does not include an attestation report of our
      independent registered public accounting firm regarding internal control over
      financial reporting. Management’s report was not subject to attestation by our
      independent registered public accounting firm pursuant to temporary rules of
      the
      Securities and Exchange Commission that permit us to provide only management’s
      report in this Annual Report on Form 10-K.





/s/    Richard
                N. Herring
            
            /s/    Matthew
                DeVries**Richard
                N. Herring**
              **Chief
                Executive Officer**
            
            **Matthew
                DeVries**
              **Chief
                Financial Officer**





THE
      FOREGOING MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING SHALL
      NOT BE DEEMED TO BE “FILED” WITH THE SEC, NOR SHALL SUCH INFORMATION BE
      INCORPORATED BY REFERENCE INTO ANY PAST OR FUTURE FILING UNDER THE SECURITIES
      ACT OR THE EXCHANGE ACT, EXCEPT TO THE EXTENT WE SPECIFICALLY INCORPORATE IT
      BY
      REFERENCE INTO SUCH FILING.





**ITEM
      9B. OTHER INFORMATION**





None




16




**PART
      III**





**ITEM
      10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**





**Directors
      and Executive Officers**





The
      following table sets forth the names, positions and ages of our executive
      officers and directors as of December 31, 2007.





**Name**
            
            **Age**
            
            **Title**Duncan
                Troy
            
            48
            
            Chairman
                of the BoardRichard
                N. Herring
            
            69
            
            Chief
                Executive Officer and DirectorRichard
                G. Sellers
            
            47
            
            President,
                Chief Operating Officer and DirectorMark
                Weber
            
            51
            
            DirectorCharles
                Hunt
            
            54
            
            DirectorMatthew
                DeVries
            
            45
            
            Chief
                Financial Officer





Our
      directors serve until the next annual meeting of stockholders or until their
      successors are elected and qualified. Our officers serve at the discretion
      of
      the board of directors. There are no arrangements or understandings among any
      of
      our directors or officers. There are no family relations among any of our
      directors or officers.




The
      principal occupations and brief summary of the background of each of our
      directors and executive officers during the past five years is as
      follows:





DUNCAN
      TROY was elected to our board effective February 28, 2004, and has served as
      our
      Chairman of the Board since May 2004. Mr. Troy was a former Telegen Advisory
      Board member and a current director of the following U.K. based companies,
      Private Equity III Limited (from September 1996 to date), an investment vehicle;
      The Vintage Wine Company Limited (from June 1982 to date), a wine broker;
      Lifescan Limited (from January 2003 to date), which offers a range of screening
      devices using CT technology for the early detection of disease, SMSLOTTOME
      LIMITED (from March 2004). Licensed in the UK by the Betting, Gaming and
      Lotteries Act, SMSLOTTOME LIMITED works globally with National Lotteries, Sports
      Bodies, Media and Gaming Companies to provide fixed odds and lottery numbers
      games by cell phone by providing the technology, hardware, software, website,
      technical support, maintenance and multilingual content management systems.
      Private Equity VIII Limited (from November 2003) an investment vehicle. During
      the past four years he has been actively involved with raising capital for
      development companies and is a citizen and resident of the United
      Kingdom.





RICHARD
      N. HERRING was elected to our board effective February 28, 2004, and has served
      as our Chief Executive Officer since May 2004. Mr. Herring was a former Telegen
      Advisory Board member and has served as the Executive Director of Engineers
      Without Borders - USA (“EWB-USA”) from 2002 through 2005.  EWB-USA is a
      non-profit corporation which attempts to help disadvantaged communities improve
      their quality of life through implementation of environmentally and economically
      sustainable engineering projects.  From January 2001 to July 2002 he served
      as the CEO of 4C Corporation, a non-profit entity focused on church development.
       From April 1998 to August 1999 Mr. Herring served as the CEO of Spectral
      Solutions, Inc., a company focused on cellular telephone enhancement products;
      Spectral Solutions, Inc. was acquired by ISCO INT’L and Mr. Herring served as
      the COO of ISCO INT’L from August 1999 to December 2000.  From January 1995
      to December 1997 Mr. Herring served as the CEO of Earth Watch, Inc., a company
      focused on remote sensing technology. Prior to this, Mr. Herring worked at
      Ball
      Aerospace for 27 years in increasing levels of management including President
      of
      the Space Systems Division and being COO of five divisions of the group before
      spinning Digital Globe out as an independent company.




17




RICHARD
      G. SELLERS was elected to our board effective February 28, 2004, and has served
      as our Chief Operating Officer and Secretary since May 2004.  Mr. Sellers
      also serves as our President since July 5, 2007. Mr. Sellers is an investor
      and
      advisor to start-up and turnaround companies combining his engineering,
      marketing and operations experience to build positive cash flow and shareholder
      equity.  He worked as a consultant for Telegen to assist with their
      emergence from bankruptcy from March through October 2000 (His sole compensation
      was stock options, which have since expired unexercised).  From 1989 to
      2000 he was founder and CEO of ARC Group International, Inc., a company
      specializing in international logistics.  In the 1980’s he worked as a test
      engineer for Martin Marietta (now Lockheed Martin Corporation) and thereafter
      was a founding member of Quadtek, Inc., which pioneered innovative high
      temperature video systems in industrial environments. Mr. Sellers currently
      is
      the CEO and founder of a private real estate development company in Seattle,
      Washington.  Mr. Sellers is an investor, board member or advisory board
      member for several privately held companies in various market
      segments.





MARK
      WEBER was appointed to our board effective June 15, 2005.  Mr. Weber has
      been a marketing consultant, strategic planner and senior business advisor
      to
      financial services companies, technology companies and emerging growth companies
      since 1988. Mr. Weber has been involved in raising private capital and launching
      start up, emerging growth technology companies and new banks the past 20 years.
      He has been the President of Weber Marketing Group since its launch in 1988.
      WMG
      is the 12 th largest
      marketing agency in Washington State and a national provider of marketing
      consulting and branding services to financial services and technology companies
      across the U.S. Mr. Weber was a founder and board member of Pacifica Bank from
      1998 to 2005, helping raise $15 million to launch the bank. Pacifica Bank was
      a
      SEC registered business bank sold in 2005 to United Bank California (UCBH).
      Mr.
      Weber also served as Chairman of the Compensation Committee at Pacifica from
      2002 to 2005. Mr. Weber has served as an advisory board member of several
      technology and emerging growth companies between 1990 and 2001. He has been
      on
      the Board of Trustees of the Noemi Fund, a part of Agros International since
      2003.




DR.
      CHARLES HUNT was appointed to our board of directors on October 17, 2006. Dr.
      Hunt holds a B.S.E.E. and M.S.E.E. from the University of Utah and a Ph.D.
      from
      Cornell University. He has been at the University of California at Davis since
      1986, where he is presently a Professor with multiple appointments and a
      visiting Professor of Electronics in the Faculty of Physics of the University
      of
      Barcelona. Professor Hunt is a Senior Member of the Institute of Electrical
      and
      Electronics Engineers, and is Author or Co-Author of over one hundred and twenty
      refereed publications, eight books, and holds twelve patents. From 1997-2004
      he
      served as Editor of the journal, *Solid-State
      Electronics* .





MATTHEW
      DEVRIES is a consultant to us and was appointed by the Board of Directors as
      our
      Chief Financial Officer on October 17, 2006. Mr. DeVries has been a financial
      consultant since 2001, providing public and privately held corporations
      financial assistance and has coordinated audits and supervised the preparation
      and filing of public disclosure documents for corporations in his consulting
      practice. In 2000 and 2001, Mr. DeVries was a senior financial executive for
      a
      publicly traded Active Voice Corporation until its acquisition by Cisco Systems,
      Inc. Mr. DeVries served two different terms in 2001- 2002 and 2004 to 2006
      as
      Executive Board Member and Treasurer of the Parent Cooperative Education
      Program, a non-profit corporation based in Edmonds, Washington.





**Audit
      Committee Financial Expert**





Our
      entire Board of Directors currently functions as the Audit Committee .
      Due to
      limited operations, we do not have an “audit committee financial expert” serving
      on the Board, but we intend to locate such expert when
      possible.





**Policy
      on Stockholder Nomination of Directors**





There
      have been no material changes to the procedures by which stockholders may
      recommend nominees to our Board of Directors, from those set forth in our annual
      report on Form 10-K for the year ended December 31, 2005.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires our officers
      and directors and persons who own more than 10% of our common stock to file
      reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with
      the
      Securities and Exchange Commission (the “SEC”). Such officers, directors, and
      10% stockholders are also required by SEC rules to furnish us with copies of
      all
      Section 16(a) reports they file.




18




We
      believe that our officers, directors, and 10% stockholders complied with their
      Section 16(a) filing obligations during the fiscal year ended December 31,
      2007
      with the following exceptions:





·
            Richard
                Sellers, our President, Chief Operating Officer and a director did
                not
                file a Forms 4 on a timely basis to report his 3 purchases of shares
                in
                our private placements in 2007; and


·
            Duncan
                Troy, our Chairman of the Board, failed to file a Form 4 to report
                a grant
                of common stock during 2007.





**Code
      of Ethics**





Due
      to
      our limited operations, we have not yet adopted a Code of Ethics applicable
      to
      our principal executive officer, principal financial and accounting officer
      or
      persons performing similar functions.





**ITEM
      11. EXECUTIVE COMPENSATION**





The
      following table provides information about the compensation paid to, earned
      or
      received during the last two fiscal years ended December 31, 2007 and 2006
      by
      our principal executive officer and our other executive officer whose total
      compensation exceeded $100,000 in fiscal 2007 (the “Named Executive Officers”).





**SUMMARY
      COMPENSATION TABLE**


**Name
                  and**
                **Principal****Position**
              
              **Year**
              
              **Salary**
                **($)**
              
              **Bonus**
                **($)**
              
              **Stock**
                **Awards**
                **($)**
              
              **Option**
                **Awards**
                **($)**
              
              **Non-Equity**
                **Incentive
                  Plan**
                **Compensation**
                **($)**
              
              **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings**
                **($)**
              
              **All**
                **Other**
                **Compensation**
                **($)**
              
              **Total
                  ($)**Richard
                  Herring
              
              
              2007
              
              
              -
              
              
              -
              
              
              16,675
              
              
              126,495
              
              
              -
              
              
              -
              
              
              30,000
              
              
              173,170Chief
                Executive Officer, Principal Executive Officer (1)
              
              
              2006
              
              
              -
              
              
              -
              
              
              40,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              40,000Richard
                  Sellers
              
              
              2007
              
              
              -
              
              
              -
              
              
              103,500
              
              
              121,188
              
              
              -
              
              
              -
              
              
              -
              
              
              224,688President
                and Chief Operating Officer (2)
              
              
              2006
              
              
              -
              
              
              -
              
              
              80,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              80,000




(1)
            On
                November 16, 2007 we issued options to purchase 250,000 shares of
                common
                stock to Mr. Herring for service as a director at an exercise price
                of
                $0.38 per share and an estimated fair value of $94,650. On December
                17,
                2007 we issued options to purchase 150,000 shares of common stock
                for
                service as our Principal Executive Officer at an exercise price of
                $0.23
                per share and an estimated fair value of $31,845. The exercise prices
                reflect the closing market prices on the respective grant dates.
                The
                options vested on December 31, 2007 and have a ten year life from
                the date
                of issuance. On December 17, 2007, we issued 72,500 shares of common
                stock
                valued at $16,675 based on the closing market price of $0.23 as of
                that
                date. The shares of common stock were fully-vested upon issuance.
                All
                other compensation of $30,000 is comprised entirely of consulting
                fees
                paid in cash. On October 17, 2006 we issued 200,000 shares of common
                stock
                to Mr. Herring for his service as our Chief Executive Officer. The
                value
                was determined using the closing market price of $0.20 on the date
                of
                grant.





(2)
            On
                November 16, 2007 we issued options to purchase 250,000 shares of
                common
                stock to Mr. Sellers for service as a director at an exercise price
                of
                $0.38 per share and an estimated fair value of $94,650. On December
                17,
                2007 we issued options to purchase 125,000 shares of common stock
                for
                service as our President and Chief Operating Officer at an exercise
                price
                of $0.23 per share and an estimated fair value of $26,538. The exercise
                prices reflect the closing market prices on the respective grant
                dates.
                The options vested on December 31, 2007 and have a ten year life
                from the
                date of issuance. On December 17, 2007, we issued 450,000 shares
                of common
                stock valued at $103,500 based on the closing market price of $0.23
                as of
                that date. The shares of common stock were fully-vested upon issuance.
                On
                October 17, 2006, we issued 400,000 shares of common stock valued
                at
                $80,000 to Mr. Sellers for his service as our Chief Operating Officer.
                The
                value was determined using the closing market price of $0.20 on the
                date
                of grant.




19




**Narrative
      Disclosure to Summary Compensation Table**





We
      do not
      have employment agreements in place with our Named Executive Officers, and
      we do
      not pay salary or bonus. To date,
      we have compensated our Named Executive Officers solely through the grant of
      stock options, stock awards and consulting fees. In addition, we do not have
      agreements with our Named Executive Officers providing for payments, whether
      from resignation, retirement or other termination of employment, resulting
      from
      a change of control.





**Outstanding
      Equity Awards at Fiscal Year-End**


**Option
                  Awards**
              
              **Stock
                  Awards**Name
              
              Number of
                Securities
                Underlying
                Unexercised
                Options (#)
                Exciseable
              
              Number of
                Securities
                Underlying
                Unexercised Options
                (#) Unexerciseable
              
              Equity Incentive Plan
                Awards: Number of
                Securities Underlying
                Unexercised Unearned
                Options (#)
              
              Option
                Exercise Price
                ($)
              
              Option
                Expiration Date
              
              Number of
                Shares or Units
                of Stock That
                Have Not
                Vested (#)
              
              Market Value
                of Shares or
                Units of Stock
                That Have Not
                Vested ($)
              
              Equity Incentive Plan
                Awards: Number of
                Unearned Shares, Units
                or Other Rights That
                Have Not Vested (#)
              
              Equity Incentive Plan
                Awards: Market or
                Payout Value of
                Unearned Shares, Units
                or Other Rights That
                Have Not Vested ($)Richard
                  Herring
              
              
              250,000
              
              
              —
              
              
              —
              
              $
              0.38
              
              
              11/15/2017
              
              
              —
              
              
              —
              
              
              —
              
              
              —Richard
                  Herring
              
              
              150,000
              
              
              —
              
              
              —
              
              $
              0.23
              
              
              12/16/2017
              
              
              —
              
              
              —
              
              
              —
              
              
              —Richard
                  Sellers
              
              
              250,000
              
              
              —
              
              
              —
              
              $
              0.38
              
              
              11/15/2017
              
              
              —
              
              
              —
              
              
              —
              
              
              —Richard
                  Sellers
              
              
              125,000
              
              
              —
              
              
              —
              
              $
              0.23
              
              
              12/16/2017
              
              
              —
              
              
              —
              
              
              —
              
              
              —




**Compensation
      of Directors**





The
      following table summarizes data concerning the compensation of our directors
      for
      the fiscal year ended December 31, 2007.





DIRECTOR
      COMPENSATION


**Name**
              
              **Fees Earned or**
                **Paid in Cash**
                **($)**
              
              **Stock Awards**
                **($)**
              
              **Option Awards**
                **($)**
              
              **Non-Equity**
                **Incentive Plan**
                **Compensation**
                **($)**
              
              **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings**
                **($)**
              
              **All Other**
                **Compensation**
                **($)**
              
              **Total**
                **($)**Duncan
                  Troy (1)
              
              
              -
              
              
              11,500
              
              
              113,580
              
              
              -
              
              
              -
              
              
              -
              
              
              125,080Mark
                  Weber (2)
              
              
              -
              
              
              -
              
              
              94,650
              
              
              -
              
              
              -
              
              
              35,340
              
              
              129,990Charles
                  Hunt (3)
              
              
              -
              
              
              57,500
              
              
              121,188
              
              
              -
              
              
              -
              
              
              144,462
              
              
              323,150




(1)
            On
                November 16, 2007 we issued options to purchase 300,000 shares of
                common
                stock to Mr. Troy for service as the chairman of our board of directors
                at
                an exercise price of $0.38 per share and an estimated fair value
                of
                $113,580. The exercise price reflects the closing market prices on
                the
                date of grant. The options vested on December 31, 2007 and have a
                ten year
                life from the date of issuance. On December 17, 2007, we issued 50,000
                shares of common stock valued at $11,500 based on the closing market
                price
                of $0.23 as of that date for service as a director of Sendio. The
                shares
                of common stock were fully-vested upon issuance.




20




(2)
            On
                November 16, 2007 we issued options to purchase 250,000 shares of
                common
                stock to Mr. Weber for service as a director at an exercise price
                of $0.38
                per share and an estimated fair value of $94,650. The exercise price
                reflects the closing market prices on the date of issuance. The options
                vested on December 31, 2007 and have a ten year life from the date
                of
                issuance. We paid to Weber Marketing, Inc., a company wholly owned
                by Mr.
                Weber, $35,340 during the year ended December 31, 2007 for marketing
                services provided to us.





(3)
            On
                November 16, 2007 we issued options to purchase 250,000 shares of
                common
                stock to Mr. Hunt for service as a director at an exercise price
                of $0.38
                per share and an estimated fair value of $94,650. On December 17,
                2007 we
                issued options to purchase 125,000 shares of common stock for research
                and
                development services provided at an exercise price of $0.23 per share
                and
                an estimated fair value of $26,538. The exercise prices reflect the
                closing market prices on the respective grant dates. The options
                vested on
                December 31, 2007 and have a ten year life from the date of issuance.
                On
                December 17, 2007, we issued 250,000 shares of common stock valued
                at
                $57,500 based on the closing market price of $0.23 as of that date.
                All
                other compensation of $144,462 is comprised of consulting fees paid
                in
                cash for technical consulting related to the development of our
                product.





All
      compensation for Directors Herring and Sellers has been previously disclosed
      in
      the Executive Compensation table, above.





**Narrative
      Disclosure to Director Compensation Table**





The
      Board
      does not receive cash for service on the Board of Directors. There are no
      standard arrangements for compensation for the directors.




21




**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**





The
      table
      below sets forth certain information regarding the beneficial ownership of
      our
      common stock as of March 28, 2008, based on information available to us by
      the
      following persons or groups:





·
            each
                person who is known by us to own more than 5% of the outstanding
                common
                stock;


·
            each
                of our directors;


·
            the
                Named Executive Officers; and


·
            all
                of our executive officers and directors, as a
                group.





**Name and Address of Beneficial Owner**
            
            **Amount and Nature of**
              **Beneficial Owner (1)**
            
            **Percent of**
              **Class**Richard
                G. Sellers
            
            
            8,631,745
            **(2)**
            
            13.2
            %Polymer
                Holdings, Ltd.
            
            
            7,705,555
            
            
            11.8
            %Broomhill
                RoadStonehaven,
                UK AB39 2NHCTP
                Products, B.V.
            
            
            6,100,000
            
            
            9.3
            %Veendam,
                Stolberweg 197, 9641The
                NetherlandsMichael
                Moors
            
            
            5,858,364
            **(3)**
            
            8.9
            %Eaton
                CottageEaton
                Congleton UK CW12 2NADuncan
                Troy
            
            
            2,772,663
            **(4)**
            
            4.2
            %Richard
                Herring
            
            
            1,787,500
            **(5)**
            
            2.7
            %Mark
                W. Weber
            
            
            1,397,866
            **(6)**
            
            2.1
            %Charles
                Hunt
            
            
            925,000
            **(7)**
            
            1.4
            %All
                directors and officers as a group (6 persons)
            
            
            15,877,274
            **(8)**
            
            24.2
            %








(1)
              Beneficial
                  ownership is determined in accordance with the rules of the SEC
                  and
                  generally includes voting or investment power with respect to the
                  shares.
                  A person is also deemed to be a beneficial owner of any securities
                  of
                  which the person has the right to acquire beneficial ownership
                  within 60
                  days. Unless otherwise indicated in the footnotes to this table
                  and
                  subject to community property laws where applicable, we believe
                  that the
                  each of the stockholders named in this table has sole voting and
                  investment power with respect to the shares shown as beneficially
                  owned by
                  him. To our knowledge, there are no voting arrangements among our
                  stockholders.





(2)
              Includes
                  a fully-vested option to purchase 250,000 shares of common stock
                  at an
                  exercise price of $0.38 per share and a fully-vested option to
                  purchase
                  125,000 shares of common stock at an exercise price of $0.23 per
                  share.





(3)
              Includes
                  933,334 shares of common stock held by Private Equity III Ltd.,
                  an
                  investment entity of which Mr. Troy is the holder of 12.5% and
                  Mr. Moors
                  is the holder of 18.75% of the issued share capital and both are
                  Directors. Mr. Moors disclaims beneficial ownership of the shares
                  of
                  common stock held by Private Equity III Ltd. except to the extent
                  of his
                  pecuniary interest.




22




(4)
              Includes
                  a fully-vested option to purchase 300,000 shares of common stock
                  at an
                  exercise price of $0.38 per share and 933,334 shares held by Private
                  Equity III Ltd., an investment entity of which Mr. Troy is the
                  holder of
                  12.5% and Mr. Moors is the holder of 18.75% of the issued share
                  capital
                  and both are Directors. Mr. Troy disclaims beneficial ownership
                  of the
                  shares of common stock held by Private Equity III Ltd. except to
                  the
                  extent of his pecuniary
                  interest.





(5)
              Includes
                  a fully-vested option to purchase 250,000 shares of common stock
                  at an
                  exercise price of $0.38 per share and a fully-vested option to
                  purchase
                  150,000 shares of common stock at an exercise price of $0.23 per
                  share.





(6)
              Includes
                  a fully-vested option to purchase 250,000 shares of common stock
                  at an
                  exercise price of $0.38 per share and 157,866 shares of common
                  stock held
                  by Weber Marketing Group, Inc., a marketing agency wholly owned
                  by Mr.
                  Weber.





(7)
              Includes
                  a fully-vested option to purchase 250,000 shares of common stock
                  at an
                  exercise price of $0.38 per share and a fully-vested option to
                  purchase
                  125,000 shares of common stock at an exercise price of $0.23 per
                  share.





(8)
              Consists
                  of Duncan Troy, Richard Herring, Richard Sellers, Mark Weber, Charles
                  Hunt
                  and Matthew DeVries.





**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





**Related
      Party Transactions**





During
      fiscal 2007, two of our directors participated in the private placements of
      our
      common stock, on the same terms as other purchasers in the offerings, as
      follows:





·
            Mark
                Weber, a member of our Board of Directors, purchased 400,000 shares
                of
                common stock at a price of $0.125 per share for gross proceeds to
                us of
                $50,000;


·
            Richard
                Sellers, our President, Chief Operating Officer and a member of our
                Board
                of Directors, purchased 400,000 shares of common stock at a price
                of
                $0.125 per share for gross proceeds to us of $50,000;
                and


·
            Richard
                Sellers, our President, Chief Operating Officer and a member of our
                Board
                of Directors, purchased 1,846,533 shares of common stock at a price
                of
                $0.30 per share for gross proceeds to us of
                $554,000.





During
      fiscal 2007, we paid $30,000 in consulting fees to Richard Herring, our Chief
      Executive Officer and a member of our Board of Directors, for his service as
      Chief Executive Officer.





During
      fiscal 2007, we paid consulting fees to Charles Hunt, a member of our Board
      of
      Directors, for research and development services provided to us, consisting
      of
      $144,462 in cash, plus stock options to purchase 125,000 shares of common stock
      at an exercise price of $0.23 per share (valued for purposes of FAS 123R
      reporting at $26,538). The options vested on December 31, 2007 and have a
      10-year life from the date of grant.





During
      fiscal 2007, we paid $35,340 in consulting fees to Weber Marketing, Inc., a
      company wholly owned by Mr. Weber, a member of our Board of Directors, for
      marketing services provided to us.





During
      fiscal 2007, we paid $51,723 in consulting fees to Matthew DeVries, our Chief
      Financial Officer, for service as our Chief Financial Officer.




23




Except
      as
      otherwise disclosed herein, none of our directors, executive officers, greater
      than five percent stockholders, or any associate or affiliate thereof had any
      material interest, direct or indirect, in any transaction during the fiscal
      year
      ended December 31, 2007.





**Director
      Independence**





As
      of
      December 31, 2007, two members of our Board of Directors, Mark Weber and Duncan
      Troy were “independent” within the meaning of the listing standards of The
      NASDAQ Stock Market.





Our
      Board
      of Directors does not have a separate audit committee, but the entire Board
      performs the duties of the audit committee. Directors Richard Herring, Richard
      Sellers, Charles Hunt do not qualify as independent directors within the meaning
      of the listing standards of The NASDAQ Stock Market.





We
      do not
      have a nominating committee of our Board of Directors.





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





**Fees
      Paid to Peterson Sullivan, PLLC for Fiscal 2007 and 2006**





The
      following is a summary of the aggregate fees billed to us by Peterson Sullivan
      PLLC, our current independent registered public accounting firm, for the fiscal
      years ended December 31, 2007 and 2006:




Fiscal
                  2007
              
              Fiscal
                  2006Audit
                  Fees
              
              $
              38,752
              
              $
              29,636Audit
                  Related Fees
              
              
              —
              
              
              —Tax
                  Fees
              
              
              —
              
              
              —All
                  Other Fees
              
              
              —
              
              
              —TOTAL
                  Fees
              
              $
              38,752
              
              $
              29,636


**Fees
      Paid to Singer Lewak Greenbaum & Goldstein LLP for Fiscal 2007 and
      2006**





The
      following is a summary of the aggregate fees billed to us by Singer, Lewak,
      Greenbaum & Goldstein LLP, our former independent registered public
      accounting firm, for the fiscal years ended December 31, 2007 and 2006.





We
      dismissed Singer, Lewak, Greenbaum & Goldstein LLP as our independent
      registered public accounting firm effective December 7, 2006.


Fiscal
                  2007
              
              Fiscal
                  2006Audit
                  Fees
              
              $
              —
              
              $
              51,664Audit
                  Related Fees
              
              
              —
              
              
              —Tax
                  Fees
              
              
              —
              
              
              —All
                  Other Fees
              
              
              —
              
              
              —TOTAL
                  Fees
              
              $
              —
              
              $
              51,664




**Policy
      for Approval of Audit and Permitted Non-Audit Services**





Our
      Board
      of Directors, which serves as our audit committee, reviews the scope and extent
      of all audit and non-audit services to be provided by the independent auditors,
      including any engagement letters, and reviews and pre-approves all fees to
      be
      charged for such services. The Board of Directors may establish additional
      or
      other procedures for the approval of audit and non-audit services that our
      independent auditors perform. In pre-approving services to be provided by the
      independent auditors, the Board of Directors considers whether such services
      are
      consistent with applicable rules regarding auditor independence.




24




**PART
      IV**





**IITEM
      15. EXHIBITS** **AND FINANCIAL STATEMENT SCHEDULES**





Documents
      filed as part of this Report are as follows:





1.  Financial
      Statements :
      The
      following consolidated financial statements, related notes and report of
      independent registered public accounting firm are incorporated by reference
      into
      Item 8 of Part II of this Annual Report on Form 10-K for the fiscal year
      ended December 31, 2007:





Report
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheets as of December 31, 2007 and December 31,
                2006
            F-3Consolidated
                Statements of Operations and Comprehensive Loss for the Years Ended
                December 31, 2007 and December 31, 2006
            F-4Consolidated
                Statements of Stockholders’ Equity (Deficit) for the Years Ended December
                31, 2007 and December 31, 2006
            F-5Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007 and
                December 31, 2006
            F-6Notes
                to the Consolidated Financial Statements
            F-7





2.  Financial
      Statement Schedules :
      All
      schedules have been omitted because they are not applicable or not required,
      or
      the required information is included in the financial statements or notes
      thereto. ****





3.  Exhibits .





**Exhibit**
              **No.**
            
            
            
            **Description**3.1
            
            (1)
            
            Amended
                and Restated Articles of Incorporation of Telegen Corporation dated
                June
                30, 20003.2A
            
            (2)
            
            Bylaws
                of Telegen Corporation3.2B
            
            (3)
            
            Certificate
                of Amendment of Bylaws effective August 6, 199710.1
            
            (4)
            
            Telegen
                Corporation 2007 Stock Incentive Plan10.2
            
            (5)
            
            Form
                of Telegen Corporation Stock Option Agreement10.3
            
            (6)
            
            Agreement
                on the Lease of Non-Residential Premises between Sendio s.r.o. and
                Multidisplay, s.r.o., dated October 31, 200710.4
            
            (6)
            
            Letter
                Agreement Regarding Settlement of Rent Under Lease Obligations between
                Telegen Corporation, Multidisplay, s.r.o., and CTP Products B.V.,
                dated
                October 31, 200721.1
            
            **
            
            List
                of Subsidiaries31.1
            
            **
            
            Rule
                13a-14(a)/15d-14(a) Certification of Richard Herring31.2
            
            **
            
            Rule
                13a-14(a)/15d-14(a) Certification of Matthew DeVries32.1
            
            **
            
            Certification
                of Richard Herring, CEO, pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                200232.2
            
            **
            
            Certification
                of Matthew DeVries, CFO, pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002







**    Filed
      herewith




25




(1)
            
            Previously
                filed as an exhibit to, and incorporated herein by reference from,
                our
                Current Report on Form 8-K filed on December 20,
                2000.


(2)
            
            Previously
                filed as an exhibit to, and incorporated herein by reference from,
                our
                Quarterly Report on Form 10-QSB as filed with the Commission on November
                12, 1996.


(3)
            
            Previously
                filed as an exhibit to, and incorporated herein by reference from,
                our
                Annual Report on Form 10-K filed on April 15,
                1998.


(4)
            
            Previously
                filed as an exhibit to, and incorporated herein by reference from,
                our
                Quarterly Report on Form 10-QSB as filed with the Commission on November
                14, 2007.


(5)
            
            Previously
                filed as an exhibit to, and incorporated herein by reference from,
                our
                Current Report on Form 8-K filed on November 21,
                2007.


(6)
            
            Previously
                filed as an exhibit to, and incorporated herein by reference from,
                our
                Current Report on Form 8-K filed on November 6,
                2007.




26




**SIGNATURES**




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




**TELEGEN
                CORPORATION**Date: March
                28, 2008
            By:
            /s/ Richard
                N. HerringRichard
                N. Herring
              Chief
                Executive Officer




In
      accordance with the Securities Exchange Act of 1934, this Report on Form 10-K
      has been signed below by the following persons on behalf of the Registrant
      in
      the capacities and on the dates indicated.





***Signature***
            
            ***Capacities***
            
            ***Date***/s/
                Duncan Troy
            
            Chairman
                of the Board
            
            March
                28, 2008Duncan
                Troy/s/
                Richard N. Herring
            
            Chief
                Executive Officer and Director
            
            March
                28, 2008Richard
                N. Herring
            
            (
                *Principal Executive Officer* )/s/
                Richard G. Sellers
            
            Chief
                Operating Officer, President and Director
            
            March
                28, 2008Richard
                G. Sellers/s/
                Matthew DeVries
            
            Chief
                Financial Officer
            
            March
                28, 2008Matthew
                DeVries
            
            (
                *Principal Financial Officer and*
              *Principal
                Accounting Officer* )/s/
                Mark Weber
            
            Director
            
            March
                28, 2008Mark
                Weber/s/
                Charles Hunt
            
            Director
            
            March
                28, 2008Charles
                Hunt




27





**TELEGEN
      CORPORATION AND SUBSIDIARIES**


**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




Report
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheets as of December 31, 2007 and December 31,
                2006
            F-3Consolidated
                Statements of Operations and Comprehensive Loss for the Years Ended
                December 31, 2007 and December 31, 2006
            F-4Consolidated
                Statements of Stockholders’ Equity (Deficit) for the Years Ended December
                31, 2007 and December 31, 2006
            F-5Consolidated
                Statements of Cash Flows for the Years Ended December 31, 2007 and
                December 31, 2006
            F-6Notes
                to the Consolidated Financial Statements
            F-7




F-1





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors


Telegen
      Corporation


San
      Mateo, California





We
      have
      audited the accompanying consolidated balance sheets of Telegen Corporation
      and
      Subsidiaries as of December 31, 2007 and 2006, and the related consolidated
      statements of operations and comprehensive loss, stockholders' equity (deficit),
      and cash flows for the years 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 audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company has determined that
      it
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company's internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements. An audit also includes assessing the
      accounting principles used and significant estimates made by management, as
      well
      as evaluating the overall financial statement presentation. We believe that
      our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Telegen Corporation and
      Subsidiaries as of December 31, 2007 and 2006, and the results of their
      operations and their cash flows for the years then ended, in conformity with
      accounting principles generally accepted in the United States.





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. As discussed in Note 3 to the
      consolidated financial statements, the Company incurred a net loss of
      $3,108,380, and it had negative cash flows from operations of $1,675,723 in
      2007. In addition, the Company had an accumulated deficit of $48,530,613 at
      December 31, 2007. These factors raise substantial doubt about the
      Company's ability to continue as a going concern. Management's plans regarding
      those matters are also described in Note 3. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.





/S/
      PETERSON SULLIVAN PLLC





March 28,
      2008


Seattle,
      Washington




F-2




**TELEGEN
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


**December
      31, 2007 and 2006**




**DECEMBER 31,**
              **2007**
            
            **DECEMBER 31,**
              **2006****ASSETS**Current
                assetsCash
            
            $
            1,014,512
            
            $
            289,795Tax
                refund receivable
            
            
            505,826Prepaid
                expenses
            
            
            1,593,820
            
            
            5,169Total
                current assets
            
            
            3,114,158
            
            
            294,964Non-current
                assetsEquipment,
                net of accumulated depreciation of $2,135 and $915,
                respectively
            
            
            6,311
            
            
            5,181Construction
                in process
            
            
            203,698
            
            
            -**Total
                assets**
            
            $
            3,324,167
            
            $
            300,145**LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)**Current
                liabilitiesAccounts
                payable
            
            $
            467,802
            
            $
            344,403Accrued
                payroll
            
            
            156,864
            
            
            -Total
                current liabilities
            
            
            624,666
            
            
            344,403Stockholders'
                equity (deficit)Preferred
                stock, $1.00 par value; 10,000,000 shares authorized; no shares issued
                and
                outstanding
            
            
            **-**
            
            
            **-**Common
                stock, no par value; 100,000,000 shares authorized; 64,663,517 and
                47,430,683 shares issued and outstanding, respectively
            
            
            51,177,740
            
            
            45,377,975Accumulated
                deficit
            
            
            (48,530,613
            )
            
            (45,422,233
            )Accumulated
                other comprehensive income
            
            
            52,374
            
            
            -Total
                stockholders' equity (deficit)
            
            
            2,699,501
            
            
            (44,258
            )**Total
                liabilities and stockholders' equity (deficit)**
            
            $
            3,324,167
            
            $
            300,145




The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-3




**TELEGEN
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**




**Years
                ended December 31,****2007**
            
            **2006**Operating
                expensesResearch
                and development
            
            $
            1,879,822
            
            $
            316,422General
                and administrative
            
            
            1,367,031
            
            
            411,305Marketing
            
            
            133,687
            
            
            -Total
                operating expenses
            
            
            3,380,540
            
            
            727,727Loss
                from operations
            
            
            (3,380,540
            )
            
            (727,727
            )Other
                incomeInterest
                income
            
            
            34,615
            
            
            3,857Gain
                from extinguishment of accounts payable
            
            
            237,545
            
            
            -Total
                other income
            
            
            272,160
            
            
            3,857Loss
                before provision for income tax
            
            
            (3,108,380
            )
            
            (723,870
            )Provision
                for income taxes
            
            
            -
            
            
            -Net
                loss
            
            $
            (3,108,380
            )
            $
            (723,870
            )Other
                comprehensive income:Foreign
                currency translation adjustments
            
            
            52,374
            
            
            -Comprehensive
                loss
            
            $
            (3,056,006
            )
            $
            (723,870
            )Basic
                and diluted:Loss
                per share
            
            $
            (0.06
            )
            $
            (0.02
            )Weighted
                average shares outstanding
            
            
            53,107,809
            
            
            43,461,642




The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-4




**TELEGEN
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)**


**For
      the Years Ended December 31, 2007 and 2006**





AccumulatedOtherCommon
                Stock
            
            Accumulated
            
            ComprehensiveShares
            
            Amount
            
            Deficit
            
            Income
            
            TotalBalance
                December 31, 2005
            
            
            43,180,683
            
            $
            44,752,975
            
            $
            (44,698,363
            )
            $
            -
            
            $
            54,612Issuances
                of common stock for:Cash
            
            
            2,200,000
            
            
            275,000
            
            
            -
            
            
            -
            
            
            275,000Services
            
            
            1,250,000
            
            
            250,000
            
            
            -
            
            
            -
            
            
            250,000Conversion
                of related party loan
            
            
            800,000
            
            
            100,000
            
            
            
            
            
            
            
            
            100,000Net
                loss
            
            
            -
            
            
            -
            
            
            (723,870
            )
            
            -
            
            
            (723,870
            )Balance
                December 31, 2006
            
            
            47,430,683
            
            
            45,377,975
            
            
            (45,422,233
            )
            
            -
            
            
            (44,258
            )Issuances
                of common stock for:Cash
            
            
            9,333,334
            
            
            2,625,000
            
            
            -
            
            
            -
            
            
            2,625,000Services
            
            
            1,799,500
            
            
            320,275
            
            
            
            
            
            -
            
            
            320,275Prepayment
                of lease
            
            
            6,100,000
            
            
            2,275,354
            
            
            -
            
            
            -
            
            
            2,275,354Share-based
                compensation
            
            
            -
            
            
            579,136
            
            
            -
            
            
            -
            
            
            579,136Net
                loss
            
            
            -
            
            
            -
            
            
            (3,108,380
            )
            
            -
            
            
            (3,108,380
            )Foreign
                currency translation adjustments
            
            
            -
            
            
            -
            
            
            
            
            
            52,374
            
            
            52,374Balance
                December 31, 2007
            
            
            64,663,517
            
            $
            51,177,740
            
            $
            (48,530,613
            )
            $
            52,374
            
            $
            2,699,501




The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-5




**TELEGEN
      CORPORATION AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**Years
                ended December 31,****2007**
            
            **2006**Cash
                flows from operating activities:Net
                loss
            
            $
            (3,108,380
            )
            $
            (723,870
            )Adjustments
                      to reconcile net loss to net cash flows from operating
                      activities:Depreciation
            
            
            1,220
            
            
            915Stock
                issued for services
            
            
            320,275
            
            
            250,000Share-based
                compensation
            
            
            579,136
            
            
            -Gain
                on extinguishment of accounts payable
            
            
            (237,545
            )
            
            -Changes
                in assets and liabilities:Tax
                refund receivable
            
            
            (494,236
            )
            
            -Prepaid
                expenses
            
            
            753,153
            
            
            (5,169
            )Accounts
                payable
            
            
            353,790
            
            
            (9,767
            )Accrued
                payroll
            
            
            156,864
            
            
            -Net
                cash flows from operating activities
            
            
            (1,675,723
            )
            
            (487,891
            )Cash
                flows from investing activities:Purchases
                of equipment
            
            
            (2,350
            )
            
            (6,096
            )Purchases
                of construction in process
            
            
            (199,031
            )
            
            -Net
                cash flows from investing activities
            
            
            (201,381
            )
            
            (6,096
            )Cash
                flows from financing activities:Proceeds
                from sales of common stock
            
            
            2,625,000
            
            
            275,000Proceeds
                from related party loan
            
            
            -
            
            
            100,000Net
                cash flows from financing activities
            
            
            2,625,000
            
            
            375,000Effect
                of exchange rate changes on cash
            
            
            (23,179
            )
            
            -Net
                change in cash and cash equivalents
            
            
            724,717
            
            
            (118,987
            )Cash
                and cash equivalents, beginning of year
            
            
            289,795
            
            
            408,782Cash
                and cash equivalents, end of year
            
            $
            1,014,512
            
            $
            289,795Supplemental
                disclosure of non-cash financing and investing activitiesStock
                issued for prepayment of lease
            
            $
            2,275,354
            
            $
            -Stock
                issued upon conversion of related party loan
            
            
            -
            
            
            100,000




The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-6




**TELEGEN
      CORPORATION AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**NOTE
      1 - BUSINESS AND ORGANIZATION**




Telegen
      Corporation (“Telegen”) and its subsidiaries (collectively, the “Company”) is a
      research and development company currently engaged in the development of a
      mercury free, energy efficient line of light bulbs.




In
      September, 2007, Telegen formed Sendio, s.r.o. (“Sendio”) in the Czech Republic
      as a wholly-owned subsidiary. Sendio was formed to enter into a lease agreement
      for certain pilot plant facilities as described more fully in Note 6. In
      addition, Telegen has four inactive subsidiaries The inactive subsidiaries
      are
      Telegen Display Corporation ("TDC"), a California corporation and wholly-owned
      subsidiary, Telegen Communications Corporation ("TCC"), a California corporation
      and wholly-owned subsidiary, Telegen Display Laboratories, Inc., ("TDL") a
      California corporation and wholly-owned subsidiary of the Company and Telisar
      Corporation ("Telisar"), a California corporation and majority-owned subsidiary.
      No minority interest is presented for the minority stockholders of Telisar
      due
      to accumulated losses for Telisar on a stand alone basis.




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




**Principles
      of Consolidation**





The
      consolidated financial statements include the accounts of Telegen and all of
      its
      wholly-owned and controlled subsidiaries. All significant intercompany
      transactions and balances have been eliminated in consolidation.




**Translating
      Financial Statements**





The
      functional currency of Sendio is the Czech Koruna (CZK). The accounts of Sendio
      contained in the accompanying consolidated balance sheet as of December 31,
      2007
      have been translated into United States dollars at the exchange rate prevailing
      at December 31, 2007. Translation
      adjustments are included in “Accumulated Other Comprehensive Loss,” a separate
      component of stockholders’ equity. The
      accounts of Sendio in the accompanying consolidated statements of operations
      for
      the year ended December 31, 2007 have been translated using the average exchange
      rates prevailing since it began operations in October, 2007. Sendio recorded
      an
      aggregate of $9,280 and $0 of foreign currency transaction gain as general
      and
      administrative expense in the accompanying statements of operations for the
      years ended December 31, 2007 and 2006, respectively.





**Use
      of Estimates**




The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, disclosure of contingent assets and liabilities and the reported
      amounts of revenues and expenses during the reporting period. Actual results
      could differ from those estimates.





**Cash
      and Cash Equivalents**




For
      purposes of the statements of cash flows, the Company considers all investments
      purchased with original maturities of three months or less to be cash
      equivalents. At December 31, 2007 and 2006, the Company had cash of $914,512
      and
      $189,795 respectively, in excess of federally insured limits.





**Property
      and Equipment**





Property
      and equipment is comprised of equipment used in the testing and development
      of
      the manufacturing process of the Company’s line of light bulbs and is stated at
      cost. The Company provides for depreciation using the straight-line method
      over
      the estimated useful life of three to seven years. Expenditures for maintenance
      and repairs are charged to operations as incurred while renewals and betterments
      are capitalized. Gains or losses on the sale of property and equipment are
      reflected in the statements of operations.




F-7




**Construction
      in process**




Construction
      in process is comprised of assets to be used in the operations of the Company’s
      pilot plant in the Czech Republic not in service as of December 31, 2007. These
      assets, when placed in service will be reclassified to Property and Equipment
      and depreciated over their estimated useful lives.




**Income
      Taxes**





The
      Company recognizes the amount of income taxes payable or refundable for the
      current year and recognizes deferred tax assets and liabilities for the future
      tax consequences attributable to differences between the financial statement
      amounts of certain assets and liabilities and their respective tax bases.
      Deferred tax assets and deferred tax liabilities are measured using enacted
      tax
      rates expected to apply to taxable income in the years those temporary
      differences are expected to be recovered or settled. A valuation allowance
      is
      required when it is less likely than not that the Company will be able to
      realize all or a portion of its deferred tax assets.





**Long-Lived
      Assets**




Long-lived
      assets are reviewed for impairment when events or changes in circumstances
      indicate that the carrying amount may not be recoverable. Recoverability of
      assets to be held and used is measured by comparison of the carrying amount
      of
      an asset to future net cash flows expected to be generated by the asset. If
      such
      assets are considered to be impaired, the impairment to be recognized is
      measured by the amount that the carrying amount of the assets exceeds the fair
      value of the assets. Assets to be disposed of are reported at the lower of
      the
      carrying amount or fair value less costs to sell. Management reviewed the assets
      during the fourth quarter of 2007 and determined no impairment was deemed
      necessary.





**Fair
      Value of Financial Instruments**




The
      carrying amounts reported in the consolidated balance sheets for cash and cash
      equivalents, taxes receivable, accounts payable and accrued payroll approximate
      fair value due to the immediate or short-term maturities of these financial
      instruments.




**Revenue
      Recognition**




Revenues
      are recognized when (a) persuasive evidence of an arrangement exists, (b)
      delivery has occurred and no significant obligations remain, (c) the fee is
      fixed or determinable and (d) collection is determined to be probable. The
      Company has not recognized any revenues in the accompanying financial
      statements.




**Research
      and Development Costs**




For
      financial reporting purposes, all costs of research and development activities
      performed internally or on a contract basis are expensed as incurred. For the
      years ended December 31, 2007 and 2006, research and development expenses were
      comprised primarily of technical consulting expenses, legal expenses for the
      development and protection of intellectual property and travel. For the year
      ended December 31, 2007, research and development also included the relevant
      costs of the operation of the initial phase of a pilot plant in the Czech
      Republic through our wholly owned subsidiary, Sendio. Also included in research
      and development for the year ended December 31, 2007 and 2006 were non-cash
      stock compensation charges of $161,936 and $60,000, respectively for the
      issuance of shares of common stock and options to consultants and
      employees.




F-8




**Share
      Based Payments**





The
      Company accounts for share-based compensation expense in accordance with
      Statement of Financial Accounting Standards (SFAS) No. 123(R),
“Share-Based Payment” (SFAS 123R). Under SFAS 123R, share-based compensation
      expense reflects the fair value of share-based awards measured at the grant
      date, is recognized over the relevant service period, and is adjusted each
      period for anticipated forfeitures. The Company estimates the fair value of
      each
      share-based award on the date of grant using the Black-Scholes option valuation
      model. The Black-Scholes option valuation model incorporates assumptions as
      to
      stock price volatility, the expected life of options, a risk-free interest
      rate
      and dividend yield. On
      October 26, 2007 the Company’s Board of Directors approved the Telegen
      Corporation 2007 Stock Incentive Plan (“Stock Incentive Plan”). A total of
      10,000,000 shares of the Company’s common stock were authorized for issuance
      under the plan.





**Comprehensive
      Income**




The
      Company utilizes SFAS No. 130, “Reporting Comprehensive Income.” This statement
      establishes standards for reporting comprehensive income and its components
      in a
      financial statement. Comprehensive income as defined includes all changes in
      equity (net assets) during a period from non-owner sources. Examples of items
      to
      be included in comprehensive income, which are excluded from net income, include
      foreign currency translation adjustments and unrealized gains and losses on
      available-for-sale securities. Other
      comprehensive income presented in the accompanying consolidated financial
      statements consists of foreign currency translation
      adjustments.





**Loss
      Per Share**




The
      Company calculates loss per share in accordance with SFAS No. 128, “Earnings per
      Share.” Basic loss per share is computed by dividing loss available to common
      stockholders by the weighted-average number of shares of common stock
      outstanding, excluding unvested stock. Diluted loss per share is computed
      similar to basic loss per share except that the denominator is increased to
      include the number of additional shares of common stock that would have been
      outstanding if the potential common shares, including unvested stock, had been
      issued and if the additional common shares were dilutive.





The
      following potentially dilutive common shares are excluded from the computation
      of diluted net loss per share for all periods presented because the effect
      is
      anti-dilutive:




**Years
                ended December 31,****2007**
            
            **2006**Stock
                options
            
            
            1,950,000
            
            
            -Unvested
                stock
            
            
            407,000
            
            
            -Total
                potentially dilutive securities
            
            
            2,357,000
            
            
            -




**Recently
      Issued Accounting Pronouncements**




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value, and expands disclosures about fair value measurements. This statement
      applies under other accounting pronouncements that require or permit fair value
      measurements. However, it does not apply to SFAS 123(R). This statement shall
      be
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. Earlier
      application is encouraged, provided that the reporting entity has not issued
      financial statements for that fiscal year, including any financial statements
      for an interim period within that fiscal year. The provisions of this statement
      should be applied prospectively as of the beginning of the fiscal year in which
      this Statement is initially applied, except in some circumstances where the
      statement shall be applied retrospectively. The Company is currently evaluating
      the effect, if any, of SFAS 157 on its financial statements.




F-9




In
      February 2007, the FASB issued SFAS No. 159, *“* The
      Fair
      Value Option for Financial Assets and Financial Liabilities — Including an
      Amendment of FASB Statement No. 115”, ** which
      permits companies to choose to measure many financial instruments and certain
      other items at fair value. SFAS 159 is effective for fiscal years beginning
      after November 15, 2007 and interim periods within those fiscal years. The
      Company does not expect SFAS 159 to have a material impact on its results of
      operations or financial position.





In
      June
      2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3,
      “Accounting for Nonrefundable Advance Payments for Goods or Services to be Used
      in Future Research and Development Activities”, (“EITF 07-3”) which is effective
      for fiscal years beginning after December 15, 2007. EITF 07-3 requires that
      nonrefundable advance payments for future research and development activities
      be
      deferred and capitalized. Such amounts will be recognized as an expense as
      the
      goods are delivered or the related services are performed. The Company does
      not
      expect the adoption of EITF 07-3 to have a material impact on the financial
      results of the Company.





In
      December 2007, the FASB issued SFAS No. 141 (R), *Business
      Combinations* ,
      and
      SFAS No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements.* SFAS
      No. 141 (R) requires an acquirer to measure the identifiable assets
      acquired, the liabilities assumed and any non-controlling interest in the
      acquiree at their fair values on the acquisition date, with goodwill being
      the
      excess value over the net identifiable assets acquired. SFAS No. 160
      clarifies that a non-controlling interest in a subsidiary should be reported
      as
      equity in the consolidated financial statements, consolidated net income shall
      be adjusted to include the net income attributed to the non-controlling interest
      and consolidated comprehensive income shall be adjusted to include the
      comprehensive income attributed to the non-controlling interest. The calculation
      of earnings per share will continue to be based on income amounts attributable
      to the parent. SFAS No. 141 (R) and SFAS No. 160 are effective
      for financial statements issued for fiscal years beginning after
      December 15, 2008. Early adoption is prohibited. The Company has not yet
      determined the effect on our consolidated financial statements, if any, upon
      adoption of SFAS No. 141 (R) or SFAS No. 160.





In
      March
      2008, the FASB issued SFAS No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities.* SFAS No.
      161 amends SFAS
      No.
      133,*Accounting
      for Derivative Instruments and Hedging Activities*to
      require enhanced disclosures concerning the manner in which an entity uses
      derivatives (and the reasons it uses them), the manner in which derivatives
      and
      related hedged items are accounted for under SFAS
      No.
      133and
      interpretations thereof, and the effects that derivatives and related hedged
      items have on an entity's financial position, financial performance, and cash
      flows. SFAS No. 161is
      effective for financial statements of fiscal years and interim periods beginning
      after November 15, 2008.The
      Company has not yet determined the effects on its consolidated financial
      statements, if any, that may result upon the adoption of SFAS
      161.




**NOTE
      3 - GOING CONCERN MATTERS**




The
      accompanying financial statements have been prepared in conformity with
      accounting principles generally accepted in the United States which contemplate
      continuation of the Company as a going concern. During the year ended December
      31, 2007, the Company incurred a net loss of $3,108,380 and it had negative
      cash
      flows from operations of $1,675,723. In addition, the Company had an accumulated
      deficit of $48,530,613 at December 31, 2007. These factors raise substantial
      doubt about the Company’s ability to continue as a going concern.





Recovery
      of the Company’s assets is dependent upon future events, the outcome of which is
      indeterminable. The Company’s attainment of profitable operations is dependent
      upon the Company obtaining adequate debt and equity financing and achieving
      a
      level of sales adequate to support the Company’s cost structure. In addition,
      realization of a major portion of the assets in the accompanying balance sheet
      is dependent upon the Company’s ability to meet its financing requirements and
      the success of its plans to sell its products. The financial statements do
      not
      include any adjustments relating to the recoverability and classification of
      recorded asset amounts or amounts and classification of liabilities that might
      be necessary should the Company be unable to continue in existence.




F-10




Management
      plans to raise additional equity or debt financing and continue to develop
      its
      products. If management is unsuccessful in raising additional capital, it will
      be forced to curtail or even cease its operations.





**NOTE
      4 – TAX REFUND RECEIVABLE**





Tax
      refund receivable represents the 19% value added tax receivable from the
      government of the Czech Republic. No allowance for doubtful accounts has been
      provided as the Company believes the amounts are fully collectible.





**NOTE
      5 - RELATED PARTY TRANSACTIONS**




On
      January 4, 2007, Mark Weber, a member of the Company’s Board of Directors,
      purchased 400,000 shares of common stock at a price of $0.125 per share for
      gross proceeds to the Company of $50,000. The price was the same as that paid
      by
      third parties in the offering.





On
      November 16, 2007 the Company granted stock options pursuant to the Stock
      Incentive Plan to the members of our board of directors as compensation for
      services rendered as a board member. The options granted have an exercise price
      of $0.38 per share representing the closing market price as of the date of
      issue, vest as of December 31, 2007 and expire on November 15, 2017. The
      estimated fair value of the options was $0.3786 per share on the date of grant
      calculated using the Black Scholes option pricing model. Details of the
      issuances are shown in the following table.





**Board
                member**
            
            **Shares**
              **underlying**
              **options**
            
            **Estimated**
              **Fair**
              **Value**Duncan
                Troy
            
            
            300,000
            
            $
            113,580Richard
                Herring
            
            
            250,000
            
            
            94,650Richard
                Sellers
            
            
            250,000
            
            
            94,650Mark
                Weber
            
            
            250,000
            
            
            94,650Charles
                Hunt
            
            
            250,000
            
            
            94,6501,300,000
            
            $
            492,180




The
      assumptions used for the Black Scholes option pricing model are shown in the
      following table.





Closing
                market price of common stock
            
            $
            0.38Estimated
                volatility
            
            
            180
            %Risk
                free interest rate
            
            
            4.15
            %Expected
                dividend rate
            
            
            -




On
      December 17, 2007 the Company issued stock under the Stock Incentive Plan to
      the
      officers of the Company as compensation for services rendered as officers.
      In
      addition, the Company granted shares to a director for certain research and
      development services rendered and to the Chairman of the Board for services
      rendered as a director for Sendio. A total of 872,500 shares of common stock
      were issued at a price of $0.23 per share representing the closing market price
      as of the date of issue. Details of the issuances are shown in the following
      table.




F-11




**Recipient**
            
            **Shares**
            
            **Value**Duncan
                Troy
            
            
            50,000
            
            $
            11,500Richard
                Herring
            
            
            72,500
            
            
            16,675Richard
                Sellers
            
            
            450,000
            
            
            103,500Charles
                Hunt
            
            
            250,000
            
            
            57,500Matt
                DeVries
            
            
            50,000
            
            
            11,500872,500
            
            $
            200,675




On
      December 17, 2007 the Company granted stock options under the Stock Incentive
      Plan to the officers of the Company as compensation for services rendered as
      officers. In addition, the Company granted stock options to a director for
      certain research and development services rendered. The options granted to
      Richard Herring, Richard Sellers and Charles Hunt have an exercise price of
      $0.23 per share representing the closing market price as of the date of issue,
      vest as of December 31, 2007 and expire on December 16, 2017. The option granted
      to Matt DeVries has an exercise price of $0.23 per share representing the
      closing market price as of the date of issue, vests ratably through December
      31,
      2008 and expires on December 16, 2012. The estimated fair value of the options
      was $0.2123 per share on the date of grant calculated using the Black Scholes
      option pricing model. Details of the issuances are shown in the following table.





**Shares**
              **underlying**
              **options**
            
            **Estimated**
              **Fair**
              **Value**Richard
                Herring
            
            
            150,000
            
            $
            31,845Richard
                Sellers
            
            
            125,000
            
            
            26,538Charles
                Hunt
            
            
            125,000
            
            
            26,538Matt
                DeVries
            
            
            50,000
            
            
            10,615450,000
            
            $
            95,536




The
      assumptions used for the Black Scholes option pricing model are shown in the
      following table.





Closing
                market price of common stock
            
            $
            0.23Estimated
                volatility
            
            
            154
            %Risk
                free interest rate
            
            
            4.15
            %Expected
                dividend rate
            
            
            -




During
      the year ended December 31, 2007, the Company paid an aggregate of $35,340
      to
      Weber Marketing, Inc. for certain marketing services provided to the Company.
      Weber Marketing is 100% owned by Mark Weber, a member of our Board of
      Directors.





During
      the year ended December 31, 2007, Richard Sellers, an officer and a member
      of
      the Company’s Board of Directors, purchased 1,846,543 shares of common stock at
      a price of $0.30 per share for gross proceeds of $553,960 and 400,000 shares
      of
      common stock at a price of $0.125 per share for gross proceeds of $50,000
      pursuant to private placements of our common stock. The prices were the same
      as
      that paid by third parties in the offerings.





On
      October 17, 2006 the board of directors granted Richard Sellers 400,000 shares
      of common stock valued at $80,000 using the closing price as of that date of
      $0.20 for service as the Company’s Chief Operating Officer. In addition, the
      Board granted 200,000 shares valued at $40,000 using the closing price as of
      that date of $0.20 to Richard Herring for services as Chief Executive
      Officer.The
      Company recorded the value of the shares as general and administrative expense
      in the accompanying statement of operations for the year ended December 31,
      2006.




F-12




On
      October 17, 2006 the board of directors appointed Charles Hunt to the Company’s
      board of directors. A total of 300,000 shares of Company common stock valued
      at
      $60,000 using the closing price as of that date of $0.20 were granted upon
      Mr.
      Hunt’s acceptance of the Board nomination. The Company recorded the value of the
      shares as research and development expense in the accompanying statement of
      operations for the year ended December 31, 2006.




On
      October 17, 2006 the Company appointed Matthew DeVries as its Chief Financial
      Officer. A total of 300,000 shares of Company common stock valued at $60,000
      using the closing price as of that date of $0.20 were granted upon Mr. DeVries’
satisfaction of certain performance and time based vesting criteria which
      occurred on December 22, 2006. The Company recorded the value of the shares
      as
      general and administrative expense in the accompanying statement of operations
      for the year ended December 31, 2006.





On
      November 16, 2006, Richard Sellers, the Company’s COO and a Director, advanced
      the Company $100,000 which, on December 28, 2006 was converted into common
      stock
      at a price of $0.125. Mr. Sellers converted his loan as part of his
      participation in the offering of common stock at the price the shares were
      offered to third parties.




**NOTE
      6 - COMMITMENTS AND CONTINGENCIES**




On
      October 31, 2007, Sendio entered into a non-residential premises lease agreement
      with Multidisplay, s.r.o., a company formed under the laws of the Czech Republic
      (“Multidisplay”) for certain facilities located in the Czech Republic (the
“Premises Lease”). Telegen is utilizing the facilities, along with certain
      equipment owned by Multidisplay, to develop a pilot plant to assess the
      feasibility of manufacturing of its energy efficient, mercury free line of
      light
      bulbs.




The
      Premises Lease is for approximately 420,000 square feet of office and
      manufacturing facilities in the city of Hranice, in the Czech Republic. The
      lease became effective on November 1, 2007 and terminates on June 30, 2008
      (“Initial Term”). At its option, Sendio has the right to extend the Premises
      Lease, by providing written notice to Multidisplay no later than April 30,
      2008,
      for an additional nine years and three months, which such term shall end on
      October 31, 2017 (the “Extended Term”).




The
      rent
      for the Initial Term is EUR 1,575,000 (approximately $2,275,354 USD). If the
      Premises Lease is extended for the Extended Term, the annual rent will be EUR
      2,100,000 (approximately $3,091,000 USD), subject to increases of 2% annually
      commencing on January 1, 2009. Sendio is responsible for certain insurance,
      utilities, maintenance and other costs as described in the Premises Lease.





In
      addition, in conjunction with the Premises Lease, Telegen entered into a letter
      agreement with Multidisplay and CTP (the “Letter Agreement”) dated October 31,
      2007 regarding the settlement of rent on the Premises Lease. As described in
      the
      Letter Agreement, Multidisplay has assigned to CTP its interest in all proceeds
      under the Premises Lease for the Initial Term, including rent in the amount
      of
      EUR 1,575,000, plus all other amounts owing, including all taxes, levies and
      other fees or payments. On November 1, 2007, Telegen issued 6,100,000 shares
      of
      common stock to CTP as payment in full of all amounts owing under the Premises
      Lease for the Initial Term. The shares were valued at $2,275,354, representing
      the amount of the rent liability under the Initial Term as of the date of the
      lease and initially recorded as a prepaid expense. The amount is being recorded
      as rent expense over the term of the lease. The Company gained early access
      to
      the premises on October 1, 2007 at no cost, thus this payment is being recorded
      over a nine month term.





In
      addition, the Company leases space for its corporate headquarters on a month
      to
      month basis.





Total
      rent expense was $839,185 and $1,037 for the twelve months ended December 31,
      2007 and 2006, respectively.




F-13




**NOTE
      7 - STOCKHOLDERS’ EQUITY**





**Preferred
      Stock**





The
      Company’s Articles of Incorporation allow us to issue up to 10,000,000 shares of
      preferred stock without further stockholder approval and upon such terms and
      conditions, and having such rights, preferences, privileges, and restrictions
      as
      the board of directors may determine.





**Common
      Stock Issuances**





During
      the year ended December 31, 2007, the Company completed the
      following:





·
              From
                  January to March, 2007 the Company sold an aggregate of 1,000,000
                  shares
                  of common stock to a group of three investors at a price of $0.125
                  per
                  share for gross proceeds of $125,000. The price was the same as
                  that paid
                  by third parties in the
                  offering.





·
              From
                  June to September, 2007, the Company sold an aggregate of 8,333,334
                  shares
                  of common stock to a group of twenty accredited investors at a
                  purchase
                  price of $0.30 per share for gross proceeds of $2,500,000 in a
                  private
                  placement.





·
              On
                  November 1, 2007, the Company issued 6,100,000 shares to CTP Products
                  B.V.
                  valued at $2,275,354 representing the amount of the rent liability
                  under
                  the Premises lease as described in Note
                  6.





·
              On
                  December 17, 2007 the Company issued 1,799,500 shares of common
                  stock for
                  services under the Stock Incentive Plan valued at a price of $0.23
                  per
                  share representing the closing market price on the date of issuance.
                  Included in the issuance were issuances to certain directors and
                  officers
                  as detailed in Note 5.




During the
        year
        ended December 31, 2006, the Company completed the following:





·
              On
                  October 17, 2006 the board of directors granted a total of 900,000
                  shares
                  of common stock valued at $180,000 using the closing price as of
                  that date
                  of $0.20 for service to its Chief Executive, Chief Operating and
                  Chief
                  Financial Officers for services as described in Note 5.





·
              On
                  October 17, 2006 the board of directors granted 300,000 shares
                  of common
                  stock valued at $60,000 using the closing price as of that date
                  of $0.20
                  for services to Charles Hunt as described in Note
                  5.





·
              On
                  October 17, 2006 the board of directors granted 50,000 shares of
                  common
                  stock valued at $10,000 using the closing price as of that date
                  of $0.20
                  to a vendor for services. The value of the shares has been recorded
                  as
                  general and administrative expense in the accompanying consolidated
                  statement of operations for the year ended December 31,
                  2006.





·
              On
                  December 28 and 29, 2006, the board of directors granted 3,000,000
                  shares
                  to four investors at a price of $0.125 for gross proceeds of $375,000,
                  including $100,000 of advances converted by Richard Sellers, our
                  Chief
                  Operating Officer and a
                  director.





**Stock
      Options**





On
      October 26, 2007 the Company’s Board of Directors approved the Company’s 2007
      Stock Incentive Plan. A total of 10,000,000 shares of the Company’s common stock
      were authorized for issuance under the plan. The Stock Incentive Plan allows
      the
      Company to grant stock or stock option awards to employees, directors, officers,
      consultants, agents, advisors and independent contractors of the Company and
      its
      Subsidiaries, for up to an aggregate of 10,000,000 shares of common stock.
      The
      Stock Incentive Plan is administered by the Company’s Board of Directors, who
      can determine the size and type of award granted, purchase price, vesting
      schedule and expiration date of any stock or options grant. The Stock Incentive
      Plan places a limit of 1,000,000 shares that can be issued to any individual
      in
      a single fiscal year. All grants of shares and the shares underlying options
      are
      for restricted common stock.




F-14




The
      Company granted shares of common stock to directors, officers, employees and
      certain consultants under the Stock Incentive Plan during the year ended
      December 31, 2007. A total of 1,799,500 shares of stock were granted on December
      17, 2007 at a price of $0.23 per share based on the closing market price as
      of
      that date. The Company recognized compensation expense related to the vested
      portion of these shares with a fair value of $320,275. This amount was
      recognized as research and development expense, general and administrative
      expense or marketing expense based on the specific recipient of the award for
      the year ended December 31, 2007. As of December 31, 2007 at total of 407,000
      shares of common stock with a fair value of $93,610 are unvested. The cost
      is
      expected to be recognized over a weighted average period of 1.6
      years.





On
      November 16, 2007 the Company granted options to purchase a total of 1,300,000
      shares of common stock to its directors at an exercise price of $0.38 per shares
      as described in Note 5. On December 17, 2007 the Company also granted options
      to
      purchase 650,000 shares of common stock at an exercise price of $0.23 per share
      to certain officers, directors and consultants. The Company recognized
      compensation expense of $86,956 related to the vested portion of these options
      based on their estimated fair value as research and development expense, general
      and administrative expense or marketing expense based on the specific recipient
      of the award for the year ended December 31, 2007. The estimated fair value
      of
      the options was $0.2123 per share on the date of grant calculated using the
      Black Scholes option pricing model and the following assumptions.





Closing
                market price of common stock
            
            $
            0.23Estimated
                volatility
            
            
            154
            %Risk
                free interest rate
            
            
            4.15
            %Expected
                dividend rate
            
            
            -




A
      summary
      of activity related to stock options under the 2007 Stock Incentive Plan as
      of
      December 31, 2007 is presented below.





**Number of**
              **Shares**
            
            **Exercise price range**
            
            **Weighted**
              **Average**
              **Exercise Price**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term (Years)**
            
            **Aggregate**
              **Intrinsic Value**Outstanding,
                December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            1,950,000
            
            $
            0.23
                to $0.38
            
            $
            0.33
            
            
            9.27
            
            
            -Outstanding,
                December 31, 2007
            
            
            1,950,000
            
            $
            0.23
                to $0.38
            
            $
            0.33
            
            
            9.27
            
            $
            78,000Exercisable,
                December 31, 2007
            
            
            1,709,211
            
            $
            0.23
                to $0.38
            
            $
            0.34
            
            
            9.90
            
            $
            49,105




F-15




The
      range
      of exercise prices for options outstanding and options exercisable under the 2007
      Stock Incentive Plan at
      December 31, 2007 are as follows:





**Range of Exercise**
              **Prices**
            
            **Weighted Average**
              **Remaining**
              **Contractual**
              **Life of Options**
              **Outstanding**
              **(in years)**
            
            **Options Outstanding**
            
            **Options Exerciseable****Number of**
              **Shares**
            
            **Weighted**
              **Average**
              **Exercise Price**
            
            **Number of**
              **Shares**
            
            **Weighted**
              **Average**
              **Exercise Price**$
            0.23
            
            
            9.27
            
            
            650,000
            
            $
            0.23
            
            
            409,211
            
            $
            0.23$
            0.38
            
            
            9.27
            
            
            1,300,000
            
            $
            0.38
            
            
            1,300,000
            
            $
            0.38





A
      summary
      of the status of the Company’s nonvested options as of December 31, 2007 and
      changes during the year ended December 31, 2007 is presented below.





**Nonvested
                options**
            
            **Number of**
              **Shares**
              **Underlying**
              **Options**
            
            **Weighted Average**
              **Grant Date Fair**
              **Value**Novested
                at December 31, 2006
            
            
            -
            
            $
            -Granted
            
            
            1,950,000
            
            
            0.32Vested
            
            
            (1,709,211
            )
            
            0.34Novested
                at December 31, 2007
            
            
            240,789
            
            $
            0.21




As
      of
      December 31, 2007 there was a total of $51,039 of unrecognized compensation
      expense related to the nonvested options which is expected to be recognized
      in
      2008.





The
      2007
      Stock Incentive Plan has 6,250,500 shares available for future
      grants.





**NOTE
      8 - INCOME TAXES**





The
      net deferred tax asset is comprised of the following:





**December
                31,****2007**
            
            **2006**Net
                operating loss carryforwards
            
            $
            15,768,279
            
            $
            15,191,677Share-based
                compensation
            
            
            294,735Other
            
            
            (25,275
            )Valuation
                allowance
            
            
            (16,037,739
            )
            
            (15,191,677
            )**Total
                Deferred Income Tax Asset**
            
            $
            -
            
            $
            -




F-16




The
      provision for income taxes differs from the amount that would result from
      applying the federal statutory rate for the years ended December 31, 2007 and
      2006 as follows:





**For
                the Years Ended****December
                31,****2007**
            
            **2006**Tax
                at federal statutory rate (34%)
            
            $
            (1,056,849
            )
            $
            (246,116
            )Effect
                of lower foreign tax rate
            
            
            207,084
            
            
            -Non-deductible
                expenses
            
            
            3,703
            
            
            1,768Change
                in valuation allowance
            
            
            846,062
            
            
            244,348**Provision
                for Income Taxes**
            
            $
            -
            
            $
            -




As
      of
      December 31, 2007, the Company had net operating loss carryforwards for U.S.
      and
      Czech Republic federal income tax reporting purposes which if unused, will
      expire in the following years:





Year
            
            US
              Amount
            
            Czech
                Republic
              Amount2012
            
            $
            -
            
            $
            1,505,7242018
            
            
            27,080,269
            
            
            -2019
            
            
            1,745,867
            
            
            -2020
            
            
            6,137,725
            
            
            -2021
            
            
            5,251,175
            
            
            -2022
            
            
            1,751,322
            
            
            -2023
            
            
            1,729,930
            
            
            -2024
            
            
            328,048
            
            
            -2025
            
            
            191,893
            
            
            -2026
            
            
            465,173
            
            
            -2027
            
            
            854,454
            
            
            -$
            45,535,856
            
            $
            1,505,724




The
      utilization of U.S. net operating loss carryforwards may be limited due to
      the
      ownership change under the provisions of Internal Revenue Code Section
      382.





The
      Company has operations that are taxable in the Czech Republic through the
      operations of Sendio. Sendio has paid no income taxes since its
      inception .





**NOTE
      9 - GAIN FROM EXTINGUISHMENT OF ACCOUNTS PAYABLE**





In
      2007,
      the Company has recorded a gain from the extinguishment of certain accounts
      payable at less than their recorded value due to the expiration of the statute
      of limitations in the jurisdictions in which these liabilities were incurred.





**NOTE
      10 - SUBSEQUENT EVENTS**




On
      March
      25, 2008 the Company sold 833,333 shares of common stock to an accredited
      investor at a purchase price of $0.30 per share for gross proceeds of $250,000
      in a private placement.


F-17