<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                               FORM 10-K/A NO. 2

                                  (Mark One)

[X]   Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange 
      Act of 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

[_]   Transition report pursuant to Section 13 or 15(d) of the
      Securities Exchange Act of 1934

                 For the Period From _________ to __________.

                       Commission File Number:  0-14836
                                                -------

                              TELEGEN CORPORATION
            (Exact name of Registrant as specified in its charter)



          California                                          84-067214
(State or other jurisdiction of                           (I.R.S. employer 
 incorporation or organization)                        identification number)


                   101 Saginaw Drive, Redwood City, CA 94063
             (Address of principal executive offices and zip code)

                                 (415) 261-9400
              (Registrant's telephone number, including area code)
       Securities registered pursuant to Section 12(b) of the Act:  None
                                                                    ----
   Securities registered pursuant to Section 12(g) of the Act:  Common Stock
                                                                ------------

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as 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
                                 ------     ------

     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. [_]

     As of February 28, 1997, the approximate aggregate market value of voting
stock held by nonaffiliates of the Registrant was $45,193,140  based upon the
closing sale price on Nasdaq for that date.

     As of February 28, 1997, the number of outstanding shares of the
Registrant's Common Stock was 5,021,460.
<PAGE>
 
                               EXPLANATORY NOTE

     This Report on Form 10-K/A No. 2 is being filed to amend certain items in
Part III of the Report on Form 10-K filed by the Registrant on March 31, 1997,
to comply with  instruction G(3) to the Form 10-K which allows for an amendment
thereto by April 30, 1997 if a definitive proxy statement is not filed with the
Commission by such date.

                                      -2-
<PAGE>
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

       (a)  PROFILES OF DIRECTORS AND EXECUTIVE OFFICERS

     JESSICA L. STEVENS has been an inventor and an engineer since 1972.  From
1982 to 1988, Ms. Stevens was Chief Executive Officer, President, Chief
Technology Officer, and a Director of Woodside Design Associates, Inc., Redwood
City, California, a high technology think tank.  From 1988 to 1989, Ms. Stevens
was Chairperson of the Board of Directors and Vice President of
Engineering/Manufacturing at Absolute Entertainment, Inc. and Imagineering,
Inc., both of New Jersey.  Ms. Stevens has worked as a consultant to numerous
high technology companies, including Apple Computer, Inc., Activision, Inc.,
Coleco Industries, McDonnell Douglas Corp., Parker Brothers Inc., and has
developed software for the electronic game industry.

     BONNIE A. CRYSTAL has been a telecommunications engineer, consultant and
inventor since 1972. Before joining Telegen, she was Senior Staff Engineer for
Research and Development for Toshiba America MRI, Inc.  From 1984 to 1989, she
was a Senior Engineer at Astec, USA, Ltd. in Personal Communications Systems,
Cellular and Satellite Earth Stations.  She is the inventor of the Video Noise
Reduction (VNR) standard for satellite receivers.  She was a founder of
International MedCom, Inc. and SE International, Inc.

     WARREN M. DILLARD has been a financial analyst and financial manager since
1967.  He managed investment portfolios of securities and real estate for
Capital Group and Shareholders Capital, respectively, both of Los Angeles,
California, from 1967 until 1975.  In 1975, he became Senior Vice President and
CFO of Pepperdine University, continuing in that position until 1982.  Since
1982, Mr. Dillard has been an independent investment banker, financing early
stage business ventures.  In October 1993, he became CFO of Telegen, adding the
title of Chief Operating Officer in April 1994.

     DANIEL J. KITCHEN was a vice president of creative development and a
director of Absolute Entertainment, Inc. from May 1986 through October 1995.
Absolute Entertainment, Inc. was a public company which ceased to do business in
1995. Mr. Kitchen has been a director, president and chief executive officer of
Morning Star Multimedia, Inc. ("MSM") since October of 1995. Mr. Kitchen joined
the Company in December of 1996 upon the acquisition of MSM by the Company and
has continued to serve in all his positions with MSM.

    FREDERICK T. LEZAK, JR. has been a financial executive since 1969, with
senior positions at Time, Inc., McKesson Corp., The Headquarters Companies and
Visucom Productions, Inc.  From 1973 to 1981, he was a controller for several
McKesson divisions, most recently Foremost Dairies in San Francisco.  From 1981
to 1983, he was Treasurer and Chief Financial Officer of The Headquarters
Companies in San Francisco.  Since 1983, Mr. Lezak has been a principal and
owner of Munson, Lezak, Jaspar & Dunn, a consulting firm which specializes in
start-up situations and corporate turnarounds.  He has also been a founder and
officer of several start-up companies, including E.M.I., Inc.

     JAMES R. (DICK) IVERSON has an extensive background in technology
development. Through 1982, he spent 19 years with Teledyne Ryan Electronics,
the last 6 years as General Manager.  From 1972-1976, he was General Manager of
the Electronics Division of General Dynamics, managing projects ranging from
satellite systems to aircraft test equipment.  He was the developer of the first
Global Positioning Satellite

                                      -3-
<PAGE>
 
System (GPS).  From 1976 through 1986, Mr. Iverson was Group Vice President for
Gould, Inc., responsible for government and commercial electronics systems.  In
1986, Mr. Iverson was elected President of the American Electronics Association
(AEA), a 3,000 member national trade association, representing companies in
semiconductors, computers, telecommunications and software.  He recently retired
from that position and is now an independent consultant to the electronics
industry.

     LARRY J. WELLS is the founder and a director of Sundance Venture Partners,
L.P., a venture capital fund, and is the Chairman of Anderson & Wells Company,
which manages Sundance Venture Partners, L.P. and El Dorado Investment Company.
Mr. Wells also has served as a director and President of Sundance Capital
Corporation since May 1989. From 1983 to 1987, Mr. Wells served as Vice
President of Citicorp Venture Capital and then became Senior Vice President of
Inco Venture Capital.  From May 1969 to June 1983, Mr. Wells was the founder and
President of Creative Strategies International, a market research consulting
firm specializing in emerging markets.  Mr. Wells currently serves on the board
of directors of Cellegy Pharmaceutical, Inc. and Indentix, Inc., which are
publicly held companies.  Mr. Wells also is a director of Upside Publishing,
Inc., Plop Golf Company, VoiceCom Systems, Inc. and Murphex Corporation.

     (b) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
 
     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities 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% shareholders
are also required by SEC rules to furnish the Company with copies of all Section
16(a) reports they file.

     Based solely on its review of the copies of such forms received by it or
written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 31, 1996, all Section 16(a) filing
requirements applicable to its officers, directors, and 10% shareholders were
complied with, except that Mr. Dillard inadvertently omitted from his initial
report on Form 3 filed on November 6, 1996, the beneficial ownership of 3,690
shares indirectly held by his adult son living at home.  Such Form 3 was amended
by a filing of a Form 5 with the SEC on February 13, 1997.  In making the above
statements, the Company has relied upon the written representations of its
officers and directors.

ITEM 11.  EXECUTIVE COMPENSATION

     (a)  SUMMARY COMPENSATION TABLE

     The following table summarizes the total compensation of the Chief
Executive Officer and the four other most highly compensated executive officers
of the Company in fiscal 1996 (the "Named Executive Officers") as well as the
total compensation paid to each such individual for the Company's two previous
fiscal years.

                                      -4-
<PAGE>
 
<TABLE>
<CAPTION>
=============================================================================================================================== 
                                                   SUMMARY COMPENSATION TABLE

                                              Annual Compensation                              Long Term Compensation Awards
                                           ---------------------------                      -----------------------------------
    Name and Principal                                                      Other Annual    Restricted Stock            
         Position               Year       Salary ($)        Bonus($)       Compensation      Award(s)($)     Options/SAR's (#)  
--------------------------      ----       ----------       ----------      ------------      ----------      -----------------
<S>                             <C>        <C>              <C>             <C>             <C>              <C> 
Jessica L. Stevens,             1996       $ 170,000            $    --         $     --        $      --           133,501
President, Chief Executive      1995          29,167                 --         $252,000               --            20,004
  Officer and Director          1994          20,833                 --               --               --            63,336
 
Bonnie A Crystal,               1996         157,500                 --               --               --           107,650
Executive Vice President,       1995          60,000                 --               --               --            18,000
  Secretary and Director        1994          71,260                 --               --               --            57,000
 
Warren M. Dillard,              1996         136,667                 --               --               --           106,799
Chief Operating Officer,        1995          53,333                 --               --               --            15,996
  Chief Financial Officer       1994          63,333                 --               --               --            49,064
  and Director
=============================================================================================================================== 
</TABLE>
(1) In August 1995, Jessica L. Stevens was issued warrants to purchase 50,500
    shares of Telegen common stock for $.01 per share for a period of five
    years.  The warrants can be exercised at any time.  Compensation expense of
    approximately $252,000 was recorded to reflect the difference between the
    fair market value of the common stock at the time of the grant and the
    exercise price.

          (b)  OPTION/SAR GRANTS TABLE

          The following table summarizes the individual grants of stock options
(whether or not in tandem with SARs), and freestanding SARs made during the last
completed fiscal year to each of the Named Executive Officers.

                                      -5-
<PAGE>
 
<TABLE>
<CAPTION>
================================================================================================================================== 
                                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                                                                                     Potential Realizable Value 
                                                                                                         at Assumed Annual      
                                                                                                        Rates of Stock Price     
                                                                                                           Appreciation for       
                                   Individual Grants                                                          Option Term           

------------------------------------------------------------------------------------------------     -----------------------------
                                Number of             % of Total       
                                Securities            Options/SARS     
                                Underlying            Granted to       Exercise or    
                                Options/SARS          Employees        Base Price     Expiration            
       Name                     Granted (#)           in Fiscal Year   ($/Sh)         Date               5% ($)           10% ($)
-------------------------       ------------          -------------    -----------    ----------     -----------       -----------
<S>                             <C>                   <C>              <C>            <C>          <C>               <C> 
Jessica L. Stevens                  1,667                 0.25         $5.00            1/31/01      $  2,302.79       $  5,088.68
                                    1,667                 0.25         $5.00            2/28/01      $  2,302.79       $  5,088.68
                                    1,667                 0.25         $5.00            3/31/01      $  2,302.79       $  5,088.68
                                  125,000                18.39         $5.00            9/26/01      $172,675.00       $381,575.00
                                    3,500                 0.51         $5.00           12/31/01      $  4,834.90       $ 10,684.10
 
Bonnie A. Crystal                   1,500                 0.22         $5.00            1/31/01      $  2,072.10       $  4,578.90
                                   50,000                 7.36         $5.00            2/14/01      $ 69,070.00       $152,630.00
                                    1,500                 0.22         $5.00            2/29/01      $  2,072.10       $  4,578.90
                                    1,500                 0.22         $5.00            3/31/01      $  2,072.10       $  4,578.90
                                   50,000                 7.36         $5.00            3/31/01      $ 69,070.00       $152,630.00
                                    3,150                 0.46         $5.00           12/31/01      $  4,351.41       $  9,615.69
 
Warren M. Dillard                   1,333                 0.20         $5.00            1/31/01      $  1,839.41       $  4,069.12
                                   50,000                 7.36         $5.00            2/14/01      $ 69,070.00       $152,630.00
                                    1,333                 0.20         $5.00            2/29/01      $  1,841.41       $  4,069.12
                                    1,333                 0.20         $5.00            3/31/01      $  1,841.41       $  4,069.12
                                   50,000                 7.36         $5.00            3/31/01      $ 69,070.00       $152,630.00
                                    2,800                 0.41         $5.00           12/31/01      $  3,867.92       $  8,547.28
================================================================================================================================== 
</TABLE>
          (c) FISCAL YEAR-END OPTION/SAR VALUE TABLE

          The following table provides information concerning value of
unexercised options at fiscal year end for each of the Named Executive Officers.

<TABLE>
<CAPTION>
================================================================================================= 
                                    Fiscal Year-End Option/SAR Values

                                       Number of Securities          Value of Unexercised
                                       Underlying Unexercised        In-the-Money Options/
                                       Options/SARs at FY-End (#)    SARs at FY-End ($)
Name                                   Exercisable/Unexercisable     Exercisable/Unexercisable(1)
------------------------------------   --------------------------    ---------------------------- 
<S>                                    <C>                           <C>
Jessica L. Stevens                            267,341/0                   $3,994,769/0
 
Bonnie A. Crystal                             182,650/0                   $2,557,100/0
 
Warren M. Dillard                             171,859/0                   $2,406,026/0
================================================================================================= 
</TABLE>
(1) The value of the unexercised in-the-money options and SARs at fiscal year
    end is based on a market price of $19.00 per share for the common stock of
    Telegen at fiscal year end 1996.  As of April 28, 1997, the closing market
    price of the common stock of Telegen was $5.00 and the value of the
    exercisable in-the-money options and SARs for Ms. Stevens, Ms. Crystal and
    Mr. Dillard as of such date was $251,995, $0 and $0, respectively.

                                      -6-
<PAGE>
 
          (d)  DIRECTOR COMPENSATION

          Currently, the Company's non-employee directors receive no cash
compensation for attending meetings of the Board of Directors or a committee of
the Board of Directors in person or by telephone.  The Company reimburses each
non-employee member of the Board of Directors and its committees for expenses
incurred by such member in connection with attendance of such meetings. As
compensation for serving on the Board of Directors or a committee of the Board
of Directors, the Company's non-employee directors receive options under its
1996 Director Stock Option Plan.

          The 1996 Director Option Plan (the "1996 DOP"), under which the
Company's non-employee members of the Board of Directors (the "Outside
Directors" or individually an "Outside Director") are compensated for their
service, provides that the Outside Directors receive an option to purchase
twenty thousand (20,000) shares of the Company's common stock on each date such
Outside Director is elected or re-elected by the shareholders to serve another
term in office. Such option grants under the 1996 DOP to any Outside Director
are made only once in any given calendar year. The exercise price of options
acquired pursuant to the 1996 DOP is 100% of the fair market value per share of
Common Stock on the date of the grant as determined by the closing market price
of the Common Stock of Telegen as reported on the Nasdaq SmallCap Market. In the
event that the date of grant is not a trading day, the exercise price per share
is the fair market value on the next trading day immediately following the date
of grant of the option. All options granted under the 1996 DOP are fully vested
and exercisable upon the date of grant and remain exercisable only while the
Outside Director remains a director of the Company.

          The Company's directors who are also officers of the Company do not
receive any additional compensation for their services as members of the Board
of Directors.

          (e) EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, AND CHANGE-IN-
CONTROL ARRANGEMENTS

          Jessica L. Stevens, Bonnie A. Crystal, and Warren M. Dillard (the
"Employees") do not have employment contracts with the Company. The Employees
maintain employment agreements with TCC, the Company's wholly owned subsidiary
(the "Employment Agreements").
 
          The Employment Agreements provide that for the fiscal year ending
December 31, 1996, Ms. Stevens, Ms. Crystal, and Mr. Dillard receive an annual
salary of $170,000, $157,500 and $136,667 respectively (which is reviewed
annually), and reimbursement for certain expenses.  The Employees are also
entitled to participate in any pension, insurance, savings or other employee
benefits adopted by the Company.
 
          The Employment Agreements are at-will and may be terminated by TCC by
written notice to any of the Employees.  The Employment Agreements also
terminate on the occurrence of any one of the following events: (i) the
occurrence of circumstances that make it impossible or impracticable for the
business of TCC to be continued, (ii) the death of the Employee, (iii) the loss
by the Employee of his or her legal capacity, (iv) the loss by TCC of the legal
capacity to contract and (v) the dissolution of TCC.

                                      -7-
<PAGE>
 
          (f) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

          The Compensation Committee consists of Frederick T. Lezak, Jr., Larry
J. Wells, and James R. Iverson.  Neither Mr. Lezak nor Mr. Wells nor Mr. Iverson
was at any time during the Company's 1996 fiscal year or at any other time an
officer or employee of the Company.  No executive officer of the Company serves
as a member of the Board of Directors or compensation committee of any entity
which has one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The following table sets forth the shares of common stock beneficially
owned as of December 31, 1996 by persons known by the Company to beneficially
own more than 5% of the Company's outstanding stock, by each director of the
Company, by each executive officer, and by all directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
                                                                 SHARES OF COMMON STOCK (1)
                                                                 --------------------------- 
FIVE-PERCENT SHAREHOLDERS, DIRECTORS, EXECUTIVE OFFICERS              NUMBER        PERCENT
---------------------------------------------------------------  ----------------  ---------
<S>                                                              <C>               <C>
FIVE-PERCENT SHAREHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS:     
                                                                 
Jessica L. Stevens(2)..........................................         1,428,635      27.0%
                                                                 
Bonnie A. Crystal(2)...........................................           369,550       7.1%
                                                                 
Warren M. Dillard(2)(4)........................................           189,761       3.7%
                                                                 
Frederick T. Lezak, Jr(2)......................................            67,800       1.3%
                                                                 
Larry J. Wells(2)(3)...........................................           220,600       4.4%
                                                                 
James R. Iverson(2)............................................            20,520        *
                                                                 
Daniel J. Kitchen..............................................            60,000       1.2%
                                                                 
All Directors and Officers as a Group (7 persons)(7)...........         2,356,866      41.4%
</TABLE>
---------------
(1) Beneficial ownership includes voting and investment power with respect to
    the shares. Shares of common stock subject to options currently exercisable
    or exercisable within 60 days of December 31, 1996 are deemed outstanding
    for computing the percentage of the person holding such options, but are not
    deemed outstanding for computing the percentage of any other person. Thus,
    the sum of the individuals' and entities' ownership as a percent of common
    stock beneficially owned may exceed 100%.  As of December 31, 1996, Telegen
    had 5,021,460 shares of common stock outstanding.  The number of common
    shares outstanding excludes 208,592 shares cancelled for lack of
    consideration.
(2) As of December 31, 1996, Ms. Stevens, Ms. Crystal and Messrs. Dillard,
    Lezak, Wells, and Iverson had the right to acquire within 60 days, from
    outstanding options, 216,841 shares, 182,650 shares, 171,859 shares, 15,600
    shares, 20,400 shares, and 15,000 shares of Telegen common stock,
    respectively.  As of December 31, 1996, Ms. Stevens had the right to acquire
    within 60 days, from an oustanding warrant, 50,500 shares of Telegen Common
    Stock.
(3) Mr. Wells is a founder and director of Sundance Venture Partners, L.P.,
    which is a venture capital fund and the owner of 200,200 common stock shares
    of Telegen.
(4) Includes 3,690 shares of the Company's Common Stock owned by Mr. Dillard's
    adult son living at home (of which he disclaims beneficial ownership).

 
ITEM 13.      CERTAIN BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS
 
          On December 31, 1996, Telegen completed the acquisition (the
"Acquisition") of Morning Star Multimedia, Inc., a New Jersey Corporation
("MSM"). The Acquisition was accomplished pursuant to an Agreement and Plan of
Reorganization and Merger dated December 30, 1996 by and among the Registrant,
Morning Star Acquisition Corporation, a New Jersey corporation and wholly-owned
subsidiary of the Registrant, MSM, Daniel J. Kitchen, Kevin Mitchell and Dennis
P. Huzey (the "Acquisition Agreement"). Pursuant to the terms of the Acquisition
Agreement, Mr. Kitchen received 60,000 shares of the Registrant's common stock
for his fourty-five percent (45%) interest in MSM.

                                      -8-
<PAGE>
 
                                   SIGNATURES

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

                                         TELEGEN CORPORATION


                                         By:  /s/    Warren M. Dillard
                                             -------------------------------
                                                     Warren M. Dillard,
                                                  Chief Financial Officer
                                              (Principal Accounting Officer)

                                         Date: April 30, 1997

  Pursuant to the requirements of the Securities Exchange Act of 1934, this Form
10-K/A has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

 
Signature                                    Title                    Date
---------                                    -----                    ----
 
/s/*Jessica L. Stevens           President and Chief             April 30, 1997
------------------------------   Executive
Jessica L. Stevens               Officer
 
 
 
/s/Warren M. Dillard             Chief Financial Officer and     April 30, 1997
------------------------------   Chief Operating Officer
Warren M. Dillard

 
/s/*Bonnie A. Crystal            Executive Vice-President and    April 30, 1997
------------------------------   Secretary
Bonnie A. Crystal

 
/s/*James R. Iverson             Director                        April 30, 1997
------------------------------  
James R. Iverson

 
/s/*Frederick T. Lezak, Jr.      Director                        April 30, 1997
------------------------------  
Frederick T. Lezak, Jr.
 

/s/*Larry J. Wells               Director                        April 30, 1997
------------------------------  
Larry J. Wells


* By: /s/Warren M. Dillard
      --------------------------
         Warren M. Dillard
          Attorney in Fact

                                      -9-