SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(Mark One)
[X]    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
       1934 For the fiscal year ended DECEMBER 31, 2001

[ ]    TRANSITION REPORT UNDER 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 small business issuer as specified in its charter)

           CALIFORNIA                                  84-067214
           ----------                                  ---------
  (State or other jurisdiction of            (IRS Employer Identification No.)
   incorporation or organization)

           1840 GATEWAY DRIVE, SUITE 200, SAN MATEO, CALIFORNIA 94404
           -----------------------------------------------------------
                    (Address of principal executive offices)

                                 (650) 261-9400
                                 --------------
                           (Issuer's telephone number)

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

Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK.

    Check  whether the issuer (1) has filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the issuer was required to file such  reports),  and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

    Check if there is no disclosure of delinquent filers in response to Item 405
of  Regulation  S-B  not  contained  in this  form,  and no  disclosure  will be
contained,  to the  best of the  issuer's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

    For the fiscal year ended December 31, 2001, the issuer's  revenues were $0.
As of March 15, 2001, the aggregate  market value of issuer's  voting stock held
by non-affiliates was $11,223,933.

    Documents Incorporated by Reference:  Yes

    Transitional Small Business Disclosure Format:   Yes   [   ]  No   [X]

     Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 13(d) of the Exchange Act after the  distribution  of
Securities under a plan confirmed by a court. Yes [X] No [ ]

    This  Report on Form  10-KSB  contains  information  concerning  the  issuer
relating to the fiscal year ended  December  31, 2001,  except  where  otherwise
indicated.
<PAGE>



<TABLE>
<CAPTION>
                               Telegen Corporation
                          Annual Report on Form 10-KSB
                                Table of Contents


    <S>             <C>                                                                  <C>
    PART I

         ITEM 1.    DESCRIPTION OF BUSINESS.............................................  3
         ITEM 2.    DESCRIPTION OF PROPERTY............................................. 14
         ITEM 3.    LEGAL PROCEEDINGS................................................... 14
         ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 15

    PART II

         ITEM 5.    MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............ 15
         ITEM 6.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 18
         ITEM 7.    FINANCIAL STATEMENTS................................................ 34
         ITEM 8.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                    ON ACCOUNTING AND FINANCIAL DISCLOSURE.............................. 34

    PART III

         ITEM 9.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                    PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.......... 35
         ITEM 10.   EXECUTIVE COMPENSATION.............................................. 40
         ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...... 48
         ITEM 12.   CERTAIN BUSINESS RELATIONSHIPS AND RELATED TRANSACTIONS............. 51
         ITEM 13.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..... 53

    SIGNATURES
</TABLE>










                                       2
<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain  statements in this Annual  Report on Form 10-KSB (this "Form  10-KSB"),
including  statements  under "Item 1.  Description  of Business,"  "Item 3 Legal
Proceedings"  and "Item 6.  Management's  Discussion and  Analysis",  constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1934, as amended,  and the Private  Securities  Litigation  Reform Act of
1995 (collectively, the "Reform Act"). Certain, but not necessarily all, of such
forward-looking  statements  can be  identified  by the  use of  forward-looking
terminology  such  as  "believes",   "expects,"   "may,"  "will,"  "should,"  or
"anticipates" or the negative thereof or other variations  thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
Such forward-looking  statements involve known and unknown risks,  uncertainties
and  other  factors  which  may  cause  the  actual   results,   performance  or
achievements  of  Telegen  Corporation  ("the  Company",  "we"  or  "us")  to be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by such forward-looking statements. References in this form
10-KSB, unless another date is stated, are to December 31, 2001.

Business of Telegen

Telegen  Corporation  ("Telegen" or the "Company") is a high technology  company
with  products in  development  in the flat panel  display,  telecommunications,
datacasting and digital television markets. At present,  Telegen is organized as
a holding company with two inactive  subsidiaries  and two active  subsidiaries.
Telegen Display Corporation  ("TDC"), a California  corporation and wholly-owned
subsidiary  of  the  Company,  is  developing  a  low-cost  flat  panel  display
technology  to  compete  with  other  types  of  flat  panel  displays.  Telisar
Corporation ("Telisar"),  a California corporation and majority-owned subsidiary
of the Company,  is  commercializing a system for embedding digital  information
and data within standard analog television signals,  both cable and over-the-air
broadcast.  Telegen Communications Corporation ("TCC"), a California corporation
and wholly-owned  subsidiary of the Company,  and Telegen Display  Laboratories,
Inc.,  ("TDL") a  California  corporation  and  wholly-owned  subsidiary  of the
Company, are both currently inactive. Telegen's corporate offices are located at
1840 Gateway Drive, Suite 200, San Mateo, CA 94404, (650) 261-9400.

Telegen was  incorporated in California on August 30, 1996. This corporation was
formed to acquire Telegen Communications Corporation,  formerly known as Telegen
Corporation,  and Solar  Energy  Research  Corporation,  a  publicly  held shell
corporation.


                                       3
<PAGE>

On October 28, 1998, the Company  commenced a reorganization  case under Chapter
11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of California, San Francisco Division ("Bankruptcy Court"),  designated
as In re Telegen Corporation,  case number 98-34876-DM-11.  From January 1, 2000
through   June   30,   2000,   the   Company    managed   its   affairs   as   a
"debtor-in-possession",   subject  to  supervision  of  the  Bankruptcy   Court,
including the requirements  that the Company file certain reports and seek court
approval for certain actions,  primarily any actions outside the ordinary course
of business.  The Company filed a Plan of  Reorganization  on April 22, 2000 and
the Bankruptcy Court confirmed the Plan of Reorganization on June 28, 2000.

In the fiscal year ending December 31, 2001,  certain  significant  developments
occurred.  Effective  March 31, 2001,  Mr. Jack King,  Senior Vice  President of
Investor  Relations,  resigned as an  employee of the Company and  resigned as a
director on June 11, 2001.  On May 11, 2001 the  Company's  common stock resumed
quotation on the Over-the-Counter Bulletin Board ("OTCBB"),  where the Company's
stock is currently  quoted  under the symbol  "TEGN".  On August 28,  2001,  the
Company  announced  completion  of its  Phase I  development  goals  for its key
technologies and instituted an expense  reduction program and realignment of its
senior  management  team.  As  part  of the  expense  reduction  and  management
realignment,  William  M.  Swayne,  II  agreed  to step  down  as the  Company's
President  and Chief  Operating  Officer.  Mr.  Swayne  continues  to serve as a
director.   Donna  M.  Morabito  was  appointed   Vice  President  of  Corporate
Communications  and Investor  Relations,  Lisa M.  Yamonaco was  appointed  Vice
President  of Product  Development  and  Victoria S.  Kolakowski  was  appointed
General Counsel.  On October 15, 2001 the Company closed a Regulation S Offering
of its Common  Stock and  warrants in the amount of $1 million.  In a subsequent
event, on January 8, 2002, Telisar announced  completion of its first commercial
product,  the Separate  Video Program  ("SVP")  system,  for  embedding  digital
programming in standard analog television signals.


Telegen Display Corporation

Telegen  Corporation,  through  its wholly  owned  subsidiary,  Telegen  Display
Corporation  ("TDC"),  is developing a proprietary flat panel display technology
known as High Gain Emissive Display ("HGED"),  which represents a departure from
the current  product  offerings on the market today.  The Company  believes that
this  technology has visual  characteristics  and  potentially  relative ease of
manufacturing  and low costs that could enable  Telegen to become a  significant
participant in the display business.

Telegen  expects its HGED flat panel  display  technology  to compete  favorably
against other flat panel display technologies, presently including Active Matrix
Liquid Crystal Display technology  ("AMLCD"),  Field Emission Display technology
("FED"),  Plasma  Display Panel  technology  ("PDP") and Organic Light  Emitting
Diode technology ("OLED"),  in terms of resolution,  brightness,  color, viewing
angle and manufacturability.  More significantly, Telegen believes HGED displays
may be manufacturable in large sizes at a lower cost than the other technologies
and, since HGED display fabrication requires minimal  semiconductor  processing,
the  Company  believes  the cost of a  manufacturing  plant could be less than a
comparable AMLCD plant.

                                       4
<PAGE>

Telegen  also  believes a second  generation  of the HGED  technology,  known as
"Level  5"   technology,   which  will  require   further   development   before
commercialization,  could  potentially  provide enhanced  performance with lower
manufacturing costs than AMLCD and other flat panel display technologies.

Primary  differences  between the Telegen flat panel  display and a good quality
Cathode Ray Tube ("CRT") monitor include its reduced thickness and weight, lower
operating  voltage,  higher reliability and potentially  brighter  presentation.
Telegen believes that these features could make HGED displays desirable for many
products in today's display marketplace.

The HGED technology is an emissive display  technology similar in aspects to the
CRT and the Vacuum Fluorescent Display but which utilizes, among other technical
details, an enhanced thermionic electron generating structure, a proprietary row
control structure,  proprietary  phosphor technology and proprietary  electronic
driver  systems to  construct  a simple,  flat,  low voltage  CRT-like  display.
Whereas the  traditional  CRT uses very high voltages  (>25,000  volts) and high
magnetic fields to control a single, high powered electron beam located far from
the faceplate,  the HGED controls dozens of small,  low powered  close-in beams,
creating a display less than 1.5" in thickness.

Laboratory  prototypes  based upon aspects of the Telegen  technology  have been
fabricated  in sizes up to 14" diagonal with full color,  full gray scale,  high
brightness and which run a television  standard  (NTSC) signal from a videotape.
Additionally,  high brightness test cells have been constructed in the next step
of  development  for the  more  advanced  and  potentially  lower  cost  Level 5
technology.

Telegen believes that its flat panel display  technology has substantial  value.
Telegen's research and development facility is located in Silicon Valley and the
Company plans to license the  manufacturing of the display into a broad range of
display markets in order to facilitate the quickest possible market acceptance.

Display Patents and Manufacturing

On November 7, 1998,  the Company  received its first U. S. patent on aspects of
the  HGED  flat  panel  display  technology,  U. S.  Patent #  5,831,397  titled
"Deflecting  Apparatus for a Flat Panel Display  Illuminated  by  Electrons." On
September  7, 1999,  the Company  received its second U. S. patent on aspects of
the HGED flat panel display  technology,  U. S. Patent # 5,949,395  titled "Flat
Panel Matrix-Type  Emissive Display." On January 9, 2001, the Company received a
U. S. patent on aspects of the HGED flat panel display technology,  U. S. Patent
#  6,172,457,  titled  "Thermally  Compatible  Ceramic  Collars  for Flat  Panel
Displays." The Company  currently has twenty two  additional  flat panel display
patents  pending  and expects to file up to ten new flat panel  display  patents
over the next two years. The Company expects these and future patents to protect
its proprietary  technologies  and techniques for building highly cost effective
flat panel displays without the use of high-tech semiconductor facilities.


                                       5
<PAGE>

No  arrangements  have been  completed  regarding the  manufacture of flat panel
displays  based upon the  Company's  HGED  technology.  The HGED  technology  is
expected  to  eventually  cost  under  $5.00  per  square  inch in  high  volume
production.  Telegen believes that pricing at this level, if achieved, will give
it a competitive advantage, assuming the costs of competing technologies are not
also  reduced  to  these  levels.   No  assurances   can  be  given  that  these
manufacturing  costs  can  ever  be  achieved  by the  Company.  Although  it is
difficult to precisely  project the capital costs for establishing a high volume
manufacturing facility, Telegen's initial estimates indicate that the entry cost
into the display business utilizing the HGED flat panel display technology could
be significantly lower than other competitive emerging technologies.


Flat Panel Market

For close to the past 50 years,  the Cathode Ray Tube  ("CRT") has been the gold
standard against which all displays are judged.  Producing the brightest display
with the  highest  contrast,  fastest  speed  and  highest  resolution,  the CRT
accounts  for  over 90% of the  worldwide  market  for  displays.  According  to
Stanford  Resources-iSuppli,  the leading  market  research firm focusing on the
global  electronic  display  industry,  it is estimated  that in 2001 over 108.4
million CRT-based monitors were sold, with over 94.7 million units sold into the
desktop computer marketplace.  In 1999, worldwide OEM sales for all CRT monitors
rose to $19.5  billion  with 51.4% of the  worldwide  desktop  computer  monitor
market represented by 17" diagonal units.

Despite its  dominance  of the  display  market,  the CRT has its  shortcomings,
making it vulnerable to new technologies  capable of providing equal performance
at  reasonable  cost.  Besides its weight,  bulk and  handling  issues,  the CRT
requires  dangerously  high  electrical  voltages  (>25,000  volts),   generates
magnetic and  electrical  fields and, most alarming,  the CRT generates  harmful
X-rays.

In development  since the early 1970s,  the flat panel display has been utilized
in a wide variety of consumer and industrial applications. In the mid 1980s, due
to its thin size, light weight, low voltage and low power consumption,  the flat
panel display fueled the emergence and growth of the laptop computer, one of the
fastest growing computer  segments.  The predominant flat panel technology,  the
Active  Matrix  Liquid  Crystal  Display  or AMLCD,  fueled by the growth of the
laptop  market,  is  estimated  to  account  for  over 70% (in  dollars)  of the
worldwide  flat panel market  today.  The total flat panel  display  market,  as
estimated by DisplaySearch,  a flat panel display market research and consulting
firm, was $22.8B for 2001, a decline of 5% from 2000.

Telegen believes that it is enviably  situated to capture a significant  portion
of the expanding flat panel display  market over the next five years.  The three
major  competing  technologies,  AMLCD,  FED and PDP,  all suffer  from  serious
drawbacks in critical areas.

Since  Telegen  anticipates  that its display  may cost less than an  equivalent
AMLCD display,  Telegen expects to have a significant competitive advantage in a
number of flat panel display markets.  AMLCD  manufacturing costs have plateaued
and increased display sizes have decreased yields as well as raised plant costs.

                                       6
<PAGE>

FED technology has been  demonstrated in sizes up to 15" diagonal (with defects)
but, due to yield issues and the availability of production  equipment,  has not
been   commercially   manufactured   in  large   sizes.   Since  the  FED  is  a
semiconductor-based  technology like AMLCD,  increased display sizes can lead to
decreased yields as well as increased plant costs.

PDP displays have been in limited  production since 1994 but have yet to achieve
any meaningful cost reductions,  making PDP one of the most expensive flat panel
display technologies commercially available today.

The  HGED  technology   does  not  suffer  from  the  limitations   inherent  in
semiconductor-based  display  technologies.   Displays  constructed  using  HGED
technology do not have millions of  transistors  built directly into the display
(like AMLCD) or millions of microscopic  emission  structures under each picture
element (like FED). It is expected that  manufacturing  plant cost for HGED will
be  closer to that of the CRT than to  semiconductor-based  flat  panel  display
technologies.


Flat Panel Competition

The market for information  displays,  including flat panel displays,  is highly
competitive, and the Company expects this to continue. Telegen believes there is
currently no comparable  flat panel  display with the  potential low cost,  full
emissive color,  full gray scale and the other attributes of the HGED technology
available commercially from any other source in volume production.  The standard
flat panel displays currently  available in volume production are Passive Matrix
LCD and Active  Matrix LCD or AMLCD.  These  displays are  manufactured  in high
volume  by a number  of large  Japanese  companies,  including  Toshiba,  Epson,
Matsushita, Seiko, Hitachi, NEC and Sharp Electronics.

Several Japanese companies have recently introduced color  plasma-driven  liquid
crystal  display  ("LCD")  flat panel  displays of 40"  diagonal  size which are
available in the U. S. for about $5,000 to $8,000 retail.

Full-color  Plasma Display Panels ("PDP") have been in limited  production since
1994 and are available in the U. S. in sizes from  approximately 27" diagonal to
42"  diagonal  and at retail  prices  ranging  from $5,000 to $20,000.  They are
manufactured by a number of Japanese companies,  including Fujitsu,  Matsushita,
Hitachi and NEC and the Korean display manufacturer Orion Electric Company.

Additionally,   a  number  of  companies,   including  Candescent   Technologies
Corporation,  Futaba and  PixTech are  developing  a  technology  known as Field
Emission  Display  (FED).  FED  displays  are  constructed  using  semiconductor
technology  and are  therefore  inherently  expensive and limited in size to the
available  production  equipment.  FED  displays  are not  available  in  volume
production at this time.

A new technology  known as Organic Light Emitting Diode ("OLED") is presently in
development at a number of universities  including Princeton  University and USC
as well as  US-based  companies,  including  eMagin  Corporation  (formerly  FED
Corporation), Motorola, Universal Display Corporation, Eastman Kodak and Dupont.
OLED production displays are not available in volume production at this time.

                                       7
<PAGE>

The  market  for  Telegen's   display   products  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 obsolete and unmarketable. Telegen's success will be dependent
in part upon its  ability to  anticipate  changes  in  technology  and  industry
standards and to successfully develop and introduce new and enhanced products on
a timely basis. If Telegen is unable to do so,  Telegen's  results of operations
will be  materially  adversely  affected.  With regard to its flat panel display
technology,  there are other more  developed  and  accepted  flat panel  display
technologies already in commercial  production which will compete with Telegen's
technology.  There  are a  number  of  well  funded  U.  S.  companies,  such as
Candescent Technologies,  Motorola, Kopin, PixTech and IBM, which are developing
products to compete with the Company's HGED flat panel display technology. There
can be no assurance that the Company will be able to compete effectively against
these  or any of its  competitors,  most  of  whom  have  substantially  greater
financial resources than the Company.

There can be no assurance that Telegen will be successful in the  development of
its flat panel technology or that Telegen will not encounter  technical or other
serious   difficulties   in  its   development,   commercialization   or  volume
manufacturing  which  would  be  materially  adverse  to  Telegen's  results  of
operations.

The market for flat panel displays is dominated by major Japanese companies such
as Sharp  Electronics,  Toshiba and Sony.  Telegen  expects this  competition to
continually  increase.  There can be no  assurance  that Telegen will be able to
compete  effectively  against its competitors,  most of whom have  substantially
greater  financial  resources  than Telegen.  Flat panel  displays  manufactured
utilizing  AMLCD  technology  have been in production for over 10 years and have
proven market acceptance. New technologies,  such as FED, OLED and Color Plasma,
are in  development by a number of potential  competitors,  most, if not all, of
whom have greater  financial  resources  than  Telegen.  Telegen does not own or
lease a  manufacturing  facility  for, and has not begun the process of,  volume
manufacturing  of flat panel displays.  There can be no assurance that Telegen's
flat panel  technology  can compete  successfully  on a cost or display  quality
basis with these other  technologies.  Further,  there can be no assurance  that
Telegen's efforts to obtain patent protection for its flat panel technology will
be successful or, if patent  protection is obtained,  that  Telegen's  patent(s)
will provide adequate protection.


Telisar Corporation

Telisar Corporation ("Telisar"),  a majority-owned subsidiary of the Company, is
developing a patent-pending  broadband  datacasting  system which embeds digital
products  such as  video,  music,  movies,  software  and  radio  into  existing
television  broadcast  signals and analog cable systems  without any  noticeable
change  to  the  existing  analog  program.  By  embedding  digital  signals  in
over-the-air  television  signals,  broadcasters  may be able to add  additional
channels and premium programming to their existing channel allocations and radio
broadcasters  may be able to simulcast their stations in digital near CD-quality
over the existing television stations.  The nation's cable providers,  currently
spending  over  $12.3  billion  annually  to  upgrade  and  expand  their  cable
infrastructure to provide increased channel capacity and enhanced security,  may
now  be  able  to  quickly  upgrade  to  digital   service   without   expensive
modifications to the existing infrastructure.

                                       8
<PAGE>


Telisar Separate Video Program System

Telisar's  Separate Video Program ("SVP") system,  announced on January 8, 2002,
embeds digital video channels into existing  analog  television  channels,  both
cable and broadcast,  providing  additional video and audio  programming with no
degradation to the original  television program. A key and early market for this
technology is expected to be the cable television industry.

According  to the National  Cable &  Telecommunications  Association,  the cable
television  market is currently  over a $48.1  billion  industry  with more than
9,900 cable  systems  serving  over 73 million  consumers  in the United  States
alone.  Cable  now  penetrates  over 69% of  America's  households  and has seen
dramatic  growth over the last 30 years,  going from 2,490 cable systems in 1970
to 9,947 in 2001, with similar growth in revenues. From 1989 to 2001, subscriber
cable revenues rose from $15.3 billion to $48.1 billion.

Fueling  this  dramatic  growth  has  been  the  vast  diversity  of  the  cable
entertainment  available to  consumers.  From 1990 through  2001,  the number of
cable video  networks rose from 79 to 281, and today includes many networks that
are available only in digital  format.  The key to  profitability  for the cable
networks  is  channel  capacity.  Once the basic  cable  service  is hooked  up,
"up-selling"  provides very high margins for the cable providers.  However,  the
channel  capacity of the  majority  (92.2%) of cable  customers  is less than 90
channels, with approximately 34% of customers receiving less than 54 channels.

In 2000, the cable industry  spent  approximately  $12.34 billion in upgrade and
construction expenditures,  according to Paul Kagan Associates, a major industry
research firm. The largest single category of upgrades to the  infrastructure is
conversion from analog cable to digital cable, with its greater channel capacity
and increased security.  Yet, after billions spent on infrastructure  upgrading,
of the 73.1 million cable  customers in the United States today,  as of December
31, 2001, only 21.6% or 15.2 million  customers are served by digital cable with
its high channel capacity.

By utilizing Telisar's Separate Video Program  technology,  the cable television
systems may be able to increase the channel  capacity of their analog systems by
at least 100% and,  depending  upon the type of cable  system and its  technical
characteristics,  may be  able  to  achieve  up to a 200%  increase  in  channel
capacity, resulting in the addition of 50 to 150 new digital quality channels to
an existing analog cable system.

The SVP technology,  if commercialized,  may also provide  traditional on-air TV
broadcasters with the ability to transmit a second digital channel embedded into
their existing analog broadcast channel with no additional channel allocations.

On  January  8,  2002,  Telisar  announced  and  publicly  demonstrated  the SVP
technology and began discussions with a major international  electronics company
regarding  commercialization  of the  SVP  technology.  As of the  date  of this
report,  those  discussions  are  continuing  and no  agreements  have  yet been
reached.

                                       9
<PAGE>

Telisar Digital Radio System

Telisar has begun initial  development of a prototype Digital Radio System which
could  augment the  existing AM and FM radio  service in the United  States with
near-CD  quality audio  entertainment.  As presently  envisioned,  Telisar would
establish  a single,  high  speed  digital  datacasting  channel  on one  analog
television channel in each of the top U. S. markets, with a goal of establishing
at  least a  single  datacasting  channel  in  each of the top 30 U. S.  markets
covering up to 90% of the U. S. population.  This single datacasting  channel in
each  market  could  transmit  50 to 100  channels  of  near-CD  quality  stereo
programming  along with additional  enhanced digital services such as continuous
weather, traffic and emergency conditions. Additional datacasting channels could
be added in markets where  additional  Digital Radio  channels were needed.  The
Company  has not yet  contracted  with any  television  broadcaster  to transmit
digital data for this proposed service.

Telisar Patents

Telisar currently has patent  applications  pending on four distinct  inventions
plus two provisional patent  applications to protect  enhancements to one of the
core patent  applications.  On April 13,  2001,  Telisar  filed a U. S.  utility
patent application,  entitled "Low Cost System Method Apparatus And Way Of Doing
Business For The Conveyance And Electronic Labeling And Use Of Secure Multimedia
And Data Products,"  which describes what Telisar  believes to be unique methods
for the high speed, secure delivery of digital data products and the methods for
conducting  business utilizing these methods.  This patent application was based
upon  provisional  patent  applications  previously  filed in the U.S. on May 2,
2000,  May 25, 2000 and January 4, 2001.  The United States Patent and Trademark
Office published the utility patent application as US 2002/0010641on January 24,
2002. A  corresponding  Patent  Cooperation  Treaty (PCT)  international  patent
application was filed on January 4, 2002.

On June 15,  2001 and July 19,  2001,  Telisar  filed  two U.S.  utility  patent
applications  to cover  specific  implementations  of the data  encoding for the
Telisar system,  based upon a provisional patent application filed on January 4,
2001. Telisar filed PCT international patent applications on these inventions on
January 4, 2002.  On January 24,  2002 and  February  15,  2002,  Telisar  filed
provisional   U.S.   patent   applications   covering   improvements   on  these
implementations.

On December 21, 2001, Telisar filed a PCT international patent application based
on a provisional U.S patent  application  filed on December 21, 2000 that covers
what  Telisar  believes to be a unique  method of  providing  portable  wireless
multi-player  gaming and  interactive  entertainment  compatible  with Telisar's
proprietary datacasting technology.

Telisar believes that broad patent protection may be granted for its technology,
including but not limited to the method for  conducting  e-commerce  through its
datacasting network, the system and methods of transmitting data and the Network
Interface  hardware  platform.  Telisar  expects  to file  additional  U. S. and
foreign patent applications in the next 12 months.


                                       10
<PAGE>

Telegen Research and Development

Telegen's  research and  development  expenses for the years ending December 31,
2001 and  2000  were  $2,338,968  and  $1,565,795,  respectively.  Research  and
development expenses for the year 2001 increased from those of the year 2000 due
to  increased  activity  in  the  Company's  flat  panel  research  efforts  and
development  efforts  related to  Telisar's  datacasting  system.  Research  and
development expenses for the year 2000 were related to development activities of
Telegen's HGED flat panel display technology.  Continued development of the flat
panel  display  technology  will  continue  to  represent   significant  capital
expenditures in the Company's near term. Telegen estimates that expenditures for
research  and  development   related  to  flat  panel  display  development  and
development  of  Telisar's  datacasting  system will  increase to  approximately
$8,000,000 for the year 2002, subject to availability of funds.

Telegen's strong emphasis on new product and technology research and development
will command  management's primary attention for the foreseeable future. It will
also comprise the primary use of Telegen's financial  resources.  The market for
Telegen's products 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  obsolete and
unmarketable.  Telegen's  success  will be dependent in part upon its ability to
anticipate  changes in technology  and industry  standards  and to  successfully
develop and introduce new and enhanced  products on a timely basis. In the past,
Telegen has experienced  substantial delays in developing its flat panel display
technology  and may  experience  similar  delays in the  future.  If  Telegen is
unable,  for  technological  or other reasons,  to develop  products in a timely
manner in  response  to  changes  in the  industry  or if  products  or  product
enhancements that Telegen develops do not achieve market  acceptance,  Telegen's
results of operations will be materially adversely affected.


Telegen Intellectual Property

Telegen has acquired all rights to the underlying  technologies  embodied in its
product  lines from the founders of Telegen or has developed  such  intellectual
property  internally.  The Company has entered into  agreements with each of its
full-time employees  (including its executive officers) that prohibit disclosure
of  confidential  information  to anyone  outside of the Company both during and
after employment.  The Company also maintains employment  agreements with all of
its  scientists  and engineers  which require  disclosure  and assignment to the
Company  of all  proprietary  rights to any  ideas,  discoveries  or  inventions
relating to or resulting from the employee's work for the Company.

The  Company and its  subsidiaries  routinely  file for both  United  States and
foreign patents on its technologies.  Telegen believes, based upon the advice of
patent  counsel,  that  patent  protection  may be  available  to the Company on
substantial portions of its technologies.  On December 31, 1996, the Company was
awarded  a broad  (60  claims)  U.  S.  patent  covering  its  Parallel  and RPS
communications  technologies,  U. S.  Patent No.  5,590,182  titled  "System for
Interception  and  Transmission of  Communication  Signals on Telephone and Data
Lines."  This  patent  was  assigned  to  SynerCom  on  April  1,  1998  but was


                                       11
<PAGE>

re-assigned  back to Telegen in June 2000.  On  November  7, 1998,  the  Company
received  its first U. S.  patent on  aspects  of the HGED  flat  panel  display
technology,  U. S. Patent No. 5,831,397 titled "Deflecting  Apparatus for a Flat
Panel  Display  Illuminated  by  Electrons."  On September 7, 1999,  the Company
received  its second U. S.  patent on  aspects  of the HGED flat  panel  display
technology,  U. S. Patent No. 5,949,395 titled "Flat Panel Matrix-Type  Emissive
Display." On January 9, 2001, the Company  received a U. S. patent on aspects of
the HGED flat panel  display  technology,  U. S.  Patent No.  6,172,457,  titled
"Thermally Compatible Ceramic Collars for Flat Panel Displays."

The Company currently has pending flat panel display patent  applications in the
U.S. or in the PCT (international) covering twenty-two inventions as well as one
international  patent application  covering its proprietary  antenna technology,
and expects to file up to ten new flat panel display  patent  applications  over
the next two years.  Telisar  currently has patent  applications  pending in the
U.S. and  internationally  covering four separate inventions as well as two sets
of improvements,  and expects to file additional  patent  applications  over the
next two years.  See  "Telisar  Patents" in this Item above.  As of December 31,
2001,  the Company has not been issued any  foreign  patents.  The Company  also
believes it retains  copyright  protection for the software used in its products
as well as for its integrated circuit designs.

It is the policy of Telegen to  aggressively  protect,  through all  appropriate
means,  all of its legal  rights to its  technologies.  There are  currently  no
claims  pending  or  asserted  against  any of  the  Company's  technologies  or
intellectual  property  other  than those  proceedings  listed in "Item 3. Legal
Proceedings."  The Company relies on a combination of patents,  trade secret and
other intellectual property law,  nondisclosure  agreements and other protective
measures to protect its rights pertaining to its products and technologies. Such
protection,  however,  may not preclude  competitors  from  developing  products
similar to the  Company's  products.  In addition,  the laws of certain  foreign
countries  do not protect  Telegen's  intellectual  property  rights to the same
extent as do the laws of the United  States.  Although the Company  continues to
implement  protective  measures  and  intends to defend its  proprietary  rights
vigorously, there can be no assurance that these efforts will be successful. See
"Item 6.  Management's  Discussion and Analysis - Risk Factors - Telegen may not
be able to  protect  its  proprietary  information."  HGED  Flat  Panel  Display
Licensing

The Company has  established a corporate  policy to actively  explore  licensing
opportunities for all of its products and technologies. The Company has a number
of  proprietary  technologies  for which it has secured  either  patent or trade
secret  protection  and which  the  Company  believes  are  licensable.  Telegen
believes that its HGED flat panel display  technology has substantial  value and
could  be the  basis  of both  strategic  relationships  as  well  as  licensing
opportunities.  The Company believes that, if it can license the HGED technology
on favorable  terms to a wide range of companies  located in all major  markets,
both  domestic and foreign,  it can achieve  earlier  market  acceptance  of the
technology.

                                       12
<PAGE>


Regulatory Matters

Telegen's flat panel display subsidiary, Telegen Display Corporation, is subject
to handling and reporting  requirements  of the U. S.  Environmental  Protection
Agency (the "EPA"), the California Occupational Safety and Health Administration
(CalOSHA) and local environmental authorities regarding the handling and storage
of certain  chemical  materials used in the  development  and manufacture of its
flat panel  displays.  The Company  believes it is in full  compliance  with all
rules,  regulations  and  requirements  promulgated  by  these  authorities  and
maintains and aggressive internal safety and compliance program.


Telisar's  wireless  delivery  system is  subject  to the rules and  regulations
issued  by  the  Federal  Communications  Commission  ("FCC"),  including  rules
governing its hardware systems under Part 15. Although Telisar believes that its
wireless system complies with all applicable  rules and regulations  promulgated
by the FCC, new regulations,  rules and requirements are enacted continually and
there can be no assurance that future rules,  regulations or  requirements  will
not be enacted which could have a material adverse effect upon Telisar's results
of operations.

See "Item 6.  Management's  Discussion  and  Analysis - Risk  Factors - Federal,
State and Local Regulatory Rules and Regulations."


Telegen Employees

As of April 1, 2002,  the  Company  employs 16  persons  on a  full-time  basis,
including executive officers, a general support staff, scientists and engineers.
Telegen also employs consultants and independent  contractors,  some of whom the
Company intends to hire as full time employees in the future.  Telegen  believes
that its employee  relations are good. The Company's  future success will depend
in  significant  part upon the  continued  service of certain key  technical and
senior management  personnel,  and Telegen's ability to attract,  assimilate and
retain highly qualified technical, managerial and sales and marketing personnel.
Competition for such personnel is intense. See "Item 6. Management's  Discussion
and Analysis - Risk Factors - Telegen's Dependence Upon Key Personnel."

Telegen has entered into  agreements  with each of its employees  (including its
executive  officers)  that prohibit  disclosure of  confidential  information to
anyone  outside  of  Telegen  both  during  and after  employment  and  requires
disclosure and assignment to the Company of all proprietary rights to any ideas,
discoveries or inventions  relating to or resulting from the employee's work for
Telegen.

Telegen has limited  marketing  experience  and expanding the Company's  markets
will require significant expenses,  including additions to personnel.  There can
be no assurance  that Telegen will have all the capital  resources  necessary to
expand its sales and marketing  operations or that Telegen's  attempts to expand
its sales and marketing efforts will be successful.


                                       13
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

Telegen  maintains its corporate  offices at 1840 Gateway Drive,  Suite 200, San
Mateo,  California 94404. Also located at this address are the corporate offices
of Telegen's subsidiaries, Telegen Display Corporation and Telisar Corporation.

In December,  1999, the Company entered into a sublease,  commencing January 10,
2000,  of  approximately  2,000  square feet of R&D  facilities  in Foster City,
California,  at a net cost of approximately $3,300 a month,  including Telegen's
respective share of the building's  operating  expenses.  In April and September
2000, the Company  entered into two 2-year leases totaling  approximately  5,200
square  feet  of R&D  facilities  in  Foster  City,  California,  at a  cost  of
approximately  $9,200  a  month,  including  Telegen's  respective  share of the
building's  operating expenses.  In July 2000, the Company entered into a 2 year
lease of  approximately  960  square  feet of R&D  facilities  in  Foster  City,
California,  at a net cost of approximately $3,500 a month,  including Telegen's
respective  share of the  building's  operating  expenses.  The Company plans to
lease additional larger facilities to consolidate  operations in the second half
of 2002.  Telegen  believes there is adequate  space  available in its immediate
area for these new  facilities,  but there can be no assurance  that  additional
space can be  located  on  favorable  terms or that the  Company  will not incur
significant   expenses  to  relocate  to  new   facilities.   The  Company  also
periodically leases living quarters for visiting personnel and consultants.


ITEM 3.  LEGAL PROCEEDINGS

BANKRUPTCY.  On October 28, 1998, the Company  commenced a  reorganization  case
("Chapter 11 Case") under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of California, San Francisco Division
("Bankruptcy  Court"),  designated  as In re Telegen  Corporation,  case  number
98-34876-DM-11.  During the first half of 2000, the Company  managed its affairs
as a  "debtor-in-possession",  subject to supervision  of the Bankruptcy  Court,
including the requirements  that the Company file certain reports and seek court
approval for certain actions,  primarily any actions outside the ordinary course
of business.  The Company filed a Plan of  Reorganization on April 21, 2000, and
the Bankruptcy Court confirmed the Plan of Reorganization on June 28, 2000.

DRL SUIT. On August 24, 2001,  Telegen and Display Research  Laboratories,  Inc.
("DRL")  settled the litigation  between the two companies that had been pending
in Federal Court in San Francisco,  California. The agreement also dismisses the
individuals  named in the  lawsuit,  including  Telegen's  President  and  Chief
Executive  Officer,  Jessica L. Stevens,  DRL President David Guo, and DRL Chief
Scientist Ted Naugler.

The  settlement  between  Telegen  and the  plaintiffs  in this  case  ends  the
litigation without any payment by either party. The parties have agreed that DRL
is not currently using any of Telegen's trade secrets, and will not do so in the
future.


                                       14
<PAGE>

RATES TECHNOLOGY INC. SUIT. On August 10, 2001, Rates Technology Inc.  ("Rates")
filed an action  (the  "Rates  Complaint")  in the U.S.  District  Court for the
Eastern  District of New York against the Company and its  inactive  subsidiary,
Telegen Communications  Corporation ("TCC"), alleging patent infringement in the
manufacture  and  sale of  TCC's  ACS-2000  and  subsequent  telephone  dialers,
discontinued  since 1998.  Rates seeks injunctive  relief,  monetary damages and
attorney's  fees. The Company believes that its patented dialers do not infringe
any of Rates'  patents.  In  addition,  the  Confirmation  Order  entered by the
Bankruptcy Court on June 30, 2000 bars all claims for activities occurring prior
to entry  of that  Order  and no  manufacture,  sale or offer  for sale of these
dialers has occurred  since entry of the Order.  Therefore the Company  believes
that the Rates Complaint has no merit.

OTHER LEGAL  PROCEEDINGS  OR CLAIMS.  From time to time, the Company is party to
various legal proceedings or claims, either asserted or unasserted,  which arise
in the  ordinary  course of business.  Management  has  reviewed  pending  legal
matters  and  believes  that  the  resolution  of such  matters  will not have a
significant  adverse affect on the Company's  financial  condition or results of
operations.


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

No matters were  submitted to a vote of security  holders of the Company  during
the fiscal year ended December 31, 2001.



                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


As of  December  31,  2001,  the  common  stock of the  Company is quoted on the
Over-The-Counter  Electronic Bulletin Board (the "OTCBB"). There is no assurance
that the OTCBB can or will  provide  sufficient  liquidity  for the purchase and
sale of the Company's  Common Stock. The Company intends to return to the Nasdaq
SmallCap market as soon as it meets the listing and maintenance requirements. On
February 22, 1998,  Nasdaq  raised such  listing and  maintenance  requirements.
There can be no assurance  that the Company will be  successful in relisting its
stock on the Nasdaq SmallCap Market,  in the near future, if at all, or that, if
such  efforts  are  successful,  a broad  trading  market  will  develop  in the
Company's stock.



                                       15
<PAGE>

The  following  table  sets forth the  quarterly  high and low bid prices of the
Company's  common stock from January 3, 2000 through  December 31, 2001. On June
30, 2000, the Company  effected a one-for-16  reverse split of its common stock.
All share data in the following table has been retroactively restated to reflect
this reverse stock split.  Such prices represent prices between dealers,  do not
include retail  mark-ups,  markdowns or commissions and may not represent actual
transactions.

               Quarter Ended                 Bid Prices
               -------------              ----------------
                                           High       Low
                                          -----      -----
               March 31, 2000             $56.00     $3.20
               June 30, 2000              $24.99     $8.00
               September 30, 2000         $20.00     $4.13
               December 31, 2000          $8.00      $1.05
               June 30, 2001              $4.75      $1.80
               September 30, 2001         $2.75      $0.31
               December 31, 2001          $1.49      $0.32


As of December 31, 2001 there were 17,911,791  post-effective  shares issued and
outstanding and  approximately  1,000 holders of record of the Company's  common
stock.  The Company believes that a significant  number of beneficial  owners of
its common stock hold shares in street name. No dividends have ever been paid to
Telegen's  common  stock  shareholders  and Telegen does not  anticipate  paying
dividends in the future.

On December  22, 2000 the Company  filed a  Registration  Statement on Form SB-2
with the  Securities  and  Exchange  Commission  ("SEC") to register  for resale
shares  issued or sold by Telegen in offerings  conducted in 1999 and 2000,  the
acquisition  of 66.7 % of the  outstanding  shares  of  eTraxx  Corporation  and
certain other shares and shares  underlying  certain warrants and options issued
by the Company.  On January 9, 2001,  the Company filed an Amended  Registration
Statement  and on April 10, 2001,  the Company filed a Form RW under Rule 477 of
the Securities Act of 1933 withdrawing the Registration  Statement.  The Company
elected to withdraw the Registration  Statement in light of discussions with the
SEC as to its  eligibility  for the use of such a Registration  Statement at the
time. See "Liquidity and Capital  Resource"  section  including in Item 6 below,
Item 12 and footnotes to the Financial Statements.

On February  26, 2001 the Company  issued a  qualified  stock  option  under its
Directors  Option Program for the purchase of 400 shares of the Company's common
stock.  The option has a per share exercise price of $2.50,  expires on February
25, 2011 and vested  immediately.  Exemption from  registration is claimed under
Section 4(2) of the Act.

On April 5, 2001 the Company issued a qualified stock option under its Directors
Option Program for the purchase of 513 shares of the Company's common stock. The
option  has a per share  exercise  price of $1.95,  expires on April 5, 2011 and
vested immediately. Exemption from registration is claimed under Section 4(2) of
the Act.


                                       16
<PAGE>

On May 8, 2001 the Company granted a qualified stock option to an employee under
its Inventors Patent Incentive Program for the purchase of up to 1,539 shares of
the Company's  common stock. The option has a per share exercise price of $3.58,
expires on May 7, 2004 and vests upon the  issuance  of the  employee's  patent.
Exemption from registration is claimed under Section 4(2) of the Act.

On June 21, 2001 the Company issued a qualified stock option under its Directors
Option Program for the purchase of 317 shares of the Company's common stock. The
option has a per share  exercise  price of $3.15,  expires on June 20,  2011 and
vested immediately. Exemption from registration is claimed under Section 4(2) of
the Act.

On August 1, 2001 the Company  issued a warrant to a  consultant  in  connection
with a  services  contract  for the  purchase  of up to  100,000  shares  of the
Company's common stock. Under the warrant,  50,000 shares have an exercise price
of $2.50 per share and 50,000 shares have an exercise  price of $3.50 per share,
and vest  immediately.  The warrant  expires on July 31,  2004.  Exemption  from
registration is claimed under Section 4(2) of the Act.

On  August  9,  2001 the  Company  issued a  qualified  stock  option  under its
Directors  Option Program for the purchase of 806 shares of the Company's common
stock. The option has a per share exercise price of $1.24,  expires on August 8,
2011 and vested  immediately.  Exemption  from  registration  is  claimed  under
Section 4(2) of the Act.

On October 25,  2001 the  Company  issued a  qualified  stock  option  under its
Directors  Option Program for the purchase of 735 shares of the Company's common
stock.  The option has a per share exercise  price of $1.36,  expires on October
24, 2011 and vested  immediately.  Exemption from  registration is claimed under
Section 4(2) of the Act.

On November 9, 2001 the Company  completed  an offering of 500,000  units,  each
unit  consisting  of four (4) shares of Common Stock and a three year warrant to
purchase one share of Common Stock at an exercise price of $2.00 per share, to a
foreign  investor (the "Regulation S Offering") at a price of $2.00 per unit for
gross proceeds of  $1,000,000.  A commission of a three year warrant to purchase
200,000 shares of Common Stock at the Fair Market Value of the stock on the date
that the  Regulation  S Offering was closed,  or an exercise  price of $1.30 per
share,  was paid to a  non-affiliate  foreign  person for placement  services in
connection  in the  Regulation  S Offering.  The  Regulation  S Offering was not
registered  under the Act and was conducted in reliance upon the exemption  from
registration  afforded by Regulation S under such Act. All of the  purchasers in
the  Regulation  S  Offering  were  non-U.S.  Persons  as defined in Rule 903 of
Regulation S.

On November 12, 2001 the Company granted a qualified stock option to an employee
under  an  employment  agreement  for the  purchase  of up to 50  shares  of the
Company's  common  stock.  The option has a per share  exercise  price of $1.25,
expires  on  November  11,  2004  and  vested  upon  issuance.   Exemption  from
registration is claimed under Section 4(2) of the Act.


                                       17
<PAGE>

On November 28, 2001 the Company granted a qualified stock option to an employee
under an  employment  agreement  for the  purchase  of up to 200  shares  of the
Company's  common  stock.  The option has a per share  exercise  price of $1.35,
expires  on  November  27,  2004  and  vested  upon  issuance.   Exemption  from
registration is claimed under Section 4(2) of the Act.

On December 1, 2001 the Company  issued a warrant to a consultant  in connection
with a  services  contract  for  the  purchase  of up to  25,000  shares  of the
Company's  common stock at an exercise  price of $1.32 per share.  The warranted
vested  upon  issuance  and  expires  on  December  5,  2004.   Exemption   from
registration is claimed under Section 4(2) of the Act.

On December  10, 2001 the Company  issued a  qualified  stock  option  under its
Directors  Option Program for the purchase of 752 shares of the Company's common
stock.  The option has a per share exercise price of $1.33,  expires on December
9, 2011 and vested  immediately.  Exemption from  registration  is claimed under
Section 4(2) of the Act.


ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

THIS REPORT CONTAINS  FORWARD LOOKING  STATEMENTS  WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934.  THESE  FORWARD  LOOKING  STATEMENTS  ARE SUBJECT TO CERTAIN  RISKS AND
UNCERTAINTIES  THAT  COULD  CAUSE  ACTUAL  RESULTS  TO  DIFFER  MATERIALLY  FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" IN THIS  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION
AND  RESULTS  OF  OPERATIONS"  AND  ELSEWHERE  IN  THIS  REPORT.  THE  FOLLOWING
DISCUSSION  AND  ANALYSIS  SHOULD  BE READ IN  CONJUNCTION  WITH  THE  COMPANY'S
FINANCIAL  STATEMENTS  AND NOTES  THERETO  INCLUDED  ELSEWHERE  IN THIS  REPORT.


Telegen,   through  its  subsidiary   and   predecessor   corporation,   Telegen
Communications  Corporation  ("TCC"),  was organized and commenced operations in
May 1990.  From inception  until 1993,  Telegen was  principally  engaged in the
development  and testing of its  telecommunications  products.  Telegen's  first
product  sales and revenues  were  realized in 1991.  Revenues from 1991 through
1995 were derived primarily from sales of Telegen's telecommunications products.
In 1996,  revenues were derived  primarily  from the  operations of Morning Star
Multimedia,  Inc. ("MSM"), a subsidiary of the Company.  In 1997,  revenues were
derived  from the  operations  of MSM and TCC, a subsidiary  of the Company.  In
1998, revenues were derived from the operations of TCC. In 1999, 2000, and 2001,
Telegen had no operating revenues.

Telegen, through its wholly owned active subsidiary, Telegen Display Corporation
("TDC"), a California  corporation,  is engaged in the development of flat panel
display  technology.  The  results for TDC for FY 2001 are  consolidated  in the
results for Telegen presented in this report.  Through Telegen's  majority owned
active subsidiary,  Telisar Corporation  ("Telisar"),  a California corporation,
the  Company is also  engaged in the  development  of a  proprietary  high-speed
network for the delivery of digital content.

                                       18
<PAGE>

Telegen has incurred significant operating losses in every fiscal year since its
inception,  and, as of December 31, 2001 Telegen has an  accumulated  deficit of
$41,365,746.  As of December 31, 2001  Telegen had working  capital of $508,775.
Telegen expects to continue to incur substantial  operating losses through 2002.
In order to become  profitable,  Telegen must  successfully  develop  commercial
products, manage its operating expenses,  establish manufacturing  capabilities,
create   sales  for  its  products   and  create  a   distribution   capability.


Telegen has made  significant  expenditures  for research and development of its
products.  In order to become  competitive in a changing  business  environment,
Telegen  must  continue  to  make  significant   expenditures  in  these  areas.
Therefore,  Telegen's operating results will depend in large part on development
of a revenue base.


RESULTS OF OPERATIONS

REVENUES.  Revenues for the year ending December 31, 2001 were $0 compared to $0
for the year ending December 31,2000.


COST OF GOODS SOLD.  Cost of goods sold and  contract  services  were $0 for the
year ended December 31, 2001 and $0 for the year ended December 31, 2000.

SALES AND  MARKETING.  Sales and  marketing  expenses were $103,680 for the year
ended December 31, 2001 compared to $0 for the year ended December 31, 2000. All
of the sales and  marketing  expenses for the year ended  December 31, 2001 were
attributable  to Telegen  and  consisted  primarily  of salaries  and  tradeshow
expenses.

RESEARCH AND DEVELOPMENT.  Research and development expenses were $2,338,968 for
the year ended  December  31,  2001  compared to  $1,565,795  for the year ended
December 31, 2000.  Increased  research and  development  expenses for 2001,  as
compared with 2000,  resulted from increased  development  activities related to
the Company's HGED flat panel display and Telisar's  development efforts related
to its  datacasting  technology.  Of the research and  development  expenses for
2001,  $1,590,038 was  attributable to Telegen and $748,930 was  attributable to
Telisar.  Of the  research  and  development  expenses  for 2000,  $802,283  was
attributable to Telegen and $763,512 was  attributable to Telisar.  Research and
development  expenses  for both  Telegen  and  Telisar  consisted  primarily  of
salaries and consulting fees. Research and development  expenses for Telegen for
2001  represent an increase of  approximately  100% as compared with 2000;  this
increase  resulted  primarily  from the completion of the Company's R&D facility
and increased  staffing.  Research and development  expenses for Telisar for the
year ended  December 31, 2000 included a charge of $485,144 for warrants  issued
in  connection  with a  consulting  contract;  excluding  the  charge  for these
warrants,  research and development expenses for Telisar for 2000 were $278,368.
Excluding the warrant expense for 2000,  research and  development  expenses for
Telisar for 2001  represent an increase of  approximately  150% as compared with
2000; this increase  resulted  primarily from increased  staffing and consulting
fees,  including a full year of fees for a consultant firm whose contracts began
in the second half of 2000.

                                       19
<PAGE>

GENERAL AND ADMINISTRATIVE.  General and administrative expenses were $4,072,674
for the twelve months ended  December 31, 2001  compared to  $6,445,775  for the
twelve months ended  December 31, 2000.  Of the 2001 general and  administrative
expenses,  $3,878,340 was  attributable to Telegen and $194,334 was attributable
to Telisar.  The primary components of general and  administrative  expenses for
2001 were  employee  salaries and  accounting  and legal  expenses.  Of the 2000
general and administrative expenses,  $5,893,503 was attributable to Telegen and
$552,272 was  attributable  to Telisar.  The primary  components  of general and
administrative  expenses  for 2000 for  Telegen  were cash  payments  of allowed
claims under the Plan of  Reorganization  confirmed  on June 28, 2000,  employee
salaries and accounting and legal  expenses.  The primary  components of general
and  administrative  expenses  for 2000 for Telisar were  employee  salaries and
accounting  and legal  expenses.  The  decrease  in general  and  administrative
expenses for 2001 as compared to 2000 primarily reflects the payments of allowed
claims under the Plan of  Reorganization  confirmed on June 28, 2000, which were
recorded  in  2000.  While  general  and  administrative  expenses  for  Telegen
decreased  for the second half of 2001 as  compared  with the first half of 2001
and the second  half of 2000,  on a year to year  comparison  this was offset by
decreased  expenses  in the first half of 2000.  The  decrease  in  general  and
administrative  expenses  for the second half of 2001 for Telegen was related to
decreased staffing and corporate  activities as of August 15, 2001. The decrease
in general and  administrative  expenses  for Telisar for 2001 as compared  with
2000 related to decreased staffing and corporate activities for the full year.


INTEREST INCOME AND EXPENSE. Net interest income for the year ended December 31,
2001 was $183,018 as compared with net interest  income of $210,424 for the year
ended December 31, 2000. Of the interest  income and expense for 2001,  $197,261
was interest  income and $14,243 was interest  expense.  The interest income for
the year ended  December 31, 2001 resulted  primarily  from  interest  earned on
deposits;  $178,149 of interest  income was  attributable to Telegen and $19,112
was  attributable  to Telisar.  All of the  interest  expense for the year ended
December  31,  2001 was  attributable  to Telegen  and  consisted  primarily  of
interest  paid to investors in a prior  offering that was canceled by Telegen in
April 2001. Of the interest  income and expense for the year ended  December 31,
2000,  $418,312 was interest  income and  $207,888  was  interest  expense.  The
interest  income for the year ended  December  31,  2000  consisted  of interest
earned on deposits held in financial institutions;  $387,983 was attributable to
Telegen and $30,329 was attributable to Telisar. All of the interest expense for
2000 was  attributable  to Telegen and related to notes  outstanding  during the
period.  The  decrease in interest  income for the year ended  December 31, 2001
resulted  from  decreased   interest   earned  on  deposits  held  in  financial
institutions.


LIQUIDITY AND CAPITAL RESOURCES

Telegen has funded its operations  primarily  through private  placements of its
equity  securities  with  individual  and  institutional  investors.   From  the
inception of the Company through December 31, 2001, Telegen and its subsidiaries
have raised a total of  $42,568,323  in net capital  through the sale of Telegen
common stock, preferred stock and subsidiary common stock. The Company currently
has no preferred  stock  outstanding.  On June 30, 2000, the Company  effected a
one-for-16  reverse split of its common  stock.  All share and per share data in
this section  have been  retroactively  restated to reflect  this reverse  stock
split.

                                       20
<PAGE>

On March 27, 2000, the Company  conducted an offering of up to 1,000,000  shares
of its Common  Stock at a price of $10 per share for total gross  proceeds of up
to $10,000,000 (the "$10 Offering"). The offering was conducted pursuant to Rule
506 of  Regulation  D under the Act. As of June 30, 2000,  the Company  received
subscriptions  for  approximately  $7,200,000 in the $10 Offering.  The proceeds
were held in escrow until a  registration  statement  covering all the shares in
the $10 Offering had been  declared  effective  by the  Securities  and Exchange
Commission  ("SEC") within 180 days after  confirmation of the Company's Plan of
Reorganization. On December 18, 2000, the terms of the $10 Offering were changed
to reduce  the share  price to $5.00 per share and to extend to April 30,  2001,
that date by which a registration  statement  covering all the shares in the $10
Offering had to be declared effective by the SEC. On April 10, 2001, the Company
determined  that it would be  unable to meet the April  30,  2001  deadline  for
effectiveness of its Registration Statement and instructed that all the proceeds
held in escrow be returned to the investors.

On November 9, 2001 the Company  completed  an offering of 500,000  units,  each
unit  consisting  of four (4) shares of Common Stock and a three year warrant to
purchase one share of Common Stock at an exercise price of $2.00 per share, to a
foreign  investor (the "Regulation S Offering") at a price of $2.00 per unit for
gross proceeds of  $1,000,000.  A commission of a three year warrant to purchase
200,000  shares of Common  Stock at an  exercise  price equal to the Fair Market
Value of the stock on the date that the  Regulation  S Offering  was closed,  or
$1.30 per  share,  was paid to a  non-affiliate  foreign  person  for  placement
services in connection in the Regulation S Offering.  The funds were released to
the Company immediately.

In a subsequent  event,  on February 11, 2002 the Company  closed an offering of
250,000 units, each unit consisting of one (1) share of its Common Stock and one
(1) three year warrant to purchase a share of Common Stock at an exercise  price
of $1.00 per share, to an individual for net proceeds of $125,000. No commission
was paid for this  offering.  Proceeds from the offering  were  available to the
Company immediately upon closing.

Telegen  issued 1,200 shares of common stock during the year ended  December 31,
2001 in lieu of cash as payment for certain consulting  services rendered valued
at $5,282.  Pursuant to Telegen's Plan of Reorganization  which was confirmed on
June 28, 2000 Telegen  issued 498,147 shares of common stock during 2001 in lieu
of cash as payment for certain unsecured creditor and  administrative  claims in
its  reorganization,  amounting  to  $846,138.  Pursuant  to  Telegen's  Plan of
Reorganization  which was  confirmed on June 28, 2000,  Telegen  issued  308,590
shares of common  stock and  committed to issue  491,659  shares of common stock
during  2000 in lieu of cash as  payment  for  certain  unsecured  creditor  and
administrative claims in its reorganization, amounting to $1,317,871.

Telegen's future capital  requirements will depend upon many factors,  including
the extent and timing of  acceptance  of Telegen's  products in the market,  the
progress of Telegen's research and development,  Telegen's operating results and
the status of competitive  products.  Additionally,  Telegen's  general  working
capital  needs will depend upon  numerous  factors,  including  the  progress of
Telegen's research and development activities,  the cost of increasing Telegen's
sales,  marketing  and  manufacturing  activities  and the  amount  of  revenues
generated from operations.  Although Telegen believes it will obtain  additional


                                       21
<PAGE>

funding in 2002,  there can be no assurance  that Telegen will be able to obtain
such  funding  or that it will  not  require  additional  funding,  or that  any
additional  financing  will be available to Telegen on acceptable  terms,  if at
all, to meet its capital demands for operations.  Telegen  believes it will also
require substantial  capital to complete  development of a finished prototype of
the flat panel display technology, and that additional capital will be needed to
establish a high volume  production  capability.  There can be no assurance that
any additional financing will be available to Telegen on acceptable terms, if at
all. If adequate funds are not available as required,  the results of operations
from the flat panel technology will be materially adversely affected.

Telegen does not have a final estimate of costs nor the funds available to build
a full-scale production plant for the flat panel display and will not be able to
build this plant without securing significant additional capital.  Telegen plans
to secure  these funds either (1) from a large joint  venture  partner who would
then be a  co-owner  of the  plant or (2)  through a future  public  or  private
offering  of  stock.  Even if such  funding  can be  obtained,  which  cannot be
assured,  it is currently estimated that a full scale production plant could not
be completed and producing  significant  numbers of flat panel  displays  before
early  2003.  Telegen is also  currently  contemplating  entering  into  license
agreements with large enterprises to manufacture the displays. The manufacturers
would  also  have  the  attributes  of  established   manufacturing   expertise,
distribution  channels to assure a ready market for the displays and established
reputations,   enhancing  market  acceptance.   Further,  Telegen  might  obtain
front-end license fees and ongoing royalties for income.  However,  Telegen does
not currently expect to have any such manufacturing  license agreements in place
before the end of 2002, or any  significant  production  of displays  thereunder
before early 2003.

Telegen's  future  capital  infusions  will  depend  entirely  on its ability to
attract new investment capital based on the appeal of the inherent attributes of
its  technology and the belief that the technology can be developed and taken to
profitable  manufacturing  in the foreseeable  future.  Telegen's actual working
capital  needs will depend  upon  numerous  factors  including  the  progress of
Telegen's research and development activities,  the cost of increasing Telegen's
sales,  marketing  and  manufacturing  activities  and the  amount  of  revenues
generated from operations, none of which can be predicted with certainty.

Telegen  anticipates  incurring  substantial costs for research and development,
sales  and  marketing  activities.   Management  believes  that  development  of
commercial  products,  an active marketing program and a significant field sales
force are essential for Telegen's long-term success.  Telegen estimates that its
total  expenditures  for  research and  development  and related  equipment  and
overhead  costs  for  flat  panel  display   development  could  aggregate  over
$3,000,000  during 2002 and for research and development  and related  equipment
and overhead  costs for Telisar could  aggregate  over  $5,000,000  during 2002.
Telegen  estimates  that its total  expenditures  for sales and marketing  could
aggregate over $1,000,000 during 2002.


                                       22
<PAGE>


                                  RISK FACTORS

In  addition  to the  other  information  in this  Report  on Form  10-KSB,  the
following risk factors should be considered  carefully in evaluating the Company
and its business:


Telegen is a high technology company with no revenues.

Telegen,  along  with its  subsidiaries,  has a  limited  operating  history  in
developing and commercializing its products, has generated no revenues since the
year ended 1998,  and it is  difficult to evaluate  the  Company's  business and
prospects. The Company has been engaged in lengthy development of its flat panel
display technology since 1995, as well as other  technologies,  and has incurred
significant  operating  losses in every  fiscal  year since its  inception.  The
cumulative net loss for the period from May 3, 1990 (inception) through December
31,  2001 is  $41,365,746.  The Company  expects to continue to incur  operating
losses until at least the year 2003 as the Company  continues  expenditures  for
product   development,   continued  United  States  and   international   patent
prosecution  and  enforcement,   marketing  and  sales,  and  establishment  and
expansion of manufacturing and distribution capabilities.

In order to become  profitable,  Telegen must successfully  develop,  introduce,
market,  and sell  products and manage its operating  expenses.  There can be no
assurance that the Company will meet and realize any of these objectives or ever
achieve profitability.  If the Company does achieve profitability,  it cannot be
certain that it can sustain or increase  profitability  on a quarterly or annual
basis.  The  Company's  failure to meet and realize any of these  objectives  or
achieve  profitability  may have a  material  adverse  effect  on the  Company's
business,  financial  condition,  and results of operations.  See  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."


September 11, 2001 Terrorist Attack

As a result of the terrorist attacks in New York, Washington and Pennsylvania on
September 11, 2001, significant financial and political changes have taken place
in the United  States and in the World.  These  changes will have an effect upon
Telegen  and the future  activities  contemplated  by this  report.  Most of the
Company's  plans were made prior to  September  11th and  without  regard to the
events  which  took  place  on  that  date.  As a  result,  future  developments
concerning  Telegen  and its  ability  to act in  accordance  with the plans and
expectations set forth herein are subject to significant uncertainty.


Telegen  will  require  additional  capital to  develop  and  commercialize  its
products.

The development and commercialization of the products and future products of the
Company and its  subsidiaries  requires the expenditure of significant  capital.
Furthermore,  the Company expects to incur operating  losses for the foreseeable
future and it is currently  subject to a "going concern"  opinion by its outside


                                       23
<PAGE>

auditors.  The  Company's  actual  working  capital  needs will depend upon many
factors, including but not limited to, the progress and success of the Company's
research and development,  the extent and timing of commercial acceptance of the
Company's  products,   the  Company's  operating  results,  and  the  status  of
competitive  products.  The Company will require  additional funding in order to
achieve its operating objectives. The Company may seek to obtain such additional
funds primarily through  additional public or private equity or debt financings,
as  well  as  through  strategic  financial  partners.  If  the  Company  raises
additional  funds  through  the  issuance  of  equity,  equity-related  or  debt
securities, such 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 the
risk or  perceived  risk of the  Company.  There  can be no  assurance  that any
additional financing will be available to the Company on acceptable terms, if at
all. If adequate funds are not available as required,  the Company's  results of
operations  will  be  materially  adversely  affected.  See  also  "Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
Liquidity and Capital Resources."


Going Concern

Singer Lewak Greenbaum & Goldstein LLP, in their  independent  auditors' report,
has expressed "substantial doubt" as to Telegen's ability to continue as a going
concern based on significant  operating losses that Telegen's has incurred since
inception.  Telegen's  consolidated  financial  statements  do not  include  any
adjustments  that might result from the outcome of that  uncertainty.  The going
concern  qualification  is  also  described  in the  notes  to the  consolidated
financial statements.


There can be no assurance of successful product development,  commercialization,
or sales.

To achieve  profitable  operations,  the  Company,  alone or with  others,  must
successfully  develop,  introduce,  market,  and sell products.  There can be no
assurance that the HGED flat panel display,  the Telisar  datacasting  system or
any other  product will be  successfully  developed  or, if  developed,  will be
successfully  marketed,  that the Company will realize future revenues,  or that
the Company will achieve  profitability.  The Company's  products and operations
are in development  and are subject to the risks inherent in the  development of
high  technology   products,   including   unforeseen  delays,   expenses,   and
complications frequently encountered in the development and commercialization of
high  technology  products,  the  dependence  on and  attempts  to apply new and
rapidly  changing  technology,  and  the  competitive  environment  of the  high
technology  industry.  Many of these events may be beyond the Company's control,
such as  unanticipated  development  requirements  and  manufacturing  problems.
Further,  there  can be no  assurance  that  the HGED  flat  panel  display,  if
successfully  developed,  or the Telisar  datacasting  system,  if  successfully
developed and deployed,  will attain acceptance by the industry.  Any failure to
develop  successfully,  or any  delays in the  successful  development  of,  the
Company's products may have a material adverse effect on the Company's business,
financial condition, and results of operations.


                                       24
<PAGE>

Telegen has limited sales, marketing, and distribution capabilities.

Telegen  has  limited   sales,   marketing   and   distribution   expertise  and
capabilities.  Establishing  and maintaining  sales,  marketing and distribution
expertise and capabilities may require significant expenses, including additions
to  personnel.  There can be no  assurance  that  Telegen  will have  sufficient
capital  resources  necessary to expand its sales,  marketing  and  distribution
expertise and  capabilities,  or that,  even if such  resources  are  available,
Telegen  will be  successful  in doing so. If the Company is unable to establish
and maintain  significant  sales,  marketing and  distribution  efforts,  either
internally or through  arrangements with third parties,  the Company's business,
financial  condition,  and results of  operations  may be  materially  adversely
affected.


If Telegen fails to secure  strategic  partnerships  for the  manufacture of its
products, the commercialization of its products may be delayed.

A key  component  of the  Company's  business  plan  is to  establish  strategic
partnerships  with  technology  companies.  The Company  expects its partners to
provide manufacturing  technology and expertise.  While the Company is currently
in discussions with several  technology  companies,  it may not reach definitive
agreements with any of them. In the absence of establishing these  partnerships,
the  commercialization  of the  Company's  products  may be  delayed,  which may
materially and adversely affect the Company's business, financial condition, and
results of operations.


Telegen may not be able to protect its proprietary information.

The Company's success and ability to develop its products and eventually compete
depends  to  a  significant  degree  upon  the  protection  of  its  proprietary
technology.  The Company  relies on a combination  of patents,  trade secret and
other intellectual property law,  nondisclosure  agreements and other protective
measures to preserve its rights  pertaining to its technology.  Such protection,
however,  may not preclude competitors from developing products similar to those
of the  Company.  In  addition,  the laws of certain  foreign  countries  do not
protect the Company's  intellectual property rights to the same extent as do the
laws of the United States.

The Company may face  intellectual  property  infringement  claims that could be
costly to defend and result in the Company's  loss of  significant  rights.  The
Company  competes 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 the Company's ability to
conduct   its   business   without   first   obtaining   licenses   or  granting
cross-licenses,  which may not be available on commercially reasonable terms, if
at all. The Company does 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 the  Company's
business, financial condition, and results of operations.

                                       25
<PAGE>

Other parties may assert intellectual  property  infringement claims against the
Company, and its 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 the Company's business. If there is
a  successful  claim of  infringement,  the  Company  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,  the Company could
be  required  to  cease  selling  any of its  products  that  infringe  upon the
intellectual  property  rights of  others.  Successful  claims  of  intellectual
property  infringement against the Company may have a material adverse effect on
the Company's business,  financial  condition,  and results of operations.  Even
successful defense and prosecution of patent suits is costly and time consuming.

Although the Company has received  three U. S. patents on its flat panel display
technology and one U.S. patent on its telephone call routing  technology,  these
patents only provide  protection in the U.S. and there can be no assurance  that
they will adequately  prevent  competitors  from copying the technology  without
expensive and time consuming  litigation.  Also,  although the Company has filed
more than two dozen  additional  U.S.  patent  applications  on its flat  panel,
antenna  and Telisar  datacasting  technology,  and  intends to file  additional
patent applications both in the U.S. and in key countries  worldwide,  there can
be  no  assurance  that  the  Company's  efforts  to  obtain  additional  patent
protection for its various products will be successful or, if additional  patent
protection is obtained,  that any or all of the  Company's  patents will provide
adequate  protection.  The  Company's  competitors  may develop  techniques  and
processes  that do not infringe  upon the Company's  technology,  and that allow
them to  build  products  that are  competitive  with  the  Company's  products.
Furthermore,  there can be no assurance  that the Company's  patents will not be
successfully  challenged in future  administrative or judicial  proceedings.  In
addition,  continued  efforts to maintain and expand patent  protection  for the
Company's  various products will require ongoing  expenditures of management and
technical  staff  attention,  as well as  financial  resources,  and any  future
inability to dedicate  these  resources in a timely manner may adversely  affect
the scope of patent protection.

The Company relies in part on unpatented proprietary technology,  and others may
independently  develop the same or similar technology or otherwise obtain access
to the Company's unpatented  technology.  To protect the Company's trade secrets
and other proprietary information, it requires employees,  consultants, advisors
and  strategic  partners  to  enter  into  confidentiality   agreements.   These
agreements  may  not  provide  meaningful  protection  for the  Company's  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, the Company may not be
able to protect its  proprietary  information  as it conducts  discussions  with
potential strategic partners.  If it is unable to protect the proprietary nature
of the  Company's  technologies,  it may have a material  adverse  effect on the
Company's business, financial condition, and results of operations.



                                       26
<PAGE>

The Company  faces  intense  competition  from  companies  that may have greater
resources.

The  market for the  Company's  products  is very  competitive  and the  Company
expects  this  competition  to  increase  continually.  There  are a  number  of
well-funded U.S. and foreign  companies that have  established  products and are
developing   new  products  that  compete  with  the  products  the  Company  is
developing.  There can be no assurance  that the Company will be able to compete
effectively  against its competitors,  most of whom have  substantially  greater
financial resources and operating experience than the Company.


Many of the Company's  current and future  competitors  may have advantages over
the Company, including:

     o    Well-established products that dominate the market;

     o    longer operating histories;

     o    established customer bases;

     o    substantially greater financial resources;

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

     o    greater name recognition.

The  Company's  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  ability to compete with the
Company.  In  addition,  competitors  may be able to adapt more quickly than the
Company can to new or emerging technologies and changes in customer needs, or to
devote more  resources to promoting and selling their  products.  If the Company
fails to adapt to market demands and to compete  successfully  with existing and
new  competitors,  the  Company's  results  of  operations  could be  materially
adversely affected.

The market for the  Company's  products is changing  rapidly and there can be no
assurance  that the  Company  can  compete,  especially  in light of its limited
resources.   There  can  be  no  assurance  that  the  Company's   products  and
technologies can compete  successfully on a cost,  quality or market  acceptance
basis with these other products and technologies.


                                      27
<PAGE>

Telegen is dependent on key personnel.

The Company's  future success will depend in significant part upon the continued
services of certain  key  technical  and senior  management  personnel,  and the
Company's ability to attract,  assimilate and retain highly qualified technical,
managerial and sales and marketing personnel.  Competition for such personnel is
intense,  and there can be no assurance that the Company can retain its existing
key  managerial,  technical  or sales  and  marketing  personnel  or that it can
attract,  assimilate  and retain such  employees in the future.  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 the Company's  results of
operations.


Telegen  may  be  materially  disadvantaged  if  it  fails  to  keep  pace  with
technological changes.

The market for the Company's  products 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
obsolete and unmarketable.  Telegen's success will be dependent in part upon its
ability to  anticipate  changes in  technology  and  industry  standards  and to
successfully  develop and introduce new and enhanced products on a timely basis.
There can be no assurance that the Company will be successful in the development
of its  technology  or that the Company  will not  encounter  technical or other
serious  difficulties  in  its  development  or  commercialization  which  would
materially adversely affect the Company's results of operations.


Telegen is dependent on a limited number of manufacturing  sources and component
suppliers.

The  Company  currently  relies  upon a  limited  number  of  suppliers  for the
specialized components,  materials, and equipment used in its flat panel display
and datacasting  products.  Although the Company is currently seeking to qualify
alternative   sources  of  supply,  the  Company  has  not  yet  contracted  for
alternative  suppliers to provide such specialized  components,  materials,  and
equipment.  The  Company's  reliance on these  single  source or limited  source
suppliers creates a risk that it will be unable to obtain components, materials,
or  equipment  when  needed.  In the event that there  were an  interruption  of
production or delivery of these  specialized  items,  the  Company's  ability to
develop and deliver its products in a timely fashion could be compromised, which
may  materially  and  adversely   affect  the  Company's   business,   financial
conditions, and results of operations.

Even if alternate supplies are available,  they may be more expensive, of lesser
quality,  or not  available  as  quickly as needed.  The  Company  does not have
guaranteed  supply  arrangements with any of its suppliers and does not maintain
an extensive inventory of components or materials.  Although to date the Company
has  generally  been  able to  obtain  adequate  supplies  of these  specialized
components and materials,  the Company obtains these components and materials on


                                       28
<PAGE>

a purchase order basis and does not have  long-term  contracts with any of these
suppliers.  In addition,  some suppliers require that the Company either pre-pay
the price of components  being  purchased or establish an irrevocable  letter of
credit  for the  amount of the  purchase.  Any  reduced  availability,  inferior
quality or increased cost of necessary  components or materials could materially
impair the  Company's  ability to develop and  deliver its  products on a timely
basis.  In  addition,  the  purchase  of some  key  components,  materials,  and
equipment involves long lead times and, in the event of unanticipated  increases
in demand for the Company's products,  the Company may be unable to obtain these
components,  materials,  and equipment in sufficient  quantities  and quality as
well as on a timely  basis.  The  Company's  inability  in the  future to obtain
sufficient  limited-source  components or materials,  or to develop  alternative
sources, could result in delays in product introduction or shipments,  which may
materially and adversely affect the Company's  business,  financial  conditions,
and results of operations.


International instability could harm overseas joint ventures.

The Company has a joint venture with the Volga-Svet Research Institute,  located
in  Saratov,  Russia.  The Company is  dependent  upon the  Volga-Svet  Research
Institute  for  certain   prototype   construction  and  contract  research  and
development  activities.  The Company's development and technology transfer plan
depends upon  political  stability in the Russian  Federation  for the period of
time it uses the Volga-Svet  Research  Institute for prototype  construction and
development  activities.  Should political  instability in Russia interfere with
either the  prototype  construction,  development  efforts,  or the  transfer of
applicable  technology to the Company,  the Company's results of operations from
the flat panel technology could be materially and adversely affected.


The Company's future operating results are difficult to predict, and if it fails
to meet the  expectations of securities  analysts or investors,  its stock price
could decline or fluctuate significantly.

Due to the Company's limited  operating history and the significant  development
and  manufacturing  objectives  that  it  must  achieve  to be  successful,  the
Company's  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 the Company is unable to develop and  manufacture its
products in a timely  manner.  Factors that could inhibit the Company's  product
and manufacturing development and future operating results include:

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

     o    failure to obtain sufficient financing when needed;

     o    failure to secure key manufacturing or other strategic partnerships;

     o    competitive  factors,  including  the  introduction  of new  products,
          product   enhancements   and  the  introduction  of  new  or  improved
          technologies   by  the  Company's   competitors,   the  entry  of  new
          competitors  into the flat panel  display or  datacasting  markets and
          pricing pressures;

                                       29
<PAGE>

     o    failure to  introduce  and  market  products  that meet the  Company's
          customers' design requirements and design cycles; and

     o    loss or variations in the timing of customer  orders which could cause
          significant fluctuations in the Company's operating results due to the
          expected concentration of the Company's revenue in a limited number of
          customers.

As a  result  of these  factors,  the  Company  believes  that  period-to-period
comparisons  of  operating  results  are  not a  reliable  indicator  of  future
performance  at this time. If in some future  period,  the  Company's  operating
results or business outlook fall below the  expectations of securities  analysts
or  investors,  Telegen's  stock price  would be likely to decline or  fluctuate
significantly.


The  Company's  businesses  are subject to federal,  state and local  regulatory
issues.

The  flat  panel   display   business  is  subject  to  handling  and  reporting
requirements  of the U. S.  Environmental  Protection  Agency (the  "EPA"),  the
California  Occupational Safety and Health Administration  ("CalOSHA") and local
environmental  authorities  regarding  certain  chemical  materials  used in the
development  and  manufacture of its flat panel  displays.  Although the Company
believes  it is  currently  in  compliance  in all  material  respects  with all
applicable  rules,  regulations and  requirements,  new  regulations,  rules and
requirements are enacted continually, including local and state initiatives, and
there can be no  assurance  that  future  rules,  regulations,  requirements  or
initiatives  will not be enacted which could have a material adverse effect upon
the Company's results of operations.

Telisar's  wireless  delivery  system is  subject  to the rules and  regulations
issued  by  the  Federal  Communications  Commission  ("FCC"),  including  rules
governing its hardware systems under Part 15. Although Telisar believes that its
wireless system complies with all applicable  rules and regulations  promulgated
by the FCC, new regulations,  rules and requirements are enacted continually and
there can be no assurance that future rules,  regulations or  requirements  will
not be enacted which could have a material adverse effect upon Telisar's results
of operations.


The Company has a number of technology  issues to resolve before it will be able
to manufacture a commercially viable product.

Although  Telisar has  completed  initial  engineering  and  development  of its
datacasting system, further development work and field testing will be necessary
before the system can be  deployed.  To date,  Telisar  has not yet begun  field
testing or deployment of the system.


                                       30
<PAGE>

To bring the Company's  flat panel display  products to market,  it will need to
commit   significant   resources  to  the   development   of  its  products  and
manufacturing  processes.  To date,  the Company has produced  prototypes of its
displays,  which have provided it with only limited product life and reliability
data. The Company has identified several technology issues that must be resolved
before it can demonstrate a commercially viable product, including:

     o    lack of uniformity of display brightness;

     o    variability of brightness near internal support structures; and

     o    satisfactory product useful life.

In addition,  to  manufacture  economically  viable  products for the  Company's
target markets, the Company must improve its process yields and achieve targeted
cost reductions. If the Company is unable to solve current and future technology
issues,  it will not be able to manufacture a commercially  viable  product.  In
addition,  if  the  Company  encounters   unanticipated  difficulty  in  solving
technology issues, its research and development costs could substantially exceed
budgeted  amounts,  and it may take  longer  to  produce a  commercially  viable
product than the Company currently expects.

The  Company's  future  operating   results  may  depend  upon  its  ability  to
manufacture  its products at a competitive  cost. To do so, the Company may have
to develop  manufacturing  processes and acquire equipment and tooling that will
allow it to produce high volumes of products at commercially  viable yields. The
Company has no flat panel display manufacturing experience or capability,  which
may hurt its ability to manufacture products at a competitive cost, and has only
recently completed  construction of its prototype  manufacturing  facility.  The
Company has no experience manufacturing its products on larger glass substrates,
or manufacturing its products in volume, and its current facility cannot produce
displays in volume. Because the Company has no experience with manufacturing its
products,  it may  not be  able  to  establish  a  manufacturing  capacity  at a
reasonable cost,  maintain the quality of its products as production  increases,
or develop  the  administrative  and  operational  infrastructure  necessary  to
support  expanded  operations.  If it fails to achieve volume  production of its
products with competitive  yields at acceptable  costs, the Company's  business,
financial  condition,  and results of operations may be materially and adversely
affected.


The Company's products may not be accepted by a sufficient number of customers.

The Company may never develop the performance characteristics of its products to
a level that is commercially  acceptable to original equipment manufacturers who
could  incorporate  the  Company's  displays  into their final  products.  It is
possible  that demand for any  particular  product by these  customers  will not
develop  as the  Company  expects,  or, if it  develops,  that it will not be of
sufficient volume to enable the Company to achieve profitability.



                                       31
<PAGE>

The Company may never be able to develop large-size HGED displays.

Although  Telegen's  business  plans do not  currently  call  for the  near-term
development of large-size HGED displays  (larger than 17" diagonal),  the market
for flat panel  displays is  continually  changing and may require in the future
that Telegen  increase the diagonal size of its displays or risk losing a market
opportunity.  Such an effort to develop  large-size HGED displays is expected to
be  significant  and Telegen does not  currently  have the capital  necessary to
begin  such an  effort.  Even if  Telegen  were  able to  begin  development  of
large-size  HGED displays,  there can be no assurance that such efforts would be
successful or, if successful,  that large-size HGED displays could be built at a
low enough cost or high enough performance to be commercially successful.


                       Risks Relating to the Common Stock

The  Company  does not intend to pay  dividends;  shareholders  will not receive
funds without selling Common Stock.

The Company has never  declared or paid any cash  dividends on its capital stock
and does not intend to pay  dividends  in the  foreseeable  future.  The Company
intends to invest all future  earnings,  if any, to fund its growth.  Therefore,
shareholders  will not receive any funds without selling their Common Stock. See
"The Company's Common Stock is thinly traded", below.


The Company's Common Stock is thinly traded.

The trading volume of the Company's Common Stock, even when it was listed on The
Nasdaq Stock  MarketSM  ("SmallCap"),  was 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 for the high tech industry, generally,
and the Company's 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.  In
addition,  the stock market has recently  experienced  extreme  price and volume
fluctuations,  which  have  particularly  affected  the  market  prices  of many
technology  companies,  including  Telegen,  and which the Company believes have
often been  unrelated  to the  operating  performance  of these  companies or of
Telegen.


Potential adverse effect of issuance of preferred stock.

The  Company's  Articles  of  Incorporation  allow  the  Company  to issue up to
10,000,000  shares of Preferred Stock without further  shareholder  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, the Company.  This could limit the price that  certain  investors  might be
willing  to pay in the future for shares of Common  Stock.  The  Company  has no
present plans to issue any additional shares of Preferred Stock.

                                       32
<PAGE>


Certain shareholders together own or have the right to vote approximately 37.96%
of the voting stock; the voting power of other shareholders may be limited.

Certain shareholders,  including executive officers and directors,  beneficially
own or control,  directly or  indirectly,  outstanding  shares of Common  Stock,
which in the aggregate represent  approximately 37.96% of the outstanding shares
of Common Stock. As a result, if some of these persons or entities act together,
they may have the ability to control all matters  submitted to the  shareholders
for  approval,  including the election and removal of directors and the approval
of any business  combination.  This may delay or prevent an acquisition or cause
the market price of the  Company's  stock to decline.  Some of these  persons or
entities may have  interests  different  than other  shareholders.  For example,
these  shareholders may be more interested in selling the Company to an acquirer
than other  investors or may want to pursue  strategies  that are different from
that of other investors.


The Company's Common Stock is quoted on the Over-the-Counter Bulletin Board; the
Company is not required to meet or maintain any listing standards for its Common
Stock to be quoted on the Over-the-Counter Bulletin Board.

The Company's Common Stock is currently quoted on the Over-the-Counter  Bulletin
Board ("OTCBB"). Although the OTCBB is a regulated quotation service operated by
the  NASD  that  displays  real-time  quotes,   last  sale  prices,  and  volume
information in  over-the-counter  equity securities such as the Company's Common
Stock, the OTCBB is a quotation  medium for subscribing  members of the National
Association of Securities  Dealers,  Inc., not an issuer  listing  service,  and
should not be  confused  with The Nasdaq  Stock  MarketSM.  There are no minimum
quantitative  or qualitative  standards  which must be met by the Company or any
issuer for its securities to be quoted on the OTCBB.  There is no assurance that
the OTCBB can or will provide sufficient  liquidity for the purchase and sale of
the  Company's  Common Stock.  The SEC's  Order-Handling  Rules,  which apply to
Nasdaq-listed securities, do not apply to OTCBB securities. The Company's Common
Stock was traded on The Nasdaq Stock  MarketSM  ("SmallCap")  until  January 22,
1998, at which time its listing ceased.  Thereafter,  the Company's Common Stock
was  quoted on the OTCBB  and,  for a period of time,  on the Pink  Sheets.  The
Company  intends for its Common Stock again to be listed on the SmallCap as soon
as it meets the applicable listing and maintenance requirements. On February 22,
1998, Nasdaq raised such listing and maintenance  requirements and the Company's
Common Stock does not presently meet the minimum  listing  standards for listing
on The Nasdaq Stock MarketSM or any national securities  exchange.  There can be
no assurance  that the Company will be  successful in relisting its stock on the
SmallCap,  in the  near  future,  if at  all,  or  that,  if  such  efforts  are
successful, a broad trading market will develop in the Company's Common Stock.


The Company's Common Stock may be subject to the Penny Stock Rules.

Since  the  Company's  Common  Stock is not  listed on any  national  securities
exchanges or the Nasdaq Stock Market and the price at which the Company  expects
the Common Stock to be quoted for the foreseeable  future may be below $5.00, it


                                       33
<PAGE>

is possible  that resales of the  Company's  Common Stock will be subject to the
requirements  of the penny stock rules.  The Securities and Exchange  Commission
has adopted  rules that  regulate  broker-dealer  practices in  connection  with
transactions  in "penny  stocks." Penny stocks  generally are equity  securities
with a price of less  than  $5.00  (other  than  securities  listed  on  certain
national securities  exchanges or quoted on The Nasdaq Stock Market).  The penny
stock rules require a  broker-dealer  to deliver a standardized  risk disclosure
document  prepared by the  Commission,  to provide the customer with current bid
and offer quotations for the penny stock, the compensation of the  broker-dealer
and its salesperson in the transaction,  and monthly account  statements showing
the market value of each penny stock held in the customer's  account,  to make a
special written  determination  that the penny stock is suitable  investment for
the  purchaser  and  to  receive  the  purchaser's   written  agreement  to  the
transaction.  These disclosure  requirements may have the effect of reducing the
level of trading  activity in the market.  As the  Company's  Common  Stock will
likely be subject to the penny stock rules, investors may find it more difficult
to sell the Company's Common Stock.


ITEM 7. FINANCIAL STATEMENTS

The  information  required by this Item is set forth in the Company's  Financial
Statements and Notes thereto beginning at page F-1 of this report.


ITEM 8. CHANGES IN AND  DISAGREEMENTS  WITH THE  ACCOUNTANTS  ON ACCOUNTING  AND
        FINANCIAL DISCLOSURE.

There  were no  changes  or  disagreements  with the  Company's  accountants  on
accounting  or financial  disclosure  during the fiscal year ended  December 31,
2001.






                                       34
<PAGE>

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

(a) Profiles of Directors and Executive Officers
    --------------------------------------------

<TABLE>
<CAPTION>
                                                                          Date        Date
 Name                      Age   Position                                 Commenced   Terminated
 ----                      ---   --------                                 ---------   ----------
 <S>                       <C>   <C>                                      <C>         <C>
 Jessica L. Stevens*       44    Chair of the Board/                      5/03/90       N/A**
                                 Chief Executive Officer/Director

 Bonnie A. Crystal*        48    Executive Vice President/                5/03/90       N/A**
                                 Chief Technical Officer/Director

 William M. Swayne II***   56    President/                               7/01/00       8/15/01
                                 Chief Operating Officer/Director

 Dennis Wood               52    Chief Administrative Officer             7/01/00       8/15/01

 Stalimir Popovich         51    Senior Vice President/Telegen Displays   5/09/00       11/15/01

 Victoria Kolakowski*      40    Chief Administrative Officer/            9/15/97       ----
                                 General Counsel

 Steven Weiss*             48    Vice President/Research & Development    7/01/00       ----

 Lisa M. Yamonaco*         41    Vice President/Product Development       9/11/00       ----

 Bruce Lurie               51    Vice President/Business Developent       10/15/00      8/15/01

 Donna M. Morabito*        35    Vice President/Business Development &    7/01/00       ----
                                 Corporate Communications

 Jack King ****            57    Director                                 7/01/00       4/01/01

 Bernard Brown *           65    Director                                 7/01/00       -----
</TABLE>

--------------------------------------------------------------------------------
 *     c/o Telegen Corporation
       1840 Gateway Drive, Suite 200
       San Mateo, California 94404
 **    Jessica L. Stevens and Bonnie  Crystal were  terminated as officers
       and employees on October 31, 1997 but remained directors. They were
       reappointed  to their  prior  officer  and  employee  positions  on
       October 11, 1998.
 ***   William M. Swayne remains a Director.

 ****  Jack King  resigned as an officer and  employee  effective  April 1,
       2001 and resigned as a Director effective June 11, 2001.
--------------------------------------------------------------------------------

                                       35
<PAGE>

JESSICA L. STEVENS has been an inventor  and  engineer for over two decades.  In
May 1990,  she  co-founded  Telegen  Communications  Corporation,  then known as
Telegen Corporation and the predecessor  corporation to the Company, with Bonnie
A. Crystal and served as  President,  Chief  Executive  Officer and Chair of the
Board until  October  1996,  when she was appointed to the same offices with the
Company following its merger with Solar Energy Research  Corporation.  In August
1997,  she stepped  down as Chair of the Board and CEO and was  appointed  Chief
Technology  Officer,  a position she held until October 31, 1997,  when she left
the  employment  of the Company but remained a director.  In October  1998,  she
returned to the Company and was reappointed  President,  Chief Executive Officer
and Chair of the Board. She is also the Chair of the Board,  President and Chief
Executive  Officer  of  the  Company's   subsidiaries,   Telegen  Communications
Corporations,  Telegen Display Corporation and Telisar Corporation. From 1988 to
1989,  Ms.  Stevens was Chair of the Board of  Directors  and Vice  President of
Engineering/Manufacturing  at Absolute  Entertainment,  Inc.  and  Imagineering,
Inc.,  both of New Jersey.  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. Ms.
Stevens  has  worked as a  consultant  to  numerous  high  technology  companies
including Apple Computer, Inc., Activision,  Inc., AT&T, GEC Marconi,  McDonnell
Douglas  and  Parker  Brothers.  She is an  active  member  of the  Society  for
Informational Displays (SID).

BONNIE A. CRYSTAL has been a telecommunications,  display and wireless engineer,
consultant  and  inventor  for over two  decades.  In May 1990,  she  co-founded
Telegen  Communications  Corporation,  then known as Telegen Corporation and the
predecessor  corporation  to the Company,  with Jessica L. Stevens and served as
Executive Vice President,  Secretary and a director until October 1996, when she
was  appointed to the same offices  with the Company  following  its merger with
Solar Energy Research Corporation.  On October 31, 1997, she left the employment
of the Company but  remained a director.  In October  1998,  she returned to the
Company and was  reappointed  Executive Vice President and Secretary in addition
to the position of Chief  Technology  Officer.  She is also the  Executive  Vice
President,   Chief   Technology   Officer  and  a  director  of  the   Company's
subsidiaries,  Telegen Communications Corporations,  Telegen Display Corporation
and Telisar  Corporation.  From 1989 to 1991,  she was Senior Staff Engineer for
R&D for Toshiba  America MRI, Inc. From 1984 to 1989, she was a Senior  Engineer
at Astec, USA, Ltd., specializing 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.

DENNIS WOOD served as Chief Administrative  Officer of Telegen from July 1, 2000
through August 15, 2001. He has been a senior executive in the entertainment and
high  technology  business since 1979. From 1996 through January 2000, he served
as President of Human Entertainment,  Inc. of Los Altos,  California, a US-based
subsidiary of the Japanese  entertainment  software  company Human  Corporation,
where he also  served on the Board of  Directors.  From 1985  through  1996,  he
served as Chief  Administrative  Officer,  Senior  Vice  President  and  General
Counsel  at  Time-Warner   Interactive/Atari   Games  Corporation  of  Milpitas,
California.  From 1982  through  1985,  Mr.  Wood served as Vice  President  and
General  Counsel for  Namco-America,  Inc,  the US  subsidiary  of the  Japanese
software  company  Namco Ltd.  From 1979  through  1981,  Mr.  Wood was a Senior
Attorney  at  Hewlett  Packard  Company  in Palo  Alto.  Mr.  Wood is a licensed
attorney.  Mr. Wood  received his Juris  Doctor  degree from the  University  of
Montana  in 1974 and  holds a  Bachelor  of  Science  in  Economics  from  UCLA.

                                       36
<PAGE>

STALIMIR  POPOVICH  started  with  Telegen  Display   Laboratories,   Inc.,  the
predecessor to Telegen Display Corporation,  as Manufacturing  Director in 1996.
He resigned  from Telegen  Display  Laboratories,  Inc. in 1998,  rejoining  the
Company as Vice President/Manufacturing and Mechanical Engineering Group Manager
from May 9, 2000  through  November 15, 2001.  In March 2001,  he was  appointed
Senior Vice  President in charge of Telegen  Display  Corporation.  Prior to his
original  employment  with  Telegen,  from 1988 through 1996,  Mr.  Popovich was
Manufacturing   Manager  for  Printronix,   Inc.  of  Irvine,   CA,  supervising
manufacturing  development,  tooling,  process  engineering and assembly of high
volume  printers.  Mr.  Popovich  also  coordinated  manufacturing  and  tooling
programs  for  facilities  in  Holland,  Singapore  and  California.   Prior  to
Printronix,  Mr. Popovich held positions as a Senior  Engineer at ITT Cannon,  a
Research  and  Development  Project  Engineer  at  Bell  Helmets,  Inc.,  and  a
Manufacturing  Engineer at Smith Tool,  Inc.  Mr.  Popovich  holds a Bachelor of
Science in  Mechanical  Engineering  from the  Industrial  College of Mechanical
Engineering,  Prague,  a Master of Science in Economics  from the Czech National
University at Prague and has done Postgraduate Studies in Industrial  Technology
at California State University at Long Beach. Mr. Popovich is a Senior Member of
ASQC and SME and speaks fluent Czech, Russian and Serbo-Croatian.

VICTORIA KOLAKOWSKI serves as Chief Administrative Officer,  General Counsel and
Chief  Patent  Counsel for the Company as well as Assistant  Secretary.  She had
also been outside  patent  counsel for Telegen since 1997 and is the attorney of
record for Telegen's patent portfolio.  She previously served as in-house patent
attorney for Ampex Corporation of Redwood City, CA., handling patent prosecution
and  licensing.  Prior to  employment  by Ampex,  she was an associate  attorney
specializing in patent and intellectual property protection,  including domestic
and foreign patent prosecution and intellectual  property  litigation,  with the
law firm of McCubbrey, Bartels, Meyers & Ward of San Francisco, CA. She has also
served as a senior  policy  analyst  for the  Market  Development  Branch of the
California Public Utilities Commission,  where she specialized in implementation
of telecommunications  competition and the impacts of emerging technologies upon
competitive  telecommunications  markets.  She  holds a  Master  of  Science  in
Electrical  Engineering  from the University of New Orleans,  a Juris Doctor and
Master  of  Public  Administration  (Budget  &  Finance)  from  Louisiana  State
University,   a  Master  of  Science  in  Bio-Medical  Engineering  from  Tulane
University  and a Bachelor of Arts in Natural  Sciences  from the New College of
the  University of South Florida.  She is admitted to practice  before the U. S.
Patent and Trademark Office and the California bar.

STEVEN WEISS serves as Vice President of Research and  Development  for Telegen.
He has been a consultant  and  inventor in the high  technology  industry  since
1979.  From 1997 through  March 2000,  he served as  President/CEO  of Broadband
Engineering,  Inc., of Ben Lomond, California, a high technology consulting firm
serving companies in Silicon Valley. From 1991 through 1997, Mr. Weiss served as
a Senior  Staff  Engineer at Digital  Communications  Associates  and  Microdyne
Corporation of San Jose, California. From 1989 through 1991, Mr. Weiss consulted
for high technology  companies through  Broadband  Design, a consulting  company
where he served as  President.  From 1984  through  1989,  he served as  Project
Engineer at Astec USA (HK) Ltd. of Santa  Clara,  California.  From 1979 through
1984,  Mr. Weiss was Chief  Engineer at SE  International,  Inc. of  Summertown,
Tennessee.  Additionally,  from 1991 through 1995,  Mr. Weiss served on the IEEE
802.5  Token  Ring  Standards  Committee  and  is  one  of  the  authors  of the
internationally  recognized  802.5 Token Ring  Network  Standard.  Mr. Weiss has
received or contributed to five US Patents.

                                       37
<PAGE>

LISA M.  YAMONACO  has been an  engineer  and  manager  in the  high  technology
industry since 1984 and currently  serves as Telegen's Vice President of Product
Development.  Prior  to  joining  Telegen,  Ms.  Yamonaco  was a  member  of the
Intellectual   Property  Professional  Services  staff  at  Aurigin  Systems  of
Cupertino,  CA. Prior to Aurigin, Ms. Yamonaco was Director of Customer Services
at Sleepycat  Software,  Inc. of Carlisle,  MA. From 1994 to 1998, Ms.  Yamonaco
served as Director of Search Services in the Client Services organization of The
Dialog Corporation,  formerly Knight-Ridder Information.  From 1990 to 1994, Ms.
Yamonaco  served as a Patent  Agent in the  Office of  General  Counsel of Xerox
Corporation in both Rochester,  NY and the prestigious Palo Alto Research Center
(PARC).  From  1984 to 1990,  Ms.  Yamonaco  was  employed  at Xerox as a Patent
Engineer  in the Office of General  Counsel  and as a Research  and  Development
Design  Engineer.  Ms.  Yamonaco is the holder of two U. S. Patents  assigned to
Xerox.

BRUCE LURIE  served as Vice  President of Business  Development  of Telegen from
September  15, 2000 through  August 15, 2001.  Prior to Telegen,  he served as a
Regional Sales Manager at Intel  Corporation for its Internet  Service  Provider
Division,  and worked with major  companies such as Verio,  Real  Networks,  and
Exodus Communications. With over 20 years experience in sales and marketing with
major data  communications and internet companies 3Com,  SynOptics,  Legent, and
Ascend Communications,  Mr. Lurie is a veteran of the development of influential
market-makers.  Mr.  Lurie holds a Bachelor of Arts in  Economics  from UC Santa
Cruz, and a Master in Business  Administration  in Finance and Marketing from UC
Berkeley.

DONNA M.  MORABITO  serves as Vice  President  of Corporate  Communications  and
Business  Development for Telegen and is responsible for all Investor and Public
Relations  activities.  She has been a manager and entrepreneur for over fifteen
years with a strong background in business  development.  From 1994 to 2000, she
was a marketing and sales  consultant for Lake Hills Realty of  Ronkonkoma,  New
York.  From 1990 to 1994,  Ms.  Morabito  was with the Marriott  Corporation  at
Fordham University, developing and launching a new business unit from concept to
full  operation.  She was also a member of Marriott's  new business  development
team for the New York Metropolitan regional area and participated in writing the
auditing standards for Marriott's internal auditing division.

JACK KING is currently Vice President of Marketing for Warren  Resources,  Inc.,
an oil and gas  exploration  and production  company  headquartered  in New York
City.  From July 1,  2000  through  March  31,  2001,  Mr.  King  served as Vice
President of Investor Relations of Telegen. Mr. King has been a senior marketing
executive  in the  financial  services  industry  since 1975.  He is currently a
registered principal with the investment firm of Standard Investment  Chartered,
Inc. of Tustin, California.  Prior to joining the Company in July 2000, Mr. King
acted as finder for the Company and assisted in  introducing  the Company to the
Selling Agents for the 1999, Regulation S and $10 Offerings and received 239,286
shares of common stock upon confirmation of the Plan of Reorganization in return
for such services.

                                       38
<PAGE>

WILLIAM M. SWAYNE II served as President and Chief Operating  Officer of Telegen
Corporation from July 1, 2000 through August 15, 2000 and remains a director. He
is currently the Chief Executive Officer, President and founder of WMS Financial
Planners,  Inc., a Pacific Northwest area financial planning firm. Mr. Swayne is
a registered representative of Pacific West Securities,  Inc., a member NASD and
SIPC,  and an  Investment  Advisor  Representative  of  Pacific  West  Financial
Consultants.  For the past 28 years,  Mr. Swayne  managed and consulted with and
raised  funds for a variety  of large and  small  businesses.  He has  served on
numerous  boards and  functioned as a business  management  consultant for firms
ranging from healthcare to manufacturing and technology development.  Mr. Swayne
has a Bachelor of Science  from the  University  of  Washington  and a Master of
Business  Administration  from City  University  in  Seattle.  His  professional
designations include Certified Financial Planner, Chartered Financial Consultant
and Chartered Life Underwriter.

BERNARD BROWN is the founder and President of Instrumark International,  Inc., a
manufacturer  of  analytical  instruments  for the water and  pollution  control
industries.  Previously,  he held senior  marketing  management  positions  with
international  instrument  manufacturers,  including  Manning  Technologies  and
Fischer & Porter.  Mr.  Brown was a director of the Company  from  January  1991
through  1996.  Mr.  Brown  was also a holder  of an  administrative  claim  for
$100,000 for money loaned to us during the Reorganization,  which has since been
converted into 232,216 shares of common stock.


(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, 2001,  certain  Section  16(a) filing
requirements  applicable to its officers,  directors,  and 10% shareholders were
not  complied  with.  The  Company  has  failed to  receive  copies,  or written
representations,  from the following directors of the Company regarding filing a
timely Form 3:  Bernard  Brown and Jack King.  The Company has failed to receive
copies, or written representations,  from the following directors of the Company
regarding  filing a  timely  Forms 4 and 5:  Jessica  Stevens,  Bonnie  Crystal,
William M. Swayne II, Bernard Brown and Jack King.



                                       39
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

(a) Summary Compensation Table
    --------------------------
The following  table  summarizes the total  compensation  of the Chief Executive
Officer and the other most highly compensated  executive officers of the Company
in fiscal  year ended  December  31,  2001 (the "Named  Executive  Officers"  or
individually the "Named Executive  Officer"),  as well as the total compensation
paid to each such individual for the Company's two previous fiscal years.

<TABLE>
<CAPTION>
                                                                 Total Annual                  Long Term
                                                               Compensation (1)          Compensation Awards (2)
                                                       ------------------------------    -----------------------
Name and Principal Position                Year        Salary Paid    Salary Accrued          Options/SARs (3)
----------------------------------         ------      -------------  ---------------         ----------------

<S>                                        <C>         <C>            <C>                     <C>
Jessica L. Stevens (4)                     2001        $ 164,166                0                508,205 (5)
Chief Executive Officer                    2000        $ 322,084 (6)            0                793,998 (7)
and Chair of the Board                     1999        $  12,000        $ 188,000 (8)                  0

Bonnie A. Crystal (9)                      2001        $ 202,292                0                502,222(10)
Executive Vice President, Chief            2000        $ 289,875(11)            0                765,879(12)
Technical Officer, Secretary               1999        $   9,000        $ 171,000(13)                  0
and Director

William M. Swayne II (14)                  2001        $ 278,954(15)            0                      0
President, Chief Operating Officer         2000        $ 229,432(16)            0                700,000(17)
and Director                               1999                0                0                      0

Dennis Wood (18)                           2001        $ 166,171(19)            0                      0
Chief Administrative Officer               2000        $ 183,382(20)            0                100,000(21)
                                           1999                0                0                      0

Victoria Kolakowski (22)                   2001        $ 122,844(23)      $ 9,500(24)            114,172(25)
Chief Administrative Officer               2000        $  74,898(26)            0                 40,000(27)
General Counsel                            1999                0                0                      0

Steven Weiss (28)                          2001        $ 131,071(29)            0                206,666(30)
Vice President/R&D                         2000        $ 112,625(31)            0                 75,000(32)
                                           1999                0                0                      0

Lisa M. Yamonaco (33)                      2001         $115,628(34)            0                225,000(35)
Vice President/Product                     2000         $ 31,090(36)            0                 15,000(37)
Development                                1999                0                0                      0
</TABLE>

--------------------------------------------------------------------------------
(1) Total  Annual  Compensation  includes  all cash  payments  made to the Named
Executive  Officers  including salary,  bonuses and any other cash compensation,
including   compensation  paid  by  any  Company   subsidiary.


                                       40
<PAGE>

(2) Long Term Compensation Awards includes any options, SARs or restricted stock
awards granted to the Named Executive Officers.

(3) On June 30, 2000,  the Company  effected a one-for-16  reverse  split of its
common stock.  All options,  warrants and SAR's  outstanding as of June 30, 2000
were subsequently  cancelled on June 30, 2000, pursuant to the Company's Plan of
Reorganization.

(4) Ms.  Stevens'  annual  salary  during fiscal year 1999 and the first half of
2000 was $200,000 per year.  On June 30, 2000,  Ms.  Stevens'  annual salary was
increased to $500,000 per year. On March 1, 2001, Ms. Stevens' annual salary was
reduced to $200,000 per year and on August 15,  2001,  Ms.  Stevens  voluntarily
reduced her salary to $0.

(5)  Includes  options to  purchase  5,983  shares of Telegen  common  stock and
options to purchase 502,222 shares of Telisar common stock.

(6)  Includes  $272,084  in salary paid by Telegen and $50,000 in salary paid by
Telisar.

(7)  Includes  78,755  shares of common stock issued in exchange for $137,820 in
accrued salary for the period January 1, 1998 through  October 28, 1998,  23,814
shares of common stock issued in exchange for $33,334 in accrued  salary for the
period  October 29, 1998 through  December 31,  1998,  134,286  shares of common
stock  issued in  exchange  for  $188,000  in accrued  salary for the year 1999,
57,143  shares of common stock issued in exchange for $80,000 in accrued  salary
for the year 2000 and an option to  purchase  500,000  shares of Telegen  common
stock.

(8) Includes  $125,000 accrued for the period January 1, 1998 through August 17,
1998,  $12,820  accrued for the period October 11, 1998 through October 28, 1998
and $33,334 accrued for the period October 29, 1998 through December 31, 1998.

(9) Ms.  Crystal's  annual  salary during fiscal year 1999 and the first half of
2000 was $180,000 per year. On June 30, 2000,  Ms.  Crystal's  annual salary was
increased to $450,000 per year. On March 1, 2001,  Ms.  Crystal's  annual salary
was reduced to $200,000 per year and on August 15, 2001,  Ms.  Crystal's  annual
salary was reduced to $100,000.

(10) Options to purchase 502,222 shares of Telisar common stock.

(11)  Includes  $244,875 in salary paid by Telegen and $45,000 in salary paid by
Telisar.

(12)  Includes  70,879 shares of common stock issued in exchange for $124,038 in
accrued salary for the period January 1, 1998 through  October 28, 1998,  21,428
shares of common stock issued in exchange for $30,000 in accrued  salary for the
period  October 29, 1998 through  December 31,  1998,  122,143  shares of common
stock  issued in  exchange  for  $171,000  in accrued  salary for the year 1999,
51,429  shares of common stock issued in exchange for $72,000 in accrued  salary
for the year 2000 and an option to  purchase  500,000  shares of Telegen  common
stock.

                                       41
<PAGE>

(13) Includes $112,500 accrued for the period January 1, 1998 through August 17,
1998,  $11,538  for the period  October 11,  1998  through  October 28, 1998 and
$30,000 for the period October 29, 1998 through December 31, 1998.

(14) Mr. Swayne was President and Chief  Operating  Officer from July 1, 2000 to
August 15, 2001. Mr. Swayne's  annual salary from July 1, 2000 through  February
28, 2001 was $400,000 per year. On March 1, 2001, Mr. Swayne's annual salary was
reduced to $200,000 per year.

(15) Includes $156,335 in salary,  $59,555 in employee benefits and $63,064 paid
under a consulting contract to WMS Financial Planners,  Inc., a company majority
owned by Mr. Swayne.

(16) Includes $202,004 in salary and $27,428 in employee benefits.

(17) Includes an option to purchase  500,000  shares of Telegen  common stock, a
warrant to purchase  75,000 shares of Telegen  common stock and a stock grant of
125,000 shares of Telegen common stock.

(18) Mr.  Wood's  annual  salary for the first half of 2000 was $200,000 and was
increased to $250,000 on July 1, 2000.

(19) Includes $156,250 in salary and $9,921 in employee benefits.

(20) Includes  $125,000 in salary paid by Telegen,  $8,382 in employee  benefits
paid by Telegen and $50,000 in salary paid by Telisar.

(21) Options to purchase 100,000 shares of Telegen common stock.

(22) Ms.  Kolakowski's  annual  salary for the first half 2000 was $60,000  plus
patent bonus and her annual salary was increased to $125,000 on July 1, 2000. On
August 15, 2001,  Ms.  Kolakowski's  annual  salary was reduced to $100,000 plus
accrued patent bonus.

(23) Includes $80,135 paid by Telegen and $42,709 paid by Telisar.

(24) Accrued patent bonus.

(25)  Includes  options to purchase  7,950  shares of Telegen  common  stock and
options to purchase 106,222 shares of Telisar common stock.

(26)  Includes  $63,282 in salary  paid by Telegen and $11,616 in salary paid by
Telisar.

(27) Options to purchase 40,000 shares of Telegen common stock.

(28) Mr. Weiss'  annual  salary for the first half 2000 was $150,000.  On August
15, 2001, Mr. Weiss' annual salary was reduced to $100,000.

(29) Includes $87,375 paid by Telegen and $43,696 paid by Telisar.

(30) Options to purchase 206,666 shares of Telisar common stock.

(31)  Includes  $75,125 in salary  paid by Telegen and $37,500 in salary paid by
Telisar.

                                       42
<PAGE>

(32) Options to purchase 75,000 shares of Telegen common stock.

(33) Ms.  Yamonaco's  annual  salary for 2000 was $100,000 and was  increased on
January 1, 2001 to $125,000.  On August 15, 2001, Ms.  Yamonaco's  annual salary
was reduced to $100,000.

(34) Includes $72,919 paid by Telegen and $42,709 paid by Telisar.

(35) Includes  25,000  options to purchase  Telegen  common stock and options to
purchase 200,000 shares of Telisar common stock.

(36) Paid by Telegen.

(37) Options to purchase 15,000 shares of Telegen common stock.
--------------------------------------------------------------------------------


(b) Options/SAR Grants in Last Fiscal Year
    --------------------------------------

The following table sets forth certain information with respect to option or SAR
grants in Telegen  Corporation during the fiscal year ended December 31, 2001 to
the Named Executive Officers.

<TABLE>
<CAPTION>
                         Number of Securities        Percent of Total
                          Underlying Options        Options Granted to       Exercise or Base Price
Name                            Granted          Employees in Fiscal Year         ($ per Share)        Expiration Date
----------------------- ---------------------    ------------------------    -----------------------   ----------------

<S>                      <C>                     <C>                         <C>                       <C>
Jessica L. Stevens  (1)          4,444                   1.32%                      $4.95              November 20, 2003

Jessica L. Stevens  (1)          1,539                   0.46%                      $3.58              May 7, 2004

Victoria Kolakowski (2)            500                   0.15%                      $3.00              January 8, 2004

Victoria Kolakowski (2)             50                   0.01%                      $1.65              March 25, 2004

Victoria Kolakowski (2)          1,000                   0.30%                      $1.51              March 26, 2004

Victoria Kolakowski (2)          1,000                   0.30%                      $3.25              May 7, 2004

Victoria Kolakowski (2)          1,000                   0.30%                      $4.95              May 13, 2004

Victoria Kolakowski (2)            200                   0.06%                      $1.35              November 7, 2004

Victoria Kolakowski (2)             50                   0.01%                      $1.25              November 11, 2004

Lisa M. Yamonaco                25,000                   7.41%                      $1.80              April 11, 2004
</TABLE>

--------------------------------------------------------------------------------
(1) Awarded under the Inventors Patent Incentive Program.
(2) Pursuant to Ms. Kolakowski's employment agreement.
--------------------------------------------------------------------------------

                                       43
<PAGE>

The following table sets forth certain information with respect to option or SAR
grants in Telisar  Corporation during the fiscal year ended December 31, 2001 to
the Named Executive Officers.

<TABLE>
<CAPTION>
                         Number of Securities        Percent of Total
                          Underlying Options        Options Granted to       Exercise or Base Price
Name                            Granted          Employees in Fiscal Year         ($ per Share)        Expiration Date
----------------------- ---------------------    ------------------------    -----------------------   ----------------
<S>                      <C>                     <C>                         <C>                       <C>
Jessica L. Stevens             500,000                  29.99%                      $2.48              September 14, 2004

Jessica L. Stevens (1)           2,222                   0.13%                      $2.48              April 12, 2004

Bonnie A. Crystal              500,000                  29.99%                      $2.48              September 14, 2004

Bonnie A. Crystal (1)            2,222                   0.13%                      $2.48              April 12, 2004

Victoria Kolakowski            100,000                   6.00%                      $2.25              September 14, 2004

Victoria Kolakowski (2)          1,000                   0.06%                      $2.25              April 12, 2004

Victoria Kolakowski (2)          1,000                   0.06%                      $2.25              June 24, 2004

Victoria Kolakowski (2)          1,000                   0.06%                      $2.25              July 18, 2004

Victoria Kolakowski (2)          1,000                   0.06%                      $2.25              December 19, 2004

Victoria Kolakowski (1)          2,222                   0.13%                      $2.25              December 19, 2004

Steven Weiss                   200,000                  12.00%                      $2.25              September 14, 2004

Steven Weiss (1)                 2,222                   0.13%                      $2.25              April 12, 2004

Steven Weiss (1)                 2,222                   0.13%                      $2.25              June 24, 2004

Steven Weiss (1)                 2,222                   0.13%                      $2.25              July 18, 2004

Lisa M. Yamonaco               200,000                  12.00%                      $2.25              September 14, 2004
</TABLE>

--------------------------------------------------------------------------------
(1) Awarded under the Inventors Patent Incentive Program.
(2) Pursuant to Ms. Kolakowski's employment agreement.
--------------------------------------------------------------------------------


                                       44
<PAGE>

(c) Aggregated Option/SAR Exercises Year-End Table.
    ----------------------------------------------

During the fiscal year ended  December  31,  2001,  none of the Named  Executive
Officers exercised any options/SARs issued by Telegen.  The following table sets
forth  information  regarding  the stock options held as of December 31, 2001 by
the Named Executive Officers.

<TABLE>
<CAPTION>
                            Number of Securities Underlying Unexercised      Value of Unexercised In-the-Money
                                  Options at Fiscal Year End (1)               Options at Fiscal Year End (1)
                            --------------------------------------------     ---------------------------------
Name                         Exercisable                 Unexercisable         Exercisable       Unexercisable
----------------------       -----------                 -------------         -----------       -------------
<S>                          <C>                         <C>                   <C>               <C>
Jessica L. Stevens  (2)       500,000                       5,983                  0                   0

Bonnie Crystal   (3)          500,000                           0                  0                   0

William M. Swayne II (4)      575,000                           0                  0                   0

Dennis Wood                         0                     100,000                  0                   0

Victoria Kolakowski            47,950                           0                  0                   0

Steven Weiss                   75,000                           0                  0                   0

Lisa M. Yamonaco               23,334                      16,666                  0                   0
</TABLE>

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

(1) On June 30, 2000,  the Company  effected a one-for-16  reverse  split of its
common stock. All options,  warrants and SAR's outstanding on June 30, 2000 were
subsequently  cancelled  on June 30,  2000,  pursuant to the  Company's  Plan of
Reorganization.

(2) Ms.  Stevens  also holds a warrant to  purchase  1,000,000  shares of common
stock at an exercise price of $1.75, of which  1,000,000  shares are exercisable
and 0 shares are unexercisable.  The value of the "in the money" exercisable and
unexercisable warrants as of December 31, 2001 is $0.

(3) Ms.  Crystal  also holds a warrant to  purchase  1,000,000  shares of common
stock at an exercise price of $1.75, of which  1,000,000  shares are exercisable
and 0 shares are unexercisable.  The value of the "in the money" exercisable and
unexercisable warrants as of December 31, 2001 is $0.

(4) Mr. Swayne  beneficially  also holds warrants to purchase  188,031 shares of
common stock at an exercise  price of $1.75,  of which 188, 031 are  exercisable
and 0 shares are  unexercisable,  a warrant to purchase  32,500 shares of common
stock at an  exercise  price of $8.00,  of which  32,500 are  exercisable  and 0
shares  are  unexercisable.  The  value of the "in the  money"  exercisable  and
unexercisable warrants as of December 31, 2001 is $0.
--------------------------------------------------------------------------------


                                       45
<PAGE>

During the fiscal year ended  December  31,  2001,  none of the Named  Executive
Officers exercised any options/SARs issued by Telisar.  The following table sets
forth  information  regarding  the stock options held as of December 31, 2001 by
the Named Executive Officers.

<TABLE>
<CAPTION>
                            Number of Securities Underlying Unexercised      Value of Unexercised In-the-Money
                                  Options at Fiscal Year End (1)               Options at Fiscal Year End (1)
                            --------------------------------------------     ---------------------------------
Name                         Exercisable                 Unexercisable         Exercisable       Unexercisable
----------------------       -----------                 -------------         -----------       -------------
<S>                          <C>                         <C>                   <C>               <C>
Jessica L. Stevens                 0                     502,222 (2)                0                  0

Bonnie Crystal                     0                     502,222 (2)                0                  0

William M. Swayne II               0                           0                    0                  0

Dennis Wood                        0                           0                    0                  0

Victoria Kolakowski            4,000                     102,222 (3)                0                  0

Steven Weiss                       0                     206,666 (4)                0                  0

Lisa M. Yamonaco                   0                     200,000 (4)                0                  0
</TABLE>

--------------------------------------------------------------------------------
(1) As of December  31,  2001,  there is no public  market for shares of Telisar
common stock.

(2) On January 8, 2002, 500,000 options vested and became exercisable.

(3) On January 8, 2002, 100,000 options vested and became exercisable.

(4)  On  January  8,  2002,  200,000  options  vested  and  became  exercisable.
--------------------------------------------------------------------------------


(d) Compensation of Directors
    -------------------------

As of June 30, 2000,  the Company  adopted the 2000  Director  Option  Plan,  as
amended (the "2000 DOP"), under which the Company's  non-employee members of the
Board of  Directors  (the  "Outside  Directors"  or  individually  the  "Outside
Director")  are  compensated  for their  service.  The 2000 DOP provides for the
Outside  Directors  to receive an option to purchase  twenty  thousand  (20,000)
shares of the  Company's  common  stock on the date  such  Outside  Director  is
elected by the shareholders to serve his or her term in office.

Additionally,  each  non-employee  director received (i) $1,000 in shares of the
Company's  common stock  determined by the fair market value of the common stock
on the date of the meeting or (ii) $1,000 in ten year options  determined by the


                                       46
<PAGE>

fair  market  value of the  common  stock on the date of the  meeting  and at an
exercise price equal to 100% of the fair market value of the common stock on the
date of the meeting, at such directors' election,  for each meeting of the Board
of Directors or a committee  of the Board of  Directors  attended in person,  or
attended by telephone.  No cash compensation is paid to any member in return for
their services,  however, the Company reimburses each non-employee member of the
Board of  Directors  and its  committees  for actual  expenses  incurred by such
member in connection with the attendance of such meetings.

All option grants under the 2000 DOP to any Outside Director are limited to once
in any given  calendar year on the date of their  election or re-election to the
Board of Directors.  The exercise price of options acquired pursuant to the 2000
DOP is 100% of the fair  market  value per share of Common  Stock on the date of
the  grant.  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 2000 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
and for 90 days thereafter.

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 ("Ms.  Stevens") has an employment  contract with the Company
(the "Stevens Employment Agreement").  The Stevens Employment Agreement provided
that Ms. Stevens  receive an annual salary of $200,000  during her first year of
employment, with the salary in later years subject to determination by the Board
of Directors but not less than $200,000 per year. On June 30, 2000, the Board of
Directors  increased Ms.  Stevens'  annual salary to $500,000 and granted her an
incentive  stock option  award of 500,000  options  having an exercise  price of
$1.93 and vesting ratably over the following 12 month period.  On March 1, 2001,
Ms.  Stevens'  salary was reduced to $200,000.  On August 15, 2001,  Ms. Stevens
voluntarily  reduced her salary to $0 with no salary being accrued.  Ms. Stevens
is also  entitled to  participate  in any pension,  insurance,  savings or other
employee benefits adopted by the Company.

The term of the Stevens  Employment  Agreement is 5 years  starting  October 11,
1998 and provides that Ms.  Stevens may not be terminated at any time during the
term of the  agreement  except for cause,  death or disability as defined in the
agreement.  If Ms. Stevens is  involuntarily  terminated  without cause,  she is
eligible for a severance  package,  which includes a lump sum payment based upon
the annual salary applicable at the date of termination.

                                       47
<PAGE>


Bonnie A. Crystal ("Ms.  Crystal")  has an employment  contract with the Company
(the "Crystal Employment Agreement").  The Crystal Employment Agreement provided
that Ms. Crystal  receive an annual salary of $180,000  during her first year of
employment, with the salary in later years subject to determination by the Board
of Directors but not less than $180,000 per year. On June 30, 2000, the Board of
Directors  increased Ms.  Crystal's annual salary to $450,000 and granted her an
incentive  stock option  award of 500,000  options  having an exercise  price of
$1.93 and vesting ratable over the following 12 month period.  On March 1, 2001,
Ms.  Crystal's  salary was reduced to $200,000.  On August 15, 2001, Mr. Crystal
voluntarily  reduced  her salary to $100,000  with no  additional  salary  being
accrued. Ms. Crystal is also entitled to participate in any pension,  insurance,
savings or other employee benefits adopted by the Company.

The term of the Crystal  Employment  Agreement is 5 years  starting  October 11,
1998 and provides that Ms.  Crystal may not be terminated at any time during the
term of the  agreement  except for cause,  death or disability as defined in the
agreement.  If Ms. Crystal is  involuntarily  terminated  without cause,  she is
eligible for a severance  package,  which includes a lump sum payment based upon
the annual salary applicable at the date of termination.

The Company has no change-in-control arrangements.


(f) Compensation Committee Interlocks and Insider Participation
    -----------------------------------------------------------

On June 30, 2000, Mr. Bernard Brown was appointed to the Compensation  Committee
of the Board of Directors.  Mr. Brown was not at any time during his term on the
Board during the Company's  2000 fiscal year or at any other times 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 that has one
or more  executive  officers  serving  as a  member  of the  Company's  Board of
Directors or Compensation Committee.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The  table  below  sets  forth  certain  information  regarding  the  beneficial
ownership  of the  Company's  common  stock as of  December  31,  2001  based on
information  available  to the  Company  by (i) each  person who is known by the
Company to own more than 5% of the  outstanding  common stock;  (ii) each of the
Company's  directors;  (iii) each of the Named Executive Officers;  and (iv) all
officers and directors of the Company as a group.



                                       48
<PAGE>


Shares of Telegen Common Stock
------------------------------

Five-Percent Shareholders, Directors,
Executive Officers                              Number (1)          Percent
-------------------------------------           ----------          -------

Jessica L. Stevens (2).......................    5,618,591           28.94 %

Bonnie Crystal (3)...........................    3,369,531           17.36 %

William M. Swayne II (4).....................    1,247,821            6.67 %

Victoria Kolakowski (5)......................      130,525            0.72 %

Steven Weiss (6).............................      219,783            1.22 %

Lisa M. Yamonaco (7)..........................      75,417            0.42 %

Bernard Brown (8)............................      281,692            1.57 %

Michael Moors (9)............................    2,602,808           14.14 %

All Directors and Executive Officers
 as a Group (7 persons)......................   10,943,360           49.62 %


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

(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,  2000,  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'  ownership as a percent of common stock  beneficially owned may
exceed 100%. On June 30, 2000, the Company  effected a one-for-16  reverse split
of its  common  stock.  All share  data in this  table  have been  retroactively
restated to reflect this reverse stock split.  As of December 31, 2001,  Telegen
had 17,911,791 shares of common stock outstanding.

(2) Jessica L. Stevens  beneficially  owns 4,118,591 shares of common stock, has
options  to  acquire  500,000  shares of common  stock and a warrant  to acquire
1,000,000 shares of common stock.

(3) Bonnie  Crystal  beneficially  owns  1,869,531  shares of common stock,  has
options  to  acquire  500,000  shares  common  stock  and a warrant  to  acquire
1,000,000 shares of common stock.

(4) William M. Swayne II beneficially  owns 452,290 shares of common stock,  has
options  to  acquire  575,000  shares of common  stock and  warrants  to acquire
220,531 shares of common stock.


                                       49
<PAGE>

(5) Victoria Kolakowski  beneficially owns 31,575 shares of common stock and has
options to acquire 98,950 shares of common stock.

(6) Steven Weiss  beneficially  owns 94,783  shares of common  stock,  including
66,889 shares issued to Broadband Engineering,  Inc., and has options to acquire
125,000 shares of common stock.

(7) Lisa M. Yamonaco  beneficially owns 0 shares of common stock and has options
to acquire 75,417 shares of common stock.

(8) Bernard  Brown  beneficially  owns  232,216  shares of common  stock and has
warrants to acquire 49,476 shares of common stock.
--------------------------------------------------------------------------------


The  table  below  sets  forth  certain  information  regarding  the  beneficial
ownership of Telisar's common stock as of December 31, 2001 based on information
available  to the  Company by (i) each person who is known by the Company to own
more  than 5% of the  outstanding  common  stock of  Telisar;  (ii)  each of the
Company's  directors;  (iii) each of the Named Executive Officers;  and (iv) all
officers and directors of the Company as a group.

Shares of Telisar Common Stock
------------------------------

Five-Percent Shareholders, Directors,
Executive Officers                              Number (1)          Percent
-------------------------------------           ----------          -------

Telegen Corporation...........................  16,725,000          66.69 %

Jessica L. Stevens (2)........................   4,000,000          15.64 %

Bonnie Crystal (3)............................   4,000,000          15.64 %

William M. Swayne II (4)......................     240,000           0.96 %

Victoria Kolakowski (5).......................     239,150           0.95 %

Steven Weiss (6)..............................     200,000           0.79 %

Lisa M. Yamonaco (7)..........................     200,000           0.79 %

Bernard Brown (8).............................      25,444           0.10 %


All Directors and Executive Officers
  as a Group (7 persons)......................   8,904,594          33.47 %

                                       50
<PAGE>

--------------------------------------------------------------------------------
(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,  2001,  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'  ownership as a percent of common stock  beneficially owned may
exceed 100%. As of December 31, 2001,  Telisar had  25,079,007  shares of common
stock outstanding.

(2) Jessica L. Stevens  beneficially  owns 3,500,000  shares of common stock and
has options to acquire 500,000 shares of common stock.

(3) Bonnie Crystal  beneficially  owns 3,500,000  shares of common stock and has
options to acquire 500,000 shares common stock.

(4) William M. Swayne II beneficially owns 240,000 shares of common stock.

(5) Victoria Kolakowski beneficially owns 135,000 shares of common stock and has
options to acquire 104,150 shares of common stock.

(6) Steven Weiss  beneficially  owns 0 shares of common stock and has options to
acquire 200,000 shares of common stock.

(7) Lisa M. Yamonaco  beneficially owns 0 shares of common stock and has options
to acquire 200,000 shares of common stock.

(8) Bernard Brown beneficially owns 0 shares of common stock and has warrants to
acquire 25,444 shares of common stock.

(9) Michael Moors  beneficially  owns 2,102,808  shares of common  stock and has
warrants to acquire 500,000 shares of common stock.
--------------------------------------------------------------------------------


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Related Party Transactions

On May 20,  2001,  the Company  entered  into an  agreement  with WMS  Financial
Planners,  Inc.,  effective  March 1,  2001,  to  provide  financial  consulting
services to the Company for a period of one year from the  effective  date.  The
Company was to pay WMS Financial  Planners,  Inc., a fee of $125,000 for the one
year period, payable monthly. WMS Financial Planners, Inc., is majority owned by
William M.  Swayne,  II, a director  of the  Company.  On August 15,  2001,  the
Company terminated the agreement with WMS Financial Planners, Inc.

On July 5, 2001,  the  Company  entered  into an  agreement  with  Pacific  West
Securities,  Inc., (the "Placement  Agent") to provide placement  services for a
proposed  private  placement  offering of the Company's  common stock (the "2001
Offering").  The agreement  provided that the Placement  Agent would earn a cash
commission of ten percent (10%) of the gross proceeds of the 2001  Offering.  In
addition,  the agreement  provided  that the Placement  Agent would earn a stock
commission  of three percent (3%) of the shares sold under the 2001 Offering and
a warrant  to  purchase  ten  percent  (10%) of the  shares  sold under the 2001
Offering.

                                       51
<PAGE>

In connection with the 2001 Offering,  the agreement provided that WMS Financial
Planners,  Inc., a company which is majority  owned by William M. Swayne,  II, a
director of the  Company,  would  receive from the  Placement  Agent ten percent
(10%) of the cash  compensation  paid to the Placement  Agent,  50% of the stock
compensation  paid to the  Placement  Agent and 25% of the warrants  paid to the
Placement Agent. Additionally,  to the extent that Mr. Swayne acted as a selling
agent in transactions in the 2001 Offering,  Mr. Swayne would have received from
the  Placement  Agent a cash  commission  equal to 7.2% of the funds  raised and
warrants equal to 45% of the warrants to be paid to the Placement  Agent.  As of
the date of this  report,  no sales have been made under this  agreement  and no
commissions have been paid.

On July 10, 2000, the Company  loaned $60,000 to Jack King,  then a director and
officer of the Company, as an advance against his compensation. Monthly payments
of $10,000  taken as  deductions  from Mr.  King's  salary  were due on the loan
starting on August 10, 2000, with any remaining principal and interest due on or
before January 10, 2001.  The loan earned  interest at the rate of 10% per annum
and was  unsecured.  On April 24, 2001,  the loan and all accrued  interest owed
thereon was paid to the Company.

On July 13, 2000, the Company loaned $250,000 to WMS Financial Planners, Inc., a
company  majority  owned by  William  M.  Swayne II,  then  President  and Chief
Operating  Officer of the  Company.  The loan was due on or before  January  31,
2001,  earned  interest  at the rate of 8% per annum and was  secured  by 50,000
shares of the  Company's  common stock.  As of December 31, 2000,  WMS Financial
Planners,  Inc.,  had paid $50,000 in principal and $0 in interest.  On March 5,
2001, the Company agreed to extend  repayment of the loan until February 1, 2002
and an additional  12,500 shares were pledged to secure the loan. As of the date
of this report, the loan remains  outstanding and no additional payments against
principle or interest have been received.

On May 15,  2000,  Telisar  Corporation,  a subsidiary  of the  Company,  loaned
$50,000 to WMS Financial Planners,  Inc., a company majority owned by William M.
Swayne II, then President and Chief Operating  Officer of the Company.  The loan
was due on or before  January 31,  2001,  earned  interest at the rate of 8% per
annum and was secured by 50,000  shares of Telisar's  common  stock.  In January
2001,  the loan and all  accrued  interest  owed  thereon  was paid to  Telisar.





                                       52
<PAGE>

ITEM 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

    (a)  Financial Statements.

          (1)  Report of Independent Accountants;

          (2)  Consolidated Balance Sheet of December 31, 2001;

          (3)  Consolidated Statement of Operations for the years ended December
               31, 2001, and 2000;

          (4)  Consolidated Statements of Shareholders' Equity (Deficit) for the
               years ended December 31, 2001, and 2000;

          (5)  Consolidated  Statements  of  Cash  Flows  for  the  years  ended
               December 31, 2001, and 2000;

          (6)  Notes to Consolidated Financial Statements.

     (b)  Reports on Form 8-K

          To date from  January 1, 2001,  the  Company has filed one (1) Current
          Report on Form 8-K as follows:

          (1)  Current  Report  on Form  8-K/A  filed  with  the  Commission  on
               February  7, 2001 to amend  Item 7  Financial  Statements  of its
               Current Report on Form 8-K,  originally filed with the Securities
               and Exchange Commission on December 8, 2000.

     (c)  Exhibits.

<TABLE>
 <S>           <C>
 2.2+++        Asset  Purchase of TCC Agreement by and between  Synercom,  Inc. and
               Telegen Corporation dated April 1, 1997

               Certain  exhibits and schedules to Exhibit 2.2 are listed on
               page 23 thereto and the  Registrant  agrees to furnish  them
               supplementally  to the  Securities  and Exchange  Commission
               upon request

  3.1**        Articles of  Incorporation  of Telegen Corporation  dated August 30,
               1996  [formerly  known as Solar Energy Research Corp. of California]

  3.2**        Certificate  of Amendment to the Articles of Incorporation of Telegen
               Corporation  dated October 28, 1996 [formerly known as Solar Energy
               Research Corp. of California]

  3.3*         Certificate of Determination with respect to the Company's outstanding
               Series A Preferred Stock filed with the California Secretary of State
               on March 20, 1997


  3.4**        Bylaws of Telegen Corporation

  3.5+++       Certificate of Amendment of Bylaws effective August 6, 1997
</TABLE>


                                       53
<PAGE>

<TABLE>
  <S>          <C>
  3.6++++      Amended and Restated Articles of Incorporation dated June 30, 2000

  4.1+++       Form of Convertible Promissory Note issued by the Company in November 1997

  10.2**       Agreement  among  Telegen  Communications  Corporation,   Telegen  Display
               Laboratories,   Inc.,  Transtech Electronics Pte, Ltd., and IPC Corporation,
               Ltd., dated May 30, 1996

  10.3**       Manufacturing  License Agreement among Telegen Communications Corporation,
               Telegen Display  Laboratories, Inc., Transtech Electronics Pte, Ltd., and
               IPC Corporation, Ltd., dated May 30, 1996

  10.4**       Lease Agreement between  Metropolitan Life Insurance Company and Telegen
               Corporation for premises located in Foster City, California

  10.5**       Lease Agreement between  Metropolitan Life Insurance Company and Telegen
               Corporation for premises located in Redwood City, California

  10.7**       License and Stock Purchase Agreement by and between Telegen Communications
               Corporation and Telegen Display Laboratories, Inc. effective as of May 2,
               1996

  10.8***      Shareholder Agreement between Janmil Holdings PTE LTD and Telegen
               Communications Corporation dated June 4, 1997

  10.9*        Subscription Agreement for 8% Convertible Preferred Stock of Telegen
               Corporation dated March 24, 1997

  10.10**      Amendment Agreement to 8% Convertible Preferred Stock of Telegen
               Corporation dated July 22, 1997

  10.11+++     Form of Subscription  Agreement for the Company's Common Stock financing
               August 1997

  10.12+++     Form of Subscription Agreement for the Company's Common Stock and Warrant
               Financing October, 1997

  10.13+++     Form of Subscription Agreement for the Company's Convertible Note and
               Warrant Financing November, 1997

  10.14+++     Form of $2.25  Warrant issued to certain purchasers in the Common Stock
               Financing August, 1997

  10.15+++     Form of $4.00  Warrant to Purchase Common Stock issued by the Company to
               certain  purchasers in the Common Stock and Warrant Financing October, 1997

  10.16+++     Form of $0.01 Warrant to Purchase Common Stock issued to certain purchasers
               in the Common Stock and Warrant Financing October, 1997

  10.17+++     Form of $2.25 Warrant to Purchase Common Stock issued by the Company to
               certain purchasers in the Convertible Note and Warrant Financing November,
               1997
</TABLE>

                                       54
<PAGE>
<TABLE>

  <S>          <C>
  10.18+++     Employment Agreement by and between the Company and Jessica L. Stevens dated
               May 3, 1990

  10.19+++     Employment  Agreement  by and  between the Company and Bonnie Crystal dated
               May 4, 1990

  10.20+++     Employment Agreement by and between the Company and Warren M. Dillard dated
               November 1, 1993

  10.21+++     Employment Agreement by and between the Company and Fred Y. Kashkooli dated
               October 31, 1997

  10.22+++     Exchange  Offer  Agreement by and  between the Company and certain holders
               of Common Stock dated March 24, 1998

  10.23****    Note and Warrant Purchase Agreement dated April 1998

  10.24****    Form of $500,000 Convertible Promissory Note issued by the Company in April
               1998

  10.25****    Form of $6.08 Warrant to Purchase  $500,000 of Common Stock issued by the
               Company to certain  purchasers in the Convertible Note and Warrant Financing
               April 1998

  10.26****    Note and Warrant Purchase Agreement dated May 1998

  10.27****    Form of $515,532 Convertible Promissory Note issued by the Company in May
               1998

  10.28****    Form of $6.08  Warrant to Purchase 84,790 shares of Common Stock issued by
               the Company to certain purchasers in the Convertible Note and Warrant
               Financing in May 1998

  10.29****    Form of the Satisfaction and Release Agreement issued the Company to an
               individual in July 1998

  10.30****    Form of $225,000 Convertible Promissory Note issued by the Company to an
               individual in July 1998

  10.31****    Employment Agreement by and between the Company and Jessica L. Stevens dated
               October 13, 1998

  10.32****    Employment Agreement by and between the Company and Bonnie Crystal dated
               October 13, 1998

  10.33*****   Form of $100,000 Convertible Promissory Note issued by the Company to
               Bernard Brown in April 1999


  10.34*****   Selling Agreement by and between the Company and WMS Financial Planners,
               Inc., and Pacific West Securities, Inc. dated November 9, 1999
</TABLE>

                                       55
<PAGE>
<TABLE>
  <S>          <C>
  10.35*****   Selling Agreement by and between the Company and WMS Financial Planners,
               Inc., and Pacific West Securities, Inc. dated March 8, 2000

  10.36*****   Selling Agreement by and between the Company and WMS Financial Planners,
               Inc., and Pacific West Securities, Inc. dated March 20, 2000

  10.37*****   Form of the $1.75 Warrant to purchase 28,572 shares of Common Stock issued
               by the Company to WMS Financial Planners, Inc., and Pacific West Securities,
               Inc. dated December 3, 1999

  10.38*****   Form of the $1.75 Warrant to purchase  400,000 shares of Common Stock issued
               by the Company to WMS Financial Planners, Inc., and Pacific West Securities,
               Inc. dated June 30, 2000

  10.39*****   Form of $500,000 in Convertible Promissory Notes issued by the Company to
               certain investors in December 1999


  10.40*****   Form of the $1.75 Warrant to purchase 1,000,000 shares of Common Stock
               issued by the Company to Jessica L. Stevens dated June 30, 2000

  10.41*****   Form of the $1.75 Warrant to purchase 1,000,000 shares of Common  Stock
               issued by the Company to Bonnie Crystal dated June 30, 2000
  10.42*****   Form of the $1.75  Warrant to  purchase  125,000  shares of Common Stock
               issued by the  Company to Richard Sellers dated July 1, 2000

  10.43*****   Form of the $1.75  Warrant to purchase  125,000 shares of Common Stock
               issued by the Company to Mark Weber dated July 1, 2000

  10.44*****   Regulation S Securities Purchase  Agreement by and between the Company
               and certain foreign investors executed in April 2000

  10.45*****   Employment Agreement by and between the Company and William M. Swayne
               II dated July 1, 2000

  10.46*****   Employment Agreement by and between the Company and Jack King dated
               July 1, 2000

  10.47*****   Employment Agreement by and between eTraxx Corporation and Dennis Wood
               dated April 1, 2000 and assigned to the Company on July 1, 2000

  10.48*****   Assignment and Amendment of Employment Agreement by and between Dennis
               Wood, eTraxx Corporation and the Company dated July 1, 2000

  10.49*****   Form of $60,000 Promissory Note from Jack King to the Company dated
               July 10, 2000

  10.50*****   Form of $250,000 Promissory Note from WMS Financial Planners, Inc. to
               the Company dated July 13, 2000

  10.51*****   Placement Agreement between the Company and Jack King dated September
               10, 1999

  10.52*****   Recruiting Agreement between the Company and Jack King dated April 26,
               1999
</TABLE>


                                       56
<PAGE>
<TABLE>
  <S>          <C>
  10.53******  Consulting Agreement by and between the Company and WMS Financial
               Planners, Inc., dated March 1, 2001

  10.54******  Placement Agreement by and between the Company and Pacific West
               Securities. Inc. dated July 5, 2001

  10.55+++++   Investment Banking Proposal by and between the Company and Standard
               Investment Chartered, Inc., dated August 8, 2001.

  10.56        Regulation  S  Securities  Purchase  Agreement  by and between the
               Company  and certain  foreign  investors executed in October 2001

  10.57        Form of the $2.00 Warrant to purchase 500,000 shares of Common  Stock
               issued by the  Company to certain foreign investors dated October 25,
               2001

  10.58        Term Sheet for Private Placement by and between the Company and Peter
               Lamm dated January 11, 2002

  21.1         Subsidiaries of the Registrant

  24.1++++++   Power of Attorney
</TABLE>

-------------------------------------------------------------------------------
*      Incorporated by reference herein to the Form 8-K filed by the Registrant
       on January 15, 1998

**     Incorporated by reference herein to the Form 10-K filed by the Registrant
       on March 31, 1997 and amended on April 9 and April 30, 1997

***    Incorporated by reference herein to the Form 8-K filed by the Registrant
       on July 8, 1997

****   Incorporated by reference herein to the Form 10-KSB filed by the
       Registrant on December 8, 2000

*****  Incorporated  by  reference  herein  to  the  Form  10-KSB  filed  by the
       Registrant on December 13, 2000

****** Incorporated by reference  herein to the Form  10-QSB  filed by the
       Registrant  on August  14,  2001 +  Incorporated  by reference herein to
       the Form 8-K filed by the Registrant on March 25, 1997

++     Incorporated  by reference herein to the Form 8-K filed by the Registrant
       on August 11, 1997

+++    Incorporated by reference herein to the Form 10-K filed by the Registrant
       on April 15, 1998

++++   Incorporated  by  reference  herein to the Form 8-K filed  by the
       Registrant  on  December  20,  2000

+++++  Incorporated  by reference herein to the Form 10-QSB filed by the
       Registrant on November 14, 2001

++++++ Incorporated by reference in the signature page herein.

                                       57
<PAGE>

                                   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

                                            (Registrant)

Dated: April 1, 2002                       By: /S/   JESSICA L STEVENS
                                                ------------------------
                                            Jessica L. Stevens
                                            Chief Executive Officer and
                                            Chief Financial Officer


                              Date: April 1, 2002

                                POWER OF ATTORNEY

Know all persons by these  presents  that each person  whose  signature  appears
below   constitutes   and   appoints   Jessica  L.   Stevens,   as  his  or  her
attorney-in-fact, with full power of substitution, for him or her in any and all
capacities,  to sign any  amendments to this Report on Form 10-KSB,  and to file
the same,  with exhibits  thereto and other  documents in connection  therewith,
with the Securities and Exchange Commission.


In  accordance  with the  Securities  Exchange Act of 1934,  this Report on Form
10-KSB  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              Chair of the Board        April 1, 2002
-------------------------------
       Jessica L. Stevens

/S/     BONNIE CRYSTAL                 Director                 April 1, 2002
-------------------------------
        Bonnie Crystal

                                       Director
-------------------------------
        William M. Swayne


/S/     BERNARD BROWN                  Director                 April 1, 2002
-------------------------------
        Bernard Brown



                                       58


<PAGE>


                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                                                        CONTENTS
                                                               December 31, 2001

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


                                                                        Page

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                       F-2

CONSOLIDATED FINANCIAL STATEMENTS

     Consolidated Balance Sheet                                       F-3 - F-4

     Consolidated Statements of Operations                               F-5

     Consolidated Statements of Shareholders' Equity (Deficit)        F-6 - F-7

     Consolidated Statements of Cash Flows                            F-8 - F-10

     Notes to Consolidated Financial Statements                      F-11 - F-35

























                                      F-1

<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders of
Telegen Corporation and subsidiaries


We  have  audited  the  accompanying   consolidated  balance  sheet  of  Telegen
Corporation  and   subsidiaries  as  of  December  31,  2001,  and  the  related
consolidated statements of operations,  shareholders' equity (deficit), and cash
flows for each of the two years in the period ended  December  31,  2001.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  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, 2001, and the consolidated  results of their
operations  and their cash  flows for each of the two years in the period  ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements,  during the year ended December 31, 2001, the
Company  incurred a net loss of  $6,201,121  and it had negative cash flows from
operations of $6,007,921. In addition, the Company had an accumulated deficit of
$41,365,746 at December 31, 2001. These factors,  among others,  as discussed in
Note 3 to the consolidated  financial statements,  raise substantial doubt about
the  Company's  ability to continue as a going  concern.  Management's  plans in
regard to these 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.



SINGER LEWAK GREENBAUM & GOLDSTEIN LLP

Los Angeles, California
March 20, 2002



                                      F-2
<PAGE>


                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEET
                                                               December 31, 2001
--------------------------------------------------------------------------------


                                     ASSETS

Current assets
     Cash and cash equivalents                                 $      1,282,242
     Note receivable - related party, net of allowance
      of $225,096                                                             -
     Prepaid expenses                                                    58,458
                                                               ----------------

         Total current assets                                         1,340,700

Property and equipment, net                                             294,284
Prepaid expenses, net of reserve of $100,000                                  -
Intangible assets                                                       315,887
Deposits                                                                 83,631
                                                               ----------------

                  Total assets                                 $      2,034,502
                                                               ================











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


                                      F-3
<PAGE>


                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                                      CONSOLIDATED BALANCE SHEET
                                                               December 31, 2001
--------------------------------------------------------------------------------


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
     Bankruptcy liability                                      $        153,019
     Accounts payable                                                   570,267
     Accrued expenses                                                   108,639
                                                               ----------------
         Total current liabilities                                      831,925
                                                               ----------------

Commitments and contingencies

Shareholders' equity
     Preferred stock, $1 par value
         10,000,000 shares authorized
         no shares issued and outstanding                                     -
     Common stock, no par value
         100,000,000 shares authorized
         17,911,791 shares issued and outstanding                    42,510,237
     Common stock committed                                              58,086
     Accumulated deficit                                            (41,365,746)
                                                               ----------------

              Total shareholders' equity                              1,202,577
                                                               ----------------

                   Total liabilities and shareholders' equity  $      2,034,502
                                                               ================











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


                                      F-4
<PAGE>


                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                For the Years Ended December 31,
--------------------------------------------------------------------------------

                                                  2001              2000
                                             --------------    ---------------
Operating expenses
     Selling and marketing                   $      103,680    $             -
     Research and development                     2,338,968          1,565,795
     General and administrative                   4,072,674          6,445,775
                                             --------------    ---------------

         Total operating expenses                 6,515,322          8,011,570
                                             --------------    ---------------

Loss from operations                             (6,515,322)        (8,011,570)
                                             --------------    ---------------

Other income (expense)
     Interest income                                197,261            418,312
     Interest expense                               (14,243)          (207,888)
                                             --------------    ---------------

         Total other income (expense)               183,018            210,424
                                             --------------    ---------------

Loss before provision for income taxes and
     minority interest                           (6,332,304)        (7,801,146)

Provision for income taxes                            3,200                800
                                             --------------    ---------------

Loss before minority interest                    (6,335,504)        (7,801,946)

Minority interest                                   134,383            428,195
                                             --------------    ---------------

Net loss                                    $    (6,201,121)    $   (7,373,751)
                                            ===============    ===============

Basic and diluted loss per share
   attributable to common shareholders      $         (0.40)   $         (1.86)
                                            ===============    ===============

Weighted-average common shares outstanding       15,469,495          3,953,945
                                            ===============    ===============


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

                                      F-5
<PAGE>

<TABLE>
<CAPTION>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                                For the Years Ended December 31,
--------------------------------------------------------------------------------

                                          Common Stock               Common
                                    -------------------------         Stock           Accumulated
                                     Shares          Amount         Committed            Deficit          Total
                                  ----------      ------------    --------------     -------------    ------------
<S>                               <C>             <C>             <C>                <C>              <C>
Balance, December 31, 1999           950,360      $ 23,450,796    $            -     $ (27,790,874)   $ (4,340,078)
Issuance of common
   stock for
     Cash                          4,000,000         7,000,000                                           7,000,000
     Offering costs                  792,109         1,488,691                                           1,488,691
     Offering costs                       -         (1,488,691)                                         (1,488,691)
     Loan costs                        8,572            15,002                                              15,002
     Conversion of
       administrative
       claims                        672,305           941,227                                             941,227
     Consulting services              18,043            33,488                                              33,488
     Employee signing
       bonus                         150,000           262,500                                             262,500
     Conversion of
       bankruptcy claims             308,590           455,733                                             455,733
     Conversion of
       convertible notes
       and accrued
       interest                      614,121           668,304                                             668,304
     Telisar Corporation
       acquisition                 5,575,000               234                                                 234
Common stock of
   subsidiary issued
   for cash                                -         1,067,676                                           1,067,676
Common stock
   committed                                                           6,099,646                         6,099,646
Offering costs                             -          (320,100)                                           (320,100)
Interest from fixed
   conversion
   features                                -           125,807                                             125,807
Warrants issued in
   conjunction with
   sale of common
   stock by
   subsidiary                              -            58,391                                              58,391
</TABLE>

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


                                      F-6
<PAGE>

<TABLE>
<CAPTION>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                                For the Years Ended December 31,
--------------------------------------------------------------------------------

                                         Common Stock                Common
                                  ---------------------------         Stock           Accumulated
                                    Shares           Amount         Committed            Deficit           Total
                                  ----------      ------------    --------------    ---------------   -------------
<S>                               <C>             <C>             <C>                <C>              <C>
Warrants issued for
   Services rendered                       -      $     67,595    $                 $                 $     67,595
   Offering costs                          -            40,100                                              40,100
   Purchase of
     intangible assets                     -            70,000                                              70,000
   Prepaid legal service                   -           100,000                                             100,000
   Services rendered
     to subsidiary                         -           485,144                                             485,144
Net loss                                                                                (7,373,751)     (7,373,751)
                                  ----------      ------------    --------------    ---------------   -------------

Balance, December 31, 2000        13,089,100        34,521,897         6,099,646       (35,164,625)      5,456,918
Issuance of
   committed stock                 2,310,264         6,061,560        (6,061,560)                                -
Issuance of common
   stock for
     Cash                          2,000,000           664,452                                             664,452
     Services                          1,200             5,252                                               5,252
     Conversion of
       bankruptcy claim              498,147           846,138                                             846,138
Offering costs                             -           (50,000)                                            (50,000)
Exercise of
   warrants                           13,080            22,890                                              22,890
Warrants issued
   for services rendered                   -            90,000                                              90,000
   for services rendered
     to subsidiary                         -            12,500                                              12,500
   in conjunction with
     the sale of
     common stock                          -           335,548                                             335,548
Common stock committed                                                    20,000                            20,000
Net loss                                                                                (6,201,121)     (6,201,121)
                                  ----------      ------------    --------------    ---------------   -------------
Balance, December 31, 2001        17,911,791      $ 42,510,237    $       58,086    $  (41,365,746)   $  1,202,577
                                  ==========      ============    ==============    ==============    ============
</TABLE>

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

                                      F-7
<PAGE>
<TABLE>
<CAPTION>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,
--------------------------------------------------------------------------------

                                                                      2001            2000
                                                                  ------------    ------------
<S>                                                               <C>             <C>
Cash flows from operating activities
   Net loss$                                                      $ (6,201,121)   $ (7,373,751)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Allowance for bad debt - note receivable - related party        225,096               -
       Amortization of deferred financing costs                              -          45,833
       Depreciation and amortization                                   203,651         131,346
       Interest on fixed conversion features                                 -         125,807
       Issuance of common stock for services rendered                    5,252       1,410,156
       Issuance of warrants and options for services rendered           32,000         552,739
       Minority interest                                              (134,383)        134,383
       (Increase) decrease in
         Due from related party                                        200,295        (200,295)
         Employee advance                                                  701            (699)
         Accrued interest receivable                                   (11,782)        (13,304)
         Prepaid expenses                                               41,540               -
         Deposits                                                          897         (61,028)
       Increase (decrease) in
         Bankruptcy liability                                                -      (1,215,146)
         Post petition liability                                        (7,986)        (56,113)
         Accounts payable                                             (180,874)        725,514
         Accrued expenses                                             (181,207)        368,378
                                                                  ------------    ------------

           Net cash used in operating activities                    (6,007,921)     (5,426,180)
                                                                  ------------    ------------
Cash flows from investing activities
   Purchase of property and equipment                                  (79,028)       (168,081)
   Investment in patents                                              (126,486)       (128,652)
   Increase (decrease) in notes receivable - related party             125,000        (325,000)
   Proceeds from (purchase of) certificate of deposit                3,719,705      (3,719,705)
                                                                  ------------    ------------

           Net cash provided by (used in) investing activities       3,639,191      (4,341,438)
                                                                  ------------    ------------
Cash flows from financing activities
   Net proceeds from common stock committed                             20,000       3,940,040
   Net proceeds from subsidiary common stock issued                          -       1,126,301
   Net proceeds from common stock issued                             1,000,000       7,000,000
   Net proceeds from exercise of warrants                               22,890               -
                                                                  ------------    ------------

           Net cash provided by financing activities                 1,042,890      12,066,341
                                                                  ------------    ------------
</TABLE>

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


                                      F-8
<PAGE>
<TABLE>
<CAPTION>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,
--------------------------------------------------------------------------------

                                                                     2001            2000
                                                                  ------------    ------------
<S>                                                               <C>             <C>
              Net increase (decrease) in cash and cash
                equivalents                                       $ (1,325,840)    $ 2,298,723

Cash and cash equivalents, beginning of year                         2,608,082         309,359
                                                                  ------------    ------------

Cash and cash equivalents, end of year                            $  1,282,242    $  2,608,082
                                                                  ============    ============

Supplemental disclosures of cash flow information

   Interest paid                                                  $          -    $       3,549
                                                                  ============    =============
   Income taxes paid                                              $      4,000    $         800
                                                                  ============    ==============
</TABLE>

Supplemental  schedule of non-cash investing and financing activities During the
year ended December 31, 2001, the Company completed the following:

o    Issued  498,147  shares of common stock for the  conversion of a bankruptcy
     liability of $846,138.

o    Issued 1,200 shares of common stock for services rendered valued at $5,252.

o    Issued 150,000 warrants of the Company and 250,000 warrants of a subsidiary
     to consultants for services valued at $19,500 and $12,500, respectively.

o    Issued 125,000  warrants of the Company to consultants as prepaid  offering
     costs valued at $20,500.

o    Issued 200,000 warrants of the Company as offering costs valued at $50,000.

During the year ended December 31, 2000, the Company completed the following:

o    Issued  70,531  shares of common stock to purchase  property and  equipment
     prior to June 30, 2000 valued at  $98,743.  The shares are  included in the
     total shares issued or administrative claims on the consolidated statements
     of shareholders' equity (deficit).

o    Issued 614,121 shares of common stock and committed 20,621 shares of common
     stock for the conversion of notes payable of $600,000 and accrued  interest
     of $78,532.

o    Committed  to issue 9,357 shares of common  stock for the  conversion  of a
     note payable - shareholder of $13,100.

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

                                      F-9
<PAGE>


                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                For the Years Ended December 31,
--------------------------------------------------------------------------------


Supplemental schedule of non-cash investing and financing activities (Continued)

o    Issued 308,590 shares and committed to issue 491,659 shares of common stock
     for the conversion of a bankruptcy liability of $1,317,871.

o    Issued  150,000 shares and committed to issue 40,000 shares of common stock
     for employee signing bonuses of $488,750.

o    Issued 399,801 shares and committed to issue 173,891 shares of common stock
     for services rendered valued at $921,406.

o    Issued  464,143  warrants  and  options  for  services  rendered  valued at
     $552,739.

o    Issued  1,000,000  warrants  to each of the  Company's  two  founders at an
     exercise price of $1.75 per share to purchase technology valued at $70,000.

o    Issued 100,000 warrants for future legal services valued at $100,000.

o    Issued 450,000 warrants for offering costs valued at $40,100.















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


                                      F-10
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 1 - BUSINESS AND ORGANIZATION

         General
         -------
         Telegen Corporation ("Telegen") and its subsidiaries (collectively, the
         "Company") engage in the development of flat panel display  technology.
         Through  Telegen's  majority  owned  subsidiary,   Telisar  Corporation
         ("Telisar"),   the  Company  also  engages  in  the  development  of  a
         proprietary high-speed network for the delivery of digital content.

         Telegen is organized as a holding  company with one wholly owned active
         subsidiary,   Telegen  Display   Corporation   ("TDC"),   a  California
         corporation;  two wholly owned inactive  subsidiaries,  Telegen Display
         Laboratories,  Inc.  ("TDL"),  a  California  Corporation,  and Telegen
         Communications  Corporation ("TCC"), a California corporation;  and one
         majority owned active subsidiary, Telisar.

         Acquisition
         -----------
         On October 19, 2000,  Telegen acquired 66.69%, or 16,725,000  founders'
         shares,  of the outstanding  common stock of Telisar (formerly known as
         eTraxx  Corporation)  in exchange  for  5,575,000  shares of its common
         stock.  Telisar is a development stage company incorporated on March 2,
         2000 and founded by the Chief  Executive  Officer and Chief  Technology
         Officer  of  Telegen.  Telegen  acquired  the  16,725,000  shares  from
         officers of Telisar who are also officers of Telegen.

         The  acquisition  of Telisar  was  accounted  for by the  Company as an
         exchange of ownership  interests between entities under common control.
         The  transaction  has  been  accounted  for in a  manner  similar  to a
         pooling-of-interests. The operations of Telisar have been included with
         those of Telegen from the inception date of Telisar.


NOTE 2 - FILING FOR BANKRUPTCY PROTECTION UNDER CHAPTER 11

         On October 28, 1998 (the "Filing Date"),  the Company filed a voluntary
         petition  (the "Chapter 11 Case") under Chapter 11 of the United States
         Bankruptcy  Code  (Case  No.   98-34876-DM-11)  in  the  United  States
         Bankruptcy  Court  for the  District  of  California  (the  "Bankruptcy
         Court").   On  April  22,   2000,   the  Company   filed  its  plan  of
         reorganization  and related  disclosure  statements with the Bankruptcy
         Court.  On May 26, 2000, the Bankruptcy  Court approved as adequate the
         Disclosure Statement,  thereby enabling the Company to solicit votes on
         the  plan  of   reorganization   from  the   Company's   creditors  and
         shareholders.  From the  Filing  Date  until the  effective  date,  the
         Company operated its business as a debtor-in-possession, subject to the
         jurisdiction  of the  Bankruptcy  Court.  During such time,  all claims
         against the Company in  existence  prior to the Filing Date were stayed
         and have been classified as a bankruptcy  liability in the consolidated
         balance sheet.

                                      F-11
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 2 - FILING FOR BANKRUPTCY PROTECTION UNDER CHAPTER 11 (Continued)

         On June 28, 2000, the Company's  Second Amended Plan of  Reorganization
         (the "Plan of  Reorganization")  was confirmed and became  effective on
         June 30,  2000.  The Plan of  Reorganization  also affects the debtor's
         subsidiaries,  TCC, and TDC. All options and warrants  outstanding were
         subsequently  canceled pursuant to the Plan of Reorganization  and have
         been  reflected as such in the  financial  statements  as of the Filing
         Date.

         At  December  31,  2001,  the  bankruptcy  liability  was  comprised of
         accounts payable to unsecured creditors.


NOTE 3 - GOING CONCERN MATTERS

         The accompanying  financial statements have been prepared in conformity
         with  generally  accepted   accounting   principles  which  contemplate
         continuation  of the Company as a going concern.  During the year ended
         December 31, 2001, the Company incurred a net loss of $6,201,121 and it
         had negative cash flows from operations of $6,007,921. In addition, the
         Company had an accumulated deficit of $41,365,746 at December 31, 2001.
         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.

         Management  plans to  raise  additional  equity  capital,  continue  to
         develop its products, and look for merger or acquisition candidates.


NOTE 4 - ACQUISITION OF ASSETS

         On April 1, 1998, Synercom,  Inc. purchased certain tangible assets and
         patent  rights valued at $207,584 from the Company in exchange for cash
         of $350,000,  a note receivable of $150,000,  and the rights to royalty
         streams on certain Company  products for up to three years. The Company
         recorded a gain on the sale of the assets of $292,416.




                                      F-12
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 4 - ACQUISITION OF ASSETS (Continued)

         The note  receivable was due in six  installments  of $25,000 each plus
         interest  of  6%  commencing  on  September  15,  1998.   Subsequently,
         Synercom,  Inc. defaulted on the note receivable.  The Company recorded
         an allowance for  uncollectibility of $150,000 as of December 31, 1998.
         On July 10,  2000,  pursuant to an agreement  dated June 23, 2000,  and
         confirmed in the Plan of Reorganization, the tangible assets and patent
         rights  purchased by  SynerCom,  Inc.  were  returned to the Company in
         exchange for a payment of $160,000 by the Company and a general release
         between SynerCom, Inc., the Company, and its principals. Synercom, Inc.
         was  owned  by  a  former   attorney  for  the  Company  and  a  former
         officer/director.


NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

         Comprehensive Income
         --------------------
         The  Company  utilizes  Statement  of  Financial  Accounting  Standards
         ("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. Comprehensive income is not presented in
         the Company's  financial  statements since the Company did not have any
         of the items of comprehensive income in any period presented.

         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.

         Property and Equipment
         ----------------------
         Property and  equipment  are stated at cost.  The Company  provides for
         depreciation and amortization  using the straight-line  method over the
         estimated  useful  life  of  five  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-13
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Patents and Trademarks
         ----------------------
         It is the Company's practice to seek patent and trademark protection on
         processes  and  products  in the United  States.  Patent and  trademark
         application costs paid to third parties are capitalized,  and the costs
         of developing the patents and trademarks are expensed as incurred.  All
         patents  are  amortized  using  the  straight-line  method  over  their
         estimated useful life of 10 years.

         Impairment of Long-Lived Assets
         -------------------------------
         The  Company  reviews its  long-lived  assets for  impairment  whenever
         events or changes in circumstances indicate that the carrying amount of
         an asset may not be  recoverable.  Recoverability  of assets to be held
         and used is  measured by a  comparison  of the  carrying  amount of the
         assets to future net cash flows expected to be generated by the assets.
         If the assets are  considered  to be  impaired,  the  impairment  to be
         recognized  is  measured  by the  amount by which the  carrying  amount
         exceeds  the fair value of the assets.  During the year ended  December
         31, 2000, the Company recognized $160,000 as an impairment loss related
         to certain assets.

         Fair Value of Financial Instruments
         -----------------------------------
         The Company measures its financial assets and liabilities in accordance
         with  generally  accepted  accounting  principles.  For  certain of the
         Company's financial  instruments,  including cash and cash equivalents,
         accounts   payable,   and  accrued   expenses,   the  carrying  amounts
         approximate fair value due to their short maturities.

         Minority Interest
         -----------------
         Minority interest represents the minority  shareholders'  proportionate
         share of the equity of Telisar.

         During the year ended  December  31, 2000,  Telisar sold  approximately
         1,718,000  shares  of its  stock to  outside  investors  under  private
         offering  circulars  pursuant to the exemption from registration  under
         the  Securities Act of 1933 provided in Rule 505 of Regulation D. After
         the issuance of these shares, the Company's ownership percentage was at
         67% as of December 31, 2001.

         Telisar,  on a stand-alone  basis,  had a shareholders'  deficit.  As a
         result,  the Company's  investment  in Telisar had a negative  carrying
         value.  The increase in  capitalization  of Telisar  resulting from the
         sale of shares of  common  stock to  outside  investors  benefited  the
         Company in that it reduced the negative carrying value of the Company's
         investment in Telisar.  Accordingly,  the Company has accounted for the
         change in its  proportionate  share of Telisar's  equity resulting from
         the  issuance  of  stock  to  outside   investors  as  an  increase  in
         shareholders'  equity and a reduction in minority interest liability in
         the consolidated financial statements.
                                      F-14
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Minority Interest (Continued)
         -----------------
         The accompanying  consolidated balance sheets do not reflect a minority
         interest   liability   as  of  December   31,  2001  due  to  Telisar's
         shareholders'  deficit.  The  accompanying  consolidated  statements of
         operations  for the  years  ended  December  31,  2001  and 2000 do not
         reflect the  minority  interest's  share of  Telisar's  losses for said
         years as the related accrual would result in the Company's  recordation
         of a minority interest receivable.

         Stock Options
         -------------
         During 1995, the Financial  Accounting  Standards Board ("FASB") issued
         SFAS No. 123, "Accounting for Stock-Based  Compensation," which defines
         a fair value based method of accounting for  stock-based  compensation.
         However,  SFAS  No.  123  allows  an  entity  to  continue  to  measure
         compensation  cost  related  to  stock  and  stock  options  issued  to
         employees  using the  intrinsic  method  of  accounting  prescribed  by
         Accounting Principles Board Opinion No. 25 ("APB 25"),  "Accounting for
         Stock  Issued to  Employees."  Entities  electing  to  remain  with the
         accounting method of APB 25 must make pro forma disclosures of net loss
         and loss per share as if the fair value method of accounting defined in
         SFAS No. 123 had been  applied.  The Company has elected to account for
         its stock-based compensation to employees under APB 25.

         Stock Split
         -----------
         On June 30, 2000,  the Company  effected a one-for-16  reverse split of
         its common stock. All share and per share data have been  retroactively
         restated to reflect this reverse stock split.

         Research and Development Costs
         ------------------------------
         For financial reporting purposes, all costs of research and development
         activities are expensed as incurred.

         Income Taxes
         ------------
         The Company  accounts  for income  taxes under the asset and  liability
         method of  accounting.  Under  this  method,  deferred  tax  assets and
         liabilities are recognized for the future tax consequences attributable
         to  differences  between the financial  statement  carrying  amounts of
         existing assets and liabilities and their respective tax bases.

         Deferred  tax assets and  liabilities  are measured  using  enacted tax
         rates  expected to apply to taxable  income in the years in which those
         temporary  differences  are expected to be  recovered  or settled.  The
         effect on deferred tax assets and  liabilities of a change in tax rates
         is recognized in income in the period that includes the enactment date.
         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.
                                      F-15
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         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  shareholders  by the  weighted-average  number of
         shares of common stock outstanding.  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 had
         been issued and if the  additional  common  shares were  dilutive.  The
         following   potential   common  shares  have  been  excluded  from  the
         computation  of diluted  net loss per share for all  periods  presented
         because the effect would have been anti-dilutive:

                                                           For the Year Ended
                                                               December 31,
                                                          ---------------------
                                                            2001         2000
                                                          ---------   ---------
         Options outstanding under the Company's
             stock option plans                           1,994,362   2,510,300
         Options outstanding under the Telisar stock
             option plan                                  1,692,776           -
         Options granted for services rendered              158,500      94,500
         Warrants issued as offering costs for
             private placements                             650,000     450,000
         Warrants issued in conjunction with the sale
              of common stock of Telisar                     45,618      45,618
         Warrants issued as prepayment for legal fees       100,000     100,000
         Warrants issued for services rendered              608,857     396,643
         Warrants issued to purchase technology           2,000,000   2,000,000
         Warrants issued pursuant to employment contract     75,000      75,000
         Warrants issued in conjunction with the sale
             of common stock                                500,000           -

         Estimates
         ---------
         The  preparation of financial  statements  requires  management to make
         estimates and  assumptions  that affect the reported  amounts of assets
         and liabilities and disclosure of contingent  assets and liabilities at
         the  date of the  financial  statements  and the  reported  amounts  of
         revenue and expenses during the reporting period.  Actual results could
         differ from those estimates.



                                      F-16
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Recently Issued Accounting Pronouncements
         -----------------------------------------
         In June 2001,  the FASB issued SFAS No. 141,  "Business  Combinations."
         This  statement  addresses  financial   accounting  and  reporting  for
         business  combinations  and  supersedes  APB Opinion No. 16,  "Business
         Combinations,"  and  SFAS  No.  38,  "Accounting  for   Pre-Acquisition
         Contingencies of Purchased  Enterprises." All business  combinations in
         the scope of this  statement  are to be accounted for using one method,
         the purchase  method.  The  provisions of this  statement  apply to all
         business  combinations  initiated  after  June  30,  2001.  Use  of the
         pooling-of-interests   method  for  those  business   combinations   is
         prohibited.  This statement  also applies to all business  combinations
         accounted  for  using  the  purchase  method  for  which  the  date  of
         acquisition  is July 1,  2001 or later.  The  Company  does not  expect
         adoption  of SFAS No. 141 to have a  material  impact,  if any,  on its
         financial position or results of operations.

         In June  2001,  the FASB  issued  SFAS No.  142,  "Goodwill  and  Other
         Intangible Assets." This statement  addresses financial  accounting and
         reporting  for  acquired  goodwill  and  other  intangible  assets  and
         supersedes  APB Opinion No. 17,  "Intangible  Assets." It addresses how
         intangible  assets that are  acquired  individually  or with a group of
         other assets (but not those acquired in a business  combination) should
         be accounted for in financial  statements upon their acquisition.  This
         statement  also  addresses  how  goodwill and other  intangible  assets
         should be accounted  for after they have been  initially  recognized in
         the financial  statements.  It is effective for fiscal years  beginning
         after  December 15, 2001.  Early  application is permitted for entities
         with fiscal years  beginning  after March 15, 2001,  provided  that the
         first interim financial statements have not been issued previously. The
         Company  does not  expect  adoption  of SFAS No. 142 to have a material
         impact, if any, on its financial position or results of operations.

         In June 2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
         Retirement  Obligations."  This statement  applies to legal obligations
         associated  with the  retirement of long-lived  assets that result from
         the acquisition, construction, development, and/or the normal operation
         of long-lived assets,  except for certain obligations of lessees.  This
         statement is not applicable to the Company.



                                      F-17
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 5 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

         Recently Issued Accounting Pronouncements (Continued)
         -----------------------------------------
         In August  2001,  the FASB  issued SFAS No.  144,  "Accounting  for the
         Impairment or Disposal of Long-Lived  Assets." This statement addresses
         financial  accounting  and reporting for the  impairment or disposal of
         long-lived assets.  This statement  replaces SFAS No. 121,  "Accounting
         for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
         Disposed of," the  accounting  and reporting  provisions of APB No. 30,
         "Reporting  the  Results  of  Operations  -  Reporting  the  Effects of
         Disposal of a Segment of a Business,  and Extraordinary,  Unusual,  and
         Infrequently  Occurring Events and Transactions," for the disposal of a
         segment of a business,  and amends Accounting Research Bulletin No. 51,
         "Consolidated  Financial  Statements,"  to eliminate  the  exception to
         consolidation  for a  subsidiary  for  which  control  is  likely to be
         temporary. The Company does not expect adoption of SFAS No. 144 to have
         a material  impact,  if any,  on its  financial  position or results of
         operations.


NOTE 6 - CASH AND CASH EQUIVALENTS

         The Company  maintains its cash and cash  equivalents at a bank located
         in California.  Deposits at the bank are insured by the Federal Deposit
         Insurance  Corporation  up to $100,000.  As of December  31, 2001,  the
         uninsured  portions  of the  balances  held at the bank  aggregated  to
         $1,037,869.

         At December 31, 2001,  cash in the amounts of $386,900 and $136,822 was
         restricted for use in connection  with  bankruptcy  creditor claims and
         corporate Visa cards, respectively.


NOTE 7 - NOTES RECEIVABLE - RELATED PARTIES

         On  May  15,  2000,  Telisar  loaned  $50,000  to a  company  owned  an
         individual who later became the Company's  President.  The loan was due
         on or before January 31, 2001,  accrued  interest at 8% per annum,  and
         was secured by 50,000 shares of Telisar's  common stock. As of December
         31, 2000, the outstanding  balance was $50,000,  which was subsequently
         collected in January 2001 along with the accrued interest.

         On July 10,  2000,  the  Company  loaned  $60,000  to an  officer as an
         advance against his compensation for the next year. Monthly payments of
         $10,000 taken as deductions  from the officer's  salary were due on the
         loan  starting on August 10, 2000,  with any  remaining  principal  and
         interest due on or before  January 10, 2001.  The loan bore interest at
         10%  per  annum  and  was  unsecured.  As of  December  31,  2000,  the
         outstanding   balance  was  $25,000.   In  January  2001,  $20,000  was
         collected,  and the remaining  principal  balance and accrued  interest
         were collected in April 2001.

                                      F-18
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 7 - NOTES RECEIVABLE - RELATED PARTIES (Continued)

         On July 13, 2000,  the Company  loaned  $250,000 to  a company owned by
         its President,  who also serves as a Board member.  The loan  is due on
         or before  January  31,  2001,  earns  interest  at the rate  of 8% per
         annum,  and is secured by 50,000 shares of the Company's common  stock.
         In January 2001, $50,000 was collected.  On March 5, 2001, the  Company
         agreed to extend  repayment of the loan until  February 1, 2002  and an
         additional  12,500  shares were pledged to secure the loan. On  June 1,
         2001, the Company received a promissory note for the  remaining balance
         of  $200,000.  The note is due on  or before  January 30,  2002.  As of
         December  31,  2001,   the  outstanding   balance,   including  accrued
         interest, was $225,096, which was fully reserved.


NOTE 8 - PROPERTY AND EQUIPMENT

         Property and equipment at December 31, 2001 consisted of the following:

            Machinery and equipment                            $      1,200,571
            Furniture and fixtures                                       89,359
            Automobile                                                    9,100
            Leasehold Improvements                                      148,436
                                                               ----------------

                                                                      1,447,466
            Less accumulated depreciation and amortization            1,153,182
                                                               -----------------
                Total                                          $        294,284
                                                               ================

         Depreciation and amortization expense was $203,651 and $131,346 for the
         years ended December 31, 2001 and 2000, respectively.


NOTE 9 - CONVERTIBLE NOTES PAYABLE

         On April 9, 1999,  the Company  entered into a  convertible  promissory
         note for $100,000 with a former director. The note bore interest at 10%
         per  annum  and was due five  years  from the  date of the  note.  Upon
         confirmation of a Plan of Reorganization, the holder had the option, in
         lieu of repayment in cash, to convert, in whole or in part, any portion
         of the outstanding principal or interest into shares of common stock at
         a conversion price of 50% of the average of the five-day closing prices
         of the  Company's  common  stock as  reported  on the  Over-the-Counter
         Bulletin  Board prior to April 9, 1999,  which was calculated as $0.496
         per  share.  During the year  ended  December  31,  2000,  the  Company
         recorded a financing  charge of $125,807,  representing  the difference
         between the $0.496  conversion  price and the Company's  stock price of
         $1.12 on the issuance date.

                                      F-19
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 9 - CONVERTIBLE NOTES PAYABLE (Continued)

         On December 3, 1999, the Company issued convertible promissory notes to
         10 investors  for an aggregate of $500,000.  The notes bore interest at
         15% per annum and were due the earlier of (i) one year from the date of
         the note or (ii) the effective date under a plan or reorganization that
         is confirmed in Chapter 11 Case No.  98-34876-DM-11.  Upon confirmation
         of the  plan  by the  court,  the  holder  had the  option,  in lieu of
         repayment in cash, to convert,  in whole or in part, any portion of the
         outstanding  principal  or  interest  on the note into shares of common
         stock at a conversion  price of $1.40 per share.  The Company  incurred
         loan offering  costs of cash for $50,000,  8,572 shares of common stock
         valued at $15,000,  and  warrants to purchase  28,572  shares of common
         stock valued at $50,000.  The warrants had an exercise  price of $1.75,
         vested  immediately,  and expired in December  2002.  The warrants were
         being  amortized  as  offering  costs over the term of the  convertible
         promissory notes.

         In October 2000, all  convertible  note holders  elected to convert the
         total of the note  balance  and  accrued  interest  into  shares of the
         Company's common stock at the agreed-upon conversion prices per share.


NOTE 10 - COMMITMENTS AND CONTINGENCIES

         Leases
         ------
         The Company leases its office  facilities under various operating lease
         agreements  with  third  parties.  Future  minimum  lease  payments  at
         December 31, 2001 were $96,432.  Rent expense was $330,415 and $192,167
         for the years ended December 31, 2001 and 2000, respectively.

         Employment Agreements
         ---------------------
         On October 13, 1998,  the Company  entered into  employment  agreements
         with its Chief Executive Officer and Chief Technology Officer for terms
         of five years.  Under the terms of the agreements,  these officers will
         receive annual  salaries of $200,000 and $180,000,  respectively,  with
         the option to convert any portion of accrued  salary into the Company's
         common stock at a rate of 20% below the price  offered in the Company's
         first equity  financing,  which was the December 1999 offering at $1.75
         per share.  During the year ended  December  31,  2000,  both  officers
         elected to convert their accrued  salaries in the aggregated  amount of
         $574,340 into the Company's common stock at $1.40 per share.

         On June 30, 2000, the Company  amended the employment  agreements  with
         its  Chief  Executive   Officer  and  its  Chief  Technology   Officer,
         increasing   their   annual   salaries   to  $500,000   and   $450,000,
         respectively.   Effective  March  1,  2001,  the  Company  amended  the
         employment  agreements with its Chief  Executive  Officer and its Chief
         Technology  Officer,  decreasing  their annual salaries to $200,000 and
         $200,000,  respectively,  for  the  remaining  contract  terms  of  the
         officers' employment agreements.

                                      F-20
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)

         Employment Agreements (Continued)
         ---------------------
         Effective   August  15,  2001,  the  Company   amended  the  employment
         agreements  with the Chief Executive  Officer and its Chief  Technology
         Officer,   decreasing  their  annual  salaries  to  $0,  and  $100,000,
         respectively,  for  the  remaining  contract  terms  of  the  officers'
         employment agreements.

         In April 2000,  Telisar  entered into a two-year  employment  agreement
         with its Chief Administrative Officer for an annual salary of $200,000.
         On July 1, 2000,  the  employment  agreement  between  Telisar  and the
         officer was assigned to the Company,  and the annual salary was amended
         to $250,000. In August 2001, the Company's Chief Administrative Officer
         resigned.

         On  July  1,  2000,  the  Company  entered  into  two-year   employment
         agreements with its Senior Vice President and President/Chief Operating
         Officer.  The annual  salaries  for the two  officers  are $150,000 and
         $400,000,  respectively.  In addition,  the Company  issued  25,000 and
         100,000 shares, respectively,  of the Company's common stock as signing
         bonuses  valued at  $262,500  in total.  Effective  March 1, 2001,  the
         Company  amended  the  employment  agreement  with its  President/Chief
         Operating  Officer,  decreasing  his  annual  salary  $200,000  for the
         remaining contract terms of the officer's employment agreement.  During
         the year ended December 31, 2001,  the Company's  Senior Vice President
         and the President/Chief Operating Officer both resigned.

         On  September  15,  2000,  the  Company   entered  into   a  three-year
         employment  agreement with its Vice President  of Business  Development
         for an annual  salary  of  $150,000.  In addition,  the Company  issued
         25,000 shares of the Company's  common stock  as a signing bonus valued
         at $200,000.  In August 2001, the  Company's Vice President of Business
         Development was terminated.

         Litigation
         ----------
         The Company was  involved in  litigation  with its former  landlord for
         delinquency in lease  payments.  In January 2000,  the parties  entered
         into an agreement to settle the litigation,  which reduced an unsecured
         claim in the bankruptcy of $250,000,  and the Company accepted and paid
         a $75,000  administrative claim to the former landlord company to cover
         all post petition costs incurred by the former landlord.


                                      F-21
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)

         Litigation (Continued)
         ----------
         On July 26, 2000,  Display  Research  Laboratories,  Inc.  ("DRL"),  W.
         Edward Naugler,  Jr., and David Guo (the "Plaintiffs")  filed an action
         (the  "Complaint")  in the  United  States  Bankruptcy  Court  for  the
         Northern District of California,  San Francisco Division (the "Court"),
         against  the  Company  and  Jessica L.  Stevens,  the  Company's  Chief
         Executive  Officer.  The Plaintiffs sought a declaratory  judgment from
         the  Court  that  they  were  not  in   violation  of  any  patents  or
         intellectual  property rights owned by the Company relating to the HGED
         flat panel display  technology.  The  Plaintiffs  also alleged that the
         Company  and  Ms.  Stevens  abused  the  bankruptcy  rules  by  seeking
         examination of the Plaintiffs  under the bankruptcy  rules. Mr. Naugler
         and  Mr.  Guo  were  formerly  officers  of the  Company's  flat  panel
         subsidiary, TDL.

         On  September  22,  2000,  the  Company and Ms.  Stevens  filed a cross
         complaint (the "Cross  Complaint")  against the Plaintiffs and a former
         attorney of the Company,  alleging, among other causes of action, theft
         of trade  secrets,  patent  infringement  and breach of fiduciary  duty
         relating to the founding of DRL, and use of certain technologies by the
         Plaintiffs  and  others  that the  Company  believes  are  owned by the
         Company.  On October 13, 2000,  the Complaint  and the Cross  Complaint
         were moved to the Federal District Court for the Northern District. The
         cause of action  alleging abuse of process  against the Company and Ms.
         Stevens was subsequently  dismissed without  prejudice.  On December 5,
         2000,  the Company  dismissed  the Cross  Complaint  against the former
         attorney without prejudice.

         On August 24, 2001,  Telegen and DRL settled the litigation between the
         two companies  that had been pending in Federal Court in San Francisco,
         California.  The agreement also dismisses the individuals  named in the
         lawsuit,  including  Telegen's  President and Chief Executive  Officer,
         Jessica L. Stevens,  DRL President  David Guo, and DRL Chief  Scientist
         Ted Naugler.

         The settlement between Telegen and the plaintiffs in this case ends the
         litigation without any payment by either party. The parties have agreed
         that DRL is not currently  using any of Telegen's  trade  secrets,  and
         will not do so in the future.



                                      F-22
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)

         Litigation (Continued)
         ----------
         On August 10, 2001, Rates  Technology,  Inc.  ("Rates") filed an action
         (the "Rates  Complaint") in the U.S. District Court of New York against
         the  Company  and  its  inactive   subsidiary,   TCC,  alleging  patent
         infringement  in  the  manufacture  and  sale  of  TCC's  ACS-2000  and
         subsequent  telephone  dialers,  discontinued  since 1998.  Rates seeks
         injunctive relief,  monetary damages,  and attorney's fees. The Company
         believes  that its  patented  dialers  do not  infringe  any of  Rates'
         patents. In addition,  the Confirmation Order entered by the Bankruptcy
         Court on June 30, 2000 bars all claims for activities  occurring  prior
         to entry of that Order and no  manufacture,  sale, or offer for sale of
         these dialers has occurred since entry of the Order.
         Therefore, the Company believes that the Rates Complaint has no merit.

         The Company is also subject to various legal actions and claims arising
         in the ordinary course of business.  Management believes the outcome of
         these matters will not have a material  adverse effect on the Company's
         financial position, results of operations, and cash flows.


NOTE 11 - SHAREHOLDERS' EQUITY

         Stock Offerings
         ---------------
         On December 15,  1999,  the Company  commenced  an offering  (the "1999
         Offering")  of up to  7,885,714  shares of  common  stock at a price of
         $1.75 per share. On March 7, 2000, the Company closed the 1999 Offering
         upon the  receipt  of  subscriptions  for  4,000,000  shares.  The 1999
         Offering was  conducted  pursuant to Rule 506 of Regulation D under the
         Securities Act of 1933 (the "Act"). The Company incurred offering costs
         of 18% (13% to the  selling  agents  and 5% to a related  party) of the
         gross proceeds of the offering, or approximately $1,260,000,  which was
         converted  into 720,000  shares of the Company's  common stock at $1.75
         per share.  In addition,  the Company  incurred  offering costs for the
         issuance of warrants to purchase  400,000 shares of common stock valued
         at  $40,000.  The  warrants  have an  exercise  price  of  $1.75,  vest
         immediately, and expire in June 2003.



                                      F-23
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Stock Offerings Continued)
         ---------------
         On March 27,  2000,  the Company  entered  into an agreement to conduct
         three additional  offerings of common stock.  These offerings are being
         conducted pursuant to Rule 506 of Regulation D under the Act. The first
         offering was for 1,000,000 shares at $10 per share (the "$10 Offering")
         for a total of $10,000,000.  The second offering will follow completion
         of the first and will be for total proceeds of up to  $10,000,000.  The
         third  offering  will follow  completion  of the second and will be for
         total  proceeds of up to  $5,000,000.  The offering  prices for the two
         additional  offerings will be set by the Company and the selling agents
         based upon market  conditions,  but are required to be at least $10 per
         share.  As of June 30,  2000,  the  Company  has been  informed  by the
         selling agents that  subscriptions have been received for approximately
         $7,200,000  in the first phase of the  offering  at $10 per share.  The
         second and third offerings were never conducted.

         The  proceeds  were  held  in  escrow  until a  registration  statement
         covering all the shares in the offering has been declared  effective by
         the  Securities and Exchange  Commission  ("SEC") within 180 days after
         confirmation of the Plan of Reorganization.

         In December 2000, the terms of the $10 Offering were changed to  reduce
         the share  price to $5 per share and to extend to April 30,  2001  that
         date by which a registration  statement covering all  the shares in the
         $10 Offering  had been  declared  effective  by  the SEC.  During April
         2001, the Company withdrew the $10 Offering  and instructed the selling
         agents to return all proceeds to the investors.

         On March 29, 2000,  an offering of 500,000  shares of common stock to a
         group of foreign  investors (the "Regulation S Offering") at a price of
         $8 per share was fully  subscribed  for gross  proceeds of  $4,000,000.
         Closing of the  Regulation S Offering is  contingent  upon the debtor's
         filing of a registration statement with the SEC to permit the investors
         to sell  their  shares  in the  public  market.  The  Company  incurred
         offering  costs of 12% (7% to the  selling  agents  and 5% to a related
         party)  of  the  gross  proceeds  of  the  offering,  or  approximately
         $480,000,  in which  $80,000 was paid with cash and  $400,000  was paid
         with shares of the Company's common stock at $8 per share. In addition,
         the Company  incurred  offering  costs for the  issuance of warrants to
         purchase  50,000  shares of common stock  valued at $100.  The warrants
         have an  exercise  price of $8,  vest  immediately,  and expire in June
         2003.


                                      F-24
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Stock Offerings (Continued)
         ---------------
         The  Company  amended  the terms and  conditions  of the March 29, 2000
         offering in a letter  agreement  dated December 14, 2000. In the letter
         agreement,  the per share  offering price was reduced from $8 per share
         to $3.25 per  share,  which  increased  the  number of shares of common
         stock  subscribed  from  500,000 to 1,230,770  shares.  The proceeds of
         $4,000,000 were released to the Company on December 26, 2000.

         In October 2001,  the Company issued 500,000 units in exchange for cash
         proceeds of $1,000,000.  This offering is being  conducted  pursuant to
         Regulation  S as  adopted by the  Securities  and  Exchange  Commission
         pursuant  to the  Securities  Act of 1933.  Each unit  consists of four
         shares of the  Company's  common  stock and a warrant to  purchase  one
         share  of the  Company's  common  stock  at an  exercise  price  of $2,
         commencing  on the date of issuance of the warrant and  expiring  three
         years from the date of  issuance.  The Company  allocates  the proceeds
         received  from  debt or  equity  with  detachable  warrants  using  the
         relative fair value of the individual elements at the time of issuance.
         The amount  allocated to the warrants was  calculated at $335,548 using
         the Black-Scholes option-pricing model.

         Subsidiary Stock Offerings
         --------------------------
         On March 27, 2000, Telisar completed an offering of 1,200,000 shares of
         common stock at a price of $0.50 per share.  The offering was conducted
         pursuant to Rule 506 of Regulation D under the Act.

         Between April and June 2000, Telisar issued 518,007 shares of Telisar's
         common stock at a price of $2.25 per share.  The offering was conducted
         pursuant to Rule 506 of  Regulation D under the Act. In addition,  each
         investor  received  one  warrant  to  purchase  one share of  Telegen's
         post-confirmation  common  stock at an exercise  price of $10 per share
         (the  "Warrant")  for  every 10 shares of the  Company's  common  stock
         purchased,  which were valued at $58,391. All such Warrants were issued
         upon  confirmation  of  Telegen's  Plan  of   Reorganization   and  are
         exercisable for a period of three years from the date of issuance.  The
         Company incurred cash offering costs of 6% of the gross proceeds of the
         offering, or $76,805.



                                      F-25
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Common Stock Exchange Offer
         ---------------------------
         On March 19, 1998, the Company made  available to the Common  Investors
         and Unit Investors (the  "Investors")  an exchange offer (the "Exchange
         Offer") for the common stock  purchased.  Under the Exchange Offer, the
         Investors were offered convertible  subordinated  promissory notes (the
         "Notes")  for their  shares of  subscription  common  stock with a face
         value equal to the number of shares of common stock  tendered under the
         Exchange  Offer  multiplied  by the five-day  average of the  Company's
         closing trading prices on the Over-the-Counter  Bulletin Board prior to
         March 17, 1998 (the "Conversion Price").

         The Notes had a one-year term with a 6% balloon interest payment due at
         the end of the term of the Notes.  The Notes were  subordinated  to all
         other  existing debt of the Company,  both as to interest and principal
         and upon  liquidation.  The Notes were also convertible into registered
         shares of common  stock at any time by a holder.  Such number of shares
         of common stock is to be  determined by dividing the amount of the face
         value of the Note tendered by the Conversion  Price.  The Company could
         prepay the Notes at any time after giving 15 days prior written  notice
         to the holders.

         The  Exchange  Offer was extended to certain  holders of the  Company's
         unregistered  common  stock in order to allow  them to  exchange  their
         common shares for shares of convertible  preferred stock or convertible
         debt.  The holders  were from the August 1997 and October  1997 Private
         Placements,  along  with two  additional  individual  investors.  As of
         December 31, 2001,  none of the holders  exchanged  their common shares
         for convertible preferred stock.

         2000 Employee Stock Purchase Plan
         ---------------------------------
         On June 30, 2000,  the Company  readopted its 1996 Stock  Purchase Plan
         and renamed it the 2000 Employee Stock  Purchase Plan  ("ESPP").  Under
         the ESPP, all qualified employees,  defined as any individual who is an
         employee of the Company for tax  purposes  and more than five months in
         any  calendar  year,  (but  excluding  any  employee  who (i) would own
         capital  stock  of the  Company  and/or  hold  outstanding  options  to
         purchase  such stock  equal to or greater  than 5% or more of the total
         combined  voting power or value of all classes of the capital  stock of
         the Company or of any  subsidiary  or (ii) to the extent  that  his/her
         rights to purchase stock under all employee stock purchase plans of the
         Company  accrues at a rate which exceeds  $25,000 worth of stock),  may
         authorize payroll  deductions of up to 15% of their total  compensation
         towards the purchase,  on a half-year basis on January 1 and July 1, of
         common  stock in the Company at 85% of the fair market value of a share
         of  common  stock  on the  enrollment  date  or on the  exercise  date,
         whichever is lower.

                                      F-26
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         2000 Officer Stock Purchase Plan
         --------------------------------
         On June 30, 2000,  the Company  adopted the 2000 Officer Stock Purchase
         Plan ("OSPP"). Under the OSPP, all qualified employees,  defined as any
         individual  who would own  capital  stock of the  Company  and/or  hold
         outstanding  options to purchase such stock equal to or greater than 5%
         or more of the total  combined  voting power or value of all classes of
         the capital stock of the Company or of any  subsidiary  (but  excluding
         any employee who to the extent that  his/her  rights to purchase  stock
         under all employee  stock  purchase  plans of the Company  accrues at a
         rate which  exceeds  $25,000  worth of stock),  may  authorize  payroll
         deductions  of up to  15%  of  their  total  compensation  towards  the
         purchase, on a half-year basis on January 1 and July 1, of common stock
         in the  Company  at 85% of the fair  market  value of a share of common
         stock on the  enrollment  date or on the  exercise  date,  whichever is
         lower.

         Common Stock Warrants and Options
         ---------------------------------
         During the year ended  December 31,  2001,  the Company  completed  the
         following:

          o    granted  50,000   warrants  to  a  consultant  for  research  and
               development  services  valued at  $7,000.  The  warrants  have an
               exercise  price equal to 80% of the Company's  stock price on the
               date of vesting,  vest under the terms of the warrant  agreement,
               and expire 30 days after vesting.

          o    granted   100,000   warrants  to  consultants  for  research  and
               development  services valued at $5,000.  Of the warrants  issued,
               45,000  have an  exercise  price of  $1.80,  and  45,000  have an
               exercise price of $3.30.  All the warrants vest  immediately  and
               expire three years from the grant date.

          o    granted  125,000  warrants to consultants  for deferred  offering
               costs valued at $20,500.  Of the warrants issued,  50,000 have an
               exercise price of $2.50,  50,000 have an exercise price of $3.50,
               and 25,000 have an exercise  price of $1.32.  All of the warrants
               vest immediately and expire three years from the grant date.

          o    granted  200,000  warrants to a  consultant  valued at $50,000 as
               offering  costs for the  $1,000,000  raised in October 2001.  The
               warrants have an exercise price of $1.30, vest  immediately,  and
               expire three years from the grant date.

         During the year ended  December 31,  2000,  the Company  completed  the
         following:

          o    granted 100,000  warrants to one of its attorneys as a prepayment
               for future legal services valued at $100,000.

                                      F-27
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Common Stock Warrants and Options (Continued)
         ---------------------------------

          o    granted  125,000  warrants  each to two outside  consultants  for
               marketing services rendered valued at $8,750 in the aggregate.

          o    granted  107,143  warrants  valued  at  $485,144  to a vendor  of
               Telisar for research and development services rendered.

          o    granted  10,000  warrants to a vendor for a $10,000  deduction in
               payments for services rendered.

          o    granted 2,500 warrants for services rendered valued at $1,250.

          o    granted  50,000 and 20,000  options to its outside  research  and
               development  team  and a member  of the  team,  respectively,  as
               performance bonuses valued at $24,000 and $9,600, respectively.

          o    granted 24,500 options to its advisory board members for becoming
               members and attending meetings valued at $13,995.

          o    issued the Chief  Executive  Officer  1,000,000  warrants for the
               purchase of certain  technology  valued at $35,000 and issued the
               Chief Technology  Officer 1,000,000  warrants for the purchase of
               certain  technology valued at $35,000.  The value of the warrants
               was established at the officers' cost basis in the technology.

         A summary of the Company's warrant activity is listed below:

                                                                      Weighted-
                                                                       Average
                                                   Warrants            Exercise
                                                  Outstanding           Price
                                                  -----------         ---------
           Outstanding, December 31, 1999              28,576         $    1.75
               Granted                              3,040,261         $    1.90
               Expired/canceled                       (62,786)        $    1.40
                                                  -----------

           Outstanding, December 31, 2000           3,006,051         $    1.91
               Granted                                975,000         $    1.90
               Expired/canceled                       (44,357)        $    1.40
                                                  -----------

                Outstanding, December 31, 2001      3,936,694         $    1.91
                                                  ===========

                Exercisable, December 31, 2001      3,679,551         $    1.96
                                                  ===========

                                      F-28
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Common Stock Warrants and Options (Continued)
         ---------------------------------
         A summary of the Company's  option  activity  outside of the 2000 Stock
         Option Plan, the 2000 Director Option Plan,  and the 2000 Telisar Stock
         Option Plan is listed below:

                                                                      Weighted-
                                                                       Average
                                                   Options            Exercise
                                                  Outstanding           Price
                                                  -----------         ---------

           Outstanding, December 31, 1999                   -         $       -
               Granted                                 94,500         $    1.86
                                                  -----------

           Outstanding, December 31, 2000              94,500         $    1.86
               Granted                                 64,000         $    1.21
                                                  -----------

                Outstanding, December 31, 2001        158,500         $    1.60
                                                  ===========

                Exercisable, December 31, 2001        139,833         $    1.65
                                                  ===========

         The fair value of certain  warrants or options was calculated using the
         Black-Scholes    option    valuation    model   with   the    following
         weighted-average  assumptions for the years ended December 31, 2001 and
         2000:  dividend yields of 0% and 0%,  respectively;  risk-free interest
         rates of 3.83% and 6%,  respectively;  expected  volatility of 175% and
         40%,   respectively;   and  expected   lives  of  two  and  2.5  years,
         respectively.

         Stock Option Plans
         ------------------
         The  Company  adopted  the 1996 Stock  Option  Plan in October  1996 to
         provide  additional  incentives to the employees and consultants of the
         Company.  The Company  reserved  200,000 shares of its common stock for
         issuance  under the Option  Plan.  All  unexercised  options  under the
         Option Plan prior to the filing of the  Chapter 11 Case were  cancelled
         under the Plan of Reorganization (see Note 2).

         On June 30, 2000, the Company readopted its  1996 Stock Option Plan and
         renamed it  the 2000  Stock  Option  Plan (the  "Option  Plan'),  which
         expires   in  2010.   Options  granted  may  be  incentive  options  or
         non-statutory  stock options,  as determined  by the Board of Directors
         at the time of grant.  In addition,  stock  purchase  rights  and stock
         awards many also be granted under the Option Plan.

                                      F-29
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Stock Option Plans (Continued)
         ------------------
         Under the Option Plan,  the options are granted to employees for a term
         of no more than five years at an exercise  price not less than the fair
         market value of the  Company's  common stock as determined by the Board
         of Directors at the time of the option grant. For employees owning more
         than 10% of the total  combined  voting  power of all class of stock of
         Telegen or any parent or  subsidiary,  the term of the options shall be
         three  years from the date of grant at an  exercise  price  shall be no
         less than 110% of the fair market value per share on the date of grant.
         The aggregate  number of shares that may be issued pursuant to the plan
         is 3,500,000 over the life of the plan.

         On July 1, 2000,  the  Company  amended  its 2000 Stock  Option Plan to
         increase the number of stock options  available to be granted under the
         Plan to 3,500,000.  In addition, the Company granted 75,000 warrants to
         the  Company's  President  as  part  of his  employment  contract.  The
         President's warrants have an exercise price of $1.75, vest immediately,
         and expire three years from the date of grant. No compensation  expense
         was recorded for these  options and warrants as the exercise  price was
         equal to the value of the Company's common stock on the date of grant.

         On June 30, 2000,  the Company  adopted the 2000  Director  Option Plan
         (the "Director  Plan") to attract and retain outside  directors.  Under
         the plan agreement, each outside director will be automatically granted
         an option to purchase  20,000  shares of common stock on each date such
         outside  director  is elected by the  shareholders.  This option may be
         granted only once in any given calendar year at an exercise price equal
         to the fair market value of the  Company's  common stock on the date of
         grant.  The term of the option will be 10 years from the date of grant.
         The option will vest equally over 12 months on the anniversary  date of
         each month, provided that the optionee continues to serve as a director
         on such dates.






                                      F-30
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Stock Option Plans (Continued)
         ------------------
         The following summarizes the stock option transactions under the Option
         Plan and the Director Plan:

                                                                      Weighted-
                                                                       Average
                                                  Stock Options       Exercise
                                                   Outstanding          Price
                                                  -------------       ---------
           Outstanding, December 31, 1999                     -       $       -
               Granted                                2,510,300       $    2.10
                                                  -------------

           Outstanding, December 31, 2000             2,510,300       $    2.10
               Granted                                  336,312       $    3.68
               Expired/canceled                        (852,250)      $    2.36
                                                  -------------

                Outstanding, December 31, 2001        1,994,362       $    2.09
                                                  =============

                Exercisable, December 31, 2001        1,802,546            1.97
                                                  =============

         There were 1,505,638 options available for future grant at December 31,
         2001 under the Option Plan and the Director Plan.

         The exercise  prices for the options  outstanding  at December 31, 2001
         under the Option Plan and the  Director  Plan and  outside  these plans
         from $0.90 to $11. The weighted-average  remaining  contractual life of
         these options  outstanding at December 31, 2001 is 3.34 years,  and the
         information relating to these options is as follows:

                                                         Weighted-   Weighted-
                                             Weighted-    Average     Average
                                              Average     Exercise    Exercise
    Range of          Stock       Stock     Remaining     Price of    Price of
    Exercise        Options     Options     Contractual   Options      Options
     Prices       Outstanding  Exercisable     Life     Outstanding  Exercisable
  --------------  -----------  -----------  ----------- -----------  -----------
  $ 0.90 - 2.00     1,951,606    1,886,523   3.4 years   $      1.82  $     1.83
  $ 2.01 - 11.00      201,256       55,856   2.6 years   $      2.94  $     1.38
                  -----------  -----------

                    2,152,862    1,942,379
                  ===========  ===========


                                      F-31
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Stock Option Plans (Continued)
         ------------------
         The Board of Directors of Telisar adopted the Telisar 2001 Stock Option
         Incentive  Plan  (the  "Telisar  Plan") on April  11,  2001 to  provide
         additional  incentive  to the  employees  and  consultants  of Telisar.
         Options  granted are incentive  stock options as defined in Section 422
         of the Internal Revenue Code of 1986, as amended. The specific terms of
         each option grant are approved by the Telisar  Board and reflected in a
         written  stock  option  agreement  between  Telisar  and each  grantee.
         Generally,  the options are for a term of no more than five years at an
         exercise price not less than the fair market value of Telisar's  common
         stock as  determined  by  Telisar's  Board of  Directors at the time of
         option  grant.  Common  stock  may also be  granted  or sold  under the
         Telisar  Plan  independent  of any option  grant.  Telisar has reserved
         2,500,000  shares of its Common  Stock for  issuance  under the Telisar
         Plan.

         Employees of Telisar are also eligible to participate in Telegen's 2000
         Employee Stock Option and 2000 Employee Stock Purchase Plans.


         The  following  summarizes  the  stock  option  transactions  under the
         Telisar plan:

                                                                     Weighted-
                                                                      Average
                                                    Stock Options     Exercise
                                                     Outstanding        Price
                                                    -------------     ---------
           Outstanding, December 31, 1999 and 2000              -    $        -
               Granted                                  1,692,776    $     2.39
                                                    -------------

                Outstanding, December 31, 2001          1,692,776    $     2.39
                                                    =============

                Exercisable, December 31, 2001              4,444    $     2.25
                                                    =============

         There were 807,224  options  available for future grant at December 31,
         2001 under the Telisar Stock Option Plan.

         The Company has adopted the disclosure-only provisions of SFAS No. 123.
         Accordingly,  no  compensation  cost  other  than that  required  to be
         recognized by APB 25 for the  difference  between the fair value of the
         Company's  common stock at the grant date and the exercise price of the
         options has been recognized.

                                      F-32
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Stock Option Plans (Continued)
         ------------------
         Had  compensation  cost  for  the  Company's  stock  option  plan  been
         determined  based  on the  fair  value at the  grant  date  for  awards
         consistent  with the provisions of SFAS No. 123, the Company's net loss
         and loss per share for the years ended December 31, 2001 and 2000 would
         have been increased to the pro forma amounts indicated below:

                                                   2001             2000
                                              -------------    --------------

           Net loss as reported               $  (6,201,121)   $   (7,373,751)
           Net loss, pro forma                $  (6,535,602)   $   (8,340,104)
           Basic loss per share as reported   $       (0.40)   $        (1.86)
           Basic loss per share, pro forma    $       (0.42)   $        (2.11)

         The fair value of the  options  granted  under the Option  Plan and the
         Director Plan was calculated using the  Black-Scholes  option valuation
         model with the  following  weighted-average  assumptions  for the years
         ended  December  31,  2001  and  2000:  dividend  yields  of 0% and 0%,
         respectively;  risk-free  interest rates of 3.8% and 6%,  respectively;
         volatility of 175% and 40%, respectively; and expected lives of two and
         3.66 years, respectively.

         For options  granted under the Option Plan and Director Plan during the
         years ended December 31, 2001 and 2000 where the exercise price equaled
         the stock  price at the date of the grant,  the  weighted-average  fair
         value of such  options  was  $2.13  and  $0.61,  respectively,  and the
         weighted-average  exercise  price of such  options was $2.69 and $2.22,
         respectively.  For options  granted during the years ended December 31,
         2001 and 2000 where the exercise price was greater than the stock price
         at the  date of the  grant,  the  weighted-average  fair  value of such
         options  was $1.64 and $0.41,  respectively,  and the  weighted-average
         exercise  price of such options was $2.57 and $1.93,  respectively.  No
         options were granted  during the years ended December 31, 2001 and 2000
         where the  exercise  price was less than the stock price at the date of
         the grant.

         The fair  value of the  options  granted  under  the  Telisar  Plan was
         calculated  using the  Black-Scholes  option  valuation  model with the
         following weighted-average  assumptions for the year ended December 31,
         2001: dividend yield of 0%, risk-free interest rate of 3.6%, volatility
         of 0%, and expected life of two years. The  weighted-average  remaining
         contractual life for options  outstanding at December 31, 2001 was 2.69
         years.


                                      F-33
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 11 - SHAREHOLDERS' EQUITY (Continued)

         Stock Option Plans (Continued)
         ------------------
         For options  granted  under the Telisar  Stock  Option Plan during  the
         year ended  December  31, 2001 where the  exercise  price  equaled  the
         stock price at the date of the grant, the weighted-average  fair  value
         of such options was $0.06, and the weighted-average  exercise  price of
         such  options  was $2.25.  For options  granted  during the  year ended
         December 31, 2001 where the exercise price exceeded the  stock price at
         the date of the grant, the weighted-average fair value of  such options
         was $0, and the  weighted-average  exercise  price of  such options was
         $2.48. No options were granted during the year ended  December 31, 2001
         where the exercise  price was less than the stock price  at the date of
         the grant.

         The  Black-Scholes  option  valuation  model was  developed  for use in
         estimating  the fair  value of traded  options  which  have no  vesting
         restrictions and are fully transferable.  In addition, option valuation
         models require the input of highly subjective assumptions including the
         expected stock price volatility.  Because the Company's  employee stock
         options  have  characteristics  significantly  different  from those of
         traded options, and because changes in the subjective input assumptions
         can materially affect the fair value estimate, in management's opinion,
         the  existing  models  do not  necessarily  provide a  reliable  single
         measure of the fair value of its employee stock options.

         Contingent Stock Options
         ------------------------
         On July 1, 2000, the Company agreed to grant stock options to its Chief
         Executive Officer,  Chief Technology Officer,  and President contingent
         upon the  Company  raising  certain  minimum  total  amounts of funding
         through its 1999 and 2000  private  placements.  If the Company  raised
         gross proceeds of  $25,000,000 by December 31, 2001,  each of the three
         officers would be granted  100,000 stock options with an exercise price
         of $1.75 that would expire on December 31, 2003. If the Company  raised
         gross proceeds of  $31,000,000 by December 31, 2001,  each of the three
         officers would be granted  200,000 stock options with an exercise price
         of $1.75 that would also expire on December 31,  2003.  At December 31,
         2001,  no options had been  issued  since the Company did not raise the
         minimum amount of funding through the 1999 and 2000 private placements.




                                      F-34
<PAGE>
                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 12 - INCOME TAXES

         The  following  table  presents  the  current and  deferred  income tax
         provision  for  federal  and state  income  taxes  for the years  ended
         December 31, 2001 and 2000:
                                                    2001             2000
                                                ------------    -------------
           Current
               Federal                          $          -    $           -
               State                                   3,200              800
                                                ------------    -------------
                                                       3,200              800
                                                ------------    -------------
           Deferred
               Federal                                     -                -
               State                                       -                -
                                                ------------    -------------
                                                           -                -
                                                ------------    -------------

                 Provision for income taxes     $      3,200    $         800
                                                ============    =============

         The provision  for (benefit  from) income taxes differs from the amount
         that would  result from  applying  the federal  statutory  rate for the
         years ended December 31, 2001 and 2000 as follows:

                                                     2001            2000
                                                ------------    ------------
           Statutory regular federal income tax
            rate                                       34.0%           34.0%
           State taxes                                  5.8             5.8
           Tax credits                                    -             2.4
           Change in valuation allowance              (39.8)          (42.2)
                                                ------------    ------------
               Total                                   -   %            -  %
                                                ============    ============

         The tax effects of  temporary  differences  which give rise to deferred
         taxes at December 31, 2001 consisted of:

           Deferred tax assets
               Federal net operating loss carryforward         $     14,047,125
               State operating loss carryforward                     (1,029,789)
               Accrued vacation and salaries                            (10,502)
               Tax credits                                              570,604
               Bad debts                                                 76,533
               Other                                                    (39,032)
                                                               ----------------
           Total gross deferred tax assets                           13,614,939
           Less valuation allowance                                  13,614,939

                           Net deferred tax assets             $              -
                                                               ================
                                      F-35
<PAGE>

                                            TELEGEN CORPORATION AND SUBSIDIARIES
                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                               December 31, 2001
--------------------------------------------------------------------------------

NOTE 12 - INCOME TAXES (Continued)

         As  of  December  31,  2001,   the  Company  had  net  operating   loss
         carryforwards   for   federal   and  state   income  tax   purposes  of
         approximately  $41,315,000  and  $30,469,000,   respectively.  The  net
         operating   loss   carryforwards   begin  expiring  in  2010  and  2000
         respectively.  The utilization of net operating loss  carryforwards may
         be limited due to the ownership change under the provisions of Internal
         Revenue Code Section 382 and similar state provisions.


NOTE 13 - RELATED PARTY TRANSACTIONS

         During the year ended December 31, 2001, the Company paid approximately
         $63,000 to a company  that is  controlled  by a director of the Company
         for consulting services.

         On July 5, 2001, the Company entered into an agreement with a placement
         agent to provide  placement  services for a proposed private  placement
         offering  of the  Company's  common  stock (the "2001  Offering").  The
         agreement   provided  that  the  placement  agent  would  earn  a  cash
         commission of 10% of the gross proceeds of the 2001  Offering,  a stock
         commission  of 3% of the  shares  sold under the 2001  Offering,  and a
         warrant to purchase 10% of the shares sold under the 2001 Offering.

         In connection  with the 2001  Offering,  the agreement  provided that a
         company  which is majority  owned by a director  of the  Company  would
         receive from the placement agent 10% of the cash  compensation,  50% of
         the stock  compensation,  and 25% of the warrants paid to the Placement
         Agent. In addition,  to the extent that the director acted as a selling
         agent in  transactions  in the 2001  Offering,  the director would have
         received from the Placement  Agent a cash  commission  equal to 7.2% of
         the funds raised and  warrants  equal to 45% of the warrants to be paid
         to the Placement  Agent.  As of the date of this report,  no sales have
         been made under this agreement and no commissions have been paid.

         During the year ended December 31, 2000,  the Company issued  1,000,000
         warrants to each of two officers to purchase  intangible  assets valued
         at $70,000.


NOTE 14 - SUBSEQUENT EVENT

         In January 2002,  the Company issued 250,000 units for cash proceeds of
         $125,000.  This offering is being conducted pursuant to Regulation D as
         adopted by the SEC pursuant to the Act. Each unit consists of one share
         of the Company's  common stock and one warrant to purchase one share of
         the Company's  common stock.  The warrant has an exercise  price of $1,
         vests immediately, and expires on January 25, 2005.

                                      F-36