SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                   FORM 10-QSB

(Mark One)

[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

      For the quarterly period ended November 30, 1996

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

            For the transition period from ........  to .............

Commission file number: 0-14873

                               POWERTEL USA, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                   Delaware                                84-0897771
----------------------------------------------          -------------------  
 (State or other jurisdiction of incorporation          (I.R.S. Employer
               or organization)                         Identification No.)


             1187 Coast Village Road #1-381, Santa Barbara, CA  93108
--------------------------------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (805) 884-8350
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                    510 Castillo St., Santa Barbara, CA 93101
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

      Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities  Exchange Act of 1934 during the preceding
12 months (or for such shorter  period that the  registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.  Yes  X   No
              ---     ----

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

      There were  15,808,710  shares of the  registrant's  Class A Common Stock,
$.001 par value, outstanding as of January 20, 1997.





<PAGE>



                               POWERTEL USA, INC.

                                      INDEX

Part I. Financial Information                                     Page Number
-----------------------------                                     -----------

Item 1.  Financial Statements

Consolidated Balance Sheets  -
     November 30, 1996 and February 28, 1996                          3 - 4

Consolidated  Statements of Operations -
     for the three months ended  November 30,
     1996 the nine months ended November 30, 1996
     and for the three months ended November 30, 1995
     and the nine months ended November 30, 1995                        5

Consolidated Statements of Shareholders' Equity -
     for the year ended February 28, 1995 and the
     nine months ended November 30, 1996                                6

Consolidated Statements of Cash Flows -
     for the nine months ended November 30, 1996
     and the nine months ended November 30, 1995                        7

Notes to Consolidated Financial Statements                              8

Item 2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations                              20

Part II. Other Information
--------------------------

Item 1. Legal Proceedings.                                             28

Item 4. Submission of Matters to a Vote of
            Security Holders.                                          28

Item 5. Other Information.                                             29

Item 6. Exhibits and Reports on Form 8-K.                              38


                                         2




<PAGE>

                               POWERTEL USA, INC.
                           CONSOLIDATED BALANCE SHEETS
                                       AT
                     NOVEMBER 30, 1996 and FEBRUARY 29, 1996

<TABLE>
<CAPTION>

                                   A S S E T S
                                   - - - - - -                                         
                                                       NOV. 30, 1996   FEBRUARY 29
                                                         (Unaudited)      1996
                                                        -----------    ----------- 
<S>                                                     <C>            <C>  
CURRENT ASSETS:
     Cash                                               $   136,735    $   132,243
     Receivables                                            533,768        137,274
     Inventory                                               48,032         35,375
     Deposits and prepaid expenses                           19,088        119,375
                                                        -----------    -----------  
            Total Current Assets                            737,622        424,267
                                                        -----------    ----------- 



PROPERTY AND EQUIPMENT, at cost (Note 1):
     Furniture, equipment and vehicles                      542,305        229,580
     Building                                               253,156        253,156
     Power generation equipment                           1,051,792      1,087,607
     Idle power generation equipment
      (Net of obsolescence of $2,532,472)                 5,226,063      5,226,063
     Land                                                    70,000         70,000
                                                        -----------    ----------- 
                                                          7,143,317      6,866,406
     Less - Accumulated depreciation and amortization      (367,854)      (336,277)
                                                        -----------    ----------- 
            Net Property and Equipment                    6,775,463      6,530,129
                                                        -----------    ----------- 


OTHER ASSETS (Note 2):
     Investments in partnerships                              2,975          3,227
     Investments in subsidiaries                             26,601         24,546
     Power Purchase Agreements, net of Amortization          46,404         48,288
     Organization Expense, net of amortization                  928          1,102
                                                        -----------    ----------- 
                                                             76,908         77,163
                                                        -----------    ----------- 
     TOTAL ASSETS                                       $ 7,589,993    $ 7,031,559
                                                        ===========    ===========

</TABLE>




       (The accompanying notes are an integral part of these statements.)

                                       3



<PAGE>

                               POWERTEL USA, INC.
                           CONSOLIDATED BALANCE SHEETS
                                       AT
                     NOVEMBER 30, 1996 and FEBRUARY 29, 1996

        L I A B I L I T I E S  A N D  S H A R E H O L D E R S'  E Q U I T Y
        - - - - - - - - - - -  - - -  - - - - - - - - - - - -   - - - - - - 
<TABLE>
<CAPTION>
                                                                                       NOV. 30, 1996   FEBRUARY 29
                                                                                       (Unaudited)         1996
                                                                                       ------------    ------------
<S>                                                                                    <C>             <C> 
CURRENT LIABILITIES:
     Accounts payable                                                                  $    805,784    $    187,455
     Short-term borrowings (Note 3)                                                          48,776          42,041
     Payable to related party                                                                37,965          37,965
     Accrued payroll                                                                         66,723          60,294
     Other liabilities                                                                       79,657          65,047
     Liabilities subject to compromise (Note 1)                                              26,891          43,207
                                                                                       ------------    ------------  
                 Total Current Liabilities                                                1,065,795         436,009
                                                                                       ------------    ------------
NON-CURRENT LIABILITIES
     Mortgage Payable (Note 3)                                                              242,969          15,688
                                                                                       ------------    ------------
                 Total Non-Current Liabilities                                              242,969          15,688
                                                                                       ------------    ------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)                                                --              --
                                                                                       ------------    ------------
                 Total Liabilities                                                        1,308,764         451,697
                                                                                       ------------    ------------
MINORITY INTEREST IN SUBSIDIARY (Note 2)                                                    632,720         698,430
                                                                                       ------------    ------------
SHAREHOLDERS' EQUITY (Notes 1, 4, 5, 6 and 7):
     Preferred stock, $.001 Par Value, Authorized 2,000,000 shares;
            Issued and outstanding -
                 Series A - 1,198,281 shares at November 30, 1996, none at
                    February 29, 1996                                                         1,198            --
                 Series B - 5 shares at November 30, 1996, none at February 29, 1996           --              --
     Class  A Common  Stock,  $.001 par  value,  Authorized 25,000,000 shares;
            Issued and outstanding 15,808,710 shares at November 30, 1996
               and 8,808,485 shares at February 29, 1996                                     15,809           8,808
     Class B Common Stock, $.001 Par Value, Authorized 25,000,000 shares;
            Issued and outstanding 4,437,473 shares at August 31, 1996
               and 4,437,473 shares at February 29, 1996                                      4,437           4,437
     Additional paid-in capital                                                          17,403,617      11,528,754
     Series A - note receivable                                                          (2,995,608)           --
     Accumulated deficit                                                                 (8,771,844)     (5,651,466)
     Treasury stock - Class A, 16,785 shares at November 30, 1996 and
            16,785 shares at February 29, 1996                                               (9,101)         (9,101)
                                                                                       ------------    ------------
                 Total Shareholders' Equity                                               5,648,508       5,881,432
                                                                                       ------------    ------------
     TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $  7,589,993    $  7,031,559
                                                                                       ============    ============
</TABLE>
       (The accompanying notes are an integral part of these statements.)

                                       4



<PAGE>

                               POWERTEL USA, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                          THREE MONTHS    NINE MONTHS    THREE MONTHS   NINE MONTHS
                                                              ENDED           ENDED           ENDED         ENDED
                                                           NOVEMBER 30     NOVEMBER 30     NOVEMBER 30   NOVEMBER 30
                                                               1996            1996           1995          1995
                                                           -----------    -----------    -----------    -----------
<S>                                                        <C>            <C>            <C>            <C> 
REVENUES:
     Energy Sales                                          $    16,424    $   217,654    $   105,666    $   649,899
     Printing and Business Supply Sales                        264,867        918,648        250,078        753,218
                                                           -----------    -----------    -----------    ----------- 
                 Total Revenues                                281,291      1,136,302        355,744      1,403,117
                                                           -----------    -----------    -----------    -----------
COSTS AND EXPENSES:
     Cost of Sales                                             155,067        624,273        170,879        523,599
     Cost of Operations                                         77,600        229,633        166,128        502,432
     Depreciation and Amortization (Note 1)                     32,271         79,854         15,330         49,363
     Provision for obsolescence (Note 1)                             0              0         94,810        284,429
     Professional Fees                                         527,922        929,694         95,688        327,042
     General and Administrative                                 82,330        680,812        153,419        468,829
                                                           -----------    -----------    -----------    -----------
                 Total Costs and Expenses                      875,191      2,544,267        696,255      2,155,695
                                                           -----------    -----------    -----------    -----------

OTHER INCOME AND (EXPENSES):
     Interest Income                                               311            589          3,387          6,649
     Other Income                                                  753          3,987         80,298          9,080
     Gain on sale of project interest (Note 2)                       0              0              0        508,018
     Loss from Partnership/Investment interests (Note 2)    (1,768,395)    (1,768,395)       (18,418)       (38,418)
     Interest Expense                                           (7,942)       (20,703)        (3,972)       (17,059)
     Minority Interests (Notes 1 and 2)                         25,318         72,710         60,522         13,014
                                                           -----------    -----------    -----------    -----------
                 Total other income and (expense)           (1,749,955)    (1,711,813)       121,817        481,285
                                                           -----------    -----------    -----------    -----------
LOSS BEFORE TAXES                                           (2,343,855)    (3,119,778)      (218,694)      (271,293)

            PROVISION FOR INCOME TAXES (Note 8)                    200            600            200        (13,467)
                                                           -----------    -----------    -----------    -----------
NET INCOME (LOSS)                                          $(2,344,055)   $(3,120,378)   $  (218,894)   $  (257,826)
                                                           ===========    ===========    ===========    =========== 


NET INCOME (LOSS) PER SHARE (Notes 1 and 6)                $     (0.17)   $     (0.28)   $     (0.02)   $     (0.03)
                                                           ===========    ===========    ===========    =========== 

                        (The accompanying notes are an integral part of these statements.)

</TABLE>





















                                    5


<PAGE>

                           NEVADA ENERGY COMPANY, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
   FOR THE YEAR ENDED FEBRUARY 29, 1996 AND NINE MONTHS ENDED NOVEMBER 30, 1996

<TABLE>
<CAPTION>
                                                       CLASS A COMMON              CLASS B COMMON          PREFERRED STOCK          
                                            -----------------------------------  ----------------- ---------------------------------
                                                                                                              SERIES A              
                                                                                                   ---------------------------------
                                            NUMBER                                NUMBER            NUMBER                          
                                              OF                                     OF               OF                    NOTE    
                                            SHARES        AMOUNT   SUBSCRIBED     SHARES    AMOUNT  SHARES     AMOUNT    RECEIVABLE 
                                           -----------  ---------  ----------- -----------  ------ --------- --------  -------------
<S>                                         <C>         <C>        <C>          <C>         <C>    <C>       <C>        <C>         
BALANCES - FEBRUARY 28, 1995,               7,509,481   $  7,509   $  250,000   4,024,918   $4,025     -     $  -       $       -   

   Shares Issued for Cash (Note 6)            333,333        333     (250,000)      -           -      -         -               -  

   Shares Issued for Services (Note 6)        145,842        146        -           -           -      -         -               -  

   Stock dividends at market value (Note 6)   819,829        820        -         412,555      412     -         -               -  
   Transfer of surplus for stock dividend                                                                                           

   Net (Loss) for the Year
     Ended February 28, 1995                                                                                                        
                                           -----------  ---------  ----------- -----------  ------ --------- --------  -------------
BALANCES - FEBRUARY 29, 1996                8,808,485      8,808        -       4,437,473    4,437     -         -               -  

   Shares issued for cash (Note 6)            152,381        153        -           -           -                -               -  

   Shares issued for assets (Note 6)        2,000,000      2,000                                                                    

   Shares issued/retired in conversion      4,847,844      4,848                                    (762,464)   (762)               

   Shares issued for a note (Note 6)                                    -           -           -  1,960,745   1,961     (4,899,988)
   Expenses related to issuance                                                                                                     

   Cash received on note                                                                                                  1,904,380

   Net (Loss) for the nine months
     Ended November 30, 1996                                                                                                        
                                           -----------  ---------  ----------- -----------  ------ --------- --------  -------------
BALANCES, November 30, 1996                15,808,710   $ 15,809   $    -       4,437,473   $4,437 1,198,281 $ 1,198    $(2,995,608)
                                           ===========  =========  =========== ===========  ====== ========= ========  =============
  
                                                 PREFERRED STOCK                                                  
                                               -------------------          
                                                     SERIES B                                    
                                               -------------------               
                                                 NUMBER                                                   
                                                    OF                 PAID-IN     ACCUMULATED      TREASURY    SHAREHOLDERS'      
                                                 SHARES    AMOUNT      CAPITAL        DEFICIT        STOCK          EQUITY          
                                               -------    --------  -----------  ---------------    ----------   ------------
<S>                                            <C>         <C>     <C>           <C>                  <C>       <C>             
BALANCES - FEBRUARY 28, 1995,                       -      $   -   $ 11,214,439  $ (5,022,828)        (8,853)   $ 6,444,292     
                                                                                                                                    
   Shares Issued for Cash (Note 6)                  -          -        247,331          -           -               (2,336)    
                                                                                                                                    
   Shares Issued for Services (Note 6)              -          -         68,216          -           -               68,362     
                                                                                                                                    
   Stock dividends at market value (Note 6)         -          -        802,321      (803,553)          (248)          (248)    
   Transfer of surplus for stock dividend                              (803,553)      803,553        -              -           
                                                                                                                                    
   Net (Loss) for the Year                                                                                                          
     Ended February 28, 1995                                                          (628,638)       -             (628,638)    
                                              -------    --------  -----------  ---------------    ----------   ------------    
BALANCES - FEBRUARY 29, 1996                       -          -       11,528,754    (5,651,466)        (9,101)     5,881,432     
                                                                                                                                    
   Shares issued for cash (Note 6)                 5          -           97,860          -           -               98,013     
                                                                                                                                    
   Shares issued for assets (Note 6)                                   1,154,250                                   1,156,250     
                                                                                                                                    
   Shares issued/retired in conversion                                      (745)                                      3,340  
                                                                                                                                    
   Shares issued for a note (Note 6)                                   4,898,027          -           -              -           
   Expenses related to issuance                                         (274,529)                                   (274,529)    
                                                                                                                                    
   Cash received on note                                                                                           1,904,380        
                                                                                                                                    
   Net (Loss) for the nine months                                                                                                 
     Ended November 30, 1996                                                         (3,120,378)                   (3,120,378)    
                                               -------    --------  -----------  ---------------    ----------   ------------    
BALANCES, November 30, 1996                        5      $  -      $17,403,617  $   (6,427,788)        (9,101)  $  5,648,508    
                                                ======    ========  ===========  ===============    ==========   ============
                                                                                                                      
                     (The accompanying notes are an integral part of these statements.)
</TABLE>



                                       6


<PAGE>

                               POWERTEL USA, INC.
                  STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
                  ENDED NOVEMBER 30, 1996 AND NOVEMBER 30, 1995

<TABLE>
<CAPTION>

                                                                                 NOVEMBER       NOVEMBER
                                                                                   1996           1995
                                                                               -----------    -----------
<S>                                                                            <C>            <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)                                                              $(3,120,378)   $  (257,826)
     Adjustments to reconcile net income (loss)
            to net cash used in operating activities -
                 Depreciation and Amortization (Note 1)                             79,854         49,363
                 Provision for Obsolescence (Note 1)                                  --          284,429
                 Amortization of Goodwill                                         (110,028)          --
                 (Gain) Loss on Disposition of Assets                            1,768,395           --
                 Minority Interest in Subsidiary Profit (Loss)                     (72,710)       (13,014)
                 Equity in Loss from Partnership Interests                            --           38,418
                 Stock issued to Directors/Officers/Employee                          --           68,362
                 Changes in assets and liabilities -                                  --
                    Decrease (Increase) in Receivables                            (396,494)        60,155
                    Decrease (Increase) in Stock Subscription Receivable              --          150,000
                    Decrease (Increase) in Receivable from related party              --             --
                    Decrease (Increase) in Inventories                             (12,657)           828
                    Decrease (Increase) in Deposits and Prepaids                   100,287         62,388
                    Increase (Decrease) in Accounts Payable                        618,329        (29,912)
                    Increase (Decrease) in Payable to related party                   --          (34,029)
                    Increase (Decrease) in Other Liabilities                        21,039            (17)
                    Increase (Decrease) in Liabilities subject to compromise       (16,316)       (37,108)
                                                                               -----------     ----------
            Net cash used in operating activities                               (1,140,678)       342,037
                                                                               -----------     ----------
CASH FLOWS FROM INVESTING ACTIVITIES:

            Acquistion of Property and Equipment                                  (300,400)       (50,955)
            Proceeds from Sale of Assets                                              --
            Non-refundable deposit on proposed sale of assets                         --           25,000
            Investment in Subsidiaries                                            (765,538)          --
            (Advances) to and Repayments from Partnerships                            --          (45,626)
                                                                               -----------     ----------
            Net cash provided by investing activities                           (1,065,938)       (71,581)
                                                                               -----------     ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
            Principal repayments on financing                                      (46,384)       (49,211)
            Net proceeds from cash sales of common and preferred stock           1,904,380           --
            Borrowing                                                              280,400         45,467
            Minority interest                                                       72,710           --
                                                                               -----------     ----------
            Net cash used in financing activities                                2,211,106         (3,744)
                                                                               -----------     ----------
NET INCREASE (DECREASE) IN CASH                                                      4,490        266,712

CASH AT BEGINNING OF PERIOD                                                        132,245         37,885  
                                                                               -----------    ----------- 

CASH AT END OF PERIOD                                                          $   136,735    $   304,597
                                                                               ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Note 11):
Cash expenditures during the nine months for -

     Interest                                                                  $    16,793         22,720
     Taxes, including taxes paid through payments on liabilities
            subject to compromise of $18,915 in 1996 and $13,386 in 1995               600         41,372


       (The accompanying notes are an integral part of these statements.)
</TABLE>



                                        7



<PAGE>



                               POWERTEL USA, INC..
                   Notes to Consolidated Financial Statements

Note 1 - Organization and Summary of Significant Accounting Policies:

            Principles of Consolidation:
            ----------------------------

                  The accompanying consolidated financial statements include the
            accounts of the Company and its wholly-owned subsidiaries Combustion
            Energy Company,  Inc.  ("CEC"),  a Nevada  corporation and Yerington
            Acquisition  Company,  Inc. a Nevada  corporation  and its  majority
            owned  subsidiary  San Jacinto Power Company,  a Nevada  corporation
            (See Note 2). On November  30,  1994,  the  Company's  wholly  owned
            subsidiary  CEC completed a merger with Herth  Printing and Business
            Supplies,  Inc.  ("HPBS" - see notes 2 and 5). This  acquisition has
            been treated as a pooling of interests and the financial  statements
            presented   herein  reflect  the  combined  results  of  the  pooled
            businesses.  All significant  intercompany accounts and transactions
            have been eliminated in consolidation.

            Organization and Operations:
            ----------------------------

                  POWERTEL USA, INC..  ("the Company") was organized on December
            2, 1982, and incorporated under the laws of Delaware on December 20,
            1982, under the name Munson  Geothermal,  Inc. Pursuant to an action
            of the Board of Directors,  the Company's name was changed to NEVADA
            ENERGY COMPANY,  INC. on December 3, 1990. The Company's filing with
            the  secretary  of state in Delaware was  acknowledged  as effect on
            January  2,  1997 for the name  change  to  POWERTEL  USA,  INC.  as
            approved by  shareholders  at the Company's  annual  meeting held on
            August  16,  1996.   The  Company  is   primarily   engaged  in  the
            development,  financing,  construction  and operation of geothermal,
            wind and  biomass  energy  resources  which  are used  primarily  to
            generate electric power. The Company also operates a custom printing
            and catalogue based retail office supply  business.  The Company has
            endeavored  to  gain  entry  into  the  telecommunications  industry
            without success to date.

            Power Generation Equipment:
            ---------------------------

                  Power generation  equipment is carried at cost and consists of
            64 wind turbine  generators  operated in  California  by San Jacinto
            Power.

            Idle Power Generation Equipment:
            --------------------------------

                  Idle  power  generation  equipment  includes  ten Ormat  power
            plants  capable of  producing up to an  estimated  maximum  3,700 KW
            average  output  valued at $2,526,063  and the relocated  Raft River
            

                                        8

<PAGE>


            Power Plant valued at of  $2,700,000  and estimated to be capable of
            up to 7,200 KW of output.  Total net book  value of these  assets is
            $5,226,063. A recent appraisal (May 1996) of these assets determined
            the fair market value to be $5.7 million.

            Land and Buildings
            ------------------

                  Included in the assets of HPBS (see above) was a ten  thousand
            eight hundred (10,800) square foot building containing office space,
            print shop and  warehouse  space with a historical  cost of $253,156
            and  approximately  0.77  acres  of fee  land  with a book  value of
            $70,000.

            Depreciation and Amortization:
            ------------------------------

                  The Company provides for depreciation of buildings,  furniture
            and field equipment utilizing  straight-line and accelerated methods
            over the useful lives of three to twenty-one  years  beginning  when
            assets are placed in service.  Costs of power  generation  equipment
            represents 64 wind turbines together with related infrastructure, in
            use by the Company's  majority  owned  subsidiary San Jacinto Power,
            which  have  been  recorded  at  acquisition   cost  and  are  being
            depreciated  over the  remaining  21 year life of the related  Power
            Purchase  Agreement  acquired  in the  same  transaction.  The  HPBS
            vehicles, equipment and building are recorded at acquired book value
            and are being  depreciated  over their remaining  useful lives.  The
            Power Purchase Agreement was valued at $52,500,  its estimated value
            when  acquired,  and it is being  amortized on a straight line basis
            over the then remaining 21 years of contract life.

            Provisions for obsolescence:
            ----------------------------

                  Idle geothermal power generation  equipment as at February 29,
            1992  was  adjusted  to  the  lower  of  cost  or  appraisal  value.
            Thereafter,  through February 29, 1996,  provisions for obsolescence
            were  provided  based on the  remaining  economic  life,  which  was
            estimated  in  1992  to be  eighteen  years.  Based  on a  May  1996
            appraisal, an additional $83,288 of obsolescence was provided on the
            Raft  River  power  plant  asset,  reducing  its net  book  value at
            February  29,  1996 to the  fair  market,  appraised  value  of $2.7
            million. Beginning with the fiscal year ended February 28, 1997, the
            Company is  subject  to the  provisions  of FAS 121  concerning  the
            accounting  for the  impairment of long-lived  assets.  Based on the
            provisions of FAS 121, the Company has adopted an accounting  policy
            in  which  it will  review  its  long-lived  assets  for  impairment
            whenever  events  or  changes  in  circumstances  indicate  that the
            carrying amount of an asset may not be recoverable. The Company will
            continue  to  obtain  annual  independent  appraisals  to  determine


                                        9



<PAGE>


            current fair market value of its long-lived, currently idle, assets.
            In the interim there will be no  provisions  for  obsolescence.  The
            current combined  carrying value  ($5,226,063) of the idle equipment
            is less than the current  combined fair market  appraisal value. The
            Company will apply FAS 121 each quarter, as required.  No adjustment
            has been made in the quarter ending November 30, 1996.

            Goodwill
            --------

            The  acquisition  of  Telecomm   Technologies,   Inc.   resulted  in
            approximately  $1,700,000  in goodwill.  This was written off in its
            entirety in the current  quarter due to the failure of the  business
            to develop as anticipated.  Certain  shareholders have filed suit in
            Delaware in an attempt to recover  some or all of the  consideration
            which was given in this  transaction.  Goodwill  expense recorded in
            the prior quarter has been  reversed in the quarter  ended  November
            20, 1996.

            Net Income (Loss) per Common Share:
            -----------------------------------

                  The net income (loss) per common share is computed  based upon
            the  weighted  average  number  of  shares  of Class A Common  Stock
            outstanding during each period. Class A shares issued in conjunction
            with  the  merger  of HPBS  and CEC  (See  Notes 1 and 5) have  been
            treated as issued at February 28, 1993.  Weighted  average shares of
            Class A Common Stock  outstanding were 11,246,903 in the nine months
            ending  November  30,  1996,  13,758,978  in the three  months ended
            November 30, 1996,  9,990,866 in the nine months ending November 30,
            1995 and 11,122,453 in the three months ended November 30, 1995.

                  Shares  issuable  upon  exercise  of  warrants  or options are
            excluded from the  computation  since the effect of their  inclusion
            would be  antidilutive  as the  exercise  price is in  excess of the
            average market price during the applicable periods.  Shares of Class
            B Common  Stock are  excluded  from the  computation  since  Class B
            shareholders  do not  participate  in the  earnings of the  Company.
            Shares issued in the Smith  acquisition,  but held in escrow between
            the date issued, December 15, 1993 and the date of completion of the
            acquisition,  June 24, 1994, were not included in the computation of
            loss per share during the period they were held in escrow.

            Business Segment Information
            ----------------------------

                  The Company  currently  classifies its business  activities in
            two segments:  (1) electric power production and development and (2)
            printing and  business  supply  sales.  Information  concerning  the
            Company's business segments in the quarters ending November 30, 1996
            and 1995 are as follows (amounts in thousands):

                                       10



<PAGE>
                                        ELECTRIC    PRINTING
                                         POWER     AND OFFICE
($000)                                 PRODUCTION   SUPPLIES   CONSOLIDATED
------                                 ----------  ----------  ------------
Quarter Ending
November 30, 1996
-----------------
Sales                                 * $    16      $   265     $  281
Operating Income (Loss)                    (626)          32       (594)
(Loss) on disposition of assets           1,768          -        1,768
Identifiable assets                  **   6,789          801      7,590
Depreciation/amortization                     4           28         32
Provision for obsolescence                  -            -          -
Capital expenditures                         16          -           16

($000)
------
Nine months Ending
November 30, 1996
-----------------
Sales                                 * $   218      $   918    $ 1,136
Operating Income (Loss)                  (1,480)          72     (1,408)
Identifiable assets                  **   6,789          801      7,590
Depreciation/amortization                    42           38         80
Capital expenditures                         16          323        323

($000)
------
Quarter Ending
November 30, 1995
-----------------
Sales                                 * $   106     $   250     $   356
Operating Income (Loss)                    (310)         15        (295)
Identifiable assets                  **   7,291         478       7,769
Depreciation/amortization                    10           3          13
Provision for obsolescence                   95        -             95
Capital expenditures                          3        -              3

($000)
------
Nine months Ending
November 30, 1995
-----------------
Sales                                   $   650        $ 753    $ 1,403
Operating Income (Loss)                    (602)          19       (583)
Identifiable assets                  **   7,291          478      7,769
Depreciation/amortization                    34            9         43
Provision for obsolescence                  284          -          284
Capital expenditures                         50            1         51

      Intra-segment transactions, which are not material, have been eliminated.

      *     Substantially  all revenues from the electric power  production were
            generated  from sales to Southern  California  Edison  Company (SCE)
            under a  Power  Purchase  Agreement,  which  will  expire  in  2015.
            Pursuant  to  the  agreement,  SCE  will  purchase  all  electricity
            

                                         11


<PAGE>


            generated by the Company's  wind system at the price  computed based
            on the forecast of annual as-available  capacity and a standard rate
            approved by the Public  Commission of the State of  California.  The
            Company's   1996   revenue  from  SCE  of   approximately   $218,000
            represented 19% of the total revenue of the Company in 1996. In 1995
            the revenue from SCE of  approximately  $650,000  represented 46% of
            total revenue of the Company in 1995.

      **    Includes  $5,110,503 of net idle power generation  equipment in 1996
            and $5,593,780 of net idle power generation equipment in 1995.

            Telecommunications  results were removed for the current quarter and
            year to date as a  result  of  termination  of the  acquisitions  as
            referenced above.

NOTE 2 - Investments in Partnerships and Consolidated Subsidiaries:

            Combustion Energy Company, Inc.
            -------------------------------

                  Combustion Energy Company, Inc., a Nevada corporation, ("CEC")
            was formed on  February  12, 1993 for the purpose of being a general
            partner of Oreana Power  Partners (see below).  CEC's assets consist
            of its  one  percent  (1%)  partnership  interest  in  Oreana  Power
            Partners,  currently  valued  at  $925  based  on its  initial  cash
            investment less accumulated  losses, and its ownership of the assets
            of HPBS (See notes 1 and 5).

            Combustion Energy Company merger with Herth Printing
            ----------------------------------------------------

                  On November 30, 1994 the Board of Directors of the Company and
            the  shareholders  of Herth  Printing  and Business  Supplies,  Inc.
            approved the merger of NEC's subsidiary CEC with HPBS which resulted
            in HPBS becoming a  wholly-owned  subsidiary of NEC. Under the terms
            of the agreement,  HPBS share holders received 641,784 shares if the
            Company's   class  A  common  stock  in  exchange  for  all  of  the
            outstanding  shares of HPBS.  HPBS was established in 1983 as a sole
            proprietorship  in the printing and retail  catalogue  office supply
            business.  The proprietors  incorporated the business on November 1,
            1994.

                  The  merger  qualifies  as a tax-free  reorganization  and was
            accounted for as a pooling of interests.  Accordingly, the Company's
            financial  statements  have been  restated to include the results of
            HPBS for all period presented.  Separate and combined results of NEC
            and  HPBS  during  the  periods   presented   were  as  follows  (in
            thousands):


                                       12



<PAGE>


            Three months ended
            November 30, 1996              NEC          HPBS          Combined
            (Unaudited)
            --------------------------------------------------------------------
            Net revenues            $    16.4       $ 264.9         $   281.3
            Net income (loss)       $  (625.9)     $   32.0         $  (593.9)
            --------------------------------------------------------------------

            Nine months ended
            November 30, 1996              NEC          HPBS          Combined
            (Unaudited)
            --------------------------------------------------------------------
            Net revenues            $   217.7       $ 918.6       $   1,136.3
            Net income (loss)       $(2,106.2)      $  72.3       $  (2,033.9)
            --------------------------------------------------------------------

            Three months ended
            November 30, 1995              NEC          HPBS          Combined
            (Unaudited)
            --------------------------------------------------------------------
            Net revenues            $   105.6      $  250.1         $   355.7
            Extraordinary income          -             -           $     -
            Net income (loss)       $  (310.6)     $   15.4         $  (295.2)
            --------------------------------------------------------------------

            Nine months ended
            November 30, 1995              NEC          HPBS          Combined
            (Unaudited)
            --------------------------------------------------------------------
            Net revenues            $   649.9      $  753.2         $ 1,403.1
            Extraordinary income    $   585.5           -           $   585.5
            Net income (loss)       $ (  16.4)    $    18.8         $     2.4
            --------------------------------------------------------------------


            The combined  financial results presented above include  adjustments
      made to conform  accounting  policies of the two companies.  There were no
      adjustments which impacted net income.  Intercompany  transactions between
      the two companies, which were not material, have been eliminated.

            There have been no  significant  costs of combing the  operations of
      the two companies.  The Company relocated its headquarters to the building
      owned  by HPBS in the  quarter  ending  November  30,  1996.  The  cost of
      relocating was nominal. The Company has subsequently relocated to separate
      offices.

            On August  16,  1996,  the  Company  entered  into an  agreement  to
      transfer  the assets of HPBS to the then  president  of the  Company.  The
      transaction is pending subject to litigation filed by the Company and in a
      separate action by the former president.

                                         13



<PAGE>

            San Jacinto Power Company                                     
            -------------------------                                     
                                                                          
            San Jacinto Power Corporation,  a Nevada  Corporation,  ("SJPC") was
      formed on  December  15,  1993.  Under the terms of an "Escrow  Agreement"
      dated  December 15, 1993,  the Company  contributed  222,267 shares of its
      Class A Common Stock, valued at $222,267,  based on 50% of market price at
      the time of issue due to resale restrictions imposed pursuant to Rule 144,
      and total cash of $275,055 in exchange for its 50.01%  ownership  interest
      in SJPC.

            Also under the terms of the Escrow Agreement,  on December 15, 1993,
      the New World Power Corporation ("New World") contributed 48,000 shares of
      its Common Stock, with market value of $500,000 at time of issue, to SJPC.
      On February 10, 1994, New World  contributed  cash of $149,970 to SJPC and
      delivered  a balance of cash of  $124,975  on March 8, 1994.  New  World's
      contribution  of Common Stock and cash of $274,945 to SJPC are in exchange
      for its 49.99%  ownership  interest in SJPC.  The shares of Class A Common
      Stock contributed to SJPC by the Company and the Common Stock of New World
      are collectively referred to herein as the "Shares".  The number of shares
      to be issued by the  Company  and New World were  established  in an Asset
      Purchase  Agreement dated July 1, 1993 with no adjustment  required due to
      stock price variations to date of issue. The Escrow Agreement provides for
      the shares of the  Company  and New World to be held for a two year period
      from December 15, 1993,  prior to distribution to the sellers.  During the
      two year period,  certain costs  arising in  connection  with the purchase
      transaction  could result in the number of shares  finally  transferred to
      the  seller  being  reduced.  Such  costs  include  unassessed  claims for
      property taxes, prior  environmental  infractions,  prior BLM assessments,
      limited partner claims and other  contingent  costs to be assessed against
      the sellers. Distribution of the shares was completed by July 9, 1996 with
      no increase or adjustment to the number of shares.

            The Company and New World  subsequently  engaged in  negotiations to
      acquire the operating  assets of Smith Wind Energy  Company  ("Smith") and
      six affiliated limited  partnerships  operated by Smith which are known as
      Triad  A,  Triad B,  Triad C,  Triad  D,  Triad  E,  and  Triad F  Limited
      Partnerships (collectively "Triad"). Smith and Triad were operating a wind
      turbine energy park in North Palm Springs,  California.  Energy sales were
      pursuant to a long-term contract with Southern  California Edison Company.
      A total of 77 wind turbines were available for  operations,  together with
      associated infrastructure, additional turbine sites, turbine towers, parts
      and  service   equipment   and  a  long-term   land  lease  with  the  BLM
      (collectively, the "Assets").

            SJPC was formed for the purpose of acquiring,  holding and operating
      the Assets to be acquired  from Smith and Triad.  The  acquisition  of the
      Smith/Triad  assets by SJPC was  completed and effective on June 24, 1994.
      The  purchase  price  was equal to the  agreed  value of the  shares  plus
      assumed liabilities totalling approximately $293,957 for long-term secured
      debt and certain delinquent property taxes and totaled $1,038,029.

                                       14



<PAGE>



            The total cost was allocated  based on managements  estimate of fair
      market  value of assets  acquired,  except for  prepaid BLM rent which was
      valued at cost, as follows:

                  Field Equipment                           $     21,177
                  Prepaid BLM Rent                                46,892
                  Power Sales Contract                            52,500
                  Power Generation Equipment                     917,460
                                                            ------------
                              Total                         $  1,038,029
                                                            ============

            SJPC also entered into a  non-competition  agreement with the former
      owner/general partner of Smith which provided for payment of $15,000 month
      for two  years and a  non-competition  period of two years to begin at the
      closing date of June 24, 1994.  All payments under this agreement had been
      made as of July 9, 1996.

            The  Company  has  reached  agreement  in  principle  to acquire the
      minority  holders  interest  in  SJPC,  pending  payment  of the  agreemed
      purchase price.

            Mt. Apo Corporation
            -------------------

            Mount Apo Corporation,  a Nevada  corporation  ("MAC") was formed on
      May 9,  1994.  MAC is a joint  venture of NEC and  Geothermal  Development
      Associates and was formed for the purpose of submitting a competitive  bid
      on  a  40  MWe  geothermal  project  in  the  Philippines.   The  bid  was
      unsuccessful.  The Company's investment in MAC is carried at cost of $633.
      MAC is inactive at this time.

            Brady Geo Park Power Project, 1986, Ltd.
            ----------------------------------------

            The  Company's  investment  in Brady Geo Park Power  Project,  1986,
      Ltd.,  including  note and related  interest  receivable  and advances for
      property  taxes were written down to a combined  book value  substantially
      equal to the appraised value of the Ormat energy converter  interests held
      by the  partnership.  The  Company  has  classified  this  asset  as Power
      Generation Equipment in the accompanying balance sheets.

            Nevada Energy Partners - 1
            --------------------------

            In February 1991,  the Company  received a 60% interest as a limited
      partner  in  Nevada  Energy  Partners  1,  a  Nevada  limited  partnership
      (NEP-1LP),  which  holds  a  31.66%  interest  in  the  equity  of  Nevada
      Geothermal Power Partners ("NGPP").  NGPP is a Nevada limited  partnership
      whose  general  partners are Hot Springs  Power  Company and NEP-1LP.  The
      Company  issued a total of 3,476,875  shares of Class B common  shares for
      this interest. An additional 749,289 shares have been issued to NEP-1LP in
      conjunction with the Company's 5% stock dividends made in July and October
      1994 and

                                       15

<PAGE>



      January and April 1995. Class B common shares have full voting rights, but
      have no cash dividend participation.

            The  Company's  interest in NEP-1LP is valued at $3,080 based on the
      par value of the shares  issued,  less amounts  recorded as treasury stock
      due to the Company's effective ownership of 60% of the Class B shares held
      by NEP-1LP,  plus subsequent cash investments,  less estimated partnership
      losses.

            The August 16, 1996 agreement  referenced  above,  also purported to
      transfer all of the Company's  right title and interest in NEP- 1LP to the
      former president and is subject of the same litigation now in process.

            Oreana Power Partners
            ---------------------

            Oreana  Power  Partner  ("OPP") is a limited  partnership  which was
      formed in February  1993 for the purpose of  developing  and financing gas
      turbine  electricity  generating  facilities  to  provide  power to Sierra
      Pacific Power Company  ("Sierra")  pursuant to power sales contracts to be
      obtained.  The Company is a limited  partner and its interest is valued at
      $292 based on its initial  cash  investment,  less  expenses  and returned
      capital.  The general  partners of OPP are Energy  Development  Associates
      ("EDA", a Nevada  corporation and a wholly-owned  subsidiary of Geothermal
      Development Associates) and CEC, a wholly-owned subsidiary of the Company.
      EDA is the  Managing  General  Partner  and CEC is the  Financial  General
      Partner.  Geothermal  Development  Associates is a privately  owned Nevada
      company, not related to the Company. There was no activity with respect to
      development in the quarter ending November 30, 1996.

Yerington Acquisition Company, Inc.:
------------------------------------

            Yerington  Acquisition Company,  Inc., a Nevada corporation ("YAC"),
      was formed on December 8, 1994 for the purpose of acquiring  the assets of
      Tad's  Geothermal,  a  non-related  owner/operator  of a geothermal  power
      generating facility located near Yerington,  Nevada. At November 30, 1996,
      the  proposed  acquisition  had been  terminated.  In December  1995,  the
      Company  transferred all of its right title and interest in 10 Ormat power
      generating  units  (classified as idle power  generating  equipment in the
      financial  statements) to YAC. The equipment is currently subject to liens
      totaling approximately $415,000,  including $34,000 in mechanics liens for
      storage charges. The balance is a result of suits filed by former officers
      in respect to unpaid consulting agreements.  The Company has responded to,
      or is in the process of responding to these claims.





                                         16



<PAGE>

Central Communications Corporation:
-----------------------------------

            Central  Communications  Corporation,  a Nevada corporation ("CCC"),
      was   formed   for   the   purpose   of   acquiring   interests   in   the
      telecommunications  business.  On May 21, 1996, the Company announced that
      it had signed a binding  letter of intent to acquire,  through CCC, all of
      the outstanding shares of Telecom Technologies, Inc. an Oregon corporation
      ("TTI"),  and certain other related  assets.  The terms of the acquisition
      provide  for the payment of  $500,000  in cash and  issuance of  2,000,000
      Class A common shares. The Company advanced to CCC $492,000 in cash in the
      quarter  ended August 31, 1996 in  anticipation  of the  completion of the
      acquisition.  The acquisition was completed on June 21, 1996,  however, it
      was subsequently  reversed.  Certain  shareholders have filed an action in
      Delaware in an attempt to recover some or all of the Company's investment.
      There is no assurance that such recovery will occur.

NOTE 3 - Short-Term Borrowings:

            The following summarizes short-term borrowings at November 30, 1996:
            Mortgage note-current               $ 23,221
            Current portion of
                  equipment note                  25,555
                                                --------
                                                $ 48,776
                                                ========

            There is a mortgage in the amount of $28,130 secured by the land and
      building acquired by CEC in its merger with HPBS (See Note 1). The current
      portion is $23,221 and monthly  installments  are $2,718 with  interest at
      10% per annum.

            The Company's subsidiary,  CEC purchased a high-speed printing press
      which is  subject  to a 8 year note  payable at $4,218 per month and bears
      interest at 9.75%  (adjustable in accord with changes in the prime lending
      rate). The financing was not guaranteed by the Company.

NOTE 4 - Commitments and Contingencies

            The Company's  wholly owned  subsidiary CEC, entered into a two year
      employment  agreement with the former owner  commencing  November 30, 1994
      which provided for annual  compensation of $35,468 plus  commissions.  The
      agreement  has not been renew,  however,  the employee is still engaged on
      similar terms.

            The Company's  wholly owned  subsidiary SJPC leases its wind turbine
      generator  sites under a long-term  lease with the United States Bureau of
      Land Management ("BLM").  Pursuant to the agreement, SJPC has the right of
      usage of the land for  windmill  operations  until  March  2014 and for an
      approximate  annual fee of $89,000.  The annual payments on the land lease
      was $89,610 for the year ended February 29, 1996. Such expense is included
      in the  cost  of  operations  in the  accompanying  financial  statements.


                                         17



<PAGE>


      Pursuant to the lease agreement,  the Company's  estimated payments to the
      BLM as of November 30, 1996 are as follows:

                   1997                                 $   22,250
                   1998                                     89,000
                   1999                                     89,000
                   2000                                     89,000
                   2001                                     89,000
                   Thereafter                            1,157,000
                                                        ----------

                   Total                                $1,535,250
                                                        ==========

            The Company's wholly owned subsidiary, CCC, entered into a five year
      lease of  office  space in Santa  Barbara,  California  on July 19,  1996.
      Except for the first two months, commencing on August 1, 1996, the monthly
      rental  is  $19,034.  Pursuant  to  the  lease  agreement,  the  Company's
      estimated payments as of November 30, 1996 were as follows:

                   1997                                 $  121,638
                   1998                                    228,410
                   1999                                    228,410
                   2000                                    228,410
                   2001                                    228,410
                   Thereafter                               95,170
                                                        ----------

                   Total                                $1,130,448
                                                        ==========

            The Company  has  subsequently  vacated the  premesis as the planned
      expansion in telecommunications has been unsuccessful. The lease agreement
      is the  subject of a suit by the former  landlord.  The  Company  hopes to
      settle the litigation  for a lump sum or negotiate the  sub-letting of the
      facility.

NOTE 5 - Preferred Stock:

            On December 14, 1985, the stockholders of the Company authorized the
      creation of 2,000,000 shares of $1.00 par value preferred stock. The board
      of  directors  has the  authority  to issue  the  stock in  series  and to
      determine all terms and  preferences for each  individual  series.  At the
      annual meeting,  the Company's  shareholders  approved an amendment of the
      Company's  certificate  of  incorporation  reducing  the par  value of the
      preferred stock to $.001 per share.

            On May 1, 1996, the Company entered into an agreement  providing for
      the issuance of 1,960,745  Series A preferred shares at $2.50 per share to
      Golden Chance Limited  ("Golden  Chance"),  an Isle of Man private company
      limited by shares. The terms of the Series A preferred shares provide that
      no dividends  of any kind or nature  shall be paid or  declared.  Series A
      preferred  shares have a right to convert to the Company's  Class A common
      shares.  Liquidation  preference  rights of Series A preferred  shares are
 

                                       18

<PAGE>


      limited to the par value of $.001 per outstanding share. Voting rights for
      each  Series A preferred  share are equal to all classes of common  stock.
      The Company accepted a note in the amount of $4,899,988 payable over a one
      year  period as  consideration  for  issuance  of the  Series A  preferred
      shares.  The present  value of this note has been offset  against  paid-in
      equity in the accompanying  financial  statements.  The Series A preferred
      shares are to be held in escrow until  payment is received.  Golden Chance
      retains the right to vote the escrowed shares. On May 1, 1996, the Company
      also entered into an  agreement  providing  for the issuance of 5 Series B
      preferred shares at $2.50 per share to directors of the Company.  Terms of
      the Series B preferred  shares  provide  that no  dividends of any kind or
      nature shall be paid or declared.  Series B preferred  shares have a right
      to convert to the Company's class A common shares.  Liquidation preference
      rights of Series B preferred  shares are limited to the par value of $.001
      per outstanding share. Holders of Series B preferred shares have the right
      to appoint a temporary  director in the event that Golden Chance  defaults
      in the payment of the first $500,000 on its purchase of Series A preferred
      shares.  Payments  for a total  of  $1,960,745,  net of  related  expenses
      (included is the $500,000 which  extinguishes the Series B right described
      above) for the Series A preferred  shares had been received as of November
      30, 1996 and under the terms of the agreement 762,464 preferred shares had
      been converted to 4,847,844 Class A common shares.

            At November 30, 1996,  there were 1,198,281  Series A and 5 Series B
      preferred shares issued and outstanding.

NOTE 6 - Class A and Class B Common Stock:
 .
            In the year  ended  February  29,  1996,  333,333  shares of Class A
      common  stock were issued for cash in the amount of  $250,000  and 145,842
      hares of Class A common stock were issued for services  valued at $68,216,
      including  106,670  shares  issued to directors in lieu of cash for annual
      fees and 39,172 shares issued to officers and an employee as bonuses.

            In the year ended February 29, 1996,  stock dividends of 5% on Class
      A and Class B common stock were declared for  shareholders of record as of
      April 20, 1995 and July 31, 1995. The aggregate shares issued were 819,829
      Class A and 412,555 Class B.

            In the quarter ended May 31, 1996,  152,381 shares of Class A common
      stock were issued for cash in the amount of $98,000.

            Each share of Class B common  stock is entitled to all of the rights
      and privileges pertaining to Class A common stock without any limitations,
      prohibitions,  restrictions  or  qualifications  except that each share of
      such  Class B common  stock  shall not be  entitled  to  receive  any cash
      dividends  declared and paid by the  corporation  and shall be entitled to
      share in the distribution of assets of the corporation upon liquidation or
      dissolution, either partial or final.




                                       19



<PAGE>



            The  Company  had  entered  into an  agreement  for the  issuance of
      20,000,000  shares of Class B common shares in  consideration  of cash and
      preferred shares of the purchaser. The agreement had not been concluded as
      of November 30, 1996.

NOTE 7 - Stock Option Plans:

            On December 29, 1993, the Company adopted the 1993 Directors'  Stock
      Option  Plan for the  Company's  directors.  Under the terms of this stock
      option  plan,  each of the five  directors  of the  Company was granted an
      option to purchase  25,000 shares of the Company's Class A Common Stock or
      a total of 125,000 shares at a price of $2 per share,  equal to the market
      price of the stock at the date of grant.  The option is exercisable  until
      December 31, 2001, and no options have been exercised through November 30,
      1996.

            On June 27,  1994,  the Company  adopted the 1994  Directors'  Stock
      Option  Plan for the  Company's  directors.  Under the terms of this stock
      option  plan,  each of the five  directors  of the  Company was granted an
      option to purchase  12,500 shares of the Company's Class A Common Stock or
      a total of  62,500  shares at a price of $1.625  per  share,  equal to the
      market price of the stock at the date of grant.  The option is exercisable
      until May 31, 2002,  and no options have been exercised  through  November
      30, 1996.

            On  January  14,  1995,  the  Company  adopted  an  additional  1994
      Directors' Stock Option Plan for the Company's directors.  Under the terms
      of this stock option plan,  each of the five  directors of the Company was
      granted  an option to  purchase  17,500  shares of the  Company's  Class A
      Common Stock or a total of 87,500  shares at a price of $0.9375 per share,
      equal to the market price of the stock at the date of grant. The option is
      exercisable  until  December 31, 2002,  and no options have been exercised
      through November 30, 1996.

            On  December  31,  1995,  the  Company  adopted an  additional  1994
      Directors' Stock Option Plan for the Company's directors.  under the terms
      of this stock option plan,  each of the five  directors of the Company was
      granted an option to purchase 30,000 hares of the Company's Class A common
      stock or a total of 150,000 shares at a price of $0.3125 per share,  equal
      to the  market  price of the  stock at the date of  grant.  The  option is
      exercisable  until  December 31, 2003,  and no options have been exercised
      through November 30, 1996.

            On June 28,  1994,  the  Company's  Board of  Directors  adopted  an
      Employee and Consultant  Stock Option Plan (the "Plan") and registered the
      shares  available  under  the  Plan on Form  S-8 in  accordance  with  the
      Securities  Act of 1933 filed  August 2,  1994,  having  Registration  No.
      33-82318 . The purpose of the Plan is to provide compensation for services
      rendered  to the  Company  and to promote  the  success of the  Company by
      providing  "Eligible   Participants"   (employees  and  consultants)  with
      incentives  for  performance  on  behalf  of  the  Company.  The  Plan  is
      accomplished  by providing for the granting of options to purchase Class A
      Common Stock to eligible participants.  The Board of Directors may suspend

                                       20



<PAGE>



      or  terminate  the  Plan at any time but no such  action  shall  adversely
      affect the rights of any person  granted an option under the Plan prior to
      that date of  suspension  or  termination.  The  maximum  number of shares
      available for option under the Plan are 1,125,000 Class A Common,  subject
      to  adjustment  by  reason  of  reorganization,   merger,   consolidation,
      recapitalization,  dividends,  stock  split,  changes in par value and the
      like occurring or effective  while any such shares of Class A Common Stock
      are subject to the options  under the Plan.  During 1995,  500,000  shares
      were  exercised  at a price of $1.75 per share and there  were no  options
      outstanding as of November 30, 1996 under this Plan.

            The Company filed an S-8  registration  (Number  333-18621) with the
      Securities and Exchange Commission on December 23, 1996 which provides for
      the issuance of up to 2,500,000  shares of Class A common  pursuant to the
      Company's informal consulting/compensation plan.

NOTE 8 - Income Taxes:

            The  Company  adopted  FASB  109 in the  fiscal  year  1994.  Due to
      uncertainty of realization in light of the Company's  continuing operating
      losses,  no  deferred  tax asset or  liability  has been  recorded  in the
      financial  statements because the Company has assessed a valuation account
      to the full extent of its potential deferred tax asset. The following is a
      summary of the potential deferred tax asset and the valuation allowance:

            Property and equipment due to differences in
                  depreciation and reserve for obsolescence     $    809,795
                  Net operating loss carry forward                 2,637,611
                                                                ------------
                  Total deferred tax asset                         3,443,406
                  Valuation allowance                             (3,443,406)
                                                                ------------
                  Net deferred tax asset                        $     -
                                                                 ===========

            During the quarter ending November 30, 1996, the Company's potential
      deferred tax asset increased by $890,665.

            No  provision  for  Federal  income  taxes was  recorded  during the
      quarter ended November 30, 1996 or the quarter ended November 30, 1995 due
      to the accumulated net losses of the Company. Income taxes included in the
      financial  statements  represent  California state income taxes on the net
      income  of  San  Jacinto  Power  Company,  the  Company's  majority  owned
      consolidated subsidiary.

            As of November  30,  1996 the  Company  had federal  income tax loss
      carryforwards  available to offset  future  taxable  income for  financial
      reporting  and tax  purposes of  $6,140,428  which  expire in 2006 through
      2010.



                                         21



<PAGE>


NOTE 9 - Supplemental Noncash Investing and Financing Activities: 

            During the nine months ended May 31, 1995, 145,842 shares of Class A
      Common Stock were issued for compensation of $68,362 to certain  officers,
      directors and an employee earned in fiscal 1995.


Note 10 - Possible amended filing required:

            Certain of the Company's  financial  records were unavailable due to
      an independent  review being performed by outside  consults at the request
      of a Board directed representative. Estimates have been made as relates to
      the  subject  transactions  and an  amended  filing  will be made,  if the
      estimates prove to be in error by more than a reasonable margin.




                  (Remainder this of page intentionally left blank)































                                         22


<PAGE>

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

      The  Company  has  formed  two new  wholly  owned  subsidiaries  with  the
objective of organizing  the Company  strategically  for planned  growth through
acquisitions.  San Jacinto Energy Corporation ("SJEC") was formed to control all
applicable shareholdings, debt instruments,  partnership interests and renewable
power  generating  assets of the Company,  as well as interests in a non-related
printing and business  supply  company also known as Herth Printing and Business
Supplies, Inc.. Central Communications  Corporation ("CCC") was formed to pursue
mergers  and  acquisitions  of   telecommunications   companies  and  businesses
operating in related sectors.

      The resulting  organizational structure of the Company is set forth below,
with the Company ("NEC") holding  substantially all subsidiary interests through
SJEC, with the exception of proposed  telecommunications  based businesses to be
held by CCC, as follows:

                                     NEC (1)
                                      |
                      -------------------------------------
                    |                                      | 
                     -- SJEC (2)                           |
                    |                                    CCC (10)
                    |                                      |
                     -- SJPC (3)                           |    
                    |                                   TTI (11)
                    |
                     -- YAC (4)
                    |  
                     -- CEC (5)
                    |    |
                    |     -- HPBS (6)
                    |    |
                    |     -- OPP (7)
                    |
                     -- NEP I, LP (8)
                         | 
                          --  NGPP, LP (9)

  
LEGEND:

      (1)   NEC - Nevada Energy Company, Inc. (Parent company)
                        Delaware corporation, publicly owned, NASDAQ
                        listed

      (2)   SJEC - San Jacinto Energy Corporation
                        Nevada corporation, wholly owned by NEC

      (3)   SJPC - San Jacinto Power Company, Inc.
                               Nevada corporation
                        Majority owned subsidiary,  50.01% by NEC Minority owner
                        or 49.99% is NASDAQ listed The New World Power  Company,
                        company  currently  in  process  of  acquiring  minority
                        interest.

                                       23

<PAGE>



      (4)   YAC - Yerington Acquisition Company
                               Nevada corporation
                        Wholly owned subsidiary, holds all idle Ormat/Raft River
                        power generating equipment,  pending acquisition of TADS
                        Geothermal's   Nevada   geothermal   power   plants  and
                        long-term  power sales  agreement  with  Sierra  Pacific
                        Power.

      (5)   CEC - Combustion Energy Company, Inc.
                               Nevada corporation
                             Wholly owned subsidiary

      (6)   HPBS - Herth Printing and Business Supply, Inc.
                               Nevada corporation
                        Wholly owned subsidiary  printing and business  supplies
                        operates from current Company  headquarters  building in
                        Reno, NV

      (7)   OPP - Oreana Power Partners, Limited Partnership
                        Nevada limited partnership
                        Owned 49% CEC as general partner, 1% NEC as
                        limited partner, 49% Energy Development
                        Associates (non-affiliated Nevada corporation)
                        as general partner and 1% Geothermal
                        Development Associates (non-affiliated private
                        Nevada corporation) limited partner.  Formed
                        to propose a gas fired power project,
                        currently inactive.

      (8)   NEP I,LP - Nevada Energy Partners, I, Limited Partnership
                        Nevada limited partnership owned 60% by the
                        Company and 40% by Nevada Electric Power
                        Company (a Nevada Sub-S corporation 100% owned
                        by Jeffrey Antisdel, company president). NEP
                        owns 100% of NEC Class B common shares and
                        31.66% of NGPP.  In an agreement dated August
                        16, 1996 purported to transfer all of its
                        right title and interest in NEP-1LP to the
                        former president.  This purported agreement is
                        the subject of litigation by both parties as
                        described in Part II., Item 1., Legal
                        Proceedings.  The Company's position is that
                        there is no agreement.

      (9)   NGPP - Nevada Geothermal Power Partners, Limited
                        Nevada limited partnership, owned 31.66% by
                        NEP, and the balance of ownership by Hot
                        Springs Power Company and various limited
                        partners.  In dissolution as a result of sale
                        of primary asset, 50% interest in Brady Power
                        Project in May 1995.

      (10)   CCC - Central Communications Corporation
                        Nevada corporation, wholly owned by the
                        Company
                                       24

<PAGE>
                                   LIQUIDITY

      As of November 30, 1996, the Company had $737,622 in current assets.  Cash
of $136,735  (including  $60,344  held by its  majority  owned  subsidiary)  was
available for on-going operations. The Company also held a note for the purchase
of Series A preferred shares with a remaining balance of $2,995,608  collectible
over a five month period.  Under the terms of the original  agreement,  the note
should have been reduced to $2,000,000 at this date.  The Board of Directors has
agreed to amended terms.

      Cash used by operating  activities  in the nine months ended  November 30,
1996 was  $1,140,678.  The after-tax loss from  operations was $1,407,965  which
included  $79,854  of  non-cash  charges  for  depreciation.  As a result of the
Company's  adoption of FAS 121 to account for  impairment  of long-term  assets,
there was no provision for  obsolescence  in the quarter ended November 30, 1996
as the assets were then valued in excess of fair market appraisal value based on
and independent  appraisal  completed in May 1996. Had the Company  followed its
previous  policy of providing  for  obsolescence  on a  prospective  basis,  the
estimated  obsolescence  charges  for the  quarter  would  have  been  $115,560.
Investing  activities  used  $1,065,938  in cash in  during  the  period  ending
November 30, 1996,  including  expenditures  of $300,400 for the  acquisition of
high-speed  print  equipment  and  $765,538  advanced  to a  subsidiary  for the
acquisition  of  a   telecommunications   business.  A  total  of  approximately
$1,768,395 was expended in connection with the acquisition,  which failed as was
written off in its entirety  (See Part II.,  Item 1., Legal  Proceedings).  Cash
flows from financing  activities in the nine months ended November 30, 1996 came
from sales of preferred and common shares and generated $1,904,380 in cash.

      Cash provided from operating  activities in the nine months ended November
30, 1995 was $324,037.  The after-tax loss from  operations was ($257,826  which
included   $49,363  of  non-cash  charges  for  depreciation  and  $284,429  for
obsolescence  on idle  equipment.  Investing  activities used $71,581 during the
period ending November 30, 1995, after  expenditures for refurbishing wind power
equipment  of  $50,955,  advances  to, and  investments  in,  partnerships  were
$45,626.  A  non-refundable  deposit on the  proposed  sale of assets  generated
$25,000 in cash.  Cash flows from  financing  activities  in the  quarter  ended
November 30, 1995 used $3,744 in cash. Net short-term  borrowings  were $44,467,
with  repayments  of $29,396 on short-term  borrowings  and $19,815 on long-term
debt.



                                       25

<PAGE>

      To date,  the Company has received  liquidity  from receipt of  management
fees,  dividend income (from the Company's majority owned subsidiary San Jacinto
Power  Company),  litigation  recoveries  and  through  the  sale of  shares  of
Preferred  stock and Class A Common  Stock.  Most  recently,  the  completion of
financing  obtained  through the sale of 1,960,745 Series A Preferred shares and
152,381  Class A Common  shares has provided the Company  with  commitments  for
financing,  which,  if  completed,  is believed to be  adequate  for  continuing
operations.

      In the quarter  ending August 31, 1995 the  disposition of the Brady Power
Project asset,  which had not generated any of the long-term cash flow expected,
provided the Company with needed operating funds.

      The majority of ongoing  expenses  for the Company  have been  incurred in
initiating acquisitions,  development of future business,  professional fees and
operating  overhead.  Currently the Company is involved in several  litigations,
which are a drain on its resources.

                               CAPITAL RESOURCES

      The  Company  has  an  asset  base  which  includes  idle  electric  power
generating  units  (currently  not in  service  and  with a net  book  value  of
$5,226,063,  unencumbered  by debt,  which the  Company is taking all  requisite
action to deploy into operational  service in the near term through  acquisition
and deployment in one or more projects,  (See Plan of Operations,  Deployment of
Idle Equipment).

      The  Company  has  obtained  independent   appraisal  of  its  idle  power
generating equipment by qualified engineering firms and valuation by independent
utility  appraisal  specialists  which  confirm  that the  Company's  idle power
generating assets remain unimpaired and suitable for deployment and/or sale.

      To that end,  the Company had  previously  attempted  to  consummate  sale
through  the  execution  of a  non-binding  letter of intent for the sale of all
Ormat power generating turbines, together with associated equipment and right to
purchase a geothermal power facility to Pollution Control International ("PCI").
The PCI agreement  then provided for the Company to receive cash and  securities
in excess of the equipment's  net book value in excess of $4.5 million  dollars.
However,  due to the  complexities  of  attempting to assign rights to acquire a
geothermal  power  facility in  conjunction  with the proposed sale of the Ormat
units, the transaction was terminated.

      Based  upon the  foregoing,  the  incumbent  Board of  Directors  have now
adopted a  strategy  whereupon  the  Company  will seek to deploy the idle power
generating   assets  into  existing  power  plant  operations  and  operate  the
facilities thereafter utilizing Company owned power plant assets. Alternatively,
the Company will seek the sale,  merger or public  offering  "spin-off" of these
assets once made operational in order to fully maximize shareholder values. This


                                       26

<PAGE>


determination  was made after  reviewing  past  difficulties  of  management  in
capitalizing  on  business  opportunities  developed  by  management  under  the
direction  of  the  prior  Board  of  Directors.   These  opportunities  include
geothermal power  facilities  known as Tads Geothermal,  Inc., and certain other
facilities under review (governed under confidentiality  agreements) executed by
the Company, (See Plan of Operations, Deployment of Idle Equipment).

      Historically,  the  Company  has  conducted  its  business  affairs  as  a
development stage enterprise which has been subject to all of the risks inherent
to establishing  new lines of business.  To date, all such  development has been
financed through the sales of assets, equity financing,  litigation  recoveries,
non-recurring   development  fees  received  from   partnership   interests  and
management  fees.  The Company has limited  operations  through its interests in
operating subsidiaries.

      The Company will require  substantial  amounts of capital to meet its goal
of expanding into the area of telecommunications and related industries. To date
the  Company's  initial  efforts have been  unsuccessful  and costly.  There are
presently no firm  commitments for any such  financing.  The Company may seek to
raise  additional  funds through the sales of debt and/or  equity,  asset sales,
bank borrowings or other collaborative arrangements with corporate partner(s) or
other sources.

      In the event  sufficient  funding  is  unavailable  to fund the  Company's
planned growth through acquisition,  the Company may be required to delay, scale
back or eliminate its planned expansion, acquisition,  development and corporate
activities as set forth herein.

                                     DEBT

      As of November 30, 1996,  the  Company's  total current  liabilities  were
$1,065,795.  Current  accounts  payable were $805,784 and $37,965 was payable to
New World Grid Power ("NWGP") for maintenance and refurbishment of wind turbines
owned by the Company's  consolidated  subsidiary San Jacinto  Power,  (NWGP is a
subsidiary  of the 49.99%  minority  owner of San  Jacinto,  the New World Power
Corporation). Short-term borrowings of $48,776 were the current mortgage payable
balance  assumed in the  Company's  wholly owned  subsidiary  Combustion  Energy
Company's acquisition of HPBS and the current portion of the note payable on the
newly acquired  high-speed printing press. Other liabilities of $79,657 included
accrued audit expenses of $54,100.  Accrued payroll  includes $30,000 payable to
directors for annual fees for services.

      Remaining  liabilities  subject  to  compromise  represent  the  long-term
settlement  amount for withholding  taxes and related penalties and interest due
to the IRS associated with prior  bankruptcy  proceedings.  Under the terms of a
settlement proposed by the Company, this amount is being repaid over a term of 3
years, in monthly  installments of $4,940,  accruing  interest at the rate of 7%


                                       27

<PAGE>


per annum.  Pending  final  settlement,  the entire  amount is  classified  as a
current liability. The Company was substantially current on its payment schedule
through  early 1996 since this  proposal was made in October 1993 to the IRS and
the remaining  payments  necessary  for payoff are $26,891 plus current  accrued
interest and which is past due at November 30, 1996.

      On May 3, 1996 CEC  entered  into an  agreement  to  purchase a high speed
printing press at a purchase price of $300,400.  The purchase  balance,  after a
$20,000 down payment made in May 1996,  is to be financed over an eight (8) year
period at 9.75%  (adjustable  in accord with changes in the prime  lending rate)
with monthly payments of $4,218. The financing was not guaranteed by the Company
and CEC remains current on its debt obligations.

      On  August  16,  1996,  the Board of  Directors  purportedly  executed  an
agreement which provided for the exchange of 4,436,464 restricted class A common
shares,  the  assignment of the Company's  60% limited  partnership  interest in
Nevada  Energy  Partners I, Limited  Partnership,  ("NEP"),  and delivery of all
common stock of CEC owned by the Company in  consideration  of NEP's delivery of
(i) all  presently  issued and  outstanding  class B common shares owned by NEP,
(ii) a release of all right,  title and interest  accrued to date to  additional
Class B Common share  issuance,  (iii) a release of all right title and interest
to all future  Class B Common  shares to be issued  pursuant to the terms of the
Company's  certificate of Incorporation,  (iv) the indemnification by NEP of the
Company  against any and all claims or causes of action  associated  with Nevada
Energy  Partners vs. Hot Springs  Power  Company Case and the  assumption of all
debt of CEC in the amount of approximately  $375,000.  The Company has taken the
position  that the  agreement  is void  and has  filed  suit in  Santa  Barbara,
California. The other party has also filed suit to enforce the agreement.

                             RESULTS OF OPERATIONS

Revenues

      Revenues for the quarter  ended  November  30, 1996  totaled  $281,291 and
consisted  of energy  sales from San Jacinto  Power  Company of $16,424 and HPBS
printing and business  supply  sales of  $264,867.  Comparable  revenues for the
quarter  ending  November 30, 1995 were  $105,666 from energy sales and $250,078
from printing and business supply sales. Revenue from energy sales declined as a
result of  contractually  reduced  purchased prices received from the purchasing
utility company,  Southern  California  Edison and lower than expected  seasonal
wind speeds. The Company also suffered al loss of key switch gear resulting from
a theft,  not  covered  by  insurance,  which  resulted  in some  high  capacity
equipment  having to go  off-line.  Current  prices are  expected to continue in
effect,  subject to seasonal upward adjustment during summer periods and overall
adjustment in accord with Consumer Price Index  changes.  The number of turbines
available for service  stabilized  subsequent to the  change-over in maintenance
services.  Wind speeds have  continued at lower than average  velocities for the
majority of the current quarter.

                                       28

<PAGE>



      Higher  revenues for HPBS printing and business and supplies  sales were a
result of the  decision to emphasis  the higher  margin  custom  print  business
versus  catalogue sales of business  supplies.  A full time outside sales person
was on staff for the entire  quarter  ended  November 30, 1996. A new high speed
printing  press has been  placed  in  service  in June  1996 due to  delays  and
mechanical  problems  encountered  with  existing  equipment  (See DEBT).  Print
revenues  were $211,457 and office  supplies  sales were $53,410 for the quarter
ended November 30, 1996.  Comparable  results for the quarter ended November 30,
1995 were print revenues of $151,708 and office supplies sales of $98,370. Print
revenues  were  $686,354 and office  supplies  sales were  $232,294 for the nine
months ended  November 30,  1996.  Comparable  results for the nine months ended
November 30, 1995 were print  revenues of $547,938 and office  supplies sales of
$205,280.

                          PART II--OTHER INFORMATION

Item 1. Legal Proceedings.

      The Company is involved in the following litigation:

                                 MUNSON LAWSUIT

      On October 5, 1992, the Company, as plaintiff, initiated litigation in the
Chancery Court of New Castle County,  Delaware, (the "Munson Lawsuit"),  against
former officers and directors of the Company. The Defendants are Stephen Munson,
Leland  Mink,  Walter  Mackenzie,  Frank  Carigula  and Donald  Selfridge,  (the
"Defendants").  The allegations against the Defendants include numerous breaches
of  fiduciary  loyalty to the  Company,  invalid  issuance  of  Company  shares,
breaches of fiduciary  duty arising out of improper  issuance of Company  stock,
and breaches of fiduciary  duty arising out of failure to value the services for
which stock was awarded.

      On October 13, 1992, a  sequestrator  was  appointed and the shares of the
Company standing in the names of Leland Mink, Walter MacKenzie, Donald Selfridge
and Frank  Carigula  were seized to hold and  preserve the shares of the Company
until further order of the Court. As of June 9, 1994, The Delaware Court imposed
sanctions  against  Stephen  Munson  related  to  non-compliance  in  matters of
deposition.  A default  judgement against Frank Carigula has since been obtained
in the amount of approximately  $59,000 and the Company is seeking  garnishments
and  attachments  sufficient  to  satisfy  the full  amount  of  judgement.  The
judgement is beyond appeal.

      The trial of the case against defendants  Munson,  Selfridge and MacKenzie
was completed in September and final  post-trial  briefs were to be submitted to
the  Court by the  Company  pending  a ruling  of the  Court.  The  Company  has
subsequently  re-entered  negotiation for settlement  with the  defendants.  The
Company does not believe this litigation will have an adverse material effect on
its operations.


                                       29

<PAGE>

                              ANTISDEL LITIGATION

      On October 28,  1996,  Jeffrey E.  Antisdel,  former  president  of Nevada
Energy Company, filed suit in Washoe County, Nevada. The suit relates to various
matters of compensation,  including the Company's  alleged default on a two year
employment agreement which was to take effect upon Mr. Antisdel's termination on
September 26, 1996. The plaintiff obtained a default judgement which the Company
has moved to set aside.  The  Company  has  accrued  approximately  $240,000  to
provide for the plaintiffs claim, if successful.  The plaintiff has filed a lien
on the Company's idle geothermal assets.

                             CASCARILLA LITIGATION

      On October 23, 1996,  Richard A. Cascarilla,  former secretary and general
counsel of Nevada Energy  Company,  filed suit in Ingham County,  Michigan.  The
suit relates to various matters of compensation, including the Company's alleged
default on a two year  employment  agreement  which was to take  effect upon Mr.
Cascarilla's  termination  on September  26, 1996.  The plaintiff has obtained a
default  judgement.  The Company is attempting to obtain counsel to represent it
in this  matter  and will seek to have the  default  judgement  set  aside.  The
Company has accrued approximately  $142,000 to provide for the plaintiffs claim,
if successful.  The plaintiff has filed a lien on the Company's idle  geothermal
assets.

                         SMITH, KATZENSTEIN LITIGATION

      On December 2, 1996,  Smith,  Katzenstein & Furlow,  the Company's  former
counsel  in  Delaware  filed  a suit in New  Castle  County,  Delaware  alleging
non-payment of fees in the  approximate  amount of $70,000,  breach of contract,
fraud and tortious interference with contractual relationship. The plaintiff has
obtained a default judgement.  The Company has engaged counsel and is seeking to
have the default  judgement  set aside.  The  Company has accrued  approximately
$70,000 to provide for the plaintiffs claim, if successful.


                                       30

<PAGE>




                    HARTMAN, KASSOUFF, MODESITT LITIGATION

      On November 15, 1996 Messers.  Jeffrey L. Hartman, Michael R. Kassouff and
Jeffrey E. Modesitt filed suit in Washoe County,  Nevada alleging non-payment of
directors  fees and accrued  interest  under notes in the amount of $10,000 each
dated May 1, 1996.  The notes bear  interest  at the rate of 18% per annum.  The
Company has engaged  counsel to respond to this suit.  The amount of $30,000 has
been provided for in the accounts in the event the plaintiffs are successful.

                    NEVADA ENERGY PARTNERS 1-LP LITIGATION

      On November  19, 1996,  Nevada  Energy  Partners  1-LP  ("NEP")filed  suit
against the Company to seek enforcement of an alleged  agreement entered into on
August 16, 1996. The agreement would, among other things, if enforced, cause the
Company to surrender all its right title and interest in the NEP  partnership in
which the Company  holds a 60%  interest  and which holds 100% of the  Company's
Class B common shares. In addition, the Company would surrender all of its right
title and interest in Herth  Printing and Business  supplies which would devolve
to Mr. Jeffrey Antisdel, former president of the Company.

      The Company has engaged  counsel to  vigorously  defend its position  that
there is no agreement. Preliminary briefs and discovery are underway.

      In the above  reference  matter,  the Company  filed suit  against NEP and
NEPC, the general partner of NEP on December 6, 1996 in Santa Barbara County and
seeks declaratory relief and rescission of the subject alleged agreement.

      An action in this matter has also been filed in the State of Delaware.

                         SHAREHOLDER DERIVATIVE SUITS

      The Company has been nominally named it two shareholder derivative actions
filed in December  1996 in Delaware.  The actions seek,  among other things,  to
compel  certain  action by the Board of  Directors as well as seeking to recover
assets expended by the Company in its aborted acquisition of Telecom.

                          SANTA BARBARA OFFICE SPACE

      The Company's  wholly owned  subsidiary,  Central  Communications  Company
entered  into a five year lease for an office space in Santa  Barbara,  CA which
provided for nominal  monthly  payments of $19,034  plus taxes.  The Company was
compelled to vacate the property when its initial entry into  telecommunications
became  unsuccessful.  The landlord has filed suit in Santa Barbara  County,  CA
seeking compliance with the agreement. The Company believes the property

                                       31

<PAGE>



can be sublet,  which will  substantially  mitigate any losses. No provision has
been  made in the  accounts.  The  Company  does  not  believe  that  there is a
potential material impact from this litigation.

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

      On August 16, 1996, the Annual Meeting of Stockholders for the Company was
held and the matters were voted upon by a majority of vote of the  stockholders,
as follows:

      1.    The election of Peter J. Cannell to the Board of Directors;

      2.    The  amendment to the  Company's  Certificate  of  Incorporation  to
            change the Company's  name to PowerTel USA,  Inc., and to change the
            Company's NASDAQ trading symbol to "PTUSA";

      3.    The  amendment to the  Company's  Certificate  of  Incorporation  to
            increase  authorized  Preferred  share  capital  from  2,000,000  to
            50,000,000 shares;

      4.    The  amendment to the  Company's  Certificate  of  Incorporation  to
            increase  authorized Class A Common share capital from 25,000,000 to
            50,000,000 shares;

      5.    The  amendment to the  Company's  Certificate  of  Incorporation  to
            increase  authorized Class B Common share capital from 25,000,000 to
            50,000,000 shares;

      6.    The  amendment to the  Company's  Certificate  of  Incorporation  to
            provide for a one (1) for six (6) reverse stock split of all classes
            of outstanding Preferred or Common;

      7.    The approval of authority for the Board of Directors to seek Class A
            Common stock listing on NASDAQ National Market System;

      8.    The  amendment to the  Company's  Certificate  of  Incorporation  to
            provide  for the  creation of a new class of common  stock,  Class C
            Common stock, 50,000,000 shares authorized; and

      9.    Ratification  of the  Board  of  Directors  appointment  of  Kafoury
            Armstrong  and  Company  as the  Company's  auditors  for the fiscal
            ending February 29, 1996.


      A  majority  in  interest  voted  affirmatively  on all  issues.  However,
subsequent  review of the  Company's  bylaws and  certificate  of  incorporation
revealed  that an 80%  super  majority  vote  would  be  required  to  implement
amendment to the Company's certificate of incorporation.  Therefore,  issues #1,


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<PAGE>


#7 and #9 were the only issues  carried as these  issues did not require a super
majority  vote.  The Company has taken action seeking to remove the amendment of
the super majority voting provision and thereupon  ratifying the items set forth
above at a future Special Meeting of Stockholders.

Item 5. Other Information.

      Effective May 1, 1996, the Company initiated an organizational,  financial
and general  business  restructuring  which  included a change in control of the
Board of Directors,  provision of financing commitments exceeding $5,000,000 and
implementation of a revised business plan.

      During the implementation of the foregoing, the Board of Directors and its
advisors  conducted  an  extensive  review of the assets,  management,  business
prospects and  opportunities  developed in its core lines of energy  businesses.
Following this review, the Board and its advisors  determined it advantageous to
continue with and support management's plan for growth to be implemented through
the  acquisition  of additional  energy  facilities and the deployment of energy
assets owned by Company subsidiaries.

      As a non-regulated utility holding company, the Board of Directors and its
advisors  also  immediately  recognized  that  the  Company  had  the  requisite
management  skills  and  professional  support  to allow the  Company to readily
participate  in  secondary  lines of  non-regulated  telecommunications  related
utility businesses.

      In so  doing,  the  Board of  Directors  also  determined  that  while the
Company's energy business plan was fundamentally sound, the growth opportunities
available in  telecommunications  related businesses provide operating synergies
which have the potential to improve the long term  financial  performance of the
Company.  The  Board  thereby  determined  it  appropriate  to  restructure  the
Company's business operations.

                     Restructuring of Business Operations

      As set forth in the preceding paragraphs,  the Company plans to narrow its
focus solely to acquisition  and  development  of energy and  telecommunications
related  businesses,  concurrent with the Board of Directors  determination that
the company's  prior  pursuits in non-related  businesses  have not provided the
Company financial results commensurate with operational risks assumed.

      In addition,  The Board of Directors has  terminated  the Company's  prior
investigations  and  discussions  related to  acquisitions  of a heavy equipment
company, engineering/construction  company  and others have now been terminated.






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<PAGE>



                              Plan of Operations

Energy Sector

      The  Company  has an asset  base which  includes  several  electric  power
generating  units  (currently  not in  service  and  with a net  book  value  of
$5,226,063,  unencumbered  by debt,  from which the  Company  plans to  increase
revenues and earnings.  The utilization of these  generating  units is likely to
have a  significant  impact in  determining  the future of the  Company  and its
underlying share value.

      The Company plans to deploy all of its idle power generating assets in one
or more  projects  currently  under review (as set forth below) and has obtained
third party  evaluations of the idle equipment  which clearly  indicate that its
idle power generating assets of a condition  acceptable for immediate deployment
without  impairment,  (See Pending  Acquisitions  and  Deployment  of Idle Power
Generating Assets).

      The  deployment,  sale or joint venture  utilization of the Company's idle
power generating assets is clearly a significant business issue for the Company.
However,  if  deployment,  sale or utilization if for any reason does not occur,
the Company may be adversely effected (See "Risk Factors").
         Pending Acquisition of 49% Interest in Wind Energy Subsidiary

      On June 27, 1996, the Company received preliminary acceptance of its offer
to purchase New World Power  Corporation's ("New World") 49.99% equity ownership
interest in the Company's  majority  owned  subsidiary San Jacinto Power Company
which has been accepted in principal subject to purchase  documentation prepared
by the Company  acceptable  in form and in  substance  to New  World's  Board of
Directors.  Closing is expected to occur  during the month of July,  1996,  with
terms of purchase to be publicly disseminated following closure.

      Following  completion of the  acquisition of New World's 49.99%  interest,
the Company  intends to continue San Jacinto Power Company's  planned  retrofit,
rehabilitation and expansion activities and plans increased future participation
in the wind power energy industry on a foreign and domestic basis.

      The planned  closing for the purchase of New World's  49.99%  interest has
been delayed due to lack of available funds. The Company  anticipates closing by
February 28, 1997


                           Telecommunications Sector

      Although the Company continues its plans for growth through acquisition in
the energy business, the Company has begun to seek business opportunities in the
telecommunications and related businesses.




                                       34

<PAGE>



      As previously set forth,  the Board of Directors has determined that it is
presently  feasible  to  dramatically  accelerate  Company  growth  through  the
completion  of  non-regulated  telecommunications  business  acquisitions.  This
determination is primarily based upon the extensive deregulation which has taken
place in the telecommunications industry which began in the late 1970's.

      Clearly, the telecommunications business is a competitive and very dynamic
line of business which has demonstrated  increasingly  reduced barriers to entry
which   are   largely   due   to  the   present   deregulated   nature   of  the
telecommunications  business today. From a market perspective,  growth prospects
are numerous,  with opportunities  available in the acquisition of long distance
carriers,  long distance  switchers,  specialized  "niche" marketing,  telephone
systems sales and services,  debit card marketing,  proprietary billing software
systems  integrator,   voice  recognition  systems,   name  but  a  few  of  the
opportunities  available which the Company is presently evaluating for potential
acquisitions.


      The Company is presently  evaluating numerous  telecommunications  related
acquisitions.

                                 Risk Factors

Idle power generation equipment

      As at November 30, 1996,  the Company  reported  assets of  $9,185,414,  a
substantial  portion of which  56.9% was  represented  by idle power  generation
equipment ($5,226,063).  There is no assurance or guaranty that either (a) there
is a market for such equipment,  or (b) the Company would  generate,  upon sale,
proceeds in an amount  equal to the value of this  equipment as reflected on its
balance sheet.

      This equipment,  which was acquired by the Company in a series of purchase
transactions  between  1984-1986,  has never been  placed in  service,  with the
exception of one generating  plant which was utilized for a six month period and
four plants which  generated  power at December 31, 1986 in order to qualify for
investment tax credits. Subsequent to its acquisition,  all of the equipment has
been placed in storage.  Although the Company has monitored  this  equipment and
periodically  reviews its  operating  status,  there is no assurance or guaranty
that this equipment will function as designed when and if placed in operation.

      During the period  1991-1996,  the  Company  has  endeavored  to  identify
various  projects in which the generation  plants may be utilized.  In addition,
from time to time the Company has  explored  the  potential  sale of one or more
generating  units to third parties as set forth in  management's  discussion and
analysis herein. To date, the Company has not been successful in the development
of a project for  utilization of such  equipment or the sale of such  equipment,
and there is no assurance or guaranty that the Company will be successful in the
future.

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<PAGE>





      Although  the Company  continues  to  identify  projects in which the idle
power generating equipment could be utilized,  there is no assurance or guaranty
that the Company will be successful in either (a) identifying such projects, (b)
securing funding for any such project, or (c) developing the projects.

      To the extent that the Company is not successful in its attempt to utilize
these assets in its operations,  the Company will be compelled to offer and sell
these  assets  in the open  market.  in such  event,  these is no  assurance  or
guaranty  that the Company will  generate sale proceeds in an amount equal to or
greater than the value of these assets as reflected in its financial  statements
as at November  30, 1996.  The market  value of these  assets is dependent  upon
numerous  factors,  the majority of which are beyond the control of the Company,
including,  but not limited to, the mechanical  condition of the equipment,  the
state of technology,  the  availability  of equipment of a similar  nature,  the
demand  for  such  equipment  in  the  marketplace,   the  economic   conditions
surrounding the unregulated  utility  marketplace,  the availability tax credits
and  deductions  related to the use of such equipment and other factors that are
beyond the Company's control.

      Accordingly,  current and  prospective  shareholders  are advised that the
idle power generating equipment  constitutes assets of a "special" use category,
for which these is limited  marketability  and these is no assurance or guaranty
that the assets will  generate  proceeds to the Company in an amount equal to or
greater than the value as reflected in the  financial  statements as at November
30, 1996."





                                       36

<PAGE>





                          Change in Corporate Control

      On February  29,  1996,  the Company  executed a binding  Letter of Intent
("LOI")  with  Waterford   Trust  Company   Limited   ("Waterford"),   an  Irish
corporation,  with terms which substantially required a change of control of the
Company. By and through the LOI, on May 3, 1996, a change in control occurred at
the  Board of  Directors,  as the prior  Board of  Directors  resigned  and were
replaced.  Pursuant to the terms of the LOI, a Waterford nominee,  Golden Chance
Limited,  an Isle of Man  company  Limited  by  Shares,  executed  documentation
precedent to the purchase of 1,960,745  Series A Preferred shares of the Company
in consideration of financing commitments in the aggregate amount of $5,000,000,
together  with a corporate  guarantee  assuring the payments  owing  provided by
Waterford.

      Pursuant to the  contractual  obligation of the Company to Waterford,  the
previous  Board  of  Directors   voluntarily   resigned  without   objection  or
qualification  related to the operation of the Company.  The resignations of the
prior  Board of  Directors  was  implemented  in  furtherance  of the  Company's
contractual  obligations  as set forth in the  binding  letter  of  intent  with
Waterford.  Since the change in control occurred,  the restructuring of business
operations,  acquisitions,  regulatory filings, finances,  accounting practices,
have been subject to the control,  direction  and  discretion  of the  incumbent
Board of  Directors,  by and  through  Board  appointed  advisors,  consultants,
attorneys and representatives  who are not officers of the Company,  pending the
appointment of replacement officers.

      On August 17,  1996,  at an  executive  committee  meeting of the Board of
Directors,  interim  President  Jeffrey Antisdel and interim  Secretary  Richard
Cascarilla  expressed  concerns  over certain  unresolved  conflicts in interest
between  the  Board  of  Directors,   its  advisors,   attorneys,   consultants,
representatives  and raised issues related to the Board of Directors decision to
direct certain of the Company's financial affairs by and through Board appointed
advisors,  consultants,  attorneys and  representatives who were not officers of
the Company.  After due discussion and  deliberation  over the interim  officers
concerns,  a verbal  indemnity was accepted,  pending the execution of a written
indemnity  agreement,  from  certain  representatives  of the Board of Directors
related to the finances of the Company.  To date, the final indemnity  agreement
has not yet been received in executed form by the Company.

      On September 12, 1996,  interim  President  Jeffrey  Antisdel  engaged the
Company's auditors to undertake  financial auditing of certain Bank accounts and
financial records of the Company under the control of the Board of Directors, by
and through its advisors, consultants, attorneys and representatives.






                                       37

<PAGE>



      On September  26, 1996,  interim  President  Jeffrey  Antisdel and interim
Secretary,  Richard  Cascarilla,  were  dismissed  as officers  of the  Company.
Replacement  officers  Stefan  Tevis,  President  and Kenton  Bowers,  Corporate
Secretary,  have been  approved  and hired by the Board of  Directors.  Upon the
appointment of replacement officers, Mr. Antisdel and Mr. Cascarilla are serving
as  independent  consultants  to the  Company  for a period of not less than two
years.  In addition,  on September 26, 1996, a member of the Board of Directors,
John Goold resigned and was replaced by Stefan Tevis,  the current  President of
the Company.

      On August 28, 1996,  Golden Chance  Limited was late in making its monthly
scheduled   payment  of  $500,000  and  had  delivered  a  partial   payment  of
approximately  25% of the $500,000 amount.  The officers of the Company provided
Notice to corporate guarantor,  Waterford Trust Company Limited and payor Golden
Chance limited of default of its contractual obligations. Thereafter, additional
sums were  received by the Company to satisfy the $500,000  payment  requirement
and legal counsel representing the Series B Preferred  shareholders notified the
Company's  Board of Directors and Officers,  as well as Waterford  Trust Company
Limited and Golden Chance Limited that a waiver of default  requires the consent
of the Company's Series B Preferred shareholders.  To date, the Series B holders
have not delivered the waiver of default  required and the $500,000  payment due
on  September  28, 1996 has not yet been  received.  The  Company has  therefore
provided  notice to Waterford  Trust Company  Limited and Golden Chance  Limited
pursuant to the terms of the note and anticipates  additional payments by Golden
Chance  upon  delivery of the  August,  1996 waiver of default by the  Company's
Series B Preferred shareholders.

      As of November 30, 1996,  the Company has  received  aggregate  payment of
$1,960,745 dollars from Golden Chance Limited.

      If for any reason the Company  should not continue to obtain  financing to
support  the  operation  and  growth of the  Company  there  could be a material
adverse effect on the Company's operations.

                  Acquisitions and Deployment of Power Plants

      Associated with the Company's proposed acquisitions,  the Company plans to
deploy its idle power plant assets in power projects to be acquired. However, If
the Company for any reason is unable to deploy idle generating units, a material
adverse  financial  effect on the Company may result.  Risks  attendant  to such
deployment  include,  but are not limited  to,  governmental  permitting  risks,
construction   risks  in  completing   installation,   cost  overrun  risks  and
operational  risks.  A lack of success in completing  the  deployment of Company
owned  power  plants  may, in the  opinion of the  Company's  auditors,  require
provision for a reserve  related to the carrying  value of the  Company's  power
generating  assets.  Further,  a risk  attendant to  completing  this  expansion
includes   closing  equity   financing   sufficient  to  achieve  the  Company's
construction  and  working  capital  needs.  If  such  financing  should  not be
completed,  for any  reason,  there  would be a material  adverse  effect on the
future operations of the Company.





                                       38

<PAGE>


      Similar  risks exist in the  proposed  expansion of the wind farm owned by
the Company's majority owned subsidiary San Jacinto Power and a lack of adequate
financing would have a material  negative effect on the proposed purchase of San
Jacinto Power  Company's  minority  ownership  interest of 49.99% from New World
Power  Corporation,  San Jacinto Power Company's  planned expansion to its rated
contract capacity of 18.9 Megawatts and future returns received from San Jacinto
Power.

      Presently,  it is planned that the  proposed  expansion of the San Jacinto
Power project will be initiated at the subsidiary level with no direct purchases
of plant and equipment at the parent  company level,  thereby  reducing risks to
the Company.

      Further,  since the Company  maintains a holding  company  structure,  the
Company does not intend to enter into direct  purchases of capital  equipment at
the parent  company level in order to complete the  deployment of its idle power
equipment in any proposed project.  However, any capital  expenditures  required
for project  development  and deployment of Company owned idle equipment will be
completed at the subsidiary  level and will most likely require equity,  debt or
project financing for which the Company will need to seek additional funding.

      Significant  acquisitions  of  telecommunications  companies  and  related
businesses  include  risks  related the Company's  limited  experience,  need to
retain  additional  staffing  with  sufficient  expertise  due to the  Company's
limited experience in this industry group. Telecommunications based acquisitions
outside  the  Company's  primary  energy  business  may also have the  effect of
reducing or eliminating certain tax benefits associated with prior net operating
losses.

      Historically,  the  Company  has been  unable to finance  operations  from
revenues and cash flow. Thus, the Company has been financing operations from the
sale of its Class A common stock,  management fees, subsidiary  distributions of
cash dividends,  asset sales, and litigation recoveries. The Company has entered
into  agreements  for  equity  financing  in the  amount  of  $5,000,000  in the
aggregate and has received in excess of  $1,960,745  to date.  While the Company
presently  believes  that adequate  financing  arrangements  sufficient  for the
Company's asset  deployment and working  capital needs have been secured,  there
could be a  material  negative  financial  effect  upon the  Company  should the
Company's current financing commitments for any reason not be met.

      Presently,  there are no plans for product research and development at the
parent company level over the coming twelve (12) months.












                                       39

<PAGE>



                           Client Service Agreement

      Effective  June 28,  1996,  the  Company  entered  into a  Client  Service
Agreement with Continental Capital & Equity Corporation  ("CCEC"),  for services
which include,  but are not limited to, CCEC providing public relations,  direct
marketing advertising services,  radio advertising,  establishment of a Internet
"website" on behalf of the Company,  for broker relations,  and dissemination of
Company news releases on national wire  services,  and services as agent for the
Company ("CCEC Services").

      In  consideration  of CCEC  Services,  the Company  paid CCEC $25,000 upon
contract execution,  and agreed to provide to CCEC or a CCEC affiliate, a second
payment on or before July 28,  1996 in the amount of  $25,000,  and on or before
August  28,  1996,  delivery  of  150,000  Class A Common  shares  valued in the
aggregate on June 28, 1996, at the then prevailing  closing market price for the
Company's  Class A Common  stock as quoted on NASDAQ  and an option to  purchase
150,000  Class A Common  shares for a period of twelve  months  from the time of
delivery at a strike price as set forth at the closing  market price on the date
of  delivery of Class A Common  stock and stock  options.  It was the  Company's
intent to issue the 150,000 Class A Common shares and option to purchase 150,000
Class A Common shares simultaneously to CCEC.

      The Company has received a verbal  offer from CCC to terminate  the Client
Service  Agreement upon the Company's  payment of a $25,000 fee in  satisfaction
thereof. It is currently the Company's intent to proceed with the payment of the
$25,000 in full satisfaction thereof.

                      Securities Registration Statements

      On June 28, 1994, the Company's Board of Directors adopted an Employee and
Consultant  Stock Option Plan (the "Plan")  registered on Form S-8 in accordance
with the  Securities  Act of 1933.  This S- 8 was filed with the  Securities and
Exchange Commission on August 2, 1994, Registration No. 33-82318. The purpose of
the Plan was for the express  purpose of  providing  compensation  for  services
rendered to the  Company and to promote the success of the Company by  providing
Eligible   Participants   (employees  and   consultants)   with  incentives  for
performance on behalf of the Company. The Plan was accomplished by providing for
the granting of options to purchase  certain  numbers of Class A Common Stock to
Eligible Participants.  The Board of Directors may suspend or terminate the Plan
at any time but no such action shall  adversely  affect the rights of any person
granted  an  option  under  the  Plan  prior  to  that  date  of  suspension  or
termination.  The maximum  number of shares  available for option under the Plan
were  1,125,000  Class A Common  shares,  subject  to  adjustment  by  reason of
reorganization, merger, consolidation, recapitalization, dividends, stock split,
changes in par value and the like  occurring or effective  while any such shares
of Class A Common Stock are subject to the options under the Plan. The terms and






                                       40

<PAGE>


conditions of each option will specify the number of shares optioned, the period
during which each option is exercisable  and the exercise  price per share.  The
Plan has been  terminated  and it is presently  contemplated  that a revised S-8
plan may be prepared and submitted during the current fiscal year.

      On August 19, 1996,  the Company filed a Form S-3  Registration  Statement
with the Securities and Exchange  Commission  covering the potential future sale
of  5,436,663  shares  of Class A Common  stock on behalf  of  approximately  50
holders  of  record,  including  Golden  Chance  Limited.  The S-3  Registration
Statement  is  current  and  it  is  presently   contemplated   that  additional
registration  statements may be prepared and submitted during the current fiscal
year.

      Related to the default of Golden  Chance  Limited,  former  Secretary  and
General  Counsel of the  Company,  Richard  Cascarilla  has  delivered a written
request  for the  removal of his legal  opinion  as it relates to Golden  Chance
Limited, (see change in Corporate Control above), pending further notification.

      The  Company  also plans to file  additional  registration  statements  in
satisfaction  of certain  contractual  obligations  to purchases  of  restricted
securities made by accredited investors.

                        Subscription Agreement Dispute

      Two irrevocable subscription agreements for the purchase of Class A common
stock have been  entered into by two parties in an amount  totaling  $1,000,000.
The original funding dates on the above subscriptions were in February 1995. Due
to conditions in the Company's  securities  market,  subsequent  extensions were
granted  to May 1995 and then  September  1995.  These  amounts  were  therefore
initially  reported  as  subscriptions   receivable  in  releases  of  unaudited
financial data.

      Based on the initial  extension  period  provided to the  subscribers  the
Company  believed the amounts  would be paid prior to completion of then current
financial reports.  However,  the Company has not received the payments required
under  the  terms  of the  subscription  agreements  due to the  failure  of the
subscribers  to  deliver  payment.  The  Company  has  discontinued   settlement
negotiations  with  the   subscriber(s)  and  legal  counsel   representing  the
subscribers.

      The  Company's  efforts to achieve a suitable  agreement  for  delivery of
consideration  in satisfaction of the amounts owing have not yet been successful
and the Company is evaluating its legal options.


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

      (a)   Exhibits.

            Exhibit 27 - Financial Data Schedule (Electronic filing only)

                                       41

<PAGE>



      (b)   Reports on Form 8-K have been filed  during  the  quarter  for which
            this Form 10-QSB is being filed, as follows:

            August 2, 1996 - Formation  of  subsidiaries,  Cental  Communication
            Company and San Jacinto Energy Company.

            August 5, 1996 -  Acquisition of Telecom Technologies,
                              Inc

            August 30, 1996 - Disposition of assets

            September 30, 1996 - Corporate change of address.

            December 2, 1996 - Notice of name change and reverse split.































                                       42

<PAGE>



                                  SIGNATURES

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

                                           POWERTEL USA, INC.

Date   January 21, 1997                    /s/ Stefan Tevis
      -----------------------             --------------------------------------
                                                Stefan Tevis, President


Date   January 21, 1997                    /s/ Kenton H. Bowers
     ------------------------             --------------------------------------
                                                Kenton H. Bowers
                                                Controller







                                       43