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 August 31, 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

                           NEVADA ENERGY COMPANY, 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.)


                  510 Castillo street, Santa Barbara, CA 93101
--------------------------------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

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

                   401 East Fourth Street, Reno, Nevada 89512
--------------------------------------------------------------------------------
              (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  12,603,247shares  of the  registrant's  Class A Common  Stock,
$.001 par value, outstanding as of October 18, 1996.







<PAGE>



                           NEVADA ENERGY COMPANY, INC.

                                      INDEX

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

Item 1.  Financial Statements

Consolidated Balance Sheets  -
     August 31, 1996 and February 28, 1996                              3 - 4

Consolidated Statements of Operations
     for the three months ended August 31, 1996
     the six months ended August 31, 1995
     and for the three months ended August 31, 1996
     and the six months ended August 31, 1995                             5

Consolidated Statements of Shareholders' Equity -
     for the year ended February 28, 1995 and the
     six months ended August 31, 1996                                     6

Consolidated Statements of Cash Flows -
     for the six months ended August 31, 1996
     and the six months ended August 31, 1995                             7

Notes to Consolidated Financial Statements                                8

Item 2. Management's Discussion and Analysis of Financial
      Condition and Results of Operations                                22

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

Item 1. Legal Proceedings.                                               31

Item 4. Submission of Matters to a Vote of
            Security Holders.                                            31

Item 5. Other Information.                                               32

Item 6. Exhibits and Reports on Form 8-K .                               43











                                        2


<PAGE>





                           NEVADA ENERGY COMPANY, INC.
                           CONSOLIDATED BALANCE SHEETS
                                       AT
                      AUGUST 31, 1996 and FEBRUARY 29, 1996



                                   A S S E T S
                                   - - - - - - 

                                                   AUG. 31, 1996    FEBRUARY 29
                                                     (Unaudited)        1996
                                                     -----------    -----------
CURRENT ASSETS:
  Cash                                               $    75,192    $   132,243
  Receivables                                            529,519        137,274
  Inventory                                               52,026         35,375
  Deposits and prepaid expenses                           45,761        119,375
                                                     -----------    -----------
      Total Current Assets                               702,498        424,267
                                                     -----------    -----------



PROPERTY AND EQUIPMENT, at cost (Note 1):
  Furniture, equipment and vehicles                      525,905        229,580
  Building                                               253,156        253,156
  Power generation equipment                           1,052,823      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
                                                     -----------    -----------
                                                       7,127,947      6,866,406
  Less - Accumulated depreciation and amortization      (335,964)      (336,277)
                                                     -----------    -----------
      Net Property and Equipment                       6,791,983      6,530,129
                                                     -----------    -----------


OTHER ASSETS (Note 2):
  Investments in partnerships                              2,975          3,227
  Investments in subsidiaries                          1,639,969         24,546
  Deposits (Note 4)                                            0
  Power Purchase Agreements, net of Amortization          47,027         48,288
  Organization Expense, net of amortization                  962          1,102
                                                     -----------    -----------
                                                       1,690,933         77,163
                                                     -----------    -----------
  TOTAL ASSETS                                       $ 9,185,414    $ 7,031,559
                                                     ===========    ===========

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

                                        3

<PAGE>
                           NEVADA ENERGY COMPANY, INC.
                           CONSOLIDATED BALANCE SHEETS
                                       AT
                      AUGUST 31, 1996 and FEBRUARY 29, 1996

<TABLE>
<CAPTION>

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

                                                                            AUG. 31, 1996    FEBRUARY 29
                                                                              (Unaudited)        1996
                                                                             ------------    ------------
<S>                                                                          <C>             <C>   
 CURRENT LIABILITIES:                                                                           
  Accounts payable                                                           $    553,533    $    187,455
  Short-term borrowings (Note 3)                                                   55,475          42,041
  Payable to related party                                                         37,965          37,965
  Accrued payroll                                                                 109,730          60,294
  Other liabilities                                                                79,604          65,047
  Liabilities subject to compromise (Note 1)                                       26,891          43,207
                                                                             ------------    ------------
         Total Current Liabilities                                                863,197         436,009
                                                                             ------------    ------------
NON-CURRENT LIABILITIES
  Mortgage Payable (Note 3)                                                       249,592          15,688
                                                                             ------------    ------------
         Total Non-Current Liabilities                                            249,592          15,688
                                                                             ------------    ------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)                                      --              --
                                                                             ------------    ------------
         Total Liabilities                                                      1,112,789         451,697
                                                                             ------------    ------------
MINORITY INTEREST IN SUBSIDIARY (Note 2)                                          658,038         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 - 1,463,793 shares at August 31, 1996, none at
            February 29, 1996                                                       1,464            --
         Series B - 5 shares at August 31, 1996, none at February 29, 1996           --              --
  Class A Common Stock, $.001 par value, Authorized 25,000,000 shares;
      Issued and outstanding 12,203,247 shares at August 31, 1996
         and 8,808,485 shares at February 29, 1996                                 12,203           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                                                   17,488,957      11,528,754
  Series A - note receivable                                                   (3,655,586)           --
  Accumulated deficit                                                          (6,427,788)     (5,651,466)
  Treasury stock - Class A, 16,785 shares at August 31, 1996 and
      16,785 shares at February 29, 1996                                           (9,101)         (9,101)
                                                                             ------------    ------------
         Total Shareholders' Equity                                             7,414,586       5,881,432
                                                                             ------------    ------------
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                 $  9,185,414    $  7,031,559
                                                                             ============    ============
</TABLE>

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




                                         4

<PAGE>

                           NEVADA ENERGY COMPANY, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                             THREE MONTHS     SIX MONTHS   THREE MONTHS    SIX MONTHS
                                                  ENDED         ENDED           ENDED          ENDED
                                                AUGUST 31      AUGUST 31      AUGUST 31      AUGUST 31
                                                   1996          1996            1995           1995
                                              -----------    -----------    -----------    -----------
<S>                                           <C>            <C>            <C>            <C>    
REVENUES:
  Energy Sales                                $   133,284    $   201,230    $   284,292    $   544,233
  Printing and Business Supply Sales              350,698        653,781        253,722        503,140
                                              -----------    -----------    -----------    -----------
         Total Revenues                           483,982        855,011        538,014      1,047,373
                                              -----------    -----------    -----------    -----------
COSTS AND EXPENSES:
  Cost of Sales                                   270,579        469,206        199,081        352,720
  Cost of Operations                               72,989        152,033        140,909        321,304
  Depreciation and Amortization (Note 1)           30,859         47,583         14,047         30,461
  Provision for obsolescence (Note 1)                   0             (0)        94,810        189,620
  Professional Fees                               293,928        401,772        151,544        246,354
  General and Administrative                      467,042        598,482        187,728        315,410
                                              -----------    -----------    -----------    -----------
         Total Costs and Expenses               1,135,397      1,669,076        788,119      1,455,869
                                              -----------    -----------    -----------    -----------

OTHER INCOME AND (EXPENSES):
  Interest Income                                     117            278          2,810          3,263
  Other Income                                      2,238          3,234          2,140          6,275
  Gain on sale of project interest (Note 2)             0           --          359,523        945,034
  Loss from Partnership interests                   2,179        (20,000)       (20,000)
  Interest Expense                                (49,207)       (12,761)        (9,251)       (13,087)
  Minority Interests (Notes 1 and 2)               47,392         47,392       (213,816)      (229,018)
                                              -----------    -----------    -----------    -----------
         Total other income and (expense)           2,719         38,143        121,407        692,467
                                              -----------    -----------    -----------    -----------
LOSS BEFORE TAXES                                (648,696)      (775,922)      (128,699)       283,971

      PROVISION FOR INCOME TAXES (Note 8)             200            400            200        (13,667)
                                              -----------    -----------    -----------    -----------
NET INCOME (LOSS)                             $  (648,896)   $  (776,322)   $  (128,899)   $   297,638
                                              ===========    ===========    ===========    ===========

NET INCOME (LOSS) PER SHARE (Notes 1 and 6)   $     (0.06)   $     (0.08)   $     (0.01)   $      0.03
                                              ===========    ===========    ===========    ===========
</TABLE>

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




















                                         5


<PAGE>

                           NEVADA ENERGY COMPANY, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
     FOR THE YEAR ENDED FEBRUARY 29, 1996 AND SIX MONTHS ENDED AUGUST 31, 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      1,242,381      1,242                                    (496,952)   (497)               

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

   Cash received on note                                                                                                  1,244,402

   Net (Loss) for the six months
     Ended August 31, 1996                                                                                                          
                                           -----------  ---------  ----------- -----------  ------ --------- --------  -------------
BALANCES, August 31, 1996                  12,203,247   $ 12,203   $    -       4,437,473   $4,437 1,463,793 $ 1,464    $(3,655,586)
                                           ===========  =========  =========== ===========  ====== ========= ========  =============
  
                                                 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)                                    -            
                                                                                                                                    
   Shares issued for a note (Note 6)                                   4,898,027          -           -              -           
   Expenses related to issuance                                         (189,189)                                   (189,189)    
                                                                                                                                    
   Cash received on note                                                                                           1,244,402        
                                                                                                                                    
   Net (Loss) for the six months                                                                                                    
     Ended August 31, 1996                                             (776,322)                                    (776,322)    
                                              -------    --------  -----------  ---------------    ----------   ------------    
BALANCES, August 31, 1996                         5      $  -      $17,488,957  $   (6,427,788)        (9,101)  $  7,414,586     
                                               ======    ========  ===========  ===============    ==========   ============
                                                                                                                      
                     (The accompanying notes are an integral part of these statements.)
</TABLE>



                                       6


<PAGE>
                           NEVADA ENERGY COMPANY, INC.
                   STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
                    ENDED AUGUST 31, 1996 AND AUGUST 31, 1995
<TABLE>
<CAPTION>

                                                                         AUGUST         AUGUST
                                                                          1996           1995
                                                                      -----------   -----------
<S>                                                                   <C>           <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)                                                     $  (776,322)  $   297,637
  Adjustments to reconcile net income (loss)
      to net cash used in operating activities -
         Depreciation and Amortization (Note 1)                            47,583        30,461
         Provision for Obsolescence (Note 1)                                 --         189,620
         Amortization of Goodwill                                         110,028          --
         (Gain) Loss on Disposition of Assets                                --        (359,523)
         Minority Interest in Subsidiary Profit (Loss)                     47,392       229,018
         Equity in Loss from Partnership Interests                           --          20,000
         Stock issued to Directors/Officers/Employee                         --          68,362
         Changes in assets and liabilities -
            Decrease (Increase) in Receivables                           (392,245)     (747,545)
            Decrease (Increase) in Stock Subscription Receivable             --         150,000
            Decrease (Increase) in Receivable from related party             --          37,500
            Decrease (Increase) in Inventories                            (16,681)        3,530
            Decrease (Increase) in Deposits and Prepaids                   73,614        (8,603)
            Increase (Decrease) in Accounts Payable                       366,078       (34,541)
            Increase (Decrease) in Payable to related party                  --          (8,117)
            Increase (Decrease) in Other Liabilities                       63,993       (51,126)
            Increase (Decrease) in Liabilities subject to compromise      (16,316)      (23,294)
                                                                      -----------   -----------
      Net cash used in operating activities                              (492,876)     (206,621)
                                                                      -----------   ----------- 
CASH FLOWS FROM INVESTING ACTIVITIES:                                        
      Acquistion of Property and Equipment                               (300,400)      (48,401)
      Proceeds from Sale of Assets                                        650,000
      Investment in Subsidiaries                                         (708,125)         --
      (Advances) to and Repayments from Partnerships                         --         (35,472)
                                                                      -----------   -----------
      Net cash provided by investing activities                        (1,008,525)      566,127
                                                                      -----------   -----------
CASH FLOWS FROM FINANCING ACTIVITIES
      Principal repayments on financing                                   (33,062)      (10,113)
      Net proceeds from cash sales of common and preferred stock        1,244,402       250,000
      Borrowing                                                           280,400          --
      Minority interest                                                   (47,392)     (229,018)
                                                                      -----------   -----------
      Net cash used in financing activities                             1,444,348        10,868
                                                                      -----------   -----------
NET INCREASE (DECREASE) IN CASH                                           (57,053)      370,374

CASH AT BEGINNING OF PERIOD                                               132,245        37,885
                                                                      -----------   -----------       
CASH AT END OF PERIOD                                                 $    75,192   $   408,259
                                                                      ===========   ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Note 11):
Cash expenditures during the nine months for -
  Interest                                                            $     9,316        19,716
  Taxes, including taxes paid through payments on liabilities
      subject to compromise of $18,915 in 1996 and $13,386 in 1995            200        27,158
</TABLE>

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

                                         7

<PAGE>

                           NEVADA ENERGY COMPANY, 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:
            ----------------------------

                  Nevada Energy  Company,  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  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.

            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
            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.


                                        8


<PAGE>



            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
            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 August 31, 1996.

                                        9


<PAGE>
            Goodwill
            --------

            The acquisition of Telecomm Technologies, Inc. resulted in
            approximately $1,700,000 in goodwill.  This is currenlty being
            amortized over a three year period.

            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  9,990,866 in the six months
            ending August 31, 1996,  11,122,453 in the three months ended August
            31,  1996,  8,752,930 in the six months  ending  August 31, 1995 and
            8,808,485 in the three months ended August 31, 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 August 31, 1996
            and 1995 are as follows (amounts in thousands):.

                                        ELECTRIC     PRINTING
                                          POWER      AND OFFICE
($000)                                 PRODUCTION    SUPPLIES    CONSOLIDATED
------                                 ----------    ----------  ------------
QUARTER ENDING
AUGUST 31, 1996
---------------
Sales                                 * $    68      $   303     $  371
Operating Income (Loss)                    (167)          40       (127)
Gain on disposition of assets               586          -          586
Identifiable assets                  **   6,967          429      7,396
Depreciation/amortization                    13            4         17
Provision for obsolescence                  -            -          -
Capital expenditures                        -            -          -
                                       10


<PAGE>
                                        ELECTRIC     PRINTING
                                          POWER      AND OFFICE
                                       PRODUCTION    SUPPLIES    CONSOLIDATED
                                       ----------    ----------  ------------
($000)
------
SIX MONTHS ENDING
AUGUST 31, 1996
---------------
Sales                                 * $   201      $   654      $ 855
Operating Income (Loss)                    (845)          69       (776)
Identifiable assets                  **   8,350          835      9,185
Depreciation/amortization                    27           21         48
Capital expenditures                        -            307        307

($000)
------
Quarter ENDING
AUGUST 31, 1995
---------------
Sales                                 * $   133     $   351     $   484
Operating Income (Loss)                    (678)         29        (649)
Identifiable assets                  **   8,350         835       9,185
Depreciation/amortization                    16          18          34
Capital expenditures                        -           306         306

($000)
------
Six MoNTHS ENDING
AUGUST 31, 1995
---------------
Sales                                   $   544        $ 503    $ 1,047
Operating Income (Loss)                    (285)           3       (288)
Extraordinary Item                          586          -          586
Identifiable assets                  **   7,679          475      8,154
Depreciation/amortization                    24            6         30
Provision for obsolescence                  190          -          190
Capital expenditures                        -              1          1

      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
            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 $68,000 represented
            18% of the total revenue of the Company in 1996. In 1995 the revenue
            from SCE of approximately  $260,000 represented 51% 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.
                                         11


<PAGE>



            

            Telecommunications  results were  adversely  affected by a change in
            long-distance  carriers  which  resulted in the Company's  customers
            being direct billed by the long-distance  carrier from approximately
            April 1, 1996  through  August  16,  1996.  (The  asset  acquisition
            occurred as of June 15, 1996).  Effective  approximately  August 16,
            1996,  the  Company's  telecommuniations  subsidiary  (TTI)  resumed
            direct billing of its customers. Revenues of $21,282 for the quarter
            ending  August 31,  1996 are  included  in the energy  segment.  The
            results of operations was a loss of approximately  $140,196 which is
            also included in the energy category.


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
    August 31, 1996                  NEC              HPBS          Combined
    (Unaudited)
    -------------------------------------------------------------------------
    Net revenues              $    68.0           $ 303.0         $   371.0
    Net income (loss)         $  (167.0)         $   40.0         $  (127.0)
    -------------------------------------------------------------------------

    Six months ended
    August 31, 1996                  NEC              HPBS          Combined
    (Unaudited)
    -------------------------------------------------------------------------
    Net revenues              $   201.0           $ 654.0         $   855.0
    Net income (loss)        $   (845.0)         $   69.0        $   (776.0)
    -------------------------------------------------------------------------

    Three months ended
    August 31, 1995                  NEC              HPBS          Combined
    (Unaudited)
    -------------------------------------------------------------------------
    Net revenues              $   284.3          $  253.7         $   538.0
    Extraordinary income            -                 -           $     -
    Net income (loss)         $  (107.1)         $  (21.6)        $  (128.7)
    -------------------------------------------------------------------------

    Six months ended
    August 31, 1995                  NEC              HPBS          Combined
    (Unaudited)
    -------------------------------------------------------------------------
    Net revenues              $   544.2          $  503.1         $ 1,047.3
    Extraordinary income      $   585.5               -           $   585.5
    Net income (loss)         $   294.2          $    3.4         $   297.6
    -------------------------------------------------------------------------

            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 August 31, 1996.
      The cost of relocating was nominal.

            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 review of the Company's legal counsel.

            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"
      

                                       13


<PAGE>


      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 entered  into  negotiations  to acquire the minority
      holders interest in SJPC.

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

                                       15


<PAGE>



            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.

            As a general partner of NGPP, NEP-1LP will be entitled to a share in
      NGPP's  distributable  cash  flow.  As a general  partner  in Brady  Power
      Partners  ("BPP"),  NGPP held a fifty percent (50%) ownership  interest in
      the  completed  Brady  project and was also  entitled  to receive  project
      development  fees.  BPP is a  Nevada  general  partnership  whose  general
      partners  are NGPP and  ESIBH  Limited  Partnership,  a  Delaware  limited
      partnership.  The Company is entitled to receive  sixty  percent  (60%) of
      NEP-1LP's  distributable cash flow. There has been no cash from operations
      available for distribution through August 31, 1996.

            On May 8,  1995,  NGPP  sold its 50%  interest  in the  Brady  Power
      Project for  approximately  $5.5  million  dollars in full  settlement  of
      litigation  between  NGPP and  ESIBH.  The  Company  expected  to  receive
      approximately  $585,511  as its  share  of the  distribution  of the  sale
      proceeds and this amount was included in gain on  disposition of assets in
      the quarter  ended May 31, 1995.  Actual  proceeds  received were $508,018
      with the  balance of $77,493  being  determined  to be  uncollectible  and
      written off as a bad debt in the year ended February 29, 1996.

            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 August 31, 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 August 31, 1996,
      the  acquisition  was  still  pending.   In  December  1995,  the  Company
      transferred all of

                                       16


<PAGE>



      its  right  title  and  interest  in  10  Ormat  power   generating  units
      (classified   as  idle  power   generating   equipment  in  the  financial
      statements) to YAC.

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.

NOTE 3 - Short-Term Borrowings:

            The following summarizes short-term borrowings at August 31, 1996:
            Mortgage note-current               $ 29,704
            Current portion of
                  equipment note                  25,771
                                                --------
                                                $ 55,475
                                                ========

            There is a mortgage in the amount of $35,630 secured by the land and
      building acquired by CEC in its merger with HPBS (See Note 1). The current
      portion is $29,704 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, has entered into a two
      year employment  agreement with the former owner  commencing  November 30,
      1994 which provides for annual compensation of $35,468 plus commissions.

            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
      

                                       17


<PAGE>


      was $89,610 for the year ended February 29, 1996. Such expense is included
      in the  cost  of  operations  in the  accompanying  financial  statements.
      Pursuant to the lease agreement,  the Company's  estimated payments to the
      BLM as of August 31, 1996 are as follows:

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

                   Total                                $1,602,000
                                                        ==========

            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 August 31, 1996 are as follows:

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

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

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
      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
      

                                       18


<PAGE>


      shares.  The present  value of this note has been offset  against  paid-in
      equity in the  accompanying  finacial  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 $658,818  (included is the $500,000 which
      extinguishes  the  Series  B  right  described  above)  for the  Series  A
      preferred  shares had been received as of May 31, 1996 and  $1,244,402 had
      been received by August 31, 1996.

            On July  23,  1996,  496,952  shares  of  Series  A  preferred  were
      converted to 1,242,381 shares of Class A common stock.

            At August 31, 1996, there were  1,1,463,793  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>


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 August 31,
      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 August 31,
      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 August 31, 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 August 31, 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
      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
      

                                       20


<PAGE>

      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 August 31, 1996 under this 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                    1,746,946
                                                                   ------------
                  Total deferred tax asset                            2,556,741
                  Valuation allowance                                (2,556,741)
                                                                   ------------
                  Net deferred tax asset                           $     -
                                                                    ===========

            During the quarter ending August 31, 1996,  the Company's  potential
      deferred tax asset remained unchanged.

            No  provision  for  Federal  income  taxes was  recorded  during the
      quarter  ended August 31, 1996 or the quarter ended August 31, 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 August  31,  1996 the  Company  had  federal  income  tax loss
      carryforwards  available to offset  future  taxable  income for  financial
      reporting  and tax  purposes of  $5,249,763  which  expire in 2006 through
      2010.

NOTE 9 - Supplemental Noncash Investing and Financing Activities:

            During the six 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.


            During the six  months  ending August 31, 1996, 2,000,000  shares of
      Class A common stock valued at $1,156,250  were issued for the acquisition
      of the assets of Telecomm Technologies, Inc.




                (Remainder this of page intentionally left blank)


                                         21


<PAGE>



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

      The Company  recently  announced  the  formation  of two new wholly  owned
subsidiaries  with the objective of  organizing  the Company  strategically  for
planned growth through acquisitions. Newly formed 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  telecommunications   based  business,   Telecom
Technologies, Inc. ("TTI") 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.

                                       22

<PAGE>



      (4)   YAC - Yerington Acquisition Company
                        Nevada corporation
                        Wholly owned subsidiary, holds all idle Ormat
                        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.

      (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

      (11)  TTI - Telecom Technologies, Inc.
                        Oregon corporation, wholly owned by CCC
                        Operates long distance resale business servicing 20
                        retail long distance communications centers known
                        as "Casetas Telefonicas" providing long-distance
                        service to primarily Latin American communities.




                                       23

<PAGE>



                                    LIQUIDITY

      As of August 31, 1996, the Company had $702,498 in current assets. Cash of
$75,192  (including $32,793 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 $3,655,586  collectible over an
eight month period.

      Cash used by operating  activities in the six months ended August 31, 1996
was $492,876.  The after-tax  loss from  operations  was $776,322 which included
$47,583 of non-cash  charges for  depreciation  and $110,028 in non-cash charges
for amortization of goodwill.  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 August 31, 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 $1,106,385 in
cash in during the period  ending  August 31, 1996,  including  expenditures  of
$300,400 for the acquisition of high-speed print equipment and $805,985 advanced
to a subsidiary for the acquisition of a telecommunications business. Cash flows
from  financing  activities  in the six months  ended  August 31, 1996 came from
sales of preferred and common shares and generated $1,342,262 in cash.

      Cash used in operating  activities in the six months ended August 31, 1995
was $206,621.  The after-tax  loss from  operations  was $287,874 which included
$30,461 of non-cash  charges for  depreciation  and $189,620 for obsolescence on
idle equipment.  Investing  activities  provided  $566,127 in cash in during the
period  ending  August 31, 1995,  principally  from the sale of wind turbines by
SJPC and including expenditures of $35,472 for investments in partnerships. Cash
flows from financing activities in the six months ended August 31, 1995 provided
$10,868  in net cash  in-flow,  primarily  from  proceeds  from sales of Class A
common shares.

      To date,  the Company has enjoyed  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 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.


                                       24

<PAGE>



                                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
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  acquiring,  developing,  constructing  and  operating a  portfolio  of power
plant(s).  There are presently commitments for any such financing.  Further, 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.

                                       25

<PAGE>




      In the event insufficient  funding does occur as a result of the Company's
planned growth through acquisition, insufficient funding may require the Company
to  delay,  scale  back  or  eliminate  its  planned   expansion,   acquisition,
development and corporate  activities as set forth herein.  However, the Company
currently believes  commitments for adequate funding over the next twelve months
presently exist.

                                      DEBT

      As of August 31,  1996,  the  Company's  total  current  liabilities  were
$863,197.  Current accounts payable were $553,533 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 $55,475  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 $79,604
included  accrued audit expenses of $61,600.  Accrued payroll  includes  $50,000
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%
per annum.  Pending  final  settlement,  the entire  amount is  classified  as a
current liability. The Company has remained substantially current on its payment
schedule  since this  proposal was made in October 1993 to the IRS and remaining
payments necessary for payoff are $26,891, including accrued interest, which was
paid in full October 4, 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  executed  and  approved the
exchange  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  intrest  to all  future  Class B Common
shares  to be  issued  pursuant  to the terms of the  Company's  certificate  of


                                       26

<PAGE>


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.  Execution of this agreement,  which has not yet been
consummated, is pending review of counsel.

                              RESULTS OF OPERATIONS

Revenues

      Revenues  for the quarter  ended  August 31,  1996  totaled  $483,982  and
consisted  of  energy  sales  from  San  Jacinto   Power  Company  of  $112,001,
telecommunications  revenue of $21,283 and HPBS  printing  and  business  supply
sales of $350,698.  Comparable  revenues for the quarter  ending August 31, 1995
were $284,292  from energy sales and $253,722 from printing and business  supply
sales. Revenue from energy sales declined primarily as a result of contractually
reduced purchased prices received from the purchasing utility company,  Southern
California Edison. 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  were  slightly  lower as a result  of the  change-over  in  maintenance
services.  Wind  speeds  have been lower than  average  for the  majority of the
current quarter.

      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  August 31,  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 $269,523 and office  supplies  sales were $81,175 for the quarter
ended August 31, 1996.  Comparable results for the quarter ended August 31, 1995
were print  revenues of $153,919  and office  supplies  sales of $99,803.  Print
revenues  were  $477,481  and office  supplies  sales were  $176,300 for the six
months ended August 31, 1996. Comparable results for the six months ended August
31, 1995 were print revenues of $617,142 and office supplies sales of $185,998.

Costs and Expenses

                                  Cost of Sales

      Cost of sales for the six months  ended  August 31, 1996 were  $469,206 or
71.8% of sales  verses  $352,720  or 70.1% of sales for the  comparable  quarter
ended August 31, 1995. The costs increase was primarily a result of increases in
the cost of paper stock which has occurred over prior months.  Improved  margins
on  custom  print  work have  mitigated  some of the  impact  of the paper  cost
increase. Cost of sales were $270,579 or 77.2% for the three months ended August
31, 1996 versus  $199,081 or 78.5% for the  comparable  period ending August 31,
1995.


                                       27

<PAGE>




                               Cost of Operations

      Costs  of  operations  for the six  months  ended  August  31,  1996  were
$152,033,  of  which  $147,983  represented  the cost of  operations  of the San
Jacinto  Power  Company  wind  turbine  site,  including  $88,711 in repairs and
maintenance  cost,  $45,252 in BLM land lease cost, $7,420 in property taxes and
$6,600 in other site expenses.  Comparable  costs in 1995 totaled  $321,304,  of
which $321,304 represented the cost of operations of the SJPC wind turbine site,
including $214,528 in repairs and maintenance  costs,  $45,198 in BLM land rent,
$6,597 in property taxes and $54,981 in other site costs,  primarily BLM related
fees for services.

      Repairs and maintenance costs were substantially  reduced by the change in
maintenance service providers which was effected in January 1996. In addition, a
substantial refurbishment program had been completed in 1995.

      SJPC  originally  acquired the assets and began actual  operations on June
24, 1994.  Maintenance services had been provided on a fixed fee plus cost basis
by New  World  Grid  Power  ("NWGP").  NWGP  was  notified  October  8,  1995 of
termination of its service agreement.  SJPC has executed an agreement with a new
service  provider,  Desertron  Electric,  effective January 1996. NWGP no longer
provides  operation  and  maintenance  services.  Desertron  Electric  is a sole
proprietorship  formed by a former employee of NWGP.  SJPC's  minority  interest
holder has approved this agreement.  The Company anticipates significant savings
in the area of SJPC  operation  and  maintenance  costs as a result  of this new
agreement with Desertron Electric.

      With regard to changes in HPBS operating  expenses from that of prior HPBS
periods, changes in HPBS operating expenses were a result of normal fluctuations
in business activities.

                            Other Costs and Expenses

      As a result of the Company's adoption of FAS 121 for the fiscal year ended
February 28, 1997,  there was no provision for obsolescence in the quarter ended
August 31, 1996.  Under the  provisions  of FAS 121, the Company will review the
valuation of its long-lived  assets on a quarterly  basis or 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  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 as of August 31, 1996.  The
provision would have been $115,560, if prior accounting methods had continued in
effect.  Comparable  cost for the quarter  ended  August 31,  1995 was  $94,810.
Depreciation  and  amortization  for the  quarter  ended  August  31,  1996 were
$30,859.  Comparable  costs for the quarter  ended August 31, 1995 were $14,047.


                                       28

<PAGE>


The  increase  was  primarily  related  to  the  acquisition  by  HPBS  of a new
high-speed  printing press.  Comparable  amounts for the six months ended August
31, 1996 and August 31, 1995 were $47,583 and $30,461 respectively.

      Professional  fees for the quarter  ended  August 31, 1996 were  $293,928,
including  $166,887 in legal fees,  $10,175 in audit fees and  $116,866 in other
outside  services.  Other outside services included $41,500 in the quarter ended
August 31, 1996 paid to the former owner/general  partner of Smith/Triad under a
two year $15,000 per month agreement, which was paid in full on July 8, 1996 and
$50,000 paid or accrued in relation to a contract for public relations services.

      Professional  fees for the quarter  ended  August 31, 1995 were  $151,544,
including  $70,944 in legal  fees,  $20,628  in audit fees and  $59,922 in other
outside  services.  Other outside services included $45,000 in the quarter ended
May 31, 1995 paid to the former owner/general partner of Smith/Triad under a two
year agreement referred to above.

      Professional  fees for the six months ended August 31, 1996 were $401,772,
including  $194,390 in legal fees,  $22,608 in audit fees and  $179,775 in other
outside  services.  Other outside services included $90,000 in the quarter ended
August 31, 1996 paid to the former owner/general  partner of Smith/Triad under a
two year $15,000 per month agreement, which was paid in full on July 8, 1996 and
$135,000  paid or  accrued  in  relation  to a  contract  for  public  relations
services.

      Professional  fees for the six months ended August 31, 1995 were $246,354,
including  $75,593 in legal  fees,  $38,545 in audit fees and  $132,215 in other
outside  services.  Other outside  services  included $90,000 paid to the former
owner/general  partner of  Smith/Triad  under a two year  agreement  referred to
above.

      Administrative  expenses  totaling  $467,042 for the quarter ending August
31, 1996 were  principally  for  salaries,  wages and  benefits in the amount of
$113,440,  public and shareholder  relations  $111,203,  general office expenses
$153,064 (which includes  $110,028 in amortization of goodwill relating to TTI),
travel  expense   $75,659,   directors  fees  and  expenses   $8,853  and  other
miscellaneous expenses $4,822.

      Comparable amounts totaled $187,728 for the quarter ending August 31, 1995
were  principally  for  salaries,  wages and  benefits in the amount of $94,903,
public and shareholder relations $8,328, general office expenses $48,011, travel
expense  $3,977,  directors  fees and expenses  $28,250 and other  miscellaneous
expenses $4,258.

      Administrative expenses totaling $598,482 for the six months ending August
31, 1996 were  principally  for  salaries,  wages and  benefits in the amount of
$194,128,  public and shareholder  relations  $114,150,  general office expenses
$175,775 (which includes  $110,028 in amortization of goodwill relating to TTI),
travel  expense   $81,526,   directors  fees  and  expenses  $22,898  and  other
miscellaneous expenses $9,705.

      

                                       29

<PAGE>


      Comparable  amounts totaled  $315,410 for the six months ending August 31,
1995  were  principally  for  salaries,  wages  and  benefits  in the  amount of
$184,591,  public and  shareholder  relations  $12,615,  general office expenses
$65,928,  travel expense $7,631,  directors fees and expenses  $36,323 and other
miscellaneous expenses $8,431.


      Interest  expense of $49,207  for the quarter  ending  August 31, 1996 was
related to interest accrued at statutory rates on the remaining liability to the
IRS on prior  payroll  tax  withholding  and  short-term  borrowings  related to
insurance premium financing and the mortgage note on the building owned by Herth
Printing and Business Supply and the financing of the high-speed printing press.
Interest in the  comparable  period ending August 31, 1995 related  primarily to
short-term borrowings, the IRS note and the mortgage note and was $9,251.

                            Other Income and Expenses

      Consolidated  interest of $117 was earned on cash  carried in money market
funds in the  quarter  ended  August 31,  1996,  compared  to $2,810 in the same
period for 1995.

      Other  income of $945,034 in the period ended August 31, 1995 was a result
of the Company's sale of its interests in the Brady Power  Project.  Constructed
in 1991 and  1992,  the  Brady  plant  became  operational  in 1992 as result of
development  efforts by ESI-BH  ("ESI"),  a subsidiary  of ESI Energy and Nevada
Geothermal Power Partners Limited  Partnership  ("NGPP") As a result of the high
total cost to complete  the project,  (approximately  $74 million as compared to
the original cost of $46 million) the Brady Project had not generated cumulative
cash flows from operations that had been expected.  Related to the high costs of
the Brady project, NGPP filed suit against ESI and ultimately agreed to sell all
of NGPP's interest in BPP and settle all outstanding litigation consideration of
payment of $1.00. From the sale of the Brady Power Project interest, the Company
was  expected  to receive  $585,511  of the  proceeds  from  NGPP's  sale of 50%
interest in the Brady project partnership ($508,138 having been received to date
and the balance having been subsequently  determined to be  uncollectible).  The
Company had no cost basis in the Brady investment.  Other than funds received in
prior  years as a result  of  non-recurring  developer  fees,  the  Company  has
received no recurring  income or cash flow from the Brady Project through Nevada
Energy  Partners  I,  Limited  Partnership  ("NEP").  There  are no  obligations
remaining by the Company under the  litigation  settlement  due to the Company's
limited  partnership  ownership  interests  in NEP and there are no  anticipated
effects of the sale of Brady interests on future operations.

                                  Income Taxes

      Income  taxes of $400 for the six months ended August 31, 1996 and $13,867
for the  comparable  six months ended August 31, 1995 were for taxes  payable to
the state of  California  on income  earned by San Jacinto  Power Company on its
California  operations.  There were no Federal  income taxes payable for the six
months ending August 31, 1996 or 1995.


                                       30

<PAGE>



      As of August 31, 1996,  unused net  operating  losses  available to offset
future taxable income was  $5,789,000.  The Company's  investment and energy tax
credit carryforwards expired in November 1995.

                                   Net Result

      In the six months ending August 31, 1996, there was a total operating loss
of  $776,322  or $0.08  per share on  9,990,866  average  Class A Common  shares
outstanding.  For the quarter  ending  August 31, 1996 there was a total loss of
$648,696  or  $0.06  per  share on  11,122,453  average  Class A  Common  shares
outstanding.  For the six months ending August 31, 1995,  there was an operating
income of $297,638 or $0.03 per share on 8,752,930 average Class A common shares
outstanding.  For the quarter  ending  August 31, 1995 there was a total loss of
$128,899  or  $0.01  per  share  on  8,808,485  average  Class A  Common  shares
outstanding.

                           PART II--OTHER INFORMATION

Item 1. Legal Proceedings.

                            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 are to be submitted to
the Court by the Company  pending a ruling of the Court.  The  Company  does not
believe this litigation will have an adverse material effect on its operations.

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


                                       31

<PAGE>


      On August 16, 1996, the Annual Meeting of Stockholders for the Company was
held and the matters were voted upon by a quorum, 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.


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.





      
                                       32

<PAGE>


      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.
















                                       33

<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).

      Pending Acquisitions and Deployment of Idle Power Generating Assets

      On April 10, 1995 the Company executed an agreement for the acquisition of
Tad's Geothermal, Inc., ("Tads"), located in Yerington, Nevada, in consideration
of the  delivery  of  restricted  Class A Common  stock  with a market  value of
$875,000  and the  assumption  of a  promissory  note in the amount of $125,000.
Tad's owns Ormat binary cycle power  generating  facilities which sells electric
power to Sierra  pursuant to the terms of two (2) power sales  agreements.  Tads
has  sufficient   geothermal  lands,   geothermal   production  wells,  permits,
buildings,  transmission  infrastructure  and cooling spray ponds to operate two
Ormat power generating units substantially similar to the idle Ormat units owned
by the Company.

      The  closing of the Tads  acquisition  is subject  to the  fulfillment  of
certain conditions precedent, including approval by Sierra Pacific Power Company
("Sierra") of the assignment of its power purchase  agreements  with Tads to the
Company,  approval  of the Public  Service  Commission  of Nevada  ("PSCN")  and
receipt of certain  environmental  permitting which includes permits for surface
disposal of  geothermal  fluids.  As of July 1, 1996,  the Company had  received
evidence of the approval of the power purchase agreement  assignments by Sierra,
approval  by the PSCN and receipt of  appropriate  surface  disposal  permitting
required to closing.

      On July 1, 1996, the Company confirmed revised terms requisite to complete
the  purchase of Tads in  consideration  of the delivery of  restricted  Class A
Common shares with a market value of $575,000 and the assumption of a promissory
note in the amount of $125,000.  The Company's management anticipates closure of
the facility during the month of July, 1996.

      Following  closure  of the Tads  acquisition,  and  largely  due to recent
termination  by and between  Sierra and  Washington  Water & Power,  the Company
plans to deploy one or more of its wholly owned Ormat power generating plants at




                                       34

<PAGE>


the Tads site for purposes of generating  all parasitic  electrical  loads which
operate  the  Tads  power  facility's  pumps,  control  modules,  lighting,  and
substantially  reduce load demand  charges  currently  being paid to Sierra.  In
addition,  the Company plans to offer Sierra additional generating capacity from
the Tads facility  utilizing  the Tads  geothermal  energy  reserves as fuel and
Company  owned  Ormat  power  generating  units which  currently  are idle.  The
potential offer would be possible due to the availability of geothermal resource
presently  believed  to  exist,  the  expected  increase  of demand  for  energy
indigenous to the Yerington area, and the lack of generating  capacity presently
available to meet such increased demand.

      Also  included  in the  Tads  acquisition,  the  Company  is  acquiring  a
non-operational  ethanol  production  facility  which the  Company is  currently
evaluating  for purposes of possible  relocation,  retrofit and  start-up.  This
facility will require further  electrical energy and thus require the deployment
of two or more of the  Company's  wholly owned  Ormat's for power  production to
service  ethanol plant parasitic  loads.  The Company has identified a potential
site with two  existing  geothermal  energy  wells  from which to  relocate  and
operate  the  ethanol  plant and  Ormat  power  plants.  Also  favorable  to the
relocation,  are  proximity  to lower cost  feedstock  for the ethanol  plant to
operate.  Such  relocation  will  likely  be  scheduled  during  calendar  1997,
following  the  retrofit  of the Tads  facility,  with the  ethanol  plant  site
acquisition  plan assuming  delivery of restricted Class A Common stock and such
cash consideration necessary to initiate closure during the calendar year.

      In addition to the equipment  deployment  plans  associated  with the Tads
acquisition,   a  second  substantially   completed  geothermal  power  facility
acquisition has been the subject of significant due diligence investigation over
the course of the prior and current fiscal year by the Company.  The Company has
executed  confidentiality  agreements and is conducting  investigations with the
intent of submitting an offer of purchase for the acquisition of this geothermal
power  facility  during the current  fiscal year.  The Company plans to submit a
purchase  offer which will likely  include the  issuance of  restricted  Class A
Common  stock  as a  substantial  portion  of the  purchase  price  and  include
provisions for deployment of remaining  idle power  generating  equipment by the
Company. This acquisition, if consummated, may require an equity offering by the
Company  in order to fund the  purchase.  The extent of any  required  potential
equity  offering  is  currently  unknown.  Such an equity  offering  may cause a
dilution of shareholder ownership,  with the extent of the dilution is currently
unknown. Other means of financing,  such as non-recourse project financing,  may
also be considered by the Company.

      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").

      To date, the Company has had to delay consummation of the Tads closing due
to the delayed  receipt of financing  from Golden  Chance  Limited in accordance






                                       35

<PAGE>


with its  financing  payment  schedule.  It is believed  that the  closing  will
continue once the waiver of Series B Preferred  holders has been received,  (see
Change in Corporate Control).

      Other potential developments which the Company is continuing evaluation of
include: (i) discussions and evaluation with Geothermal  Development  Associates
("GDA")  regarding  possible  resubmission of a prior proposal to Sierra Pacific
Power  Company  (Sierra)  for  the  development,   financing,  construction  and
operation of energy generating  facility known as the Oreana Power Project which
was previously a finalist in Sierra's previous  "Request For Proposals",  (which
was  subsequently  withdrawn  prior to the  announcement of intended merger with
Washington  Water & Power).  The  Company  has  recently  initiated  discussions
largely as a result of the recent  termination of Sierra Pacific Power Company's
merger with Washington  Water & Power and also because the Company's belief that
the future needs for  capacity  additions in the Sierra  Pacific  Power  service
territory  for  power  marketing  opportunities  to  other  Western  States  are
significant.  There can be no assurance of  submission of the proposal to Sierra
or that  Sierra's  acceptance  of the  revised  proposal  will be obtained if so
submitted; and, (ii) discussions, evaluation and negotiations associated with an
offshore  development  stage energy  company in which the Company has  expressed
interest in acquiring a majority  ownership  interest for purposes of completing
the development, financing, construction,  operation and management of an energy
facility  which  includes,  but is not limited to,  installation  of  electrical
generating capacity of approximately 25 megawatts.  There can be no assurance of
acquisition,  development,  financing, construction,  operation or management of
this facility at this time.

         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 November, 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 the delayed payment of Golden Chance Limited to the Company.
It is anticipated that the planned closing will be completed  following  receipt
of the waiver of default from the Company's Series B Preferred shareholders.








                                       36

<PAGE>



                            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.

      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,   by  and  through  its  wholly  owned  subsidiary   Central
Communications   Corporation  ("CCC"),   has  recently  executed   documentation
precedent to the  acquisition of Telecom  Technologies,  Inc,  ("TTI") an Oregon
corporation,  from Telecom AE. TTI's provides,  with Letters of Agency, for long
distance telephone services, money transfers and other services primarily to the
Latin American  community in the Western United States to  approximately  twenty
long distance "Caseta"  accounts.  The Company believes the "Caseta" concept can
be successfully  franchised or developed as an internal expansion of its current
services.

      Since executing documentation for TTI's acquisition,  the CCC has executed
the lease of a 13,000 square foot office  facility in  California  from which to
base the Company's corporate headquarter and domicile pending  telecommunication
based  acquisitions.  The  TTI  acquisition  is the  first  of  several  planned
acquisitions  to be  made  by  the  Company  through  CCC.  Through  this  first
acquisition,  the Company anticipates acquiring further proprietary  agreements,
knowledge and trade contacts from which to develop a developmental  platform for
growth in the telecommunication industry.

      The Company is presently  evaluating numerous  telecommunications  related
acquisitions.

                                  Risk Factors

Idle power generation equipment

      As at August 31,  1996,  the  Company  reported  assets of  $9,185,414,  a
substantial  portion of which  56.9% was  represented  by idle power  generation





                                       37

<PAGE>


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.

      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 August  31,  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 August 31,
1996."








                                       38

<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 September  26, 1996,  interim  President  Jeffrey  Antisdel and interim
Secretary,  Richard  Cascarilla,  were  replaced  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.








                                       39

<PAGE>



      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 August 31,  1996,  the Company  has  received  aggregate  payment of
$1,244,402 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.

      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


                                       40

<PAGE>


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  $1,244,000  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.

                            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").

 
                                       41

<PAGE>

      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
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.

     


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      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 27.1 - Financial Data Schedule (Electronic filing only)

      (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 27, 1996 - Change of officers 

            September 30, 1996 -  Corporate change of address.









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                                   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.

                                                NEVADA ENERGY COMPANY, INC.

Date:  August 31, 1996                           /s/ Stefan Tevis
       ---------------                          ---------------------------   
                                                Stefan Tevis, President

Date:  August 31, 1996                           /s/ Kenton H. Bowers
       ---------------                          ---------------------------
                                                Kenton H. Bowers
                                                Controller































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