UNITED STATES
                       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 September 30, 2002

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

                  For the transition period from _____ to _____

Commission File Number: 1-5742

                             OCEAN POWER CORPORATION
                 (Name of small business issuer in its charter)

                Delaware                                         94-3350291
    (State or other jurisdiction of                           (I.R.S. Employer
     incorporation or organization)                          Identification No.)

   c/o Halperin Battaglia Raicht, LLP
     555 Madison Avenue, 9th Floor
           New York, New York                                       10022
(Address of principal executive offices)                          (Zip Code)

                                 (212) 765-9100
                           (Issuer's telephone number)

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
section 13 or 15(d) of the Securities Exchange Act during the past 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

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

Check  whether the issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court. [ ] Yes [X] No

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

              56,182,746 shares outstanding as of January 28, 2008

Transitional Small Business Disclosure Format: [ ] Yes [X] No
<PAGE>

NOTE:  Unless otherwise  indicated,  this Form 10-QSB of Ocean Power Corporation
(the "Company")  speaks as of the date of the filing thereof with the Securities
and  Exchange  Commission  ("SEC").  On March 1,  2002,  due to  non-payment  of
applicable taxes the Company's  original charter became inoperative and void. On
October 25, 2007,  the Company filed a certificate of renewal and revival of its
charter  in the state of  Delaware.  During  the  period  from  March 1, 2002 to
October 25, 2007, the name Ocean Power was obtained by an unrelated  entity upon
proper  filing with the State of  Delaware.  As such,  as part of the  Company's
renewal and  revival of its  charter,  the  Company  changed its name from Ocean
Power Corporation to OPC Liquidation Corporation.

<PAGE>

                         PART I -- FINANCIAL INFORMATION

Item 1. Financial Statements

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)

                   UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                    September 30, 2002 and December 31, 2001
<PAGE>
<TABLE>
<CAPTION>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                           Consolidated Balance Sheets


                                     ASSETS
                                     ------

                                                                September 30,    December 31,
                                                                    2002            2001
                                                                ------------    ------------
                                                                (Unaudited)
<S>                                                             <C>             <C>
CURRENT ASSETS

Cash                                                            $      2,995    $      2,989
Advances to employees                                                367,117         347,259
Prepaid expenses                                                          --          44,080
                                                                ------------    ------------

Total Current Assets                                                 370,112         394,328
                                                                ------------    ------------

EQUIPMENT, NET                                                       395,739       1,000,892
                                                                ------------    ------------
OTHER ASSETS

Assets of discontinued operations (Note 9)                                --       1,194,302
Debt offering costs                                                   34,281         108,591
Deposits                                                              18,402          42,447
Patents, and licensing agreements, net                                    --       5,675,150
Goodwill, net                                                             --       5,656,207
                                                                ------------    ------------

Total Other Assets                                                    52,683      12,676,697
                                                                ------------    ------------

TOTAL ASSETS                                                    $    818,534    $ 14,071,917
                                                                ============    ============
</TABLE>

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

                                       2
<PAGE>
<TABLE>
<CAPTION>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                     Consolidated Balance Sheets (Continued)


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------

                                                                September 30,   December 31,
                                                                    2002            2001
                                                                ------------    ------------
                                                                (Unaudited)
<S>                                                             <C>             <C>
CURRENT LIABILITIES

   Accounts payable                                             $  2,120,416    $  2,693,846
   Accrued expenses                                               10,776,676       9,292,865
   Notes payable - related parties                                 1,379,526       1,315,277
   Notes and convertible debentures payable - current portion      6,815,965       2,894,114
   Deferred revenue                                                       --          35,550
   Liabilities of discontinued operation (Note 9)                         --       3,159,806
                                                                ------------    ------------

     Total Current Liabilities                                    21,092,583      19,391,458
                                                                ------------    ------------

LONG-TERM LIABILITIES

   Notes payable-related parties                                          --          65,000
   Convertible debentures payable, net                             1,472,007       2,293,886
                                                                ------------    ------------

     Total Long-Term Liabilities                                   1,472,007       2,358,886
                                                                ------------    ------------

     Total Liabilities                                            22,564,590      21,750,344
                                                                ------------    ------------
STOCKHOLDERS' EQUITY (DEFICIT)

   Preferred stock: 20,000,000 shares authorized of
    $0.001 par value; no shares outstanding                               --              --
   Common stock: 500,000,000 shares authorized of
    $0.01 par value; 56,182,746 and 38,439,094 shares
    issued and outstanding, respectively                             561,827         384,391
   Additional paid-in capital                                     35,169,137      30,254,067
   Deferred consulting expense and asset acquisition                      --      (1,141,000)
   Other comprehensive income (loss)                                      --         334,549
   Deficit accumulated during the development stage              (57,477,020)    (37,510,434)
                                                                ------------    ------------

     Total Stockholders' Equity (Deficit)                        (21,746,056)     (7,678,427)
                                                                ------------    ------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)                                                 $    818,534    $ 14,071,917
                                                                ============    ============
</TABLE>

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

                                       3
<PAGE>
<TABLE>
<CAPTION>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
               Unaudited Consolidated Statements of Operations and
                           Other Comprehensive Income


                                                                                                         From
                                                For the                        For the               Inception on
                                           Nine Months Ended              Three Months Ended           March 26,
                                             September 30,                   September 30,           1992 Through
                                     ----------------------------    ----------------------------    September 30,
                                         2002            2001            2002            2001            2002
                                     ------------    ------------    ------------    ------------    ------------
<S>                                  <C>             <C>             <C>             <C>             <C>
REVENUES                             $         --    $         --    $         --    $         --    $         --
                                     ------------    ------------    ------------    ------------    ------------
EXPENSES

   General and administrative                  --              --              --              --              --
   Impairment of intangible assets             --              --              --              --              --
   Research and development                    --              --              --              --              --
   Depreciation and amortization               --              --              --              --              --
                                     ------------    ------------    ------------    ------------    ------------
     Total Expenses                            --              --              --              --              --
                                     ------------    ------------    ------------    ------------    ------------
     LOSS FROM OPERATIONS                      --              --              --              --              --
                                     ------------    ------------    ------------    ------------    ------------
OTHER INCOME (EXPENSE)

   Currency gain                               --              --              --              --              --
   Interest income                             --              --              --              --              --
   Loss on sale of assets                      --              --              --              --              --
   Interest expense                    (2,064,603)       (413,646)       (819,530)       (280,794)     (6,986,440)
                                     ------------    ------------    ------------    ------------    ------------

     Total Other Income (Expense)      (2,064,603)       (413,646)       (819,530)       (280,794)     (6,986,440)
                                     ------------    ------------    ------------    ------------    ------------
LOSS BEFORE DISCONTINUED
 OPERATIONS                            (2,064,603)       (413,646)       (819,530)       (280,794)     (6,986,440)

   Gain (Loss) from discontinued
    operations                        (17,901,983)     (7,386,331)        (66,943)     (4,863,661)    (50,490,580)
                                     ------------    ------------    ------------    ------------    ------------

NET LOSS                              (19,966,586)     (7,799,977)       (886,473)     (5,144,455)    (57,477,020)
                                     ------------    ------------    ------------    ------------    ------------
OTHER COMPREHENSIVE INCOME
 (LOSS)

   Currency translation adjustment             --         170,424              --         152,268              --
                                     ------------    ------------    ------------    ------------    ------------

     TOTAL COMPREHENSIVE LOSS        $(19,966,586)   $ (7,629,553)   $   (886,473)   $ (4,992,187)   $(57,477,020)
                                     ============    ============    ============    ============    ============
</TABLE>

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

                                       4
<PAGE>
<TABLE>
<CAPTION>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Unaudited Consolidated Statements of Operations
                   and Other Comprehensive Income (Continued)

                                                   For the                         For the
                                               Nine Months Ended              Three Months Ended
                                                 September 30,                   September 30,
                                         ----------------------------    ----------------------------
                                             2002            2001            2002            2001
                                         ------------    ------------    ------------    ------------
<S>                                      <C>             <C>             <C>             <C>
BASIC AND DILUTED LOSS PER
 SHARE

   Loss before discontinued operations   $      (0.05)   $      (0.01)   $      (0.02)   $      (0.01)
   Discontinued operations                      (0.40)          (0.09)          (0.00)          (0.12)
                                         ------------    ------------    ------------    ------------

     Net loss                            $      (0.45)   $      (0.20)   $      (0.02)   $      (0.13)
                                         ============    ============    ============    ============

WEIGHTED AVERAGE NUMBER
 OF SHARES OUTSTANDING                     43,927,458      38,184,499      53,321,654      38,160,423
                                         ============    ============    ============    ============
</TABLE>

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

                                       5
<PAGE>
<TABLE>
<CAPTION>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
            Consolidated Statements of Stockholders' Equity (Deficit)


                                                                                                       Deferred         Deficit
                                                                                                      Consulting      Accumulated
                                                Common Stock           Additional         Other         Expense       During the
                                        ---------------------------      Paid-In      Comprehensive    and Asset      Development
                                           Shares         Amount         Capital      Income (Loss)   Acquisition        Stage
                                        ------------   ------------   ------------    ------------   ------------    ------------
<S>                                   <C>          <C>            <C>             <C>            <C>             <C>
Balance, December 31, 2000                38,149,942   $    381,499   $ 25,611,288    $    195,258   $   (410,667)   $(20,028,591)

April 23, 2001, common stock issued
for conversion of accounts payable
at $1.50 per share                            50,000            500         74,500              --             --              --

June 8, 2001, common stock issued
for conversion of research advances
at $3.20 per share                           119,152          1,192        380,095              --             --              --

June 29, 2001, common stock issued
for consulting contract at $2.80 per
share                                        120,000          1,200        334,800              --       (334,800)             --

June 29, 2001, warrants granted for
consulting contract                               --             --        302,112              --       (302,112)             --

September 1, 2001, options issued
below market value                                --             --        861,000              --       (861,000)             --

Valuation adjustment and amortization
of deferred compensation                          --             --       (571,112)             --        767,579              --

Warrants issued in connection with
debt obligations                                  --             --      3,261,384              --             --              --

Currency translation adjustment                   --             --             --         139,291             --              --

Net loss for the year ended
December 31, 2001                                 --             --             --              --             --     (17,481,843)
                                        ------------   ------------   ------------    ------------   ------------    ------------

Balance, December 31, 2001                38,439,094        384,391     30,254,067         334,549     (1,141,000)    (37,510,434)

January 8, 2002, common stock
issued for consulting contract
at $1.06 per share (unaudited)               200,000          2,000        210,000              --       (212,000)             --

January 8, 2002, options granted
to employee's below market
valve (unaudited)                                 --             --        180,447              --             --              --

January 8, 2002, options granted
to consultants at fair market value
(unaudited)                                       --             --         90,106              --             --              --

January 8, 2002, common stock
issued for consulting contract at
$1.06 per share (unaudited)                  130,000          1,300        136,500              --       (137,800)             --

January 8, 2002, warrants granted
for consulting contract (unaudited)               --             --        120,000              --       (120,000)             --
                                        ------------   ------------   ------------    ------------   ------------    ------------

Balance forward                           38,769,094   $    387,691   $ 30,991,120    $    334,549   $ (1,610,800)   $(37,510,434)
                                        ------------   ------------   ------------    ------------   ------------    ------------
</TABLE>

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

                                       6
<PAGE>
<TABLE>
<CAPTION>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)


                                                                                                      Deferred          Deficit
                                                                                                     Consulting       Accumulated
                                               Common Stock           Additional          Other        Expense        During the
                                        ---------------------------     Paid-in       Comprehensive   and Asset       Development
                                           Shares         Amount        Capital       Income (Loss)  Acquisition         Stage
                                        ------------   ------------   ------------    ------------   ------------    ------------
<S>                                       <C>          <C>            <C>             <C>            <C>             <C>
Balance forward                           38,769,094   $    387,691   $ 30,991,120    $    334,549   $ (1,610,800)   $(37,510,434)

January 8, 2002, warrants granted
 for technology rights (unaudited)                --             --         84,245              --             --              --

February 7, 2002 options granted
for consulting contract (unaudited)               --             --         79,000              --        (79,000)             --

Revaluation of existing warrants
(unaudited)                                       --             --      1,360,574              --             --              --

February 28, 2002, common stock
issued for conversion of debt to
equity at $1.92 per share
(unaudited)                                  260,270          2,603        497,397              --             --              --

February 28, 2002, common stock
issued for loan default penalty at
$0.75 per share (unaudited)                  150,000          1,500        111,000              --             --              --

April 8, 2002, warrants granted as
 incentive to extend debt payment
 terms (unaudited)                                --             --        671,700              --             --              --

June 14, 2002, options granted for
 consulting contract (unaudited)                  --             --        128,000              --       (128,000)             --

June 14, 2002, common stock issued
 for services at $0.40 per share
 (unaudited)                                 150,000          1,500         58,500              --             --              --

June 21, 2002, common stock issued
 for conversion of convertible
 debentures at $0.15 per share
 (unaudited)                                  85,526            855         12,143              --             --              --

June 25, 2002, common stock issued
 for conversion of convertible
 debentures
 At $0.06 per share (unaudited)              265,625          2,656         14,344              --             --              --

June 26, 2002, common stock issued
 for purchase of Elektryon assets at
 $0.11 per share (unaudited)               3,500,000         35,000        350,000              --       (385,000)             --

June 27, 2002, common stock issued
 for conversion of debt to equity at
 $0.08 per share (unaudited)                 600,000          6,000         42,000              --             --              --

June 28, 2002, common stock issued
 for conversion of convertible
 debentures
 At $0.06 per share (unaudited)              156,250          1,563          8,438              --             --              --

Valuation adjustment and amortization
of deferred compensation (unaudited)              --             --       (243,000)             --      1,327,672              --

Warrants issued in connection with
debt obligations (unaudited)                      --             --        930,065              --             --              --
                                        ------------   ------------   ------------    ------------   ------------    ------------

Balance Forward                           43,936,765   $    439,368   $ 35,095,526    $    334,549   $   (875,128)   $(37,510,434)
                                        ------------   ------------   ------------    ------------   ------------    ------------
</TABLE>

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

                                       7
<PAGE>
<TABLE>
<CAPTION>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
                                                                                                        Deferred         Deficit
                                                                                                       Consulting      Accumulated
                                              Common Stock            Additional         Other           Expense       During the
                                        ---------------------------     Paid-In      Comprehensive      and Asset      Development
                                           Shares         Amount        Capital       Income (Loss)    Acquisition        Stage
                                        ------------   ------------   ------------    ------------    ------------    ------------
<S>                                       <C>          <C>            <C>             <C>             <C>             <C>
Balance Forward                           43,936,765   $    439,368   $ 35,095,526    $    334,549    $   (875,128)   $(37,510,434)

July 1, 2002 common stock issued
 for equity line of credit at $0.026
 per share (unaudited)                       687,500          6,875         10,759              --              --              --

July 1, 2002, warrants granted as
 incentive to extend debt (unaudited)             --             --            259              --              --              --

July 8, 2002, common stock issued for
 equity line of credit at $0.026 per
 share (unaudited)                           287,159          2,872          4,494              --              --              --

July 11, 2002, common stock issued
 for equity line of credit at $0.03
 per share (unaudited)                     1,666,667         16,667         22,917              --              --              --

July 11, 2002, common stock issued
 for conversion of convertible
 debenture at $0.022 per share
 (unaudited)                                 925,926          9,259         10,741              --              --              --

July 15, 2002, common stock issued
 for equity line of credit at $0.03
 per share (unaudited)                       666,667          6,667          6,350              --              --              --

July 22, 2002, common stock issued
 for equity line of credit at $0.012
 per share (unaudited)                     2,521,930         25,218          3,531              --              --              --

July 29, 2002, common stock issued
 for equity line of credit at $0.011
 per share (unaudited)                     1,635,965         16,360          2,290              --              --              --

July 31, 2002, common stock issued
 for conversion of convertible
 debentures at $0.01 per share
 (unaudited)                               3,854,167         38,541         (1,541)             --              --              --

Options granted to employees below
 market (unaudited)                               --             --          5,815              --              --              --

Options granted for consulting
 services (unaudited)                             --             --          7,996              --              --              --

Deferred consulting expensed
 (unaudited)                                      --             --             --              --         875,128              --

Currency translations adjustment
(unaudited)                                       --             --             --        (334,549)             --              --

Net loss for the nine months ended,
September 30, 2002 (unaudited)                    --             --             --              --              --     (19,966,586)
                                        ------------   ------------   ------------    ------------    ------------    ------------
Balance, September 30, 2002
(unaudited)                               56,182,746   $    561,827   $ 35,169,137    $         --    $         --    $(57,477,020)
                                        ============   ============   ============    ============    ============    ============
</TABLE>

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

                                       8
<PAGE>
<TABLE>
<CAPTION>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Unaudited Consolidated Statements of Cash Flows

                                                                                                   From
                                                                                               Inception on
                                                                                                 March 26,
                                                                 For the Nine Months Ended     1992 Through
                                                                       September 30,           September 30,
                                                               ----------------------------    ------------
                                                                   2002            2001            2002
                                                               ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES

   Net loss                                                    $(19,966,586)   $ (7,799,977)   $(57,477,020)
   Adjustments to reconcile net loss to net
    cash used by operating activities:
     Depreciation and amortization                                  429,066         829,216       2,775,039
     Deferred consulting expense                                  1,959,800          98,667       2,486,798
     Value of common stock, warrants, options
      and discounts on equity instruments issued
      for services                                                2,702,309              --       6,505,239
     Loss on sale of assets                                              --              --         387,649
     Amortization of debenture discount and debt issue costs      2,350,152         583,282       4,628,538
     Gain on disposition of debt and write off of subsidiary     (5,762,376)             --      (6,085,539)
     Impairment loss                                             11,615,822              --      12,302,123
     Bad debt expense                                                    --              --              --
   Change in operating asset and liability accounts,
    net of amounts acquired in business combination:
     (Increase) decrease in advances to employees,
      prepaid expenses, deposits and debt offering costs             90,923          32,011      (5,824,904)
     Increase (decrease) in accounts payable                        918,802       1,276,024       5,104,082
     Increase (decrease) in accrued expenses                      4,373,415         278,891      13,752,336
     Increase in deferred revenue                                        --              --          35,550
                                                               ------------    ------------    ------------

       Net Cash Used by Operating Activities                     (1,288,673)     (4,701,886)    (21,410,109)
                                                               ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES

   Cash lost in discontinued operation                               (4,713)             --          (4,713)
   Payments on license agreement                                         --              --        (400,000)
   Cash acquired in Sigma acquisition                                    --              --         142,254
   Proceeds from sale of assets                                          --              --               1
   Purchase of fixed assets                                              --        (310,951)     (1,164,570)
   Equipment procurement costs                                           --              --        (564,110)
                                                               ------------    ------------    ------------

       Net Cash Used by Investing Activities                         (4,713)       (310,951)     (1,991,138)
                                                               ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES

   Proceeds from notes payable                                      371,000       3,600,000       4,771,000
   Repayment of related party notes payable                          (5,250)        (81,805)     (1,640,226)
   Repayment of notes payable                                            --        (346,517)     (1,519,062)
   Loans from related parties                                        11,500              --       7,462,787
   Issuance of convertible debentures                               650,000              --       3,100,000
   Common stock issued for cash                                     125,000              --      11,256,032
   Stock offering costs                                                  --              --         (26,289)
                                                               ------------    ------------    ------------

       Net Cash Provided by Financing Activities                  1,152,250       3,171,678      23,404,242
                                                               ------------    ------------    ------------
</TABLE>

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

                                       9
<PAGE>
<TABLE>
<CAPTION>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                Consolidated Statements of Cash Flows (Continued)

                                                                                                    From
                                                                                                Inception on
                                                                For the Nine Months Ended         March 26,
                                                                      September 30,             1992 Through
                                                               ----------------------------     September 30,
                                                                   2002            2001             2002
                                                               ------------    ------------    ------------
<S>                                                            <C>             <C>             <C>
NET INCREASE (DECREASE) IN CASH                                $   (141,136)   $ (1,841,159)   $      2,995

CASH AT BEGINNING OF PERIOD                                         144,131       2,176,299              --
                                                               ------------    ------------    ------------

CASH AT END OF PERIOD                                          $      2,995    $    335,140    $      2,995
                                                               ============    ============    ============

CASH PAID FOR:

  Interest                                                     $         --    $     68,459    $     81,405
  Income taxes                                                 $         --    $         --    $         --

NON-CASH FINANCING ACTIVITIES

  Value of common stock, warrants, options and
   discounts on equity instruments issued for services         $  2,702,309    $         --    $  6,505,239
  Equity instruments issued for deferred consulting
   expense/asset acquisition                                   $    818,800    $    672,000    $  1,558,800
  Common stock issued for recapitalization                     $         --    $         --    $  2,761,773
  Common stock issued for conversion of debt                   $    106,000    $    456,287    $  3,069,511
  Acquisition of licenses through license agreement
   Payable                                                     $         --    $         --    $  6,940,000
  Warrants granted in conjunction with debt instruments        $    717,149    $         --    $  3,978,535
</TABLE>

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

                                       10
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)


NOTE 1 - BASIS OF FINANCIAL STATEMENT PRESENTATION

         The accompanying  unaudited condensed consolidated financial statements
         have been prepared by the Company pursuant to the rules and regulations
         of the  Securities and Exchange  Commission.  Certain  information  and
         footnote disclosures normally included in financial statements prepared
         in accordance with generally accepted  accounting  principles have been
         condensed or omitted in accordance with such rules and regulations. The
         information furnished in the interim condensed  consolidated  financial
         statements  includes  normal  recurring  adjustments  and  reflects all
         adjustments,  which, in the opinion of management,  are necessary for a
         fair  presentation of such financial  statements.  Although  management
         believes the disclosures and information presented are adequate to make
         the  information  not  misleading,  it is suggested  that these interim
         condensed consolidated financial statements be read in conjunction with
         the  Company's  most  recent  audited  financial  statements  and notes
         thereto included in its December 31, 2001 Annual Report on Form 10-KSB.
         Operating  results for the nine months ended September 30, 2002 are not
         necessarily indicative of the results that may be expected for the year
         ending December 31, 2002.

         On December  1, 2002,  the Company  filed a  voluntary  petition  under
         Chapter 11 of the  bankruptcy  code with the United  States  Bankruptcy
         Court  Southern  District of New York.  See Note 10 for the  discussion
         regarding the bankruptcy filing.

NOTE 2 - PATENTS AND LICENSING AGREEMENT

         The Company's patents and license agreement  consisted of the following
         at September 30, 2002 and December 31, 2001:
<TABLE>
<CAPTION>

                                                           September 30,     December 31,
                                                               2002             2001
                                                           ------------     ------------
                                                           (Unaudited)
<S>                                                        <C>              <C>
              Licensing Agreement - Aquamax and Keeran     $  6,540,000     $  6,540,000
              Licensing Agreement - STM                       2,000,000          500,000
              Accumulated amortization                       (8,540,000)      (1,364,850)
                                                           ------------     ------------
                                                           $         --     $  5,675,150
                                                           ============     ============
</TABLE>

         As part of the purchase of Sigma (Note 3), the Company acquired patents
         valued at their fair value of $1,006,670, adjusted for foreign currency
         fluctuations since the date of purchase.  The patents have an estimated
         remaining  life of 90 months  from the date of Sigma  acquisition.  See
         also  Note  9  for  a  discussion  about  the  Sigma  operations  being
         discontinued.  The patents at their net value of $719,421  are included
         in net assets of discontinued operations. The license agreement relates
         to rights to patents and patent  applications  pertaining to technology
         acquired  from  Aquamax  and Keeran  (Note 7). The cost of the  license
         agreement  was being  amortized  over its  estimated  useful life of 10
         years.  Because of the Company's  cash flow  shortages  and  subsequent
         bankruptcy  filing,  the  Company  recorded   amortization  expense  of
         $163,500  and  elected to record an  impairment  expense of  $5,348,150
         associated  with the  remaining  value of the Aquamax and Keeran rights
         and technology during the nine months ended September 30, 2002.

                                       11
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 3 - BUSINESS COMBINATION

         In August 2000, the Company acquired SIGMA  Elektroteknisk,  AS (SIGMA)
         by  exchanging  1,718,748  shares  of its  common  stock for all of the
         common stock of SIGMA.  The acquisition was accounted for as a purchase
         in accordance with APB 16, "Business  Combinations."  The excess of the
         total  acquisition  cost over the fair value of the net assets acquired
         of $6,589,756 was being  amortized  over 10 years by the  straight-line
         method.  Amortization  expense  amounted to $-0- and  $329,488  for the
         three months ended September 30, 2002 and 2001, respectively.

         Because  of the  adoption  of SFAS No.  142,  the  Company is no longer
         amoritizing the goodwill generated from the purchase of Sigma.  Instead
         the  goodwill  is  subject  to  impairment  testing.   Because  of  the
         bankruptcy  of Sigma as  discussed  in Note 9, the Company  recorded an
         impairment  of  goodwill of  $5,656,207  which is part of the loss from
         discontinued operations.

NOTE 4 - NOTES AND DEBENTURES PAYABLE

         During the quarter ended June 30, 2002,  the Company  received  $80,000
         from the issuance of notes payable to various  individuals.  All of the
         notes  bear  interest  at  12.00%,  are  unsecured  and due on  demand.
         Additionally,  a creditor of the Company converted $542,717 in accounts
         payable to a note payable, the note bears interest at 10% per annum, is
         unsecured and due upon demand.

         During the quarter ended June 30, 2002,  the Company  received  $11,500
         from the  issuance  of notes  payable to a related  party.  The note is
         non-interest bearing,  unsecured and due on demand.  Additionally,  the
         Company repaid $5,250 on a note payable to a related party.

         During the quarter ended June 30, 2002, the Company  received  $100,000
         from  the  issuance  of  a  convertible  debenture.  The  debenture  is
         convertible  at a price of $0.65 per share for a period of five  years,
         bears interest at 12.00%, is unsecured and is due 5 years from the date
         of issue. As additional  consideration  for $100,000 of the convertible
         debenture  payable,  the Company  granted  warrants to acquire  769,231
         shares of common stock at an exercise  price of $0.65 per share with an
         expiration  date 5 years  from the date of  grant.  The  warrants  were
         valued at $676,923  pursuant to the  Black-Scholes  pricing model.  The
         proceeds were allocated between debt and additional  paid-in capital in
         proportion to the relative fair value of the debt and equity  (warrants
         and beneficial  conversion  rights)  elements of the  transaction.  The
         portion allocated to equity was $100,000 or 100%.

         During the  quarter  ended  June 30,  2002,  a holder of a  convertible
         debenture elected to convert $40,000 in principle for 507,401 shares of
         common stock at a rate equal to 80% of the lowest  closing bid price of
         the  Company's  common  stock  for the five  trading  days  immediately
         proceeding the conversion date.

         During the quarter  ended  September  30,  2002,  the Company  received
         $135,000 from the issuance of notes payable to various individuals. The
         interest  rates vary from 12% to 15%.  One is due June 24, 2003 and the
         remainder  of the  notes  are due on  demand.  They are all  unsecured.
         Additionally,  the Company repaid $7,000 on a note payable to a related
         party.

         During the quarter ended  September 30, 2002, a holder of a convertible
         debenture  elected to convert $57,000 in principle for 4,780,093 shares
         of common stock at a rate of 80% of the lowest closing bid price of the
         Company's common stock for the five trading days immediately proceeding
         the conversion date.

                                       12
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 4 - NOTES AND DEBENTURES PAYABLE (Continued)

         During the quarter  ended  September  30,  2002,  the Company  received
         $125,000 in advances  on the Equity Line of Credit,  which  resulted in
         the issuance of  7,465,888  shares of common stock based upon a rate of
         95% of the  lowest  closing  bid price of the  Company's  common  stock
         during the respective pricing periods.

NOTE 5 - ACCRUED EXPENSES
<TABLE>
<CAPTION>

         The Company's accrued expenses are comprised of the following items:

                                                      September 30,    December 31,
                                                          2002            2001
                                                      ------------    ------------
                                                      (Unaudited)
<S>                                                   <C>             <C>
         Accrued payroll taxes payable                $     60,266    $         --
         Accrued interest payable - payroll                 52,717          52,717
         Accrued payroll tax penalty                        98,845          98,845
         Accrued franchise taxes payable                   100,274          97,828
         Accrued payroll payable                         1,712,957              --
         Accrued vacation payable                               --         127,142
         Accrued other expenses                                 --          15,149
         Aquamax/Keeran contingency accrual              1,131,000         934,800
         Aquamax/Keeran license fee payable              3,600,000       6,540,000
         Accrued STM license fee payable                 2,000,000         500,000
         Accrued deferred compensation - Moard             143,516         115,824
         Accrued legal settlement - Mchargue                63,400          63,400
         Accrued interest payable                        1,778,151         747,160
         Due to Eprisolutions                               35,550              --
                                                      ------------    ------------

                     Total                            $ 10,776,676    $  9,292,865
                                                      ============    ============
</TABLE>

NOTE 6 - GOING CONCERN

         The  Company's  financial   statements  are  prepared  using  generally
         accepted  accounting  principles  applicable  to a going  concern which
         contemplates  the  realization of assets and liquidation of liabilities
         in  the  normal  course  of  business.  The  Company  has  had  limited
         activities  since  inception  and is  considered  a  development  stage
         company  because it has no operating  revenues,  and planned  principal
         operations have not yet commenced.

         The Company has incurred  losses from its inception  through  September
         30, 2002 of  approximately  $57,477,020.  The Company  does not have an
         established  source of funds  sufficient to cover its operating  costs,
         has a working capital deficit of approximately $20,722,000,  has relied
         exclusively on debt and equity  financing.  Additionally  the Company's
         wholly-owned  subsidiary  Sigma was forced into  bankruptcy  because of
         non-payment  of employee  salaries.  Accordingly,  there is substantial
         doubt about its ability to continue as a going concern.

                                       13

<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 6 - GOING CONCERN (Continued)

         In October of 2006,  the Company  signed a term sheet with a company to
         sponsor a plan of reorganization.  Prior to confirmation of the Chapter
         11 plan of  reorganization,  the plan  sponsor  will  identify a merger
         candidate  to be merged  into the  Company.  Before the merger can take
         place,  the Company is required to bring all of its financial,  tax and
         SEC filings  current from the last filing date of 6/30/02.  Pursuant to
         orders of the United States  Bankruptcy Court for the Southern District
         of New York,  the  Company has engaged  accountants,  auditors  and SEC
         counsel to complete  this task.  Under the terms of the proposed  plan,
         creditors  of the  Company  will  receive  a  cash  payment  and  stock
         consideration   in  the   new   merged   entity.   The   aforementioned
         consideration will be distributed to creditors of the Company under the
         plan of reorganization.

         The ability of the Company to continue as a going  concern is dependent
         upon its ability to  successfully  accomplish the plan described in the
         preceding  paragraph and eventually attain profitable  operations.  The
         accompanying  consolidated  financial  statements  do not  include  any
         adjustments  that  might be  necessary  if the  Company  is  unable  to
         continue as a going concern.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

         a.       Consulting Agreements

         During January 2000, the Company  entered into a three-year  consulting
         agreement with Clement J. Wohlreich to receive financial, marketing and
         management  services.  The  agreement  called for the  Company to issue
         100,000  units,  each  consisting of one share of the Company's  common
         stock and one  attached  warrant  granting the right for three years to
         purchase one share of common stock for an exercise  price of $1.50.  As
         the agreement  provided for issuance of the units upon  commencement of
         services,  the Company  accrued a  liability  and  deferred  consulting
         expense as a reduction  of  shareholders'  equity in an amount equal to
         the value of the  common  stock and  warrant  at the  inception  of the
         agreement.

         The  liability  was  converted to equity upon issuance of the units and
         the value of the stock and warrants  will be expensed  over the term of
         the agreement  upon  completion  of services each quarter.  Pursuant to
         EITF 96-18, "Accounting For Equity Instruments That Are Issued To Other
         Than Employees For Acquiring Or In Conjunction  With Selling,  Goods Or
         Services",  the Company  will  continue to revalue the  warrants  until
         earned upon completion of services.  At January 1, 2000, the consulting
         agreement was valued at  $1,500,000,  representing  the market value of
         100,000 shares of the Company's common stock and 100,000  warrants.  As
         of December 31, 2000, the  consulting  contract was valued at $740,000,
         representing the 100,000 shares of common stock issued on July 25, 2000
         at the then  trading  price of $4.00  per  share  and the  value of the
         warrants at December 31, 2000 of $340,000,  as  determined by the Black
         Scholes pricing model.

         For the year  ended  December  31,  2000,  the  Company  had  amortized
         $279,334 of the  contract,  leaving a remaining  balance of $410,667 at
         December  31, 2000 which is included  as a reduction  of  stockholders'
         equity.  At December 31, 2001, the remaining balance was $152,166 which
         is included as a reduction of stockholders  equity.  As a result of the
         bankruptcy the Company is no longer receiving  services from Clement J.
         Wohlreich.  At September 30, 2002,  the remaining  balance was expensed
         and is no longer a reduction of stockholders' equity.

                                       14
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

         a.       Consulting Agreements (Continued)

         During  June 2001,  the  Company  entered  into a  two-year  consulting
         agreement   with  Gene  Martineau  to  receive   services   related  to
         interfacing  with  institutional  investors  and brokerage  firms.  The
         Company  issued  120,000  shares of common  stock and  granted  120,000
         warrants  exercisable  for two years at $1.50.  Pursuant to EITF 96-18,
         "Accounting  For  Equity  Instruments  that Are  Issued  To Other  Than
         Employees  For  Acquiring  Or In  Conjunction  With  Selling,  Goods or
         Services",  the Company  will  continue to revalue the  warrants  until
         earned upon  completion  of  services.  The  unamortized  fair value at
         December  31, 2001 was  $271,833  which is  included as a reduction  of
         stockholders  equity.  As a result of the  bankruptcy the Company is no
         longer receiving services from Gene Martineau. The unamortized value at
         September  30, 2002 was  expensed and is not included as a reduction of
         stockholders' equity.

         On June 20, 2001, the Company (through its subsidiary Powerco US, Inc.)
         entered into an employment  agreement with David Moard (Moard)  wherein
         Moard  would  serve  as the  president  of the  Powerco.  Terms  of the
         agreement are as follows:  (1) Moard's base salary will be $240,000 per
         year with the first and second years  salary  being  deferred to future
         years,(later amended to deferring $60,000 per year starting November 1,
         2001) and (2) Moard was granted  820,000 stock options  exercisable  at
         $1.50 per share of which 260,000 vest in year one, 360,000 vest in year
         two and 200,000  vest in year three.  The  employment  agreement  is in
         effect for three  years.  The Company has  accrued  wages of  $115,824,
         which represents the deferred salary through December 31, 2001, and has
         expensed $270,593, which represents amortization of the intrinsic value
         of the stock  options as well as the payroll  expense.  At December 31,
         2001, the unamortized  intrinsic value of the stock options amounted to
         $717,000,  which  is  included  as an  offset  to  equity  as  deferred
         compensation  expense and will be amortized  over the vesting period of
         the options. At September 30, 2002, the unamortized  intrinsic value of
         the stock  options was $-0- because the Company fully vested all of the
         options.

         The Company laid off David Moard on July 31,  2002.  At the time of the
         lay-off, Mr. Moard had accrued payroll, paid time off and vacation time
         in the amount of $235,947 and accrued expenses of $6,993 for a total of
         $242,940  and has an  unsecured  priority  claim for that amount in the
         bankruptcy.

         b.       Options for Consulting Services

         On February 7, 2002, the Company  entered into a three year  consulting
         agreement  for  assistance  in  preparing  material  to be used in fund
         raising activities,  and business development  activities as well as to
         introduce the Company to potential strategic partners and investors. In
         consideration  for the consulting  services,  the Company has agreed to
         grant  100,000  options  with an exercise  price  $1.10 per share.  The
         options have a three year life.

         The unamortized  portion of the deferred  compensation at September 30,
         2002 was zero as the entire amount was expensed  during the nine months
         ended September 30, 2002.

                                       15
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

         c.       Extension of Consulting Agreement

         On January 8, 2002,  pursuant to an Extension and  Expansion  Agreement
         with  Weckstein,  the Company  extended the  consulting  agreement with
         Weckstein for a minimum  period of nine months and up to three years at
         the option of the Company.  As  compensation  for this  extension,  the
         Company has issued to Weckstein  200,000  shares of common stock valued
         at  $1.06  per  share.   The   unamortized   portion  of  the  deferred
         compensation at September 30, 2002 was $-0-.

         On June 14, 2002, the Company  extended the  consulting  agreement with
         Weckstein for a period of one year from June 30, 2002. As  compensation
         for this extension, the Company has issued to Weckstein 400,000 options
         with an  exercise  price of $0.40 per  share.  On August 1,  2002,  the
         exercise  price of these  options was changed to $0.05 per share.  This
         change did not result in an increase to the related expense  previously
         recognized.  The  unamortized  portion of the deferred  compensation at
         September  30,  2002 was zero and is not  included  as a  reduction  of
         stockholders' equity.

         d.       Investor Relations Agreement

         On January 8, 2002,  the Board of Directors  authorized  management  to
         execute a consulting agreement with Synergy International Partners S.A.
         (Synergy).  Synergy  will  provide  investor  relations  consulting  in
         Europe.  As payment  for the  consulting  agreement,  the  Company  has
         authorized  the issuance of 130,000  shares of common stock and 300,000
         warrants with an exercise  price of $1.25 per share for the term of the
         agreement.

         The unamortized  portion of the deferred  compensation at September 30,
         2002 was zero as the full amount has been expensed.

         e.       License Agreements

         STM
         ---

         During April 2000, the Company entered into a licensing  agreement with
         STM  to  obtain   exclusive  rights  to  STM  patented  and  unpatented
         technology related to Stirling cycle heat engines. The agreement is for
         thirty years and calls for annual payments.  The payment due in each of
         the next three  years is set and is open for  negotiation  after  three
         years.

                        Year                                   Amount
                        ----                               ------------
                        2002                               $  1,500,000
                        2003                                  2,000,000
                        2004                                  3,000,000
                                                           ------------
                                                           $  6,500,000
                                                           ============

         The Company paid an initial  amount of $500,000 that was amortized over
         twelve months.  The second annual payment in the amount of $500,000 was
         due and  payable on April 20,  2001 and the third  payment  was due and
         payable on April 20,  2002.  The  Company  defaulted  on the second and
         third  annual  payments and under the terms of the  contract,  lost the
         exclusive  rights to the  Technology,  but has retained the rights on a
         non  exclusive  basis.  Due to this  default and the  inability  of the
         Company to raise sufficient capital to develop the Company's  products,
         the  technology  was deemed to be impaired as of September 23, 2001, or
         60 days after  notification  of default.  As of September 30, 2002, the
         Company has recognized a payable in the amount of $2,000,000,

                                       16
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

         e.       License Agreements (Continued)

         STM (Continued)
         ---------------

         amortization  expense in the amount of $213,670 and loss on  impairment
         in the amount of $1,786,330.  As a result of the bankruptcy filing, STM
         has a general unsecured claim in the bankruptcy for $2,000,000.

         AQUAMAX/KEERAN
         --------------

         During  September  2000, the Company  entered into a worldwide  license
         agreement (License Agreement) with Aquamax  International  Holdings, BV
         of the  Netherlands and Keeran  Corporation NV, a Netherlands  Antilles
         Corporation  (Licensors) for their issued and pending patents and other
         intellectual  property  rights  relating  to the  use of  plastic  heat
         exchangers for the distillation of seawater. The scope of this license,
         and thus the  authorized  "field  of use," is for the  distillation  of
         portable water from naturally  occurring  saline water in units of 1000
         cubic meters per day or larger.

         The  basic  terms  of this  License  Agreement  provide  a grant to the
         Company of an exclusive  right to sell products  within the above field
         of  use,   utilizing  (i)  over  60  issued  and  pending  patents  and
         improvements  (as defined in the  License  Agreement)  on such  patents
         owned by the  Licensors,  and (ii) issued and pending  patents owned by
         third  parties  to which the  Licensors  have  licensed  rights,  which
         consist of an international  patent  application  (which is expected to
         result in identical  patents covering the identical  invention in eight
         different   countries)   owned  by  Hadwaco   Oy,  a  Finnish   company
         ("Hadwaco"), under which the Licensors have a license. The Company also
         granted Aquamax and Keeran certain  exclusive rights in its technology.
         In exchange,  the Company  will  receive 50% of any license  royalty or
         amounts of a similar nature they receive from third parties.

         Under the terms of the License  Agreement,  the Company agreed to pay a
         total of  $4,000,000  and  600,000  shares of its common  stock for the
         rights under the License Agreement under a payment schedule  contingent
         on various  factors as to timing but to be no later than  December  31,
         2000.  The Company has paid $400,000 and has issued  600,000  shares of
         common stock to the Licensors.

         The remaining amount payable under the License Agreement was $6,540,000
         at September 30, 2000,  which  consisted of $3,600,000  payable in cash
         and  $2,940,000  payable  in common  stock  (representing  the value of
         600,000 shares of common stock to be issued, valued at the market value
         of shares of the Company's common stock as of the effective date of the
         transaction,  September 21, 2000),  and has been accrued as a liability
         and  included in the amount  recorded as a  licensing  agreement  asset
         along with the $400,000 paid in cash, and  $2,940,000  paid through the
         issuance  of  common  stock.  The  asset,  with  a cost  of  $6,940,000
         ($6,540,000  after an  impairment  adjustment  of  $400,000),  has been
         amortized  over  its  estimated  useful  life of ten  years  using  the
         straight-line method.

         The license  agreement  was signed by the  Company  and  Aquamax/Keeran
         representatives  as of  September  21,  2000,  but because of questions
         raised  as  to  the  identity  and  authority  of  one   Aquamax/Keeran
         signatory,  an exhibit was added to the agreement solely to clarify the
         matter. Revised signature pages (signed by the original  Aquamax/Keeran
         parties and dated on the original September signing date) were extended
         on October 2, 2000. The transaction was originally  recorded in October
         2000 in the belief that, until properly  executed  signature pages were
         received,  it was  not  effective.  Based  on our  reassessment  of the
         circumstances,  we have determined that the agreement became binding on
         September 21, 2000.

                                       17
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

         e.       License Agreements (Continued)

         AQUAMAX/KEERAN (Continued)
         --------------

         Therefore,  the September 30, 2000 financial statements were amended to
         reflect the  transaction as occurring in September 2000. The key points
         leading to the change in the  Company's  position  as to the  effective
         date  were:  (1)  although  the  name and  title of the  representative
         signing  on behalf  of Keeran  Corporation  were not  disclosed  on the
         signature page or accompanying documents, the signature was an original
         and the signer had actual authority from Keeran  Corporation to execute
         the  agreement;  (2)  original  signature  pages for all  parties  were
         exchanged  in  September  2000  with  the  intent  to be  bound  by the
         agreement;  (3) the  re-execution  of the  signature  page on behalf of
         Keeran  Corporation  was by the same  person and was dated by him as of
         the original signing date, which  presumably  demonstrates  that Keeran
         Corporation  believed  that  the  agreement  was  effective  as of  the
         original signature date; and (4)  notwithstanding the position taken at
         the time by the  Company's  intellectual  property  attorney,  that the
         agreement  was not  effective  until  the  revised  signature  page was
         received,  the Company had wire  transferred the additional  payment of
         $300,000 due under the  agreement to  Aquamax/Keeran  on September  30,
         2000,  prior to receipt of the revised  signature page. On the basis of
         these facts, the Company has concluded that the better view is that the
         agreement  became  legally  binding  on all  parties  during the third,
         rather than the fourth, quarter of 2000.  Accordingly,  the transaction
         has been accounted for as occurring in September  2000. The measurement
         date, for purposes of valuing shares of the Company's  common stock due
         as part of the purchase price that is included in the accrued liability
         is as of  September  21,  2000,  because  the  effective  date  of  the
         agreement  is the date  the  rights  to the  patented  technology  were
         transferred to the Company.

         The  License  Agreement  provided  that all  technology  covered by the
         Agreement  was to be  exclusive  within  the  specified  field  of use.
         Subsequent  to the  execution of the License  Agreement and the initial
         payments to the Licensors,  the Company  discovered  that the Licensors
         rights to Hadwaco's  patent  application  that was  sub-licensed to the
         Company  pursuant  to the  License  Agreement,  was  not  an  exclusive
         license,  as was  represented  and  warranted by the Licensors but was,
         rather,  a  non-exclusive  license.  As a result,  the Company served a
         notice  of  default  under the terms of the  License  Agreement  on the
         Licensors  on  December  22,  2000.  The Company  demanded  arbitration
         pursuant  to the  License  Agreement  to  determine  the  value  of the
         technology,  which the  Licensors  agreed to  license  on an  exclusive
         basis, but actually  licensed on a non-exclusive  basis.  Consequently,
         the value of the licensed technology is diminished due to the fact that
         Hadwaco is free, contrary to the Licensors'  original  representations,
         to license the same  technology to third  parties for its  (potentially
         competitive) use.

                                       18
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

         e.       License Agreements (Continued)

         AQUAMAX/KEERAN (Continued)
         --------------

         The full purchase  price has been recorded as a liability and offset by
         the  $400,000  and  $2,940,000  paid to date.  The full  amount  of the
         liability  was  recorded  (without  offset for  potential  reduction in
         resolution  of  the  Hadwaco  sublicense  dispute)  because  management
         believes that:  (1) based on the oral opinion of the Company's  General
         Counsel,  the full  amount  of the  liability,  until  amended  through
         negotiation  or legal process,  represents an enforceable  liability as
         long as the  Company  retains  the  patent  rights  conveyed  under the
         agreement;  (2) the  liability  meets the  accounting  definition  of a
         liability as stated in Statement of Financial  Accounting  Concepts No.
         6,  Elements of  Financial  Statements;  and (3) the  reduction  of the
         liability to  anticipate a reduction in  negotiations  or legal process
         would result in recording a contingent asset that is prohibited by SFAS
         No. 5,  Accounting for  Contingencies.  Accordingly,  since the Company
         intends  to keep the  patent  rights,  the  Company  has  recorded  the
         liability,  and related asset, because under the terms of the agreement
         the Company has no discretion to avoid future  payment of the remaining
         cash and  common  stock  payable.  The  amount  of  payment  under  the
         agreement withheld pending resolution of the dispute was not indicative
         of the diminished  value of the patent rights received as the Company's
         management  has estimated that  approximately  $400,000 of the purchase
         price represents the value of the exclusivity feature of the one patent
         that  was not  received.  The  failure  of  Aquamax/Keeran  to  deliver
         exclusive  rights to all patents  resulted in a condition of default by
         Aquamax/Keeran.   Aquamax/Keeran   has  asserted   that  the  Company's
         subsequent withholding of payment resulted in a condition of default by
         the Company.

         The  Company   has   demanded   arbitration   of  this   dispute   with
         Aquamax/Keeran   as   contemplated  in  the  license   agreement.   The
         arbitration  procedures  have  not  commenced  while  the  Company  and
         Licensors   have  been   involved  in  settlement   negotiations.   The
         negotiations  resulted in the  execution  by both  parties,  as well as
         Hadwaco Ltd. Oy and Hackman Oy Abp, of a  non-binding  Letter of Intent
         (LOI).  The LOI was  executed by the various  parties  between June 15,
         2001 and June 20, 2001.  Contemporaneously,  the Company entered into a
         related non-binding Letter of Intent with Hadwaco Ltd Oy and Hackman Oy
         Abp. The agreement of the parties, as memorialized in both LOIs, was as
         follows:  The  Company  would form a new  company  (Newco) in  Finland.
         Because it would  control  Newco,  the Company's  financial  statements
         would  report its  investment  in Newco on a  consolidated  basis.  The
         Company would immediately  provide Newco with enough working capital to
         purchase  from  Hadwaco  its  existing  and ongoing  water  remediation
         business, including all related intellectual property. The intellectual
         property  transferred to Newco would include technology,  which Hadwaco
         has licensed to Aquamax/Keeran and which is the source of the Company's
         dispute with Aquamax/Keeran.

                                       19
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES

         e.       License Agreements (Continued)

         AQUAMAX/KEERAN (Continued)
         --------------

         In July 2001, the aforementioned negotiations resulted in the execution
         by  Aquamax/Keeran  and the  Company,  as well as Hadwaco  Ltd.  Oy and
         Hackman Oy Abp, of agreements which would have, if closing had occurred
         as   stipulated,   resolved   the  dispute   between  the  Company  and
         Aquamax/Keeran.  The  Agreements  provided  that the Company would make
         payments to  Aquamax/Keeran of $1,800,000 in cash and 600,000 shares of
         common  stock on or before  September  28,  2001,  in  addition  to the
         $400,000 already paid to Aquamax/Keeran,  in exchange for ownership (as
         opposed  to  licenses  as  provided  in  the  September   2000  License
         Agreement) of all the Aquamax/Keeran technology in any way connected to
         water  treatment.  The agreements  also provided that the Company would
         grant back to Aquamax/Keeran an exclusive, worldwide license to exploit
         Newco's water desalination technology for applications where the volume
         of water processed is less than 1,000 cubic meters per day. The license
         back of rights to Aquamax/Keeran was to be exclusive for a term of five
         years  and  non-exclusive  thereafter.  The  agreements  also  included
         release of liability provisions, whereby all parties would release each
         other of and from all claims and liabilities,  including the amount due
         in connection  with the Company's  obligation  under the September 2000
         License  Agreement as well as the Company's claim for a price reduction
         due to the  non-exclusivity of the Hadwaco license.  Contemporaneously,
         the Company  entered into agreements with Hadwaco Ltd Oy and Hackman Oy
         Abp (Hadwaco). The agreement of the parties was as follows: The Company
         was to  form a new  company  (Newco)  in  Finland.  The  Company  would
         immediately  provide  Newco with  $1,500,000 to purchase from Hadwaco a
         100%  interest in  Hadwaco's  existing  and ongoing  water  remediation
         business, including all related intellectual property. Newco's purchase
         price for  Hadwaco's  water  remediation  business was to be $1,500,000
         plus a 19% interest in Newco's common stock. The Company was to provide
         senior debt funding up to a principle  aggregate  amount of  $7,500,000
         over a period of three  years from the date of  closing of the  Hadwaco
         purchase.

         On August 29, 2001, the Company  entered into an agreement with Aquamax
         (International)    Holdings   B.V.   and   Keeran    Corporation   N.V.
         ("Aquamax/Keeran")  to extend  the  deadline  for  consummation  of the
         transactions  set forth in the  agreement  executed on July 20, 2001 by
         and among Aquamax/Keeran,  Balantum Oy and the Company. As amended, the
         closing of the transaction  shall occur on the earlier of September 28,
         2001 or the first  practically  possible day after the Company  becomes
         listed on the Nasdaq OTC Bulletin Board. Additionally, after August 31,
         2001,  the  Company  shall  take  responsibility  for  paying  for  the
         processing and  maintenance of patents and patent  applications,  which
         shall be  transferred  to Balantum Oy pursuant to the terms of the July
         20, 2001 agreement.

         In connection with the extension agreement, the Company has assumed the
         obligation of  Aquamax/Keeran to compensate a finder in connection with
         the transactions  between  Aquamax/Keeran  and the Company an amount of
         $43,050 and 20,000 shares of the Company's common stock.

                                       20
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

         e.       License Agreements (Continued)

         AQUAMAX/KEERAN (Continued)
         --------------

         Because its  agreements  with  Hadwaco  Ltd. Oy and Hackman Oy Abp were
         non-binding,  the  Company  does not  believe  that it has a  liability
         arising  out of its  failure to  complete  the  transactions  described
         above,  other than the loss of  amounts  the  Company  agreed to pay in
         connection with obtaining  extensions of the agreements.  In connection
         with its dispute with Aquamax/Keeran, the Company still believes it has
         the right to a  purchase  price  reduction  because  of the  failure of
         Aquamax/Keeran  to deliver  exclusive rights to all of the patents and,
         while no claim has been  asserted,  might be subject to a damage  claim
         related to the Company's  withholding of payment on the  Aquamax/Keeran
         license  agreement.  The Company has  recorded  expenses of  $1,131,000
         related to the costs of the terminated  agreements with Hadwaco/Hackman
         and the  possible  costs  associated  with the  Aquamax/Keeran  license
         agreement dispute.

         On June 27, 2002,  the Company  issued  600,000 shares as stipulated in
         the  acquisition  agreement.  At the date of  issuance,  the  Company's
         common  stock  closed  at $0.08  per  share.  Accordingly  the  Company
         recorded the issuance as a reduction of the Aquamax/Keeran liability of
         $48,000 and a gain on  extinguishment of debt of $2,892,000 as required
         by APB No. 29 "Accounting for Non Monetary  Transactions".  The Company
         recorded an  impairment  loss of  $5,348,150  to write the value of the
         asset  down to zero  because of the  uncertainty  of being able to fund
         future development of the technology.

         The Company,  as a  debtor-in-possession  in its Chapter 11  bankruptcy
         case,  determined,  in the  exercise  of its  business  judgment,  that
         neither  the  Licensing  Agreement  nor  the  Licensed  Technology  was
         required  for  the  operation  of the  Company's  business  or for  its
         reorganization efforts.  Accordingly,  upon application by the Company,
         the United States  Bankruptcy  Court so-ordered a Stipulation and Order
         Providing for the Rejection of the Executory Contract/License Agreement
         with Aquamax/Keeran,  pursuant to section 365 of the Bankruptcy Code on
         June 12,  2003.  Aquamax/Keeran  has a general  unsecured  claim in the
         bankruptcy for $3,600,000.

         In addition,  the Company  determined,  in the exercise of its business
         judgment,  to reject  the  transaction  contemplated  in the  Letter of
         Intent  executed by the  Company,  Aquamax/Keeran,  Hadwaco Ltd. Oy and
         Hackman Oy Abp prior to the Company's  bankruptcy  filing.  On June 12,
         2003, the United States  Bankruptcy  Court so-ordered a Stipulation and
         Order Providing for the Rejection of the Executory  Contract/Letter  of
         Intent pursuant to section 365 of the Bankruptcy Code.

                                       21
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

         e.       License Agreements (Continued)

         Science Applications International Corporation (SAIC)
         -----------------------------------------------------

         Effective  April 4, 2001,  the  Company  signed a  Technology  License,
         Consulting  Services,  and Asset Purchase Agreement with SAIC. Terms of
         the  agreement  are as  follows:  SAIC  will  grant  to the  Company  a
         non-exclusive   royalty-bearing   right  and  license  under  the  SAIC
         Technology to make, use,  import,  offer to sell, and sell  components,
         sub-assemblies or systems for concentrating solar energy  incorporating
         SAIC  Technology  in the  United  States  and  Canada.  The term of the
         agreement will continue until the date of the expiration of the last of
         the SAIC  Patents.  The  Company's  obligation  to pay  royalties  will
         continue  until the sooner of either 30 years or the  expiration of the
         last SAIC patent.  SAIC will have the right to terminate this agreement
         if the  Company  has  failed  to  fund  the  $4,000,000  in  SAIC  dish
         development  in two  years or to timely  make any  royalty  or  minimum
         royalty  payment,  SAIC  shall  also have the right to  terminate  this
         agreement or  renegotiate  the royalty of this agreement if the Company
         has  failed to deliver  equity in a new  business  entity to SAIC.  The
         Company will be obligated to pay the following  royalties  based on the
         net  selling  price of any  licensed  product  in  accordance  with the
         following schedule:  (a) Three percent of the set selling price for all
         sales made during the royalty term until after the cumulative  total of
         royalties exceeds $100,000, (b) Two and One-Half percent of net selling
         price for all sales made during the royalty  term after the  cumulative
         total paid to SAIC exceeds  $100,000,  and until the  cumulative  total
         exceeds  $500,000 and, (c) Two percent of the net selling price for all
         sales made during the royalty term once the  cumulative  total  royalty
         exceeds  $500,000.  During the royalty term, the Company shall make the
         following  minimum royalty  payments:  Contract year 1: no amounts due,
         Contract  year 2:  minimum  amount  due is  $25,000,  Contract  year 3:
         minimum  amount due is $50,000,  and  Contract  year 4 and  thereafter:
         minimum  amount due is  $100,000.  Within 30 days after the end of each
         quarter,  the Company will  deliver to SAIC a report of its  activities
         relating to the preceding calendar quarter.

         On September 1, 2001,  the Company and SAIC entered into a Professional
         Services  Agreement as it relates to time and  materials.  The terms of
         the agreement  are as follows:  (1) the period of  performance  is from
         September 1, 2001 to August 31, 2003. (2) SAIC will consult and develop
         a program to create a viable  near-term solar dish  concentrator  power
         system for electrical  power  production.  This program will consist of
         four tasks:  Task 1 will relate to advanced  dish  development,  Task 2
         will consist of marketing and business development, Task 3 will consist
         of receiver  development and Task 4 will consist of product testing and
         specification.  The  estimated  costs of these four tasks  combined  is
         $7,700,000. The Company will pay SAIC monthly on a `time and materials'
         basis for labor expended and costs and expenses incurred.

         The Company was to make an initial  payment of working  capital to SAIC
         of $200,000 and shall thereafter replenish the level of working capital
         by making  payments to keep the balance of working capital at $200,000.
         The Company is to maintain the $200,000  working  capital balance until
         SAIC has been paid  $6,800,000.  Thereafter  SAIC will draw down on the
         working capital until the $7,700,000 is expended. SAIC will have a lien
         upon  and may  retain  or  repossess  any and all  deliverables  if the
         Company does not make the full payment to SAIC.

                                       22
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)

         e.       License Agreements (Continued)

         Science Applications International Corporation (SAIC) (Continued)
         -----------------------------------------------------

         At December  31,  2001,  the Company  had accrued  $42,864  relating to
         expenses  incurred  by SAIC.  The  Company  has not  made the  required
         $200,000  working capital  deposit.  Amounts expensed as they relate to
         SAIC Professional Services Agreement will be classified as research and
         development expenses.

         In its Form  10-KSB for the year ended  December  31,  2001 the company
         reported  in its  discussion  of  Strategic  Relationships  that it had
         entered  into  a  Technology  License  Consulting  Services  and  Asset
         Purchase Agreement with Science application  International  Corporation
         and a related Professional Service Agreement. The Company and SAIC have
         agreed to suspend both agreements  based on the decision of the Company
         to focus more of its  distributed  energy  efforts  toward its Stirling
         engine and related Home Power Unit business and the decision of SAIC to
         independently pursue its solar photovoltaic dish development  business.
         However,  the parties have agreed that, once the Company has raised the
         funds  necessary to proceed with its business  plan as described in the
         Form  10-KSB the  parties  will  either  reinstate  the  agreements  or
         negotiate a new contract as appropriate under the circumstances at that
         time.

         As a result of the  bankruptcy  filing,  SAIC has a  general  unsecured
         claim in the bankruptcy for $108,287.

         f.       License Option Agreement

         During March 2001, the Company entered into a License Option  Agreement
         with the Defence  Evaluation  and Research  Agency  (DERA),  an English
         Corporation, whereby the Company purchased for $42,855 an option to use
         certain fuel cell  technology  for nine months with an option to extend
         the  agreement  by up to three  months  upon  written  request  and the
         payment of a $14,285 fee made at least one month prior to expiration of
         the  Agreement.  The  Company  opted not to extend  the  agreement  and
         recorded  $42,855 in  amortization  expense for the year ended December
         31, 2001 related to this agreement.

NOTE 8 - EQUITY TRANSACTIONS

         On January 8, 2002,  the Company  issued 200,000 shares of common stock
         for prepaid consulting services (See Note 7). The shares were valued at
         the closing price of $1.06 per share on the date of issue.

         On January 8, 2002, the Company granted  3,007,456 options to employees
         with an exercise  price of $1.00 per share and a term of 10 years.  The
         Company  recorded  $180,447 of expense which related to the  difference
         between the closing price of the stock of $1.06 per share on January 8,
         2002 and the exercise price of the options.

         On January 8, 2002,  the Company  granted 87,132 options to consultants
         of the Company  which had a fair market value of $90,106 as computed by
         the  Black-Scholes  pricing  model using a risk free  interest  rate of
         3.48%, volatility of 137.25% and a term of 10 years.

                                       23
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 8 - EQUITY TRANSACTIONS (Continued)

         On January 8, 2002,  the Company  issued 130,000 shares of common stock
         for prepaid consulting services (See Note 7). The shares were valued at
         the closing  price of $1.06 per share on the date of issue.  Concurrant
         with the issuance of the shares,  the Company granted 300,000  warrants
         with an exercise price of $1.25 per share. The fair market value of the
         warrants as determined by the Black-Scholes pricing model was $120,000.

         On February 7, 2002, the Company granted  100,000  warrants for prepaid
         consulting services (See Note 7). The fair market value of the warrants
         as determined by the Black-Scholes pricing model was $79,000.

         On February 19, 2002,  the Company  cancelled a total of  $3,554,015 of
         warrants  which  had  been   previously   granted  in  various  private
         placements and debt  financings  which had exercise prices of $1.50 and
         $2.04 per share and reissued new warrants with a new exercise  price of
         $0.50 per share. This was done as additional consideration for amending
         the  terms of the  debt  instruments  to  extend  the due  dates of the
         accrued but unpaid  interest and to leave the interest rates at 10% per
         annum. The cancellation and reissuance of the warrants  resulted in the
         recognition  of  $1,360,574  of  additional  expense  relating  to  the
         cancellation  of the previous  warrants and the  reissuance  of the new
         warrants as determined by the Black-Scholes pricing model.

         On February 28, 2002, the Company issued 260,270 shares of common stock
         for the  conversion  of $500,000 of debt relating to the equity line of
         credit  commitment fee which had been accrued at December 31, 2001. The
         shares were  valued at $1.92 per share  which was the closing  price on
         November  29, 2001 which was the date that the  liability  was incurred
         and the number of shares was determined.

         On February 28, 2002, the Company issued 150,000 shares of common stock
         for a loan  penalty  cost.  The shares  were  valued at $0.75 per share
         which was the  closing  price on the date of  issue.  The  shares  were
         issued pursuant to a penalty clause for non-payment of a loan.

         On April 8, 2002, the Company  granted  750,000  warrants to Ricardo as
         part of an agreement to extend debt payment terms. The warrants have an
         exercise price of $0.50 per share,  are  exercisable for four years and
         are fully vested. The Company used the Black Scholes model to determine
         fair market value of $671,700 with a risk free interest rate of $4.09%,
         volatility of 191% and no expected dividends.

         On June 14,  2002,  the  Company  granted  400,000  options  valued  at
         $128,000 for consulting services to be performed.

         On June 14, 2002, the Company issued 150,000 shares of common stock for
         consulting  services.  The shares  were  valued at $0.40 per share,  or
         $60,000.

         On June 21, 2002,  the Company issued 85,526 shares of common stock for
         the conversion of $13,000 in principle of a debenture payable, or $0.15
         per share.

         On June 25, 2002, the Company issued 265,625 shares of common stock for
         the  conversion  of $17,000 in  principle  of a  convertible  debenture
         payable, or $0.06 per share.

                                       24
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 8 - EQUITY TRANSACTIONS (Continued)

         On June 26, 2002, the Company issued  3,500,000  shares of common stock
         for the  acquisition  of certain  specified  assets of  Elektryon.  The
         shares were  valued at $0.11 per share.  Since the assets have not been
         received  by the  Company,  their  value of  $385,000  is  included  in
         deferred  consulting  expense and asset  acquisition as a contra equity
         account.

         On June 27, 2002, the Company issued 600,000 shares of common stock for
         the conversion of a portion of the Aquamax/Keeran  payable.  The shares
         were valued at $0.08 per share.

         On June 28, 2002, the Company issued 156,250 shares of common stock for
         the  conversion  of $10,000 in  principle  of a  convertible  debenture
         payable, or $0.06 per share.

         On July 1, 2002,  the Company  granted  50,000  warrants as  additional
         consideration  for a loan to the Company.  The fair market value of the
         warrants as determined by the Black-Sholes pricing model was $259.

         On June 28, 2002 and July 8, 2002,  the Company  issued  687,500 shares
         and 287,159 shares respectively for a total of 974,659 shares of common
         stock  for an  advance  of  $25,000  on the  Equity  Line of  Credit at
         $0.02565 per share.

         On July 11, 2002, the Company issued 925,926 shares of common stock for
         the  conversion  of $20,000 in  principle  of a  convertible  debenture
         payable at $0.0216 per share.

         On July 11, 2002 and July 15, 2002, the Company issued 1,666,667 shares
         and 438,597  shares  respectively  for a total of  2,105,264  shares of
         common  stock for an advance of $50,000 on the Equity Line of Credit at
         an average rate of $0.02375 per share.

         On July 15,  July 22 and July 29,  2002,  the  Company  issued  228,070
         shares,  2,521,930 shares and 1,635,965 shares respectively for a total
         of  4,385,965  shares of common  stock for an advance of $50,000 on the
         Equity Line of Credit at an average rate of $0.0114 per share.

         On July 31, 2002, the Company issued  3,854,167  shares of common stock
         for the  conversion of $37,000 in principle of a convertible  debenture
         payable at $0.0096 per share.

         On August 2, 2002,  the Company  granted  387,694  options to employees
         that were laid off on July 31,  2002 as  additional  consideration  for
         late payroll. The options have an exercise price of $0.05 per share and
         a term of 10 years.  The  Company  recorded  $5,815 of  expense,  which
         related to the difference between the closing price of $0.065 per share
         on August 2, 2002 and the exercise price of the options.

         On September 1, 2002, the Company granted  options to purchase  500,000
         shares  of common  stock at $0.02 per share and a term of 2 years.  The
         fair market value of the  warrants as  determined  by the  Black-Sholes
         pricing model was $7,996.

                                       25
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 9 - DISCONTINUED OPERATIONS

         On August 9, 2002, the Company's wholly-owned  subsidiary SIGMA was put
         into bankruptcy  because if its inability to pay employee  salaries and
         was declared a  discontinued  operation.  All officers and directors of
         SIGMA  have  resigned  and  operations  have  completely   closed.   In
         accordance  with FASB Statement No. 144, the Company has classified all
         prior  operations of SIGMA as  discontinued  and has restated all prior
         income  statements.  Additionally,  the Company declared  bankruptcy on
         December 1, 2002.  All activity  has ceased in the  Company.  All prior
         operations  with  the  exception  of the  interest  expense  have  been
         reclassified as discontinued operations. No income tax benefit has been
         attributed to the transactions.

     A summary of the Discontinued Operations are as follows:

<TABLE>
<CAPTION>

                                                                                                      From
                                           For the                         For the                Inception on
                                      Nine Months Ended               Three Months Ended            March 26,
                                          September 30,                  September 30,            1992 Through
                                  ----------------------------    ----------------------------    September 30,
                                      2002            2001            2002            2001            2002
                                  ------------    ------------    ------------    ------------    ------------
<S>                               <C>             <C>             <C>             <C>             <C>
REVENUES                          $         --    $         --    $         --    $         --    $         --
                                  ------------    ------------    ------------    ------------    ------------
EXPENSES

           General and
            administrative          15,643,662       4,811,031       2,146,189       2,633,839      41,530,229
           Impairment of
            intangible assets        7,433,043              --       1,500,000              --       7,645,234
           Research and
            development                 11,791       1,671,974              --       1,610,478       4,563,065
           Depreciation and
            amortization               429,707         829,216          28,675         605,525       2,292,321
                                  ------------    ------------    ------------    ------------    ------------

           Total Expenses           23,518,203       7,312,221       3,674,864       4,849,842      56,030,849
                                  ------------    ------------    ------------    ------------    ------------
LOSS FROM
 OPERATIONS                        (23,518,203)     (7,312,221)     (3,674,864)     (4,849,842)    (56,030,849)
                                  ------------    ------------    ------------    ------------    ------------
OTHER INCOME
 (EXPENSE)

           Gain on settlement
            of debt                  2,890,000              --              --              --       3,047,822
           Gain on write off of
            investment               2,870,376              --       2,870,376              --       2,870,376
           Interest income                  --              --              --              --          30,783
           Interest expense           (144,156)        (74,110)        (81,985)        (13,819)       (408,712)
                                  ------------    ------------    ------------    ------------    ------------
Total Other Income
            (Expense)             $  5,616,220    $    (74,110)   $  2,788,391    $    (13,819)   $  5,540,269
                                  ------------    ------------    ------------    ------------    ------------

           NET LOSS               $(17,901,983)   $ (7,386,331)   $   (886,473)   $ (4,863,661)   $(50,490,580)
                                  ============    ============    ============    ============    ============
</TABLE>

                                       26
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 9 - DISCONTINUED OPERATIONS (Continued)

         At December 31, 2001, the assets and  liabilities  of the  discontinued
         operations of Sigma consisted of the following:

                                                                December 31,
                                                                    2001
                                                                -------------
         ASSETS
            Cash and restricted cash                            $     141,142
            Advances and pre-aids                                      64,591
            Fixed assets                                              164,675
            Deposits                                                   10,216
            Patents, net                                              813,678
                                                                -------------
                                                                $   1,194,302
                                                                =============

         LIABILITIES
            Accounts payable                                    $   1,833,483
            Accrued expenses                                          267,657
            Notes payable                                           1,058,666
                                                                -------------
                                                                $   3,159,806
                                                                =============

NOTE 10- BANKRUPTCY

         In the past six months,  the Company  pursued various avenues to enable
         the business to continue in operation  and/or  maximize  asset  values.
         These efforts included  meetings with a number of entities to explore a
         strategic  investment in the Company  and/or an acquisition of all or a
         portion of the Company's  assets and businesses.  While several parties
         undertook due diligence, no entity made a viable proposal.

         In  September  2002,  the  Company was  without  sufficient  capital to
         continue  to  operate  and had  been  unable  to  identify  sources  of
         additional  financing.  The  Board  of  Directors  of the  Company  was
         concerned that a sudden  cessation of operations  would not provide the
         best means to maximize asset values.  Therefore,  at an October 3, 2002
         meeting  of the  Company's  Board of  Directors,  the Board  approved a
         resolution  to  commence   negotiations   with  the  Company's  secured
         creditors,  Algonquin Capital  Management,  L.L.C. and Hibernia Capital
         Management,  L.L.C.,  to commence a voluntary  bankruptcy  filing under
         chapter 11 of the Bankruptcy Code and immediately  thereafter a sale of
         the Company's assets pursuant to section 363 of the Bankruptcy Code.

         The  Company  has a history  of being  financed  primarily  by  raising
         capital through private placements of its stock and/or loans from third
         parties.  The proceeds from the financing have been used to develop the
         Company's   technologies,   pursue   acquisitions  and  make  strategic
         alliances and pay operating  costs.  Over the past twelve  months,  the
         Company has  endeavored  to stem severe  cash flow  shortages  through,
         among  other  things,  workforce  and  overhead  reductions,   and  the
         consolidation of its business  operations.  Due to persistent cash flow
         shortages the Company terminated substantially all of its employees. As
         a result of a confluence of events,  including a general contraction of
         available  financing from capital markets and the recent  bankruptcy in
         Norway of Sigma  Elektroteknisk,  AS, a wholly owned  subsidiary,  at a
         Special  Meeting of the Board of Directors  on November  27, 2002,  the
         Board  unanimously  consented  to  authorizing  the  Company  to file a
         voluntary petition under Chapter 11 of the Bankruptcy Code.

         On December  1, 2002,  the Company  filed a  voluntary  petition  under
         Chapter 11 of the  bankruptcy  Code with the United  States  Bankruptcy
         Court Southern District of New York. On December 16, 2002, the  United

                                       27
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 10- BANKRUPTCY (Continued)

         States  Trustee  appointed a creditors'  committee  pursuant to section
         1102(a) of the Bankruptcy Code (the "Committee").

         Simultaneously  with filing the Chapter 11 petition,  the Company filed
         an emergency  motion to authorize it to obtain loans and advances under
         a   Debtor-In-Possession   Loan  Agreement   with   Algonquin   Capital
         Management,  L.L.C. in order to continue operations so that the Company
         could attempt to maximize the value of its assets. The Bankruptcy Court
         entered an interim  order  approving  the financing on December 5, 2002
         and a final order was entered on December  20, 2002.  In addition,  the
         Company filed a motion in the  bankruptcy  case to approve the proposed
         sale  of  substantially   all  of  its  assets  to  Algonquin   Capital
         Management, L.L.C. and Hibernia Capital Management,  L.L.C., subject to
         higher  and  better  offers.  By order  dated  February  6,  2003,  the
         Bankruptcy  Court  authorized  the asset sale  agreement with Algonquin
         Capital  Management  L.L.C. and Hibernia Capital  Management  L.L.C. as
         modified  by the  Creditor  Settlement  Agreement  and  assumption  and
         assignment of certain  executory  contracts,  licenses and intellectual
         property rights for a credit bid of $2,000,000. As part of the Creditor
         Settlement Agreement,  Algonquin Capital Management L.L.C. and Hibernia
         Capital  Management  L.L.C.  reconveyed to the bankruptcy  estate a 60%
         ownership  in the  Water  Assets  of the  Company.  The  Bill  of  Sale
         consummating the sale was signed on February 19, 2003. During September
         2003, an additional $80,000 was paid to the Company by PowerPlay Energy
         pursuant to the creditor settlement agreement.

         Having sold its assets and ceased operations,  the Company was not in a
         financial position to support the on-going operations needed to develop
         the Water Assets.  On May 20, 2003, the  Bankruptcy  Court approved the
         sale  of  the   Company's   interest  in  the  Water  Assets  to  Oases
         Desalination  International,  Ltd.  in exchange  for their  covenant to
         commercialize  those assets and make certain  royalty  payments.  Since
         that time, and although they have made certain minimal payments,  Oases
         has been in default.  Subsequently,  Oases Desalination  International,
         Ltd. and ReEnergy  Group  entered into an asset  purchase  agreement in
         which  Oases  Desalination  International,  Ltd.  would sell all of its
         assets,  including the Water Assets,  to ReEnergy Group.  Because Oases
         Desalination International, Ltd. is in default with the Company and has
         not paid for the Water Assets, Oases Desalination  International,  Ltd.
         and Renergy Group sought the Company's  consent wherein  ReEnergy Group
         would  directly  purchase  the Water  Assets  from the  Company.  After
         significant negotiations,  the Creditors' Committee, Oases Desalination
         International,  Ltd.  and  ReEnergy  Group  entered  into  the  Consent
         Agreement,  in order to,  among other  things,  provide  the  Company's
         consent to transfer the Water  Assets to ReEnergy  Group for a modified
         consideration of $750,000 for the Water Assets. On October 26, 2005, an
         application  was  filed  with  the  Bankruptcy  Court to  approve  this
         arrangement  and the  arrangement  was approved by order dated November
         16, 2005. The Company has received all of the funds in this transaction
         and is being held in an account  maintained by  bankruptcy  counsel for
         the Committee.

         In October of 2006, the Company signed a term sheet with Trinad Capital
         Master Fund Ltd.  (the  Sponsor)  to sponsor a plan of  reorganization.
         Prior to  confirmation  of the Chapter 11 plan of  reorganization,  the
         Sponsor will identify a merger candidate to be merged into the Company.
         The  Sponsor  is  currently  in  negotiations  with  NorthStar  Systems
         International,  Inc.  as the  potential  merger  candidate.  Before the
         merger can take  place,  the  Company is  required  to bring all of its
         financial,  tax and SEC  filings  current  from the last filing date of
         June 30, 2002. Pursuant to orders of the United States Bankruptcy Court
         for  the  Southern  District  of New  York,  the  Company  has  engaged
         accountants,  auditors and SEC counsel to complete this task. Under the
         terms of the proposed plan, creditors of the Company will receive a pro
         rata cash payment and stock consideration in the new merged entity. The
         aforementioned  consideration  will be  distributed to creditors of the
         Company under the proposed plan of reorganization.

                                       28
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
              Notes to Unaudited Consolidated Financial Statements
              September 30, 2002 and December 31, 2001 (Continued)

NOTE 11 - SUBSEQUENT EVENTS

         During the quarter  ending  December  31,  2002,  the Company  received
         $100,000  from  the  issuance  of  notes  and  advances  pursuant  to a
         debtor-in-possession  financing facility, approved pursuant to an order
         by the United States  Bankruptcy Court for the Southern District of New
         York. The applicable interest rate was 15%.

         During the quarter ending March 31, 2003, the Company received $116,818
         from   the   issuance   of   notes   and   advances   pursuant   to   a
         debtor-in-possession  financing facility, approved pursuant to an order
         by the United States  Bankruptcy Court for the Southern District of New
         York. The applicable interest rate was 15%.

         During the quarter ending March 31, 2003, the Company filed a motion in
         the bankruptcy case to approve the proposed sale of  substantially  all
         of its assets to  Algonquin  Capital  Management,  L.L.C.  and Hibernia
         Capital  Management,  L.L.C.,  subject to higher and better offers.  By
         order dated February 6, 2003, the Bankruptcy Court authorized the asset
         sale agreement with Algonquin  Capital  Management  L.L.C. and Hibernia
         Capital  Management  L.L.C.  as  modified  by the  Creditor  Settlement
         Agreement and assumption and assignment of certain executory contracts,
         licenses  and  intellectual   property  rights  for  a  credit  bid  of
         $2,000,000.  As part of the Creditor  Settlement  Agreement,  Algonquin
         Capital  Management  L.L.C.  and  Hibernia  Capital  Management  L.L.C.
         reconveyed to the bankruptcy estate a 60% ownership in the Water Assets
         of the Company.  The Bill of Sale  consummating  the sale was signed on
         February  19,  2003.  As a  result  of  this  asset  sale  the  Company
         recognized  a gain on sale of assets in the amount of  $1,723,486.  The
         Company had no basis in the water assets prior to the original sale and
         therefore recognized no gain on the subsequent return of those assets.

         During the quarter ending June 30, 2003, the Company  received  $20,000
         from   the   issuance   of   notes   and   advances   pursuant   to   a
         debtor-in-possession  financing facility, approved pursuant to an order
         by the United States  Bankruptcy Court for the Southern District of New
         York. The applicable interest rate was 15%.

         During the quarter  ending  September  30, 2003,  the Company  received
         $80,000  from  PowerPlay  Energy  pursuant to the  creditor  settlement
         agreement discussed in Note 17.

         During the quarter  ended  December  31,  2005,  the  Company  sold its
         ownership  interest  in the water  assets  pursuant  to an order  dated
         November  16,  2005,  by the  United  States  Bankruptcy  Court for the
         Southern  District of New York.  As  consideration  for this  ownership
         interest the Company  received  total cash proceeds of $750,000 paid in
         three  installments.  The first  two  installments  were made  prior to
         December 31, 2005,  and totaled  $100,000.  The remaining  $650,000 was
         recorded  as a  receivable  balance  at  December  31,  2005,  and  was
         subsequently received during January 2006.

         During August 2007 the Company  entered into a settlement  agreement in
         connection with the  debtor-in-possession  financing  whereby the total
         balance of  principal  and accrued  interest was settled for a one time
         payment  of  $380,000.  As a  result  of  the  settlement  the  Company
         recognized a gain on settlement of debt of approximately $21,700.

                                       29
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations

Readers should refer to the  description of the Company's  bankruptcy  case (the
"Bankruptcy Case") described in the Notes to the Financial  Statements  included
in Item 1 of this Form  10-QSB and in the  Company's  Form 10-KSB for the annual
period ended December 31, 2002.

Three Month Periods Ended September 30, 2002 and 2001
-----------------------------------------------------

The business of the Company during the quarter ended September 30, 2002 included
developing  technology to produce modular  distributed  water and power systems.
Substantially all employees were terminated or had resigned as of July 31, 2002.
The   administrative   activities  of  the  Company  are  performed  by  outside
consultants and advisors.  Direct administrative expenses of the Company totaled
$3,674,864 and $4,849,842 for the  three-month  periods ended September 30, 2002
and 2001, respectively.

Nine Month Periods Ended September 30, 2002 and 2001
----------------------------------------------------

The  business of the Company  during the nine months  ended  September  30, 2002
included  developing  technology to produce modular  distributed water and power
systems.  Substantially all employees were terminated or had resigned as of July
31, 2002. The administrative  activities of the Company are performed by outside
consultants and advisors.  Direct administrative expenses of the Company totaled
$23,518,203  and $7,312,221 for the nine-month  periods ended September 30, 2002
and 2001, respectively.

Liquidity and Capital Resources
-------------------------------

Primary sources of liquidity since the Company ceased  operations have been cash
balances that have been used to pay administrative expenses.  Operating expenses
of the Company have been funded with  available cash retained from the two asset
sales effected as part of the  Bankruptcy  Case. As of the date of the filing of
this Form 10-QSB with the SEC, cash totals approximately $227,210. Based on such
balance and  management's  forecast of activity levels during the period that it
may remain  without  operations,  the  Company is  uncertain  as to whether  the
present cash balance will be sufficient to pay its current  liabilities  and its
administrative  expenses as such expenses become due; provided that, if the Plan
is  confirmed,  the Company  believes  that the  present  cash  balance  will be
sufficient to pay its current  liabilities  and its  administrative  expenses as
such expenses become due.


Uncertainties Relating to Forward Looking Statements
----------------------------------------------------

"Item 2.  Management's  Discussion  and Analysis or Plan of Operation" and other
parts of this Form 10-QSB contain certain  "forward-looking  statements"  within
the  meaning  of the  Securities  Act of 1934,  as  amended.  While the  Company
believes  any  forward-looking  statements  it has made are  reasonable,  actual
results  could  differ  materially  since the  statements  are based on  current
management expectations and are subject to risks and uncertainties.  These risks
and uncertainties include, but are not limited, to the following:

      o     There can be no assurance that the plan of reorganization filed with
            the United States  Bankruptcy Court for the Southern District of New
            York ("Bankruptcy  Court") on January 15, 2008, or any other plan of
            reorganization,  will  be  approved  by  the  Bankruptcy  Court  and
            effected.

      o     There can be no assurance  that Trinad Capital Master Fund Ltd. (the
            "Plan Sponsor") will reach agreement on definitive documentation for
            a merger with NorthStar Systems International Inc. ("NorthStar"), or
            any other potential merger candidate.

      o     Even if a plan of reorganization is approved by the Bankruptcy Court
            and effected,  there can be no assurance as to the terms of any such
            plan, including without limitation as to the distributions,  if any,
            to be made to existing creditors and stockholders of the Company.

      o     The Plan Sponsor may withdraw at any time prior to confirmation of a
            plan  of  reorganization,   including  without  limitation,  due  to
            unsatisfactory  results of its due diligence on  NorthStar.  In such
            event,  the Company may  substitute  the Plan  Sponsor  with another
            person or entity  offering  to  purchase  stock in the newly  merged
            entity under the plan

                                       30
<PAGE>

            of  reorganization on terms and conditions that may not be the same,
            or as economically  favorable to the Company's  estate, as those are
            being offered by the Plan Sponsor.  In such event,  the recovery for
            unsecured creditors would likely be dramatically reduced.

      o     No public  market exists for stock in the merged  entity,  and it is
            not anticipated that any will necessarily develop in the foreseeable
            future.  Therefore,  notwithstanding the legal ability to trade such
            stock,  any  recipient  thereof  should expect that it might have to
            hold the stock for an indefinite period of time.

Item 3. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Our management,  with the  participation of our principal  executive officer and
principal  financial officer,  has evaluated the effectiveness of the design and
operation  of our  disclosure  controls  and  procedures  (as  defined  in Rules
13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of 1934, as amended)
as of the end of the period  covered  by this  quarterly  report.  Based on this
evaluation,  our principal  executive  officer and principal  financial  officer
concluded  that these  disclosure  controls and  procedures  are  effective  and
designed to ensure that the information  required to be disclosed in our reports
filed or  submitted  under  the  Securities  Exchange  Act of 1934 is  recorded,
processed, summarized and reported within the requisite time periods.

(b) Changes in internal controls.

There was no change in our internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f)  under the Securities  Exchange Act of 1934, as
amended)  identified in connection  with the evaluation of our internal  control
performed  during the  quarter  ended  September  30,  2002 that has  materially
affected,  or is reasonably  likely to materially  affect,  our internal control
over financial reporting.

                           PART II - OTHER INFORMATION

Item 6. Exhibits

Exhibits  filed  herewith  are  set  forth  in the  Index  to  Exhibits  and are
incorporated herein by reference.

                                   SIGNATURES

In accordance with the requirements of the Securities  Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

/s/ MICHAEL HOPPER
---------------------------
Name: Michael Hopper
Title: Authorized Signatory
Date: January 31, 2008

                                       31
<PAGE>

                                INDEX TO EXHIBITS

Exhibit                           Description of Exhibit
-------                           ----------------------
Number
------

31.01     Certification  pursuant to 15 U.S.C.  78m(a) or 78o(d) (Section 302 of
          the Sarbanes Oxley Act of 2002).**

32.01     Certification  pursuant to 18 U.S.C. Section 1350, as adopted pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002.**

**        Filed herewith.