U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB/A
                                   -------------

                                Amendment No. 1 to

       [X]     Quarterly Report Pursuant to Section 13 or 15(d) of the
                             Securities act of 1934

                For the quarterly period ended September 30, 2000

       [ ]     Transition  Report Under  Section 13 or 15(d) of the Exchange Act
               For the transition period from June 30 to September 30, 2000


               Commission File Number:       000-29371
                                      --------------------------
                             Ocean Power Corporation

--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

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

            5000 Robert J. Mathews Parkway, El Dorado Hills, CA 95762
--------------------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (916) 933-8100
--------------------------------------------------------------------------------
                (Issuer's telephone number, including area code)

--------------------------------------------------------------------------------
                 (Former Name, Former Address and Former Fiscal
                       Year, of changed since last report)

Check  whether the Issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrants was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                            Yes: [X]       No: [ ]

As of November 13, 2000, the issuer had 38,149,942  shares of common stock, $.01
par value outstanding.

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


                                       1
<PAGE>

ITEM 1.  FINANCIAL STATEMENTS




                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                    September 30, 2000 and December 31, 1999



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

<TABLE>
<CAPTION>

                                     ASSETS
                                     ------

                                                     September 30,  December 31,
                                                         2000          1999
                                                      -----------   -----------
                                                        (Unaudited)
                                                         (Restated)

CURRENT ASSETS
<S>                                                      <C>         <C>
   Cash                                                $ 3,926,659   $   368,276
   Cash - restricted (Note 2)                               26,816          --
   Advances to employees (Note 3)                          301,217       658,965
   Prepaid expenses (Note 5)                               255,835          --
                                                       -----------   -----------

     Total Current Assets                                4,510,527     1,027,241
                                                       -----------   -----------

EQUIPMENT, NET (Note 2)                                    655,840        52,555
                                                       -----------   -----------

OTHER ASSETS

   Equipment procurement costs (Note 4)                       --         364,110
   Deposits                                                 35,619        20,402
   Other receivables                                       171,838          --
   Patents and licensing agreements, net (Note 6)        7,455,865          --
   Goodwill, net (Note 7)                                6,479,927          --
                                                       -----------   -----------

     Total Other Assets                                 14,143,249       384,512
                                                       -----------   -----------

     TOTAL ASSETS                                      $19,309,616   $ 1,464,308
                                                       ===========   ===========
</TABLE>



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


                                       2
<PAGE>

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


                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 ----------------------------------------------
<TABLE>
<CAPTION>

                                                       September 30,     December 31,
                                                           2000               1999
                                                        ------------    ------------
                                                         (Unaudited)
                                                          (Restated)
<S>                                                     <C>             <C>
CURRENT LIABILITIES

   Accounts payable                                     $    776,495    $  1,453,908
   Accrued expenses (Note 11)                              6,780,595         326,582
   Notes payable - related parties (Note 8)                1,360,626       4,040,051
   Notes payable - current portion (Note 9)                  647,559            --
   Research advances (Note 13)                               421,665            --
                                                        ------------    ------------

     Total Current Liabilities                             9,986,940       5,820,541
                                                        ------------    ------------

LONG-TERM LIABILITIES

   Convertible debentures payable (Note 10)                  550,000         650,000
   Notes payable (Note 9)                                    720,578            --
                                                        ------------    ------------

     Total Long-Term Liabilities                           1,270,578         650,000
                                                        ------------    ------------

     Total Liabilities                                    11,257,518       6,470,541
                                                        ------------    ------------

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; 38,149,942 and 32,835,925 shares
    issued and outstanding, respectively                     381,499         328,359
   Additional paid-in capital                             25,727,577       5,589,224
   Deferred consulting expense (Note 13)                    (675,000)           --
   Other comprehensive income                                198,927            --
   Deficit accumulated during the development stage      (17,580,905)    (10,923,816)
                                                        ------------    ------------

     Total Stockholders' Equity (Deficit)                  8,052,098      (5,006,233)
                                                        ------------    ------------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)                                         $ 19,309,616    $  1,464,308
                                                        ============    ============
</TABLE>



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

                                       3
<PAGE>



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


                                                                                                                From
                                                   For the                        For the                   Inception on
                                                Nine Months Ended              Nine Months Ended             March 26,
                                                 September, 30                 Sepptember, 30              1992 Through
                                              --------------------           --------------------           Septembe 30,
                                                 2001      1999                 2001      1999                 2000
                                              ---------- ----------          ---------- ----------           ----------
                                              (Restated)                     (Restated)                       (Restated)

<S>                                            <C>         <C>             <C>             <C>             <C>
REVENUES                                           --      $       --      $       --      $       --      $       --


EXPENSES

   General and administrative                 5,853,770       5,196,742       1,726,410       4,414,356      13,722,228
   Impairment of intangible assets              400,000            --           400,000            --           400,000
   Research and development                     223,156            --            82,306            --         1,473,156
   Depreciation and amortization                246,069           7,224         168,859           1,280         296,763
                                           ------------    ------------    ------------    ------------    ------------

     Total Expenses                           6,722,995       5,203,966       2,377,575       4,414,356      15,892,147
                                           ------------    ------------    ------------    ------------    ------------

     LOSS FROM OPERATIONS                    (6,722,995)     (5,203,966)     (2,377,575)     (4,415,636)    (15,892,147)
                                           ------------    ------------    ------------    ------------    ------------

OTHER INCOME (EXPENSE)

   Interest income                              115,861               1          36,283               1         115,861
   Loss on sale of assets                          --              --              --              --          (387,649)
   Interest expense                            (215,304)       (250,797)        (71,685)        (88,343)     (1,582,319)
                                           ------------    ------------    ------------    ------------    ------------

     Total Other Income (Expense)               (99,443)       (250,796)        (35,402)        (88,342)     (1,854,107)
                                           ------------    ------------    ------------    ------------    ------------

LOSS BEFORE EXTRAORDINARY
 ITEM                                        (6,822,438)     (5,454,762)     (2,412,977)     (4,503,978)    (17,746,254)

EXTRAORDINARY ITEM

 Gain on settlement of debt                     165,349            --              --              --           165,349
                                           ------------    ------------    ------------    ------------    ------------

NET LOSS                                     (6,657,089)     (5,454,762)     (2,412,977)     (4,503,978)    (17,580,905)
                                           ------------    ------------    ------------    ------------    ------------

OTHER COMPREHENSIVE INCOME

   Currency translation adjustment              198,927            --           198,927            --           198,927
                                           ------------    ------------    ------------    ------------    ------------

   Total Other Comprehensive
      Income                                    198,927            --           198,927            --           198,927
                                           ------------    ------------    ------------    ------------    ------------

NET COMPREHENSIVE LOSS                    $  (6,458,162)   $ (5,454,762)   $ (2,214,050)  $  (4,503,978)   $(17,381,978)
                                           ============    ============    ============    ============    ============
</TABLE>


<TABLE>
<CAPTION>

BASIC AND FULLY DILUTED
 LOSS PER SHARE
<S>                                        <C>              <C>             <C>             <C>

   Operating loss
   Extraordinary item                      $      (0.19)    $     (0.83)    $     (0.07)    $      (0.51)
                                           ------------    ------------    ------------    ------------

     Total                                 $      (0.19)    $     (0.83)    $     (0.07)    $      (0.51)
                                            ============    ============    ============    ============
WEIGHTED AVERAGE SHARES
 OUTSTANDING                                 35,282,677       6,564,458      36,405,608        8,907,326
                                            ============    ============    ============    ============
</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)
            Consolidated Statements of Stockholders' Equity (Deficit)



                                                                                                                  Deficit
                                                                                                                 Accumulated
                                            Common Stock            Additional       Other      Deferred          During the
                                     ---------------------------     Paid-In      Comprehensive Consultin        Development
                                       Shares          Amount        Capital          Income     Expense             Stage
                                     ------------   ------------   ------------   ----------   ----------        ------------

<S>                                    <C>          <C>             <C>            <C>           <C>              <C>
Inception, March 26, 1992                       -    $         -   $     -          $   -       $  -              $     -


Net loss from inception on
 March 20, 1992 through
 December 31, 1997                              -              -         -              -           -               (2,306,366)
                                      ------------   ------------   ------------   ----------   ----------        ------------

Balance, December 31, 1997                      -              -         -              -           -               (2,306,366)

February 24, 1998, common
 stock issued for cash to
 employees at $0.003 per share            395,467          3,955      (2,817)           -           -                   -

March 6,1998, common stock
 issued for cash to employees
 at $0.003 per share                      121,904          1,219       (869)            -           -                   -

March 12, 1998, common stock
 issued for cash to an employee
 at $0.003 per share                       33,199            332       (237)            -           -                   -

March 18, 1998, common stock
 issued for cash to an employee
 at $0.003 per share                        2,575             26        (19)            -           -                   -

April 2, 1998, common stock
 issued for cash to a lender at
 $0.003 per share                         130,500          1,305       (930)            -           -                   -

May 14, 1998, common stock
 issued for cash to an employee
 at $0.003 per share                       14,755            147       (106)            -                               -
                                     ------------   ------------   ------------   ----------   ----------        ------------

Balance Forward                           698,400    $     6,984   $ (4,978) $           -      $   -             $  (2,306,366)
                                      ------------   ------------   ------------   ----------   ----------        ------------

</TABLE>


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


                                       5
<PAGE>

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

                                                                                                                        Deficit
                                                                                                                      Accumulated
                                            Common Stock               Additional       Other       Deferred          During the
                                        ---------------------------      Paid-In      Comprehensive  Consulting        Development
                                             Shares        Amount        Capital        Income       Expense             Stage
                                        ------------   ------------   ------------    ----------   ----------        ------------

<S>                                            <C>          <C>          <C>            <C>           <C>              <C>

Balance Forward                               698,400   $     6,984          $    (4,978) $     --     $      --      $(2,306,366)


June 16, 1998, common
 stock issued for cash,
 42,178 issued to employees,                   43,152
 issued to consultants, 60,900
 issued to lenders, 6,960
 issued to a landlord and
 8,352 issued to vendors,
 at $0.003 per share                          161,542         1,615     (1,152)                 --            --             --

June 16, 1998, common stock
 issued for debt cancellation to the
 company's founders at $0.079 per
 share                                      1,061,400        10,614     73,267                  --            --             --

July 29, 1998, common stock
 issued for cash to a consultant
 at $0.003 per share                           34,800           348       (248)                 --            --             --

Net loss for the year ended
 December 31, 1998                               --            --         --                    --            --       (2,917,964)
                                        ------------   ------------   ------------    ----------   ----------        ------------

Balance, December 31, 1998                  1,956,142        19,561     66,889                  --            --       (5,224,330)

March 5, 1999, common stock
 issued for cash to an employee
 at $0.003 per share                          334,080         3,341     (2,381)                 --            --             --

March 22, 1999 common stock
 issued for cash to an employee
 at $0.003 per share                          286,682         2,867     (2,043)                 --            --             --

March 22,1999, 34,800 shares  issued to
an  officer  and  founder  for debt
 cancellation  of $50,000,
 496,248    shares issued to
 a consultant  for past due
 fees of $1,426 and 18,480,172 shares
 issued to employees
 of for past due salaries

 $53,104 at $0.005 per share               19,011,220       190,112    (85,582)                 --            --             --
                                        ------------   ------------   ------------    ----------   ----------        ------------

Balance Forward                            21,588,124   $   215,881          $    (23,117) $    --     $      --      $(5,224,330)
                                        ------------   ------------   ------------    ----------   ----------        ------------
</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)




                                                                                                                        Deficit
                                                                                                                      Accumulated
                                            Common Stock               Additional       Other       Deferred          During the
                                        ---------------------------      Paid-In      Comprehensive  Consulting        Development
                                             Shares        Amount        Capital        Income       Expense             Stage
                                        ------------   ------------   ------------    ----------   ----------        ------------

<S>                                            <C>          <C>      <C>                <C>           <C>              <C>

Balance Forward                         21,588,124   $   215,881    $ (23,117)          $    --   $     --         $(5,224,330)


April 22, 1999, common stock
 issued for cash to a consultant
 at $0.003 per share                      129,734         1,297          (924)               --         --            --

April 27, 1999, common stock
 issued for cash to an employee
 at $0.003 per share                        5,951            59           (43)                --        --            --

April 27,1999,  common
 stock  issued
 to a  landlord,
 69,600   shares,  and a
 consultant, 26,100 shares
 for rent of $200 and fees
 of $75, at $0.003 per share               95,700           957          (682)               --          --            --

April 28, 1999, common stock
 issued for cash to a consultant
 at $0.003 per share                       12,180           122           (87)               --          --            --

April 30, 1999, common stock
 issued for cash to a consultant
 at $0.003 per share                        2,888            29           (21)               --          --            --

April 30, 1999, common stock
 issued to consultants for fees
 at $0.003 per share                       22,968           230          (164)                --         --            --

May 3, 1999, common stock
 issued to a consultant for fees
 at $0.003 per share                       25,717           257          (183)               --          --            --
                                        ------------   ------------   ------------    ----------   ----------        ------------

Balance Forward                        21,883,262   $   218,832      $(25,221)               --   $      --        $(5,224,330)
                                       ------------   ------------   ------------    ----------   ----------        -------------

</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)




                                                                                                                        Deficit
                                                                                                                      Accumulated
                                            Common Stock               Additional       Other       Deferred          During the
                                        ---------------------------      Paid-In      Comprehensive  Consulting        Development
                                             Shares        Amount        Capital        Income       Expense             Stage
                                        ------------   ------------   ------------    ----------   ----------        ------------

<S>                                            <C>          <C>      <C>                <C>           <C>              <C>
Balance Forward                         21,883,262   $   218,832    $  (25,221) $        --     $      --            $(5,224,330)


May 5, 1999,  common stock issued
 for cash, 16,008 shares
 to a vendor and 16,008
 shares to a
 consultant, at $0.003 per share            32,016           320          (228)           --            --             --

May 7, 1999, common stock
 issued for cash to a landlord
 at $0.003 per share                           348             3            (2)           --            --             --

May 7, 1999, common stock
 issued to an employee for salary at
 $0.003 per share                        2,610,000        26,100       (18,600)           --            --             --

May 13, 1999, common stock
 issued for cash to a consultant
 at $0.003 per share                       139,200         1,392          (992)           --            --             --

May 19, 1999,  common  stock
issued  for cash,                           24,360
shares to a lender and
 348,000 shares to a
 consultant at $0.003 per share            372,360         3,724        (2,654)           --            --             --

June 17, 1999, common stock
 issued for cash to a vendor at
 $0.003 per share                            6,960            70           (50)           --            --             --

Recapitalization (Note 1)                6,291,450        62,915     2,698,858            --            --             --

June 23, 1999, options issued
 below market value                           --            --          14,097            --            --             --

July 12, 1999, options issued
 below market value                           --            --          62,561            --            --             --
                                         ------------   ------------   ------------    ----------   ----------        ------------

Balance Forward                         31,335,596   $   313,356   $ 2,727,769       $    --       $    --          $(5,224,330)
                                        ------------   ------------   ------------    ----------   ----------        ------------

</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)
      Consolidated Statements of Stockholders' Equity (Deficit) (Continued)



                                                                                                                        Deficit
                                                                                                                      Accumulated
                                            Common Stock               Additional       Other       Deferred          During the
                                        ---------------------------      Paid-In      Comprehensive  Consulting        Development
                                             Shares        Amount        Capital        Income       Expense             Stage
                                        ------------   ------------   ------------    ----------   ----------        ------------

<S>                                            <C>          <C>      <C>                <C>           <C>              <C>

Balance Forward                         31,335,596    $   313,356    $ 2,727,769   $          --     $      --     $(5,224,330)


July 15, 1999, common stock
 issued for cash at $5.00 per
 share for exercise of options              10,000            100         49,900              --            --            --

July 15, 1999, common stock
 issued for services at $7.80
 per share                                  15,000            150        116,850              --            --            --

July 26, 1999, common stock
 issued for cash at $5.00 per
 share for exercise of options              10,000            100         49,900              --            --            --

August 12, 1999, common stock
 issued for loan consideration at
 $2.50 per share                           100,000          1,000        249,000              --            --            --

September 2, 1999, common
 stock issued for services valued
 at $1.94 per share                         20,000            200         38,600              --            --            --

September 9, 1999, options
 issued below market value                    --             --            1,139              --            --            --

September 9, 1999, common
 stock issued for cash at $1.00
 per share                                 100,000          1,000         99,000              --            --            --

October 1, 1999, cancellation of
 common stock valued at zero              (502,500)        (5,025)         5,025              --            --            --

November 16, 1999, value of
 beneficial conversion features
 of convertible debentures (Note 10)          --             --          650,000              --            --            --

November 29, 1999, common
 stock issued for finders fee
 valued at $1.34 per share                 400,000          4,000        533,200              --            --            --
                                       -----------    -----------    -----------   ---------------   -----------   -----------

Balance Forward                         31,488,096    $   314,881    $ 4,520,383   $          --     $      --     $(5,224,330)
                                       -----------    -----------    -----------   ---------------   -----------   -----------

</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 Stockholders' Equity (Deficit) (Continued)

                                                                                                                       Deficit
                                                                                                                      Accumulated
                                            Common Stock               Additional       Other       Deferred          During the
                                        ---------------------------      Paid-In      Comprehensive  Consulting        Development
                                             Shares        Amount        Capital        Income       Expense             Stage
                                        ------------   ------------   ------------    ----------   ----------        ------------

<S>                                            <C>          <C>      <C>                <C>           <C>              <C>

Balance Forward                         31,488,096   $    314,881   $  4,520,383    $      --     $      --        $ (5,224,330)


Stock offering costs                          --             --         (537,200)          --            --                --

December 7, 1999, options
 granted below market value for
 services rendered                            --             --          130,402           --            --                --

December 8, 1999, common stock
 issued for cash at $0.70 per share         71,839            718         49,282           --            --                --

December 9, 1999, common stock
 issued for cash at $0.71 per share        175,070          1,751        123,249           --            --                --

December 9, 1999, common stock
 issued for cash at $0.71 per share         49,020            490         34,510           --            --                --

December 10, 1999, common stock
 issued for cash at $0.84 per share        111,111          1,111         98,889           --            --                --

December 10, 1999, common stock
 issued for cash at $0.90 per share         33,333            333         29,667           --            --                --

December 16, 1999, common stock
 issued for cash at $0.83 per share        193,939          1,939        158,061           --            --                --

December 21, 1999, common stock
 issued for cash at $0.83 per share        120,773          1,208         98,792           --            --                --

December 31, 1999, common stock
 issued for exercise of warrants at
 $1.50 per share                           592,744          5,928        883,189           --            --               --

Net loss for the year ended
 December 31, 1999                            --             --             --             --            --          (5,699,486)
                                      ------------   ------------   ------------    ---------------   -----------   ------------

Balance, December 31, 1999              32,835,925   $    328,359   $  5,589,224    $          --     $      --     $(10,923,816)
                                      ------------   ------------   ------------    ---------------   -----------   ------------
</TABLE>


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


                                       10
<PAGE>

<TABLE>
<CAPTION>

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



                                                                                                                       Deficit
                                                                                                                      Accumulated
                                            Common Stock               Additional       Other       Deferred          During the
                                        ---------------------------      Paid-In      Comprehensive  Consulting        Development
                                             Shares        Amount        Capital        Income       Expense             Stage
                                        ------------   ------------   ------------    ----------   ----------        ------------

<S>                                   <C>          <C>            <C>            <C>               <C>              <C>
Balance, December 31, 1999            32,835,925   $    328,359   $  5,589,224   $          --     $      --        $(10,923,816)


January 4, 2000, common
 stock issued for
debt and consideration
 for loan default
 at $2.75 per share
 (unaudited)                             147,580          1,476        236,024              --            --                --

January 5, 2000, common stock
 issued for services at $4.34 per
 share (unaudited)                        60,000            600        259,800              --            --                --

January 26, 2000, common stock
 issued pursuant to a private
 placement memorandum at $2.10
 per share (unaudited)                    47,619            476         99,524              --            --                --

February 1, 2000, warrants
 granted below market value
 (unaudited)                                --             --           41,242              --            --                --

February 18, 2000, options
 granted below market value
 (unaudited)                                --             --          424,596              --            --                --

February 22, 2000, options
 granted below market value
 (unaudited)                                --             --          624,998              --            --                --

March 9, 2000, common stock
 issued for exercise of warrants
 at $1.99 per share (unaudited)           62,792            628        124,391              --            --                --
                                    ------------   ------------   ------------   ---------------   -----------      ------------

Balance Forward                       33,153,916   $    331,539   $  7,399,799   $          --     $      --        $(10,923,816)
                                    ------------   ------------   ------------   ---------------   -----------      ------------
</TABLE>



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


                                      11
<PAGE>

<TABLE>
<CAPTION>

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


                                                                                                                       Deficit
                                                                                                                      Accumulated
                                            Common Stock               Additional       Other       Deferred          During the
                                        ---------------------------      Paid-In      Comprehensive  Consulting        Development
                                             Shares        Amount        Capital        Income       Expense             Stage
                                        ------------   ------------   ------------    ----------   ----------        ------------

<S>                                       <C>           <C>            <C>               <C>              <C>       <C>
Balance Forward                           33,153,916   $    331,539   $  7,399,799   $       --     $       --      $(10,923,816)


March 16, 2000, common stock
 issued for convertible debenture
 at $1.50 per share (unaudited)               66,667            667         99,333           --             --              --

March 16, 2000, common stock
 issued for exercise of warrants
 at $0.75 per share (unaudited)              133,333          1,333         98,667           --             --              --

March 27, 2000, 3 stock issuances
 for payment of debt at an average
 price of $4.95 per share (unaudited)         46,486            465        231,347           --             --              --

May 26, 2000, options granted below
 market value to purchase 598,680
 shares at $1.50 (unaudited)                    --             --        1,272,195           --             --              --

July 25, 2000, common stock issued
 for conversion of accounts payable
 at $4.00 per share (unaudited)              100,000          1,000        399,000           --         (300,000)           --

July 25, 2000, common stock issued
 for purchase of SIGMA at $3.20 per
 share (unaudited)                         1,718,748         17,187      5,482,813           --             --              --

January 25 - August 14, 2000,
 62 stock issuances pursuant
 to a private placement
 memorandum at average
 price of $3.58 per share (unaudited)      1,930,792         19,308      6,896,423           --             --              --

Warrants granted for consulting
 contract (unaudited)                           --             --          500,000           --         (375,000)           --

August 8, 2000, options granted
 below market value (unaudited)                 --             --          358,000           --             --              --

September 15, 2000, 23 stock
 issuances pursuant to a private
 placement memorandum at $3.00
 per share (unaudited)                     1,000,000         10,000      2,990,000           --             --              --

Currency translation adjustment
 (unaudited)                                    --             --             --          198,127           --              --

Net loss for the nine months
 ended September 30, 2000
 (unaudited) (restated)                         --             --             --             --             --        (6,657,089)
                                        ------------   ------------   ------------   ------------   ------------    ------------

Balance, September 30, 2000
 (unaudited)                              38,149,942   $    381,499   $ 25,727,577   $    198,127   $   (675,000)   $(17,580,905)
                                        ============   ============   ============   ============   ============    ============
</TABLE>



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


                                       12
<PAGE>

<TABLE>
<CAPTION>

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



                                                                                                             From
                                                                                                           Inception
                                                      For the                     For the                      on
                                                  Nine Months Ended          Three Months Ended             March 26
                                                    September 30,                September 30,           1992 Through
                                             ---------------------------------------------------           September 30,
                                               2000            1999           2000         1999              2000
                                           ------------  --------------     -----------  -----------     -------------
                                            (Restated)                       (Restated)                  (Restated)


CASH FLOWS FROM OPERATING
 ACTIVITIES

<S>                                        <C>           <C>                <C>          <C>             <C>
Net loss                                   $ (6,657,089) $   (5,454,762)    $(2,412,977) $(4,503,978)    $ (17,580,905)
                                           ------------  --------------     -----------  -----------     -------------

Adjustments to reconcile net loss to
    net cash provided (used) by
    operating activities:
Depreciation and amortization                   246,069           7,224         168,859        1,280         296,763
     Value of common stock, warrants,
      options and discounts on equity
      instruments issued for services         3,188,931         857,150         358,000      104,993       3,858,540
     Loss on sale of assets                        --           387,649            --        387,649         387,649
     Amortization of debenture discount            --              --              --           --           650,000
     Deferred consulting expense                225,000            --            89,584         --           225,000
     Impairment loss                            400,000            --           400,000         --           400,000
   Change in operating asset
     and liability accounts:
     (Increase) decrease in overpayment
      receivable                               (162,350)           --          (162,350)        --          (162,350)
     (Increase) decrease in prepaid
      assets                                   (348,768)           --           436,648         --          (369,601)
     (Increase) decrease in other assets        775,875          23,943         (68,174)     169,035          96,505
     Increase (decrease) in accounts
      payable                                  (685,586)        959,770         (37,436)     729,547         771,683
     Increase (decrease) in cash
      overdraft                                    --             2,095            --          2,095            --
     Increase (decrease) in accrued
      expenses                                 (150,428)        133,635         (39,800)      23,901         457,488
                                            ------------  --------------     -----------  -----------     -------------

       Net Cash Provided (Used) by
        Operating Activities                 (3,168,349)     (3,083,296)     (1,267,668)  (3,085,478)    (10,969,248)
                                           ------------  --------------     -----------  -----------     -------------

CASH FLOWS FROM INVESTING
 ACTIVITIES

   License agreement payments                  (400,000)           --          (400,000)        --          (400,000)
   Cash acquired from purchase of
    subsidiary                                  142,254            --           142,254         --           142,254
   Proceeds from sale of assets                    --                 1            --              1               1
   Purchase of fixed assets                    (745,615)         (1,738)           --          1,738)       (853,684)
   Equipment procurement costs                     --          (364,110)           --       (364,110)       (364,110)
                                           ------------  --------------     -----------  -----------     -------------

       Net Cash (Used) by Investing
        Activities                         $ (1,003,361) $     (365,847)    $  (257,746) $  (365,847)    $(1,475,539)
                                           ------------  --------------     -----------  -----------     -------------
</TABLE>




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



                                       13
<PAGE>

<TABLE>
<CAPTION>

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



                                                                                                                    From
                                                                                                                  Inception
                                                             For the                     For the                      on
                                                         Nine Months Ended          Three Months Ended             March 26
                                                           September 30,                September 30,           1992 Through
                                                    ---------------------------------------------------           September 30,
                                                      2000            1999           2000         1999              2000
                                                  ------------  --------------     -----------  -----------     -------------
                                                   (Restated)                       (Restated)                  (Restated)

CASH FLOWS FROM FINANCING
 ACTIVITIES

<S>                                               <C>           <C>                <C>          <C>            <C>
Repayment of note payable - related
 parties                                          $ (2,566,019) $    (199,875)     $     --     $  (199,875)   $ (2,814,274)

Loans from related parties                              82,178      2,795,834            --       2,795,834       7,306,465
Issuance of convertible debentures                   --               650,000            --         650,000         650,000
Common stock issued for cash                        10,240,750        200,000       3,090,890       200,000      11,256,071
                                                  ------------  --------------     -----------  -----------     -------------

       Net Cash Provided (Used) by
        Financing Activities                         7,756,909      3,445,959       3,090,890     3,445,959      16,398,262
                                                  ------------  --------------     -----------  -----------     -------------

NET INCREASE (DECREASE) IN
CASH AND CASH  EQUIVALENTS                           3,585,199         (3,184)      1,565,476        (5,366)      3,953,475

CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                                   368,276          3,184       2,387,999         5,366            --
                                                  ------------  --------------     -----------  -----------     -------------

CASH AND CASH EQUIVALENTS AT
 END OF PERIOD                                    $  3,953,475  $     --           $3,953,475   $    --        $  3,953,475
-----------

CASH PAID FOR:

   Interest                                       $     12,946  $     --           $     --      $    --
$  12,946
   Income taxes                                   $      --  $        --           $     --      $    --

NON-CASH FINANCING AND
   INVESTING ACTIVITIES

   Common stock issued for services
    and  equity discounts                         $  3,188,931  $     857,150      $     358,000  $ 104,993    $  3,858,540

   Common stock issued for conversion
    of debt                                       $    831,812  $     --           $     300,000  $    --      $  2,167,225

   Equity instruments issued for deferred
    consulting expense                            $    900,000  $     --           $     900,000  $    --      $    900,000

   Acquisition of licenses through license
    agreement payable                             $  6,940,000  $     --           $   6,940,000  $    --      $  6,940,000

   Acquisition of subsidiary:
   Assets acquired                                $  1,272,392
   Liabilities assumed                              (2,362,148)
   Goodwill                                          6,589,756
                                                    ----------------
          Purchase price                             5,500,000
   Payment with 1,718,748 shares of
     common stock                                   (5,500,000)
                                                    ----------------
   Cash used for acquisition                      $           -
                                                    ================
</TABLE>



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


                                       14
<PAGE>



                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

NOTE 1 -      ORGANIZATION AND DESCRIPTION OF BUSINESS

              The consolidated financial statements presented are those of Ocean
              Power Corporation and its wholly-owned Subsidiaries (the Company).

              The Company  has had limited  activities  since  inception  and is
              considered a  development  stage  company  because no  significant
              revenues have been realized and planned principal  operations have
              not yet  commenced.  The  Company  is  planning  to  engage in the
              business  of  developing  and  marketing  water  desalination  and
              renewable power  generation  systems that will be modular and mass
              produced.  The Company plans to pursue  regional joint ventures in
              water and power  challenged  markets to build,  own,  operate  and
              transfer modular seawater desalination and power plants.

              PTC  Holdings,  Inc.  (Holdings)  (formerly H Power  Technologies,
              Inc.) was  incorporated  on March 26,  1992  under the laws of the
              State of  Delaware  to engage in any  lawful act or  activity  for
              which corporations may be organized under the General  Corporation
              Laws of Delaware.

              PTC Group, Inc., (Group) (formerly Intryst, Inc.) was incorporated
              under the laws of the State of Idaho on April 24, 1969.

              On June 22, 1999,  Group and Holdings  completed an Agreement  and
              Plan of  Merger  whereby  Group  issued  25,044,146  shares of its
              common stock in exchange for all of the  outstanding  common stock
              of  Holdings.  Immediately  prior  to the  Agreement  and  Plan of
              Merger,  Group had  6,291,450  shares of common  stock  issued and
              outstanding.    The   acquisition   was   accounted   for   as   a
              recapitalization  of Holdings because the shareholders of Holdings
              controlled Group after the  acquisition.  At the effective date of
              the transaction, each share of Holdings controlled Group after the
              acquisition. At the effective date of the transaction,  each share
              of  Holdings  was  converted  into 3.48 shares of Group with Group
              being the surviving entity in the merger.  Holdings was treated as
              the  acquiring  entity for  accounting  purposes and Group was the
              surviving  entity for legal  purposes.  There was no adjustment to
              the carrying value of the assets or  liabilities of Holdings,  nor
              was there any  adjustment to the carrying  value of the net assets
              of Group.  Costs of  approximately  $245,000  associated with this
              transaction  were  expensed as incurred.  On August 19, 1999,  the
              shareholders  of the Company  authorized a 1 for 10 reverse  stock
              split at which  time the par  value  was  changed  form  $0.001 to
              $0.01.  A result of this par value change is that the common stock
              issuances  prior to June 22,  1999  which  had been  valued at the
              original  par  value  of  $0.001  now  reflect  a  deficit  in the
              additional  paid-in  capital.  All  references to shares of common
              stock have been retroactively restated.

              On  July  12,  1999,   Group  changed  its  name  to  Ocean  Power
              Corporation (Idaho).

              On July 21, 1999,  Ocean Power  Corporation  (Delaware) was formed
              for  the  purpose  of  changing   the   domicile  of  Ocean  Power
              Corporation (Idaho).

              On July 28, 1999, Delaware and Idaho merged to change the domicile
              from Idaho to Delaware with Delaware being the surviving entity.


                                       15
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 1 -      ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)

              The Subsidiaries:

              Integrated Water and Power  Corporation  (IWP) (formerly Clean Air
              Power Technologies  Corporation)  (formerly Advanced  Technologies
              Manufacturing  Corporation)  was incorporated on December 11, 1996
              under the laws of the State of  Delaware  to engage in any  lawful
              act or activity for which  corporations may be organized under the
              General Corporation Laws of Delaware. IWP is currently inactive.

              Advanced  Power  Sources   Corporation  (APS)  (formerly  ZE-Power
              Technologies   Corporation)  (formerly  P.T.C.   Corporation)  was
              incorporated  on March  26,  1992  under  the laws of the State of
              Delaware  to  engage  in any  lawful  act or  activity  for  which
              corporations  may be organized under the General  Corporation Laws
              of Delaware. APS is currently inactive.

              Manufacturing  Technologies  Corporation (MTC) was incorporated on
              January 7, 1997 under the laws of the State of  Delaware to engage
              in any  lawful  act or  activity  for  which  corporations  may be
              organized under the General  Corporation Laws of Delaware.  MTC is
              currently inactive.

              SIGMA Elektroteknisk, AS (SIGMA), a company acquired in 2000 (Note
              7) was  incorporated  on  January  6,  1994  under the laws of the
              Country  of Norway to engage in the  business  of  developing  and
              producing  personal  combustion  power plants  (PCP's),  an energy
              converter  utilizing a Stirling engine that runs on natural gas or
              propane and  produces  heat and  electricity  for use in micro CHP
              (combined  heat and power)  systems,  an appliance to produce heat
              and power in households.

              Ocean Power UK Limited  (UK) was  incorporated  as a  wholly-owned
              subsidiary  on October 31, 2000 under the laws of Great Britain to
              serve as a sales and marketing company in Europe.

NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

              a.  Accounting Method

              The Company's consolidated financial statements are prepared using
              the  accrual  method of  accounting.  The  Company  has  elected a
              December 31 year end.



                                       16
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              b.  Basic Loss Per Share

              The  computation  of basic loss per share of common stock is based
              on the weighted  average number of shares  outstanding  during the
              period of the financial statements.  Diluted loss per share is not
              presented  because it is equal to basic loss per share as a result
              of the antidilutive nature of the stock equivalents.  The earnings
              per share for periods prior to the business  combination have been
              restated to reflect the  equivalent  number of shares  received by
              Holdings.

<TABLE>
<CAPTION>
                                                     For the                                For the
                                                Nine Months Ended                       Three Months Ended
                                                 September 30,                            September 30,
                                     -------------------------------------  ---------------------------------------
                                              2000             1999                2000                 1999
                                     -----------------  ------------------  ------------------  ------------------
                                        (Unaudited)       (Unaudited)         (Unaudited)          (Unaudited)
                                         (Restated)                            (Restated)
<S>                                  <C>                <C>                 <C>                 <C>
              Net loss from
               operations
                (numerator)          $      (6,657,089) $       (5,454,762) $       (2,412,977) $       (4,503,978)

              Weighted average
               shares outstanding
                (denominator)               35,282,677           6,564,458          36,405,608           8,907,326
                                     -----------------  ------------------  ------------------  ------------------

              Basic (loss) per
               share                 $           (0.19) $            (0.83) $            (0.07) $            (0.51)
                                     =================  ==================  ==================  ==================

              Extraordinary item
               (numerator)           $         165,341  $                -  $                -  $                -

              Weighted average
               shares outstanding
               (denominator)                35,282,677           6,564,458          36,405,608           8,907,326
                                     -----------------  ------------------  ------------------  ------------------

                                     $               -  $                -  $                -  $                -
                                     =================  ==================  ==================  ==================
</TABLE>

              c.  Provision for Taxes

              The Company  accounts  for income  taxes under the  provisions  of
              Statement  of  Financial  Accounting  Standards  (SFAS)  No.  109,
              Accounting  for Income  Taxes,  using the  liability  method.  The
              estimated  future tax effect of  differences  between the basis in
              assets  and  liabilities  for  tax  and  accounting   purposes  is
              accounted for as deferred taxes. In accordance with the provisions
              of SFAS No. 109, a valuation  allowance  would be  established  to
              reduce  deferred  tax assets if it were more  likely than not that
              all, or some  portion,  of such  deferred  tax assets would not be
              realized.  A  full  allowance  against  deferred  tax  assets  was
              provided as of September 30, 2000.


                                       17
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              c.  Provision for Taxes (Continued)

              At  September  30,  2000,  the  Company  has  net  operating  loss
              carryforwards  of  approximately  $14,000,000  that may be  offset
              against  future  taxable  income  through 2020. No tax benefit has
              been  reported  in the  financial  statements  because the Company
              believes there is a 50% or greater chance the  carryforwards  will
              expire unused. Accordingly, the potential tax benefits of the loss
              carryforwards  are  offset by a  valuation  allowance  of the same
              amount.

              d.  Cash and Cash Equivalents

              The Company considers all highly liquid  investments with maturity
              of three months or less when purchased to be cash equivalents.

              e.  Principles of Consolidation

              The  September  30,  2000  unaudited   financial   statements  are
              consolidated  with Ocean Power  Corporation  and its  wholly-owned
              subsidiaries,  Integrated  Water and Power  Corporation,  Advanced
              Power Sources Corporation,  Manufacturing Technologies Corporation
              and  SIGMA  Elektroteknisk,   AS.  All  significant   intercompany
              accounts and transactions have been eliminated.

              f.  Equipment

              Office   equipment  and  software  are  recorded  at  cost.  Major
              additions and renewals are capitalized and depreciated  over their
              estimated useful lives using the straight-line  method.  Leasehold
              improvements  are  depreciated  over the  shorter of their  useful
              lives or the lease term.  Depreciation expense for the nine months
              ended  September  30,  2000  and  1999  was  $96,507  and  $7,244,
              respectively.

              Equipment consists of the following:
<TABLE>
<CAPTION>

              Estimated                                                          September 30,     December 31,
              Useful Life                                                            2000                1999
              -----------                                                   ------------------  ------------------
                                                                               (Unaudited)

<S>           <C>                    <C>                                       <C>                 <C>
              20 years               Distillation equipment                 $          564,110  $                -
              5-7 years              Office equipment and furniture                    226,494              36,748
              3-5 years              Computers and software                             89,733              46,834
              7 years                Phone system                                       19,667              19,667
              7 years                Leasehold improvements                              9,590                   -
                                     Artwork                                             1,374                   -
                                     Accumulated depreciation                         (255,128)            (50,694)
                                                                            ------------------  ------------------

                                     Net Equipment                          $          655,840  $           52,555
                                                                            ==================  ==================
</TABLE>



                                       18
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              g.  Goodwill

              The cost of investment in subsidiaries in excess of the fair value
              of net assets at the date of  purchase is being  amortized  by the
              straight-line  method  over a period  of ten  years.  Amortization
              expense for the nine months ended  September 30, 2000 and 1999 was
              $109,829 and zero, respectively.

              h.  Estimates

              The  preparation  of  financial   statements  in  conformity  with
              generally accepted  accounting  principles  requires management to
              make estimates and assumptions that affect the reported amounts of
              assets and  liabilities  and  disclosure of contingent  assets and
              liabilities  at the  date  of the  financial  statements  and  the
              reported  amounts of revenues  and expenses  during the  reporting
              period. Actual results could differ from those estimates.

              i.  Change in Accounting Principle

              The Company has adopted the  provisions of FASB  Statement No. 138
              "Accounting  for  Certain   Derivative   Instruments  and  Hedging
              Activities, (an amendment of FASB Statement No. 133.)" Because the
              Company had  adopted the  provisions  of FASB  Statement  No. 133,
              prior to June 15, 2000, this statement is effective for all fiscal
              quarters  beginning  after June 15,  2000.  The  adoption  of this
              principle  had no material  effect on the  Company's  consolidated
              financial statements.

              The Company has adopted the  provisions of FASB  Statement No. 140
              "Accounting  for Transfers  and Servicing of Financial  Assets and
              Extinguishments  of  Liabilities  (a replacement of FASB Statement
              No.  125.)"  This  statement  provides  accounting  and  reporting
              standard for  transfers  and  servicing  of  financial  assets and
              extinguishments  of  liabilities.  Those  standards  are  based on
              consistent  application  of a  financial-components  approach that
              focuses on control. Under that approach, the transfer of financial
              assets,  the Company recognized the financial and servicing assets
              it controls  and the  liabilities  it has  incurred,  derecognizes
              financial   assets  when   control  has  been   surrendered,   and
              derecognizes   liabilities  when   extinguished.   This  statement
              provides  consistent  standards  for  distinguishing  transfers of
              financial  assets that are sales from  transfers  that are secured
              borrowings.   This   statement  is  effective  for  transfers  and
              servicing of financial assets and  extinguishments  of liabilities
              occurring  after March 31, 2001.  This  statement is effective for
              recognition and reclassification of collateral and for disclosures
              relating to securitization  transactions and collateral for fiscal
              years  ending  after  December  15,  2000.  The  adoption  of this
              principle  had no material  effect on the  Company's  consolidated
              financial statements.



                                       19
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              i.  Change in Accounting Policy (Continued)

              The Company has adopted the provisions of FIN 44  "Accounting  for
              Certain    Transactions    Involving   Stock    Compensation   (an
              interpretation  of APB Opinion No.  25.)" This  interpretation  is
              effective  July 1,  2000.  FIN 44  clarifies  the  application  of
              Opinion No. 25 for only  certain  issues.  It does not address any
              issues  related to the  application  of the fair  value  method in
              Statement  No.  123.  Among other  issues,  FIN 44  clarifies  the
              definition  of employee for  purposes of applying  Opinion 25, the
              criteria   for   determining   whether  a  plan   qualifies  as  a
              noncompensatory  plan,  the  accounting   consequence  of  various
              modifications  to the terms of a previously  fixed stock option or
              award, and accounting for an exchange of stock compensation awards
              in a business  combination.  The adoption of this principle had no
              material   effect   on  the   Company's   consolidated   financial
              statements.

              j.  Revenue Recognition Policy

              The  Company   currently  has  no  source  of  revenues.   Revenue
              recognition  policies will be determined when principal operations
              begin.

              k.  Advertising

              The  Company   follows  the  policy  of  charging   the  costs  of
              advertising to expense as incurred.

              l.  Long-lived Assets

              In accordance with SFAS No. 121,  Accounting for the Impairment of
              Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed  Of,
              long-lived  assets,   including  goodwill  associated  with  other
              long-lived assets, are evaluated for impairment whenever events or
              changes in  circumstances  indicate that the carrying amount of an
              asset  may  not be  recoverable.  Goodwill  acquired  as  part  of
              business  combinations is also evaluated  continuously per ABP No.
              17, Intangible Assets, for the need for adjustments to useful life
              and  reductions  in  unamortized  costs.  Any changes in estimated
              useful  life  are  recorded   prospectively   and  any  impairment
              adjustments  are recorded as expense in the period the  impairment
              occurs.  Since the Company's goodwill and patent intangible assets
              are related to the Company's subsidiary,  Sigma, they are assessed
              to  determine  the  appropriateness  of the  useful  life used for
              amortization  and  are  assessed  to  determine   whether  or  not
              impairment  exists  under  both APB No.  17 and  SFAS  No.  121 by
              comparing Sigma's progress to the Company's benchmark expectations
              for  development of its technology and  positioning for commercial
              operations  of its  alternative  energy  business.  Likewise,  the
              intangible assets recorded in connection with



                                       20
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              l.  Long-lived Assets (Continued)

              the Company's  licensing  agreement  with Aquamax and Keeran (Note
              13f) is assessed to determine  whether or not impairment exists by
              comparing   the   Company's   progress  in   development   of  the
              desalination  business  as  compared  to the  Company's  benchmark
              expectations  for development of its technology and positioning of
              the desalination business for commercial operations. The amount of
              any  impairment   considered  necessary  would  be  determined  by
              comparing the book value of the net assets in the applicable  line
              of business to fair value using methods such as the  present-value
              of  estimated  future  cash flows,  sale value or other  valuation
              methodologies  available  at the time,  depending  on the stage of
              development  of the line of business and the Company's  intentions
              at the time an impairment adjustment were considered necessary.

              m.  Research and Development

              All amounts  expended for research and  development are charged to
              expense as  incurred.  The Company  expensed  $223,156 and $-0- as
              research and development for the nine months ending  September 30,
              2000 and 1999, respectively.

              n.  Unaudited Financial Statements

              The  accompanying   unaudited  consolidated  financial  statements
              include  all  of  the   adjustments   which,  in  the  opinion  of
              management,   are   necessary  for  a  fair   presentation.   Such
              adjustments are of a normal recurring nature.

              The  following  is a  reconciliation  of the  September  30,  2000
              financial  statements  as  originally  reported  to  the  restated
              September 30, 2000 financial statements:
<TABLE>
<CAPTION>

                                                     As Reported         As Adjusted         Difference
                                                   ------------------  -----------------  ------------------

<S>                                                <C>                 <C>                <C>                   <C>
                      Assets                       $       13,011,966  $      19,309,616  $        6,297,650    (1)

                      Liabilities                           4,717,518         11,257,518           6,540,000    (2)

                      Net Loss                             11,619,680          6,657,089          (4,962,591)   (3)

                      Stockholders' Equity                  8,294,448          8,052,098            (242,350)   (4)

                      Loss per share               $            (0.33) $           (0.19) $             0.14

</TABLE>




                                       21
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              n.   Unaudited Financial Statements (Continued)
(1)                Difference   consists  of  (i)  an  increase  by   $6,522,650
                   representing the cost of license agreement intangible assets,
                   net of an impairment  adjustment of $400,000 and amortization
                   of $17,350,  for which the effective date of acquisition  was
                   determined  to be in September  2000 rather than October 2000
                   as  previously  reported  and  (ii) a  decrease  of  $225,000
                   representing  revaluation of a deferred consulting  agreement
                   being presented as an offset to stockholders' equity.

              (2)  Difference consists of liability  associated with purchase of
                   license  agreement  intangible assets for which the effective
                   date of  acquisition  was  determined to be in September 2000
                   rather than October 2000 as previously reported.

              (3)  Difference  consists of (i) revaluation of equity instruments
                   of  $4,396,941   due  to  the   non-recognition   of  expense
                   associated  with  the  sale  of  common  stock  units,   (ii)
                   amortization  of  deferred  consulting  expense of  $225,000,
                   (iii) recognition of expense of $358,000  associated with the
                   grant of options, and (iv) amortization expense in connection
                   with  license   agreement   intangible   assets  recorded  in
                   September 2000.

              (4)  Difference consists of (i) offset to stockholders'  equity of
                   $225,000 representing a deferred consulting agreement payable
                   in stock and (ii)  amortization  expense in  connection  with
                   license  agreement  intangible  assets  recorded in September
                   2000.

              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  person and dated on the original September signing
              date) were received by us 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. Therefore,  the September 30, 2000 financial statements were
              amended to reflect the transaction as occurring in September.  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  was 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 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 to 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


                                       22
<PAGE>




                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              n.  Unaudited Financial Statements (Continued)

              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.

              o.  Software Costs

              The Company applies the provisions of SOP 98-1 "Accounting for the
              Costs of Computer  Software  Developed  or Obtained  for  Internal
              Use".  All  softwear  used  by the  Company  is  considered  to be
              purchased general use software and is capitalized  pursuant to the
              Company's fixed asset capitalization policies.

              p.  Stock Options and Warrants

              As permitted by FASB  Statement  123  "Accounting  for Stock Based
              Compensation"  (SFAS No. 123), the Company  elected to measure and
              record  compensation  cost relative to employee stock option costs
              in accordance with Accounting Principles Board ("APB") Opinion 25,
              "Accounting   for  Stock   Issued  to   Employees,"   and  related
              interpretations  and make proforma  disclosures  of net income and
              earnings  per share as if the fair value  method of valuing  stock
              options had been applied.  Under APB Opinion 25, compensation cost
              is  recognized  for stock  options  granted to employees  when the
              option  price is less  than  the  market  price of the  underlying
              common stock on the date of grant. As of September 30, 2000, there
              were 598,680 options outstanding which were granted to employees.

              q.  Valuation of Options and Warrants

              The  valuation  of options and  warrants  granted for  services to
              unrelated  parties are  measured as of the earlier (1) the date at
              which a commitment for performance by the counterparty to earn the
              equity  instrument  is reached or (2) the date the  counterparty's
              performance  is  complete.  Pursuant to the  requirements  of EITF
              96-18,  the options and warrants  will  continue to be revalued in
              situations  where they are granted prior to the  completion of the
              performance.



                                       23
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              r.  Foreign Currency Translation

              The value of the U.S. dollar rises and falls day-to-day on foreign
              currency  exchanges.  Since the Company  does  business in certain
              foreign countries  (principally Norway), these fluctuations affect
              the Company's  financial  position and results of  operations.  In
              accordance with SFAS No. 52, "Foreign  Currency  Translation," all
              foreign  assets  and  liabilities  have  been  translated  in  the
              preparation  of  the  consolidated  financial  statements  at  the
              exchange rates  prevailing at the respective  balance sheet dates,
              and all  income  statement  items have been  translated  using the
              weighted average exchange rates during the respective periods. The
              net gain or loss resulting from translation upon  consolidation of
              the   financial   statements   is  reported  as  a  component   of
              comprehensive  income of each period with the accumulated  foreign
              currency  gain or  loss  reported  as a  component  of the  equity
              category  for  comprehensive  income.  Some  transactions  of  the
              Company  and its  foreign  subsidiaries  are  made  in  currencies
              different from their own.  Translation gains and losses from these
              transactions in foreign  currencies are included in income as they
              occur.

              In  accordance  with SFAS No. 95,  "Statement  of Cash Flows," the
              cash flows of the Company's foreign subsidiary is translated using
              the weighted average exchange rates during the respective  period.
              As a result,  amounts in the  statement  of cash flows  related to
              changes in asset and liabilities  will not necessarily  agree with
              the changes in the  corresponding  balances  on the balance  sheet
              which  were  translated  at the  exchange  rate  at the end of the
              period.  The effect of exchange  rate  changes on foreign cash and
              cash  equivalents  is  reported  as  a  separate  element  of  the
              statement of cash flows, if significant.

              s.  Restricted Cash

              At September 30, 2000, the Company's subsidiary, Sigma had cash of
              $26,816  which is in a separate  bank account  which is restricted
              for the  payment  of payroll  taxes.  The  payroll  taxes are paid
              monthly.

NOTE 3 -      ADVANCES

              During 1997,  1998,  1999 and 2000, the Company made cash advances
              of $663,965 to employees. The advances were formalized through the
              signing of notes receivable  bearing interest at 7% per annum with
              each employee at the end of each year. Per the terms of the notes,
              interest  is added to the  balance of the notes at the end of each
              year.



                                       24
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 3 -      ADVANCES (Continued)

              During the nine months ended  September 30, 2000,  employees  have
              repaid $366,870 of the total advances.

              Advances to employees for the periods ending:

                   December 31, 1997 - 1999                 $          292,095
                   September 30, 2000                                    9,122
                                                            ------------------

                          Total Advances                    $          301,217
                                                            ==================

NOTE 4 -      EQUIPMENT PROCUREMENT COSTS

              During July and August 1999,  the Company made deposits on a vapor
              compression distillation unit to be used in the development of its
              water desalination system in the amount of $300,000.

              During September 1999, the Company paid moving, storage and set up
              costs on the above mentioned equipment of $64,110.

              During March 2000, the Company paid the remaining $200,000 on this
              equipment and capitalized a total of $564,110.

NOTE 5 -      PREPAID EXPENSES

              The Company's prepaid expense is comprised of the following items:

                                      September 30,     December 31,
                                               2000               1999
                                      ------------------  ------------------
                                        (Unaudited)

            Prepaid maintenance       $              464  $                -
            Prepaid insurance                      5,371                   -
            Prepaid license agreement            250,000                   -
                                      ------------------  ------------------

            Total prepaid expenses               255,835                   -
            Less current portion                (255,835)                  -
                                      ------------------  ------------------
            Long-Term Portion         $                -  $                -
                                      ==================  ==================

              During  March  2000,  the Company  entered  into an  agreement  to
              purchase a motor from STM Corporation (STM) for the development of
              its  desalination  equipment  for  $132,200.  This motor was never
              delivered  to the  Company.  In  addition  to this  purchase,  the
              Company  entered  into a thirty year  license  agreement to obtain
              certain exclusive rights to STM patented and unpatented technology
              related to Stirling cycle heat engines, which began in April 2000,
              for a minimum payment of $500,000 per year. At September 30, 2000,
              the  Company  had a net  prepaid  $250,000  towards  this  license
              agreement after amortization.



                                       25
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

NOTE 5 -      PREPAID EXPENSES (Continued)

              The Company also entered  into a service  agreement  for the motor
              beginning  May 2000.  The  agreement  called  for the  payment  of
              $192,500  for one year.  During  July,  the Company  canceled  the
              agreement for the purchase of the motor and the service  agreement
              and was refunded $324,700 between August 2000 and November 2000.

NOTE 6 -      PATENTS

              The  Company's  patents and license  agreements  consisted  of the
following at September 30, 2000:

                   Patents                                  $          955,598
                   Licensing Agreement                               6,540,000
                   Accumulated amortization                            (39,733)
                                                            ------------------

                                                            $        7,455,865

              As part of the  purchase of Sigma,  the Company  acquired  patents
              valued  at their  fair  value of  $973,658.  The  patents  have an
              estimated  remaining  life of 90 months from the date of the Sigma
              acquisition. The patents are pledged as collateral for obligations
              of $595,583 at September 30, 2000 (Note 9). The license  agreement
              represents rights to patent and patent applications for technology
              acquired  from  Aquamax  and Keeran  (Note  13f).  The cost of the
              license  agreement is being  amortized  over its estimated  useful
              life  of 10  years.  Amortization  expense  for the  period  ended
              September 30, 2000 and  accumulated  amortization at September 30,
              2000 amounted to $22,383 and $22,383,  respectively  (Patents) and
              $17,350 and $17,350, respectively (Licensing Agreement).

NOTE 7 -      BUSINESS COMBINATION

              On August 12, 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 purchase 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 is being amortized over 10 years
              by the  straight-line  method.  Amortization  expense  amounted to
              $109,829 at September 30, 2000.

              The  results  of   operations   of  SIGMA  are   included  in  the
              consolidated financial statements from the date of acquisition.




                                       26
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 7  -     BUSINESS COMBINATION (Continued)

              Unaudited pro forma  consolidated  results of  operations  for the
              year ended  December 31, 1999 as though SIGMA had been acquired as
              of January 1, 1999 follows:

                                                                  December 31,
                                                                    1999

                   Sales                                    $                -
                   Net loss                                         (7,917,634)
                                                            ==================

                   Earnings per share                       $            (0.29)
                                                            ==================

              The unaudited  proforma  results of operations are not necessarily
              indicative of what the results would have been had the acquisition
              actually occurred on the dates indicated,  and are not necessarily
              representative of future results of operations.

NOTE 8 -      NOTES PAYABLE - RELATED PARTIES
<TABLE>
<CAPTION>

              Notes payable - related party at September 30, 2000 consist of the
following:

<S>                                                                                              <C>
              Unsecured note payable to a shareholder bearing interest
               at 10% per annum, all unpaid interest and principal due
               upon demand, secured by personal guarantee of officer.                            $          87,152

              Unsecured note payable to an employee bearing interest
               at 10% per annum, all unpaid interest and principal due
               upon demand.                                                                                286,380

              Unsecured note payable to an officer bearing interest at
               10% per annum, due upon demand.                                                             419,649

              Unsecured note payable to an employee bearing interest at
               10% per annum, due upon demand.                                                              55,131

              Unsecured note payable to an employee bearing interest at
               10% per annum, due upon demand.                                                             248,987

              Unsecured note payable to an employee bearing interest at
               10% per annum, due upon demand.                                                              66,564

              Unsecured note payable to an employee bearing interest at
               10% per annum, due upon demand.                                                             118,345

              Unsecured note payable to an employee bearing interest at
               10% per annum, due upon demand.                                                               5,429
                                                                                                 -----------------

              Balance Forward                                                                    $       1,287,637
                                                                                                 -----------------
</TABLE>


                                       27
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>


<S>                                                                                              <C>
NOTE 8 -      NOTES PAYABLE - RELATED PARTIES (Continued)

              Balance Forward                                                                    $       1,287,637

              Unsecured note payable to an employee bearing interest at
               10% per annum due upon demand.                                                               71,494

              Unsecured note payable to an employee bearing interest at
               10% per annum, due upon demand.                                                               1,495
                                                                                                 -----------------

              Total Notes Payable - Related Parties                                              $       1,360,626
                                                                                                 =================

              Annual  maturities  of notes  payable  -  related  parties  are as
follows:

                                Year
                         -------------------
                                2000                                                             $       1,360,626
                                                                                                 =================
</TABLE>

              Total  interest  expense  to  related  parties  was  $142,270  and
              $247,307  for the nine months ended  September  30, 2000 and 1999,
              respectively.

              During the nine  months  ended  September  30,  2000,  the Company
              settled  amounts due of $511,575  with three  previously  employed
              persons for  $346,234,  resulting in a gain on  extinguishment  of
              debt of $165,341.  The former employees  settled to accelerate the
              repayment process.

NOTE 9 -      NOTES PAYABLE
<TABLE>
<CAPTION>

<S>                                                                                             <C>
              Notes payable at September 30, 2000 consist of the following:

              Note payable to SND bearing a variable  interest  rate,  (10.9% at
               September 30, 2000) due in equal semi-annual
               payments which began May 1, 2000, unsecured.                                      $         146,545

              Note payable to SND bearing a variable  interest  rate,  (10.9% at
               September 30, 2000) due in equal semi-annual
               payments which began May 10, 2000, unsecured.                                               573,195

              Notes  payable to Silent Clean Power  bearing  interest at 12.00%,
               due in equal semi-annual payments, secured
               by patents and licenses.                                                                    595,583

              Note payable to SND bearing a variable  interest  rate,  (10.9% at
               September 30, 2000) due in equal semi-annual
               payments which began April 3, 2000, unsecured.                                               52,814
                                                                                                 -----------------

              Total Notes Payable                                                                $       1,368,137
                                                                                                 =================
</TABLE>


                                       28
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 9 -      NOTES PAYABLE (Continued)

              Annual maturities of notes payable are as follows:

                         Years Ending
                         December 31,

                               2000          $         647,559
                               2001                    395,073
                               2002                    325,505
                                             -----------------

                                             $       1,368,137

              Total  interest  expense  was $20,594 and $-0- for the nine months
              ended September 30, 2000 and 1999, respectively.

NOTE 10 -      CONVERTIBLE DEBENTURES

               During  November  1999,  the  Company  issued  three  convertible
               debentures  for $100,000  each in exchange  for Company  expenses
               such as  advertising,  promotion,  travel and investor  relations
               expenses  incurred  by the  Company  and  paid on  behalf  of the
               Company  from  January 1999  through  November  1999.  Two of the
               debentures  are due August 1, 2004 and the third is due  November
               1, 2004. The  debentures  accrue  interest at 12% per annum.  The
               holders of the  debentures  retain  the  option to convert  for a
               period of five years any  portion of the debt into the  Company's
               restricted common stock at a price of $1.50 per share. Any shares
               issued under the conversion  privileges of these debentures carry
               two  purchase  warrants  allowing  the  holder  to  purchase  one
               additional  restricted share for each share purchase warrant held
               at a price of $0.75 per share.  The share  purchase  warrants are
               valid for five years after the date of purchase. Interest expense
               associated with these debentures amounted to $18,750 at September
               30, 2000.

               During March 2000,  66,667  shares of common stock were issued to
               convert  one  of  the  three   debentures  and  133,333  warrants
               associated  with  the  convertible  debenture  were  granted  and
               exercised.

               During November 1999, the Company issued a convertible  debenture
               for   $350,000  in  exchange   for  Company   expenses   such  as
               advertising,  promotion,  travel and investor  relations expenses
               incurred by the  Company  and paid on behalf of the Company  from
               January  1999 to November  1999.  The  debenture is due August 1,
               2004 and  accrues  interest  at 12% per annum.  The holder of the
               debenture  retains  the  option to  convert  for a period of five
               years  any  portion  of the debt  into the  Company's  restricted
               common  stock at a price of $1.50 per share.  Any  shares  issued
               under the conversion  privileges of this debenture also carry two
               purchase  warrants allowing the holder to purchase one additional
               restricted  share for each share purchase warrant held at a price
               of $0.75 per share.  The share  purchase  warrants  are valid for
               five  years  after  the  date  of  purchase.   Interest   expense
               associated  with this debenture  amounted to $31,500 at September
               30, 2000.



                                       29
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 10 -      CONVERTIBLE DEBENTURES (Continued)

               The Company recorded a discount on the convertible  debentures in
               order to allocate to additional  paid-in capital the value of the
               beneficial conversion features of the debentures.  The beneficial
               conversion  features consist of the debenture  holder's rights to
               convert the debentures  into units,  each unit  consisting of one
               share of restricted  common stock (at a conversion ratio equal to
               $1.50 per  share  which was the  trading  value of the  Company's
               unrestricted  common stock measured as of the date of issuance of
               the debentures) and two attached  warrants giving the holders the
               right to purchase two shares of restricted  common stock (each at
               an exercise  price equal to $0.75 per share less than the trading
               value of the Company's unrestricted stock measured at the date of
               issuance  of  the  debentures).   The  value  of  the  beneficial
               conversion  features  was computed as the lesser of (1) the value
               of the warrants or (2) total  proceeds of the  debentures.  As of
               the date of the issuance of the  debentures,  the entire proceeds
               were allocated to additional  paid-in capital and a corresponding
               discount  offsetting  the  liability  under the  debentures.  The
               discount  was fully  amortized  to interest  expense  because the
               debenture holders could have converted the debentures immediately
               when the debenture was issued.  During 2000,  interest expense of
               $650,000  was  recognized  as the result of  amortization  of the
               discount.

NOTE 11 -      ACCRUED EXPENSES

               The  company's  accrued  expenses are  comprised of the following
items:
<TABLE>
<CAPTION>

                                                                                 September 30,    December 31,
                                                                                      2000              1999
                                                                              -----------------  -----------------
                                                                                 (Unaudited)
<S>                                                                           <C>                <C>
                  Accrued payroll taxes payable                               $          11,119  $          50,411
                  Accrued interest payable - payroll                                     52,717             52,717
                  Accrued payroll tax penalty                                            98,845             98,845
                  Accrued interest payable - notes                                       56,750            124,609
                  Accrued other taxes                                                     3,890                  -
                  Accrued vacation wages payable                                         17,274                  -
                  Accrued license agreement payable (Note 13f)                        6,540,000                  -
                                                                              -----------------  -----------------

                                Total                                         $       6,780,595  $         326,582
                                                                              =================  =================
</TABLE>

               During 1997,  1998, 1999 and 2000, the Company made cash advances
               of $678,965 to employees.  Due to the advances resembling payroll
               activities,  the  Company  has  accrued  payroll  taxes  for  the
               employer's portion at 7.65%,  interest at 8% and penalties at 15%
               for each year.  During the nine months ended  September 30, 2000,
               the Company repaid  $889,389 of the accrued  payroll  amounts for
               1997,  1998 and 1999  through  payroll  in 2000,  resulting  in a
               reduction in accrued payroll taxes of $50,411.



                                       30
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 12 -      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 significant operating
               revenues  and,   planned   principal   operations  have  not  yet
               commenced.  The Company has  incurred  losses from its  inception
               through  September  30, 2000 of  approximately  $17,600,000.  The
               Company does not have an established  source of funds  sufficient
               to  cover  its  operating  costs  and,   accordingly,   there  is
               substantial  doubt  about  its  ability  to  continue  as a going
               concern.

               In order to  continue  as a going  concern,  develop  a  reliable
               source of revenues, and achieve a profitable level of operations,
               the Company will need,  among other  things,  additional  capital
               resources.  Management's  plans to  continue  as a going  concern
               include  raising  additional  capital  through the sale of common
               stock,  the  proceeds  of  which  will  be used  to  develop  the
               Company's   products,   pay   operating   expenses   and   pursue
               acquisitions and strategic alliances. The Company expects that it
               will need  $10,000,000  to  $15,000,000  of additional  funds for
               operations  and expansion in 2000 and 2001.  However,  management
               cannot provide any assurances that the Company will be successful
               in accomplishing any of its plans.

               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 financial statements do
               not  include  any  adjustments  that  might be  necessary  if the
               Company is unable to continue as a going concern.

NOTE 13 -      COMMITMENTS AND CONTINGENCIES

               a.  Research Advances

               The Company's wholly-owned subsidiary, SIGMA, received a total of
               $421,665 as research  advances from an unrelated  company for its
               PCP project, a project to develop an energy converter utilizing a
               Stirling  engine that runs on natural gas or propane and produces
               electricity  and heat for use in the micro CHP (combined heat and
               power),  an appliance  to produce  heat and power in  households.
               This  amount is  payable  upon  demand or may be  converted  into
               Sigma's common stock at a rate of $1.87 per share at any time.

               b.  Employment Agreements

               During June 1998, the Company entered into a five year employment
               agreement  with its  President.  The  agreement  calls for a base
               salary of $182,000  per year  allowing  for  increases  each year
               based on the Consumer Price Index,  merit increases and increases
               in salary or bonus as deemed  appropriate to reflect the value of
               services provided.  The agreement also calls for the extension of
               certain executive benefits.



                                       31
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

NOTE 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

               b.  Employment Agreements (Continued)

               During June 1998, the Company entered into a five year employment
               agreement with its Secretary/Treasurer. The agreement calls for a
               base salary of $130,000 per year allowing for increases each year
               based on the Consumer Price Index,  merit increases and increases
               in salary or bonus as deemed  appropriate to reflect the value of
               services provided.  The agreement also calls for the extension of
               certain executive benefits.

               During June 1998, the Company entered into a four year employment
               agreement with an employee. The agreement calls for a base salary
               of $55,000 per year allowing for increases each year based on the
               Consumer Price Index,  merit increases and increases in salary or
               bonus as deemed  appropriate  to  reflect  the value of  services
               provided.  The agreement  also calls for the extension of certain
               executive benefits.

               During June 1998, the Company entered into a five year employment
               agreement with its Vice President. The agreement calls for a base
               salary of $182,000  per year  allowing  for  increases  each year
               based on the Consumer Price Index,  merit increases and increases
               in salary or bonus as deemed  appropriate to reflect the value of
               services provided.  The agreement also calls for the extension of
               certain executive benefits.

               c.  Consulting Agreements

               During July 1997, the Company entered into a consulting agreement
               with Richard Morris  Associates  for services in connection  with
               the  development of the Company's  desalination  project on an as
               needed  basis.  The  agreement  is for one year and calls for the
               payment of $1,000 per month plus expenses.  During June 1998, the
               Company  extended this agreement  through  December 1998.  During
               January  1999,  the  Company  extended  this  agreement   through
               December 1999.  During  January 2000,  the Company  extended this
               agreement through December 2000.

               During June 1999, the Company entered into a consulting agreement
               with  D.   Weckstein  &  Co.,  Inc.   (Weckstein)   as  financial
               consultants and investment bankers for a period of two years. The
               agreement  calls for the  Company to issue  options  to  purchase
               30,000  shares of the  Company's  common stock  exercisable  at a
               price of $5.00 per share  for a period  of three  years  from the
               date of the agreement. The agreement also calls for cash payments
               in connection with certain financial transactions  consummated as
               a  result  of   introduction   by  Weckstein   such  as  mergers,
               acquisitions,  joint  ventures,  debt  or  lease  placements  and
               similar  or other,  on-balance  or  off-balance  sheet  corporate
               finance transactions as follows:

               a. 7% of the first $1,000,000 of the  consideration  paid in such
               transaction;
               b. 6% of the  consideration  in  excess of  $1,000,000  and up to
               $3,000,000;
               c. 5% of the  consideration  in  excess of  $3,000,000  and up to
               $5,000,000;
               d. 4% of the  consideration  in  excess of  $5,000,000  and up to
               $7,000,000;
               e. 3% of the  consideration  in  excess of  $7,000,000  and up to
               $9,000,000; and
               f. 2% of the consideration in excess of $9,000,000.


                                       32
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

               c.  Consulting Agreements (Continued)

               During December 1999, the agreement was amended whereby Weckstein
               received options to purchase up to 125,000 shares of common stock
               at a price of $1.00  per  share  until  December  31,  2003.  The
               Company recognized  consulting expense of $130,402 to reflect the
               fair value of the common  stock and options  upon  grant.  During
               2000  and  1999,   the  Company   paid  $21,500  and  $10,000  in
               commissions to Weckstein, respectively. No options were exercised
               as of December 31, 2000 (see Note 14).

               During  February  2000,  the Company  signed an  amendment to its
               agreement for consulting  services with Weckstein  dated December
               7, 1999.  The amendment  cancels the 125,000  options  previously
               issued  and called for the  Company to issue  100,000  options to
               purchase  the  Company's  common stock  exercisable  at $6.00 per
               share until  February  18, 2000.  The grant date and  measurement
               date were on February 18, 2000. The Company recognized consulting
               expense of  $494,596  to reflect  the excess of the fair value of
               the options as determined by the Black Scholes pricing model upon
               the grant of the options over expense  previously  recognized  on
               the canceled options.

               Effective  February 18, 2000,  the Company  amended its agreement
               for consulting  services with  Weckstein  dated December 7, 1999.
               The amendment  cancels the 100,000 options  previously issued and
               called for the Company to issue  110,000  options to purchase the
               Company's  common  stock  exercisable  at $3.00 per  share  until
               February 18, 2003.  The Company did not recognize any  additional
               consulting  expense  upon the grant of the  options  because  the
               value of the new  options did not exceed the value of the options
               previously  granted as determined  by the Black  Scholes  pricing
               model.

               During August 2000,  the Company  granted an  additional  100,000
               options  to D.  Weckstein  for  completed  services  relating  to
               business  introductions and institutional meetings held on behalf
               of the Company.  The options are  exercisable  at $3.50 per share
               and expire on August 31, 2003.  The Company  recorded  expense of
               $358,000 to reflect  the fair value of the options as  determined
               by the Black Scholes pricing model.

               During July 1999, the Company entered into a business  consulting
               agreement  with  Xcel   Associates,   Inc.  to  perform  business
               management  and  marketing  services,  which may be renewed for a
               provisional  three  month  period upon  mutual  agreement  of the
               parties. The Company issued 55,000 shares of the Company's common
               stock as follows: 1) 15,000 shares within one week of signing the
               agreement;  2) 15,000  shares  within 30 days  based on  mutually
               agreed upon  performance;  and 3) 20,000  within the following 60
               days based on  mutually  agreed upon  performance  as well as the
               right to purchase up to 100,000  shares of common  stock at $5.00
               per share and the payment of expenses  incurred.  Pursuant to the
               agreement  the Company  issued 15,000 shares on July 15, 1999 for
               services and 10,000 shares for the exercise of options,  July 26,
               1999,  10,000  shares were issued for the exercise of options and
               20,000 shares on September 2, 1999.



                                       33
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

NOTE 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

               c.  Consulting Agreements (Continued)

               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.

               During  January  2000,  the  Company  entered  into  a  one  year
               consulting  agreement  with EBM,  Inc.  to  disseminate  investor
               information on the Company to the market place and develop buyers
               who purchase the Company's  stock.  The agreement  called for the
               Company to pay $4,000 per month until the Company secured a total
               of  $5,000,000  in financing,  then the Company  granted  100,000
               options to purchase the Company's  common  stock.  The grant date
               and measurement  date were on February 22, 2000. The options have
               a four year life and are  exercisable  at $1.50  per  share.  The
               Company recognized  consulting expense of $624,998 to reflect the
               fair value of the  options,  and  increase  the  monthly  fee for
               on-going  services to $6,000 for 12 months as  determined  by the
               Black Scholes pricing model upon the grant of the options.

               During  January  2000,  the  Company  entered  into a  consulting
               agreement  with Donner  Corp.  International  to provide  initial
               marketing and promotion  services.  The agreement  called for the
               Company to pay a retainer of $2,500,  and $10,000 for services in
               connection  with  assisting the Company to implement its business
               objectives  and issue 10,000  warrants to purchase the  Company's
               common  stock  at a  strike  price  equal  to 80%  of the  lowest
               five-day average stock closing price from January 2-31, 2000. The
               warrants are exercisable  for three years  beginning  February 1,
               2000.  The grant date and  measurement  date were on  February 1,
               2000.  The Company  recognized  consulting  expense of $41,242 to
               reflect the fair value of the options as  determined by the Black
               Schole's pricing model upon the grant of the warrants.


                                       34
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

               d.   Office and Building Lease

               The  Company  leases its  office  space  under a  non-cancellable
               operating lease which expires on April 30, 2002. The monthly rent
               amount is $15,312 with yearly  increases of  approximately 2% per
               year.  Rent expense for the nine months ended  September 30, 2000
               and 1999 was $127,666 and $97,742, respectively.

               During July 2000, the Company's wholly-owned  subsidiary,  SIGMA,
               signed a one year lease for building and warehouse space with its
               Chief Executive  Officer.  The lease calls for payments of $6,220
               per month and is renewable  for 2 years at the  discretion of the
               Company.

               e.  Commitment to Register Shares

               The Company has committed to registering 31,000 shares which were
               issued in 1996 to the  shareholders  of  Venturetech as part of a
               spin-off of  subsidiaries  by Group.  The shares are  recorded as
               part of the recapitalization.

               f.  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 four years is set and is open for
               negotiation after four years.

                             Year                       Amount
                             ----                    --------------

                             2001                    $      500,000
                             2002                         1,500,000
                             2003                         2,000,000
                             2004                         3,000,000
                                                     --------------

                                                     $    7,000,000
               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  potable  water from
               naturally  occurring  saline  water in units of 1000 cubic meters
               per day or larger.


                                       35
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

f.       License Agreements (Continued)

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

               The  basic  terms of this  license  provide  for the 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 to
               the  Licensors.  No  shares  of common  stock  have  been  issued
               pursuant to the License  Agreement.  The remaining amount payable
               under the License  Agreement is  $6,540,000 at December 31, 2000,
               which  consists  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),  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. The asset,
               with  a  cost  of  $6,940,000  ($6,540,000  after  an  impairment
               adjustment of $400,000),  is being  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  person and dated on the
               original  September  signing date) were received by us 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. Therefore,  the September 30, 2000
               financial  statements  were amended to reflect the transaction as
               occurring in September.  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  was 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  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  to  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.


                                       36
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

f.       License Agreements (Continued)

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



               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  a  exclusive  basis,  but  only  licensed  on  a
               non-exclusive basis.  Consequently,  the value the one portion 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 their  (potentially  competitive)  use. The Company's request
               for  arbitration  does not assert that the license does not exist
               or is not  effective.  The Company  has  suspended  all  payments
               beyond the  $400,000  paid in  September  2000 under the  License
               Agreement pending the outcome of the resolution of the dispute in
               connection  with the one element of the Agreement.  In any event,
               the  Company  intends to  proceed  with its  planned  uses of the
               technology,  whether on an exclusive or  non-exclusive  basis.  A
               portion  of  the  cost  of the  License  Agreement  amounting  to
               $400,000  was  expensed in September  2000 which  management  has
               determined to be an appropriate  impairment  adjustment to reduce
               the asset book value by  management's  estimate of the difference
               between  the  amount  the  Company  is  obliged  to pay under the
               License  Agreement and the fair value of the technology  based on
               management's  estimate of the reduction in purchase  price had it
               been  known  that  one  patent   application  was  non-exclusive.
               Management  believes  that no loss,  other  than  the  impairment
               adjustment,  will be incurred in connection with the dispute over
               the License Agreement.


                                       37
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

f.       License Agreements (Continued)

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

               The full  purchase  price has been  recorded as a  liability  and
               offset  by the  $400,000  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, and 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   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 us.

               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, is as follows. The Company will form a
               new company  (Newco) in Finland.  Because it will control  Newco,
               the Company's financial  statements will report its investment in
               Newco on a  consolidated  basis.  The  Company  will  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  will  include  technology  which
               Hadwaco has licensed to Aquamax/Keeran and which is the source of
               our dispute with Aquamax/Keeran.


                                       38
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

f.       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 will, if closing
               occurs  as  stipulated,  resolve  the  dispute  favorably  to the
               Company. The Agreements therein entered into in July 2001 provide
               that  the  Company  will  make  to  Aquamax/Keeran   payments  of
               $1,800,000  in cash and  600,000  shares  of  common  stock on or
               before  September 28, 2001,  unless  extended by the parties,  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,  rather than
               the  $4,000,000  of cash  and  600,000  shares  of  common  stock
               aggregate amount under the September 2000 License Agreement.  The
               agreements  also  provide  that the  Company  will  grant back to
               Aquamax/Keeran a royalty free,  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  is
               exclusive for a term of five years and non-exclusive  thereafter.
               A similar grant back of rights was included in the September 2000
               License  Agreement  but provided for  royalties to be paid to the
               Company based on Aquamax/Keeran's future revenues from use of the
               technology.  The  agreements  also  include  release of liability
               provisions,  whereby all parties  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  is as  follows:  The  Company  will  form a new  company
               (Newco) in Finland.  The Company will  immediately  provide Newco
               with  $1,500,000  to purchase from Hadwaco a 100% interest in its
               existing and ongoing water  remediation  business,  including all
               related  intellectual   property.   Newco's  purchase  price  for
               Hadwaco's  water  remediation  business will be $1,500,000 plus a
               19%  interest in Newco's  common  stock.  The parties have agreed
               that on June 30, 2004 Newco will  reacquire  the 19%  interest in
               its stock from Hadwaco  three years after the  effective  date of
               the purchase transaction at a price dependent on Newco's earnings
               and  other  factors  but  is  not  to  exceed   $2,000,000.   The
               intellectual  property  transferred will include technology which
               Hadwaco has  licensed to  Aquamax/Keeran  and the  Licensors,  in
               turn, licensed to the Company.

               Newco's  failure to  repurchase  the shares  would  constitute  a
               breach under the  shareholder  agreement that the Company expects
               to enter into with Hadwaco and Newco.  In such an event,  Hadwaco
               would  have the right to request  arbitration.  The  Company  has
               agreed 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.  The Board of  Directors  of
               Newco will  determine  the timing and amounts of the $7.5 million
               in loans  by the  Company  to  Newco.  The  terms  governing  the
               repayment  by Newco to the  Company of the $ 7.5 million in loans
               have not been established.


                                       39
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

f.       License Agreements (Continued)

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

               As the July  2001  Agreement  with  the  Licensors  represents  a
               significant  change to the terms of the September 2000 agreement,
               it will be accounted for by (1)  redetermining the purchase price
               to reflect a new measurement date for the 600,000 shares of stock
               to be issued under the agreement from an original market price of
               $3.85  per  share   (which   reflected   a  variable   accounting
               methodology  and  was  remeasured  at  each  quarter  end but was
               amended to the September 21, 2000 market price of $4.90 per share
               upon  determination  that  a  commitment  date  had  occurred  on
               September 21, 2000) to the market price of $2.27 per share on the
               revised  commitment date of July 20, 2001 commitment date and (2)
               reducing the  liability  and asset by the  $2,888,000  difference
               between the  redetermined  purchase  price of $3,562,000  and the
               September 2000 price of $6,450,000. The transaction between Newco
               and Hadwaco will be accounted for as a business combination using
               the purchase method and the provisions of SFAS No. 141,  Business
               Combinations.

NOTE 14 -      DILUTIVE INSTRUMENTS

               a.  Stock Options

               A summary of the Company's  outstanding  stock options granted to
               non-employees and weighted average assumptions used for grants as
               of September 30, 2000 is presented below:
<TABLE>
<CAPTION>

                           Date of                      Exercise        Exercise        Trading        Amount
      Description           Grant        Vesting         Number            Price          Price      Exercised
--------------------  --------------  -------------  -------------   -------------  -------------  -------------

<S>                         <C>           <C>               <C>      <C>          <C>              <C>
1) D. Weckstein             06/23/99      Immediate       30,000     $     5.00    $    5.20       Canceled
2) Xcel Associates          07/12/99      Immediate      100,000     $     5.00    $    7.80            20,000
3) Xcel Associates          09/09/99      Immediate      100,000     $     1.00    $    2.90           100,000
4) D. Weckstein             12/07/99      Immediate      125,000     $     1.00    $    1.16       Canceled
                                                     -------------                               -------------

    Balance 12/31/99                                     355,000                                       120,000
                                                     =============                               =============

5) D. Weckstein             02/18/00      Immediate      100,000     $     6.00    $    6.25       Canceled
6) EBM, Inc.                02/22/00      Immediate      100,000     $     1.50    $    6.25              -
7) D. Weckstein             04/19/00      Immediate      110,000     $     3.00    $    3.31              -
8) D. Weckstein             08/08/00      Immediate      100,000     $     3.50    $    3.58              -
                                                     -------------

    Balance 9/30/00                                     765,000                                       120,000
                                                       =========                                     =========
</TABLE>



                                       40
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

<TABLE>
<CAPTION>

NOTE 14 -      DILUTIVE INSTRUMENTS (Continued)

                    a.  Stock Options (Continued)

                                        Risk-Free
                        Expiration        Interest     Expected        Expected       Expected
    Description             Date            Rate            Life        Volatility    Dividends       Expense
--------------------  --------------  -------------  -------------   -------------  -------------  ----------

<S>                         <C>            <C>            <C>             <C>           <C>    <C>
1) D. Weckstein             Canceled       5.57%          3               186%          0      $      14,097
2) Xcel Associates          07/12/00       4.97%          1               227%          0             62,561
3) Xcel Associates          03/09/00       5.14%          0.5             113%          0             1,139
4) D. Weckstein             12/07/03       5.92%          5               394%          0           130,402
                                                                                            ----------------

    Balance 12/31/99                                                                                208,199
                                                                                            ----------------

5) D. Weckstein             02/18/03       6.67%          3               415%          0           424,596
6) EBM, Inc.                02/22/04       6.67%          4               415%          0           624,998
7) D. Weckstein             04/19/03       6.75%          3               418%          0            -
8) D. Weckstein             08/31/03       6.75%          3               427%          0           358,000
                                                                                            ----------------

    Balance 9/30/00                                                                            $  1,615,793
                                                                                               ============
</TABLE>


              During  May 2000,  598,680  options  were  granted  to an  officer
              exercisable  at $1.50 per share.  The options  vested  immediately
              upon issuance.  Compensation expense of $1,272,195 was recorded to
              reflect the excess of market  value at the date of  issuance  over
              the options price.

               The following table summarizes  information  about employee stock
options at September 30, 2000:

<TABLE>
<CAPTION>
                                        Number of          Weighted
                                          Options           Average            Weighted            Number of
                                       Outstanding        Remaining             Average         Exercisable at
                                         September 30,   Contractual            Exercise        September 30,
                  Exercise Price            2000                Life               Price                2000
               -----------------      ----------------  ------------------  ------------------  ------------------

<S>            <C>                             <C>             <C>             <C>                  <C>
               $            1.50               598,650        2                $  1.50             598,650
</TABLE>

               Had compensation cost for the Company's stock-based  compensation
               plan been  determined  based on the fair value at the grant dates
               for  awards  under such plan  consistent  with the method of FASB
               Statement 123,  "Accounting  for Stock-Based  Compensation,"  the
               Company's net income  (loss) and earnings  (loss) per share would
               have been reduced to the pro forma amounts indicated below:



                                       41
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 14 -      DILUTIVE INSTRUMENTS (Continued)

                    a.  Stock Options (Continued)

                                                                   For the
                                                                   Nine Months
                                                                     Ended
                                                                  September 30,
                                                                     2000
                                                                     ----

               Net (loss) as reported                         $ (6,657,089)
               Proforma                                         (7,330,287)
               Basic earnings (loss) per share as reported           (0.19)
               Pro forma                                             (0.21)

               The Company  estimates the fair value of each stock option at the
               grant date by using the Black-Scholes  option pricing model based
               on the following assumptions:

                                                                2000
                                                                ----

               Risk free interest rate                         6.75%
               Expected life                                      2
               Expected volatility                              414%
               Dividend yield                                   0.0

               b.  Warrants

               A summary of the  Company's  outstanding  warrants  and  weighted
               average  assumptions  used for grants as of September 30, 2000 is
               presented below:
<TABLE>
<CAPTION>

                                         Vesting
                           Date of       Require-       Exercise        Exercise        Trading       Amount
      Description           Grant          ments         Number            Price          Price      Exercised
--------------------  --------------  -------------  -------------   -------------  -------------  -------------

<S>                   <C>                          <C>         <C>             <C>               <C>
1) Various lenders    12/31/98          Upon                  533,333     $   1.50       $  1.50         533,333
                                        debenture
                                        conversion
2) Various lenders    3/30/99           Upon                 70,000       $   1.50       $  0.63         70,000
                                        debenture
                                        conversion
3) Various lenders    5/17/99           Upon                 720,730      $  1.50        $  0.50         2,913
                                        debenture
                                        conversion
4) Donner Corp, Intl. 2/1/00            Immediately          10,000       $  2.17        $ 4.125         -
5) Clement Wohlreich  7/25/00           Immediately         100,000       $   1.5        $  4.00         -
                                                          ---------                                   -------

    Balance, 9/30/00                                     1,434,063                              606,246
                                                     =============                        =============

</TABLE>


                                       42
<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

<TABLE>
<CAPTION>


NOTE 14 -      DILUTIVE INSTRUMENTS (Continued)

                    b.  Warrants (Continued)

                                      Risk-Free
                        Expiration    Interest     Expected        Expected     Expected
    Description             Date       Rate        Life           Volatility    Dividends         Expense
--------------------  --------------  -------------  -------------   -------------  -------------  -------------

<S>                   <C>             <C>            <C>             <C>            <C>         <C>
1) Various lenders    12/31/04        4.77%          1               181%           0           $  52,460
2) Various lenders    3/30/04         4.77%          5               190%           0              41,183
3) Various lenders    5/19/04         4.77%          5               319%           0              360,173
4) Donner Corp, Intl. 2/1/03          6.43%          3               419%           0              41,242
5) Clement Wohlreich  7/25/03         6.43%          3               419%           0              500,000
                                                                                                 ---------

    Balance, 9/30/00                                                                            $ 995,058
                                                                                                 =============
</TABLE>

NOTE 15 -      STOCK ISSUANCES

               On September 15, 2000, the Company issued  1,000,000 units of its
               common stock in conjunction with a private  placement  memorandum
               dated August 29, 2000 for cash of $3,000,000, or $3.00 per share.
               Each unit  contains  one share of common  stock,  and one warrant
               with a purchase price of $1.50 and exercisable for 3 years.  None
               of the units were purchased by employees,  officers or affiliates
               of the  Company,  nor  was  any  business  conducted  with  these
               investors.

               From January 25 to August 14, 2000, the Company issued  1,930,792
               units of its common stock valued at a weighted  average  price of
               $3.58 per unit  pursuant to a private  placement  memorandum  for
               $6,915,731 of cash.  Each unit contains one share of common stock
               and one warrant with  exercise  price of 50% of the 5-day average
               trading  value of  unrestricted  common  stock at the date of the
               purchase of the unit. Each warrant has a term of 3 years.

               On July 25,  2000,  the Company  issued  1,718,748  shares of its
               common  stock  for  the  purchase  of  SIGMA  in  the  amount  of
               $5,500,000, or $3.20 per share.

               On July 25, 2000, the Company issued 100,000 shares of its common
               stock  valued at $4.00 per share for the  conversion  of accounts
               payable of $400,000.

               On March 27, 2000, the Company issued 46,486 shares of its common
               stock in three issuances at a weighted average price of $4.95 per
               share to unrelated parties for debt cancellation of $231,812.

               On March 16, 2000, the Company issued 66,667 shares of its common
               stock for the  conversion  of a  convertible  debenture,  related
               party at $1.50 per share, or $100,000.

               On March 16,  2000,  the  Company  issued  133,333  shares of its
               common  stock  for  the  exercise  of  warrants  attached  to the
               convertible debenture described above held at $0.75 per share, or
               $100,000 of cash.

               On March 9, 2000,  the Company issued 62,792 shares of its common
               stock for $125,019  pursuant to the exercise of warrants attached
               to a private placement.


                                       43
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 15 -      STOCK ISSUANCES (Continued)

               On January 26, 2000,  the Company  issued 47,619 shares of common
               stock at $2.10 per share for cash proceeds of $100,000.

               On January 5,  2000,  the  Company  issued  60,000  shares of its
               common  stock valued at $4.34 per share for  consulting  services
               valued at $260,400.

               On January 4,  2000,  the  Company  issued  97,580  shares of its
               common stock to its landlord for the  cancellation of $100,000 of
               debt and 50,000  shares of its common  stock  valued at $2.75 per
               share for consideration for default on a loan valued at $137,500.

               On November 4, 1998, the Company  issued a convertible  debenture
               for $800,000 to related parties for funds advanced to Group.  The
               Debenture  was  convertible  into common stock at $1.50 per share
               which  represented  the closing price on the date of the issuance
               of the debenture.  Each share  converted  carried one (1) warrant
               which was exercisable at $1.50 per share for a period of 4 years.
               At December  31,  1998,  the related  parties had  converted  the
               entire   debenture  into  533,333  shares  of  common  stock  and
               exercised 13,502 warrants for total consideration of $820,252. On
               January 5, 1999,  the  original  debenture  terms were amended as
               follows:   The  debenture  amount  was  increased  to  $2,000,000
               convertible  into  common  stock at $1.50 per share  with one (1)
               attached  warrant  exercisable  for 5 years from the dates of the
               debenture  conversions.  On March 30,  1999,  the Company  issued
               70,000  shares and warrants  pursuant to the  conversion  of this
               debenture.  On May 17,  1999,  the  Company  issued  720,730  and
               warrants  shares  pursuant to the  conversion  of the  debenture.
               Pursuant to the  modification,  the  debenture was canceled as of
               the date of the  recapitalization.  On  December  31,  1999,  the
               Company  issued  592,744  shares of common stock  pursuant to the
               exercise of warrants  attached to the convertible  debenture.  At
               December 31, 1999,  there were  717,817  warrants  which have not
               been  exercised and expire by May 17, 2004.  All share  issuances
               prior   to   the    recapitalization    are   included   in   the
               recapitalization line on the statement of stockholders' equity.

               On December 21, 1999, the Company issued 120,773 shares of common
               stock valued at $0.83 per share for  $100,000 of cash.  The share
               issuance was a part of a $600,000 private placement.

               On December 16, 1999, the Company issued 193,939 shares of common
               stock valued at $0.83 per share for  $160,000 of cash.  The share
               issuance was a part of a $600,000 private placement.

               On December 10, 1999,  the Company issued 33,333 shares of common
               stock  valued at $0.90 per share for  $30,000 of cash.  The share
               issuance was a part of a $600,000 private placement.

               On December 10, 1999, the Company issued 111,111 shares of common
               stock valued at $0.90 per share for  $100,000 of cash.  The share
               issuance was a part of a $600,000 private placement.

               On December 9, 1999,  the Company issued 175,070 shares of common
               stock valued at $0.71 per share for  $125,000 of cash.  The share
               issuance was a part of a $600,000 private placement.

               On December 9, 1999,  the Company  issued 49,020 shares of common
               stock  valued at $0.71 per share for  $35,000 of cash.  The share
               issuance was part of a $600,000 private placement


                                       44
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 15 -      STOCK ISSUANCES (Continued)

               On December 8, 1999,  the Company  issued 71,839 shares of common
               stock  valued at $0.70 per share for  $50,000 of cash.  The share
               issuance was a part of a $600,000 private placement.

               On November 29, 1999, the Company issued 400,000 shares of common
               stock valued at the trading  price of $1.34 per share for finders
               fees relating to cash raised by shareholders of the Company.  The
               total  valuation of $537,000  has been  presented as an offset to
               additional paid-in capital as stock offering costs.

               On October 1, 1999, the Company canceled 502,500 shares of common
               stock  which  had  been  issued  prior  to  the  reverse  merger.
               Accordingly,  the Company canceled the shares at a zero valuation
               because the expense  recorded as part of the retained  deficit of
               Group was eliminated as part of the reverse merger.

               On September 9, 1999, the Company issued 100,000 shares of common
               stock valued at $1.00 per share for cash.

               On September 2, 1999,  the Company issued 20,000 shares of common
               stock valued at $1.94 per share for consulting services rendered.
               The shares were issued at the trading price on the date of issue.

               On August 12,  1999,  the Company  issued  100,000  shares of its
               common stock valued at $2.50 per share for loan  consideration of
               $250,000.

               On July, 26, 1999, the Company issued 10,000 shares of its common
               stock  valued  at $5.00 per  share  for cash of  $50,000  for the
               exercise of options granted July 12, 1999.

               On July, 15, 1999, the Company issued 15,000 shares of its common
               stock  valued  at $7.80  per share  for  consulting  services  of
               $117,000.

               On July, 15, 1999, the Company issued 10,000 shares of its common
               stock  valued at $5.00 per share for $50,000 for the  exercise of
               options granted July 12, 1999.

               On June  22,  1999,  the  Company  completed  a  recapitalization
               between Group (acquired entity) and Holdings, (acquiring entity).
               The  presentation  of the  recapitalization  is as  follows:  The
               equity of the  acquiring  entity  (Holdings)  is presented as the
               equity of the combined  enterprise;  however,  the capital  stock
               account of the acquiring entity (Holdings) is adjusted to reflect
               the par  value of the  outstanding  stock of the  legal  acquirer
               (Group) after giving effect to the number of shares issued in the
               reverse merger. Accordingly, at the date of the recapitalization,
               the Company had 6,291,450 shares of common stock outstanding; and
               25,044,146  shares as  detailed  below  have  been  retroactively
               restated  for the  equivalent  number of shares  received  in the
               merger by Holdings.

               Between  February 24, 1998 and June 17, 1999,  the Company issued
               1,236,791  shares of its common  stock to  employees  and 725,962
               shares of its common  stock to  consultants  valued at $0.003 per
               share for cash of $5,637.

               Between  April 1,  1998 and June 17,  1999,  the  Company  issued
               31,320 shares of its common stock to vendors,  215,760  shares to
               lenders and 7,308 shares to a landlord valued at $0.003 per share
               for cash of $731.


                                       45
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999


NOTE 15 -      STOCK ISSUANCES (Continued)

               On May 7, 1999, the Company issued 2,610,000 shares of its common
               stock to an  employee  valued  at  $0.003  per share for past due
               salary of $7,500.

               On May 3, 1999,  the Company  issued  25,717 shares of its common
               stock to a  consultant  valued at  $0.003  per share for past due
               fees of $74.

               On April 30, 1999, the Company issued 22,968 shares of its common
               stock to consultants valued at $0.003 per share for past due fees
               of $66.

               On April 27, 1999, the Company issued 69,600 and 26,100 shares of
               its common  stock to a landlord and a  consultant,  respectively,
               valued at $0.003 per share for past due rent of $200 and past due
               fees of $75.

               On March  22,  1999,  the  Company  issued  34,800,  496,248  and
               18,480,172  shares of its common  stock to a lender,  consultants
               and  employees,  respectively,  valued  at  $0.005  per share for
               conversion  of debt of $50,000,  past due fees of $1,426 and past
               due salaries of $53,104.

               On June 16,  1998,  the Company  issued  1,061,400  shares of its
               common stock, to the Company's  founders,  Joseph Maceda,  Robert
               Campbell  and Rocco  Guarnaccia,  valued at $0.079  per share for
               conversion of debt of $83,881.

               All share issuances at $0.003 were  originally  valued at the par
               value of Holdings of $0.001  because  par value  represented  the
               fair  value of  Holdings  common  stock at the dates of issue but
               were revalued pursuant to the recapitalization (Note 1).

NOTE 16 -      REGULATION 504D STOCK OFFERING

               During December 1999, the Company issued 755,085 shares of common
               stock  pursuant to a Regulation  504D stock  offering for cash of
               $600,000.  The shares were issued at 60% of the closing bid price
               one day  prior to  issuance.  The  shares  were  issued at prices
               ranging  from $0.70 per share to $0.90 per share at the same time
               that the closing bid prices were $1.17 to $1.50.

NOTE 17 -      PRIVATE PLACEMENT MEMORANDUMS

               During January 2000, the Company  authorized a private  placement
               of  $100,000 of its  restricted  common  stock.  The price of the
               shares  is  calculated  at 60% of the  closing  bid price one day
               prior to issuance.  The Company issued 47,619 shares  pursuant to
               this private  placement  for  $100,000,  or $2.10 per share.  The
               closing bid price was $3.50.

               On January 24, 2000, the Company  authorized a private  placement
               memorandum  of  $5,000,000   of  restricted   units,   each  unit
               consisting of 1 share of  restricted  common stock and 1 attached
               warrant.  The price of the unit is calculated at 80% of the 5-day
               average trading value of unrestricted common stock price prior to
               purchase of the unit.  The attached  warrant is  exercisable at a
               price of 50% of the 5-day average  trading value of  unrestricted
               common  stock  at the  date of the  purchase  of the  unit.  Each
               warrant has a term of 3 years.

                                       46

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                    September 30, 2000 and December 31, 1999

               On January  31,  2000,  the  Company  extended  this  offering to
               $6,000,000, expiring March 31, 2000.

NOTE 17 -      PRIVATE PLACEMENT MEMORANDUMS (Continued)

               On March 26, 2000, the Company removed the time and amounts to be
               raised limits on the offering.

               The Company  issued  1,930,792  shares  pursuant to this  private
               placement memorandum for $6,915,731,  or a weighted average price
               of $3.43 per share while the weighted  average  closing bid price
               was $4.28 during the time period of the private placement.

               On August 29, 2000,  the Company  authorized a private  placement
               memorandum of  $3,000,000  of its common stock.  The price of the
               shares was fixed at $3.00 per share. The Company issued 1,000,000
               shares pursuant to this private placement for $3,000,000.

NOTE 18 -      RESCINDED STOCK

               During  June 2000,  the Board of  Directors  resolved to void and
               cancel a certificate  of the Company's  outstanding  common stock
               representing   354,400   shares  and  issue  a  new   certificate
               reflecting  34,800 shares due to the original issue being granted
               for  inappropriate  consideration.  This  transaction has not yet
               been  reflected  in the  Company's  outstanding  stock due to the
               original certificate not yet being returned.

NOTE 19 -      SUBSEQUENT EVENT

               During   November   2000,   the  Company  formed  a  wholly-owned
               subsidiary,  Ocean Power (UK) Limited, to serve as a sales office
               in Europe.  The  Company  signed a lease for office  space in the
               United  Kingdom for $4,700 per month.  The lease is for a minimum
               of three months, then is on a month-to-month basis.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following  discussion  should be read in conjunction  with the  accompanying
consolidated  financial  statements and notes thereto included in Item 1 of this
quarterly report.

Special Note Regarding Forward-Looking Statements

         These  financial   projections   contain  figures  relating  to  plans,
expectations, future results, performance, events or other matters. When used in
the Plan of  Operations,  or elsewhere in this Form,  words such as  "estimate",
project, "intend" "expect", "anticipate" and similar expressions are intended to
identify forward-looking statements.

         Such   forward   looking   statements   involve   numerous   risks  and
uncertainties,  pertaining to technology,  development of the Company's products
and markets for such products, timing and level of customers orders, competitive
products  and  pricing,  changes in  economic  conditions  and  markets  for the
Company's products and other risks and uncertainties.

         Actual  results,  performance  and  events are likely to differ and may
differ  materially  and  adversely.  Investors  are cautioned not to place undue
reliance on these forward-looking  statements which speak only as to the date of
the Plan of Operations.

         The Company undertakes no obligation to release or deliver to investors
revisions to these forward-looking statements to reflect events or circumstances
after the date of the Plan of Operations, the occurrence of unanticipated events
or other matters.

                                       47
<PAGE>

PLAN OF OPERATION:

         The  Company  began  its  current   operations  in  January,   1997  as
Manufacturing Technologies Corporation (MTC). This is a Delaware Corporation and
was  originally  set up to develop a  business  manufacturing  modular  seawater
desalination  and power  plants.  In March of 1998,  MTC  became a wholly  owned
subsidiary of PTC Holdings,  Inc., when PTC Holdings  acquired 100% of the stock
of MTC in return for assuming 100% of its debt. PTC Holdings which  subsequently
merged with PTC Group in June 1999,  PTC  Holdings  business  was the  survivor;
although  Group  continued as the  corporate  entity.  The Company is developing
modular seawater  desalination systems integrated with environmentally  friendly
power sources.  It is also developing  stand alone modular  Stirling based power
systems.  These  systems are  intended  to be sold to a series of regional  join
ventures that will ideally take 15-25 year contracts to sell water and power. If
successful,  this  will  provide  the  Company  dual  income  streams  from both
equipment sales and royalties from the sale of water and power.

         The  Company  has no  profit  to date.  It has  experienced  a total of
$17,580,905 in losses from inception of current operations on March 26, 1992
through to September 30, 2000. The Company's  losses have resulted from the fact
that its products are still in development and no sales have been generated.

         The Company  currently has enough cash to continue its present level of
operations for about 6 months.  Due to the increased level of activity projected
during  the next three  years,  additional  funding  will be needed and is being
sought. The Company believes that such current funding is available from private
issuances of its equity securities.

         The Company has a limited  operating  history on which to evaluate  its
prospects.   The  risks,  expenses  and  difficulties  encountered  by  start-up
companies  must be  considered  when  evaluating  the Company's  prospects.  All
development  efforts share the risks that the  technology  being pursued may not
perform to  expectations.  Also the cost to manufacture may exceed the product's
value  in  the  market.   Changing  market   conditions  and  new  technological
breakthroughs by competitors also pose risks.

         Due to these  uncertainties,  the exact cost of the development program
described  below cannot be guaranteed.  Difficulties  and setbacks occur and can
adversely affect the Company. All plans contain contingencies but they may prove
insufficient.

         If market  conditions  change,  financial  performance  projections may
prove  unreachable.  All of these  factors must be weighed when  evaluating  the
future prospects (value) of a development stage company.

         The Company does not have an established  source of revenue  sufficient
to cover its  operating  costs and to allow it to continue  as a going  concern.
Also,  management  cannot  provide  any  assurances  that  the  Company  will be
successful  in  accomplishing  any of its plans.  The  ability of the Company to
continue  as a going  concern is  dependent  upon its  ability  to  successfully
accomplish the plan described in the following  paragraphs and eventually attain
profitable operations.

         The  Company's  plan of  operation  for the next  twelve  months  is as
follows:

         (i) Since completion of its water quality  certification on December 9,
         1999,  the Company  has raised  approximately  $10 million  pursuant to
         private placement  financing which has allowed the Company to implement
         its  Product  Development  Program,  as  well  as to  further  business
         development,  strategic partnering and acquisition activities. Based on
         an analysis of its sales and development  costs, the Company intends to
         raise an additional  $10-15 million  pursuant to private  placement and
                                       48
<PAGE>

         financing by the end of 2000, depending on the pace of actual sales and
         the  acquisition  activities  of the Company,  an  additional  round of
         financing (for a minimum of $100 million  dollars) in the first half of
         2001. The exact method by which this additional round of financing will
         be raised will be based on the  maximization of shareholder  value. The
         additional equity, if raised by the Company,  will allow the Company to
         execute its business plan.

         Maximization  of shareholder  value is the basic lens through which all
         investment  and other  business  decisions  are made.  One of the major
         reasons  that the  Company  prefers  to enter into  joint  ventures  to
         finance its  endeavors is to off-load the bulk of the expense of market
         development onto the joint venture  partners.  This brings market share
         without dilution of Ocean Power shareholders.  Similarly, the choice to
         subcontract manufacturing and engineering wherever possible is done for
         the same reason.  The only in-house  manufacturing will be of extremely
         proprietary  components using processes protected by trade secrets that
         cannot be otherwise protected.

         (ii      The Company will be doing  technology and product  development
         in a number of areas. They are:

         a)       low-temperature  hydrogen  generation
         b)       ejectors
         c)       chemical-freewater pretreatment
         d)       enhanced heat transfer in plastic heat exchangers
         e)       high-performance alkaline fuel cells
         f)       Stirling engines

         This work is all aimed at improving  the  performance  and reducing the
capital cost of the Company's products.

         (iii)    The Company intends to build and install additional facilities
         in the next year. They are:

         a)       laboratory and test facilities
         b)       system integration facilities, and
         c)       a manufacturing facility for proprietary components

         (iv)  Although  the Company  plans to  subcontract  out as much work as
         possible, it still anticipates  increasing the number of employees from
         the current eighteen (18) full time to approximately 40 full time.

     Aquamax International Holdings BV and Keeran Corporation

           Our License from Aquamax/Keeran

In September 2000, we signed an agreement with Aquamax  International  Holdings,
BV of  the  Netherlands  and  Keeran  Corporation  NV,  a  Netherlands  Antilles
Corporation,  providing  for a worldwide  license  for their  issued and pending
patents and other  intellectual  property  rights relating to the use of plastic
heat evaporator  condensers for the distillation of seawater.  The scope of this
license  which  we  refer  to as the  authorized  "field  of  use"  is  for  the
distillation of potable water from naturally  occurring saline water in units of
1000  cubic  meters  per day or larger.  Additionally,  Aquamax/Keeran  has also
independently  licensed certain of the same technology covered by its license to
us to Hadwaco Oy, a Finnish company ("Hadwaco"), but for a separate and distinct
field of use, that of wastewater treatment.

The basic terms of our license provide for the grant to us of an exclusive right
to sell products  within the above field of use utilizing (i) over 60 issued and
pending patents and improvements on such patents,  owned by Aquamax/Keeran,  and
(ii) issued and pending  patents owned by third parties to which  Aquamax/Keeran
has licensed rights.  Currently,  third party intellectual  property to which we
have rights consists of one international  patent  application of Hadwaco (which
is expected to result in identical  patents covering the identical  invention in
eight different  countries)  relating to a heat exchange element for a thin film
heat  exchanger.  Hadwaco's  patent  application is directed to a  manufacturing
method to utilize  the  patented  technology  of  Aquamax/Keeran  covered by our
exclusive license from them.


                                       49
<PAGE>

Under  the terms of the  license,  we  agreed  to pay a total of  $4,000,000  US
Dollars and 600,000  shares of our common stock for this  license.  To date,  we
have  paid to  Aquamax/Keeran  $400,000  dollars,  but we  have  not  issued  to
Aquamax/Keeran  any shares of common stock  pursuant to the  license.  The total
purchase  price,  including  the value of the  shares to be  issued  which  were
measured as of the September 2000  effective date of the agreement,  amounted to
$6,540,000.

         Our Dispute with Aquamax/Keeran

Our  license  to all  technology  covered  by the  license  agreement  was to be
exclusive within the specified field of use.  Subsequent to the execution of the
license  agreement and to our making of the initial  payments to  Aquamax/Keeran
under the license,  we  discovered  that  Aquamax/Keeran's  license to Hadwaco's
international  patent  application  that was  sub-licensed to us pursuant to the
license  agreement,  was not  exclusive,  as was  represented  and  warranted by
Aquamax/Keeran. As a result, on December 22, 2000, we served on Aquamax/Keeran a
notice  of  default  under  the  terms of the  license  agreement.  We  demanded
arbitration  pursuant  to the license  agreement  and  asserted  that there is a
difference in the value of the Hadwaco  sublicense  because it is non-exclusive.
The  possible  diminished  value  arises due to the fact that Hadwaco is free to
license the same technology  covered by the Hadwaco patent  application to third
parties for their  (potentially  competing)  use in the field of use provided in
our agreement with  Aquamax/Keeran.  Our request for  arbitration was limited to
the issue of the  consideration we owe  Aquamax/Keeran  and does not assert that
the license does not exist or is not effective.  Aquamax/Keeran did not formally
respond to our demand for arbitration.  We suspended all further payments due to
Aquamax/Keeran  under the license  agreement  pending  resolution of the dispute
which is discussed below.

Nevertheless,  we  commenced  development  activities  predicated  on using  the
technology licensed from  Aquamax/Keeran  regardless of whether the amounts owed
to Aquamax/Keeran  and the value of the licenses are adjusted.  The technologies
licensed from Aquamax/Keeran are part of the long-range  development program for
distillation-based  systems and are not part of the SWRO  systems to be utilized
in 2001. As part of monitoring  developments in the  desalination  market and as
mentioned in our discussion of the H2OkW System,  there are several  systems for
distillation  which  we are  continuously  in the  process  of  researching  and
evaluating.

         Potential Resolution of the Dispute

Arbitration  proceedings have not commenced while the Company and Aquamax/Keeran
engaged in settlement negotiations. These negotiations resulted in the execution
by both parties and Hadwaco and Hackman Oy Abp (an  affiliate of Hadwaco),  of a
non-binding  Letter of  Intent  in June  2001.  Contemporaneously,  the  Company
entered into a related  non-binding Letter of Intent with Hadwaco and Hackman Oy
Abp. Under the Letters of Intent,  the Company will form a new company ("Newco")
in Finland.  The  Company  would  provide  Newco with  capital to purchase  from
Hadwaco its water  remediation  business,  including  all  related  intellectual
property   (which  would  include  the  patent   underlying   the  license  from
Aquamax/Keeran that is the basis of our dispute with Aquamax/Keeran).

Between July 20 and July 25, 2001,  the Company  entered  into  agreements  with
Aquamax/Keeran,  Hadwaco and Hackman,  one purpose of which was to implement the
aforementioned letter with intent and to settle all outstanding disputes between
Aquamax/Keeran  and the Company.  Another  purpose of the agreements was for the
Company to acquire the water remediation business of Hadwaco.

The  agreements  with  Aquamax/Keeran  entered into on July 20, 2001 represent a
renegotiation of the terms of the original license agreement entered into by the
Company and  Aquamax/Keeran in September 2000. Under the July agreements (a) the
Company will make payments to  Aquamax/Keeran  of $1,800,000 in cash and 600,000
shares of common stock on August 31, 2001,  unless  extended by the parties,  in
addition  to the  $400,000  already  paid to  Aquamax/Keeran,  in  exchange  for
ownership of all the  Aquamax/Keeran  technology  in any way  connected to water
treatment;  (b) the Company will grant back to  Aquamax/Keeran  a royalty  free,


                                       50
<PAGE>

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, except that after five years such license will be non-exclusive;
(c) the parties  release each other from all claims and  liabilities,  including
amounts 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.

Under the July 20, 2001 agreement with Hackman and Hadwaco: (a) the Company will
form a new company (Newco) in Finland;  (b) the Company will immediately provide
Newco with  $1,500,000  for the  purchase  from  Hadwaco of a 100%  interest  in
Hadwaco's existing and ongoing water remediation business, including all related
intellectual   property;   (c)  Newco's   purchase  price  for  Hadwaco's  water
remediation  business will be $1,500,000  plus a 19% interest in Newco's  common
stock.  The parties have agreed that on June 30, 2004 Newco will  reacquire  the
19% interest in its stock from Hadwaco at a price dependent on Newco's  earnings
and other factors but is not to exceed  $2,000,000.  The  intellectual  property
transferred will include technology which Hadwaco has licensed to Aquamax/Keeran
and  Aquamax/Keeran,  in turn,  licensed  to the  Company.  Newco's  failure  to
repurchase  the  shares as  provided  would be a breach  under  the  shareholder
agreement  that we expect to enter into with  Hadwaco  and Newco at closing  for
which  Hadwaco  would  have the right to  request  arbitration  thereunder.  The
Company has agreed 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.  The Board of  Directors  will  determine  the timing and
amounts  of the $7.5  million in loans by the  Company  to Newco.  All dates are
subject  to  extension  by  mutual   agreement  of  the  parties.   See  "Recent
Developments - Aquamax/Keeran and Hadwaco." The terms governing the repayment by
Newco to the Company of the $7.5 million in loans have not been established.


The agreement with Aquamax/Keeran remains subject to the satisfaction of certain
conditions,  including:  (a) the Company's formation of "Newco" in Finland;  (b)
the Company's  funding of Newco with enough  working  capital so that Newco will
pay to Hadwaco,  on or before August 31, 2001,  $1,5000,000  for the purchase by
Newco of certain assets constituting the water remediation  business of Hadwaco;
and (c) the  Company  must also pay to  Aquamax/Keeran  $1,800,000  and  600,000
shares of the Company's common stock on or before August 31, 2001.

The agreement with Hadwaco and Hackman  remains  subject to the  satisfaction of
certain conditions,  including: Newco's acquisition of Aquamax/Keeran technology
pursuant  to the terms of the July 20,  2001  agreement  between the Company and
Aquamax/Keeran as described above.

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 to occur 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 $105,080 and
31,040 shares of the Company's  common  stock.  On August 30, 2001,  the Company
entered  into an  agreement  with  Hadwaco  OYJ ABP  ("Hadwaco")  to extend  the
deadline  for  consummation  of the  transaction  set forth in the July 20, 2001
agreement  by and  among  Hadwaco  OYJ ABP,  Hadwaco  Ltd.  Oy and the  Company.
Pursuant  to the terms of the  extension,  the  Company  will pay to  Hadwaco an
aggregate  amount of $150,000 in four  weekly  installments:  $50,000 on each of
September 7 and  September 14, and $25,000 on each of September 21 and September
28. In the event that the closing of the  transaction in the July 2001 agreement
does not take  place by  September  28,  2001 and that is not the sole  fault of
Hadwaco, the amount paid will remain with Hadwaco as compensation for the delay.
In the event that the closing in the July 2001  agreement  does take place on or
before September 28, 2001,  Newco's payment  obligations under the July 20, 2001
agreement shall be reduced by the amount paid for the extension.


                                       51
<PAGE>

           Our Accounting for the Aquamax/Keeran License

In September  2000,  $400,000 was expensed in  connection  with the dispute with
Aquamax/Keeran  due to our  belief  at that  time  that the  agreement  would be
terminated  and the  $400,000  would  not be  recoverable.  At the time that the
Company's financial  statements for the year ended December 31, 2000 were filed,
it was no longer  likely that the  transaction  would be voided but the $400,000
expense was then left as an expense due to an error in preparing  such financial
statements.  In connection  with the process of preparing the Company's  amended
Form 10-KSB for December 31, 2000, we identified this  aforementioned  error and
consider that amount to be a reasonable approximation of impairment of the asset
that  results  from  having  received  one  patent  that  did  not  contain  the
exclusivity  feature that was  contemplated in the purchase price. In connection
with this  recharacterization  of the amount  expensed in  September  2000 as an
impairment rather than a contingent liability,  our conclusion in this regard is
based on a two-part assessment. The first part is a legal exposure analysis. Our
general  counsel  reviewed the  situation  and  estimated  the  recovery  (i.e.,
estimated  reduction in purchase  price of the patent rights  acquired under the
Aquamax/Keeran license agreement) that we might expect by applying the standards
of  SFAS  5,  Accounting  for  Contingencies,   and  the  related  American  Bar
Association  Statement  of  Policy.  The  second  part of the  assessment  was a
proportionate  value  methodology.   While  no  appraisal  of  the  patents  was
conducted,  we allocated  the purchase  price of the group of patents  among the
various elements of technology  acquired  (including the exclusivity  feature of
the  Hadwaco  patent)  by  applying  our  judgment,  in  consultation  with  our
intellectual  property  attorney most  familiar  with the relative  value of the
patents.  Both  approaches  resulted in amounts that  approximated  the $400,000
expensed in September 2000.

The full  purchase  price has been  recorded  as a  liability  and offset by the
$400,000 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,  and 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  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 us.

The related  asset is being  amortized  over the useful life of 10 years.  While
there are  approximately 60 patents,  they represent a "basket" or dependent set
of  intellectual  property  (IP set) which  means that the  primary  patents are
dependent in that they represent  components of one end product. As such, useful
life was assessed as a single life for the IP set. The  individual  patents have
remaining  patent  terms  ranging  from 8 to 20 years.  The life of 10 years was
selected for the IP set as a whole  because some of the key patents on which the
others are dependent have a remaining  term at the shorter end of the range.  In
addition to patent expiration pattern, the Company has assessed its expectations
as to  term  of  use of  the  patented  technology  in  its  revenue  generating
activities  and  concluded  that the 10 year  life  resulting  from  the  patent
expiration pattern is appropriate.
                                       52

<PAGE>

Our methodology for  determining  whether an impairment  exists at balance sheet
dates is to monitor our progress against the our vapor compression  desalination
development  program  described in the next paragraph.  Prior to commencement of
the plan of product  improvement  (PPI)  described  below,  we will  continue to
monitor the desalination marketplace and assess whether any significant changes,
such as  emergence  of new  competing  technologies,  changes in market size and
configuration,  or changes in the competitor's  business have taken place.  This
enables us to assess whether any market conditions threaten the viability of our
planned  business.  If any such  threatening  conditions were to occur, we would
assess whether the market value of our vapor compression  desalination  business
is less  than  the  carrying  value of the  assets  employed  in that  business,
including the Aquamax/Keeran patent assets. Market value, in such circumstances,
would be based on fair value of future  expected cash receipts or other methods.
If the  market  value  were to be  less  than  the  carrying  value,  impairment
adjustments  would be made. We would use any such  significant  negative  market
conditions as a factor in our continuous assessment of useful life of the assets
employed  in  the  vapor  compression   desalination  business,   including  the
Aquamax/Keeran  patent assets.  After  implementation of the PPI, we will assess
progress against the benchmarks within the PPI to determine  whether  impairment
exists. If we conclude that impairment  exists,  impairment  adjustments will be
measured in the same manner as described above.

The  Company  has  accomplished  the first  two  steps of its vapor  compression
desalination   development   program:  (1)  acquisition  of  the  Aquamax/Keeran
technology;  and (2) obtaining  patent rights on its own technology that will be
combined with the Aquamax/Keeran  technology  (preliminary  patents filed August
2000 and  nonpreliminary  patents filed August 2001).  The remaining  step is to
complete a PPI which  consists of 14 projects,  the combined  effect of which is
projected to yield a more economically viable seawater desalination system, with
lower energy and operating costs for both the projected vacuum vapor compression
system and the existing seawater reverse osmosis technology.  The formal PPI was
initially  designed in 1997, after the first physical  assessment of the Aquamax
equipment in Finland.  The program was  thereafter  continuously  developed  and
refined to reflect new information  gathered from the Aquamax  equipment we have
acquired  and have  under  testing  in  Malta,  as well as data  gathered  about
competitive  technologies  from our  consultants,  and our own monitoring of the
market.  The planning,  scheduling and cost estimating of the formal program was
finalized  in October of 2000.  The PPI is expected to require  approximately  4
full-time  employees and 18 to 20 months to complete once additional  funding of
approximately $5 million is arranged. Neither the time, manpower requirements or
cost necessary for the PPI have changed.  Two of the projects represent critical
path projects on which the 18 to 20 month time line will be  dependent.  The two
critical path projects are: "High Efficiency Steam Ejector Development" Project,
the goal of which is to replace a mechanical  compressor  with a high efficiency
hypercritical  ejector (OPC has a U.S.  patent  application  in process) and the
"Evaporator-Condenser  Efficiency  Increase"  Project,  the  goal of which is to
increase the overall  efficiency of the vapor  compression cycle by at least 30%
(OPC has a U.S.  patent  application in process).  Timely  completion of the two
critical path projects will be benchmarks for measuring  progress for impairment
testing purposes.  Management believes the seawater desalination products market
continues to be large, the competitive  environment is  substantially  unchanged
from that of September 2000 when the Aquamax/Keeran  patent rights were obtained
and continues to have the potential to generate  substantial  profits from which
the investment in the Aquamax/Keeran patents can be recovered.  The commencement
of the PPI has been delayed until funding is arranged. Losing our eligibility to
have our common stock traded on the Nasdaq OTC Bulletin  Board has resulted in a
delay to our  arranging  funding  for the PPI for two  reasons:  first,  because
potential  investors  have elected not to invest until we are again  eligible to
trade on the OTC Bulletin  Board;  and second,  as a result of the  diversion of
management  resources to the task of amending the SEC filings and other  efforts
necessary to re-attain  eligibility to trade on the OTC Bulletin  Board.  During
the period that the PPI has been delayed by the  unavailability of funding,  the
Company has assessed  impairment of the carrying value of its assets employed in
the  desalination  business  by  monitoring   developments  in  the  market  for
desalination  products to  determine  if  technological,  competitive  or market
conditions  indicate that the value of the assets  (including the amortized cost
of the licensed patents and the value of the research and development activities
that were expensed as incurred including research leading to Ocean Power's three
additional  patents and the "know how" resulting from our testing of the unit in
Malta)  is  less  than  the  carrying  value  of the  related  asset  consisting
principally  of  the  cost  of the  Aquamax/Keeran  patent  net  of  accumulated
amortization and the previous impairment adjustment.  Management's assessment of
market  conditions  described above leads  management to conclude that there has
been no impairment of the  Aquamax/Keeran  related license agreement asset other
than the  $400,000  that was  recorded  in  connection  with  the  dispute  with
Aquamax/Keeran over exclusivity of one of the patents, as described below.

                                       53
<PAGE>
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  person  and  dated on the  original  September
signing  date) were  received  by us 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. Therefore,  the September 30, 2000 financial statements were
amended to reflect the  transaction  as occurring in  September.  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  was 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  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 to 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.

         Our License to Aquamax/Keeran

Under the September 2000 license  agreement we also granted to Aquamax/Keeran an
exclusive  worldwide  license to sell  products  utilizing  issued  and  pending
patents and  improvements  (as defined in the license  agreement) on our patents
relating to mechanical or thermal vapor compression  distillation  applications.
The  scope of this  license  covers  the  distillation  of  potable  water  from
naturally  occurring  saline  water in units of less than 1000 cubic  meters per
day. In consideration  for such license,  Aquamax/Keeran  was required to pay us
royalties on the sale of the licensed  products,  plus 50% of any royalties they
receive  pursuant  to sales by their  sub-licensees.  Since this was an advanced
technology  development  program,  the amount of future royalties due from sales
were to be determined  once the product was fully developed and the actual value
of the technology was determined. Under the July 2001 agreements, Aquamax/Keeran
will  receive  a fully  paid up  license  for the same  licensed  technology  in
consideration  for a reduction  in purchase  price to be paid by the Company for
the Aquamax/Keeran technology.


  Sigma Elektroteknisk AS Acquisition

Ocean Power  acquired  its wholly  owned  subsidiary,  Sigma  Elektroteknisk  AS
(Sigma) because of Sigma's advanced work in the development of a single-cylinder
Stirling engine system.  A Stirling engine is an external  combustion  engine in
which an ambient pressure burner is used to heat a gas sealed in the engine. The
primary  advantages of the Stirling  engine are that the external  combustion is
cleaner,  quieter and more efficient than internal combustion engines and, since
it has fewer parts than an internal  combustion  engine, it is potentially lower
in cost with higher reliability. Sigma's research and design work had focused on
the development of an external  combustion  engine capable of generating 3 kW of
electricity  and 9 kW of recoverable  heat. We acquired Sigma in order to obtain
distributed power generation technology,  such as Sigma's Stirling engines, that
we believe is commercially viable and has demonstrated technical viability.

                                       54
<PAGE>

After having  evaluated  all other known  Stirling  systems and  evaluated  such
factors as Sigma's core of knowledge and experience-based  "know how," strategic
marketing,  relationships with potential  customers,  an established vendor base
and its existing  business  plan,  we  concluded  that Sigma,  its product,  its
management team, its intellectual property and its market focus, represented the
most  attractive  acquisition for us. At the time that we acquired Sigma, it had
spent over four years developing its Stirling engine. Sigma had built and tested
four prototypes -- three internally and one through an independent  third party.
These tests  included  running each of three engines for 400 hours followed by a
wear analysis. The fourth engine had been run for endurance.  Through these four
prototype  engines,  Sigma  accumulated a total of approximately  4,000 hours of
operating  experience  prior  to our  acquisition.  In  addition  to the  engine
testing,  Sigma  had  identified  the flaws in the  initial  burner  design  and
completed a redesign  intended to be more  efficient  with  significantly  lower
emissions.  Prior to our acquisition,  Sigma had focused primarily on developing
customers in Europe. Sigma's relationship with Statoil (which is discussed above
under "The Business - Distributed Power Generation/Renewable Energy Technologies
- Strategic  Relationships - Personal Combustion Power ("PCP") Project") and the
Norwegian  government had been in place since 1998. Outside of Norway, Sigma was
in serious  negotiations  with two boiler  manufacturers,  including  Baxi Group
Ltd.,  which led to the final  selection of Baxi as the first system  integrator
(see our discussion of our agreement with Baxi below).  Additionally,  Sigma was
then engaged in ongoing  discussions with utilities and energy service companies
from all over Europe.  Prior to our acquisition,  Sigma had focused its business
efforts on customers in Norway, with business development in Europe.

For the reasons set forth above,  we concluded that Sigma had a clearly  defined
Stirling engine product with strong market  potential,  that would best meet our
needs  and,  therefore,  warranted  an  acquisition  price of  $7,862,148  which
consisted of shares of our common stock valued at $5,500,000  and  assumption of
$2,362,148 of Sigma's liabilities.

We have concluded  that Sigma's  Stirling  engine held  strongest  potential for
economic  viability in the  distributed  power market.  Because the Sigma engine
combines both the displacer piston and the working piston into the same cylinder
for more  compact  engine  design,  it  contains  fewer parts and because of its
design  simplicity  and  related  operating  reliability,  we believe  the Sigma
Stirling engine offers  significant  advantages over competing Stirling engines.
Our plan is to arrange for the  manufacture  of these engines by companies  that
build  engines for the  automobile  industry,  thereby  reducing  the  Company's
potential  capital  needs to produce a  commercially  viable  distributed  power
product.

Another  factor  drawing us to Sigma was its focus on what we believe could be a
profitable  business in the growing  distributed  power market in Europe -- home
heat and power  generation.  We  believe  that  Sigma's  focus can  enable us to
develop a source of revenue from Sigma's Stirling engine design within as few as
15 months from acquisition  (November 2001). We are seeking to configure Sigma's
basic engine design for a range of other uses in the  commercial  and industrial
power  markets,  as well as adapting these engines as a power source for our H20
kW sea water  desalination  systems.  We believe that Sigma's basic one-cylinder
model can be  expanded  from the  current  3 kW to up to a 25 kW engine  with no
basic design  change.  Our  long-term  plan,  ultimately,  is to seek to combine
several 25 kW engine  systems in  parallel  arrays that will allow us to install
distributed power systems from kilowatts to megawatts with one basic design that
can share many  common  parts;  thereby  reducing  the cost to produce the power
systems. This manufacturing efficiency, coupled with the inherent flexibility of
the fuel  sources  for a Stirling  engine (any heat source will do, such as oil,
gas, solar power or any biomass) we believe will cause Stirling  engines to have
significant  commercial  advantages as a source of distributed  power over other
distributed  technologies  such as fuel cells,  with their more  stringent  fuel
requirements.

The purchase  price for Sigma of $7,862,148  represents  the market value of the
shares  of our  common  stock  issued  in the  acquisition  of  $5,500,000  plus
liabilities  of  $2,362,148  assumed.  In  accordance  with  generally  accepted
accounting principles, we allocated $1,272,392 of this purchase price to Sigma's
tangible and intangible  assets  representing  our estimate of the fair value of


                                       55
<PAGE>

such net assets.  Of the portion  allocated to tangible and  intangible  assets,
approximately  $978,000 was allocated to patents owned by Sigma.  In the absence
of a third party appraisal of the individual  assets and liabilities of Sigma at
the date of the  acquisition,  and the  absence of an "open  market" for patents
from which a market value could be  determined,  we estimated  fair value of the
patents as being  approximately  equal to their  carrying  value in the books of
Sigma.  Our  decision  was based on the  following:  (1) Sigma had  acquired the
patent rights in negotiated  transactions  in 1997 and 1998,  which  established
their value at those dates,  and (2) after  acquisition of the patents,  nothing
had  occurred at Sigma or in the market  place to warrant a change in the market
value of the patents, except for a reduction in value due to the passage of time
which had  already  been taken  into  account  by  Sigma's  amortization  of the
patents' carrying value for 23 months of the 134 months remaining on the term of
the patents.  The remaining  portion of the purchase price  ($6,589,756),  which
represented  the  excess of the  purchase  price  over the fair value of Sigma's
identifiable tangible and intangible assets, was recorded as goodwill.

The process of allocating the purchase price for the Sigma acquisition  included
assigning an  estimated  useful life to the patents and goodwill for purposes of
amortizing  their carrying value of these assets on our financial  statements as
required by generally accepted accounting  principles.  The useful life assigned
to the patents was 90 months  (representing the remaining weighted average terms
on the patents at the date of the purchase of Sigma by the Company) and 10 years
for the goodwill which resulted from the acquisition.  The time periods assigned
for these useful lives recognized that Sigma (1) was well along in its technical
development,  (2) had identified a market for its product (i.e., the residential
distributed  heat and power market in Europe),  and (3) had developed a business
plan to exploit the European market for combined heat and power generation.  Our
expectation  at the time of  allocating  the  purchase  price was that the Sigma
business would begin generating modest amounts of revenues in late 2001 or early
2002,  and that  commercial  production  would  begin in 2003 and  continue on a
profitable basis at least through 2010, which would be 10 years from the date of
the acquisition.

We  evaluate  the  carrying  value of patents and  goodwill  for  impairment  by
monitoring  the  progress  of  the  Sigma  business   against   expectations  of
accomplishment  as well as  developments  in the market  place  with  respect to
competing  technology,  obsolescence  or other factors bearing on the commercial
viability  of  the  Company's  business.   These  expectations  were  informally
established at the time of the  acquisition of Sigma in August 2000 and were set
forth in a business  plan dated  April  2001 which was  updated in August  2001.
Until the updated  business  plan from August 2001,  the  Company's  approach to
assessing impairment of Sigma-related assets was to monitor,  without the formal
use of benchmarks,  Sigma's progress against our expectations for development of
the technology and the positioning of such technology for commercial  operations
under Sigma's business plan. Given that the Stirling engine development  project
is discretely  centered in Sigma,  the small size of Sigma and the close working
relationship between Sigma and Ocean Power management teams, management believes
that it had sufficient  information  to recognize  whether or not impairment was
likely. From the time of our acquisition of Sigma, Ocean Power has monitored its
progress in developing its Stirling engine.  At the time of our acquisition,  we
made it clear that we wanted to add a major  manufacturing cost reduction effort
and US market  development to Sigma's business plan. This monitoring process has
included  establishing  a regime of weekly  conference  calls,  regular  visits,
planning sessions,  and design reviews.  We also instituted an outside review of
Sigma's progress by consultants, including Ricardo and Kockums. These plans have
specific  development  goals and progress  has been  carefully  monitored.  This
monitoring  program was augmented by the April and August revisions to the Sigma
business plan and remains on-going.

The above mentioned  activities were documented in normal  engineering  fashion.
Notebooks,   PowerPoint  presentations,   timelines,  schedules,  design  review
documents,  drawings and hardware were all generated.  Management  also received
regular reports on the various activities.


                                       56
<PAGE>

With  frequent  contact  among  the CEO of  Sigma,  Ocean  Power's  Director  of
Manufacturing,  Chief  Scientist and other staff,  as well as regular visits and
internal  reports,  management  concluded that all activities  were  progressing
acceptably.  Continuous  monitoring of competing  technologies and review of our
development  progress led management to believe that the new technologies  Sigma
was applying to Stirling engines could result in competitive  advantages and the
total value of their basic patents has not decreased.

The Board of Directors and management of Ocean Power were regularly  apprised of
the progress on all activities,  including Sigma. Based on management's  regular
monitoring,  we concluded  that no  impairment  of the goodwill or Sigma patents
existed at any of the balance sheet dates since September 2000.

Beginning in August  2001,  the  benchmarks  in the  development  plan are being
monitored  and will be updated  quarterly.  We would view any failure to meet an
established  benchmark by a significant  degree as an indication  that there may
exist an impairment of goodwill and/or the patent assets.  In such case, we will
compare the then-estimated fair value of Sigma (using present value of projected
future  cash flows of the  Stirling  engine  business,  adjusted  to reflect the
change in  circumstances  leading to failure to meet the benchmark)  against the
carrying value of the assets of the Stirling engine business.  We will recognize
an impairment  adjustment if the fair value of the Stirling  engine  business is
less than its carrying  value.  The assessment  might also result in a change in
useful  life of patents or  goodwill  even if an  impairment  adjustment  is not
required.  Statement of Financial  Accounting  Standard (SFAS) No. 142, Goodwill
and Other Intangible  Assets,  will be effective January 1, 2002 for the Company
and, from such date, the Company will apply its  provisions,  and those of other
accounting pronouncements referenced therein, for assessing impairment.

The development benchmarks for Sigma's Stirling engine business are as follows:


<PAGE>

<TABLE>
<CAPTION>

               Targeted Completion Date                                      Benchmark
------------------------------------------------------- -----------------------------------------------------
<S>                                                     <C>
First Quarter of 2001                                   Prime customer agrees to collaborate in
                                                        development efforts
------------------------------------------------------- -----------------------------------------------------
Fourth Quarter of 2001                                  Second generation prototype available to Sigma for
                                                        testing
------------------------------------------------------- -----------------------------------------------------
Fourth Quarter 2001 or First Quarter 2002               First proceeds from sale of prototypes
------------------------------------------------------- -----------------------------------------------------
Late First Quarter or early Second Quarter of 2002      Release of second generation prototype for external
                                                        testing
------------------------------------------------------- -----------------------------------------------------
Second Quarter 2002                                     Micro combined heat and power system ready for
                                                        internal testing
------------------------------------------------------- -----------------------------------------------------
Third Quarter 2002                                      Freezing (finalization) of design of the second
                                                        generation prototype
------------------------------------------------------- -----------------------------------------------------
Fourth Quarter 2003                                     Commence production of product (small energy
                                                        converter with electrical output of 3 kW and
                                                        thermal output of 9 kW)
</TABLE>

Sigma  successfully  achieved  the first  benchmark  in March  2001 by  reaching
agreement  with Baxi Group Ltd,  a major  manufacturer  of boilers in the United
Kingdom  to  collaborate  with  Sigma in  developing  a  micro-CHP  package  for
residential use consisting of the Sigma Energy Converter (Sigma Stirling engine)
in a metal cabinet  which also contains  controls,  electrical  connections  and
tanks to both heat and power system.  The Company expects that the collaboration
will take the form of a  vendor-customer  relationship  and not  include a legal
entity, such as a partnership or joint venture.

The milestones  have remained  unchanged  since the date of acquisition of Sigma
and we are on schedule.  Nothing has occurred to date that brings into  question
the valuation of the long-lived assets of Sigma or their useful lives.


                                       57
<PAGE>

Our  initial  anticipated  time-line  to develop  our 3 kW  Stirling  engine for
commercial  use was three years from the date of initial  funding of the capital
necessary  to continue  the work  already  begun by Sigma before the date of the
acquisition.  The initial  funding and  commencement  of work began in September
2000  and,  as of  August  2001,  there  has  been  no  change  to the  plan  of
development.  To reduce the risk that the time  necessary for  development  will
have to be extended,  the Company has contracted for outside engineering support
from  Ricardo  Inc.

Our initial  estimate of our funding  requirements to achieve the benchmarks set
forth above was  approximately  $19.9 million,  which amount continues to be the
estimate.  The $19.9 million aggregate amount needed over a three year period to
fund the activities in the Plan of Development is as follows:  $700,000 in 2000,
$9.0  million  in 2001,  $6.7  million in 2002 and $3.5  million in 2003.  As of
August  2001,  the Company has provided  approximately  $3.0 million of the $9.7
million originally  projected to be needed in 2000 and 2001. While the remaining
$6.7  million has not yet been  provided to Sigma,  it has been able to meet the
Stirling  engine  benchmarks  to date by (1)  focusing  on the core  activity of
designing,  developing  and  engineering  a  production  prototype  of the first
generation Sigma 3kW electric/9 kW thermal Stirling engine;  (2) using available
funds  of $3.0  million;  (3)  obtaining  vendor  credit  of $1.0  million;  (4)
deferring  development  tasks (and the related  costs) that were not part of the
core activity and could be deferred  without  causing delay to the time line for
development;  and (5) converting of debt to stock of Ocean Power. By focusing on
the  designing,  developing  and  engineering  of a production  prototype of the
engine,  we have been able to complete a pre-mass  production  engine  ready for
manufacture. We have also been able to have Ricardo, our engineering consultant,
begin  planning the design and  manufacture of the second  generation  prototype
engine,  which is intended to be lighter,  simpler in design and less  expensive
that  the  first  generation  engine.  Thirty  units  of the  second  generation
prototype  units have been  ordered  and are under  production.  The first three
units are scheduled for delivery (subject to the availability of funding) in the
fourth  quarter  2001.  In fourth  quarter 2001 or first quarter 2002, we expect
(subject to the  availability of funding) to start generating cash flow from the
release of second generation  prototype engines to utilities and other potential
customers for testing. Because of the low volume of production, pricing of these
second generation engines will only cover the high initial manufacturing cost of
the initial thirty units.  Therefore,  early stage  production will not generate
sufficient  cash  flow to fund  other  development  tasks  such as the  deferred
activities and other second generation development activities such as marketing.

With  respect  to  the  conversions  of  debt  to  equity,   Statoil   converted
approximately  $381,000 of its loans to Sigma into approximately  119,000 shares
of common  stock of the  Company.  The  temporary  solution to our  shortfall in
available  funding was to focus on core  activity.  Additional  funding  will be
needed  during the  remainder  of 2001 or the early part of 2002 to complete the
development   tasks  deferred   during  2001  and  to  complete  the  benchmarks
established  for the time period and to avoid an  impairment in the value of the
Sigma assets (including patents and goodwill).

During the course of discussions with potential customers relating to a possible
business  relationship,  such  as  related  to  marketing,   manufacturing,  and
installation  of our  products,  some of our  potential  customers  expressed an
interest in  purchasing  equity  securities  of the  Company.  While we have had
preliminary  discussions with potential customers  concerning the possibility of
such an equity investment in the Company,  we are not currently  discussing with
any  potential  customer  the terms of any such  investment.  The Company has no
intention of issuing equity  securities to acquire customers for no, or nominal,
cash consideration.

While management  believes  sufficient funds can be raised from external sources
of capital, no assurance can be given that the funding will be obtained.  In the
event that  funding is not  available,  or is only  available  on terms that the
Company  believes are  unfavorable,  adequate  funding may not be obtained which
could  have a  material  adverse  effect on the  Company's  financial  position,
results of  operations  and liquidity and would result in delays in the expected
schedule and would likely result in an impairment of the carrying value of Sigma
assets  (including  patents and  goodwill)  and could lead to a reduction in the
estimated useful life used to amortize these assets.


                                       58
<PAGE>

Our initial estimate,  which remains unchanged, of our manpower requirements for
the Stirling  engine  development  plan was a total of 53 people by 2004.  Sigma
currently has 20 employees. To develop the Stirling engine as we currently plan,
we anticipate  increasing  Sigma's  manpower to  approximately  26 by the end of
2001, to 38 in 2002 and to 45 in 2003. At the time of  acquisition  in September
2000,  Sigma  had  six  full-time  employees  and by the end of  2000  that  had
increased  to ten.  For the current year 2001,  Sigma  expects to increase  that
amount by 16 to reach the total of 26 by year end. Sigma increased its full time
employees  to 16 by March 31 and to 20 by June 30 of this year.  To date,  Sigma
has met its expected manpower requirements.


                           PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings.

The Company is not involved in any material legal  proceedings or litigation and
the officers and directors are aware of no other pending  litigation which would
have a material, adverse effect on the Company.

ITEM 2.  Changes in Securities:

(i) On  August  29,  2000,  the  Company  authorized  a  Private  Placement  for
$3,000,000. Each participant was required to submit a Subscription Agreement and
Representations of Investor documents.  Each investor agreed to purchase unit(s)
consisting of one share of common stock and one warrant.  The purchase  price of
the unit(s)  was $3.00 per unit.  The  warrant(s)  will have a life of three (3)
years  and a  purchase  price  of  $1.50.  1,000,000  units  were  issued  to 22
accredited   investors.   The  company  claims  exemption  from  regulation  per
Regulation  D and  the  private  offering  exemption  of  Section  4(2)  of  the
Securities  Act of 1933,  among others.  The offering was made only to a limited
number  of  persons,  all of whom were  accredited  investors.  Twenty-two  (22)
persons  purchased  these shares.  Each investor had adequate  information  with
which to make  informed  investment  decision and was given the  opportunity  to
obtain  what   additional   information  he  or  she  required.   Each  investor
acknowledged  in writing that its  investment was in restricted  securities.  No
public means of presenting the offer were used.


ITEM 3.  Defaults Upon Senior Securities.

NONE

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

NONE

ITEM 5.  Other Information

NONE


ITEM 6.  Exhibit List and Report on Form 8-K

         (a)  On October  19,  2000 the  company  filed a report on Form 8K/A.*

*Previously filed

                                   SIGNATURE:

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

                             OCEAN POWER CORPORATION


                             By: /s/ Joseph P. Maceda
                             ------------------------
                                     Joseph P. Maceda, President


September 4, 2001


                                       59
<PAGE>