OCEAN POWER CORP

                         Filing Type:  10QSB
                         Description: Quarterly Report
                         Filing Date: November 14, 2000
                         Period End: September 30, 2000

                         Primary Exchange:  N/A
                         Ticker:  N/A

                                       1
<PAGE>

                                Table of Contents


                                 10QSB OTHERDOC

Part I.........................................................................1
Item I.........................................................................2
Balance Sheet Assets............................................................
Balance Sheet Liabilities.......................................................
Income Statement................................................................
Table 4.........................................................................
Table 5.........................................................................
Table 6.........................................................................
Cash Flow Statement.............................................................
Table 8.........................................................................
Table 9.........................................................................
Table 10........................................................................
Table 11........................................................................
Table 12........................................................................
Table 13........................................................................
Item 2.........................................................................2
Item 3.........................................................................4
Item 4.........................................................................4
Item 5.........................................................................4
Item 6.........................................................................4

                                  EX-2 OTHERDOC

Table 14........................................................................

                                       2
<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

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

                For the quarterly period ended September 30, 2000

       [X]     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]

                                       3
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                    September 30, 2000 and December 31, 1999

                                       F-1
<PAGE>

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

                                     ASSETS
                                     ------

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

CURRENT ASSETS

   Cash                                                3,926,659  $     368,276
   Cash - restricted                                      26,816             --
   Advances to employees (Note 3)                        301,217        658,965
   Prepaid expenses (Note 5)                             480,835             --
                                                ----------------  -------------
     Total Current Assets                              4,735,527      1,027,241
                                                ----------------  -------------
EQUIPMENT, NET (Note 2)                                  655,840         52,555
                                                ----------------  -------------
PATENTS, NET (Note 6)                                    933,215             --
                                                ----------------  -------------
GOODWILL, NET (Note 7)                                 6,479,927             --
                                                ----------------  -------------
OTHER ASSETS

   Equipment procurement costs (Note 4)                       --        364,110
   Deposits                                               35,619         20,402
   Other receivables                                     171,838             --
                                                ----------------  -------------
     Total Other Assets                                  207,457        384,512
                                                ----------------  -------------
     TOTAL ASSETS                               $     13,011,966  $   1,464,308
                                                ================  =============

                                       F-2
<PAGE>

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


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

                                                        September 30,     December 31,
                                                           2000             1 999
                                                     ----------------  -------------
                                                       (Unaudited)
<S>                                                  <C>               <C>
CURRENT LIABILITIES

   Accounts payable                                  $        776,495  $   1,453,908
   Accrued expenses (Note 11)                                 240,595        326,582
   Notes payable - related parties (Note 8)                 1,360,626      4,040,051
   Convertible debentures payable (Note 10)                   550,000        650,000
   Patents payable - current portion (Note 6)                 302,225             --
   Notes payable - current portion (Note 9)                    45,334             --
                                                     ----------------  -------------
     Total Current Liabilities                              3,575,275      6,470,541
                                                     ----------------  -------------
COMMITMENTS AND CONTINGENCIES (Note 13)                       421,665             --
                                                     ----------------  -------------
LONG-TERM LIABILITIES

   Patents payable (Note 6)                                   293,358             --
   Notes payable (Note 9)                                     427,220             --
                                                     ----------------  -------------
     Total Long-Term Liabilities                              720,578             --
                                                     ----------------  -------------
     Total Liabilities                                 4,717,518      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                              30,512,319      5,782,025
   Other comprehensive income                                 198,927             --
   Deficit accumulated during the development stage       (22,798,297)   (11,116,617)
                                                     ----------------  -------------
     Total Stockholders' Equity (Deficit)                   8,294,448     (5,006,233)
                                                     ----------------  -------------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)                                      $     13,011,966  $   1,464,308
                                                     ================  =============
</TABLE>

                                       F-3
<PAGE>

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

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

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

EXPENSES

   General and administrative                      11,233,711        5,155,559         3,071,959         4,414,356       20,018,255
   Research and development                           223,156               --            82,306                --        1,473,156
   Depreciation and amortization                      228,719            7,224           144,574             1,280          255,128
                                             ----------------  ---------------   ---------------  ----------------  ---------------
     Total Expenses                                11,685,586        5,162,783         3,298,839         4,415,636       21,746,539
                                             ----------------  ---------------   ---------------  ----------------  ---------------
     LOSS FROM OPERATIONS                         (11,685,586)      (5,162,783)       (3,298,839)       (4,415,636)     (21,746,539)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
OTHER INCOME (EXPENSE)

   Interest income                                    115,861                1            36,283                 1          115,861
   Gain on settlement of debt                         165,349               --                --                --          165,349
   Loss on sale of assets                                  --               --                --                --         (387,649)
   Interest expense                                  (215,304)        (250,797)          (87,281)          (88,343)        (945,319)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
     Total Other Income (Expense)                      65,906         (250,796)          (50,998)          (88,342)      (1,051,758)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
NET LOSS                                          (11,619,680)      (5,413,579)       (3,349,837)       (4,503,978)     (22,798,297)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
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                       $    (11,420,753) $    (5,413,579)  $    (3,150,910) $     (4,503,978) $   (22,599,370)
                                             ================  ===============   ===============  ================  ===============
BASIC LOSS PER SHARE                         $          (0.33) $         (0.82)  $         (0.09) $          (0.51)              --
                                             ================  ===============   ===============  ================  ===============
WEIGHTED AVERAGE SHARES
OUTSTANDING                                        35,282,677        6,564,458        36,405,608         8,907,326               --
                                             ================  ===============   ===============  ================  ===============
</TABLE>

                                       F-4
<PAGE>

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

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

<S>                                          <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 at $0.003
 per share                                            395,467            3,955            (2,817)               --               --

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

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

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

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

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

June 16, 1998, common stock
 issued for cash at $0.003 per share                  119,086            1,191              (849)               --               --

June 16, 1998, common stock
 issued for cash at $0.003 per share                   42,456              424              (303)               --               --

June 16, 1998, common stock
 issued for debt at $0.079 per share                1,061,400           10,614            73,267                --                --

July 29, 1998, common stock
 issued for cash 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)
                                             ================  ===============   ===============  ================  ===============
</TABLE>

                                       F-5
<PAGE>

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

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

<S>                                          <C>               <C>               <C>              <C>               <C>
Balance, December 31, 1998                          1,956,142  $        19,561   $        66,889  $             --  $    (5,224,330)

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

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

March 22, 1999, common stock
 issued for debt at $0.005 per
 share                                             19,011,220          190,112           (85,582)               --               --

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

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

April 27, 1999, common stock
 issued for debt at $0.003 per
 share                                                 95,700              957              (682)               --               --

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

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

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

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

May 5, 1999, common stock
 issued for cash at $0.003 per
 share                                                 32,016              320              (228)               --               --
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance Forward                                    21,915,278  $       219,152   $       (25,449) $             --  $    (5,224,330)
                                             ================  ===============   ===============  ================  ===============
</TABLE>

                                       F-6
<PAGE>

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

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


<S>                                          <C>               <C>               <C>              <C>               <C>
Balance Forward                                    21,915,278  $       219,152   $       (25,449) $             --  $    (5,224,330)

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

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

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

May 19, 1999, common stock
 issued for cash at $0.003 per
 share                                                372,360            3,724            (2,654)               --               --

June 17, 1999, common stock
 issued for cash 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                                        --               --             6,000                --               --

July 12, 1999, options issued
 below market value                                        --               --           280,000                --               --

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

August 12, 1999, common stock
 issued for interest at $2.50 per
 share                                                100,000            1,000           249,000                --               --
                                             ----------------  ---------------   ---------------  ----------------  ---------------
Balance Forward                                    31,470,596  $       314,706   $     3,402,761  $             --  $    (5,224,330)
                                             ================  ===============   ===============  ================  ===============
</TABLE>

                                       F-7
<PAGE>

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

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

<S>                                          <C>               <C>               <C>              <C>               <C>
Balance Forward                                    31,470,596  $       314,706   $     3,402,761  $             --  $    (5,224,330)

September 2, 1999, common
 stock issued for services valued
 at $0.29 per share                                    20,000              200             5,600                --               --

September 9, 1999, options
 issued below market value                                 --               --           190,000                --               --

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, warrants
 issued below market value                                 --               --           650,000                --               --

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

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

December 7, 1999, options
 issued below market value                                 --               --            20,000                --               --

December 10, 1999, common
 stock issued for cash at $0.70
 per share                                             71,839              718            49,282                --               --

December 10, 1999, common
 stock issued for cash at $0.71
 per share                                            175,070            1,751           123,249                --               --

December 13, 1999, common
 stock issued for cash at $0.84
 per share                                            160,131            1,601           133,399                --               --

December 15, 1999, common
 stock issued for cash at $0.90
 per share                                             33,333              333            29,667                --               --

December 20, 1999, common
 stock issued for cash at $0.83
 per share                                            193,939            1,939           158,061                --               --
                                             ----------------  ---------------   ---------------  ----------------  ---------------
Balance Forward                                    32,122,408  $       321,223   $     4,862,044  $             --  $    (5,224,330)
                                             ================  ================  ===============  ================  ===============
</TABLE>

                                       F-8
<PAGE>

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

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

<S>                                          <C>               <C>               <C>              <C>               <C>
Balance Forward                                    32,122,408  $       321,223   $     4,862,044  $             --  $    (5,224,330)

December 23, 1999, common
 stock issued for cash at $0.83
 per share                                            120,773            1,208            98,792                --               --

December 31, 1999, common
 stock issued for conversion of
 related party debt at $1.50 per
 share                                                592,744            5,928           883,189                --               --

Net loss for the year ended
 December 31, 1999                                         --               --                --                --       (5,954,287)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

Balance, December 31, 1999                         32,835,925          328,359         5,844,025                --      (11,178,617)

January 4, 2000, common stock
 issued for debt and services
 at $2.75 per share (unaudited)                       147,580            1,476           404,369                --               --

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
 issued below market value
 (unaudited)                                               --               --            54,000                --               --

February 18, 2000, options
 issued below market value
 (unaudited)                                               --               --            25,000                --               --

February 22, 2000, options
 issued below market value
 (unaudited)                                               --               --           475,000                --               --

March 9, 2000, common stock
 issued for cash purchase of
 warrants at $1.99 per share
 (unaudited)                                           62,792              628           124,391                --               --
                                             ----------------  ---------------   ---------------  ----------------  ---------------
Balance Forward                                    33,153,916  $       331,539   $     7,286,109  $             --  $   (11,178,617)
                                             ================  ===============   ===============  ================  ===============
</TABLE>

                                       F-9
<PAGE>

<TABLE>
<CAPTION>

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

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

<S>                                          <C>               <C>               <C>              <C>               <C>
Balance Forward                                    33,153,916  $       331,539   $     7,286,109  $             --  $   (11,178,617)

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 cash purchase 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 average price of $4.95
 per share
 (unaudited)                                           46,486              465           231,347                --               --

April 19, 2000, options issued
 below market value
 (unaudited)                                               --               --            34,100                --               --

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

July 25, 2000, common stock
 issued for services at $3.00
 per share (unaudited)                                100,000            1,000           299,000                --               --

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

January 25 - August 30, 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                --               --

January 25 - August 30, 2000,
 warrants issued below market
 value (unaudited)                                         --               --         4,322,332                --               --

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                --               --
                                             ----------------  ---------------   ---------------  ----------------  ---------------
Balance Forward                                    38,149,942  $       381,499   $    29,012,319  $             --  $   (11,178,617)
                                             ================  ===============   ===============  ================  ===============
</TABLE>

                                       F-10
<PAGE>

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

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

<S>                                          <C>               <C>               <C>              <C>               <C>
Balance forward                                    38,149,942  $       381,499   $    29,012,319  $             --  $   (11,178,617)

September 15, 2000, warrants
 issued below market value
 (unaudited)                                               --               --         1,500,000                --               --

Currency translation adjustment                            --               --                --           198,127               --

Net loss for the nine months
 ended September 30, 2000
 (unaudited)                                               --               --                --                --      (11,619,680)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
Balance, September 30, 2000
 (unaudited)                                       38,149,942  $       381,499   $    30,512,319  $        198,127  $   (22,798,297)
                                             ================  ===============   ===============  ================  ===============
</TABLE>

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

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

CASH FLOWS FROM OPERATING
 ACTIVITIES

<S>                                          <C>               <C>               <C>              <C>               <C>
   Net loss                                  $    (11,619,680) $    (5,413,579)  $    (3,349,837) $     (4,503,978) $   (22,798,297)
   Adjustments to reconcile net loss to
    net cash provided (used) by
    operating activities:
     Depreciation and amortization                    228,719            7,224           168,859             1,280          279,413
     Common stock issued for services
       and equity discounts                         8,548,872          857,150         1,856,794           104,993        9,817,672
     Loss on sale of assets                                --          387,649                --           387,649          387,649
   Change in operating asset and liability
     accounts:

     (Increase) decrease in overpayment
      receivable                                     (162,350)              --          (162,350)               --         (162,350)
     (Increase) decrease in prepaid
      assets                                         (449,841)              --            85,576                --         (449,841)
     (Increase) decrease in other assets              775,872          (17,240)           49,892           169,035           96,505
     Increase (decrease) in accounts
      payable                                      (1,016,712)         959,770           (70,254)          729,547          136,335
     Increase (decrease) in cash
      overdraft                                            --            2,095                --             2,095               --
     Increase (decrease) in accrued
      expenses                                       (150,428)         133,635           (39,800)           23,901          922,927
                                             ----------------  ---------------   ---------------  ----------------  ---------------
       Net Cash Provided (Used) by
        Operating Activities                       (3,845,548)      (3,083,296)       (1,461,120)       (3,085,478)     (11,769,987)
                                             ----------------  ---------------   ---------------  ----------------  ---------------
CASH FLOWS FROM INVESTING
 ACTIVITIES

   Proceeds from sale of assets                            --                1                --                 1                1
   Purchase of fixed assets                          (640,148)          (1,738)          (34,774)           (1,738)        (748,217)
   Equipment procurement costs                             --         (364,110)               --          (364,110)        (364,110)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

       Net Cash (Used) by Investing
       Activities                                    (640,148)        (365,847)          (34,774)         (365,847)      (1,112,326)
                                             ----------------  ---------------   ---------------  ----------------  ---------------

CASH FLOWS FROM FINANCING
 ACTIVITIES

   Repayment of note payable - related
    parties                                        (2,394,287)        (199,875)         (171,752)         (199,875)      (2,642,522)
   Loans from related parties                          82,178        2,795,834                --         2,795,834        7,638,908
   Issuance of convertible debentures                  -               650,000            -                650,000          650,000
   Common stock issued for cash                    10,240,750          200,000         3,090,870           200,000       11,047,148
   Cash acquired from purchase of
    subsidiary                                        142,254               --           142,254                --          142,254
                                             ----------------  ---------------   ---------------  ----------------  ---------------
       Net Cash Provided (Used) by
       Financing Activities                  $      8,070,895  $     3,445,959   $     3,061,372  $      3,445,959  $    16,835,788
                                             ================  ===============   ===============  ================  ===============
</TABLE>

                                       F-11
<PAGE>

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

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

<S>                                          <C>               <C>               <C>              <C>               <C>
NET INCREASE (DECREASE) IN
CASH AND CASH  EQUIVALENTS                   $      3,585,199  $        (3,184)  $     1,565,478  $         (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 ACTIVITIES

   Common stock issued for services
    and  equity discounts                    $      8,548,872  $       857,150   $     1,856,794  $        104,993  $     9,817,672
   Common stock issued in acquisition
    of subsidiary                            $      5,500,000  $            --   $     5,500,000  $             --  $     8,261,773
   Common stock issued for conversion
    of debt                                  $        100,000  $            --   $            --  $             --  $     1,435,413
</TABLE>

                                       F-12
<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.  Therefore,  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.  On August 19,  1999,  the  shareholders  of the Company
              authorized  a 1 for 10 reverse  stock  split.  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.

                                       F-13
<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) 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.

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.

                                       F-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 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.  Fully diluted loss per share
              is not presented  because of the antidilutive  nature of the stock
              equivalents.
<TABLE>
<CAPTION>

                                                  For the                                 For the
                                              Nine Months Ended                       Three Months Ended
                                                September 30,                           September 30,
                                           2000               1999                 2000               1999
                                     -----------------  ------------------  ------------------  ------------------
                                        (Unaudited)         (Unaudited)         (Unaudited)        (Unaudited)

              <S>                    <C>                <C>                 <C>                 <C>
              Net (loss)
                (numerator)          $     (11,619,680) $       (5,413,579) $       (3,349,837) $       (4,503,978)

              Weighted average
               shares outstanding
                (denominator)               35,282,677           6,564,458          36,405,608           8,907,326
                                     -----------------  ------------------  ------------------  ------------------
              Basic (loss) per
               share                 $           (0.33) $            (0.82) $            (0.09) $            (0.51)
                                     =================  ==================  ==================  ==================
</TABLE>

              c.  Provision for Taxes

              At  September  30,  2000,  the  Company  has  net  operating  loss
              carryforwards  of  approximately  $22,800,000  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  a
              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,  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-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 2 -      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

              f.  Equipment

              Office   equipment  and  software  are  recorded  at  cost.  Major
              additions and renewals are capitalized and depreciated  over their
              estimated  useful  lives of 3 to 7 years  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.
<TABLE>
<CAPTION>

              Equipment consists of the following:
                                                                                 September 30,     December 31,
                                                                                   2000               1999
                                                                            ------------------  ------------------
                                                                                (Unaudited)

                           <S>                                              <C>                 <C>
                           Equipment                                        $          591,232  $               --
                           Office equipment and furniture                              199,372              36,748
                           Computers and software                                       89,733              46,834
                           Phone system                                                 19,667              19,667
                           Leasehold improvements                                        9,590                  --
                           Artwork                                                       1,374                  --
                           Accumulated depreciation                                   (255,128)            (50,694)
                                                                            ------------------  ------------------
                           Net Equipment                                    $          655,840  $           52,555
                                                                            ==================  ==================
</TABLE>

              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.

              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

              In June  1998,  the FASB  issued  SFAS No.  133,  "Accounting  for
              Derivative  Instruments  and Hedging  Activities"  which  requires
              companies to record derivatives as assets or liabilities, measured
              at fair market value.  Gains or losses  resulting  from changes in
              the values of those  derivatives  would be accounted for depending
              on the use of the  derivative  and whether it qualifies  for hedge
              accounting.  The key  criterion  for hedge  accounting is that the
              hedging   relationship  must  be  highly  effective  in  achieving
              offsetting  changes in fair value or cash  flows.  SFAS No. 133 is
              effective for all fiscal  quarters of fiscal years beginning after
              June 15,  1999.  The  adoption of this  statement  had no material
              impact on the Company's financial statements.

                                       F-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)

              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

              All long-lived assets are evaluated yearly for impairment per SFAS
              121,  "Accounting for the Impairment of Loing-Lived Assets and for
              Long-Lived  Assets to Be Disposed Of". Any  impairment in value is
              recognized as an expense in the period when the impairment occurs.

              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.

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 10% 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.

              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, 1999            $          292,095
                           September 30, 2000                        9,122
                                                        ------------------

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


                                       F-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 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 services               $          225,000  $           -
      Prepaid maintenance                           464              -
      Prepaid insurance                           5,371              -
      Prepaid license agreement                 250,000              -
                                     ------------------  -------------

                 Total               $          480,835  $           -
                                     ==================  =============

              During  March  2000,  the  Company  purchased  a  motor  from  STM
              Corporation   (STM)  for  the  development  of  its   desalination
              equipment  for  $132,200.  As part of 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 prepaid $250,000 towards this license agreement.

              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  this
              agreement and returned the motor.

              During July 2000, the Company prepaid  consulting  services in the
amount of $225,000.

                                       F-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 6 -      PATENTS

              During  November  1998,  the  Company's  wholly-owned  subsidiary,
              SIGMA,  entered  into an agreement  with Silent  Clean  Power,  AB
              (SCP),  (a Swedish  company) to purchase  licenses  and patents to
              certain  technology  associated with the Company's PCP development
              for $1,518,935,  payable in stock and a note payable. The licenses
              and patents are being amortized over their estimated  useful lives
              of 111 to 134 months using the straight-line method.  Amortization
              expense for the nine months ended  September 30, 2000 and 1999 was
              $22,383 and $-0-, respectively.

              At  September  30,  2000,  the  Company  owed SCP  $595,583 on the
              remainder of its license and patent obligation.

              Annual maturities of licenses and patents payable are as follows:

                           2000                       $          302,225
                           2001                                  164,850
                           2002                                  128,508
                                                      ------------------

                                                      $          595,583
                                                      ==================

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 since the date of  acquisition
              are included in the consolidated financial statements.

              Unaudited proforma 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)
                                                       ==================


                                       F-19

<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 8 -      NOTES PAYABLE - RELATED PARTIES

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

              Unsecured note payable to a related party bearing  interest at 10%
               per annum, all unpaid interest and principle due
               on demand.                                                                        $          87,152

              Unsecured note payable to a related party bearing  interest at 10%
               per annum, all unpaid interest and principle due
               upon demand.                                                                                286,380

              Unsecured note payable to a related party bearing interest at
               10% per annum, due upon demand.                                                             419,649

              Unsecured note payable to a related party bearing interest at
               10% per annum, due upon demand.                                                              55,131

              Unsecured note payable to a related party bearing interest at
               10% per annum, due upon demand.                                                             248,987

              Unsecured note payable to a related party bearing interest at
               10% per annum, due upon demand.                                                              66,564

              Unsecured note payable to a related party bearing interest at
               10% per annum, due upon demand.                                                             118,345

              Unsecured note payable to a related party bearing interest at
               10% per annum, due upon demand.                                                               5,429

              Unsecured note payable to a related party bearing interest at
               10% per annum due upon demand.                                                               71,494

              Unsecured note payable to a related party 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.

                                       F-20
<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 9 -       NOTES PAYABLE

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

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

               Note payable to a bank 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
               Note payable to a bank 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                                                               $         772,554
                                                                                                 =================

               Annual maturities of notes payable are as follows:

                         Years Ending

                         December 31,

                               2000                                                              $         345,334
                               2001                                                                        230,223
                               2002                                                                        196,997
                                                                                                 -----------------

                                                                                                 $         772,554
</TABLE>

               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.  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 $17,500 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  shares  were
               issued in conjunction with the warrants.

                                       F-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 10 -      CONVERTIBLE DEBENTURES (Continued)

               During November 1999, the Company issued a convertible  debenture
               for  $350,000.  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 $26,250 at September 30, 2000.

               The  Company  recognized   additional   compensation  expense  of
               $650,000 during 1999 to reflect the discount on the warrants.

NOTE 11 -      ACCRUED EXPENSES

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

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

               Total                    $         240,595  $         326,582
                                        =================  =================

               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.

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 revenues,
               planned  principal  operations  have  not yet  commenced  and the
               Company has incurred losses from its inception  through September
               30,  2000.  The Company  does not have an  established  source of
               revenues  sufficient to cover its operating costs and to allow it
               to continue as a going concern.

                                       F-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 12 -      GOING CONCERN (Continued)

               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.  Contributions Payable

               During 2000,  1999,  1998 and 1997,  the  Company's  wholly-owned
               subsidiary,  SIGMA, received a total of $421,665 as contributions
               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 the Company'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.

               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.

                                       F-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 13 -      COMMITMENTS AND CONTINGENCIES (Continued)

               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
               300,000 shares of the Company's  common stock 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.

               During December 1999, the agreement was amended whereby Weckstein
               will receive  options to purchase up to 125,000  shares of common
               stock at a price of $1.00  per share  until  December  31,  2003.
               During  1999,   the  Company  paid  $10,000  in   commissions  to
               Weckstein. No options were exercised as of December 31, 1999 (see
               Note 14).

               During  March  1999,  the  Company   entered  into  a  consulting
               agreement  with  Richard  Brown for services in  connection  with
               obtaining equity  financing for the Company.  The agreement calls
               for the  payment  of a 10%  commission  for  any  and  all  funds
               delivered to the Company  during 1999. No funds were delivered to
               the Company and no commission payments were made during 1999.

                                       F-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 13 - COMMITMENTS AND CONTINGENCIES (Continued)

               During July 1999,  the Company  entered into a six month 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  agreement  calls for the Company to issue  500,000
               shares of the  Company's  common  stock as  follows:  1)  150,000
               shares  within  one week of  signing  the  agreement;  b) 150,000
               shares within 30 days based on mutually agreed upon  performance;
               and 3) 200,000  within the  following  60 days based on  mutually
               agreed  upon  performance  as well as the right to purchase up to
               1,000,000  shares  of  common  stock at $0.50  per  share and the
               payment of expenses incurred.

               During   November  1999,  the  Company  entered  into  a  30  day
               consulting  agreement  with  Intercontinental  Capital  Corp.  to
               assist the Company obtain financing.  The agreement calls for the
               Company to pay  $42,000 for  services,  $6,000 for  expenses  and
               issue 60,000  shares of the Company's  common stock.  The Company
               paid all fees and  expenses  and issued  60,000  shares of common
               stock  in  conjunction   with  this  agreement  and  allowed  the
               agreement to expire.

               During  January  2000,  the  Company  entered  into a three  year
               consulting   agreement  with  Clement  J.  Wohlreich  to  provide
               financial, marketing and management services. The agreement calls
               for the  Company  to  issue  100,000  units at  $3.00  per  unit,
               consisting  of one share of the  Company's  common  stock and one
               warrant.  The  warrants  will  have a life of three  years  and a
               purchase price of $1.50 per warrant.

               During  January  2000,  the  Company  entered  into a three  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  calls for the
               Company to pay $4,000 per month until the Company secures a total
               of $5,000,000 in financing,  then the Company will pay $6,000 per
               month for 12 months and grant  100,000  options to  purchase  the
               Company's  common  stock.  The options will have a four year life
               and will be priced at $1.50 per share.

               During  January  2000,  the  Company  entered  into a  consulting
               agreement  with Donner  Corp.  International  to provide  initial
               marketing and  promotion  services.  The agreement  calls for the
               Company to pay a retainer  of $2,500,  $100,000  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.

               During  February  2000,  the Company  signed an  amendment to its
               agreement for consulting  services with Weckstein.  The amendment
               calls for the Company to issue  75,000  options to  purchase  the
               Company's  common stock  exercisable at $6.00 per share for three
               years.

               During  April  2000,  the  Company  signed  an  amendment  to its
               agreement for consulting  services with Weckstein  dated February
               18, 2000. The amendment  cancels the 100,000  options  previously
               issued  and calls 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.

                                       F-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 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.  License Agreements

               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 payments of $500,000
               per year.

               During  September  2000,  the  Company  entered  into a licensing
               agreement with Aquamax (International) Holding, B.V. (Aquamax), a
               Dutch  Corporation  and  Keeran  Corporation,  N.V.  (Keeran),  a
               Netherlands Antillies Corporation,  to obtain exclusive rights to
               make, have made, use,  distribute,  install,  offer to sell, sell
               and sub-license  licensed  products and purchase parts to certain
               technology.

               The agreement is for 10 years and calls for payments as follows:

               a) $100,000 non-refundable advance upon acceptance;

               b) $300,000 upon full execution and delivery of the agreement;

               c) 200,000 shares of the Company's common stock within 10 days of
               delivery of the agreement;

               d)  $1,600,000  upon  completion  of a private  placement  of the
               Company's common stock no later than December 31, 2000;

               e) 200,000  shares of the Company's  common stock upon payment of
               the $1,600,000 payment referred to above;

               f) $2,000,000 no later than December 31, 2000; and

               g) 200,000 shares of the Company's common stock upon payment
               of the $2,000,000 payment referred to above.

               The Company also  granted  Aquamax and Keeran  certain  exclusive
               rights in its technology for certain  applications.  In exchange,
               the Company will receive 50% of any license royalty or amounts of
               a similar nature they receive from third parties.

                                       F-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 14 -      DILUTIVE INSTRUMENTS

               a.  Stock Options

               The Company applied  Accounting  Principles  Board ("APB") Option
               25,  "Accounting  for Stock  Issued to  Employees,"  and  related
               interpretations  in accounting for all stock option plans.  Under
               APB Option 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.

               FASB Statement 123,  "Accounting  for  Stock-Based  Compensation"
               ("SFAS No.  123"),  requires  the  Company  to  provide  proforma
               information  regarding  net income and net income per share as if
               compensation costs for the Company's stock option plans and other
               stock  awards had been  determined  in  accordance  with the fair
               value  based  method  prescribed  in SFAS No.  123.  The  Company
               estimates the fair value of each stock award at the grant date by
               using the  Black-Scholes  option pricing model with the following
               weighted  average  assumptions  used  for  grants,  respectively;
               dividend yield of zero percent for all years; expected volatility
               of 32 percent  for all years;  risk-free  interest  rates of 10.0
               percent and expected lives of 4.5 years.

<TABLE>
<CAPTION>
                                                           For the                            For the
                                                        Nine Months Ended                  Three Months Ended
                                                          September 30,                      September 30,
                                             ------------------------------------------------------------------
                                                     2000             1999              2000              1999
                                             ----------------  ---------------   ---------------  -----------------
               Net loss:
<S>                                          <C>               <C>               <C>              <C>
                  As reported                $    (11,619,680) $    (5,413,579)  $    (3,349,837) $     (4,503,978)
                  Pro Forma                       (11,619,680)      (5,413,579)       (3,349,837)       (4,503,978)

               Net loss per share:
                  As reported                $          (0.33) $         (0.82)  $        (0.09) $           (0.51)
                  Pro Forma                             (0.33)           (0.82)           (0.09)             (0.51)
</TABLE>

               During the initial phase-in period of SFAS No. 123, the effect of
               pro forma  results  are not  likely to be  representative  of the
               effects on pro forma  results in future years since  options vest
               over several years and  additional  options could be granted each
               year.

               The company has granted the following  warrants and options as of
               September 30, 2000:

<TABLE>
<CAPTION>

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

<S>                          <C>            <C>      <C>             <C>              <C>               <C>
        D. Weckstein         6-23-99        300,000  $        5.00   $        5.20         -            Canceled
     Xcel Associates         7-12-99        100,000  $        5.00   $        7.80         20,000        7-12-00
     Xcel Associates          9-9-99        100,000  $        1.00   $        2.90        100,000         3-9-00
        D. Weckstein         12-7-99        125,000  $        1.00   $        1.16         -            Canceled
        D. Weckstein         2-18-00        100,000  $        6.00   $        6.25         -            Canceled
           EBM, Inc.         2-22-00        100,000  $        1.50   $        6.25         -             2-22-04
        D. Weckstein         4-19-00        110,000  $        3.00   $        3.31         -             2-18-03
                                      -------------                                 -------------

                      Total                 935,000                                       120,000
                                      =============                                 =============
</TABLE>

                                       F-27

<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)

               On June 23,  1999,  the Company  issued  options to  Weckstein in
               conjunction  with a  consulting  agreement  to  purchase  300,000
               shares  of the  Company's  common  stock at a price of $5.00  per
               share. The Company recognized additional  compensation expense of
               $6,000 as part of the  recapitalization  due to the options being
               granted below market, or $5.20 on the date of issuance.

               On July 12, 1999, the Company issued options to Xcel  Associates,
               Inc.  in  conjunction  with a  consulting  agreement  to purchase
               100,000 shares of the Company's  common stock at a price of $5.00
               per share. The company recognized additional compensation expense
               of $28,000  as part of the  recapitalization  due to the  options
               being granted below market, or $7.80 on the date of issuance.

               On July 15, 1999,  Xcel exercised  10,000 of the options  granted
               July 12, 1999 for cash of $50,000, or $5.00 per share.

               On July 26, 1999,  Xcel exercised  10,000 of the options  granted
               July 12, 1999 for cash of $50,000, or $5.00 per share.

               On  September  9, 1999,  the Board of  Directors  authorized  the
               issuance of options to Xcel Associates,  Inc. for the purchase of
               100,000 shares of the Company's  common stock at a price of $1.00
               per share. The Company recognized additional compensation expense
               of $190,000 due to the options being  granted  below  market,  or
               $2.90 on the date of issuance.

               On December 7, 1999, the Company amended its consulting agreement
               with Weckstein dated June 23, 1999 resulting in a cancellation of
               the 300,000  options and  issuance of 125,000 new options  with a
               exercise  price  of  $1.00  per  share.  The  Company  recognized
               additional  compensation  expense of $20,000  due to the  options
               being granted below market, or $1.16 on the date of issuance.

               On  February  18,  2000,  the  Company   amended  its  consulting
               agreement  with  Weckstein  dated December 7, 1999 resulting in a
               cancellation  of the 125,000  options and issuance of 100,000 new
               options  with an exercise  price of $6.00 per share.  The Company
               recognized additional  compensation expense of $25,000 due to the
               options  being  granted  below  market,  or  $6.25 on the date of
               issuance.

               On February 22, 2000,  the Company issued options to EBM, Inc. in
               conjunction  with a  consulting  agreement  for the  purchase  of
               100,000 shares of the Company's  common stock at a price of $1.50
               per share. The Company recognized additional compensation expense
               of $475,000 due to the options being  granted  below  market,  or
               $6.25 on the date of issuance.

               On April 14, 2000, the Company  amended its consulting  agreement
               with  Weckstein   dated   February  18,  2000,   resulting  in  a
               cancellation  of the 100,000  options and issuance of 110,000 new
               options  with an exercise  price of $3.00 per share.  The Company
               recognized additional  compensation expense of $34,100 due to the
               options being  granted  below  market,  or $3.31 per share on the
               date of issuance.

                                       F-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 14 -      DILUTIVE INSTRUMENTS (Continued)

               b.  Warrants

               A summary of the Company's  outstanding  warrants as of September
               30, 2000 is presented below:
<TABLE>
<CAPTION>

                           Warrant       Exercise      Exercise        Trading         Amount       Expiration
   Description               Date         Number        Price            Price         Exercised       Date
--------------------  --------------  -------------  -------------   -------------  -------------  ---------------

<S>                          <C>            <C>      <C>             <C>                   <C>            <C>  <C>
Freedom Funding              3-30-99         70,000  $        1.50   $        1.50         70,000         3-30-04
Freedom Funding,
  Paradon Limited,
  Enterprise Capital          5-7-99        720,738  $        1.50   $        1.50        720,738          5-7-04
Regis Investment            11-16-99        133,333  $        0.75   $        1.50        133,333       11-16-04
Venture Investment          11-16-99        133,333  $        0.75   $        1.50         -            11-16-04
Freedom Funding             11-16-99        133,333  $        0.75   $        1.50         -            11-16-04
Freedom Funding             11-16-99        466,667  $        0.75   $        1.50         -            11-16-04
Clement J. Wohlreich          1-1-00        100,000  $        1.50   $        1.38         -              1-1-03
Donner Corp, Int'l           1-20-00        100,000         $ 2.17         $  2.71         -              2-1-03
Private Placement         1-25-00 to                                                                  1-25-00 to
  Investors                  8-30-00      1,930,792  $        2.24   $        3.58         62,792         8-30-03
Private Placement            9-15-00      1,000,000  $        1.50   $        3.00         -              9-15-03
                                      -------------                                 -------------

                                          4,788,196                                       986,863
                                      =============                                 =============
</TABLE>

               During  March 1999,  the Company  issued  warrants  allowing  the
               holder to purchase one restricted  share of the Company's  common
               stock for each share purchase  warrant held in  conjunction  with
               convertible   debentures  issued  in  November  1998.  The  total
               warrants  granted  amounted to 70,000 shares at an exercise price
               of $1.50 per share for five years.  The Company did not recognize
               any  additional  compensation  expense  due  to the  grant  price
               equaling the market price on the date of issuance.

               During May 1999, the Company issued warrants  allowing the holder
               to purchase one  restricted  share of the Company's  common stock
               for  each  share  purchase   warrant  held  in  conjunction  with
               convertible   debentures  issued  in  November  1998.  The  total
               warrants  granted amounted to 720,738 shares at an exercise price
               of $1.50 per share for five years.  The Company did not recognize
               any  additional  compensation  expense  due  to the  grant  price
               equaling the market price on the date of issuance.

               During  November 1999, the Company issued  warrants  allowing the
               holder  to  purchase  one  additional  restricted  share  of  the
               Company's  common stock for each share  purchase  warrant held in
               conjunction with four convertible debentures.  The total warrants
               granted  amounted to 866,666 shares at an exercise price of $1.50
               per share  for five  years.  The  Company  recognized  additional
               compensation  expense  of  $650,000  due  to the  warrants  being
               granted below market, or $1.50 on the date of issuance.

                                       F-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 14 -      DILUTIVE INSTRUMENTS (Continued)



               During  January 2000, the Company  issued  warrants  allowing the
               holder to purchase  100,000 shares of the Company's  common stock
               in  conjunction  with a  consulting  agreement.  The warrants are
               exercisable  at a price of $1.50 per share for three  years.  The
               Company did not recognize any additional  compensation due to the
               grant price being below the market price on the date of issuance.

               During  January 2000, the Company  issued  warrants  allowing the
               holder to purchase  100,000 shares of the Company's  common stock
               in  conjunction  with a  consulting  agreement.  The warrants are
               exercisable  at a price of $2.17 per share for three  years.  The
               Company recognized additional compensation expense of $54,000 due
               to the warrants being granted below market,  or $2.71 on the date
               of issuance.

               January  25, - August  30,  2000,  the  Company  issued  warrants
               allowing the holder to purchase one share of the Company's common
               stock for each share purchase  warrant held in conjunction with a
               private placement memorandum. The total warrants granted amounted
               to 1,930,792 shares at a weighted average exercise price of $2.24
               per share for three  years.  The  Company  recognized  additional
               compensation  expense of  $4,322,332  due to the  warrants  being
               issued below the weighted  average  market price of $3.58 between
               January 25, 2000 and August 30, 2000.

               During  September 2000, the Company issued warrants  allowing the
               holder to purchase  one share of the  Company's  common stock for
               each share purchase  warrant held in  conjunction  with a private
               placement  memorandum.  The total  warrants  granted  amounted to
               1,000,000  shares at a price of $1.50 per share for three  years.
               The  Company  recognized   additional   compensation  expense  of
               $1,500,000  due to the  warrants  being  issued below the selling
               price of $3.00 per share.

NOTE 15 -      STOCK ISSUANCES

               On September 15, 2000, the Company issued 1,000,000 shares of its
               common stock in conjunction with a private  placement  memorandum
               for cash of $3,000,000, or $3.00 per share.

               From January 25 to August 30, 2000, the Company issued  1,930,792
               shares of its common stock valued at a weighted  average price of
               $3.58 per share  pursuant to a private  placement  memorandum for
               $6,912,731 of cash.

               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 $3.00 per share for services of $300,000.

               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 for debt of $231,812.

                                       F-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 15 -      STOCK ISSUANCES (Continued)

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

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

               On March 9, 2000,  the Company issued 62,792 shares of its common
               stock for warrants held at $1.99, or $125,019 of cash.

               On January 26,  2000,  the Company  issued  47,619  shares of its
               common  stock  valued at $2.10 per  share  pursuant  to a private
               placement memorandum for $100,000 of cash.

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

               On January 4, 2000,  the  Company  issued  147,580  shares of its
               common  stock  valued at $2.75 per share for $100,000 of debt and
               $305,845 of services.

               On December 31, 1999,  the Company  issued  592,744 shares of its
               common stock to  shareholders  for the  conversion of $889,117 of
               debt.  The shares  were  valued at $1.50 per share  which was the
               conversion  price on a convertible  debenture  issued on November
               16, 1999.  The debt was for funds  advanced to the Company to pay
               general operating expenses paid by shareholders.

               On December 23, 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. (Note 13)

               On December 20, 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. (Note 13)

               On December 15, 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. (Note 13)

               On December 13, 1999, the Company issued 160,131 shares of common
               stock valued at $0.84 per share for  $135,000 of cash.  The share
               issuance was a part of a $600,000 private placement. (Note 13)

               On December 10, 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. (Note 13)

               On December 10, 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. (Note 13)

                                      F-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 15 -      STOCK ISSUANCES (Continued)

               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 the reverse merger  acquisition  and 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 pursuant to Rule 144.

               On September 2, 1999,  the Company issued 20,000 shares of common
               stock valued at $2.90 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 interest 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.

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

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

               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 reverse merger,
               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.

               On June 17, 1999,  the Company  issued 6,960 shares of its common
               stock valued at $0.003 per share for cash of $20.

               On May 19, 1999,  the Company issued 372,360 shares of its common
               stock valued at $0.003 per share for cash of $1,070.

               On May 13, 1999,  the Company issued 139,200 shares of its common
               stock valued at $0.003 per share for cash of $400.

                                       F-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 15 -      STOCK ISSUANCES (Continued)

               On May 7, 1999, the Company issued 2,610,000 shares of its common
               stock  valued at  $0.003  per  share  for  conversion  of debt of
               $7,500.

               On May 7, 1999, the Company issued 348 shares of its common stock
               valued at $0.003 per share for cash of $1.

               On May 5, 1999,  the Company  issued  32,016 shares of its common
               stock valued at $0.003 per share for cash of $92.

               On May 3, 1999,  the Company  issued  25,717 shares of its common
               stock valued at $0.003 per share for conversion of debt of $74.

               On April 30, 1999, the Company issued 22,968 shares of its common
               stock valued at $0.003 per share for conversion of debt of $66.

               On April 30, 1999,  the Company issued 2,888 shares of its common
               stock valued at $0.003 per share for cash of $8.

               On April 28, 1999, the Company issued 12,180 shares of its common
               stock valued at $0.003 per share for cash of $35.

               On April 27, 1999, the Company issued 95,700 shares of its common
               stock valued at $0.003 per share for conversion of debt of $275.

               On April 27, 1999,  the Company issued 5,951 shares of its common
               stock valued at $0.003 per share for cash of $17.

               On April 22,  1999,  the  Company  issued  129,734  shares of its
               common stock valued at $0.003 per share for cash of $373.

               On March 22, 1999,  the Company issued  19,011,220  shares of its
               common stock valued at $0.005 per share for conversion of debt of
               $104,530.

               On March 22,  1999,  the  Company  issued  286,682  shares of its
               common stock valued at $0.003 per share for cash of $824.

               On March 5, 1999, the Company issued 334,080 shares of its common
               stock valued at $0.003 per share for cash of $960.

               On July 29, 1998,  the Company issued 34,800 shares of its common
               stock valued at $0.003 per share for cash of $100.

               On June 16,  1998,  the Company  issued  1,061,400  shares of its
               common stock valued at $0.079 per share for conversion of debt of
               $83,881.

               On June 16, 1998,  the Company issued 42,456 shares of its common
               stock valued at $0.003 per share for cash of $121.

                                       F-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 15 -      STOCK ISSUANCES (Continued)

               On June 16, 1998, the Company issued 119,086 shares of its common
               stock valued at $0.003 per share for cash of $342.

               On May 14, 1998, the Company issued 14,755 shares of common stock
               valued at $0.003 per share for cash of $41.

               On April 8, 1998,  the Company  issued  130,500  shares of common
               stock valued at $0.003 per share for cash of $375.

               On March 18,  1998,  the Company  issued  2,575  shares of common
               stock valued at $0.003 per share for cash of $7.

               On March 12, 1998,  the Company  issued  33,199  shares of common
               stock valued at $0.003 per share for cash of $95.

               On March 6, 1998,  the Company  issued  121,904  shares of common
               stock valued at $0.003 per share for cash of $350.

               On February 24, 1998,  the Company  issued  395,467 shares of its
               common stock valued at $0.003 per share for cash of $1,138.

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.

NOTE 17 -      PRIVATE PLACEMENT MEMORANDUMS

               On January 7, 2000, the Company authorized a private placement of
               $100,000  of  its  common  stock.  The  price  of the  shares  is
               calculated  at 60% of the  closing  bid price on the day prior to
               issuance.  The  Company  issued  47,619  shares  pursuant to this
               private placement for $100,000, or $2.10 per share.

               On January 24, 2000, the Company  authorized a private  placement
               of  $5,000,000  of its common  stock.  The price of the shares is
               calculated  at 80% of the market value based on the 5-day average
               price  prior  to  closing  and  have one (1)  warrant  per  share
               attached to purchase at a price of 50% of the 5-day average price
               of the original issuance with a life of three years.

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

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

                                       F-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 17 -      PRIVATE PLACEMENT MEMORANDUMS (Continued)

               On September 15, 2000, the Company authorized a private placement
               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.


                                      F-35
<PAGE>


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.

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
$19,448,460  in losses from  inception of current  operations  on March 26, 1992
through to June 30, 2000. The Company's  losses have resulted from the fact that
its products are still in development and no sales have been generated.

                                       4
<PAGE>

         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 9December
         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
         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-free  water pretreatment
         d)  enhanced heat transfer in plastic heat exchangers
         e)  high-performance  alkaline  fuel cells
         f)  Stirling engines

                                       5
<PAGE>

         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.

                           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 as
              attached hereto.




                                       6
<PAGE>

                                   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


November 14, 2000