================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-QSB


[X]      Quarterly  Report under Section 13 or 15(d) of the Securities  Exchange
         Act of 1934

         For the quarterly period ended June 30, 2001

                                       OR

[ ]      Transition report under Section 13 OR 15(d) of the Securities  Exchange
         Act of 1934

         For The Transition Period From                  To
                                          ---------------   ------------------

                          Commission File Number 1-5742



                             OCEAN POWER CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

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

                         5000 Robert J. Mathews Parkway
                        El Dorado Hills, California 95672
              (Address of principal executive offices and Zip Code)

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

                                 Not Applicable
              (Former name, former address and former fiscal year,
                         if 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 of 1934  during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing  requirements  for the past 90 days. |X|
Yes [X] No [ ]

     State the number of shares  outstanding of each of the issuer's  classes of
common equity, as of the latest  practicable date: The registrant had 38,149,942
shares of its $.01 par value common stock outstanding as of June 30, 2001.

     Transitional Small Business Disclosure Format (check one): Yes [ ] No: [X]


================================================================================

<PAGE>

                           FORWARD-LOOKING STATEMENTS

IN  ADDITION  TO  HISTORICAL  INFORMATION,  THIS FORM  10-QSB  CONTAINS  CERTAIN
FORWARD-LOOKING  STATEMENTS  UNDER  THE  CAPTION  "MANAGEMENT'S  DISCUSSION  AND
ANALYSIS  OR  PLAN  OF  OPERATION,"  INCLUDING  STATEMENTS  CONCERNING  (I)  THE
COMPANY'S STRATEGY; (II) THE COMPANY'S EXPANSION PLANS, (III) THE MARKET FOR THE
COMPANY'S  PRODUCTS;  AND (IV)  THE  EFFECTS  OF  GOVERNMENT  REGULATION  OF THE
COMPANY'S  PRODUCTS.  BECAUSE SUCH  STATEMENTS  INVOLVE RISKS OF  UNCERTAINTIES,
ACTUAL  RESULTS MAY DIFFER  MATERIALLY  FROM THOSE  EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING  STATEMENTS.  THE COMPANY  UNDERTAKES  NO OBLIGATION TO PUBLICLY
REVISE THESE FORWARD-LOOKING  STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT
MAY  ARISE  AFTER  THE  DATE  HEREOF,   EXCEPT  AS  REQUIRED  BY  ITS  REPORTING
OBLIGATIONS.


                          PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements


<PAGE>


                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                       June 30, 2001 and December 31, 2000



,,
<PAGE>

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


                                     ASSETS
                                     ------

                                              June 30,    December 31,
                                                2001          2000
                                            -----------   -----------
                                            (Unaudited)

CURRENT ASSETS

   Cash                                     $   286,901   $ 2,152,593
   Cash - restricted                             48,239        23,706
   Advances to employees                        355,497       320,567
   Prepaid expenses                             143,295       222,235
                                            -----------   -----------

     Total Current Assets                       833,932     2,719,101
                                            -----------   -----------

EQUIPMENT, NET                                1,106,774       922,980
                                            -----------   -----------

OTHER ASSETS

   Debt offering costs                           10,500          --
   Deposits                                      54,729        55,348
   Patents, and licensing agreements, net     6,825,783     7,281,679
   Goodwill, net                              5,985,695     6,315,183
                                            -----------   -----------

     Total Other Assets                      12,876,706    13,652,210
                                            -----------   -----------

     TOTAL ASSETS                           $14,817,412   $17,294,291
                                            ===========   ===========


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

                                        2
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                     Consolidated Balance Sheets (Continued)
<TABLE>
<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                           June 30      December 31,
                                                             2001           2000
                                                        ------------    ------------
                                                         (Unaudited)
<S>                                                     <C>             <C>
CURRENT LIABILITIES

   Accounts payable                                     $  2,134,070    $  1,127,414
   Accrued expenses                                        7,123,173       6,844,282
   Notes payable - related parties                         1,235,813       1,317,618
   Notes payable - current portion                         1,920,690         488,457
   Research advances                                            --           473,145
                                                        ------------    ------------

     Total Current Liabilities                            12,413,746      10,250,916
                                                        ------------    ------------

LONG-TERM LIABILITIES

   Convertible debentures payable                            550,000         550,000
   Notes payable                                           1,195,504         744,588
                                                        ------------    ------------

     Total Long-Term Liabilities                           1,745,504       1,294,588
                                                        ------------    ------------

     Total Liabilities                                    14,159,250      11,545,504
                                                        ------------    ------------

STOCKHOLDERS' EQUITY

   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; 38,439,094 and 38,149,942 shares
    issued and outstanding, respectively                     384,391         381,499
   Additional paid-in capital                             28,720,657      25,611,288
   Deferred consulting expense                              (984,000)       (410,667)
   Other comprehensive income                                365,682         195,258
   Deficit accumulated during the development stage      (27,828,568)    (20,028,591)
                                                        ------------    ------------

     Total Stockholders' Equity                              658,162       5,748,787
                                                        ------------    ------------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY         $ 14,817,412    $ 17,294,291
                                                        ============    ============
</TABLE>


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

                                        3
<PAGE>

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

                                                                                                                    From
                                                                                                                Inception on
                                                      For the                            For the                  March 26,
                                                  Six Months Ended                   Three Months Ended         1992 Through
                                                      June 30,                           June 30,                 June 30,
                                                2001            2000              2001              2000            2001
                                         ----------------  ---------------   ---------------  ----------------  ---------------
<S>                                      <C>               <C>               <C>              <C>               <C>
REVENUES                                 $         -       $        -        $        -       $         -       $        -
                                         ----------------  ---------------   ---------------  ----------------  ---------------

EXPENSES

   General and administrative                   4,840,307        4,144,710        2,646,008          1,644,659       20,826,695
   Impairment of intangible assets                 -                -                 -                 -               400,000
   Research and development                     1,671,974          140,850         1,610,478            -             3,217,430
   Depreciation and amortization                  829,216           59,860           605,525             5,944        1,269,475
                                         ----------------  ---------------   ---------------  ----------------  ---------------

     Total Expenses                             7,341,497        4,345,420         4,862,011         1,745,978       25,713,600
                                         ----------------  ---------------   ---------------  ----------------  ---------------

     LOSS FROM OPERATIONS                      (7,341,497)      (4,345,420)       (4,862,011)       (1,745,978)     (25,713,600)
                                         ----------------  ---------------   ---------------  ----------------  ---------------

OTHER INCOME (EXPENSE)

   Currency gain                                   -                -                 -                 -                   522
   Interest income                                 29,276           79,578            12,169            43,405          244,820
   Loss on sale of assets                          -                -                 -                 -              (387,649)
   Interest expense                              (487,756)        (143,619)         (294,613)          (66,243)      (2,138,002)
                                         ----------------  ---------------   ---------------  ----------------  ---------------

     Total Other Income (Expense)                (458,480)         (64,041)         (282,444)          (22,838)      (2,280,309)
                                         ----------------  ---------------   ---------------  ----------------  ---------------

LOSS BEFORE EXTRAORDINARY
 ITEM                                          (7,799,977)      (4,409,461)       (5,144,455)       (1,768,816)     (27,993,909)

EXTRAORDINARY ITEM

   Gain on settlement of debt                      -               165,349            -                 -               165,341
                                         ----------------  ---------------   ---------------  ----------------  ---------------

NET LOSS                                       (7,799,977)      (4,244,112)       (5,144,455)       (1,768,816)     (27,828,568)
                                         ----------------  ---------------   ---------------  ----------------  ---------------

OTHER COMPREHENSIVE INCOME

   Currency translation adjustment                170,424           -                152,268            -               365,682
                                         ----------------  ---------------   ---------------  ----------------  ---------------

     TOTAL COMPREHENSIVE LOSS            $     (7,629,553) $    (4,244,112)  $    (4,992,187) $     (1,768,816) $   (27,462,886)
                                         ================  ===============   ===============  ================  ===============
</TABLE>


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

                                        4
<PAGE>

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



                                          For the                            For the
                                      Six Months Ended                   Three Months Ended
                                          June 30,                           June 30,
                                   2001             2000              2001              2000
                             --------------    --------------    --------------    --------------
<S>                          <C>               <C>               <C>               <C>
BASIC AND DILUTED LOSS PER
 SHARE

   Operating loss            $        (0.20)   $        (0.12)   $        (0.13)   $        (0.05)
   Extraordinary item                  --                0.00           --                   0.00
                             --------------    --------------    --------------    --------------

     Total                   $        (0.20)   $        (0.12)   $        (0.13)   $        (0.05)
                             ==============    ==============    ==============    ==============

WEIGHTED AVERAGE NUMBER
 OF SHARES OUTSTANDING           38,184,499        34,725,423        38,160,423        35,240,478
                             ==============    ==============    ==============    ==============
</TABLE>


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

                                        5
<PAGE>

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

                                                                                                              Deficit
                                                                                                            Accumulated
                                                                      Additional       Other      Deferred  During the
                                                 Common Stock             Paid-In  Comprehensive Consulting Development
                                            Shares          Amount        Capital     Income      Expense      Stage
                                        ------------   ------------   ------------   ----------   ------   ------------
<S>                                       <C>          <C>            <C>            <C>          <C>      <C>
Balance, December 31, 1999                32,835,925   $    328,359   $  5,589,224   $     --     $ --     $(10,923,816)

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

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

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

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

February 18, 2000, options
 granted below market value                     --             --          494,596         --       --             --

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

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

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

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

Balance Forward                           33,353,916   $    333,539   $  7,667,799   $     --     $ --     $(10,923,816)
                                        ------------   ------------   ------------   ----------   ------   ------------
</TABLE>


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

                                        6
<PAGE>
<TABLE>
<CAPTION>

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

                                                                                                                        Deficit
                                                                                                                       Accumulated
                                                                        Additional        Other         Deferred       During the
                                                Common Stock             Paid-In      Comprehensive     Consulting     Development
                                           Shares         Amount         Capital          Income          Expense         Stage
                                       -------------  -------------   --------------  ---------------   -----------  --------------
<S>                                        <C>          <C>            <C>             <C>            <C>             <C>
Balance Forward                            33,353,916   $    333,539   $  7,667,799    $       --     $       --      $(10,923,816)

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

May 26, 2000, options granted below
 market value                                    --             --        1,272,195            --             --              --

July 25, 2000, common stock issued
 for conversion of accounts payable
 at $4.00 per share                           100,000          1,000        399,000            --         (237,000)           --

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

August 8, 2000, options granted
 below markrket value                            --             --          358,000            --             --              --

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

Currency translation adjustment                  --             --             --           195,258           --              --

Warrants granted for consulting
 contract                                        --             --          340,000            --         (173,667)           --

Stock offering costs paid                        --             --          (26,289)           --             --              --

Net loss for the year ended
 December 31, 2000                               --             --             --              --             --         (9,104,775)
                                         ------------   ------------    ------------   ------------    ------------    ------------

Balance, December 31, 2000                 38,149,942   $    381,499   $ 25,611,288    $    195,258    $   (410,667)   $(20,028,591)
                                         ------------   ------------    ------------   ------------    ------------    ------------
</TABLE>


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

                                        7
<PAGE>

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

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

Valuation adjustment to warrants
 granted for consulting services
 (unaudited)                                   --             --          (60,000)           --           70,667          --

March 5, 2001, warrants issued
 in connection with debt obligations
 (unaudited)                                   --             --        1,662,746            --             --            --

April 2, 2001, warrants issued in
 connection with debt obligations
 (unaudited)                                   --             --          381,228            --             --            --

April 23, 2001, common stock
 issued for conversion of accounts
 payable (unaudited)                         50,000            500         74,500            --             --            --

June 8, 2001, common stock
 issued for conversion of research
 advances (unaudited)                       119,152          1,192        380,095            --             --            --

June 29, 2001, common stock
 issued for consulting contract
 (unaudited)                                120,000          1,200        334,800            --         (322,000)         --

June 29, 2001, warrants granted
 for consulting contract (unaudited)           --             --          336,000            --         (322,000)         --

Currency translation adjustment
 (unaudited)                                   --             --             --           170,424           --            --

Net loss for the six months ended
 June 30, 2001 (unaudited)                     --             --             --              --             --       (7,818,162)
                                       ------------   ------------   ------------    ------------    -----------   ------------

Balance, June 30, 2001
 (unaudited)                             38,439,094   $    384,391   $ 28,720,657    $    365,682    $  (984,000)  $(27,846,753)
                                       ============   ============   ============    ============    ===========   ============
</TABLE>

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


                                        8
<PAGE>

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

                                                                                              From
                                                                                           Inception on
                                                                                             March 26,
                                                             For the Six Months Ended      1992 Through
                                                                      June 30,               June 30,
                                                               2001            2000            2001
                                                           ------------    ------------    ------------
<S>                                                        <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES

   Net loss                                                $ (7,799,977)   $ (4,244,112)   $(27,828,568)
   Adjustments to reconcile net loss to net
    cash used by operating activities:
     Depreciation and amortization                              829,216         195,276       1,312,575
     Deferred consulting expense                                 98,667         135,416         428,000
     Value of common stock, warrants, options
      and discounts on equity instruments issued
      for services                                                 --         2,830,931       3,802,930
     Loss on sale of assets                                        --              --           387,649
     Amortization of debenture discount                         581,782            --         1,231,782
     Amortization of debt issue costs                             1,500            --             1,500
     Gain on disposition of debt                                   --              --          (165,340)
   Change in operating asset and liability accounts,
    net of amounts acquired in business combination:
     (Increase) in overpayment receivable                          --           (74,700)           --
     (Increase) decrease in advances to employees,
      prepaid expenses, deposits and debt offering costs         32,011            --        (5,957,938)
     (Increase) decrease in other assets                           --           359,110            --
     Increase (decrease) in accounts payable                  1,276,024        (462,714)      2,309,485
     Increase (decrease) in accrued expenses                    278,891        (275,211)      6,999,412
                                                           ------------    ------------    ------------

       Net Cash Used by Operating Activities                 (4,701,886)     (1,900,683)    (17,478,513)
                                                           ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Cash acquired in Sigma acquisition                              --              --           142,254
   Proceeds from sale of assets                                    --              --                 1
   Purchase of fixed assets                                    (310,951)       (745,615)     (1,054,926)
   Equipment procurement costs                                     --              --          (564,110)
                                                           ------------    ------------    ------------

       Net Cash (Used) by Investing Activities                 (310,951)       (745,615)     (1,476,781)
                                                           ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Proceeds from notes payable                                3,600,000            --         3,600,000
   Repayment of related party notes payable                     (81,805)           --        (1,603,005)
   Repayment of notes payable                                  (346,517)     (2,566,039)     (1,685,591)
   Loans from related parties                                      --            82,178       7,224,287
   Issuance of convertible debentures                              --              --           650,000
   Common stock issued for cash                                    --         7,149,880      11,131,032
   Stock offering costs                                            --              --           (26,289)
                                                           ------------    ------------    ------------

       Net Cash Provided by Financing Activities              3,171,678       4,666,019      19,290,434
                                                           ------------    ------------    ------------

NET INCREASE (DECREASE) IN CASH AND CASH
 EQUIVALENTS                                                 (1,841,159)      2,019,721         335,140

CASH AND CASH EQUIVALENTS AT BEGINNING
 OF PERIOD                                                    2,176,299         368,276            --
                                                           ------------    ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                 $    335,140    $  2,387,997    $    335,140
                                                           ============    ============    ============
</TABLE>


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

                                        9
<PAGE>

<TABLE>
<CAPTION>

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

                                                                                                          From
                                                                                                       Inception on
                                                                                                         March 26,
                                                                    For the Six Months Ended           1992 Through
                                                                           June 30,                      June 30,
                                                                    2001                2000               2001
                                                             -----------------   -----------------  ------------------
<S>                                                          <C>                 <C>                <C>
CASH PAID FOR:

   Interest                                                  $          68,459   $          12,946  $           81,405
   Income taxes                                              $          -        $          -       $           -

NON-CASH FINANCING ACTIVITIES

   Value of common stock, warrants, options and
    discounts on equity instruments issued for
    services                                                 $          -        $          -       $        3,802,930
   Equity instruments issued for deferred
     consulting expense                                      $         672,000   $          -       $        1,412,000
   Common stock issued for recapitalization                  $          -        $          -       $        2,761,773
   Common stock issued for conversion of debt                $         456,287   $          -       $        2,963,572
</TABLE>


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


                                       10
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                       June 30, 2001 and December 31, 2000

NOTE 1 -      BASIS OF FINANCIAL STATEMENT PRESENTATION

              The  accompanying   unaudited  condensed   consolidated  financial
              statements have been prepared by the Company pursuant to the rules
              and regulations of the Securities and Exchange Commission. Certain
              information  and  footnote   disclosures   normally   included  in
              financial   statements   prepared  in  accordance  with  generally
              accepted  accounting  principles have been condensed or omitted in
              accordance  with  such  rules  and  regulations.  The  information
              furnished  in  the  interim   condensed   consolidated   financial
              statements  include normal recurring  adjustments and reflects all
              adjustments,  which,  in the opinion of management,  are necessary
              for a fair  presentation  of such financial  statements.  Although
              management believes the disclosures and information  presented are
              adequate to make the information  not misleading,  it is suggested
              that these interim condensed  consolidated financial statements be
              read  in  conjunction  with  the  Company's  most  recent  audited
              financial  statements  and notes thereto  included in its December
              31, 2000 Annual Report on Form 10-KSB.  Operating  results for the
              six months ended June 30, 2001 are not  necessarily  indicative of
              the results that may be expected for the year ending  December 31,
              2001.

NOTE 2 -      PATENTS AND LICENSING AGREEMENTS

              The  Company's  patents and license  agreements  consisted  of the
              following at June 30, 2001 and December 31, 2000:
<TABLE>
<CAPTION>

                                                                                     June 30,            December 31,
                                                                                      2001                2000
                                                                                 -----------------  ------------------
                                                                                    (Unaudited)
<S>                                                                              <C>                <C>
                      Patents                                                    $         887,333  $          973,658
                      Licensing Agreement - Aquamax and Keeran                           6,540,000           6,540,000
                      Accumulated amortization                                            (601,550)           (231,979)
                                                                                 -----------------  ------------------

                                                                                 $       6,825,783  $        7,281,679
                                                                                 =================  ==================
</TABLE>

              As part of the  purchase of Sigma,  the Company  acquired  patents
              valued at their  fair  value of  $887,333,  adjusted  for  foreign
              currency fluctuations since the date of purchase. The patents have
              an  estimated  remaining  life of 90 months from the date of Sigma
              acquisition. The patents are pledged as collateral for obligations
              of $469,077 at June 30,  2001.  The license  agreement  represents
              rights to patent and patent  applications for technology  acquired
              from  Aquamax  and  Keeran  (Note  7).  The  cost  of the  license
              agreement is being amortized over its estimated  useful life of 10
              years. Amortization expense for the period ended June 30, 2001 and
              accumulated  amortization at June 30, 2001 amounted to $25,571 and
              $71,386,   respectively   (Patents)  and  $347,000  and  $537,850,
              respectively (Licensing Agreement).

NOTE 3 -      BUSINESS COMBINATION

              In August 2000,  the Company  acquired  SIGMA  Elektroteknisk,  AS
              (SIGMA) by exchanging 1,718,748 shares of its common stock for all
              of the common stock of SIGMA.  The 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
              $329,488 and $-0- for the six months ended June 30, 2001 and 2000,
              respectively.


                                       11
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                       June 30, 2001 and December 31, 2000

NOTE 4 -      NOTES PAYABLE

              Notes  payable at June 30, 2001 and  December  31, 2000 consist of
              the following:
<TABLE>
<CAPTION>
                                                                                       June 30,        December 31,
                                                                                         2001              2000
                                                                                 -----------------  ------------------
                                                                                     (Unaudited)
<S>                                                                              <C>                <C>
              Notes payable to two parties bearing interest at
              10.5%, collateralized by guarantee of the president
               of the Company, due in full by March 5, 2002.                     $       3,000,000  $           -

              Notes  payable to two parties  bearing  interest  at 10%,  without
               collateral, convertible into the Company's common
               stock at $4.00 per share, due in full by April 2, 2003.                     600,000              -

              Less discount resulting from allocation of proceeds
               to warrants and conversion rights issued with the debt                   (1,462,192)             -
                                                                                 -----------------   -----------------
                                                                                         2,137,808
              Note payable to SND bearing a variable  interest  rate,  (10.9% at
               December 31, 2000) due in equal semi-annual
               payments which began May 1, 2000, uncollateralized.                          91,087             121,049

              Note payable to SND bearing a variable  interest  rate,  (10.9% at
               December 31, 2000) due in equal semi-annual
               payments which began May 10, 2000, uncollateralized.                        396,312             569,964

              Note payable to Silent Clean Power bearing interest at 12.00%, due
               in equal  semi-annual  payments,  collateralized  by patents  and
               licenses, Company is delinquent on May 2001
               payment.                                                                    469,077             498,696

              Note payable to SND bearing a variable  interest  rate,  (10.9% at
               December 31, 2000) due in equal semi-annual
               payments which began April 3, 2000, uncollateralized.                        21,910              43,336
                                                                                 -----------------  ------------------

              Total Notes Payable                                                $       3,116,194  $        1,233,045
                                                                                 =================  ==================

              Annual maturities of notes payable are as follows:

                      Years Ending
                      December 31,
                            2002                                                 $       1,920,690
                            2003                                                         1,195,504
                                                                                 -----------------

                                                                                 $       3,116,194
</TABLE>

              As additional  consideration  for $3,000,000 of the notes payable,
              the  Company  granted  1,200,000  warrants  valued  at  $3,730,212
              pursuant  to the Black  Scholes  pricing  model  using a risk-free
              interest rate of 6.43% expected volatility of 228% and an expected
              life of 3 years.  The  proceeds  of the loans have been  allocated
              between debt and additional  paid-in  capital in proportion to the
              relative  fair  value of the debt and the  warrants.  The  portion
              allocated to equity was  $1,662,746  and the balance of $1,337,254
              was  recorded  as debt,  net of  discount.  The  discount is being
              amortized to interest  expense over the term of the debt using the
              effective interest rate method.


                                       12
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                       June 30, 2001 and December 31, 2000


NOTE 4 -      NOTES PAYABLE (Continued)

              As additional  consideration for $600,000 of the convertible notes
              payable,  the Company  granted  200,000  warrants with an exercise
              price of $1.50 per share and an expiration  date of April 1, 2003.
              the  warrants  were valued at $2.73 per share  ($546,000 in total)
              pursuant to the Black  Scholes  pricing  model.  The proceeds were
              allocated   between  debt  and  additional   paid-in   capital  in
              proportion  to the  relative  fair  value of the  debt and  equity
              (warrants  and  beneficial  conversion  rights)  elements  of  the
              transaction.  The portion allocated to equity was $381,228 and the
              balance of $218,772  has been  recorded as debt,  net of discount.
              The  discount of $381,228  and debt issue costs of $12,000 will be
              amortized to interest  expense over the term of the debt using the
              effective interest rate method.

NOTE 5 -      ACCRUED EXPENSES

              The  Company's  accrued  expenses are  comprised of the  following
              items:
<TABLE>
<CAPTION>
                                                                                   June 30,      December 31,
                                                                                    2001                2000
                                                                              -----------------  -----------------
                                                                                  (Unaudited)
<S>                                                                           <C>                <C>
                  Accrued payroll taxes payable                               $          23,946  $          26,657
                  Accrued interest payable - payroll                                     52,717             52,717
                  Accrued payroll tax penalty                                            98,845             98,845
                  Accrued interest payable - notes                                      245,818            118,155
                  Other accrued items                                                   161,849              7,908
                  Accrued license agreement (Note 7)                                  6,540,000          6,540,000
                                                                              -----------------  -----------------

                                Total                                         $       7,123,173  $       6,844,272
                                                                              =================  =================
</TABLE>

NOTE 6 -      GOING CONCERN

              The Company's  financial  statements are prepared using  generally
              accepted accounting principles applicable to a going concern which
              contemplates   the   realization  of  assets  and  liquidation  of
              liabilities in the normal course of business.  The Company has had
              limited activities since inception and is considered a development
              stage company  because it has no  significant  operating  revenues
              and,  planned  principal  operations  have not yet commenced.  The
              Company has incurred  losses from its  inception  through June 30,
              2001 of  approximately  $28,000,000.  The Company does not have an
              established  source of funds  sufficient  to cover  its  operating
              costs  and,  accordingly,  there is  substantial  doubt  about its
              ability to continue as a going concern.

              In order to 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 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  $20,000,000 to
              $30,000,000  of additional  funds for  operations and expansion in
              2001.  However,  management cannot provide any assurances that the
              Company will be successful in accomplishing any of its plans.


                                       13
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                       June 30, 2001 and December 31, 2000


NOTE 6 -      GOING CONCERN (Continued)

              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 7 -      COMMITMENTS AND CONTINGENCIES

              Wohlreich
              ---------

              During  January  2000,  the  Company  entered  into  a  three-year
              consulting   agreement   with  Clement  J.  Wohlreich  to  receive
              financial, marketing and management services. The agreement called
              for the Company to issue  100,000  units,  each  consisting of one
              share of the  Company's  common  stock  and one  attached  warrant
              granting the right for three years to purchase one share of common
              stock for an exercise  price of $1.50.  As the agreement  provided
              for  issuance  of the units upon  commencement  of  services,  the
              Company accrued a liability and deferred  consulting  expense as a
              reduction of shareholders'  equity in an amount equal to the value
              of the common stock and warrant at the inception of the agreement.
              The  liability  was converted to equity upon issuance of the units
              and the value of the stock and warrants  will be expensed over the
              term of the  agreement  upon  completion of services each quarter.
              Pursuant to EITF 96-18,  "Accounting For Equity  Instruments  That
              Are Issued To Other Than Employees For Acquiring Or In Conjunction
              With  Selling,  Goods Or  Services",  the Company will continue to
              revalue the warrants until earned upon completion of services.  As
              of June 30, 2000, the consulting  contract was valued at $680,000,
              representing the 100,000 shares of common stock issued on July 25,
              2000 at the then trading price of $4.00 per share and the value of
              the  warrants of  $280,000,  as  determined  by the Black  Scholes
              pricing model. For the period ended June 30, 2001, the Company had
              amortized $340,000 of the contract, leaving a remaining balance of
              $340,000 at June 30,  2001 which is  included  as a  reduction  of
              stockholders' equity.

              Martineau
              ---------

              During June 2001, the Company  entered into a two-year  consulting
              agreement  with Gene  Martineau  to  receive  services  related to
              interfacing with institutional  investors and brokerage firms. The
              agreement called for the Company to issue 120,000 shares of common
              stock  and grant  120,000  warrants  exercisable  for two years at
              $1.50. Pursuant to EITF 96-18,  "Accounting For Equity Instruments
              that Are  Issued  To Other  Than  Employees  For  Acquiring  Or In
              Conjunction  With Selling,  Goods or  Services",  the Company will
              continue to revalue the warrants  until earned upon  completion of
              services.  As of June 30, 2001, the consulting contract was valued
              at  $672,000,  representing  the  120,000  shares of common  stock
              issued  on June 30,  2001 at the then  trading  price of $2.80 per
              share and the value of the warrants of $336,000,  as determined by
              the Black  Scholes  pricing  model.  For the period ended June 30,
              2001, the Company had amortized $28,000 of the contract, leaving a
              remaining  balance of  $644,000 at June 30, 2001 which is included
              as a reduction of stockholders' equity.


                                       14
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                       June 30, 2001 and December 31, 2000


NOTE 7 -      COMMITMENTS AND CONTINGENCIES (Continued)

              AQUAMAX AND KEERAN
              ------------------

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

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

              Under the terms of the License  Agreement,  the Company  agreed to
              pay a total of $4,000,000  and 600,000  shares of its common stock
              for the  rights  under  the  License  Agreement  under  a  payment
              schedule  contingent on various  factors as to timing but to be no
              later than December 31, 2000. The Company has paid $400,000 to the
              Licensors.  No shares of common stock have been issued pursuant to
              the License  Agreement.  The  remaining  amount  payable under the
              License Agreement is $6,540,000 and consists of $3,600,000 payable
              in cash and $2,940,000  payable in common stock  (representing the
              value of 600,000  shares of common  stock to be issued,  valued at
              the market value of shares of the Company's common stock as of the
              effective  date of the  transaction,  September 21, 2000) has been
              accrued as a liability  and  included in the amount  recorded as a
              licensing  agreement  asset along with the $400,000  paid in cash.
              The  asset,  with  a  cost  of  $6,940,000  ($6,540,000  after  an
              impairment  adjustment of $400,000),  is being  amortized over its
              estimated useful life of ten years using the straight-line method.

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


                                       15
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                       June 30, 2001 and December 31, 2000


NOTE 7 -      COMMITMENTS AND CONTINGENCIES (Continued)

              AQUAMAX AND KEERAN (Continued)
              ------------------

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

              The  arbitration  between  the  Company  and  Licensors  has  been
              demanded  by the  Company  but  arbitration  procedures  have  not
              commenced  while the Company and  Licensors  have been involved in
              settlement   negotiations.   The  negotiations   resulted  in  the
              execution by both parties,  as well as Hadwaco Ltd. Oy and Hackman
              Oyj Abp, of agreements  (Agreements) which will, if closing occurs
              as stipulated in the agreements,  resolve the dispute without loss
              to the  Company.  The  Agreements  were  executed  by the  various
              parties  between July 20, 2001 and July 25, 2001.  The  Agreements
              with the Licensors  provide that the Company will make payments of
              $1,800,000  in cash and 600,000  shares of common  stock on August
              31,  2001,  unless  extended  by the  parties,  in addition to the
              $400,000  already paid, to the Licensors in exchange for ownership
              ( verses  licenses  as  provided  in the  September  2000  License
              Agreement) of all the Licensors technology in any way connected to
              water  treatment  rather than the  $4,000,000  of cash and 600,000
              shares of common stock  aggregate  amount under the September 2000
              License  Agreement.  The Agreements  also provide that the Company
              will grant back to Licensors a royalty free, exclusive,  worldwide
              license to  exploit  Newco's  water  desalination  technology  for
              applications  where  the  volume of water  processed  is less than
              1,000  cubic  meters per day.  The  license  back of rights to the
              Licensors is exclusive for a term of five years and  non-exclusive
              thereafter.  A similar  grant back of rights was  included  in the
              September 2000 License  Agreement but provided for royalties to be
              paid to the Company based on the Licensor's  future  revenues from
              use of the  technology.  The  Agreements  also include  release of
              liability agreements,  whereby all parties will release each other
              of and from all claims and  liabilities,  including the amount due
              in connection  with the Company's  obligation  under the September
              2000 License  Agreement as well as the Company's claim for a price
              reduction  due to the  non-exclusivity  of  the  Hadwaco  license.
              Contemporaneously,   the  Company  entered  into  Agreements  with
              Hadwaco Ltd Oy and Hackman Oyj Abp (Hadwaco). The agreement of the
              parties is as follows: The Company will form a new company (Newco)
              in  Finland.  The  Company  will  immediately  provide  Newco with
              $1,500,000 to purchase from Hadwaco.


                                       16
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                       June 30, 2001 and December 31, 2000


NOTE 7 -      COMMITMENTS AND CONTINGENCIES (Continued)

              AQUAMAX AND KEERAN (Continued)
              ------------------

              a 100%  interest in its  existing  and ongoing  water  remediation
              business,  including all related  intellectual  property.  Newco's
              purchase price for Hadwaco's  water  remediation  business will be
              $1,500,000  plus a 19%  interest  in  Newco's  common  stock.  The
              parties have agreed that Newco will  reacquire the 19% interest in
              its stock from Hadwaco three years after the effective date of the
              purchase  transaction at a price dependent on Newco's earnings and
              other factors but is not to exceed  $2,000,000.  The  intellectual
              property  transferred  will include  technology  which Hadwaco has
              licensed to the Licensors and the Licensors,  in turn, licensed to
              the Company.

              As the July 2001 Agreement with the Licensors  represents a change
              to the terms of the September 2000 agreement, it will be accounted
              for upon closing by allocating the reduction in amounts payable of
              $1,800,000 between the cost of patent rights acquired and proceeds
              related to the grant back of patent rights.  The portion allocated
              to the cost of patent  rights  will  reduce the asset  recorded in
              connection with the License Agreement and the portion allocated to
              proceeds  related  to the  grant  back of  patent  rights  will be
              recorded as deferred income. The deferred income will be amortized
              over a 10-year period  representing the estimated period of use of
              the rights by the Licensor's.  The  transaction  between Newco and
              Hadwaco will be accounted for as a business  combination using the
              purchase method.

NOTE 8 -      SUBSEQUENT EVENTS

              On various  dates  between  July 1, 2001 and  August 8, 2001,  the
              Company borrowed  $600,000 under six convertible  promissory notes
              payable.  Each note bears  interest at 10% and is due in one year.
              One note in the amount of $100,000 is  guaranteed by the Company's
              president.  Each of the notes are  convertible  at any time by the
              note holder into the Company's  common stock at a conversion  rate
              of $3.00 per share.  concurrent  with the  promissory  notes,  the
              Company  granted  133,335  warrants to  purchase  one share of the
              Company's  common stock with  exercise  prices of $1.50 per share.
              The  warrants  were  granted as  additional  consideration  to the
              lenders  for funding  the  promissory  notes and will be valued at
              $470,838 pursuant to the Black Scholes pricing model. The proceeds
              of the loans will be allocated between debt and additional paid-in
              capital in  proportion  to the relative fair value of the debt and
              the equity (warrants and beneficial  conversion  feature) elements
              of the transactions. The portion to be allocated to equity will be
              $398,389 and the balance of $201,611 will be recorded as debt, net
              of  discount.  The  discount  of  $398,389  will be  amortized  to
              interest  expense  over the term of the debt  using the  effective
              interest rate method.


                                       17

<PAGE>

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

         This Form 10-QSB contains forward-looking statements.  These statements
relate to future  events or the  Company's  future  financial  performance.  The
Company's 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",  "believe", "can", "continue", "could", "may",
"plans", "potential",  "predicts",  "should", or "will" or the negative of these
terms or other  similar  expressions  are  intended to identify  forward-looking
statements.

These  statements are only  predictions  and involve known and unknown risks and
uncertainties.  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  publicly  update or  revise  these
forward-looking  statements  for any  reason,  or to update the  reasons  actual
results could differ materially from those anticipated in these  forward-looking
statements,  even if new information  becomes  available in the future except as
otherwise required by law or its reporting obligations.

Plan Of Operation

The  Company's  current  operations  began  in  January  1997  by  Manufacturing
Technologies   Corporation  (MTC).  MTC  was  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 $1.4 million of its debt which represented 100% of
MTC's outstanding debt. PTC Holdings  subsequently merged with the Company, then
named PTC Group,  in June 1999. PTC Group  continued as the surviving  corporate
entity conducting the business of PTC Holdings.

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 joint 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.  Entry into  regional  joint  ventures may involve  certain risks such as
exposure to  liabilities  incurred by the other joint  venturer  and the need to
share certain intellectual property with such regional joint venturers. However,
the Company plans to limit these risks by forming such regional  joint  ventures
with entities which limit liability of their owners,  such as  corporations  and
limited liability companies.  The Company does not currently plan to license its
intellectual  property to these regional joint ventures.  All such  intellectual
property will remain the property of Ocean Power. Furthermore,  any enhancements
to Company's  intellectual  property  arising out of the regional joint ventures
will be licensed back to the Company for its use.

The Company has had no profit to date. It has experienced a total of $27,828.568
in losses from inception of current operations on March 26, 1992 through to June
30, 2001. The Company's losses have resulted from the fact that its products are
still in development and planned principle operations have not commenced.

At June 30, 2001, the Company's  cash position  declined to $335,140 as compared
to $2,683,773 at March 31, 2001 and  $2,176,299 at December 31, 2000 and we have
incurred  accounts  payable,  notes  payable and other  obligations  aggregating
$14,159,250.  During the 3 months  ended June 30,  2001,  aggregate  liabilities
increased by $1,607,462.

At June 30,  2001,  the Company  was in  discussion  with Silent  Clean Power to
convert the current  semi-annual  principle  payment of  approximately  $80,000,
which was due on a note payable which is  collateralized  by patents used in the
Company's  stirling engine business by its subsidiary,  Sigma, into stock in the

                                       18
<PAGE>

Company.  The  discussions  did not result in an  agreement  to convert  debt to
stock.  Management  intends  to  cure  the  delinquency  through  future  equity
infusions or borrowings,  and does not believe that the delinquencies affect the
company's ownership of the patents.

Due to the increased  level of activity  projected  during the next three years,
additional funding will be needed and is being sought. From June 30 to August 8,
2001, the Company has raised $600,000 of additional  financing  through proceeds
from  notes  payable  (see note 8 in the  financial  statements  for  additional
details on notes payable).

The Company does not have an established source of revenues  sufficient to cover
its  operating  costs and,  accordingly,  there is  substantial  doubt about the
ability of the Company to continue as a going concern.

In order to continue as a going concern,  develop a reliable source of revenues,
and achieve a profitable level of operations, the Company will need, among other
things, additional capital resources.  Management's plans to continue as a going
concern include raising  additional  capital through private  placement sales of
the  Company's  common stock and/or  loans from third  parties,  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 $20,000,000 to $30,000,000 of additional funds for operations and expansion
in 2001,  including  the funding  necessary to close the purchase of Hadwaco and
the water treatment  technology of Aquamax/Keeran..  In that regard, the Company
has  entered  into an  agreement  with  Hadwaco  Ltd Oy and its parent  company,
Hackman Ojy Abp,  of Finland to form a new company  ("Newco") , which will be an
81% owned  subsidiary of the Company and to  immediately  fund Newco with enough
working  capital to  purchase  from  Hadwaco  its  existing  and  ongoing  water
remediation business and all related intellectual  property.  Unless extended by
the  parties,  the Company must fund Newco with $1.5 million by August 31, 2001.
The Company has also agreed to settle all ongoing  disputes with  Aquamax/Keeran
by the  payment of $1.8  million and 600,000  shares of the  Company's  stock on
August 31, 2001 in exchange for all of the Aquamax/Keeran  technology in any way
connected  to  water  treatment.   The  agreements  with   Hadwaco/Hackman   and
Aquamax/Keeran  are  described  in more  detail in  footnote 7 to the  financial
statements.  However,  management cannot provide any assurances that the Company
will  be  successful  in  accomplishing  any  of its  plans.  Failure  to  raise
sufficient  capital  to make the  payments  on  these  agreements  could  have a
material  adverse  effect on the  company's  results  of  operations,  financial
condition, and liquidity.  Even in the event that the company is able to finance
these payments,  failure to raise  sufficient  operating  capital to finance the
company's  business  plans  through  the end of 2001  would also have a material
adverse effect on the company's results of operations,  financial  condition and
liquidity.

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.

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.

                                       19
<PAGE>

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

         (i)      Since  completion  of its  water  quality  certification  on 9
                  December  1999,  the  Company  has  raised  approximately  $13
                  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  $20-30  million  pursuant to private  placement
                  sales of its common  stock  and/or  loans  from third  parties
                  during  2001.  In  addition,  depending  on the pace of actual
                  sales  and the  acquisition  activities  of the  Company,  the
                  Company  may seek to raise an  additional  round of  financing
                  (for a minimum of $100  million  dollars) in the first half of
                  2002.  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.   However,   there  are  potential
                  disadvantages  to our reliance on joint  ventures,  such as, a
                  reliance on third  parties to properly  implement our business
                  plan. 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  intends to complete  the  formation  of Newco (as
                  described above an in footnote 7 to the financial  statements)
                  and the purchase of the assets of Hadwaco, which constitute an
                  ongoing water remediation  business with a backlog of existing
                  contracts.  The Company  believes  that this  business,  which
                  utilizes  technology  similar to the technology to be utilized
                  in  development  of  the  Company's   seawater  thermal  vapor
                  compression   desalinization  business,  will  complement  the
                  Company's existing business plans and provide the Company with
                  an  additional  long term  stream of income.  The  Company has
                  committed to fund the  operations of Newco up to $7,500,000 in
                  senior  debt  funding  for a  period  of  three  (3)  years as
                  necessary for the operations of Newco

         (iii)    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.
                  (g)      Plasma chemical reactors

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

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

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

         (v)      Although the Company plans to subcontract  out as much work as
                  possible, during the next year it still anticipates increasing
                  the  number  of  employees  from the  current  50 full time to
                  approximately 75 full time.

                                       20
<PAGE>

                           PART II. OTHER INFORMATION


ITEM 1.  Legal Proceedings

         Not applicable.


ITEM 2.  Changes in Securities and Use of Proceeds

         Except as otherwise noted, the securities described in this Item 2 were
issued pursuant to the exemption from  registration  provided by Section 4(2) of
the Securities  Act of 1933.  Each such issuance was made pursuant to individual
contracts which are discrete from one another and are made only with persons who
were sophisticated in such transactions and who had knowledge of, and access to,
sufficient  information  about  the  Company  to  make  an  informed  investment
decision.  Among  this  information  was  the  fact  that  the  securities  were
"restricted securities".

     1.  Issuance  of   Convertible   Notes   Payable  to  Vest  Liv  and  Vesta
         Forksikring.

         On April 2, 2001,  the Company  issued two  convertible  notes payable,
each with the following  terms:  The notes accrue  interest at a rate of 10% per
annum and are convertible into the Company's common stock at $4.00 per share. As
additional consideration,  the company granted 200,000 warrants with an exercise
price of $1.50 per share, with an expiration date of April 1, 2003. A commission
of $12,000 was retained by Sundal Collier & Co., in Norway. The market price for
the  company's  common  stock  on  April  2,  2001 was  $2.73  per  share.  Such
convertible notes payable were issued as follows:
<TABLE>
<CAPTION>

    Date of                           Conversion      Number of       Price per       Expiration
    Issuance          Note Amount     Securities      Shares          Share           Date            Recipient
    ----------------- --------------- --------------- --------------- --------------- --------------- ---------------
<S>                      <C>             <C>             <C>              <C>             <C>         <C>
         4/2/01          $360,000         Common          90,000          $4.00           4/2/03      Vesta Liv
                                         Warrants        120,000          $1.50           4/1/03
    ----------------- --------------- --------------- --------------- --------------- --------------- ---------------
         4/2/01          $200,000         Common          60,000          $4.00           4/2/03      Vesta
                                         Warrants         80,000          $1.50           4/1/03      Forsikring
    ----------------- --------------- --------------- --------------- --------------- --------------- ---------------
</TABLE>

     2.  Conversion of Debt

         On April 2, 2001,  the Company  issued  50,000  shares of the company's
common stock to Wilke,  Fluery,  Hoffelt,  Gould & Birney, LLP, (an unaffiliated
third party) for the cancellation of debt in the amount of $75,000, and the cash
payment of $500 (the par value of the stock  issued).  The company owed the debt
for legal  services  provided on behalf of the company.  The market price of the
company's common stock on April 23, 2001 was $2.65 per share.

     3.  Conversion of Debt

         On June 8, 2001,  the Company  issued  119,152  shares of the company's
common stock to Statoil ASA., (an unaffiliated third party) for the cancellation
of debt in the amount of $381,286.  SIGMA,  the Company's  subsidiary,  owed the
debt to Statoil for research advances.  The market price of the company's common
stock on June 8, 2001 was $3.70 per share.

         Except as otherwise noted,  the securities  described in this Item 2(3)
were issued pursuant to the exemption from registration provided by Section 4(2)
of the Securities Act of 1933 and Regulation S.

     4.  Issuance to Gene Martineau

         On June 1, 2001, the Company  entered into a Consulting  Agreement with
Gene Martineau for a 2 year term to receive services related to interfacing with
institutional investors and brokerage firms.

                                       21
<PAGE>

         Pursuant to the  contract,  on June 29, 2001 the company  issued common
stock and warrants to Gene Martineau as consideration for services.  The company
issued  120,000  shares of its common stock on June 29, 2001.  Also, the company
granted  120,000  warrants  with an  exercise  price of $1.50  per share for two
years. The market price of the company's common stock on June 29, 2001 was $2.80
per share.

ITEM 3.  Defaults Upon Senior Securities

         Not applicable.


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

         No matters were submitted to a vote of the security  holders during the
thirteen-week period ended June 30, 2001.


ITEM 5.  Other Information

         The Company deems the following  information to be of importance to its
security holders:

1  Organic Power transaction update:

On page 24 of the  Company's  Annual  Report on Form  10-KSB  for the year ended
December 31, 2000,  we reported  that  discussions  were ongoing  regarding  the
potential  purchase by Ocean Power of up to 50% of the stock of Organic Power, a
Norwegian  company  ("Organic  Power").  Such  discussions  have been suspended.
However,  negotiations  between the Company and Organic  Power for an  exclusive
license to use or sell Organic Power's  gasification  technology in the areas of
distributed  power and seawater  desalination in those regions currently covered
by our joint venture agreements or heads of agreement--Greece  and Greek Cyprus,
Mexico and  twenty-eight  countries and territories and islands in the Caribbean
region, as well as the United States and Canada are ongoing on the same basis as
previously  disclosed.  The  parties  have  agreed  to  complete  the terms of a
definitive  license agreement by August 31,2001 or the letter of Intent of March
14, 2001 between the parties will terminate unless extended by agreement.

2  Status  of   anticipated   joint   ventures   with  Apollo  Water  and  Power
International,   Inc.   ("Apollo")   and   Caribbean   Water  and  Power,   Inc.
("Caribbean"):

On page 12-13 of the Company's  Annual Report on Form 10-KSB we reported that on
February 23, 2001, the Company entered into Joint Venture Agreements with Apollo
and  Caribbean,  respectively,  for the  development  of private water and power
systems  in  Greece  and  Greek  Cyprus  and a  specific  list  of  twenty-eight
countries,  territories and islands  throughout the Caribbean basin. Those Joint
Venture  Agreements  provided that the agreements are not binding unless certain
supporting  documents  identified in the Form 10-KSB are executed within 60 days
of the date the  joint  venture  agreement  is  executed  by both  parties.  The
supporting  documents  have not been  executed,  but the parties  have agreed to
continue  negotiations  beyond  the  60  day  limit.  The  Company  is  also  in
negotiations  with the  Apollo,  Caribbean  and our  prospective  joint  venture
partner in Mexico to include the gasification technology of Organic Power within
the power  systems  which they will be able to market  within  their  respective
territories.


3. Battelle Memorial Institute, Pacific Northwest Division

On pages 7 and 24 of the  Company's  Annual  Report on Form 10-KSB,  we reported
that since  November  2000, we have been testing at our  facilities in El Dorado
Hills, California, three ozone generators based upon the Plasma Chemical Reactor
("PCR") technology  developed by the Kharkov Institute of Physics and Technology
("KIPT") in collaboration  with Battelle Memorial  Institute,  Pacific Northwest
Division  ("Battelle") and funded by the U.S. Department of Energy's Initiatives
for Proliferation  Prevention  Program. On March 8, 2001, Battelle proposed that
we  participate  in the  development  of the  next  phase of the  project  as an
industry partner with the United States Department of Energy's Pacific Northwest
National Laboratory ("PNNL"), which is operated by Battelle, to refine the ozone
generator technology derived from the PCR technology.

                                       22
<PAGE>

By accepting  the position of Industrial  Partner  under a Thrust II CRADA,  the
Company has secured an  exclusive  position  to license the PCR  technology  for
seawater  desalination  applications,  and a non-exclusive license for all other
applications.  Under  terms of the  agreement,  PNNL  has  taken  possession  of
additional  higher capacity PCR units at KIPT and is providing such equipment to
the Company for testing with its desalination equipment in Malta.



4. Water Services Corporation and Malta Desalination Services Ltd.


On pages 7, 12 and 13 of the Company's  Annual Report on Form 10-KSB we reported
that we were  negotiating  the  terms  of a joint  venture  arrangement  for the
initial  production of the Reverse  Osmosis  subsystem for the H2OkW System with
Water Services Corporation,  a Maltese government owned public Limited Liability
Company.  On June  19,  2001  the  Company  instead  entered  into an  Exclusive
Distribution  Agreement with Malta  Desalination  Services Ltd , which grants to
the Company the exclusive  right to market,  sell and install  seawater  reverse
osmosis  desalination  (SWRO)  equipment  produced  by  MDS on a  global  basis,
excluding only the island of Malta itself.  The initial term of the agreement is
19 months. The Company and MDS have also agreed to continue to negotiate for the
formation of a jointly owned limited liability company for the production of the
SWRO desalination subsystem of the H2OkW System, with the understanding that the
new arrangement will supersede the Exclusive Distribution Agreement currently in
effect.


<TABLE>
<CAPTION>

ITEM 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

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

<S>      <C>
 2.01    Sigma Share Purchase Agreement dated July 25, 2000***
 3.01    Certificate of Incorporation of Ocean Power Corporation, a Delaware Corporation, Dated
         July 21, 1999 *
 3.02    Bylaws of the Registrant*
 3.03    Articles of Incorporation of Kaniksu American Mining Company (Idaho), predecessor of
         registrant*
 3.04    Company (Idaho) Certificate of Amendment Kaniksu American Mining Dated August 28, 1995
         name change to Kaniksu Ventures, Inc.*
 3.05    Certificate of Amendment Kaniksu Ventures, Inc., Dated April 2, 1997 name change to
         Intryst, Inc.*
 3.06    Articles of Amendment of Intryst, Inc., name change Dated December 24, 1997 to PTC
         Group, Inc.*
 3.07    Articles of Amendment of PTC Group, Inc., name change Dated July 14, 1999 to Ocean
         Power Corporation*
 3.08    Articles of Merger of Ocean Power Corporation Idaho With Ocean Power Corporation
         Delaware Dated July 28, 1999*
 3.09    Certificate of Merger of Foreign and Domestic Corporation Dated July 28, 1999*
10.01    STM/GSI-Ocean Power Licensing Agreement**
10.02    Employment Agreement (Joseph P. Maceda)*
10.03    Employment Agreement (J. Michael Hopper)*
10.04    Employment Agreement (Lori L. O'Brien)*
10.05    Employment Agreement (Robert Campbell)*
10.06    Memorandum of Understanding with HyPerTech dated 15 June, 2000**
10.07    Purchase Order Memorandum of Understanding with Ecological Engineering & Monitoring,
         Inc. dated 16 January, 2000.**
10.8     Design and Procurement agreement between Sigma and Ricardo, Inc. dated February 23,
         2001****
10.9     Letter of Intent with Hadwaco Oy dated March 8, 2001****
10.10    Letter of Intent with Hadwaco Oy dated November 28, 2000****
10.11    Letter of Intent with Organic Power dated March 14, 2001****
10.12    Memorandum of Understanding with Organic Power dated December 20, 2000****
10.13    Memorandum of Understanding with Ecological Engineering & Monitoring, Inc. dated
         November 15, 2000****
10.14    Memorandum of Understanding with Battelle Memorial Institute, Pacific Northwest
         Division dated October 12, 2000****
10.15    Licensing Agreement with Aquamax/Keeran dated September 21, 2000****
10.16    Project Collaborative with EPRIsolutions dated February 20, 2001****
10.17    Heads of Agreement and Affiliate System Guidelines with CIMA Capital, LLC dated March
         30, 2000****
10.18    Joint Venture Agreement with Apollo Water and Power International, Inc. dated February
         23, 2001****
10.19    Joint Venture Agreement with Caribbean Water and Power, Inc. dated February 23, 2001****
</TABLE>

                                       23
<PAGE>

*        Incorporated by reference to the Company's Form 10-SB as filed February
         8, 2000.
**       Incorporated  by reference to the  Company's  Form 10-SB as amended and
         filed February 6, 2001.
***      Incorporated  by  reference  to the  Company's  Form 8-K as amended and
         filed October 19, 2000.
****     Incorporated  by  reference to the  Company's  Form 10-K as amended and
         filed June , 2001.

(b)      Reports on Form 8-K.

         Not applicable.


                                       24
<PAGE>



                                   SIGNATURES

         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 thereunto duly authorized.





                                  OCEAN POWER CORPORATION


Date: August 14, 2001             By: /s/ Joseph P. Maceda
---------------------             ------------------------
                                          Joseph P. Maceda
                                          President



Date: August  14, 2001            By: /s/ J. Michael Hopper
------------  --------            -------------------------
                                          J. Michael Hopper
                                          Secretary/Treasurer
                                          (chief accounting officer)



                                       25
<PAGE>