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

                                   FORM 10-KSB

(Mark One)

      [X]   ANNUAL  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
            EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

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

For the transition period from ___________ to ___________

Commission File Number: 1-5742

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

                 Delaware                                94-3350291
    (State or other jurisdiction of                   (I.R.S. Employer
    incorporation or organization)                    Identification No.)
   c/o Halperin Battaglia Raicht, LLP
      555 Madison Avenue, 9th Floor
           New York, New York                             10022
(Address of principal executive offices)               (Zip Code)

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

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock, par value $0.01 per share
                     ---------------------------------------
                                 Title of Class

Check  whether the issuer (1) filed all reports  required to be filed by section
13 or 15(d) of the  Securities  Exchange  Act of 1934  during the  preceding  12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. [ ] Yes [X] No

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [X]

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

Issuer's revenues for 2004: $0

The aggregate  market value of the issuer's voting stock held by  non-affiliates
as of January 28, 2008, computed by reference to the closing price of such stock
on such date as quoted on the OTC Bulletin Board  ("OTCBB"),  was  approximately
$112,365.  For purposes of this computation,  it is assumed that the Company has
no affiliates.

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

The number of shares  outstanding  of the  issuer's  Common Stock on January 28,
2008 was 56,182,746.

          TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT [ ] Yes [X] No

                    DOCUMENTS INCORPORATED BY REFERENCE: None
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<PAGE>
NOTE:  Unless otherwise  indicated,  this Form 10-KSB of Ocean Power Corporation
(the "Company")  speaks as of the date of the filing thereof with the Securities
and  Exchange  Commission  ("SEC").  On March 1,  2002,  due to  non-payment  of
applicable taxes the Company's  original charter became inoperative and void. On
October 25, 2007,  the Company filed a certificate of renewal and revival of its
charter  in the state of  Delaware.  During  the  period  from  March 1, 2002 to
October 25, 2007, the name Ocean Power was obtained by an unrelated  entity upon
proper  filing with the State of  Delaware.  As such,  as part of the  Company's
renewal and  revival of its  charter,  the  Company  changed its name from Ocean
Power Corporation to OPC Liquidation Corporation.


<PAGE>

                                     PART I

Item 1. Description of Business.

This item contains forward-looking statements that involve uncertainties. Actual
results could differ materially from those in the forward-looking statements due
to a number of  uncertainties,  including,  but not  limited to those  discussed
below and in Part II, Item 6  "Management's  Discussion  and Analysis or Plan of
Operations - Uncertainties Relating to Forward Looking Statements."

The Company was formed  primarily  as the result of the merger of PTC  Holdings,
Inc., a Delaware  corporation,  into PTC Group, Inc., an Idaho  corporation.  In
July 1999, PTC Group,  Inc. changed its name to Ocean Power Corporation and then
changed its state of  incorporation  from Idaho to  Delaware.  The Company was a
development  stage company that intended to engage  primarily in the business of
developing  and marketing  water  desalination  and renewable  power  generation
systems that were modular and mass produced.

The Company had a history of being financed primarily by raising capital through
private  placements of its stock and/or loans from third  parties.  The proceeds
from the financing had been used to develop the Company's  technologies,  pursue
acquisitions and make strategic  alliances and pay operating costs. In September
2002, the Company was without  sufficient capital to continue to operate and had
been unable to identify sources of additional financing.  The Board of Directors
of the Company (the "Board") was concerned that a sudden cessation of operations
would not provide  the best means to maximize  asset  values.  Therefore,  at an
October  3,  2002  meeting,   the  Board   approved  a  resolution  to  commence
negotiations with the Company's secured creditors, Algonquin Capital Management,
L.L.C. ("Algonquin") and Hibernia Capital Management,  L.L.C.  ("Hibernia"),  to
commence a voluntary  bankruptcy filing under Chapter 11 of the U.S.  Bankruptcy
Code  ("Code"),  and  immediately  thereafter,  a sale of the  Company's  assets
pursuant to Section 363 of the Code.

During the preceding  twelve  months,  the Company had endeavored to stem severe
cash  flow  shortages  through,  among  other  things,  workforce  and  overhead
reductions,  and the consolidation of its business operations. Due to persistent
cash flow shortages,  the Company terminated substantially all of its employees.
As a result of a  confluence  of  events,  including  a general  contraction  of
available  financing  from  capital  markets and the then recent  bankruptcy  in
Norway of Sigma  Elektroteknisk,  AS, a wholly  owned  subsidiary,  at a Special
Meeting of the Board on November 27, 2002,  the Board  unanimously  consented to
authorizing  the Company to file a voluntary  petition  under  Chapter 11 of the
Code.

On December 1, 2002, the Company filed a voluntary  petition under Chapter 11 of
the Code with the United States  Bankruptcy  Court for the Southern  District of
New  York  ("Bankruptcy   Court")  (that  and  all  subsequent  related  action,
collectively,  the "Bankruptcy  Case").  On December 16, 2002, the United States
Trustee appointed a creditors' committee pursuant to Section 1102(a) of the Code
(the "Committee").

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

     Having  sold its assets and ceased  operations,  the  Company  was not in a
financial  position to support  the  on-going  operations  needed to develop the
Water Assets.  On May 20, 2003,  the  Bankruptcy  Court approved the sale of the
Company's interest in the Water Assets to Oases Desalination International, Ltd.
("Oases") in exchange for their covenant to commercialize  those assets and make
certain  royalty  payments.  Although it made certain  minimal  payments,  Oases
immediately defaulted in certain pre-closing obligations and never consummated a
closing under the agreement. Subsequently, Oases and ReEnergy Group entered into
as  asset  purchase  agreement  in which  Oases  would  sell all of its  assets,
including the Water Assets, to ReEnergy Group. Because Oases was in default with
the  Company  and had not  paid  for  the  Water  Assets  and/or  closed  on the
<PAGE>

transaction,  Oases and  Renergy  Group  sought the  Company's  consent  wherein
ReEnergy Group would directly purchase the Water Assets from the Company.  After
significant negotiations,  the Committee,  Oases and ReEnergy Group entered into
the Consent  Agreement,  in order to, among other things,  provide the Company's
consent  to  transfer  the  Water  Assets  to  ReEnergy  Group  for  a  modified
consideration  of  $750,000  for the Water  Assets.  On  October  26,  2005,  an
application was filed with the Bankruptcy  Court to approve this arrangement and
the arrangement was approved by order dated November 16, 2005 (the "Water Assets
Sale", and together with the Primary Asset Sale, the "Asset Sales"). The Company
has  received all of the funds in this  transaction,  which are being held in an
account maintained by bankruptcy counsel for the Committee.

Currently,  the Company has no operations and no assets other than approximately
$227,210 in cash.

In October of 2006,  the Company  signed a term sheet,  subsequently  amended on
September 18, 2007, with Trinad Capital Master Fund Ltd. (the "Plan Sponsor") to
sponsor a Chapter 11 plan of reorganization, which was filed with the Bankruptcy
Court on January  15,  2008  ("Plan").  The Plan  identifies  NorthStar  Systems
International,  Inc.  as a  potential  merger  candidate  to be merged  into the
Company  ("Merger  Candidate").  Under the terms of the proposed  Plan, the Plan
Sponsor would pay $500,000 to the Company's estate, and creditors of the Company
would  receive a pro rata cash  payment  and  stock  consideration  in the newly
merged  entity.  The  aforementioned   consideration  would  be  distributed  to
unsecured  creditors  of the Company  under the proposed  Plan.  If the existing
unsecured  creditors  of the Company  approve the Plan,  the  creditors  and the
existing  stockholders  of the  Company  would  own  approximately  6%  and  1%,
respectively,  of the merged company; provided,  however, that in the event that
the  unsecured  creditors  vote as a class  to  reject  the Plan and the Plan is
confirmed  under the cram-down  provisions of Section  1129(b) of the Code,  the
creditors and the existing  stockholders of the Company would own  approximately
4% and 0%,  respectively,  of the merged company. The merger contemplated by the
Plan  would  be  subject  to  various  closing  conditions  including,   without
limitation,  (i) confirmation of the Plan, (ii) the negotiation and execution of
definitive  documents  in form  acceptable  to the Plan  Sponsor  and the Merger
Candidate, (iii) the satisfactory completion of the Plan Sponsor's due diligence
on the Merger Candidate,  and (iv) the absence of any material adverse change in
the business of the Merger Candidate.  The merger would be consummated  pursuant
to a merger  agreement,  which would contain,  among other things,  detailed and
appropriate  representations and warranties,  affirmative and negative covenants
and closing conditions customary for transactions of that type. The Plan Sponsor
may  withdraw  at any time  prior to the  confirmation  of the Plan and gives no
assurance that agreement will be reached with the Merger  Candidate with respect
to the terms of such merger agreement.

Employees

The Company has no employees, and has not had any employees since 2003.

Item 2. Description of Properties.

The Company does not own or lease any property. All administrative functions are
performed through consultants and advisors.

Item 3. Legal Proceedings.

See Item 1. above.

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

None.

                                       2
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

The Company's  Common Stock is listed on the OTCBB under the symbol  PWREQ.  The
following  table sets forth the high and low  closing  prices as reported on the
OTCBB for all periods  presented.  The quotations reflect  inter-dealer  prices,
without retail  markup,  markdown or  commissions  and may not represent  actual
transactions.

2004                                                           High       Low

First Quarter                                                $ 0.0050   $ 0.0006

Second Quarter                                                 0.0025     0.0020

Third Quarter                                                  0.0050     0.0020

Fourth Quarter                                                 0.0020     0.0010

2003                                                           High       Low

First Quarter                                                $ 0.0070   $ 0.0020

Second Quarter                                                 0.0030     0.0015

Third Quarter                                                  0.0030     0.0005

Fourth Quarter                                                 0.0010     0.0006

There were  approximately 274 holders of record of the Company's Common Stock as
of March 13,  2007,  the latest date for which a report was  available  from the
Company's transfer agent.

The  Company  has never  paid  cash  dividends  and does not  expect to pay cash
dividends in the foreseeable future.

Recent  Sales of  Unregistered  Securities;  Uses of  Proceeds  from  Registered
Securities:

None.

Purchases of Equity Securities by the Issuer:

None.

Item 6. Management's Discussion and Analysis or Plan of Operations.

The  following  discussion  and analysis  contains a number of "forward  looking
statements" within the meaning of the Section 21E of the Securities Exchange Act
of 1934, as amended,  with respect to expectations  for future periods which are
subject  to  various   uncertainties   explained  herein  and  in  "Management's
Discussion and Analysis or Plan of Operation - Uncertainties Relating to Forward
Looking Statements."

Statements   containing  the  words  "believes,"   "anticipates,"   "estimates,"
"expects,"  "intends,"  "plans,"  "seeks,"  "will,"  "may,"  "should,"  "would,"
"projects," "predicts,"  "continues," and similar expressions or the negative of
these  terms  constitute  forward-looking  statements  that  involve  risks  and
uncertainties.

     We intend such forward-looking  statements to be covered by the safe harbor
provisions for  forward-looking  statements  contained in the Private Securities
Litigation  Reform Act of 1995, and are including this statement for purposes of
invoking  these safe harbor  provisions.  Such  statements  are based on current
expectations and are subject to risks,  uncertainties  and changes in condition,

                                       3
<PAGE>

significance,  value  and  effect,  including  those  discussed  in the  section
entitled "Risk Factors" contained herein. Such risks,  uncertainties and changes
in condition,  significance,  value and effect could cause the Company's  actual
results to differ  materially from those  anticipated  events.  Except as may be
required  under federal law, we undertake no  obligation to update  publicly any
forward-looking  statements  for any  reason,  even if new  information  becomes
available or other events occur.

Overview

The reader is referred  to the  description  of the  Company's  Bankruptcy  Case
contained in Item 1 above.

Results of Operations:

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

The business of the Company in 2004 included only its  consideration  of various
plans of reorganization  opportunities and incurring  administrative expenses in
connection  with the Bankruptcy  Case,  e.g.,  related to legal,  accounting and
administrative  activities.  There were no revenue-generating  activities (other
than the initial  deposits toward the Water Assets Sale). The Company has had no
employees  since  2003.  The  administrative  activities  of  the  Company  were
performed by Mr. Michael Hopper, a paid consultant, and outside advisors. Direct
administrative  expenses  of the Company  for the year ended  December  31, 2004
totaled $39,231, a decrease of $339,255 or 90%, compared to $378,486 incurred in
the year ended  December  31,  2003.  The  decrease is due to decreases in legal
fees,  and  salaries  and  wages  that were  incurred  at the  beginning  of the
bankruptcy  proceedings.  The Company  continued  to accrue  interest on the DIP
financing and accrued $36,115 for the year ended December 31, 2004.

The net income  (loss) for the year ended  December  31, 2004 was  ($62,509),  a
decrease  of  $1,244,453  or 105%,  compared  to  $1,181,944  for the year ended
December  31,  2003.  The  decrease  was due to a gain on the sale of all of the
Company's assets totaling  $1,723,486  recognized during the year ended December
31,  2003.  The net loss for the  year  ended  December  31,  2004 was  entirely
attributed to  administrative  expenses and interest  expense related to the DIP
financing.  The revenue from the Water Assets Sale has been recorded entirely as
a gain on sale of assets  as there was no  remaining  basis for the  Company  to
remove.

Liquidity and Capital Resources

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

Uncertainties Relating to Forward Looking Statements

"Item 6.  Management's  Discussion  and Analysis or Plan of Operation" and other
parts of this Form 10-KSB contain certain  "forward-looking  statements"  within
the  meaning  of the  Securities  Act of 1934,  as  amended.  While the  Company
believes  any  forward-looking  statements  it has made are  reasonable,  actual
results  could  differ  materially  since the  statements  are based on  current
management expectations and are subject to risks and uncertainties.  These risks
and uncertainties include, but are not limited, to the following:

      o     There  can be no  assurance  that the  Plan,  or any  other  plan of
            reorganization,  will  be  approved  by  the  Bankruptcy  Court  and
            effected.

      o     There can be no assurance that the Plan Sponsor will reach agreement
            on definitive  documentation for a merger with the Merger Candidate,
            or any other potential merger candidate.

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

      o     The Plan Sponsor may withdraw at any time prior to confirmation of a
            plan  of  reorganization,   including  without  limitation,  due  to
            unsatisfactory results of its due diligence on the Merger Candidate.
            In such event,  the Company may  substitute  the Plan  Sponsor  with
            another  person or entity  offering to  purchase  stock in the newly
            merged entity under the Plan on terms and conditions that may not be
            the same, or as economically  favorable to the Company's  estate, as
            those are being  offered by the Plan  Sponsor.  In such  event,  the
            recovery  for  unsecured  creditors  would  likely  be  dramatically
            reduced.

                                       4
<PAGE>

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

Item 7. Financial Statements.

The  financial  statements  filed  herewith  are  set  forth  in  the  Index  to
Consolidated  Financial  Statements  (on  page  F-1) of the  separate  financial
section, which follows this report, and are incorporated herein by reference.

Item 8. Changes  In and  Disagreements  With  Accountants  on  Accounting  and
        Financial Disclosures.

The Company did not have any  independent  auditors  during  2004,  as its prior
auditors,  H.J. &  Associates,  LLC,  resigned on April 30, 2003.  The Company's
current independent auditors,  Pritchett, Siler & Hardy, P.C., have been engaged
since November 28, 2006. Since that date, there have been no disagreements  with
the  firm  on any  matter  of  accounting  principles  or  practices,  financial
statement disclosure or auditing scope or procedure.

Item 8A. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

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

(b) Changes in internal controls.

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

Item 8B. Other Information.

None.

                                       5
<PAGE>


                        Consolidated Financial Statements
                                  and Report of
                     Independent Registered Accounting Firm

                             Ocean Power Corporation

                           December 31, 2004 and 2003

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2004

<PAGE>

                                 C O N T E N T S

Report of Independent Registered Public Accounting Firm .................... F-3

Consolidated Balance Sheet ................................................. F-4

Consolidated Statements of Operations ...................................... F-5

Consolidated Statements of Stockholders' Equity (Deficit) .................. F-6

Consolidated Statements of Cash Flows ......................................F-15

Notes to the Consolidated Financial Statements .............................F-17

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
OCEAN POWER CORPORATION & SUBSIDIARIES
New York, NY 10022

We have  audited  the  accompanying  consolidated  balance  sheet of Ocean Power
Corporation  and   Subsidiaries  as  of  December  31,  2004,  and  the  related
consolidated  statements of operations,  stockholders' equity (deficit) and cash
flows for the years ended December 31, 2004 and 2003 and from inception on March
26, 1992 through December 31, 2004. These consolidated  financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated  financial  statements based on our audits. The
consolidated  financial  statements of Ocean Power  Corporation and Subsidiaries
for the period from  inception on March 26, 1992 through  December 31, 2001 were
audited by other  auditors  whose  report  dated  March 22,  2002  expressed  an
unqualified  opinion on those  statements and included an explanatory  paragraph
expressing  concern  about the  ability of the  company to  continue  as a going
concern. Our opinion on the consolidated statements of operations, stockholders'
equity  (deficit) and cash flows for the period from inception on March 26, 1992
through  December 31, 2004,  insofar as it relates to amounts for prior  periods
through December 31, 2001, is based solely on the report of other auditors.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a  test  basis,  evidence  supporting  the  amounts  and  disclosures  in the
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our  opinion,  based on our  audits  and the  report of other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material  respects,  the  financial  position  of Ocean  Power  Corporation  and
Subsidiaries  as of December 31, 2004,  and the results of their  operations and
their  cash  flows  for the  years  ended  December  31,  2004 and 2003 and from
inception  on March 26, 1992  through  December 31,  2004,  in  conformity  with
accounting principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that Ocean Power  Corporation and Subsidiaries will continue as a going concern.
As discussed in Note 7 to the financial statements,  Ocean Power Corporation and
Subsidiaries  has incurred  substantial  losses since  inception and has current
liabilities  in excess of assets.  Further,  The  Company  has filed a voluntary
petition  under  Chapter  11 of the  Bankruptcy  Code  with  the  United  States
Bankruptcy Court Southern  District of New York. These factors raise substantial
doubt  about  the  ability  of the  Company  to  continue  as a  going  concern.
Management's plans in regards to these matters are also described in Note 7. The
financial  statements do not include any adjustments  that might result from the
outcome of these uncertainties.

PRITCHETT, SILER & HARDY, P.C.
September 28, 2007
Salt Lake City, Utah

                                      F-3
<PAGE>

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

                                     ASSETS
                                     ------

                                                                  December 31,
                                                                      2004
                                                                ---------------

CURRENT ASSETS

   Cash - restricted                                            $       197,463
                                                                ---------------

      Total Current Assets                                              197,463
                                                                ---------------

EQUIPMENT, NET                                                                -
                                                                ---------------

TOTAL ASSETS                                                    $       197,463
                                                                ===============


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

CURRENT LIABILITIES

   Accounts payable                                             $     2,685,110
   Accrued expenses                                                   9,944,863
   Notes payable - related parties                                    1,033,469
   Notes and convertible debentures payable - current portion         8,674,884
                                                                ---------------

      Total Current Liabilities                                      22,338,326
                                                                ---------------

      Total Liabilities                                              22,338,326
                                                                ---------------

STOCKHOLDERS' EQUITY (DEFICIT)

   Preferred stock: 20,000,000 shares authorized of
      $0.001 par value; no shares outstanding                                 -
   Common stock: 500,000,000 shares authorized of
      $0.01 par value; 56,182,746 shares issued
      and outstanding                                                   561,827
   Additional paid-in capital                                        35,169,137
   Deficit accumulated during the development stage                 (57,871,827)
                                                                ---------------

      Total Stockholders' Equity (Deficit)                          (22,140,863)
                                                                ---------------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
         (DEFICIT)                                              $       197,463
                                                                ===============

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

                                       F-4

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                      Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                                                 From
                                                                             Inception on
                                                 For the Years Ended           March 26,
                                                     December 31,            1992 Through
                                               --------------------------    December 31,
                                                  2004           2003            2004
                                               -----------   ------------   --------------
<S>                                            <C>           <C>            <C>
REVENUES                                       $         -   $          -   $            -
                                               -----------   ------------   --------------

EXPENSES

   General and administrative                       39,231        378,486          417,717
   Depreciation and amortization                         -         15,964           15,964
                                               -----------   ------------   --------------

            Total Expenses                          39,231        394,450          433,681
                                               -----------   ------------   --------------

            LOSS FROM OPERATIONS                   (39,231)      (394,450)        (433,681)
                                               -----------   ------------   --------------

OTHER INCOME (EXPENSE)

   Interest income                                     137            144              281
   Gain (loss) on sale of assets                    13,500      1,723,486        1,736,986
   Interest expense                                (36,115)       (33,807)      (8,868,888)
                                               -----------   ------------   --------------

            Total Other Income (Expense)           (22,478)     1,689,823       (7,131,621)
                                               -----------   ------------   --------------

INCOME (LOSS) BEFORE
   INCOME TAXES                                    (61,709)     1,295,373       (7,565,302)

      Income tax expense                               800        113,429          114,229
                                               -----------   ------------   --------------

INCOME (LOSS) BEFORE
   DISCONTINUED OPERATIONS                         (62,509)     1,181,944       (7,679,531)

      (Loss) from discontinued
         operations                                      -              -      (50,192,296)
                                               -----------   ------------   --------------

NET INCOME (LOSS)                              $   (62.509)  $  1,181,944   $  (57,871,827)
                                               ===========   ============   ==============


BASIC AND DILUTED INCOME (LOSS) PER
   SHARE

      Income (loss) before discontinued
         operations                            $     (0.00)  $       0.02
      Discontinued operations                         0.00           0.00
                                               -----------   ------------

            Net income (loss)                  $     (0.00)  $       0.02
                                               ===========   ============

WEIGHTED AVERAGE NUMBER
   OF SHARES OUTSTANDING                        56,182,746     56,182,746
                                               ===========   ============
</TABLE>

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

                                       F-5

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

<TABLE>
<CAPTION>
                                                                                                        Deferred        Deficit
                                                                                                       Consulting     Accumulated
                                               Common Stock            Additional        Other          Expense       During the
                                       ----------------------------     Paid-In      Comprehensive      and Asset     Development
                                          Shares          Amount        Capital      Income (Loss)     Acquisition       Stage
                                       -------------  -------------   ------------   --------------  --------------  --------------
<S>                                    <C>            <C>             <C>            <C>             <C>             <C>
Inception, March 26, 1992                          -  $           -   $          -   $            -  $            -  $            -

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       F-6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                        Deferred        Deficit
                                                                                                      Compensation    Accumulated
                                               Common Stock            Additional        Other            and          During the
                                       ----------------------------      Paid-In     Comprehensive     Consulting      Development
                                          Shares          Amount         Capital        Income          Expense          Stage
                                       -------------  -------------   ------------   --------------  --------------  --------------
<S>                                    <C>            <C>             <C>            <C>             <C>             <C>
Balance, December 31, 1998                 1,956,142  $      19,561   $     66,889   $            -  $            -      (5,224,330)

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

March 22, 1999 34,800 shares
   issued for cash to an employee
   at $0.003 per share                       286,682          2,867         (2,043)               -               -               -

March 22, 1999, 34,800 shares issued
   to an officer and founder for debt
   cancellation  of $50,000, 496,248
   shares issued to a consultant for
   past due fees of $1,426 and
   18,480,172 shares issued to
   employees for past due salaries
   of $53,104 at $0.005 per share         19,011,220        190,112        (85,582)               -               -               -

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

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

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

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

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

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

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

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

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

                                       F-7
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                        Deferred        Deficit
                                                                                                      Compensation    Accumulated
                                               Common Stock            Additional        Other             and         During the
                                       ----------------------------     Paid-In      Comprehensive     Consulting     Development
                                          Shares          Amount        Capital          Income          Expense         Stage
                                       -------------  -------------   ------------   --------------  --------------  --------------
<S>                                    <C>            <C>             <C>            <C>             <C>             <C>
Balance Forward                           21,883,262  $     218,832   $    (25,221)  $            -  $            -  $   (5,224,330)

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

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

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

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

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

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

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

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

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

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

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

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

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

Balance Forward                           31,470,596  $     314,706   $  3,193,419   $            -  $            -  $   (5,224,330)
                                       -------------  -------------   ------------   --------------  --------------  --------------
</TABLE>

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

                                       F-8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                       Deferred         Deficit
                                                                                                     Compensation     Accumulated
                                               Common Stock            Additional        Other           and           During the
                                       ----------------------------     Paid-In      Comprehensive    Consulting      Development
                                          Shares          Amount        Capital          Income         Expense          Stage
                                       -------------  -------------   ------------   --------------  --------------  --------------
<S>                                    <C>            <C>             <C>            <C>             <C>             <C>
Balance Forward                           31,470,596  $     314,706   $  3,193,419   $            -  $            -  $   (5,224,330)

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

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

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

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

November 16, 1999, value of
   beneficial conversion features
   of convertible debentures (Note 7)              -              -        650,000                -               -               -

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

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

December 7, 1999, options
   issued below market value                       -              -        130,402                -               -               -

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

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

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

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

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

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

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

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

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

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

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

                                       F-9
<PAGE>

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

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

January 4, 2000, common stock
   issued for debt and consideration
   for loan default at $2.75 per
   share                                     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                -               -                -

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 market value                              -              -       358,000                -               -                -
                                       -------------  -------------  ------------   --------------  --------------   --------------

Balance Forward                           37,149,942  $     371,499  $ 22,307,577   $            -  $     (237,000)  $  (10,923,816)
                                       -------------  -------------  ------------   --------------  --------------   --------------
</TABLE>

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

                                      F-10
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                      Deferred         Deficit
                                                                                                   Compensation      Accumulated
                                             Common Stock            Additional        Other            and           During the
                                     ----------------------------     Paid-In       Comprehensive   Consulting       Development
                                        Shares          Amount        Capital          Income         Expense           Stage
                                     -------------  -------------   ------------   --------------  --------------   --------------
<S>                                  <C>            <C>             <C>            <C>             <C>              <C>
Balance Forward                         37,149,942  $     371,499   $ 22,307,577   $            -  $     (237,000)  $  (10,923,816)

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)

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

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

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

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

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

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

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

Currency translation adjustment                  -              -              -          139,291               -                -

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

Balance, December 31, 2001              38,439,094  $     384,391   $ 30,254,067   $      334,549  $   (1,141,000)  $  (37,510,434)
                                     -------------  -------------   ------------   --------------  --------------   --------------
</TABLE>

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

                                      F-11
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                      Deferred         Deficit
                                                                                                   Compensation      Accumulated
                                               Common Stock           Additional       Other            and           During the
                                       ----------------------------    Paid-In     Comprehensive     Consulting      Development
                                          Shares          Amount       Capital         Income          Expense          Stage
                                       -------------  -------------  ------------  --------------  --------------   --------------
<S>                                    <C>            <C>            <C>           <C>             <C>              <C>
Balance, December 31, 2001                38,439,094  $     384,391  $ 30,254,067  $      334,549  $   (1,141,000)  $  (37,510,434)

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

January 8, 2002, options granted
   to employee's below market value                -              -       180,447               -               -                -

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

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

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

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

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

Revaluation of existing warrants                   -              -     1,360,574               -               -                -

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

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

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

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

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

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

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

Balance forward                           39,680,515  $     396,805  $ 34,008,023  $      334,549  $   (1,817,800)  $  (37,510,434)
                                       -------------  -------------  ------------  --------------  --------------   --------------
</TABLE>

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

                                      F-12
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                       Deferred         Deficit
                                                                                                     Compensation     Accumulated
                                               Common Stock           Additional        Other            and           During the
                                       ----------------------------    Paid-In      Comprehensive     Consulting      Development
                                           Shares         Amount       Capital          Income          Expense          Stage
                                       -------------  -------------  ------------   --------------  --------------   --------------
<S>                                    <C>            <C>            <C>            <C>             <C>              <C>
Balance forward                           39,680,515  $     396,805  $ 34,008,023   $      334,549  $   (1,817,800)  $  (37,510,434)

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

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

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

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

Warrants issued in connection with
   debt obligations                                -              -       930,065                -               -                -

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

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

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

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

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

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

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

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

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

Balance forward                           56,182,746  $     561,827  $ 35,155,326   $      334,549  $     (875,128)  $  (37,510,434)
                                       -------------  -------------  ------------   --------------  --------------   --------------
</TABLE>

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

                                      F-13

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

<TABLE>
<CAPTION>
                                                                                                        Deferred        Deficit
                                                                                                      Compensation     Accumulated
                                                Common Stock             Additional      Other            and          During the
                                         ---------------------------      Paid-In     Comprehensive    Consulting     Development
                                            Shares         Amount         Capital         Income         Expense          Stage
                                         ------------   ------------   ------------   -------------   -------------   -------------
<S>                                      <C>            <C>            <C>            <C>             <C>             <C>
Balance forward                            56,182,746   $    561,827   $ 35,155,326   $     334,549   $    (875,128)  $ (37,510,434)

Options granted to employees below
   market                                           -              -          5,815               -               -               -

Options granted for consulting services             -              -          7,996               -               -               -

Deferred consulting expensed                        -              -              -               -         875,128               -

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

Net loss for the year ended,
   December 31, 2002                                -              -              -               -               -     (21,480,828)
                                         ------------   ------------   ------------   -------------   -------------   -------------

Balance, December 31, 2002                 56,182,746        561,827     35,169,137               -               -     (58,991,262)

Net income for the year ended,
   December 31, 2003                                -              -              -               -               -       1,181,944
                                         ------------   ------------   ------------   -------------   -------------   -------------

Balance, December 31, 2003                 56,182,746        561,827     35,169,137               -               -     (57,809,318)

Net loss for the year ended,
   December 31, 2004                                -              -              -               -               -         (62,509)
                                         ------------   ------------   ------------   -------------   -------------   -------------

Balance, December 31, 2004                 56,182,746   $    561,827   $ 35,169,137   $           -   $           -   $ (57,871,827)
                                         ============   ============   ============   =============   =============   =============
</TABLE>

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

                                      F-14
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                                       From
                                                                                                                   Inception on
                                                                                        For the Years Ended          March 26,
                                                                                            December 31,           1992 Through
                                                                                   ----------------------------    December 31,
                                                                                       2004            2003            2004
                                                                                   ------------    ------------    -------------
<S>                                                                                <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES

   Net loss                                                                        $    (62,509)   $  1,181,944    $ (57,871,827)
   Adjustments to reconcile net loss to net
      cash used by operating activities:
         Depreciation and amortization                                                        -          15,964        2,820,779
         Deferred consulting expense                                                          -               -        2,486,798
         Value of common stock, warrants, options
            and discounts on equity instruments issued
            for services                                                                      -               -        7,962,847
         Loss on sale of assets                                                               -               -          387,649
         Amortization of debenture discount and debt issue costs                              -               -        4,628,538
         Gain on disposition of debt and write off of subsidiary                              -               -       (6,085,539)
         Gain on sale of assets                                                         (13,500)     (1,723,486)      (1,736,986)
         Impairment loss                                                                      -               -       12,302,123
   Change in operating asset and liability accounts, net of amounts
      acquired in business combination:
         (Increase) decrease in advances to employees,
            prepaid expenses, deposits and debt offering costs                                -          18,402       (5,772,221)
         Increase (decrease) in accounts payable                                         37,388         219,341        5,668,776
         Increase (decrease) in accrued expenses                                         37,258         194,072       13,719,104
                                                                                   ------------    ------------    -------------

               Net Cash Used by Operating Activities                                     (1,363)        (93,763)     (21,489,959)
                                                                                   ------------    ------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES

   Cash lost in discontinued operation                                                        -               -           (4,713)
   Payments on license agreement                                                              -               -         (400,000)
   Cash acquired in Sigma acquisition                                                         -               -          142,254
   Proceeds from sale of assets                                                          13,500          80,000           93,501
   Purchase of fixed assets                                                                   -               -       (1,164,570)
   Equipment procurement costs                                                                -               -         (564,110)
                                                                                   ------------    ------------    -------------

               Net Cash Provided (Used) by Investing Activities                          13,500          80,000       (1,897,638)
                                                                                   ------------    ------------    -------------

CASH FLOWS FROM FINANCING ACTIVITIES

   Proceeds from notes payable                                                                -         136,818        4,951,818
   Repayment of related party notes payable                                                   -               -       (1,640,226)
   Repayment of notes payable                                                                 -               -       (1,519,062)
   Loans from related parties                                                                 -               -        7,462,787
   Issuance of convertible debentures                                                         -               -        3,100,000
   Common stock issued for cash                                                               -               -       11,256,032
   Stock offering costs                                                                       -               -          (26,289)
                                                                                   ------------    ------------    -------------

               Net Cash Provided by Financing Activities                                      -         136,818       23,585,060
                                                                                   ------------    ------------    -------------
</TABLE>

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

                                      F-15
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                                       From
                                                                                                                   Inception on
                                                                                       For the Years Ended           March 26,
                                                                                           December 31,            1992 Through
                                                                                   ----------------------------    December 31,
                                                                                       2004            2003            2004
                                                                                   ------------    ------------    ------------
<S>                                                                                <C>             <C>             <C>
NET INCREASE (DECREASE) IN CASH                                                    $     12,137    $    123,055    $    197,463

CASH AT BEGINNING OF PERIOD                                                             185,326          62,271               -
                                                                                   ------------    ------------    ------------

CASH AT END OF PERIOD                                                              $    197,463    $    185,326    $    197,463
                                                                                   ============    ============    ============

CASH PAID FOR:

   Interest                                                                        $          -    $          -    $     16,488
   Income taxes                                                                    $          -    $          -    $          -

NON-CASH FINANCING ACTIVITIES

   Value of common stock, warrants, options and
      discounts on equity instruments issued for services                          $          -    $          -    $  7,962,847
   Equity instruments issued for deferred consulting
      expense/asset acquisition                                                    $          -    $          -    $    740,000
   Common stock issued for recapitalization                                        $          -    $          -    $  2,761,773
   Common stock issued for conversion of debt                                      $          -    $          -    $  2,963,511
   Acquisition of licenses through license agreement
      Payable                                                                      $          -    $          -    $  6,940,000
   Warrants granted in conjunction with debt instruments                           $          -    $          -    $  3,261,386
</TABLE>

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

                                      F-16

<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 1 -  ORGANIZATION AND DESCRIPTION OF BUSINESS

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

          The  Company  has  had  limited  activities  since  inception  and  is
          considered a development stage company because no significant revenues
          have been  realized  and  planned  principal  operations  have not yet
          commenced.  The  Company  was  planning  to engage in the  business of
          developing  and  marketing  water  desalination  and  renewable  power
          generation  systems that will be modular and mass  produced.  However,
          the Company  currently  has no on-going  operations  and is pursuing a
          Chapter 11 bankruptcy reorganization.

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

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

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

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

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

          On July 28,  1999,  Delaware  and Idaho  merged to change the domicile
          from Idaho to Delaware with Delaware being the surviving  entity.  The
          Company is not current with its  franchise  tax filings with the state
          of Delaware.

                                      F-17

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 1 -  ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)

          On December  1, 2002,  the Company  filed a voluntary  petition  under
          Chapter 11 of the  bankruptcy  code with the United States  Bankruptcy
          Court  Southern  District of New York.  See Note 13 for the discussion
          regarding the bankruptcy filing.

          The Subsidiaries:

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

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

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

          SIGMA Elektroteknisk,  AS (SIGMA), a company acquired in 2000 (Note 3)
          was  incorporated  on January 6, 1994 under the laws of the Country of
          Norway to engage in the business of developing and producing  personal
          combustion  power  plants  (PCP's),  an energy  converter  utilizing a
          Stirling  engine that runs on natural gas or propane and produces heat
          and  electricity  for use in  micro  CHP  (combined  heat  and  power)
          systems,  an appliance to produce heat and power in households.  Sigma
          has been dissolved through a bankruptcy filing in Norway (Note 14).

          Ocean  Power  UK  Limited  (UK)  was  incorporated  as a  wholly-owned
          subsidiary  on October  31,  2000  under the laws of Great  Britain to
          serve as a sales and marketing  company in Europe.  This company is no
          longer  deemed to be a subsidiary of the Company as it is no longer in
          existence.

          Powerco  US,  Inc.   (Powerco)  was  incorporated  as  a  wholly-owned
          subsidiary  under the laws of the State of  Delaware  to engage in any
          lawful activity under the General Corporation Laws of Delaware.

                                      F-18

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 2 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

          a. Accounting Method

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

          b. Basic Loss Per Share

          The  computation  of basic loss per share of common  stock is based on
          the weighted average number of shares outstanding during the period of
          the  financial  statements.  Diluted  loss per share is not  presented
          because  it is  equal  to basic  loss  per  share  as a result  of the
          antidilutive nature of the stock equivalents.

                                                        For the Years Ended
                                                           December 31,
                                                     ---------------------------
                                                         2004           2003
                                                     ------------   ------------

              Net income (loss) before discontinued
                 operations (numerator)              $    (62,509)  $  1,181,944
              Net loss from discontinued operations
                 (numerator)                                    -              -
                                                     ------------   ------------
              Net loss                                    (62,509)     1,181,944

              Weighted average number of shares
                 outstanding (denominator)             56,182,746     56,182,746
                                                     ------------   ------------

              Income (loss) per share                $      (0.00)  $       0.02
                                                     ============   ============

          c. Provision for Taxes

          The  Company  accounts  for  income  taxes  under  the  provisions  of
          Statement of Financial Accounting Standards (SFAS) No. 109, Accounting
          for Income Taxes, using the liability method. The estimated future tax
          effect of differences  between the basis in assets and liabilities for
          tax and  accounting  purposes is accounted for as deferred  taxes.  In
          accordance with the provisions of SFAS No. 109, a valuation  allowance
          would be  established  to reduce  deferred  tax assets if it were more
          likely than not that all, or some portion, of such deferred tax assets
          would not be realized.  A full allowance  against  deferred tax assets
          was provided as of December 31, 2004.

          Deferred taxes are provided on a liability method whereby deferred tax
          assets  are  recognized  for  deductible  temporary   differences  and
          operating  loss  and  tax  credit   carryforwards   and  deferred  tax
          liabilities   are  recognized  for  taxable   temporary   differences.
          Temporary differences are the differences between the reported amounts
          of assets and liabilities and their tax bases. Deferred tax assets are
          reduced by a valuation  allowance  when, in the opinion of management,
          it is more  likely than not that some  portion or all of the  deferred
          tax assets will not be realized.  Deferred tax assets and  liabilities
          are  adjusted  for the effects of changes in tax laws and rates on the
          date of enactment.

                                      F-19

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 2 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          c. Provision for Taxes (Continued)

          Net  deferred  tax assets  and  liabilities  consist of the  following
          components as of December 31, 2004:

                                                                    2004
                                                               --------------
          Deferred tax assets:
          NOL carryover                                        $   12,216,400
          Accrued expenses                                            884,600
          Deferred tax liabilities:
          Depreciation                                                      -
          Valuation allowance                                     (13,101,000)
                                                               --------------

          Net Deferred Tax Asset                               $            -
                                                               ==============

          The  income  tax  provision  differs  from the  amount of  income  tax
          determined  by  applying  the U.S.  federal  income tax rate to pretax
          income from continuing operations for the year ended December 31, 2004
          due to the following:

                                                                    2004
                                                               --------------
          Book income                                          $      (24,244)
          Loss on disposal of assets                                        -
          Meals & entertainment                                             -
          State taxes                                                    (312)
          Depreciation                                                      -
          NOL Carryover                                                     -
          Valuation allowance                                          24,556
                                                               --------------

                                                               $            -
                                                               ==============

          At December 31, 2004, the Company had net operating loss carryforwards
          of approximately $31,300,000 that may be offset against future taxable
          income  from the year  2004  through  2024.  No tax  benefit  has been
          reported in the December 31, 2004  consolidated  financial  statements
          since the potential tax benefit is offset by a valuation  allowance of
          the same amount.

          Due to the  change in  ownership  provisions  of the Tax Refort Act of
          1986,  net  operating  loss   carryforwards  for  Federal  income  tax
          reporting purposes are subject to annual limitations.  Should a change
          in ownership occur, net operating loss carryforwards may be limited to
          use in future years.

                                      F-20
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 2 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          d. Cash and Cash Equivalents

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

          e. Principles of Consolidation

          The  financial  statements  for the year ended  December  31, 2004 are
          consolidated   with  Ocean  Power  Corporation  and  its  wholly-owned
          subsidiaries,  Integrated Water and Power Corporation,  Advanced Power
          Sources Corporation,  Manufacturing  Technologies  Corporation,  SIGMA
          Elektroteknisk,  AS, Ocean Power UK Limited,  and PowerCo US, Inc. All
          significant   intercompany   accounts  and   transactions   have  been
          eliminated.  The  subsidiaries  were all  defunct or  dissolved  as of
          December 31, 2004.

          f. Estimates

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

          g. Recent Accounting Pronouncements

          In November 2004, the FASB issued SFAS No. 151  "Inventory  Costs,  an
          amendment of ARB No. 43, Chapter 4. The  amendments  made by Statement
          151 clarify that abnormal amounts of idle facility  expense,  freight,
          handling costs, and wasted materials  (spoilage)  should be recognized
          as  current-period   charges  and  require  the  allocation  of  fixed
          production  overheads to inventory based on the normal capacity of the
          production  facilities.  The guidance is effective for inventory costs
          incurred during fiscal years  beginning  after June 15, 2005.  Earlier
          application is permitted for inventory  costs  incurred  during fiscal
          years beginning after November 23, 2004. The Company has evaluated the
          impact of the  adoption  of SFAS 151,  and does not believe the impact
          will be significant to the Company's  overall results of operations or
          financial position.

          In December  2004, the FASB issued SFAS No.152,  "Accounting  for Real
          Estate Time-Sharing  Transactions--an amendment of FASB Statements No.
          66 and 67"  ("SFAS  152) The  amendments  made by  Statement  152 This
          Statement  amends FASB Statement No. 66,  Accounting for Sales of Real
          Estate, to reference the financial  accounting and reporting  guidance
          for real estate  time-sharing  transactions  that is provided in AICPA
          Statement  of  Position   (SOP)  04-2,   Accounting  for  Real  Estate
          Time-Sharing  Transactions.  This Statement also amends FASB Statement
          No. 67,  Accounting  for Costs and Initial  Rental  Operations of Real
          Estate  Projects,  to  state  that  the  guidance  for (a)  incidental
          operations  and (b) costs  incurred to sell real estate  projects does
          not apply to real estate time-sharing transactions. The accounting for
          those  operations  and costs is subject to the  guidance  in SOP 04-2.
          This Statement is effective for financial  statements for fiscal years
          beginning after June 15, 2005. The Company has evaluated the impact of
          the  adoption  of SFAS 152,  and does not  believe  the impact will be
          significant  to  the  Company's   overall  results  of  operations  or
          financial position.

                                      F-21

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 2 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          g. Recent Accounting Pronouncements (Continued)

          In  December  2004,  the  FASB  issued  SFAS  No.153,   "Exchanges  of
          Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for
          Nonmonetary  Transactions."The  amendments  made by Statement  153 are
          based on the principle that exchanges of nonmonetary  assets should be
          measured based on the fair value of the assets exchanged. Further, the
          amendments eliminate the narrow exception for nonmonetary exchanges of
          similar  productive assets and replace it with a broader exception for
          exchanges of nonmonetary assets that do not have commercial substance.
          Previously, Opinion 29 required that the accounting for an exchange of
          a productive  asset for a similar  productive  asset or an  equivalent
          interest in the same or similar  productive  asset  should be based on
          the recorded amount of the asset relinquished.  Opinion 29 provided an
          exception  to  its  basic  measurement   principle  (fair  value)  for
          exchanges  of  similar  productive  assets.  The Board  believes  that
          exception   required  that  some   nonmonetary   exchanges,   although
          commercially  substantive,  be  recorded  on  a  carryover  basis.  By
          focusing the exception on exchanges  that lack  commercial  substance,
          the Board believes this Statement  produces  financial  reporting that
          more  faithfully  represents  the economics of the  transactions.  The
          Statement is effective for nonmonetary  asset  exchanges  occurring in
          fiscal periods beginning after June 15, 2005.  Earlier  application is
          permitted for nonmonetary asset exchanges  occurring in fiscal periods
          beginning after the date of issuance. The provisions of this Statement
          shall be applied  prospectively.  The Company has evaluated the impact
          of the  adoption of SFAS 153,  and does not believe the impact will be
          significant  to  the  Company's   overall  results  of  operations  or
          financial position.

          In  December  2004,  the  FASB  issued  SFAS  No.123  (revised  2004),
          "Share-Based  Payment".  Statement  123(R) will provide  investors and
          other users of  financial  statements  with more  complete and neutral
          financial information by requiring that the compensation cost relating
          to  share-based  payment   transactions  be  recognized  in  financial
          statements.  That cost will be measured based on the fair value of the
          equity or liability instruments issued. Statement 123(R) covers a wide
          range  of  share-based   compensation   arrangements  including  share
          options,  restricted  share  plans,  performance-based  awards,  share
          appreciation  rights,  and employee  share purchase  plans.  Statement
          123(R)  replaces FASB Statement No. 123,  Accounting  for  Stock-Based
          Compensation,  and supersedes APB Opinion No. 25, Accounting for Stock
          Issued to  Employees.  Statement  123, as  originally  issued in 1995,
          established as preferable a fair-value-based  method of accounting for
          share-based  payment  transactions  with  employees.   However,   that
          Statement  permitted  entities the option of  continuing  to apply the
          guidance  in  Opinion  25,  as  long  as the  footnotes  to  financial
          statements   disclosed  what  net  income  would  have  been  had  the
          preferable  fair-value-based  method been used. Public entities (other
          than those filing as small business issuers) will be required to apply
          Statement  123(R) as of the first interim or annual  reporting  period
          that begins after June 15, 2005. The Company adopted  Statement 123(R)
          in December of 2005.

                                      F-22

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 2 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          g. Recent Accounting Pronouncements (Continued)

          In December 2004, the Financial  Accounting Standards Board issued two
          FASB Staff  Positions - FSP FAS 109-1,  Application  of FASB Statement
          109  "Accounting  for Income  Taxes" to the Tax Deduction on Qualified
          Production  Activities  Provided by the American  Jobs Creation Act of
          2004, and FSP FAS 109-2  Accounting  and  Disclosure  Guidance for the
          Foreign  Earnings  Repatriation  Provision  within the  American  Jobs
          Creation Act of 2004. Neither of these affected the Company as it does
          not participate in the related activities.

          In March 2005,  the SEC released  Staff  Accounting  Bulletin No. 107,
          "Share-Based   Payment"  ("SAB  107"),  which  provides   interpretive
          guidance  related to the  interaction  between SFAS 123(R) and certain
          SEC rules and  regulations.  It also  provides  the SEC staff's  views
          regarding  valuation of  share-based  payment  arrangements.  In April
          2005, the SEC amended the compliance  dates for SFAS 123(R),  to allow
          companies  to implement  the  standard at the  beginning of their next
          fiscal year, instead of the next reporting period beginning after June
          15, 2005.  Management is currently  evaluating the impact SAB 107 will
          have on our consolidated financial statements.

          In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting
          for  Conditional  Asset  Retirement  Obligations"  ("FIN 47").  FIN 47
          provides  guidance  relating to the  identification  of and  financial
          reporting  for  legal  obligations  to  perform  an  asset  retirement
          activity.  The Interpretation  requires recognition of a liability for
          the fair  value of a  conditional  asset  retirement  obligation  when
          incurred if the  liability's  fair value can be reasonably  estimated.
          FIN 47 also defines when an entity would have  sufficient  information
          to  reasonably   estimate  the  fair  value  of  an  asset  retirement
          obligation. The provision is effective no later than the end of fiscal
          years  ending after  December 15, 2005.  The Company will adopt FIN 47
          beginning  the first  quarter of fiscal year 2006 and does not believe
          the adoption will have a material impact on its consolidated financial
          position or results of operations or cash flows.

          In May 2005,  the FASB issued  FASB  Statement  No.  154,  "Accounting
          Changes and Error Corrections." This new standard replaces APB Opinion
          No. 20,  "Accounting  Changes,  and FASB  Statement  No. 3,  Reporting
          Accounting  Changes in Interim  Financial  Statements," and represents
          another step in the FASB's goal to converge its  standards  with those
          issued by the IASB. Among other changes, Statement 154 requires that a
          voluntary  change in accounting  principle be applied  retrospectively
          with  all  prior  period  financial  statements  presented  on the new
          accounting  principle,  unless it is impracticable to do so. Statement
          154 also  provides  that (1) a change  in method  of  depreciating  or
          amortizing a  long-lived  non-financial  asset be  accounted  for as a
          change in estimate  (prospectively)  that was  effected by a change in
          accounting  principle,  and (2)  correction  of errors  in  previously
          issued financial  statements should be termed a "restatement." The new
          standard is effective for accounting  changes and correction of errors
          made in fiscal years beginning after December 15, 2005. Early adoption
          of this standard is permitted for accounting changes and correction of
          errors made in fiscal years beginning after June 1, 2005.  The Company
          has evaluated the impact of the adoption of Statement 154 and does not
          believe  the  impact  will be  significant  to the  Company's  overall
          results of operations or financial position.

                                      F-23

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 2 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          g. Recent Accounting Pronouncements (Continued)

          In February of 2006,  the FASB  issued SFAS No. 155,  "Accounting  for
          Certain Hybrid Financial  Instruments",  which is intended to simplify
          the accounting  and improve the financial  reporting of certain hybrid
          financial  instruments (i.e.,  derivatives embedded in other financial
          instruments).  The  statement  amends  SFAS No. 133,  "Accounting  for
          Derivative  Instruments  and  Hedging  Activities",  and SFAS No. 140,
          "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
          Extinguishments  of  Liabilities--a  replacement of FASB Statement No.
          125." SFAS No. 155 is effective for all financial  instruments  issued
          or acquired  after the beginning of an entity's first fiscal year that
          begins after September 15, 2006.. The Company is currently  evaluating
          the  impact  SFAS No.  155  will  have on its  consolidated  financial
          statements, if any.

          In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
          of Financial  Assets",  which will be effective  for fiscal years that
          begin  after  December  15,  2006.  This  statement  amends  SFAS 140,
          Accounting  for  Transfers  and  Servicing  of  Financial  Assets  and
          Extinguishments  of Liabilities,  a replacement of FASB Statement 125,
          or SFAS 140,  regarding (1) the circumstances  under which a servicing
          asset or servicing  liability must be recognized,  (2) the initial and
          subsequent measurement of recognized servicing assets and liabilities,
          and (3)  information  required to be  disclosed  relating to servicing
          assets and  liabilities.  The Company does not anticipate  adoption of
          this  standard  will  have  a  material  impact  on  its  consolidated
          financial statements.

          In  September   2006,  the  FASB  issued  SFAS  No.  157,  Fair  Value
          Measurements, ("SFAS 157"). SFAS 157 defines fair value, establishes a
          framework for measuring  fair value in generally  accepted  accounting
          principles and expands disclosures about fair value measurements. SFAS
          157 is  effective  for  financial  statements  issued for fiscal years
          beginning  after  November 15, 2007 and interim  periods  within those
          fiscal  years.  The  Company  does  not  anticipate  adoption  of this
          standard  will have a material  impact on its  consolidated  financial
          statements.

          In  September  2006,  the  FASB  issued  SFAS  No.  158,   "Employers'
          Accounting  for  Defined  Benefit  Pension  and  Other  Postretirement
          Plans."  This  Statement  requires an employer to  recognize  the over
          funded or under funded  status of a defined  benefit  post  retirement
          plan (other than a multiemployer plan) as an asset or liability in its
          statement of  financial  position,  and to  recognize  changes in that
          funded  status  in  the  year  in  which  the  changes  occur  through
          comprehensive  income.  SFAS No. 158 is  effective  for  fiscal  years
          ending after  December  15, 2006.  The adoption of SFAS No. 158 had no
          impact on our financial position and results of operations.

          In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
          for  Financial  Assets  and  Financial  Liabilities".  This  Statement
          permits  entities  to choose to  measure  many  financial  assets  and
          financial  liabilities at fair value.  Unrealized  gains and losses on
          items for which the fair value option has been elected are reported in
          earnings.  SFAS No. 159 is effective for fiscal years  beginning after
          November 15, 2007. We are  currently  assessing the impact of SFAS No.
          159 on our financial position and results of operations.

                                      F-24

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 2 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          h. Long-lived Assets

          In  accordance  with SFAS No. 121,  Accounting  for the  Impairment of
          Long-Lived  Assets  and  for  Long-Lived  Assets  to Be  Disposed  Of,
          long-lived assets, including goodwill associated with other long-lived
          assets,  are evaluated for  impairment  whenever  events or changes in
          circumstances indicate that the carrying amount of an asset may not be
          recoverable.  Goodwill  acquired as part of business  combinations  is
          also evaluated continuously per ABP No. 17, Intangible Assets, for the
          need for  adjustments  to useful life and  reductions  in  unamortized
          costs. Any changes in estimated useful life are recorded prospectively
          and any impairment  adjustments  are recorded as expense in the period
          the impairment occurs.

          The amount of any impairment  considered necessary would be determined
          by comparing the book value of the net assets in the  applicable  line
          of business to fair value using methods such as the  present-value  of
          estimated   future   cash  flows,   sale  value  or  other   valuation
          methodologies  available  at  the  time,  depending  on the  stage  of
          development  of the line of business and the  Company's  intentions at
          the time an impairment  adjustment were considered  necessary.  All of
          the intangible assets were fully impaired in the 3rd Quarter of 2002.

          i. Research and Development

          All amounts  expended  for  research  and  development  are charged to
          expense as incurred.  Research and  development  expense for the years
          ended December 31, 2004 and 2003, was $-0-.

          j. Software Costs

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

          k. Stock Options

          The Company adopted  Statement of Financial  Accounting  Standards No.
          123R (revised 2004),  "Share-Based Payments" ("SFAS 123R"),  requiring
          measurement  and recognition of expense for all  shares-based  payment
          awards to employees and directors based on estimated fair values. SFAS
          No. 123R supersedes  Financial Accounting Standard No. 123 "Accounting
          for Stock-Based  Compensation" and Accounting Principles Board Opinion
          No. 25  "Accounting  for  Stock  Issued  to  Employees."  Prior to the
          adoption,  the  Company  accounted  for stock  option  plans under the
          recognition and measurement  provisions of Accounting Principles Board
          Opinion No. 25,  "Accounting for Stock Issued to Employees" ("APB 25")
          and related  interpretations,  as  permitted by Statement of Financial
          Accounting    Standards   No.   123,   "Accounting   for   Stock-Based
          Compensation" ("SFAS 123"), which did not require compensation cost be
          recognized  for  the  Company's  stock  options  provided  the  option
          exercise price was established at 100% of the common stock fair market
          value on the date of the grant.  Awards granted after the adoption are
          valued at fair value in  accordance  with the  provisions  of SFAS No.
          123R and recognized on a straight line basis over the service periods

                                      F-25

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 2 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          k. Stock Options (Continued)

          of each award.  Additionally,  SFAS No.  123R  requires  companies  to
          record  compensation  expense for the unvested  portion of  previously
          granted awards as they continue to vest, as calculated  previously and
          recorded in accordance with the provisions of SFAS No. 148 "Accounting
          for Stock-Based Compensation-Transition and Disclosure."

          l. Valuation of Options and Warrants

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

NOTE 3 -  BUSINESS COMBINATION

          In August 2000, the Company acquired SIGMA Elektroteknisk,  AS (SIGMA)
          by  exchanging  1,718,748  shares of its  common  stock for all of the
          common stock of SIGMA. The acquisition was accounted for as a purchase
          in accordance with APB 16, "Business  Combinations." The excess of the
          total  acquisition cost over the fair value of the net assets acquired
          of $6,589,756 was being  amortized over 10 years by the  straight-line
          method.  Amortization  expense  amounted  to $-0- for the  year  ended
          December 31, 2004.

          Because of the  adoption  of SFAS No.  142,  the  Company is no longer
          amortizing the goodwill generated from the purchase of Sigma.  Instead
          the  goodwill  is  subject  to  impairment  testing.  Because  of  the
          bankruptcy  of Sigma as discussed in Note 14, the Company  recorded an
          impairment  of goodwill of  $5,656,207  which is part of the loss from
          discontinued operations.

NOTE 4 -  NOTES PAYABLE - RELATED PARTIES

          Notes payable - related  parties at December 31, 2004 consisted of the
          following:

                Unsecured note payable to a shareholder bearing
                   interest at 10% per annum, all unpaid
                   interest and principal due upon demand,
                   secured by personal guarantee of officer.      $      20,314

                Unsecured note payable to an employee bearing
                   interest at 10% per annum, all unpaid
                   interest and principal due upon demand.              282,767

                Unsecured note payable to an officer bearing
                   interest at 10% per annum, due upon demand.           53,280
                                                                  -------------

                Balance forward                                   $     356,361
                                                                  -------------

                                      F-26

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 4 -  NOTES PAYABLE - RELATED PARTIES (Continued)

                Balance forward                                   $     356,361

                Unsecured note payable to an employee bearing
                   interest at 10% per annum, due upon demand.           40,745

                Unsecured note payable to an employee bearing
                   interest at 10% per annum, due upon demand.          193,322

                Unsecured note payable to an employee bearing
                   interest at 10% per annum, due upon demand.           61,884

                Unsecured note payable to an employee bearing
                   interest at 10% per annum, due upon demand.           90,333

                Unsecured note payable to an employee bearing
                   interest at 10% per annum, due upon demand.           52,324

                Unsecured note payable to an employee bearing
                   interest at 5% per annum, due on November
                   20, 2004. (In default).                              215,000

                Unsecured note payable to an officer bearing
                   no interest, due on demand                            23,500
                                                                  -------------

                Total Notes Payable - Related Parties             $   1,033,469
                                                                  =============

          Total interest expense to related parties was $-0- for the years ended
          December 31, 2004 and 2003.

          Annual maturities of notes related parties payable are as follows:

                Years Ending
                December 31,
                ------------
                    2005                                          $   1,033,469
                    2006                                                      -
                    2007                                                      -
                    2008                                                      -
                 Thereafter                                                   -
                                                                  -------------
                                                                  $   1,033,469
                                                                  =============

                                      F-27

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 5 -  NOTES AND CONVERTIBLE DEBENTURES PAYABLE

          Notes and  debentures  payable at  December  31,  2004  consist of the
          following:

                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.                                 $   1,708,101

                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

                Notes payable to eighteen parties bearing
                   interest at 10% to 13%, without collateral,
                   due in full one year from issue.                   3,755,965

                Post-petition notes payable to three parties
                   bearing interest at 15% without collateral,
                   due on demand.                                       236,818

                Three (3) convertible debentures payable due
                   August to November 2004, bearing interest at
                   12% per annum, uncollateralized, and
                   convertible into shares of the Company's
                   common stock at $1.50 per share.                     550,000

                Fifteen (15) convertible debentures payable due
                   August to December 2006, bearing interest
                   at 12% per annum, uncollateralized, and
                   convertible into shares of the Company's
                   common stock at $1.00 to $1.50 per share.          1,350,000

                Four (4) convertible debentures payable due
                   August 2006, bearing interest at 12% per
                   annum, uncollateralized and convertible into
                   shares of the Company's common stock at
                   $1.50 per share.                                      71,000

                Convertible debenture payable to Cornell
                   Capital Corporation, due November 30, 2006,
                   bearing interest at 6% per annum,
                   convertible into shares of common stock at
                   either 120% of closing bid price on November
                   29, 2001 or 80% of lowest closing bid price
                   for five trading days prior to conversion.           403,000
                                                                  -------------

                Total Notes and Debentures Payable                $   8,674,884
                                                                  =============

                                      F-28

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 5 -  NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

          Annual maturities of notes and debentures payable are as follows:

                Years Ending
                December 31,
                ------------
                    2005                                          $   8,674,884
                    2006                                                      -
                    2007                                                      -
                    2008                                                      -
                 Thereafter                                                   -
                                                                  -------------

                                                                  $   8,674,884
                                                                  =============

          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 remaining  balance of $1,337,254  was recorded as
          debt, net of discount. The discount was fully amortized as of December
          31, 2002.

          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 $203,048 and the remaining  balance of $396,592 has been
          recorded as debt, net of discount.  The discount of $203,048, and debt
          issue costs of $12,000 were fully amortized to interest  expense as of
          December 31, 2002.

          As additional  consideration  for  $1,400,000  of the  non-convertible
          notes payable,  the Company granted 425,002  warrants with an exercise
          price of $1.50 per share and 300,000  warrants with an exercise  price
          of $1.00 per share, all with an expiration date of five years from the
          dates of grant.  The  warrants  were valued at an average of $2.50 per
          share  ($1,811,420  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  $733,102,  and the
          remaining  balance  of  $626,898  has been  recorded  as debt,  net of
          discount.  The  discount of $733,102  was fully  amortized to interest
          expense as of December 31, 2002.

                                      F-29

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 5 -  NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

          During  the  year  ended   December  31,  2001,   the  Company  issued
          convertible debentures with detached warrants in exchange for $700,000
          in cash from one  entity  and for  interest  due of  $71,000  to three
          entities.  The convertible debentures bear interest at 12% and are due
          in five years from the dates of  issuance  unless  converted  into the
          Company's  common stock.  The debentures  payable are convertible into
          the  Company's  common  stock at a price of $1.00 to $1.25 per  share.
          Concurrent  with  the  convertible  debentures,  the  Company  granted
          1,694,667 warrants to purchase one share of the Company's common stock
          with an exercise price of $1.00 to $1.25 per share.  The warrants were
          granted as  additional  consideration  to the  lenders for funding the
          convertible  debentures  and will be valued at $3,680,668  pursuant to
          the Black  Scholes  pricing  model.  The  proceeds of the  convertible
          debenture were 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   features)  elements  of  the
          transactions.  The  portion  allocated  to equity  was  $621,488.  The
          discount of $621,488 was fully amortized as of December 31, 2002.

          For the year ended December 31, 2004, the Company did not amortize any
          of the discounts to interest expense.

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

          During  March  2000,  66,667  shares of common  stock  were  issued to
          convert one of the three  $100,000  debentures  and  133,333  warrants
          associated with the convertible debenture were granted and exercised.

          During August 2001,  the Company  issued a  convertible  debenture for
          $5,000 in exchange  for accrued  interest  on the  $100,000  converted
          debenture  discussed  above. The debenture is due August 19, 2006. The
          debentures  accrue  interest  at 12%  per  annum.  The  holder  of the
          debenture retains the option to convert for a period of five years any
          portion of the debt into the  Company's  restricted  common stock at a
          price of $1.50 per  share.  The  debentures  also  carry  warrants  to
          purchase  6,667  shares of the  Company's  common  stock at a price of
          $1.25 per share.  The warrants  are  exercisable  immediately  and are
          valid for a period of five years after the date of issuance.  Interest
          expense  associated  with the  amended  debenture  amounted to $-0- at
          December 31, 2004 and 2003.

          During  August  2001,  the  Company  issued  two  amended  convertible
          debentures for the two remaining $100,000 debentures  discussed above.
          The amended  debentures are due August 1, 2004. The amended debentures
          accrue interest at 12% per annum. The holders of the debentures retain
          the  option to convert  for a period of five years any  portion of the
          debt into the  Company's  restricted  common stock at a price of $1.50
          per share.  The  debentures  also carry  warrants to purchase  133,333
          shares of the  Company's  common  stock at a price of $0.75 per share.


                                      F-30

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 5 -  NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

          The warrants are exercisable immediately and are valid for a period of
          five years after the date of  issuance.  Interest  expense  associated
          with the amended  convertible  debentures amounted to $-0- at December
          31, 2004 and 2003.

          During August 2001, the Company issued two convertible  debentures for
          $12,000 each in exchange  for accrued  interest on the  remaining  two
          $100,000 debentures discussed above. The debentures are due August 19,
          2006. The debentures  accrue interest at 12% per annum. The holders of
          the debentures retain the option to convert for a period of five years
          any portion of the debt into the Company's  restricted common stock at
          a price of $1.50 per share.  The  debentures  also carry  warrants  to
          purchase  16,000  shares of the  Company's  common stock at a price of
          $1.25 per share.  The warrants  are  exercisable  immediately  and are
          valid for a period of five years after the date of issuance.  Interest
          expense  associated  with the  amended  debenture  amounted to $-0- at
          December 31, 2004 and 2003.

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

          During  August  2001,  the  Company  issued  an  amended   convertible
          debenture  for the $350,000  debenture  discussed  above.  The amended
          debenture  is due  August  1,  2004.  The  amended  debentures  accrue
          interest at 12% per annum.  The holders of the  debentures  retain the
          option to convert  for a period of five years any  portion of the debt
          into the  Company's  restricted  common  stock at a price of $1.50 per
          share.  The debentures also carry warrants to purchase  466,667 shares
          of the  Company's  common  stock at a price of $0.75  per  share.  The
          warrants are exercisable  immediately valid for a period of five years
          after  the date of  issuance.  Interest  expense  associated  with the
          amended debenture amounted to $-0- at December 31, 2004 and 2003.

          During August 2001,  the Company  issued a  convertible  debenture for
          $42,000 in exchange  for accrued  interest on the  $350,000  debenture
          discussed  above.  The debenture is due August 19, 2006. The debenture
          accrues interest at 12% per annum. The holder of the debenture retains
          the  option to convert  for a period of five years any  portion of the
          debt into the  Company's  restricted  common stock at a price of $1.50
          per share.  The  debenture  also carry's  warrants to purchase  56,000
          shares of the  Company's  common  stock at a price of $1.25 per share.
          The warrants are exercisable immediately and are valid for a period of
          five years after the date of  issuance.  Interest  expense  associated
          with the amended  debenture  amounted to $-0- at December 31, 2004 and
          2003.

          During August 2001,  the Company  issued a  convertible  debenture for
          $200,000 in exchange for cash.  The  debenture is due August 19, 2006.
          The  debenture  accrues  interest at 12% per annum.  The holder of the
          debenture retains the option to convert for a period of five years any

                                      F-31

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 5 -  NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

          portion of the debt into the  Company's  restricted  common stock at a
          price of $1.50 per  share.  The  debentures  also  carry  warrants  to
          purchase  266,667  shares of the Company's  common stock at a price of
          $1.25 per share.  The warrants  are  exercisable  immediately  and are
          valid for a period of five years after the date of issuance.  Interest
          expense  associated  with the  amended  debenture  amounted to $-0- at
          December 31, 2004 and 2003.

          During August 2001,  the Company  issued a  convertible  debenture for
          $100,000 in exchange for cash.  The  debenture is due August 22, 2006.
          The  debenture  accrues  interest at 12% per annum.  The holder of the
          debenture retains the option to convert for a period of five years any
          portion of the debt into the  Company's  restricted  common stock at a
          price of $1.50 per  share.  The  debentures  also  carry  warrants  to
          purchase  133,333  shares of the Company's  common stock at a price of
          $1.25 per share.  The warrants  are  exercisable  immediately  and are
          valid for a period of five years after the date of issuance.  Interest
          expense  associated  with the  amended  debenture  amounted to $-0- at
          December 31, 2004 and 2003.

          During September 2001, the Company issued a convertible  debenture for
          $100,000 in exchange  for cash.  The  debenture is due  September  14,
          2006. The debenture  accrues  interest at 12% per annum. The holder of
          the debenture retains the option to convert for a period of five years
          any portion of the debt into the Company's  restricted common stock at
          a price of $1.00 per share.  The  debentures  also carry  warrants  to
          purchase  300,000  shares of the Company's  common stock at a price of
          $1.00 per share.  The warrants  are  exercisable  immediately  and are
          valid for a period of five years after the date of issuance.  Interest
          expense  associated  with the  amended  debenture  amounted to $-0- at
          December 31, 2004 and 2003

          During October 2001,  the Company  issued a convertible  debenture for
          $100,000 in exchange for cash.  The debenture is due October 29, 2006.
          The  debenture  accrues  interest at 12% per annum.  The holder of the
          debenture retains the option to convert for a period of five years any
          portion of the debt into the  Company's  restricted  common stock at a
          price of $1.00 per  share.  The  debentures  also  carry  warrants  to
          purchase  300,000  shares of the Company's  common stock at a price of
          $1.00 per share.  The warrants  are  exercisable  immediately  and are
          valid for a period of five years after the date of issuance.  Interest
          expense  associated  with the  amended  debenture  amounted to $-0- at
          December 31, 2004 and 2003.

          During  November 2001, the Company issued a convertible  debenture for
          $100,000 in exchange for cash. The debenture is due November 16, 2006.
          The  debenture  accrues  interest at 12% per annum.  The holder of the
          debenture retains the option to convert for a period of five years any
          portion of the debt into the  Company's  restricted  common stock at a
          price of $1.00 per  share.  The  debentures  also  carry  warrants  to
          purchase  300,000  shares of the Company's  common stock at a price of
          $1.00 per share.  The warrants  are  exercisable  immediately  and are
          valid for a period of five years after the date of issuance.  Interest
          expense  associated  with the  amended  debenture  amounted to $-0- at
          December 31, 2004 and 2003.

                                      F-32

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 5 -  NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

          During  November 2001, the Company issued a convertible  debenture for
          $500,000 in exchange for cash. The debenture is due November 29, 2006.
          The  debenture  accrues  interest  at 6% per annum.  The holder of the
          debenture retains the option to convert for a period of five years any
          portion of the debt and accrued interest into the Company's restricted
          common  stock at a price equal to 120% of the closing bid price of the
          Company's  common stock as of the issue date of the  debenture,  or an
          amount equal to 80% of the lowest  closing bid price of the  Company's
          common for the five trading days immediately  preceding the conversion
          date.  Interest expense associated with the amended debenture amounted
          to $-0- at December 31, 2004 and 2003.

          During  December 2001, the Company issued a convertible  debenture for
          $100,000 in exchange for cash. The debenture is due December 18, 2006.
          The  debenture  accrues  interest at 12% per annum.  The holder of the
          debenture retains the option to convert for a period of five years any
          portion of the debt into the  Company's  restricted  common stock at a
          price of $1.00 per  share.  The  debentures  also  carry  warrants  to
          purchase  300,000  shares of the Company's  common stock at a price of
          $1.00 per share.  The warrants  are  exercisable  immediately  and are
          valid for a period of five years after the date of issuance.  Interest
          expense  associated  with the  amended  debenture  amounted to $-0- at
          December 31, 2004 and 2003.

          The Company  recorded a discount on the  convertible  debentures  from
          1999 in order to allocate to additional  paid-in  capital the value of
          the beneficial  conversion features of the debentures.  The beneficial
          conversion  features  consist  of the  debenture  holder's  rights  to
          convert the debentures  into units,  each unit consisting of one share
          of restricted  common stock (at a conversion  ratio equal to $1.50 per
          share which was the trading value of the Company's unrestricted common
          stock measured as of the date of issuance of the  debentures)  and two
          attached  warrants giving the holders the right to purchase two shares
          of restricted  common stock (each at an exercise  price equal to $0.75
          per share less than the trading  value of the  Company's  unrestricted
          stock measured at the date of issuance of the  debentures).  The value
          of the  beneficial  conversion  features was computed as the lesser of
          (1) the value of the warrants or (2) total proceeds of the debentures.
          As of the date of the issuance of the debentures,  the entire proceeds
          were  allocated  to  additional  paid-in  capital and a  corresponding
          discount  offsetting the liability under the debentures.  The discount
          was fully amortized to interest expense because the debenture  holders
          could have  converted the debentures  immediately  when the debentures
          were issued.  During 1999, interest expense of $550,000 was recognized
          as the result of amortization of the discount.

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

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

                                      F-33

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 5 -  NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

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

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

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

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

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

          During the quarter  ending  December  31, 2002,  the Company  received
          $100,000  from  the  issuance  of notes  and  advances  pursuant  to a
          debtor-in-possession financing facility, approved pursuant to an order
          by the United States Bankruptcy Court for the Southern District of New
          York. The applicable  interest rate was 15%.  Interest expense for the
          years  ended  December  31, 2004 and 2003,  was  $15,250 and  $15,208,
          respectively.

          During  the  quarter  ending  March 31,  2003,  the  Company  received
          $116,818  from  the  issuance  of notes  and  advances  pursuant  to a
          debtor-in-possession financing facility, approved pursuant to an order
          by the United States Bankruptcy Court for the Southern District of New
          York. The applicable  interest rate was 15%.  Interest expense for the
          years  ended  December  31, 2004 and 2003,  was  $17,815 and  $16,847,
          respectively.

                                      F-34

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 5 -  NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

          During the quarter ending June 30, 2003, the Company  received $20,000
          from   the   issuance   of   notes   and   advances   pursuant   to  a
          debtor-in-possession financing facility, approved pursuant to an order
          by the United States Bankruptcy Court for the Southern District of New
          York. The applicable  interest rate was 15%.  Interest expense for the
          years  ended  December  31,  2004 and 2003,  was  $3,050  and  $1,752,
          respectively.

NOTE 6 -  ACCRUED EXPENSES

          The Company's accrued expenses are comprised of the following items as
          of December 31, 2004:

          Accrued payroll taxes payable                           $      60,266
          Accrued interest payable - payroll                             52,717
          Accrued payroll tax penalty                                    98,845
          Accrued taxes payable                                         274,288
          Accrued payroll payable                                     2,103,656
          Aquamax/Keeran license fee payable                          3,600,000
          Accrued STM license fee payable                             2,000,000
          Due to third parties                                           35,550
          Accrued legal settlement - Mchargue                            66,683
          Accrued interest payable                                    1,430,447
          Accrued contingency for additional post
             petition claims                                            222,411
                                                                  -------------

                Total                                             $   9,944,863
                                                                  =============

NOTE 7 -  GOING CONCERN

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

          The Company has incurred  losses from its inception  through  December
          31, 2004 of  approximately  $57,871,827.  The Company does not have an
          established  source of funds  sufficient to cover its operating costs,
          has a substantial  working capital deficit and has relied  exclusively
          on debt and equity financing,  accordingly, there is substantial doubt
          about its ability to continue as a going concern.

          In October of 2006,  the Company signed a term sheet with a company to
          sponsor a plan of reorganization. Prior to confirmation of the Chapter
          11 plan of  reorganization,  the plan sponsor  will  identify a merger
          candidate  to be merged into the  Company.  Before the merger can take
          place, the Company is required to bring all of its financial,  tax and
          SEC  filings  current  from the  last  filing  date of June 30,  2002.
          Pursuant  to  orders of the  United  States  Bankruptcy  Court for the
          Southern  District of New York,  the Company has engaged  accountants,
          auditors and SEC counsel to complete this task. Under the terms of the
          proposed plan, creditors of the Company

                                      F-35

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 7 -  GOING CONCERN (Continued)

          will receive a cash payment and stock  consideration in the new merged
          entity.  The  aforementioned  consideration  will  be  distributed  to
          creditors of the Company under the plan of reorganization.

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

NOTE 8 -  DILUTIVE INSTRUMENTS

          a. Stock Options

          The Company had outstanding  stock options to purchase  487,132 shares
          of the  Company's  common  stock to  non-employees  as of December 31,
          2004.  These  options  expire  beginning  in June  2005 and  ending in
          January 2012.

          The  following  table  summarizes  information  about  employee  stock
          options outstanding at December 31, 2004:

                           Number of     Weighted
                            Options       Average     Weighted      Number of
                          Outstanding    Remaining     Average   Exercisable at
              Exercise   December 31,   Contractual   Exercise    December 31,
                Price        2004          Life         Price         2004
              --------   ------------   -----------   --------   --------------

              $   1.00      3,007,456       7 years   $   1.00        3,007,456
              $   0.05        387,694     7.5 years   $   0.05          387,694

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

                                                         For the Years Ended
                                                             December 31,
                                                       -----------------------
                                                          2004         2003
                                                       ---------   -----------

              Net income (loss) as reported            $ (62,509)  $ 1,181,944
              Proforma                                   (62,509)    1,181,944
              Basic and diluted income (loss)
                 per share as reported                     (0.00)         0.02
              Pro forma                                    (0.00)         0.02

                                      F-36

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 8 -  DILUTIVE INSTRUMENTS (Continued)

          There were no stock options granted during the year ended December 31,
          2004.

          b. Warrants

          A summary of the  Company's  outstanding  warrants as of December  31,
          2004, and changes during the year then ended is presented below:

                                                                  Weighted
                                                                  Average
                                                                  Exercise
                                                     Shares         Price
                                                  -----------   ------------
Outstanding, December 31, 2003                      8,985,343   $       0.91

Granted                                                     -              -
Expired/Cancelled                                    (720,730)         (1.50)
Exercised                                                   -              -
                                                  -----------   ------------

Outstanding, December 31, 2004                      8,264,613   $       0.85
                                                  ===========   ============

Exercisable, December 31, 2004                      8,264,613   $       0.85
                                                  ===========   ============


<TABLE>
<CAPTION>
                                          Outstanding                          Exercisable
                      ----------------------------------------------   --------------------------
                                           Weighted
                         Number             Average        Weighted         Number       Weighted
                       Outstanding         Remaining        Average      Exercisable      Average
   Range of            at December        Contractual      Exercise      at December     Exercise
Exercise Prices         31, 2004             Life           Price         31, 2004         Price
---------------       -------------       -----------     ----------     -----------     --------
<S>                   <C>                 <C>             <C>            <C>             <C>
$          1.50             120,000              1.49     $     1.50         120,000     $   1.50
      0.90-1.10           4,839,668              1.94           0.97       4,839,668         0.97
      0.50-0.70           3,304,945              1.99           0.65       3,304,945         0.65
---------------       -------------       -----------     ----------     -----------     --------

$     0.50-1.50           8,264,613              1.95     $     0.85       8,264,613     $   0.85
===============       =============       ===========     ==========     ===========     ========
</TABLE>

NOTE 9 -  STOCK ISSUANCES

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

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

          During the quarter  ended  September  30, 2002,  the Company  issued a
          total of  7,465,888  shares of common  stock  for  total  advances  of
          $125,000  on their  Equity  Line of  Credit,  see note 15 for  further
          discussion of these issuances.

                                      F-37

<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 9 -  STOCK ISSUANCES (Continued)

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

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

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

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

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

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

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

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

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

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

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

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

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

                                      F-38
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 9 -  STOCK ISSUANCES (Continued)

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

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

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

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

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

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

          On June 29, 2001,  the Company  issued  120,000 shares of common stock
          for  consulting  services  valued  at the  closing  price of $2.80 per
          share.

          On June 8, 2001, the Company issued 119,152 shares of common stock for
          the conversion of research  advances payable to equity valued at $3.20
          per share.

          On April 23, 2001,  the Company  issued  50,000 shares of common stock
          for the  conversion of accounts  payable to equity valued at $1.50 per
          share.

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

                                      F-39
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 9 -  STOCK ISSUANCES (Continued)

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

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

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

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

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

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

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

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

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

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

          On November 4, 1998,  the Company  issued a convertible  debenture for
          $800,000 to related parties for funds advanced to Group. The Debenture
          was convertible into common stock at $1.50 per share which represented
          the closing price on the date of the issuance of the  debenture.  Each
          share converted carried one (1) warrant which was exercisable at $1.50
          per share for a period of 4 years.  At December 31, 1998,  the related
          parties had  converted  the entire  debenture  into 533,333  shares of
          common stock and exercised 13,502 warrants for total  consideration of
          $820,252.  On January  5,  1999,  the  original  debenture  terms were
          amended as follows:  The debenture  amount was increased to $2,000,000
          convertible into common stock at $1.50 per share with one (1) attached
          warrant  exercisable  for 5 years  from  the  dates  of the  debenture
          conversions.

                                      F-40
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 9 -  STOCK ISSUANCES (Continued)

          On March 30,  1999,  the Company  issued  70,000  shares and  warrants
          pursuant to the  conversion of this  debenture.  On May 17, 1999,  the
          Company issued 720,730 and warrants  shares pursuant to the conversion
          of the  debenture.  Pursuant to the  modification,  the  debenture was
          canceled as of the date of the recapitalization. On December 31, 1999,
          the Company  issued  592,744  shares of common  stock  pursuant to the
          exercise  of  warrants  attached  to  the  convertible  debenture.  At
          December 31, 1999,  there were  717,817  warrants  which have not been
          exercised and expire by May 17, 2004. All share issuances prior to the
          recapitalization  are  included  in the  recapitalization  line on the
          statement of stockholders' equity.

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

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

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

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

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

          On December 9, 1999,  the Company issued 49,020 shares of common stock
          valued at $0.71 per share for $35,00 of cash.  The share  issuance was
          part of a $600,000 private placement

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

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

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

                                      F-41
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 9 -  STOCK ISSUANCES (Continued)

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

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

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

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

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

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

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

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

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

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

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

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

                                      F-42
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 9 -  STOCK ISSUANCES (Continued)

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

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

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

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

NOTE 10 - REGULATION 504D STOCK OFFERING

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

NOTE 11 - PRIVATE PLACEMENTS AND MEMORANDUMS

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

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

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

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

                                      F-43
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 11 - PRIVATE PLACEMENTS AND MEMORANDUMS (Continue)

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

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

NOTE 12 - EQUITY LINE OF CREDIT

          On  November  29,  2001,  the Company  entered  into an Equity Line of
          Credit with Cornell Capital Partners, L.P. (Cornell) pursuant to which
          the  Company  may,  at its  discretion,  periodically  sell to Cornell
          shares  of  common  stock  for a total  purchase  price of up to $10.0
          million.  For each share of common  stock  purchased  under the Equity
          Line of Credit,  Cornell will pay 95% of the lowest  closing bid price
          on  which  our  common  stock  is  traded  for the 5 days  immediately
          following  the notice date.  Unless  waived by Cornell,  the amount of
          each  advance  is  subject  to a maximum  advance  amount  based on an
          average  daily volume of the Company's  common stock.  The Company may
          request an advance every three trading days. A consulting fee of 5% of
          each  advance  will be paid to Cornell  upon closing each of the sales
          under this agreement.  In addition,  the Company issued 260,270 shares
          of common  stock on February  28, 2002 as a  commitment  fee valued at
          $500,000,  or $1.92 per share.  The  non-refundable  commitment fee is
          included in accounts  payable and was fully  expensed as debt offering
          costs.  The Company has not drawn any advances under this agreement at
          December  31,  2004.  The Company  filed an SB-2,  which was  declared
          effective on June 19, 2002.

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

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

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

NOTE 13 - BANKRUPTCY

          During  2002,  the  Company  pursued  various  avenues  to enable  the
          business to continue in operation and/or maximize asset values.  These
          efforts  included  meetings  with a number of  entities  to  explore a
          strategic  investment in the Company and/or an acquisition of all or a
          portion of the Company's assets and businesses.  While several parties
          undertook due diligence, no entity made a viable proposal.

                                      F-44
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 13 - BANKRUPTCY (Continued)

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

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

          On December  1, 2002,  the Company  filed a voluntary  petition  under
          Chapter 11 of the  Bankruptcy  Code with the United States  Bankruptcy
          Court Southern  District of New York. On December 16, 2002, the United
          States Trustee  appointed a creditors'  committee  pursuant to section
          1102(a) of the Bankruptcy Code (the "Committee").

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

                                      F-45
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 13 - BANKRUPTCY (Continued)

          Having sold its assets and ceased operations, the Company was not in a
          financial  position  to  support  the  on-going  operations  needed to
          develop  the Water  Assets.  On May 20,  2003,  the  Bankruptcy  Court
          approved  the sale of the  Company's  interest in the Water  Assets to
          Oases Desalination International,  Ltd. in exchange for their covenant
          to commercialize those assets and make certain royalty payments. Since
          that  time,  and  although  they have made  certain  minimal  payments
          totaling  $23,500,  Oases  has been in  default.  Subsequently,  Oases
          Desalination  International,  Ltd. and ReEnergy  Group entered into an
          asset purchase  agreement in which Oases  Desalination  International,
          Ltd.  would sell all of its assets,  including  the Water  Assets,  to
          ReEnergy Group. Because Oases Desalination  International,  Ltd. is in
          default with the Company and has not paid for the Water Assets,  Oases
          Desalination   International,   Ltd.  and  Renergy  Group  sought  the
          Company's  consent wherein ReEnergy Group would directly  purchase the
          Water Assets from the Company.  After  significant  negotiations,  the
          Creditors'  Committee,  Oases  Desalination  International,  Ltd.  and
          ReEnergy Group entered into the Consent Agreement,  in order to, among
          other  things,  provide the  Company's  consent to transfer  the Water
          Assets to ReEnergy Group for a modified  consideration of $750,000 for
          the Water Assets.  On October 26, 2005, an application  was filed with
          the Bankruptcy  Court to approve this  arrangement and the arrangement
          was  approved  by order  dated  November  16,  2005.  The  Company has
          received all of the funds in this  transaction and is being held in an
          account maintained by bankruptcy counsel for the Committee.

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

NOTE 14 - DISCONTINUED OPERATIONS

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

                                      F-46
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2004

NOTE 15 - SALE OF ASSETS

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

NOTE 16 - SUBSEQUENT EVENTS

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

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

                                      F-47
<PAGE>
                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act.

The Company  currently  has no directors or executive  officers and did not have
any during 2004.

Mr.  Michael  Hopper,  age 59, has been a paid  consultant  from  February  2003
through the present.  The Company retained Mr. Hopper in an administrative role,
primarily  to liaise with the  Company's  professional  advisors  and  otherwise
assist with the Company's  bankruptcy filings, in bringing the Company's audited
financial statements up to date, and in bringing all SEC filings up to date.

Mr. Hopper joined the Company's  predecessor in January 1997.  From July 1999 to
February  2003,  Mr. Hopper served as  Secretary/Treasurer  and Chief  Financial
Officer of the Company.

                                       6
<PAGE>

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section  16(a) of the  Securities  Act of 1934  requires  all Company  executive
officers and directors and persons who own more than ten percent of a registered
class of the Company's equity securities to file reports of their ownership with
the SEC. Executive officers, directors and greater than ten percent shareholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a)  reports  they  file.  Specific  due  dates for  these  reports  have been
established  and the Company is required  to report any  delinquent  filings and
failures to file such reports.

The  Company is unaware of the  failure of any of its  greater  than ten percent
beneficial  owners to comply with any filing  requirements  under  Section 16(a)
during the year ended December 31, 2004.

Because the Company does not currently  have any material  business  operations,
the Company does not have a separate  audit  committee,  and it does not have an
audit committee  financial  expert.  At such time as when the Company acquires a
business or develops material business  operations,  it intends to form an audit
committee and appoint an independent audit committee financial expert.

The  Sarbanes-Oxley  Act and related rules  adopted by the SEC require  publicly
traded  companies  to disclose  whether  they have adopted a code of ethics that
applies to a company's principal executive officer,  principal financial officer
and principal  accounting officer or controller,  or person's performing similar
functions.  The rules also define what constitutes a code of ethics. Because the
Company does not currently have any material  business  operations,  the Company
has not yet adopted a code of ethics that meets the SEC's rules.

Item 10. Executive Compensation.

The Company  currently  has no directors or executive  officers and did not have
any during 2004.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

The following table sets forth  information as of December 31, 2004 with respect
to the beneficial  ownership of Common Stock by all persons known by the Company
to beneficially  own more than 5% of its  outstanding  common stock (each, a "5%
Owner").  Except as noted  below,  each  shareholder  exercises  sole voting and
investment power with respect to the shares beneficially owned.

<TABLE>
<CAPTION>

                                                      Number of Shares        Percent of
5% Owner:                           Title of Class   Beneficially Owned        Class (1)
<S>                                 <C>              <C>                      <C>
Joseph P. Maceda                       Common                11,716,579(2)          20.5%
939 Union Street
Brooklyn, NY 11215

Robert L. Campbell                     Common                 7,205,341(3)          12.8%
15009 Rio Circle
Rancho Murieta, CA 95683

Algonquin Capital Management           Common                 5,087,000(4)           8.6%
440 Main Street
Ridgefield, CT 06877

Elektryon                              Common                 3,500,000              6.2%
Lenard Schwartzer, Attorney at Law
3800 Howard Hughes Parkway, #110
Las Vegas, NV 89109

Gloria Rose Ott                        Common                 2,870,000(5)           5.1%
20250 Edgewood Farm Lane
Purcellville, VA 20132
</TABLE>

                                       7
<PAGE>

(1)   Applicable percentage of ownership is based on 56,182,746 shares of common
      stock  outstanding  as of December  31,  2004,  together  with  applicable
      options  for each  shareholder.  Beneficial  ownership  is  determined  in
      accordance  with the  rules of the SEC and  generally  includes  voting or
      investment  power  with  respect  to  securities.  Shares of common  stock
      subject to options that are currently exercisable or exercisable within 60
      days from  December  31, 2004 are deemed to be  beneficially  owned by the
      person holding such options for the purpose of computing the percentage of
      ownership  of such  person,  but are not  treated as  outstanding  for the
      purpose  of  computing  the  percentage  ownership  of any  other  person.
      Further,  shareholdings  are  based  on the  information  included  in the
      Company's  Annual  Report on Form 10-KSB for the year ended  December  31,
      2001 and/or  shareholder  listing  obtained  from the  Company's  transfer
      agent.

(2)   Includes  options  to  purchase  1,100,000  shares of  common  stock at an
      exercise price of $1.00 per share.

(3)   Includes options to purchase 225,000 shares of common stock at an exercise
      price of $1.00 per share.

(4)   Includes 4,876,000 shares of our common stock which are held by Algonquin.
      Such amount includes  3,188,000 shares which are issuable upon exercise of
      warrants for an exercise price of $1.50 per share. Algonquin's controlling
      member is Michael  Lockwood,  who may be deemed to share with the  company
      (i) the power to vote or direct the vote of all of the shares and (ii) the
      power to dispose or direct disposition of all of the shares. Of the number
      of shares of our  common  stock  listed  above,  211,  000 are held by the
      Lockwood Children's Longterm Trust (the "Trust"),  which holds such shares
      for the beneficiary children of Mr. Lockwood. Such amount includes 100,000
      shares which are issuable upon exercise of warrants for an exercise  price
      of $1.50 per  share.  Mr.  Lockwood  is a trustee  of the Trust and may be
      deemed to share with the Trust (i) the power to vote or direct the vote of
      all of the shares and (ii) the power to dispose or direct  disposition  of
      all of the shares.  The principal  business address of Mr. Lockwood is the
      same as that set forth for Algonquin above.

(5)   Includes options to purchase 250,000 shares of common stock at an exercise
      price of $1.00 per share.

Item 12. Certain Relationships and Related Transactions.

None.

Item 13. Exhibits.

The exhibits filed herewith are set forth in the Index to Exhibits (on the first
page of the separate  exhibit  section,  which follows the financial  section of
this report) and are incorporated herein by reference.

Item 14. Principal Accountant Fees and Services.

The Company did not have any  independent  auditors  during  2004,  as its prior
auditors,  H.J. &  Associates,  LLC,  resigned on April 30, 2003.  The Company's
independent auditors,  Pritchett,  Siler & Hardy, P.C., were engaged on November
28, 2006. No fees were paid to the auditors during calendar years 2004 and 2003.
The Company  expects to use the auditors solely or primarily for the auditing of
the Company's  consolidated  financial  statements and the quarterly  reviews of
interim  financial  statements (the  "Reviews"),  including  advice on audit and
accounting  matters that arose during or as a result of the audit or the Reviews
and for services in connection with SEC filings. The provision of any additional
services by the independent  auditors must be approved by the Bankruptcy  Court.
On November 8, 2006, the Company engaged H.J. & Associates, LLC as the Company's
accountants,  including to assist in the preparation of the Company's  financial
statements and to prepare the Company's federal and state income tax returns.

                                       8
<PAGE>

                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized

Ocean Power Corporation

By: /s/ MICHAEL HOPPER                             Dated: January 31, 2008
    ------------------------------------------
    Michael Hopper, Authorized Signatory

                                       9
<PAGE>

                                INDEX TO EXHIBITS

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

2.01      Chapter 11 Plan of  Reorganization,  In re:  Ocean Power  Corporation,
          Case No. 02-15989 (REG), dated January 14, 2008. **

2.02      Disclosure  Statement to Accompany Plan of Reorganization  Pursuant to
          Section 1125 of the Bankruptcy  Code, In re: Ocean Power  Corporation,
          Case No. 02-15989 (REG), dated January 14, 2008. **

2.03      Executed Term Sheet between the Company and Trinad Capital Master Fund
          Ltd., dated October 2006, and the Amendment  thereto,  dated September
          18, 2007. **

3.01      Certificate of Incorporation of the Company dated July 21,1999,  filed
          as Exhibit  3.01 to the  Company's  Form 10-KSB for the yearly  period
          ended December 31, 2001 and incorporated herein by reference.

3.02      Bylaws of the  Company,  filed as Exhibit 3.02 to the  Company's  Form
          10-KSB for the yearly period ended December 31, 2001 and  incorporated
          herein by reference.

3.03      Articles of  Incorporation of Kaniksu American Mining Company (Idaho),
          predecessor  of Company,  filed as Exhibit 3.03 to the Company's  Form
          10-KSB for the yearly period ended December 31, 2001 and  incorporated
          herein by reference.

3.04      Company (Idaho)  Certificate of Amendment of Kaniksu  American Mining,
          dated August 28, 1995 for name change to Kaniksu Ventures, Inc., filed
          as Exhibit  3.04 to the  Company's  Form 10-KSB for the yearly  period
          ended December 31, 2001 and incorporated herein by reference.

3.05      Certificate of Amendment for Kaniksu  Ventures,  Inc.,  dated April 2,
          1997 for name change to Intryst,  Inc.,  filed as Exhibit  3.05 to the
          Company's  Form 10-KSB for the yearly  period ended  December 31, 2001
          and incorporated herein by reference.

3.06      Articles of Amendment  of Intryst,  Inc. for name change to PTC Group,
          Inc.,  dated December 24, 1997, filed as Exhibit 3.06 to the Company's
          Form  10-KSB  for the  yearly  period  ended  December  31,  2001  and
          incorporated herein by reference.

3.07      Articles  of  Amendment  of PTC Group,  Inc.  for name change to Ocean
          Power  Corporation,  dated July 14, 1999, filed as Exhibit 3.07 to the
          Company's  Form 10-KSB for the yearly  period ended  December 31, 2001
          and incorporated herein by reference.

3.08      Articles of Merger of Ocean Power  Corporation  Idaho With Ocean Power
          Corporation  Delaware,  dated July 28, 1999,  filed as Exhibit 3.08 to
          the  Company's  Form 10-KSB for the yearly  period ended  December 31,
          2001 and incorporated herein by reference.

3.09      Certificate of Merger of Foreign and Domestic Corporation,  dated July
          28, 1999,  filed as Exhibit 3.09 to the Company's  Form 10-KSB for the
          yearly  period  ended  December  31, 2001 and  incorporated  herein by
          reference.

21.01     Subsidiaries  of the Company,  filed as Exhibit 21.01 to the Company's
          Form  10-KSB  for the  yearly  period  ended  December  31,  2001  and
          incorporated herein by reference.

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

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

**        Filed herewith.
<PAGE>

                                   UNDERTAKING

The Company will furnish to any shareholder a copy of any of the exhibits listed
above upon written request and upon payment of a specified reasonable fee, which
fee  shall be equal to the  Company's  reasonable  expenses  in  furnishing  the
exhibit to the shareholder.  Requests for exhibits and information regarding the
applicable  fee shall be direct  to:  Halperin  Battaglia  Raicht,  LLP,  at the
address of the principal executive offices set forth on the cover of this Report
on Form 10-KSB.