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

                                  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, 2003

      [ ]   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 Identification No.)
    incorporation or organization)

  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 2003: $0
<PAGE>

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

================================================================================
<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").

<PAGE>

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 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 ss.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.

                                       2
<PAGE>
Employees

The Company has no employees, and has not had any employees since 2003. Mr.
Michael Hopper resigned his position as Secretary/Treasurer and Chief Financial
Officer of the Company in February 2003 at the time of the Primary Asset Sale.

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.

                                        3
<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.

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


2002                                                       High          Low
First Quarter                                           $    1.27     $    0.75

Second Quarter                                               1.06          0.08

Third Quarter                                                0.08         0.013

Fourth Quarter                                               0.06         0.005

                                       4
<PAGE>

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.

                                       5
<PAGE>

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,
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.

                                       6
<PAGE>

Results of Operations:

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

The business of the Company in 2003 included the sale of the Company's Primary
Assets 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 Primary Asset Sale). Mr.
Michael Hopper resigned his position as Secretary/Treasurer and Chief Financial
Officer of the Company in February 2003 at the time of the Primary Asset Sale.
Salaries and wages during the year ended December 31, 2003 totaled $22,938, a
decrease of $2,493,990 or 99%, compared to $2,516,928 for the year ended
December 31, 2002. The administrative activities of the Company during the year
ended December 31, 2003 were performed by Mr. Hopper. Direct administrative
expenses of the Company for the year ended December 31, 2003 totaled $378,486,
an increase of $378,486 compared to $0 incurred during the year ended December
31, 2002. During the year ended December 31, 2002, the Company incurred
$15,342,482 in direct administrative expenses that were reported as part of
discontinued operations. The Company continued to accrue interest on the DIP
financing and accrued $33,807 for the year ended December 31, 2003, an increase
of $32,322 or 2,177% compared to $1,485 for the year ended December 31, 2002.

The net income (loss) for the year ended December 31, 2003 was $1,181,944, an
increase of $22,662,772 or 105%, compared to ($21,480,828) for the year ended
December 31, 2002. The increase was due to the Company's entrance into
bankruptcy proceedings as of December 1, 2002, and the sale of the Company's
Primary Assets. The Primary Assets were sold to Algonquin and Hibernia during
February 2003 pursuant to an order by the Bankruptcy Court. As consideration for
the assets, a total of $2,000,000 of outstanding principal and interest on
certain notes payable was forgiven. As a result of this asset sale, the Company
recognized a gain on sale of assets in the amount of $1,723,486. Further,
pursuant to such order, the Company was granted a 60% ownership interest in the
Water Assets that had been purchased.

                                       7
<PAGE>

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.

                                       8
<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's 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.

                                        9
<PAGE>
                        Consolidated Financial Statements
                                  and Report of
                     Independent Registered Accounting Firm

                             Ocean Power Corporation

                           December 31, 2003 and 2002
<PAGE>
                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)

                        CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2003

<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 and Other Comprehensive Income ......  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,  2003,  and  the  related
consolidated  statements of operations,  stockholders' equity (deficit) and cash
flows for the years ended December 31, 2003 and 2002 and from inception on March
26, 1992 through December 31, 2003. 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, 2003,  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, 2003,  and the results of their  operations and
their  cash  flows  for the  years  ended  December  31,  2003 and 2002 and from
inception  on March 26, 1992  through  December 31,  2003,  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

                                                                  December 31,
                                                                      2003
                                                                 -------------

                           ASSETS

CURRENT ASSETS
   Cash - restricted                                             $     185,326
                                                                 -------------

     Total Current Assets                                              185,326
                                                                 -------------

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

TOTAL ASSETS                                                     $     185,326
                                                                 =============

        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES

   Accounts payable                                              $   2,647,722
   Accrued expenses                                                  9,907,605
   Notes payable - related parties                                   1,033,469
   Notes and convertible debentures payable - current portion        8,674,884
                                                                 -------------

     Total Current Liabilities                                      22,263,680
                                                                 -------------

     Total Liabilities                                              22,263,680
                                                                 -------------

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                (57,809,318)
                                                                 -------------

     Total Stockholders' Equity (Deficit)                          (22,078,354)
                                                                 -------------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)        $     185,326
                                                                 =============

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,
                                                            2003           2002           2003
                                                        ------------   ------------   ------------
<S>                                                     <C>            <C>            <C>
REVENUES                                                $          -   $          -   $          -
                                                        ------------   ------------   ------------

EXPENSES

   General and administrative                                378,486              -        378,486
   Depreciation and amortization                              15,964              -         15,964
                                                        ------------   ------------   ------------

     Total Expenses                                          394,450              -        394,450
                                                        ------------   ------------   ------------

     LOSS FROM OPERATIONS                                   (394,450)             -       (394,450)
                                                        ------------   ------------   ------------

OTHER INCOME (EXPENSE)

   Interest income                                               144              -            144
   Gain (loss) on sale of assets                           1,723,486              -      1,723,486
   Interest expense                                          (33,807)    (3,877,129)    (8,832,773)
                                                        ------------   ------------   ------------

     Total Other Income (Expense)                          1,689,823     (3,877,129)    (7,109,143)
                                                        ------------   ------------   ------------

INCOME (LOSS) BEFORE
  INCOME TAXES                                             1,295,373     (3,877,129)    (7,503,593)

   Income tax expense                                        113,429              -        113,429
                                                        ------------   ------------   ------------

INCOME (LOSS) BEFORE
  DISCONTINUED OPERATIONS                                  1,181,944     (3,877,129)    (7,617,022)

   (Loss) from discontinued
     operations                                                    -    (17,603,699)   (50,192,296)
                                                        ------------   ------------   ------------

NET INCOME (LOSS)                                          1,181,944    (21,480,828)   (57,809,318)
                                                        ------------   ------------   ------------

OTHER COMPREHENSIVE INCOME (LOSS)

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

     TOTAL COMPREHENSIVE INCOME (LOSS)                  $  1,181,944   $(21,815,377   $(57,809,318)
                                                        ============   ============   ============

BASIC AND DILUTED LOSS PER SHARE

   Income (loss) before discontinued operations         $       0.02   $      (0.08)
   Discontinued operations                                      0.00          (0.39)
                                                        ------------   ------------

     Net income (loss)                                  $       0.02   $      (0.47)
                                                        ============   ============

WEIGHTED AVERAGE NUMBER
  OF SHARES OUTSTANDING                                   56,182,746     45,482,636
                                                        ============   ============
</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)
                                             ==========  ==========   ============  ==============  ==============  ==============
</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,
                                                                       2003               2002                 2003
                                                                -----------------   -----------------  ------------------
<S>                                                             <C>                 <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES

   Net loss                                                     $       1,181,944   $     (21,480,828) $      (57,809,318)
   Adjustments to reconcile net loss to net
    cash used by operating activities:
     Depreciation and amortization                                         15,964             458,842           2,820,779
     Deferred consulting expense                                                -           1,959,800           2,486,798
     Value of common stock, warrants, options
      and discounts on equity instruments issued
      for services                                                              -           4,159,917           7,962,847
     Loss on sale of assets                                                     -                   -             387,649
     Amortization of debenture discount and debt issue costs                    -           2,350,152           4,628,538
     Gain on disposition of debt and write off of subsidiary                    -          (5,762,376)         (6,085,539)
     Gain on sale of assets                                            (1,723,486)                  -          (1,723,486)
     Impairment loss                                                            -          11,615,822          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             125,204          (5,772,221)
     Increase (decrease) in accounts payable                              219,341           1,226,767           5,631,388
     Increase (decrease) in accrued expenses                              194,072           4,108,853          13,681,846
     Increase (decrease) in deferred revenue                                    -             (35,550)                  -
                                                                -----------------   -----------------  ------------------

       Net Cash Used by Operating Activities                              (93,763)         (1,273,397)        (21,488,596)
                                                                -----------------   -----------------  ------------------
CASH FLOWS FROM INVESTING ACTIVITIES

   Cash lost in discontinued operation                                          -              (4,713)             (4,713)
   Payments on license agreement                                                -                   -            (400,000)
   Cash acquired in Sigma acquisition                                           -                   -             142,254
   Proceeds from sale of assets                                            80,000                   -              80,001
   Purchase of fixed assets                                                     -                   -          (1,164,570)
   Equipment procurement costs                                                  -                   -            (564,110)
                                                                -----------------   -----------------  ------------------

       Net Cash Provided (Used) by Investing Activities                    80,000              (4,713)         (1,911,138)
                                                                -----------------   -----------------  ------------------
CASH FLOWS FROM FINANCING ACTIVITIES

   Proceeds from notes payable                                            136,818             415,000           4,951,818
   Repayment of related party notes payable                                     -              (5,250)         (1,640,226)
   Repayment of notes payable                                                   -                   -          (1,519,062)
   Loans from related parties                                                   -              11,500           7,462,787
   Issuance of convertible debentures                                           -             650,000           3,100,000
   Common stock issued for cash                                                 -             125,000          11,256,032
   Stock offering costs                                                         -                   -             (26,289)
                                                                -----------------   -----------------  ------------------

       Net Cash Provided by Financing Activities                          136,818           1,196,250          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 (Continued)

<TABLE>
<CAPTION>
                                                                                                              From
                                                                                                          Inception on
                                                                          For the Years Ended               March 26,
                                                                             December 31,                 1992 Through
                                                                -------------------------------------     December 31,
                                                                       2003               2002                 2003
                                                                -----------------   -----------------  ------------------
<S>                                                             <C>                 <C>                <C>
NET INCREASE (DECREASE) IN CASH                                 $         123,055   $         (81,860) $          185,326

CASH AT BEGINNING OF PERIOD                                                62,271             144,131                   -
                                                                -----------------   -----------------  ------------------

CASH AT END OF PERIOD                                           $         185,326   $          62,271  $          185,326
                                                                =================   =================  ==================

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          $               -   $       4,159,917  $        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 the Consolidated Financial Statements
                                December 31, 2003

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 the Consolidated Financial Statements
                                December 31, 2003

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 the Consolidated Financial Statements
                                December 31, 2003

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,
                                                     --------------------------
                                                         2003          2002
                                                     -----------   ------------

      Net income (loss) before discontinued
         operations (numerator)                      $ 1,181,944   $ (3,877,129)
      Net loss from discontinued operations
         (numerator)                                           -    (17,603,699)
                                                     -----------   ------------
      Net loss                                         1,181,944    (21,480,828)

      Weighted average number of shares
         outstanding (denominator)                    56,182,746     45,482,636
                                                     -----------   ------------

      Income (loss) per share                        $      0.02   $      (0.47)
                                                     ===========   ============

      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,
      2003.

      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 the Consolidated Financial Statements
                                December 31, 2003

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, 2003:

                                                    2003
                                                ------------
      Deferred tax assets:
      NOL carryover                             $ 12,192,000
      Accrued expenses                               884,600
      Deferred tax liabilities:
      Depreciation                                         -
      Valuation allowance                        (13,076,600)
                                                ------------

      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,  2003 due to the
      following:

                                                   2003
                                                ------------

      Book income                               $    525,752
      Loss on disposal of assets                     (20,595)
      Meals & entertainment                              715
      State taxes                                    (44,240)
      Depreciation                                    (5,450)
      NOL Carryover                                 (456,182)
      Valuation allowance                                  -
                                                ------------

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

      At December 31, 2003, the Company had net operating loss  carryforwards of
      approximately $31,200,000 that may be offset against future taxable income
      from the year 2003 through  2023.  No tax benefit has been reported in the
      December 31, 2003  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 the Consolidated Financial Statements
                                December 31, 2003

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,  2003  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, 2003.

      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 the Consolidated Financial Statements
                                December 31, 2003

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 the Consolidated Financial Statements
                                December 31, 2003

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 the Consolidated Financial Statements
                                December 31, 2003

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 the Consolidated Financial Statements
                                December 31, 2003

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, 2003 and 2002, 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 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."

                                      F-25

<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                                December 31, 2003

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

      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,
      2003.

      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, 2003  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 the Consolidated Financial Statements
                                December 31, 2003

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- and $116,093 for the
      years ended December 31, 2003 and 2002, respectively.

       Annual maturities of notes related parties payable are as follows:

            Years Ending
            December 31,
            ------------
                2004                                              $    1,033,469
                2005                                                           -
                2006                                                           -
                2007                                                           -
             Thereafter                                                        -
                                                                  --------------
                                                                  $    1,033,469
                                                                  ==============

                                      F-27
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                                December 31, 2003

NOTE 5 - NOTES AND CONVERTIBLE DEBENTURES PAYABLE

      Notes  and  debentures  payable  at  December  31,  2003  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 the Consolidated Financial Statements
                                December 31, 2003

NOTE 5 - NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

         Annual maturities of notes and debentures payable are as follows:

            Years Ending
            December 31,
            ------------
                2004                                   $   8,674,884
                2005                                               -
                2006                                               -
                2007                                               -
             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 the Consolidated Financial Statements
                                December 31, 2003

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, 2003, 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, 2003 and 2002.

      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.  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, 2003 and 2002.

                                      F-30
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                                December 31, 2003

NOTE 5 - NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

      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, 2003 and 2002.

      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, 2003 and 2002.

      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, 2003 and 2002.

                                      F-31
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                                December 31, 2003

NOTE 5 - NOTES AND CONVERTIBLE DEBENTURES PAYABLE (Continued)

      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  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, 2003 and 2002.

      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, 2003 and 2002.

      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, 2003 and 2002.

      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, 2003 and 2002.

      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, 2003 and 2002.

                                      F-32
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                                December 31, 2003

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,
      2003 and 2002.

      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, 2003 and 2002.

      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 the Consolidated Financial Statements
                                December 31, 2003

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,
      2003 and 2002, was $15,208 and $1,485, 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,
      2003 and 2002, was $16,847 and $-0-, respectively.

                                      F-34
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                                December 31, 2003

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,
      2003 and 2002, was $1,752 and $-0-, respectively.

NOTE 6 - ACCRUED EXPENSES

      The Company's  accrued expenses are comprised of the following items as of
      December 31, 2003:

      Accrued payroll taxes payable                     $      60,266
      Accrued interest payable - payroll                       52,717
      Accrued payroll tax penalty                              98,845
      Accrued taxes payable                                   273,144
      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                              1,394,333
      Accrued contingency for additional post
       petition claims                                        222,411
                                                        -------------

            Total                                       $   9,907,605
                                                        =============

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,
      2003  of  approximately   $57,809,318.   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
      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.

                                      F-35
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                 Notes to the Consolidated Financial Statements
                                December 31, 2003

NOTE 7 - GOING CONCERN (Continued)

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

NOTE 8 - DILUTIVE INSTRUMENTS

      a. Stock Options

      The Company had  outstanding  stock options to purchase  987,132 shares of
      the Company's common stock to non-employees as of December 31, 2003. These
      options expire beginning in September 2004 and ending in January 2012.

      The following table  summarizes  information  about employee stock options
      outstanding at December 31, 2003:

                        Number of      Weighted
                         Options       Average     Weighted      Number of
                       Outstanding    Remaining     Average   Exercisable at
           Exercise   December 31,   Contractual   Exercise    December 31,
             Price        2003           Life        Price         2003
           --------   ------------   -----------   --------   --------------

           $   1.00      3,007,456       8 years   $   1.00        3,007,456
           $   0.05        387,694     8.5 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,
                                                -------------------------
                                                   2003          2002
                                                ----------   ------------

           Net income (loss) as reported        $1,181,944   $(21,480,828)
           Proforma                              1,181,944    (24,384,972)
           Basic and diluted income (loss)
            per share as reported                     0.02          (0.47)
           Pro forma                                  0.02          (0.47)

                                      F-36
<PAGE>

                    OCEAN POWER CORPORATION AND SUBSIDIARIES
                          (A Development Stage Company)
                   Notes to Consolidated Financial Statements
                                December 31, 2003

NOTE 8 - DILUTIVE INSTRUMENTS (Continued)

      There were no stock  options  granted  during the year ended  December 31,
      2003.

      b. Warrants

      A summary of the Company's  outstanding  warrants as of December 31, 2003,
      and changes during the year then ended is presented below:

                                                               Weighted
                                                                Average
                                                               Exercise
                                                   Shares        Price
                                                 ---------   ------------
           Outstanding, December 31, 2002        9,795,343   $       0.92

           Granted                                       -              -
           Expired/Cancelled                      (810,000)         (1.09)
           Exercised                                     -              -
                                                 ---------   ------------

           Outstanding, December 31, 2003        8,985,343   $       0.91
                                                 =========   ============

           Exercisable, December 31, 2003        8,985,343   $       0.91
                                                 =========   ============

<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, 2003        Life        Price      31, 2003      Price
           ---------------   -----------   -----------   --------   -----------   --------
           <S>               <C>           <C>           <C>        <C>           <C>
           $          1.50       840,730          0.69   $   1.50       840,730   $   1.50
                 0.90-1.10     4,839,668          2.94       0.97     4,839,668       0.97
                 0.50-0.70     3,304,945          2.98       0.65     3,304,945       0.65
           ---------------   -----------   -----------   --------   -----------   --------

           $     0.50-1.50     8,985,343          2.73   $   0.91     8,985,343   $   0.91
           ===============   ===========   ===========   ========   ===========   ========
</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, 2003

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, 2003

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, 2003

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, 2003

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, 2003

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, 2003

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, 2003

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, 2003. 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, 2003

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, 2003

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, 2003

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 2003, other than Mr. Michael Hopper, Secretary/Treasurer and Chief
Financial Officer of the Company, who resigned in February 2003.

Mr. 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.

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, 2003.

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.

                                       10
<PAGE>

Item 10.  Executive Compensation.

The Company currently has no directors or executive officers, and did not have
any during 2003, other than Mr. Michael Hopper, Secretary/Treasurer and Chief
Financial Officer of the Company, who resigned in February 2003.

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

The following table sets forth information as of December 31, 2003 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>
                                     Title of Class    Number of Shares       Percent of
5% Owner:                                             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>

(1)   Applicable percentage of ownership is based on 56,182,746 shares of common
      stock outstanding as of December 31, 2003, 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, 2003 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 a shareholder listing obtained from the Company's transfer
      agent.

                                       11
<PAGE>

(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.

                                       12
<PAGE>

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's 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. 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.

Fees paid to H.J. & Associates, LLC during 2003 and 2002 are as follows:

                                                               2003     2002
------------------------------------------------------------------------------
Audit Fees                                                     $  0   $ 28,224
------------------------------------------------------------------------------
Audit Related Fees                                                0          0
------------------------------------------------------------------------------
Tax Fees                                                          0      2,458
------------------------------------------------------------------------------
All Other Fees                                                    0          0

                                       13
<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

                                       14
<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
         ss. 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.
<PAGE>

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.