**U.S.
      Securities and Exchange Commission**


**Washington,
      D.C. 20549**




**Form 10-Q**




ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934




For
      the
      quarterly period ended June 30, 2008




 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF
      1934




For
      the
      transition period from _______________ to ________________




**COMMISSION
      FILE NO. 000-24921**




**Power3
      Medical Products, Inc.**


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





**New
                York**
            **0-24921**
            **65-0565144**(State
                or other jurisdiction of
              incorporation
                or organization)
            (Commission
                File Number)
            (I.R.S.
                Employer
              Identification
                No.)**3400
                Research Forest Drive, Suite B2-3**
              **Woodlands,
                Texas**
              (Address
                of principal executive offices)
            **77381**
              (Zip
                Code)





**Issuer’s
      Telephone Number: (281) 466-1600**





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





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


**Common
      stock, $.001 par value**


(Title
      of
      class)




Indicate
      by check mark whether the issuer (1) filed all reports required to be filed
      by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
      for such shorter period that the registrant was required to file such reports),
      and (2) has been subject to such filing requirements for the past 90 days.
      Yes ý No  ̈




Indicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer, a non-accelerated filer., or a smaller reporting
                company.Large
                accelerated filer
             ̈
            
            
            Accelerated
                filer
             ̈Non-accelerated
                filer
             ̈
            
            
            Smaller
                reporting company
            x





Indicate
      by check mark whether the registrant is a shell company (as defined in rule
      12b-2 of the Exchange Act)? Yes  ̈ No ý




The
      number of shares outstanding of the registrant’s common stock, par value $.001
      per share, as of August 13, 2008, was 143,819,290 shares **.**


The
      number of shares outstanding of the registrant’s preferred Series B stock, par
      value $.001 per share, as of August 13, 2008, was 3,000,000 shares **.**












**TABLE
      OF CONTENTS**




**PART
                I**ITEM
                1.
            Financial
                Statements
            2Balance
                Sheets (unaudited)
            2Statements
                of Operations (unaudited)
            3Statement
                of Stockholders’ Deficit (unaudited)
            4Statements
                of Cash Flows (unaudited)
            6Notes
                to Financial Statements (unaudited)
            8ITEM
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            16ITEM
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            24ITEM
                4.
            Controls
                and Procedures
            24**PART
                II**ITEM
                1.
            Legal
                Proceedings
            26ITEM
                1A.
            Risk
                Factors
            27ITEM
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            27ITEM
                3.
            Defaults
                Upon Senior Securities
            27ITEM
                4.
            Submission
                of Matters to a Vote of Security Holders
            27ITEM
                5.
            Other
                Information
            27ITEM
                6.
            Exhibits
            27


1


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**BALANCE
      SHEETS**


**AS
      OF JUNE 30, 2008 AND DECEMBER 31, 2007**


**(unaudited)**





**June 30,**
              **2008**
            
            **December 31,**
              **2007****ASSETS**CURRENT
                ASSETSCash
                and Cash Equivalents
            
            $
            97,970
            
            $
            125,679Other
                Current Assets
            
            
            23,780
            
            
            23,247TOTAL
                CURRENT ASSETS
            
            
            121,750
            
            
            148,926OTHER
                ASSETSDeferred
                Finance Costs, net of accumulated amortization of $304,149 and $176,952
                at
                June 30, 2008 and December 31, 2007, respectively
            
            
            15,000
            
            
            127,197Furniture,
                Fixtures and Equipment, net of accumulated depreciation of $100,106
                and
                $98,960 at June 30, 2008 and December 31, 2007, respectively
            
            
            7,450
            
            
            5,799Stock
                Held in Escrow
            
            
            190,000
            
            
            —Deposits
            
            
            5,450
            
            
            21,598**TOTAL
                ASSETS**
            
            $
            339,650
            
            $
            303,520**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**CURRENT
                LIABILITIESAccounts
                Payable
            
            $
            1,007,496
            
            $
            969,387Notes
                Payable – in default
            
            
            451,000
            
            
            451,000Notes
                Payable
            
            
            140,000
            
            
            50,000Notes
                Payable to Related Parties
            
            
            1,055,360
            
            
            1,934,816Convertible
                Debentures-in default, net of amortization of $1,194,733 and $1,178,865
                at
                June 30, 2008 and December 31, 2007, respectively
            
            
            642,542
            
            
            645,190Other
                Current Liabilities
            
            
            674,921
            
            
            1,242,936Derivative
                Liabilities
            
            
            1,573,445
            
            
            3,794,305**TOTAL
                LIABILITIES**
            
            
            5,544,764
            
            
            9,087,634**STOCKHOLDERS’
                DEFICIT**Preferred
                Stock - $0.001 par value; 50,000,000 shares authorized; 3,000,000
                and 0
                shares issued and outstanding as of June 30, 2008 and December 31,
                2007,
                respectively
            
            
            3,000
            
            
            —Common
                Stock - $0.001 par value; 150,000,000 shares authorized; 143,019,290
                and
                108,352,636 shares issued and outstanding as of June 30, 2008 and
                December
                31, 2007, respectively
            
            
            143,020
            
            
            108,353Additional
                Paid-In Capital
            
            
            63,533,121
            
            
            60,191,104Deficit
                Accumulated Before Entering Development Stage
            
            
            (11,681,500
            )
            
            (11,681,500
            )Deficit
                Accumulated During Development Stage
            
            
            (57,202,755
            )
            
            (57,402,071
            )TOTAL
                STOCKHOLDERS’ DEFICIT
            
            
            (5,205,114
            )
            
            (8,784,114
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS’ DEFICIT**
            
            $
            339,650
            
            $
            303,520





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


2




**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**STATEMENTS
      OF OPERATIONS**


**FOR
      THE THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**and
      the period from May 18, 2004 (inception) through June 30,
      2008**


**(unaudited)**





**For the three month**
              **period ended June 30,**
            
            **For the six month**
              **period ended June 30,**
            
            **Period from**
              **May 18, 2004**
              **Through**
              **June 30,****2008**
            
            **2007**
              **(restated)**
            
            **2008**
            
            **2007**
              **(restated)**
            
            **2008**
              **(restated)****REVENUE**Sales
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            121,724
            
            $
            426,224Total
                revenue
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            121,724
            
            $
            426,224**OPERATING
                EXPENSES**Employee
                compensation and benefits
            
            
            242,984
            
            
            320,903
            
            
            526,905
            
            
            585,729
            
            
            30,534,895Professional
                and consulting fees
            
            
            725,794
            
            
            490,339
            
            
            811,492
            
            
            582,784
            
            
            10,152,319Impairment
                of goodwill
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            13,371,776Impairment
                of intangible assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            179,788Occupancy
                and equipment
            
            
            23,444
            
            
            48,638
            
            
            67,940
            
            
            71,181
            
            
            600,344Travel
                and entertainment
            
            
            22,246
            
            
            42,935
            
            
            78,702
            
            
            60,745
            
            
            421,194Write
                off lease
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            34,243Other
                selling, general and administrative expenses
            
            
            48,089
            
            
            58,261
            
            
            155,262
            
            
            92,925
            
            
            616,880Total
                operating expenses
            
            $
            1,062,557
            
            $
            961,076
            
            $
            1,640,301
            
            $
            1,393,364
            
            $
            55,911,439**LOSS
                FROM OPERATIONS**
            
            $
            (1,062,557
            )
            $
            (961,076
            )
            $
            (1,640,301
            )
            $
            (1,271,640
            )
            $
            (55,485,215
            )**OTHER
                INCOME AND (EXPENSE)**Derivative
                gain (loss)
            
            $
            252,244
            
            $
            (644,485
            )
            $
            2,420,860
            
            $
            (7,016,852
            )
            $
            5,028,723Gain
                on legal settlement
            
            
            -
            
            
            3,112
            
            
            17,875
            
            
            3,112
            
            
            36,764Loss
                on settlement of debt
            
            
            (122,384
            )
            
            -
            
            
            (122,384
            )
            
            -
            
            
            (122,384
            )Interest
                income
            
            
            (476
            )
            
            (1,020
            )
            
            575
            
            
            -
            
            
            7,866Mandatory
                prepayment penalty
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (420,000
            )Other
                expense
            
            
            -
            
            
            (398,317
            )
            
            -
            
            
            (398,317
            )
            
            (196,176
            )Gain
                on issuance of stock
            
            
            120,000
            
            
            -
            
            
            120,000
            
            
            -
            
            
            120,000Gain
                on conversion of financial instruments
            
            
            -
            
            
            955,973
            
            
            -
            
            
            1,093,014
            
            
            1,544,574Interest
                expense
            
            
            (196,621
            )
            
            (1,278,213
            )
            
            (585,237
            )
            
            (1,459,148
            )
            
            (4,999,203
            )Total
                other income (expense)
            
            
            52,763
            
            
            (1,362,950
            )
            
            1,851,689
            
            
            (7,778,191
            )
            
            (1,000,164
            )**NET
                INCOME (LOSS)**
            
            $
            (1,009,794
            )
            $
            (2,324,026
            )
            $
            211,388
            
            $
            (9,049,831
            )
            $
            (56,485,379
            )**Deemed
                Dividend**
            
            
            -
            
            
            -
            
            
            (12,072
            )
            
            -
            
            
            (29,707
            )**NET
                INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLERS**
            
            $
            (1,009,794
            )
            $
            (2,324,026
            )
            $
            199,316
            
            $
            (9,049,831
            )
            $
            (56,515,086
            )**NET
                INCOME (LOSS) PER SHARE BASIC AND DILUTED**
            
            $
            (0.01
            )
            $
            (0.03
            )
            $
            0.00
            
            $
            (0.12
            )Weighted
                average number of shares outstanding
            
            
            128,055,498
            
            
            82,967,919
            
            
            121,821,879
            
            
            78,068,603





3


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**STATEMENT
      OF STOCKHOLDERS' DEFICIT**


**FROM
      INCEPTION TO JUNE 30, 2008**





**Common Stock**
            
            **Preferred Stock**
            
            **Additional**
              **Paid In**
            
            **Deferred
                Compensation**
            
            **Retained****Shares**
            
            **Par Value**
            
            **Shares**
            
            **Par Value**
            
            **Capital**
            
            **Expense**
            
            **Earnings**
            
            **Equity****Balances
                as of beginning of development stage May 18,
                2004**
            
            
            **14,407,630**
            
            **$**
            **14,407**
            
            
            **3,870,000**
            
            **$**
            **3,870**
            
            **$**
            **14,225,974**
            
            **$**
            **—**
            
            **$**
            **(11,681,500**
            **)**
            **$**
            **2,562,751**Issued
                shares for compensation
            
            
            27,945,000
            
            
            27,945
            
            
            —
            
            
            —
            
            
            25,423,555
            
            
            (25,451,500
            )
            
            —
            
            
            —Issued
                shares for services
            
            
            4,910,000
            
            
            4,910
            
            
            —
            
            
            —
            
            
            4,850,090
            
            
            (535,000
            )
            
            —
            
            
            4,320,000Issued
                shares for acquisition of equipment
            
            
            15,000,000
            
            
            15,000
            
            
            —
            
            
            —
            
            
            13,485,000
            
            
            —
            
            
            —
            
            
            13,500,000Stock
                option expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            626,100
            
            
            (626,100
            )
            
            —
            
            
            —Issued
                shares for cash
            
            
            242,167
            
            
            242
            
            
            —
            
            
            —
            
            
            314,575
            
            
            —
            
            
            —
            
            
            314,817Cancelled
                shares per cancellation of agreement
            
            
            (160,000
            )
            
            (160
            )
            
            —
            
            
            —
            
            
            (71,840
            )
            
            —
            
            
            —
            
            
            (72,000
            )Issued
                shares to convert Series A preferred shares to common shares
            
            
            3,000,324
            
            
            3,001
            
            
            (3,870,000
            )
            
            (3,870
            )
            
            3,377,974
            
            
            —
            
            
            (3,380,975
            )
            
            (3,870
            )Stock
                based compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            8,311,012
            
            
            —
            
            
            8,311,012Net
                reclassification of derivative liabilities
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (3,347,077
            )
            
            —
            
            
            —
            
            
            (3,347,077
            )Net
                loss (from May 18, 2004 to December 31, 2004)
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (15,236,339
            )
            
            (15,236,339
            )**Balances,
                December 31, 2004**
            
            
            **65,345,121**
            
            **$**
            **65,345**
            
            
            **—**
            
            **$**
            **—**
            
            **$**
            **58,884,351**
            
            **$**
            **(18,301,588**
            **)**
            **$**
            **(30,298,814**
            **)**
            **$**
            **10,349,294**Cancelled
                shares returned from employee
            
            
            (1,120,000
            )
            
            (1,120
            )
            
            —
            
            
            —
            
            
            (1,307,855
            )
            
            —
            
            
            —
            
            
            (1,308,975
            )Issued
                shares for compensation
            
            
            140,000
            
            
            140
            
            
            —
            
            
            —
            
            
            41,860
            
            
            —
            
            
            —
            
            
            42,000Issued
                shares for services
            
            
            850,000
            
            
            850
            
            
            —
            
            
            —
            
            
            155,150
            
            
            —
            
            
            —
            
            
            156,000Amortize
                deferred compensation expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            13,222,517
            
            
            —
            
            
            13,222,517Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (27,134,865
            )
            
            (27,134,865
            )**Balances,
                December 31, 2005**
            
            
            **65,215,121**
            ****
            **$**
            **65,215**
            ****
            ****
            **—**
            ****
            **$**
            **—**
            ****
            **$**
            **57,773,506**
            ****
            **$**
            **(5,079,071**
            **)**
            **$**
            **(57,433,679**
            **)**
            **$**
            **(4,674,029**
            **)**Issued
                shares for services
            
            
            2,449,990
            
            
            2,449
            
            
            —
            
            
            —
            
            
            311,865
            
            
            —
            
            
            —
            
            
            314,314Issued
                shares for cash
            
            
            2,452,746
            
            
            2,452
            
            
            —
            
            
            —
            
            
            222,548
            
            
            —
            
            
            —
            
            
            225,000Issued
                shares for compensation
            
            
            1,253,098
            
            
            1,254
            
            
            —
            
            
            —
            
            
            176,763
            
            
            —
            
            
            —
            
            
            178,017Adoption
                of FAS 123R
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (475,324
            )
            
            475,324
            
            
            —
            
            
            —Amortize
                deferred compensation expense
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            4,603,747
            
            
            —
            
            
            4,603,747Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (6,415,968
            )
            
            (6,415,968
            )**Balances,
                December 31, 2006**
            
            
            **71,370,955**
            ****
            **$**
            **71,370**
            ****
            ****
            **—**
            ****
            **$**
            **—**
            ****
            **$**
            **58,009,358**
            ****
            **$**
            **—**
            ****
            **$**
            **(63,849,648**
            **)**
            **$**
            **(5,768,920**
            **)**Issued
                shares for services
            
            
            1,810,000
            
            
            1,810
            
            
            —
            
            
            —
            
            
            282,390
            
            
            —
            
            
            —
            
            
            284,200Issued
                shares for conversion of debt
            
            
            22,265,224
            
            
            22,264
            
            
            —
            
            
            —
            
            
            606,412
            
            
            —
            
            
            —
            
            
            628,676Issued
                shares for warrants exercised
            
            
            5,270,832
            
            
            5,272
            
            
            —
            
            
            —
            
            
            336,396
            
            
            —
            
            
            —
            
            
            341,668Issued
                shares for cash
            
            
            7,630,625
            
            
            7,632
            
            
            —
            
            
            —
            
            
            992,818
            
            
            —
            
            
            —
            
            
            1,000,450Placement
                agent fees
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (58,500
            )
            
            —
            
            
            —
            
            
            (58,500
            )Stock
                received
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            100
            
            
            —
            
            
            —
            
            
            100Unreturned
                shares
            
            
            5,000
            
            
            5
            
            
            —
            
            
            —
            
            
            4,495
            
            
            —
            
            
            —
            
            
            4,500Deemed
                dividend
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            17,635
            
            
            —
            
            
            (17,635
            )
            
            —Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            
            
            
            —
            
            
            (5,216,288
            )
            
            (5,216,288
            )**Balances,
                December 31, 2007**
            
            
            **108,352,636**
            ****
            **$**
            **108,353**
            ****
            ****
            **—**
            ****
            **$**
            **—**
            ****
            **$**
            **60,191,104**
            ****
            **$**
            **—**
            ****
            **$**
            **(69,083,571**
            **)**
            **$**
            **(8,784,114**
            **)**


4





**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**STATEMENT
      OF STOCKHOLDERS' DEFICIT (CONTINUED)**


**FROM
      INCEPTION TO JUNE 30, 2008**




**Common Stock**
            
            **Preferred Stock**
            
            **Additional**
              **Paid In**
            
            **Deferred**
              **Compensation**
            
            **Retained****Shares**
            
            **Par Value**
            
            **Shares**
            
            **Par Value**
            
            **Capital**
            
            **Expense**
            
            **Earnings**
            
            **Equity****Balances, December
                31, 2007**
            
            
            **108,352,636**
            
            **$**
            **108,353**
            
            
            **3,870,000**
            
            **$**
            —
            
            **$**
            **60,191,104**
            
            **$**
            **—**
            
            **$**
            **(11,681,500**
            **)**
            **$**
            **(8,784,114**
            **)**Issued
                shares for services
            
            
            9,082,910
            
            
            9,083
            
            
            —
            
            
            —
            
            
            757,258
            
            
            —
            
            
            —
            
            
            766,341Issued
                shares for cash
            
            
            7,492,875
            
            
            7,493
            
            
            —
            
            
            —
            
            
            639,911
            
            
            —
            
            
            —
            
            
            647,404Issued
                shares for conversion of debt
            
            
            16,932,536
            
            
            16,933
            
            
            —
                —
            
            
            —
            
            
            1,448,054
            
            
            —
            
            
            —
            
            
            1,464,987Issued
                shares for lawsuit settlement
            
            
            325,000
            
            
            325
            
            
            —
                —
            
            
            —
            
            
            30,555
            
            
            —
            
            
            —
            
            
            30,880Issued
                shares for payables
            
            
            833,333
            
            
            833
            
            
            —
            
            
            —
            
            
            97,167
            
            
            —
            
            
            —
            
            
            98,000Issued
                preferred shares
            
            
            —
            
            
            —
            
            
            3,000,000
            
            
            3,000
            
            
            357,000
            
            
            —
            
            
            —
            
            
            360,000Deemed
                dividend
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            12,072
            
            
            —
            
            
            (12,072
            )
            
            **—**-Net
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            211,388
            
            
            211,388**Balances,
                June 30, 2008**
            
            
            **143,019,290**
            
            **$**
            **143,020**
            
            
            **3,000,000**
            
            **$**
            **3,000**
            
            **$**
            **63,533,121**
            
            **$**
            —
            
            **$**
            **(68,884,255**
            **)**
            **$**
            **(55,205,114**
            **)**




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


5


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**STATEMENTS
      OF CASH FLOWS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**and
      the period from May 18, 2004 (inception) through June 30,
      2008**


**(unaudited)**





**June 30, 2008**
            
            **June 30, 2007**
              **(restated)**
            
            **Period from**
              **May 18, 2004 through**
              **June 30, 2008**Operating
                Activities:Net
                income (loss)
            
            $
            211,388
            
            $
            (9,049,831
            )
            $
            (53,792,075
            )Adjustments
                to reconcile net income (loss) to net cash used in operating
                activities:(Gain)
                loss on conversion of financial instruments
            
            
            2,384
            
            
            (1,093,014
            )
            
            (1,542,190
            )Impairment
                of goodwill
            
            
            —
            
            
            —
            
            
            13,371,776Impairment
                of intangible assets
            
            
            —
            
            
            —
            
            
            179,788Loss
                on previously capitalized lease
            
            
            —
            
            
            —
            
            
            34,243Amortization
                of debt discounts and deferred finance costs
            
            
            444,549
            
            
            1,299,375
            
            
            2,971,291Change
                in derivative liability, net of bifurcation
            
            
            (2,420,860
            )
            
            7,016,852
            
            
            (3,874,822
            )Stock
                based compensation
            
            
            576,341
            
            
            236,200
            
            
            33,232,386Stock
                issued for settlement of lawsuit
            
            
            30,880
            
            
            —
            
            
            30,880Depreciation
                expense
            
            
            1,146
            
            
            12,293
            
            
            100,106Other
                non cash items
            
            
            —
            
            
            —
            
            
            (34,933
            )Changes
                in operating assets and liabilities:Prepaid
                expenses and other current assets
            
            
            616
            
            
            (35,973
            )
            
            170,553Accounts
                payable and other liabilities
            
            
            146,241
            
            
            558,745
            
            
            2,761,049Net
                cash used in operating activities
            
            
            (1,007,315
            )
            
            (1,055,353
            )
            
            (6,391,948
            )Investing
                Activities:Capital
                expenditures, net
            
            
            (2,798
            )
            
            —
            
            
            (141,800
            )Increase
                in other assets
            
            
            —
            
            
            —
            
            
            (179,786
            )Net
                cash used in investing activities
            
            
            (2,798
            )
            
            —
            
            
            (321,586
            )Financing
                Activities:Proceeds
                from borrowings under notes payable, net
            
            
            290,000
            
            
            875,000
            
            
            3,318,430Proceeds
                from sale of common stock
            
            
            647,404
            
            
            650,000
            
            
            2,264,171Principal
                payments on long term debt
            
            
            —
            
            
            (20,000
            )
            
            (32,478
            )Borrowing
                on debt related party
            
            
            45,000
            
            
            107,770
            
            
            75,376Principal
                payments on notes payable related party
            
            
            —
            
            
            (17,300
            )
            
            (17,300
            )Proceeds
                from CD, warrants and rights net of issuance cost
            
            
            —
            
            
            66,667
            
            
            1,200,709Net
                cash provided by financing activities
            
            
            982,404
            
            
            1,662,137
            
            
            6,808,908Net
                change in cash and cash equivalents
            
            
            (27,709
            )
            
            606,784
            
            
            95,374Cash
                and cash equivalents, beginning of period
            
            
            125,679
            
            
            40,602
            
            
            2,596Cash
                and cash equivalents, end of period
            
            $
            97,970
            
            $
            647,386
            
            $
            97,970




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


6


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**STATEMENTS
      OF CASH FLOWS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**and
      the period from May 18, 2004 (inception) through June 30,
      2008**


**(unaudited)**





**June 30,**
              **2008**
            
            **June 30,**
              **2007**
              **(restated)**
            
            **Period from**
              **May 18, 2004**
              **through**
              **June 30, 2008**Supplemental disclosures
                of cash flow informationCash
                paid for:Interest
            
            $
            —
            
            $
            —
            
            $
            59,840Income
                taxes
            
            $
            —
            
            $
            —
            
            $
            —Non-cash
                transactionsRestatement
                of notes payable to notes payable related parties
            
            $
            —
            
            $
            —
            
            $
            1,393,346Exchange
                of convertible notes for stock
            
            $
            1,357,333
            
            $
            1,531,638
            
            $
            2,917,137Stock
                issued for settlement of payables
            
            $
            83,270
            
            $
            —
            
            $
            89,967Deemed
                dividend
            
            $
            12,072
            
            $
            —
            
            $
            29,707Exchange
                of convertible preferred stock for common stock
            
            $
            —
            
            $
            —
            
            $
            3,380,975Preferred
                stock issued for payables
            
            $
            360,000
            
            $
            —
            
            $
            360,000Stock
                held in escrow
            
            $
            190,000
            
            $
            —
            
            $
            190,000





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




7





**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**NOTES
      TO FINANCIAL STATEMENTS** ****




***NOTE
      1. BASIS OF PRESENTATION*** ****




The
      accompanying unaudited interim financial statements of Power3 Medical Products,
      Inc. (“Power3”or the “Company”) at June 30, 2008, have been prepared without
      audit, pursuant to the rules and regulations of the Securities and Exchange
      Commission. Certain information and footnote disclosures normally included
      in
      financial statements prepared in conformity with generally accepted accounting
      principles have been omitted or condensed pursuant to such rules and
      regulations. These statements should be read in conjunction with Power3’s
      Form 10-KSB for the year ended December 31, 2007. In management’s
      opinion, these interim financial statements reflect all adjustments (consisting
      of normal and recurring adjustments) necessary for a fair presentation of the
      financial position, results of operations and cash flows for the interim periods
      presented herein. The results of operations for interim periods are not
      necessarily indicative of the results to be expected for the full
      year.




**Restatements**





Restatements
      of previously reported financial results for the six month period ended June
      30,
      2007, were made. See Note 7.




**Earnings
      Per Share**




Basic
      and
      diluted earnings per share calculations are calculated on the basis of the
      weighted average number of common shares outstanding during the year. The per
      share amounts include the dilutive effect of common stock equivalents in years
      with net income.




Earnings
      per share for the six month period ended June 30, 2008 is computed as follows:




Net
                Income
                (Numerator)
              
              Shares
                (Denominator)
              
              Per-Share
                Amount$
              211,388Basic
                  EPSIncome
                  available to common stockholders
              
              $
              199,316
              
              
              121,821,879
              
              $
              0.00Effective
                  Dilutive EPS *Income
                  available to common stockholders
              
              $
              199,316
              
              
              128,560,062
              
              $
              0.00




*As
      of
      June 30, 2008, Power3 has 121,821,879 weighted average shares outstanding.
      The
      Company uses the treasury stock method to determine whether any outstanding
      options or warrants are to be included in the diluted earnings per share
      calculation.  As of June 30, 2008, Power3 had 33,070,328 shares issuable on
      warrants exercisable as follows:




Exercise Price
            
            Number Of
              Shares
              Issuable
            
            Proceeds$
            0.04
            
            
            2,125,000
            
            $
            85,0000.06
            
            
            3,708,333
            
            
            222,5000.08
            
            
            12,845,829
            
            
            1,027,6660.09
            
            
            833,333
            
            
            75,0000.10
            
            
            13,557,833
            
            
            1,355,78333,070,328
            
            $
            2,765,950




8




Using
      an
      average share price for the six month period ended June 30, 2008 of $0.105,
      the
      warrants result in a net additional possible dilution of 6,738,183 shares. 
This results in 128,560,062 shares used in the above calculation. An
      additional 4,586,266 warrants have been earned, but are not “in the money” and
      are therefore not included in this calculation, due to their anti-dilutive
      effect.




***NOTE
      2. GOING CONCERN***




As
      shown
      in the accompanying financial statements, Power3 has an accumulated deficit
      of
      $68,884,255 as of June 30, 2008 and negative operating cash flows since
      inception of approximately $6,400,000. These conditions create an uncertainty
      as
      to Power3's ability to continue as a going concern.




Management
      is trying to raise additional capital through various funding arrangements.
      The
      financial statements do not include any adjustment that might be necessary
      if
      Power3 is unable to continue as a going concern.




***NOTE
      3. FINANCING ARRANGEMENTS***




**Securities
      Purchase Agreement—Convertible Debentures**




The
      Company entered into a Securities Purchase Agreement, dated October 28,
      2004 (the “Agreement”) with certain accredited investors (the “Purchasers”).
      Pursuant to the Agreement, the Purchasers agreed to purchase convertible
      debentures due three (3) years from the date of issuance in the aggregate
      principal amount of $3,000,000. The Agreement also provides warrants to purchase
      shares of the Company's common stock and additional investment rights to
      purchase additional convertible debentures. In connection with the Agreement,
      the Company also entered into a Registration Rights Agreement with the
      Purchasers that requires the Company to (i) file a registration statement with
      the SEC registering the resale of the shares of common stock issuable upon
      conversion of the debentures and the exercise of the warrants, (ii) achieve
      effectiveness within a stated period and (iii) maintain effectiveness of the
      registration statement. Failure to meet these requirements will require the
      Company to incur liquidating damages amounting to 2.0% for each
      month.




On
      October 28, 2004, the Company issued the Purchasers the first $1,000,000 in
      aggregate principal amount of such debentures at the initial closing under
      the
      Agreement. Effective January 26, 2005, the Company issued and sold, to a
      sub-group of the original investors, a second tranche of $400,000 aggregate
      principal amount of debentures. Subject to the conditions set forth in the
      Agreement, all purchasers are required to purchase the remaining $1,600,000
      in
      aggregate principal amount of such debentures at the final closing, which is
      to
      occur on or before the fifth trading day after the effective date of the
      registration statement. The Company is currently in default under the Agreement
      and the previously issued debentures and related registration rights agreement,
      and therefore the conditions of the Agreement will not be satisfied or otherwise
      met on a timely basis. Consequently, there are no assurances that the Purchasers
      will purchase all or any portion of the remaining $1,600,000 aggregate principal
      amount of debentures. The $1,400,000 aggregate principal amount of debentures
      that were issued October 28, 2004 and January 26, 2005 are due and
      payable in accordance with their original terms in full three years after the
      date of issuance and bear interest at a default rate of 18%. The debentures
      are
      convertible into shares of common stock at the following conversion price,
      which
      varies relative to the Company’s trading stock price, as follows: $0.90 per
      share, provided however if the lesser of (i) 75% of the average of the 5
      consecutive Closing Prices immediately prior to the Effective Date, as defined
      in the Securities Purchase Agreement, and (ii) the Closing Price on the
      Effective Date (the lesser of (i) and (ii) being referred to as the “Effective
      Date Price”) is less than the Conversion Price, the Conversion Price shall be
      reduced to equal the Effective Date Price.




Under
      the
      Agreements, the Purchasers also received warrants to purchase an aggregate
      of up
      to 2,500,000 and 333,333 shares of common stock for tranche one and two,
      respectively, and additional investment rights to purchase up to an additional
      $2,500,000 of convertible debentures. The warrants are exercisable at a price
      of
      $0.08 per share, subject to adjustment, including anti-dilution protection.
      The
      additional investment rights are exercisable at a price equal to the principal
      amount of the debentures to be purchased, for (1) a period of nine months
      following the effective date of the registration statement to be filed pursuant
      to the Registration Rights Agreement, or (2) a period of 18 months from the
      date
      of issuance of the additional investment rights, whichever is shorter. The
      rights debentures will have the same terms as the debentures described above,
      except that the conversion price will be equal to $1.08.




9


The
      Company is in default under the provisions of the Agreement, Registration Rights
      Agreement and previously issued debentures. The aggregate amount payable upon
      an
      acceleration by reason of an event of default is equal to the greater of 130%
      of
      the principal amount of the debentures to be prepaid or the principal amount
      of
      the debentures to be prepaid, divided by the conversion price on the date
      specified in the debenture, multiplied by the closing price on the date set
      forth in the debenture. The default stems from the Company’s inability to obtain
      effectiveness of the registration statement on Form SB-2, as amended (File
      No. 333-122227) filed pursuant to the registration rights agreement. The
      registration statement was withdrawn on June 20, 2007. As of the six months
      ended June 30, 2008, the Company has settled with a number of its convertible
      debenture holders and expects to settle with the remaining convertible debenture
      holders in 2008.




Of
      the
      $1,400,000 Convertible Debentures mentioned above the Company has settled
      $884,990 as of the six months ended June 30, 2008 and the year ended December
      31, 2007, resulting in a balance of $515,010 at June 30, 2008.




On
      April 3, 2007, the Company entered into a joint venture agreement with
      NeoGenomics to form a Contract Research Organization (CRO) and collaborate
      on
      research work in the future. Currently, Power3 and NeoGenomics are in discussion
      to revise the expired Letter of Intent between the respective organizations.




On
      June
      30, 2008, the Company issued a $200,000 15% convertible debenture with
      detachable warrants to purchase 3,500,000 shares of common stock to Able Income
      Fund LLC. The note has a maturity date of September 15, 2009. The warrants
      have
      a five-year term and a strike price of $0.06.




Power3
      has converted several notes and plans to continue doing so. In some instances,
      Power3 has offered terms of conversion lower than the original agreement
      including raising the strike price of warrants attached to these instruments.
      As
      a result of this additional consideration, upon conversion the Company recorded
      a $122,384 loss on the conversion of notes during the six months ended June
      30,
      2008. The change in the conversion terms represented greater than 10% of the
      principal value of the notes and as a result extinguishment accounting has
      been
      applied consistent with EITF 96-19.




As
      a
      result of the convertible debentures, Power3 has determined that the conversion
      feature of the convertible debentures and the warrants issued with the
      convertible debentures are embedded derivative instruments pursuant to Statement
      of Financial Accounting Standards (SFAS) 133, “Accounting for Derivative
      Instruments and Hedging Activities,” as amended. Under the provisions of EITF
      Issue No. 00−19, “Accounting for Derivative Financial Instruments Indexed
      to, and Potentially Settled in, a Company’s Own Stock,” the accounting treatment
      of these derivative financial instruments requires that the Company record
      the
      derivatives at their fair values as of the inception date of the note agreements
      and at fair value as of each subsequent balance sheet date as a liability.
      Any
      change in fair value is recorded as non-operating, non-cash income or expense
      at
      each balance sheet date. The Company estimates fair value of warrants using
      the
      Black−Scholes option pricing model and the conversion feature of their notes
      using the binomial lattice model. The estimates inherent within these models
      directly affect the reported amounts of the derivative instrument
      liabilities.




**Deemed
      Dividend**




As
      part
      of Power3’s attempt to induce warrant holders to exercise its warrants, the
      strike price of certain warrants was reduced resulting in a deemed dividend
      of
      $12,072, consistent with EITF 98-5. The deemed dividend was valued using the
      Black-Scholes model immediately before and after the inducement consistent
      with
      paragraph 51 of SFAS 123R.




10


**Convertible
      Debentures, Warrants and Additional Investment Rights:**




The
      carrying values of the Company’s convertible debentures amounted to $642,542 and
      $645,190, at June 30, 2008 and December 31, 2007, as follows.


**As
                    of**
                
                **As
                    of****June
                    30,**
                
                **December
                    31,****2008**
                
                **2007****Convertible
                    Debentures:**Securities
                    Purchase Agreement Holders
                
                $
                515,010
                
                $
                515,010Discount
                
                
                —
                
                
                (86,844
                )Note
                    3:Chosid
                
                
                —
                
                
                200,000Wood
                
                
                —
                
                
                120,000Seyburn
                
                
                100,000
                
                
                100,000Discount
                    on Note 3
                
                
                —
                
                
                (210,417
                )Note
                    4:NeoGenomics
                
                
                200,000
                
                
                200,000Discount
                    on Note 4
                
                
                (172,468
                )
                
                (192,559
                )Note
                    5:Able
                    Income Fund
                
                
                200,000
                
                
                —Discount
                    on Note 5
                
                
                (200,000
                )
                
                —**Totals**
                
                $
                642,542
                
                $
                645,190




The
      following tabular presentation reflects the components of derivative financial
      instruments on the Company’s balance sheet at June 30, 2008 and
      December 31, 2007:





**Derivative
                Liabilities:**
            
            **June
                30,**
              **2008**
            
            **December
                31,**
              **2007**Common
                stock warrants
            
            $
            526,146
            
            $
            1,563,183Embedded
                conversion feature
            
            
            737,022
            
            
            1,205,719Additional
                investment rights
            
            
            214,588
            
            
            642,792Other
                derivative instruments
            
            
            95,709
            
            
            382,611$
            1,573,445
            
            $
            3,794,305





The
      fair
      values of certain other derivative financial instruments (warrants) that existed
      at the time of the initial Debenture Financing were re-classed from
      stockholders’ equity to liabilities when, in connection with the Debenture
      Financing, the Company no longer controlled its ability to share-settle these
      instruments.




**Other
      Notes, Preferred Stock and Warrants:**




During
      November and December 2005, the Company issued $300,000 (2 tranches of
      $150,000) face value, 11% notes and detachable warrants to purchase 2,000,000
      shares of common stock to Trinity Financing Investments Corporation. The
      warrants have eight-year terms and strike prices of $0.25 for 1,000,000 shares
      and $0.14 for 1,000,000 shares. The note was paid in full as of the year ended
      December 31, 2007.




Other
      derivative financial instruments consist of various warrants that were issued
      prior to and subsequent to the debenture financing and were reclassified from
      stockholders’ equity or initially accounted for as liabilities, at fair values,
      since share-settlement was not within the Company’s control after the debenture
      financing.




**Notes
      Payable, in Default and to Related Parties**




The
      total
      Notes Payable to related parties decreased from $1,934,816 as of the year ended
      December 31, 2007, to $1,055,360 as of the period ended June 30, 2008 as
      follows:




**As of**
              **June 30,**
              **2008**
            
            **As of**
              **December 31,**
              **2007****Notes
                payable in default:**Cordillera
                I
            
            $
            251,000
            
            $
            251,000Cordillera
                II
            
            $
            200,000
            
            $
            200,000**Totals**
            
            $
            451,000
            
            $
            451,000**Notes
                payable:**Kazanowski
            
            $
            50,000
            
            $
            50,000Kronshage
            
            $
            55,000
            
            $
            —Heller
            
            $
            35,000
            
            $
            —$
            140,000
            
            $
            50,000**Notes
                payable - related parties:**Rash
            
            $
            45,000
            
            $
            924,456Goldknopf
            
            $
            975,360
            
            $
            975,360Rosinski
            
            $
            35,000
            
            $
            35,000**Totals**
            
            $
            1,055,360
            
            $
            1,934,816




11




***NOTE
      4. OTHER SIGNIFICANT EQUITY TRANSACTIONS***




**Deemed
      distribution:**


****


During
      the 2 nd Quarter
      of 2004, the Company issued 15,000,000 shares of common stock as consideration
      for a set of assets and liabilities purchased from Advanced BioChem in the
      asset
      purchase transaction of May 18, 2004.  Because this transaction was
      between individuals and entities considered to be related parties, under the
      rules of the SEC, the assets are recorded at historical cost and the amount
      in excess of historical cost is considered to be a deemed distribution to the
      shareholders. As part of that transaction, the Company recorded a deemed
      distribution of $ 13,371,776 as the difference between the market value of
      the
      stock at $0.90 per share on the date of the agreement ($13,500,000) and
      $128,224, debt in excess of the assets received in the transaction.




During
      the 4 th Quarter
      of 2004, the Company converted Series A Preferred Stock owned by former
      management of the Company to common shares, per the terms of the Series A
      Preferred Stock held by these individuals (Novak, Gray and Leonard).  As
      part of that transaction the Company recorded a deemed distribution of
      $3,380,975, the market value of the common shares issued at the date of issue
      of
      the common shares.  Since both of these deemed distributions occurred after
      May 18, 2004, the date the Company entered the development stage, the total
      of these two deemed distributions ($16,752,751) is included in the deficit
      accumulated during the development stage in the balance sheet of the
      Company.





**Deemed
      dividend:**




As
      part
      of Power3’s attempt to induce exercise, the strike price of several warrants was
      reduced resulting in a deemed dividend of $12,072 and $17,635, consistent with
      EITF 98-5, for the six months ended June 30, 2008 and the year ended December
      31, 2007, respectively. The deemed dividends were valued using the Black−Scholes
      model immediately before and after the inducement consistent with paragraph
      51
      of SFAS 123R.




**Preferred
      shares issued during the six-month period ended June 30,
      2008:**




3,000,000
      shares of preferred Series B stock were issued to officers of the Company
      pursuant to employment agreements. The shares were valued at $360,000 based
      upon
      the closing price of our common stock at the grant date resulting in a gain
      on
      extinguishment of debt of $120,000.




**Shares
      issued for cash during the six-month period ended June 30,
      2008:**




7,492,875
      shares of common stock were issued for cash to private investors in the amount
      of $647,404.




**Shares
      issued for payables during the six-month period ended June 30,
      2008:**




833,333
      shares of common stock were issued in payment on outstanding invoices for
      services. The shares were valued at $98,000 based upon the closing price of
      our
      common stock at the grant date resulting in a loss on extinguishment of debt
      of
      $14,730.




**Shares
      issued for services during the six-month period ended June 30,
      2008:**




9,082,910
      shares of common stock were issued for services to employees and consultants.
      The shares were valued at $766,341 based upon the closing price of our common
      stock at the grant date. 2,000,000 of these shares are being held in
      escrow.




**Shares
      issued in settlement of legal proceedings during the six-month period ended
      June
      30, 2008:**




325,000
      shares of common stock were issued in settlement of a dispute with a former
      employee as mentioned above. The shares were valued at $30,880 based upon the
      closing price of our common stock at the grant date. ****




12


**Shares
      issued for conversion of debt during the six-month period ended June 30,
      2008:**




16,932,536
      shares of common stock were issued for conversion of convertible notes in the
      amount of $1,357,333 as discussed in Note 3 above resulting in a loss on
      extinguishment of debt of $107,654.




***NOTE
      5. COMMITMENTS AND CONTINGENCES***




On
      October 28, 2005, Power3 received notice of a Petition to Enforce Foreign
      Judgment citation filed against the Company by KForce regarding an employment
      fee adjudicated in December 2003 in the state of Florida against the Company,
      in
      the amount of $15,873, together with $4,735 in interest. Power3 does not agree
      with the Foreign Judgment and is attempting to resolve the issue prior to
      enforcement. No resolution has been achieved on this issue at this time; however
      the Company is endeavoring to resolve the petition. This debt is not recorded
      in
      accounts payable by the Company because it is the Company’s position that the
      judgment should never have been entered against Power3, but rather against
      a
      different corporate entity, not related to Power3 in any way, at this time.
      The
      Company’s attorney in this matter feels that no loss is probable, nor will the
      Company be obligated to pay any sums whatsoever on this matter. The Company
      has
      pled improper party and expects to be vacated from the suit since it does not
      apply to the Company. Power3 has counterclaimed KForce for frivolous
      claims.




On
      March
      12, 2008, all
      matters involving the dispute over the taking, by an ex-employee, of
      certain trade secrets, defamation and wrongful interference with Power3's
      contractual relations with other parties, and a pendent wage claim for severance
      pay, were resolved. In settlement the Company has paid the ex-employee $35,000
      and has issued to the ex-employee 325,000 shares of the Company’s common stock
      with restrictions.




In
      October of 2006, Trinity Financing filed a lawsuit
      against the Company claiming default on a promissory note dated December 9,
      2005. As security for the Note, Steven Rash and Ira Goldknopf pledged their
      personal restricted shares of the Company's stock. As a result of the alleged
      default in payment of the Note, Trinity Financing seeks to have the restrictive
      legend removed so the shares may be sold by Trinity Financing in satisfaction
      of
      the loan. The Company denied the material allegations and asserted three
      counterclaims against Trinity Financing. The company asserted that the Note,
      as
      well as a prior promissory note executed in favor of Trinity Financing, are
      usurious. The matter was settled February 4, 2008 with the removal of the
      restrictive legend.




On
      August 13, 2007, Gryphon Master Fund, LP and GSFF
      Master Fund, LP filed a lawsuit against the Company claiming a breach of a
      Securities Purchase Agreement, Convertible Debentures, and Registration Rights
      Agreement. The plaintiffs claimed the Company failed to timely obtain an
      effective registration statement for the shares issued to the plaintiffs and
      refused to recognize anti-dilution rights of the plaintiffs. The Company denies
      the material allegations of the complaint and asserts numerous affirmative
      defenses. Power3 entered into settlement negotiations as of April 20, 2008.
      On
      August 13, 2008 the claim above, note, warrants, and all applicable penalties
      were settled in exchange for 5,240,000 shares of common stock valued at
      approximately $420,000 based upon the closing price of our common stock at
      the
      settlement date.




***NOTE
      6. SUBSEQUENT EVENTS***




On
      July
      18, 2008 the Company entered into a private offering with Golden Gate Investors,
      Inc. for an aggregate of up to $1,000,000 of 6% convertible
      debentures.




On
      July
      28, 2008 the Company issued 800,000 shares of common stock in payment of legal
      services. The shares were valued at $68,000 based upon the closing price of
      our
      common stock at the grant date.




On
      July
      29, 2008 the Company issued a $250,000, 15% convertible debenture with
      detachable warrants to purchase 4,500,000 shares of common stock to Able Income
      Fund LLC. The note has a maturity date of October 15, 2009. The warrants have
      a
      five-year term and a strike price of $0.06.




On
      August 13, 2008 our lawsuit with Gryphon Master Fund
      was settled and as a result the related note, warrants, and all applicable
      penalties were settled in exchange for 5,240,000 shares of common stock valued
      at approximately $420,000 based upon the closing price of our common stock
      at
      the settlement date.




***NOTE
      7. RESTATEMENT***




The
      Company has identified certain accounting errors related to derivative
      liabilities which resulted in changes to derivative loss, interest expense
      and
      loss on conversion of financial instruments among other errors.





The
      effect on the statement of operations for the six months ended June 30, 2007
      as
      a result of the adjustments was an increase in net loss of $2,161,894 and a
      $0.03 increase in net loss per share.





The
      effect on the balance sheet was an increase of $2,971,435 in total
      liabilities.





In
      all
      other material respects, the financial statements are unchanged.




13


Following
      is a summary of the unaudited restatement adjustments:





As
      of
      June 30, 2007


SUMMARY
      BALANCE SHEET


(unaudited)


**As Reported**
              **(unaudited)**
            
            **Adjustment**
            
            **As Restated**
              **(unaudited)****ASSETS**CURRENT
                ASSETSCash
                and Cash Equivalents
            
            $
            647,387
            
            $
            —
            
            $
            647,387Other
                Current Assets
            
            
            900
            
            
            —
            
            
            900TOTAL
                CURRENT ASSETS
            
            
            648,287
            
            
            
            
            
            648,287OTHER
                ASSETSDeferred
                Finance Costs, net of amortization
            
            
            113,569
            
            
            92,256
            
            
            205,825Intellectual
                Property
            
            
            179,786
            
            
            —
            
            
            179,786Furniture,
                Fixtures and Equipment, net of accumulated depreciation
            
            
            4,082
            
            
            —
            
            
            4,082Deposits
            
            
            41,073
            
            
            —
            
            
            41,073**TOTAL
                ASSETS**
            
            $
            986,797
            
            $
            92,256
            
            $
            1,079,053**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**CURRENT
                LIABILITIESAccounts
                Payable
            
            $
            983,725
            
            $
            —
            
            $
            983,725Notes
                Payable – in default
            
            
            511,822
            
            
            —
            
            
            511,822Notes
                Payable to Related Parties
            
            
            1,754,440
            
            
            30,376
            ) (a)
            
            1,784,816Convertible
                Debentures-in default, net of amortization
            
            
            1,053,455
            
            
            (623,164
            ) (b)
            
            430,291Other
                Current Liabilities
            
            
            1,653,880
            
            
            (214,301
            ) (c)
            
            1,439,579Derivative
                Liabilities
            
            
            5,577,455
            
            
            3,778,524
            (b)
            
            9,355,979**TOTAL
                LIABILITIES**
            
            
            11,534,777
            
            
            2,971,435
            
            
            14,506,212**STOCKHOLDERS’
                DEFICIT**Preferred
                Stock
            
            
            —
            
            
            —
            
            
            —Common
                Stock
            
            
            94,181
            
            
            5
            (d)
            
            94,186Additional
                Paid-In Capital
            
            
            60,095,424
            
            
            (717,290
            ) (d)
            
            59,378,134Deficit
                Accumulated Before Entering Development Stage
            
            
            (11,681,500
            )
            
            —
            
            
            (11,681,500
            )Deficit
                Accumulated During Development Stage
            
            
            (59,056,085
            )
            
            (2,161,894
            )
                (e)
            
            (61,217,979
            )TOTAL
                STOCKHOLDERS’ DEFICIT
            
            
            (10,547,980
            )
            
            (2,879,179
            )
            
            (13,427,159
            )**TOTAL
                    LIABILITIES AND STOCKHOLDERS’ DEFICIT**
            
            $
            986,797
            
            $
            92,256
            
            $
            1,079,053





(a)
            To
                adjust notes payable to actual based upon previous errors.(b)
            To
                adjust to correct accounts associated with derivatives.(c)
            To
                adjust to correct accounts associated with derivative and to correct
                accrued interest.(d)
            To
                adjust to correct stock for conversion.(e)
            To
                adjust accumulated deficit largely due to errors associated with
                derivatives.




14




For
      the
      three months ended June 30, 2007


SUMMARY
      STATEMENT OF OPERATIONS


(unaudited)





**Three  MonthsEnded**
              **June 30, 2007**
            
            
            
            **Three  MonthsEnded**
              **June 30, 2007****As Reported**
              **(unaudited)**
            
            **Adjustments**
              **(unaudited)**
            
            **As Restated**
              **(unaudited)****REVENUE**Sales
            
            $
            —
            
            $
            —
            
            $
            —Total
                Revenue
            
            
            —
            
            
            —
            
            
            —**OPERATING
                EXPENSES**Employee
                compensation and benefits
            
            
            135,350
            
            
            185,553
            (a)
            
            320,903Professional
                and consulting fees
            
            
            177,339
            
            
            313,000
            (b)
            
            490,339Occupancy
                and equipment
            
            
            41,410
            
            
            7,228
            (c)
            
            48,638Travel
                and entertainment
            
            
            42,935
            
            
            —
            
            
            42,935Other
                selling, general and administrative expenses
            
            
            40,651
            
            
            17,610
            (a)
            
            58,261Total
                operating expenses
            
            
            437,685
            
            
            523,391
            
            
            961,076**LOSS
                FROM OPERATIONS**
            
            
            (437,685
            )
            
            (523,391
            )
            
            (961,076
            )**OTHER
                INCOME AND (EXPENSE)**Derivative
                gain (loss)
            
            
            (321,666
            )
            
            (322,819
            ) (e)
            
            (644,485
            )Gain
                on legal settlement
            
            
            —
            
            
            3,112
            (a)
            
            3,112Interest
                income
            
            
            2,092
            
            
            (3,112
            )
                (a)
            
            (1,020
            )Other
                expense
            
            
            —
            
            
            (398,317
            )
                (a)
            
            (398,317
            )Gain
                on conversion of financial instruments
            
            
            
            
            
            955,973
            (a)
            
            955,973Interest
                expense
            
            
            (511,567
            )
            
            (766,646
            ) (d)
            
            (1,278,213
            )Total
                other income (expense)
            
            
            (831,141
            )
            
            (531,809
            )
            
            (1,362,950
            )**NET
                LOSS**
            
            $
            (1,268,826
            )
            $
            (1,055,200
            )
            $
            (2,324,026
            )**NET
                LOSS PER SHARE****BASIC
                AND DILUTED**
            
            $
            (0.02
            )
            $
            (0.01
            )
            $
            (0.03
            )Weighted
                average number of sharesoutstanding
            
            
            83,793,113
            
            
            (825,194
            )
            
            82,967,919





(a)
            To
                adjust to correct account to actual based on previous
                errors.(b)
            To
                adjust to correct account associated with stock for
                services.(c)
            To
                correct account balance due to error in not accruing
                rent.(d)
            To
                adjust to correct accounts associated with
                derivatives.





For
      the
      six months ended June 30, 2007


SUMMARY
      STATEMENT OF OPERATIONS


(unaudited)


**Six Months**
              **Ended**
              **June 30, 2007**
            
            
            
            **Six Months**
              **Ended**
              **June 30, 2007****As Reported**
              **(unaudited)**
            
            **Adjustments**
              **(unaudited)**
            
            **As Restated**
              **(unaudited)****REVENUE**Sales
            
            $
            121,724
            
            $
            —
            
            $
            121,724Total
                revenue
            
            
            121,724
            
            
            —
            
            
            121,724**OPERATING
                EXPENSES**Employee
                compensation and benefits
            
            
            586,563
            
            
            (834
            ) (a)
            
            585,729Professional
                and consulting fees
            
            
            381,784
            
            
            201,000
            (b)
            
            582,784Occupancy
                and equipment
            
            
            74,382
            
            
            (3,201
            )
                (c)
            
            71,181Travel
                and entertainment
            
            
            60,745
            
            
            —
            
            
            60,745Other
                selling, general and administrative expenses
            
            
            89,723
            
            
            3,202
            (a)
            
            92,925Total
                operating expenses
            
            
            1,193,197
            
            
            200,167
            
            
            1,393,364**LOSS
                FROM OPERATIONS**
            
            
            (1,071,473
            )
            
            (200,167
            )
            
            (1,271,640
            )**OTHER
                INCOME AND (EXPENSE)**Derivative
                gain (loss)
            
            
            (3,809,107
            )
            
            (3,207,745
            )
                (d)
            
            (7,016,852
            )Interest
                income
            
            
            3,112
            
            
            —
            
            
            3,112Other
                expense
            
            
            (531,062
            )
            
            132,745
            (a)
            
            (398,317
            )Loss
                on conversion of financial instruments
            
            
            (397,871
            )
            
            1,490,885
            (a)
            
            1,093,014Interest
                expense
            
            
            (1,081,536
            )
            
            (377,612
            ) (d)
            
            (1,459,148
            )Total
                other income (expense)
            
            
            (5,816,464
            )
            
            (1,961,727
            )
            
            (7,778,191
            )**NET
                LOSS**
            
            $
            (6,887,937
            )
            $
            (2,161,894
            )
            $
            (9,049,831
            )**NET
                LOSS PER SHARE****BASIC
                AND DILUTED**
            
            $
            (0.09
            )
            $
            (0.03
            )
            $
            (0.12
            )Weighted
                average number of sharesoutstanding
            
            
            78,523,532
            
            
            (454,929
            )
            
            78,068,603




15




(a)
            To
                adjust to correct account to actual based on previous
                errors.(b)
            To
                adjust to correct account to actual based on previous
                errors.(c)
            To
                correct account balance due to error in not accruing
                rent.(d)
            To
                adjust to correct accounts associated with
                derivatives.





**Item
      2. Management’s Discussion and Analysis**




Power3
      Medical Products, Inc. (the “Company” or “Power3”) was incorporated in the State
      of Florida on May 15, 1992 and merged into a New York Corporation in 1994,
      under the name of Sheffield Acres, Inc. Power3 and its wholly owned
      subsidiaries, C5 Health, Inc. (“C5”), which was officially dissolved in the
      State of Delaware and in the State of Florida effective December 31, 2003
      and Power3 Medical, Inc., a Nevada Corporation, were engaged in sales,
      distribution and services for the healthcare industry. On September 12,
      2003 Surgical Safety Products, Inc. amended its Certificate of Incorporation
      to
      (a) declare a 1:50 reverse split of its common stock; (b) increase its
      authorized capital to 150,000,000 shares of common stock and 50,000,000 shares
      of preferred stock; and (c) change its name to Power3 Medical Products,
      Inc.




The
      Company transitioned to the development stage, from previously being an
      operating company, as of the Company’s asset purchase transaction with Advanced
      BioChem on May 18, 2004. As a development stage company, Power3 is
      primarily engaged in commercializing its intellectual properties in the area
      of
      diagnosis and treatment of breast cancer, ALS, Alzheimer’s disease and
      Parkinson’s disease.




**Series B
      Preferred Stock**




Pursuant
      to two employment agreements with two officers, the Company agreed to issue
      to
      such officers an aggregate of 3,000,000 shares of Series B Preferred Stock.
      On September 6, 2007, the Company filed the Certificate of Amendment
      necessary to designate the Series B Preferred Stock and the powers,
      designations and relative rights of the Series B Preferred Stock. 3,000,000
      shares of Series B Preferred Stock were issued to the two officers on April
      23, 2008.




**SCIENTIFIC
      DEVELOPMENTS**




**CLIA
      Certification**




On
      March
      25, 2008, Power3 received its CLIA (Clinical Laboratory Improvement Amendment)
      compliance recertification following a CLIA regulatory inspection. Power3 earned
      its CLIA recertification to offer high complexity tests after meeting standards
      for knowledge, training, expertise, quality control, quality assurance, and
      testing proficiency. With CLIA recertification, Power3 is able to continue
      offering its blood serum based tests, BC-SeraPro TM and
      NuroPro ® .
      Receipt
      of Power3’s CLIA recertification of compliance is a major milestone. This
      achievement reflects Power3’s desire to offer the highest quality proteomic
      tests in its continuing mission to commercialize the company’s proteomic
      discoveries and serve the medical and scientific communities.




Power3’s
      scientific team is currently headed by its CLIA Laboratory Director and Director
      of Biochemistry, Dr. Essam A. Sheta and its Director of Proteomics, Dr. Ira
      L.
      Goldknopf. Drs. Sheta and Goldknopf are pioneers in the science of proteomics,
      protein biochemistry and cancer cell signaling and have made significant
      biochemical and proteomic discoveries. The scientific team at Power3 has
      leveraged these significant insights and has made progress in the discovery
      of
      unique disease protein footprints by the use of biomarkers in breast cancer,
      neurodegenerative diseases, and drug resistance to chemotherapeutic
      agents.




**PRODUCT
      CANDIDATES**





Power3
      plans to target the protein-based diagnostic and drug targeting markets
      utilizing the Company’s portfolio of proprietary disease biomarkers. In the area
      of neurodegenerative diseases and breast cancer, the Company has completed
      research and clinical validation studies involving over 2,000 patient samples
      and is utilizing biostatistical analysis to monitor panels of biomarkers for
      diagnostic sensitivity, specificity, positive predictive value, and negative
      predictive value. By testing patient body fluids and tissues, such as serum,
      nipple aspirate fluid, and bone marrow aspirate, the Company has discovered
      unique snapshots of protein patterns in over 2,000 patient samples that cover
      a
      broad range of diseases including:




16





o
            Cancers
                such as breast, leukemia, bladder, stomach, and esophageal;
                and




o
            Neurodegenerative
                diseases such as Alzheimer’s, ALS, and Parkinson’s
                disease.




The
      Company’s discovery platform uses proprietary methodologies, trade secrets, and
      accepted proteomic technologies that have been optimized and validated for
      reproducible discovery and analysis of disease specific biomarkers in clinical
      patient samples. Following sample preparation, a 2D Gel Electrophoresis system
      is used for the separation of proteins. The gels are stained, digitally scanned
      and the digital images are analyzed with unprecedented reproducibility and
      sensitivity for quantitative differences of protein biomarkers in disease vs.
      control patient samples. These differences are evaluated using advanced
      biostatistical analysis to generate statistical models for the disease and
      control sample groups. This statistical model is then applied to new patient
      samples and used to predict their diagnosis. Biomarkers of interest can be
      removed from the 2D gel matrix and analyzed by fingerprinting on a liquid
      chromatograph - tandem mass spectrometer. This information is then
      cross-referenced on a worldwide database to identify the protein of origin.
      This
      process requires a great deal of proteomics experience and expertise to make
      an
      accurate identification. In addition, all of the procedures used in Power3’s
      diagnostic tests are scalable. The Company’s proteomics platform delivers
      significant discoveries exhibiting validated, reproducible, and reliable
      biomarkers over a broad quantitative range and linearity for use in diagnostic
      proteomic assays.




The
      Company has successfully identified more than 543 protein biomarkers that are
      differentially expressed in response to disease by employing its proprietary
      technologies gained from over 60 years of combined experience in protein
      biochemistry.




Power3
      has transitioned from a company focused on research and development to one
      that
      is demonstrating “proof of concept” of its technology, as it enters the
      commercialization stage for its technology, products and services. The Company
      is engaged in the process of developing a portfolio of products including
      BC-SeraPro TM ,
      a
      proteomic blood serum test for the early detection of breast cancer, and
      NuroPro ® ,
      a
      proteomic blood serum test for the detection of neurodegenerative diseases
      including Alzheimer’s, Parkinson’s and ALS diseases.




**DEVELOPMENT
      OF BC-SeraPro** **TM** **,
      A PROTEOMIC BREAST CANCER SCREENING TEST**




Breast
      cancer is the second leading cause of cancer deaths in women and results in
      40,000 deaths annually, with over $7 billion spent on breast cancer
      diagnosis annually. An important factor in surviving cancer is early detection
      and treatment. According to the American Cancer Society Surveillance Research,
      when breast cancer is confined to the breast, the five-year survival rate for
      early stages is close to 100%. Due to the limitations of the current diagnostic
      techniques of mammograms and self-examination, the presence of breast cancer
      is
      often missed or tests are inconclusive. The limitations and lack of accuracy
      of
      the current diagnostic tests highlight the need for a test that can detect
      the
      presence of breast cancer much earlier and more accurately.




BC-SeraPro TM is a
      proteomic test for the diagnosis of breast cancer. This test is designed
      to measure the quantitative expression level of 22 protein
      biomarkers in the serum that differentiate between breast cancer
      patients and control subjects. The concentration of the biomarkers from a
      patient’s serum sample is compared to Power3 Medical Products’
extensive patient database.  Statistical analysis by linear
      discriminant function will analyze the patient’s biomarker
      concentrations and assign a probability score for the diagnosis of the patient
      sample. The probability score is ranged from 0.0 to 1.0.  Results of the
      BC-SeraPro TM test
      should not be considered a stand alone diagnosis nor a guarantee, but are
      intended to be used in conjunction with other breast cancer diagnostic
      tools.




This
      test
      was developed and its performance characteristics determined by the Power3
      Medical Products laboratories. It has not been approved by the U.S. Food and
      Drug Administration.  The FDA has determined that such approval is not
      necessary.  This test is performed solely at the Power3 Medical Products’
laboratory and is used for clinical purposes.  It should not be regarded as
      investigational or for research.  Power3’s laboratory has been certified
      under the Clinical Laboratory Improvement Amendment of 1988 (“CLIA”) as
      qualified to perform high complexity clinical testing.




17


Because
      early stage breast cancer is asymptomatic, the only way to detect it is through
      screening. Mammography is currently the widely accepted method for breast cancer
      screening. However, most women who have an abnormal mammogram do not have
      cancer.




Mammography
      often leads to identification of a “probably benign” lesion or an inconclusive
      mammogram. Clinicians may be reluctant to refer such a patient for a biopsy;
      they may also be reluctant to do nothing. Often such patients are referred
      for
      frequent repeat mammography examinations.




The
      availability of an accurate and minimally-invasive test would avoid such
      repeated mammogram exams, with their attendant discomfort, inconvenience, x-ray
      exposure, and emotional stress. In such cases, BC-SeraPro TM ,
      which
      in a 60 patient blinded study, demonstrated an 80% sensitivity and 87%
      specificity for the detection of breast cancer, could exclude malignancy at
      higher accuracy than mammography. As well, BC-SeraPro TM is
      unlikely to not identify cancer in those women who have it.




BC-SeraPro TM is an
      ideal diagnostic test to evaluate breast cancer abnormalities found by mammogram
      or breast examination. The test would distinguish women who should have a biopsy
      from those who can safely avoid one. BC-SeraPro TM could
      detect the disease at a point when treatment is both more effective and less
      expensive.




During
      the quarter ending June 30, 2008, Power3 continued its blood serum breast cancer
      biomarker discovery program using blood serum samples collected from clinical
      validation sites, in collaboration with Dr. Alan Hollingsworth at the Mercy
      Woman’s Center in Oklahoma City, OK and Dr. Leroy Leeds at Obstetrics &
Gynecological Associates, PA in Houston, TX. The Company believes that there
      are
      many advantages to a simple blood test over other types of breast cancer
      diagnostics, such as mammography, not the least of which is the ready acceptance
      by patients to having blood drawn. To date, in the latest clinical
      research/validation study involving Mercy Woman’s Center and Obstetrics &
Gynecological Associates, 97 patient samples have been received and analyzed.
      The results continue to meet the Company’s expectations.





During
      the quarter, discussions were initiated to commence BC-SeraProTM clinical
      validation studies in several Middle Eastern countries and in Greece. To
      commercialize BC-SeraProTM in the Middle Eastern countries, Power3, in
      collaboration with the Princess Haya Biotechnology Center in Irbid, Jordan,
      hosted Mr. Yazan Akkam for two weeks of laboratory training in Power3’s
      propietory sample processing and analysis by 2D gel electrophoresis. Mr Akkam’s
      training will help Power3 accelerate the process of sample analysis for future
      commercialization of the test in Jordan. Dr. Said Jaradat, the Director of
      Princess Haya Biotechnology Center, has acknowledged this collaboration and
      shared the Center’s collaboration experience with Power3 in his talk with the
      President of the National Institute of Health (NIH) during his visit to Jordan.
      Power3 plans to commercialize BC-SeraProTM in Jordan as soon as the Company
      finishes the validation study with the Princess Haya Biotechnology Center.
      This
      clinical validation study is expected to be concluded by the end of the third
      quarter, 2008.





Power3
      is
      finalizing the research and development program for BC-SeraPro TM and is
      moving forward with a strategy of providing a breast cancer diagnostic test
      that
      is utilitarian, accurate, and inexpensive. A patient's protein biomarker profile
      can now be employed to detect abnormal and pathological states, as reflected
      in
      the serum proteome. Application of this test will have a future impact on how
      breast disease will be diagnosed, monitored, and managed and is intended to
      be
      used in conjunction with mammography, breast MRI and other diagnostic tools
      used
      in the detection of breast cancer.





**How
      BC-SeraPro** **TM** **Works**




BC-SeraPro TM is a
      blood serum test designed to diagnose breast cancer in individuals. The test
      is
      based on proteomic technology in which a blood serum sample drawn from a patient
      will be subjected to protein separation by 2D gel electrophoresis followed
      by
      analysis of the concentration of each protein biomarker residing in a panel
      of
      blood serum protein biomarkers to determine if a patient has breast cancer.
      The
      biomarkers in the panel have been selected for their ability to discriminate
      breast cancer patients from non-cancerous patients. Power3’s statistical model
      evaluates the quantitative information of the protein biomarkers and assigns
      a
      probability score. The probability score indicates to the physician that the
      patient “has cancer” or is “cancer-free.” The score reflects how strongly the
      patient sample fits the biostatistical model and if the patient should be
      recommended for further follow-up by the clinician.




18




Blood
      serum collection is a routine procedure performed by a clinician. A small sample
      of blood is drawn from a vein. When a blood sample is collected and stored
      in a
      tube without anticoagulant, it forms a clot after 30-60 minutes. The liquid
      portion remaining is the blood serum. This serum sample is then frozen and
      transported to the Power3 Medical CLIA certified laboratory, utilizing
      pre-approved carriers/delivery services, where sample preparation and analysis
      begins.




**DEVELOPMENT
      OF NuroPro** **®** **,
      A PROTEOMIC NEURODEGENERATIVE DIAGNOSTIC SCREENING TEST**





Early
      detection of neurodegenerative disease generally results in better patient
      outcomes. Three neurodegenerative diseases of particular interest are
      Alzheimer’s disease, Parkinson’s disease and ALS (Amyotrophic Lateral
      Sclerosis). The Alzheimer’s Association reports that Alzheimer’s disease is the
      most common form of dementia, affecting over 5.1 million Americans, of
      which 4.9 million are 65 or older. Every 72 seconds, someone in America
      develops Alzheimer’s disease and by mid-century someone will develop Alzheimer’s
      every 33 seconds. People as young as 30 years old can contract the disease
      and
      one in ten people age 65 and over have Alzheimer’s disease. In addition, the
      American Parkinson’s Disease Association reports that more than 1.5 million
      people in the U.S. have Parkinson’s disease, affecting about 1 in 100 Americans
      over the age of 60, and a new case of Parkinson’s disease is diagnosed every 9
      minutes. On a smaller scale, the ALS Association reports that an average of
      approximately 30,000 Americans are afflicted with ALS, with 5,000 new cases
      diagnosed annually.





Currently,
      Power3 is using a panel of 59 protein biomarkers employed in the development
      of
      the NuroPro **®** blood
      serum-based tests for four disease diagnostics including neurological diseases
      of motor control such as Parkinson’s disease, ALS and similarly presenting like
      disorders; ALS specific tests for ALS vs. ALS-like disorders; Alzheimer’s
      disease specific tests; and a Parkinson’s disease specific test. Pre-IDE
      applications for the first two diagnostic tests have been filed with the U.S.
      Food and Drug Administration (FDA). With the NuroPro® test, which involves
      monitoring the concentration of 59 differentially expressed blood serum
      proteins, the Company has identified groups of unique markers that appear to
      distinguish normal patients from those with motor neuron, cognitive, and other
      neurological disorders. These biomarkers were selected from the analysis of
      over
      850 blood serum patient samples.





**How
      NuroPro** **®** **Works**




The
      NuroPro **®** test has
      the potential to become the first clinical diagnostic test available for the
      detection of neurodegenerative diseases.




NuroPro ® is a
      series of three separate and distinct blood serum tests designed to diagnose
      Alzheimer’s, Parkinson’s or Lou Gehrig’s disease (ALS) in individuals. The test
      is based on proteomic technology, in which a blood serum sample is drawn from
      a
      patient, and monitors the concentration of selected biomarkers residing in
      a
      panel of blood serum protein biomarkers that determines if a patient has a
      neurodegenerative disease, such as Alzheimer’s, Parkinson’s or Lou Gehrig’s
      disease (ALS). The biomarkers in the panel have been selected for their ability
      to discriminate diseased from non-diseased patients. Power3’s statistical model
      evaluates the quantitative information of the protein biomarkers and assigns
      a
      probability score. The probability score indicates to the physician that the
      patient has a neurological disease or is disease-free. The score reflects how
      strongly the patient sample fits the biostatistical model and if the patient
      should be recommended for further follow-up by the clinician.





Blood
      serum collection is a routine procedure performed by a clinician. A small sample
      of blood is drawn from a vein. When a blood sample is collected and stored
      in a
      tube without anticoagulant, it forms a clot after 30-60 minutes. The liquid
      portion remaining is the blood serum. This serum sample is then frozen and
      transported to the Power3 Medical CLIA certified laboratory, utilizing
      pre-approved carriers/delivery services, where sample preparation and analysis
      begins. ****




**NEURODEGENERATIVE
      RESEARCH/CLINICAL VALIDATION STUDIES**




**University
      of Thessaly School of Medicine / Dr. Katerina Markopoulou**




On
      November 11, 2006, University of Thessaly School of Medicine in Larissa, Greece
      signed a research agreement with Power3 focusing on the proteomic discovery
      of
      biomarkers for Parkinson’s disease. The collaboration will also extend to cover
      other neurodegenerative diseases including Alzheimer’s disease and ALS
      (Amyotrophic Lateral Sclerosis - Lou Gehrig's disease). According to the
      agreement, The University of Thessaly will provide Power3 with clinically
      confirmed samples of neurodegenerative disease, including age and gender matched
      control samples. The Principal Investigator is Katerina Markopoulou, MD PhD
      with
      the Department of Neurology.




19




Power3
      will use its existing proprietary and patent-pending technologies to analyze
      the
      samples, seeking new protein biomarkers for the early detection of
      neurodegenerative diseases to add to its portfolio. The initial shipments of
      Parkinson’s disease and control subject samples were received in May and October
      2007 and to date, 92 Parkinson’s disease patient samples, as well as age and
      gender matched control samples, have been received and analyzed and have shown
      greater than expected sensitivity and specificity. The blood serum samples
      collected from patients in Greece utilized Power3’s rigid sample collection
      protocols and were shipped to the Company’s CLIA certified laboratory in
      Houston, Texas, where the analysis was performed. The consistency in the sample
      results from both the US and Greece, points to how robust this test is in
      diverse populations. The better than expected Parkinson's test results and
      the
      numerous validation studies that are underway for Alzheimer's disease, ALS,
      and
      similar neurological disorders, confirm Power3’s commitment to bringing these
      tests to market in 2008.





Linear
      discriminant analysis was used to analyze biomarker protein
      quantities. ****** Discriminant
      analysis identifies sets of linearly independent functions that will
      successfully classify individuals into a well-defined collection of groups
      (i.e.
      disease groups). The statistical model assumes a multivariate normal
      distribution for the set of biomarkers identified from each disease group.
      The
      outcome of the discriminant analysis is a collection of linear functions that
      maximize the ability to separate individuals into diseased and non-diseased
      groups.




In
      general, if there are *m* biomarkers, there will be a maximum of ( *m* –
      1, *g* –
1)
      discriminant functions, where *g* is the
      number of disease groups. The discriminant functions themselves are linearly
      independent. Thus, *m* –
1
      discriminant functions provide incremental and non-redundant discriminant
      ability.




Also
      used
      within discriminant analysis was stepwise discriminant analysis, which evaluates
      the performance of a discriminant criterion by estimating error rates
      (probabilities of misclassification) in the classification of future
      observations. These error-rate estimates include error-count estimates and
      posterior probability error-rate estimates.




Given
      a
      classification variable and several quantitative variables, a stepwise
      discriminant analysis is performed to select a subset of the quantitative
      variables for use in discriminating among the classes. The set of variables
      that
      make up each class is assumed to be multivariate normal with a common covariance
      matrix.




**Marwan
      N. Sabbagh / Cleo Roberts Center of Clinical Research at the Sun Health Research
      Institute**




On
      October 12, 2007, Power3 appointed Dr. Marwan N. Sabbagh to the Company's
      Scientific Advisory Board. Dr. Sabbagh, a national leader in
      neurodegenerative disease, is collaborating with Power3 in a 300 patient
      validation study of blood serum samples using Power3's NuroPro ® diagnostic screening test.




Dr.
      Sabbagh is currently the Director of Clinical Research at the Cleo Roberts
      Center of Clinical Research at the Sun Health Research Institute located in
      Sun
      City, Arizona. Power3 has a Clinical Trial Agreement with Sun Health. Dr.
      Sabbagh has been published in seventy reviews, and has written original research
      articles on Alzheimer's disease and dementia. Additionally, he has published
      a
      book on Alzheimer's prevention. Dr. Sabbagh received his medical degree
      from the University of Arizona in Tucson, completed his residency in Neurology
      at Baylor College of Medicine in Houston, and completed his fellowship at the
      University of California, San Diego School of Medicine. He also serves as a
      staff physician at Sun Health Boswell Hospital where he practices general
      neurology and specializes in the diagnosis and treatment of Alzheimer's disease.
      Dr. Sabbagh is a Clinical Instructor in Neurology and provides both clinical
      and
      didactic expertise for the geriatric fellowship program.




In
      February 2008, the Company commenced the 300 patient clinical validation study
      of its NuroPro ® diagnostic test for Alzheimer’s disease and Parkinson’s disease. Power3 has
      received 92 samples from the clinical validation study to date and the Company
      anticipates completion of this clinical validation study in August, 2008.
      Completed, analyses of 37 Alzheimer’s and healthy control samples from Sun
      Health Institute are showing very promising results.





The
      completed clinical validation study with Sun Health and Dr. Sabbagh will include
      one hundred Alzheimer’s disease patients, one hundred Parkinson’s disease
      patients and one hundred control subjects.




20




The
      Parkinson’s disease patients from Dr. Marwan Sabbagh that are included in the
      clinical validation study will augment the Parkinson’s disease validation study
      presently ongoing with the Research Institute of Thessaly in Greece led by
      Dr.
      Katerina Markopoulou, the Principal Investigator.




**Publications**





Power3
      has published the discovery of protein biomarkers for esophageal malignancies
      in
      the *International
      Journal of Cancer.* The
      article, titled “Alterations in Barrett’s-related adenocarcinomas: A proteomic
      approach,” was co-authored by Dr. Essam A. Sheta, Director of Biochemistry, and
      Dr. Ira L. Goldknopf, Director of Proteomics at Power3. Dr. Sheta and Dr.
      Goldknopf worked in collaboration with Dr. Wael El-Rifai, MD, PhD, Professor
      of
      Surgery, Medicine and Cancer Biology and Director of Surgical Oncology Research
      at Vanderbilt University Medical Center, Nashville, TN.





Esophageal
      malignancies are the sixth leading cause of cancer death in the world and
      represent about 1% of the cancers diagnosed in the United States. Dr. El Rifai
      stated that through the use of Power3’s leading edge proteomic discovery
      platform, twenty-three biomarkers were identified that have not been described
      before in this lethal malignancy. Dr. El-Rifai confirmed the differential
      expression of six of these novel protein biomarkers in a large panel of primary
      tumors using Western blot, immunohistochemical, and quantitative real time
      PCR
      techniques.”





Power3
      discovered differential expression of these protein biomarkers in esophageal
      biopsies of normal, pre-cancerous, and cancerous areas from the same patients,
      using the company’s quantitative 2D gel electrophoresis platform. Power3’s
      findings identify a previously unknown potential oncogenic signaling mechanism
      in Barrett’s tumors, representing a new area that can be developed. This finding
      is further validation of Power3’s proteomic process as the company continues to
      build its reputation as leaders in novel proteomic platforms, while moving
      ahead
      in commercialization of the company’s blood based early detection proteomic
      tests for breast cancer, Parkinson’s disease, and Alzheimer’s
      disease.





Power3’s
      director of proteomics, Dr. Ira Goldknopf, has published an invited editorial
      in
      the February 2008 issue of *Expert
      Review of Proteomics.* The
      editorial, entitled “Blood Based Proteomics for Personalized Medicine, Examples
      From Neurodegenerative Disease,” outlines how “proteins in the blood serum can
      tell us what disease pathways and mechanisms...are active in patients.” In his
      editorial, Dr. Goldknopf cited research completed at Power3 and published in
      peer reviewed journals. The results demonstrate, “broad and deep implications
      which liberate a new paradigm to unlock the power of personalized medicine,
      to
      monitor proteins in the blood of live patients for diagnosis, differential
      diagnosis, patient monitoring, selection of treatment options, and for new
      drug
      target discovery.”




Power3
      is
      gratified that the editors of *Expert
      Review of Proteomics* invited
      Dr. Goldknopf to share his insights and describe Power3’s groundbreaking work in
      the study of Alzheimer’s, Parkinson’s, and Lou Gehrig’s diseases. The Company is
      proud the biotechnology community has recognized and acknowledged Power3’s
      efforts and advancements in disease diagnosis through blood-based testing.
      This
      recognition of the company is further validation of Power3’s leadership position
      in advancing the science of proteomics for development of molecular diagnostics
      and targeted therapeutics for neurodegenerative diseases and breast
      cancer.




**Intellectual
      Property**





The
      Company filed one Utility patent application in the first quarter of 2008 for
      47
      of the Company's identified blood serum protein biomarkers, and one Provisional
      patent application on July 9, 2008, comprising parts of Power3's clinically
      validated biomarker panel for early detection and differential diagnosis of
      neurodegenerative diseases, including Alzheimer’s, Parkinson’s, and Lou Gehrig’s
      (ALS) diseases.




The
      blood
      serum protein biomarkers in these patent applications are identified with
      sufficiently detailed molecular characterization to specify which protein
      isoforms or variants are the actual biomarkers. With the biomarker proteins
      fully characterized, and with Power3’s quality controls in place, consistent and
      significant differences in the concentration of select groups of these protein
      biomarkers in the blood of patients and age matched normal and disease controls,
      reflect meaningful indicators of disease processes, processes that also differ
      between diseases with similar symptoms.




21




In
      these
      patent filings, utilizing the patent pending technologies specified in previous
      patent application filings, we have demonstrated significant differences in
      blood serum concentrations between patients for objective differential diagnosis
      that also provides a rational basis for disease specific mechanism
      discrimination between:




 ̈
            Similar
                neurodegenerative diseases: Alzheimer’s disease vs. Lou Gehrig’s disease
                (ALS) vs. Parkinson’s disease; Alzheimer’s disease vs. non-Alzheimer’s
                dementias vs. Parkinson’s disease; multiple forms of Alzheimer’s
                disease




 ̈
            Sporadic
                vs. familial neurodegenerative diseases: sporadic vs. familial Lou
                Gehrig’s disease (ALS)




 ̈
            Early
                vs. more advanced neurodegenerative
                diseases




These
      biomarkers provide the capacity for objective blood tests for early, rapid,
      sensitive, and specific diagnoses of neurodegenerative diseases, which will
      be a
      substantial benefit to physicians and patients who now rely on subtleties in
      symptoms. By the time such symptoms become clear enough to diagnose, the patient
      has often suffered substantial irreversible neurological damage. Differences
      in
      these highly characterized protein biomarkers also provide the type of
      information that can be employed in the monitoring of patients for potential
      drug response, disease severity and progression, as well as for potential new
      drug targets.




We
      continue to move forward in our commercialization efforts as well as
      strengthening our intellectual property portfolio, which currently includes
      eleven patents pending and numerous other patent applications in the
      pipeline.




**Patent Application
                Filed in Q1 2008**
            
            **Application**
              **Date**
            
            **Type**
              **of Patent**12/069,807:
                Forty Seven (47) Protein Biomarkers for Neurodegenerative
                Diseases
            
            2/13/08
            
            US
                Utility




**Patent Application
                Filed in July 2008**
            
            **Application**
              **Date**
            
            **Type**
              **of Patent**Application
                No. Pending: Diagnosis of Multiple Forms of Alzheimer’s Disease Based on
                Differences in Concentration of Protein Biomarkers in Blood Serum
                Of
                Patients
            
            7/9/08
            
            US
                Provisional




The
      number of pending patent applications as of the period ended June 30, 2008,
      is
      11 as follows:




**Qty**
            
            **Type
                of Patent**1
            
            Breast
                Cancer9
            
            Neurodegenerative1
            
            Drug
                Resistance





**Liquidity
      and Capital Resources**




The
      Company’s liquidity and capital needs relate primarily to working capital,
      development and other general corporate requirements. The Company has not
      received any cash from operations, other than from the sale of blood serum
      samples previously gathered. The Company has an immediate need for capital
      to
      continue its current operations, and in addition, is seeking additional capital
      from research grants, collaboration agreements, and other strategic alliances.




Net
      cash
      used in operating activities amounted to $1,007,315 for the six months ended
      June 30, 2008, compared to $1,055,353 for the six months ended June 30, 2007.
      The change in net cash used in operating activities during 2008 was primarily
      due to changes in the fair value of derivative liabilities, and net income
      for
      the six months ended June 30, 2008 compared to a net loss for the six months
      ended June 30, 2007.




22




Net
      cash
      provided by financing activities was $982,404 for the six months ended June
      30,
      2008, as compared to $1,662,137 for the six months ended June 30, 2007. The
      decrease in cash provided by financing activities during the six months ended
      June 30, 2008 as compared to the six months ended June 30, 2007 is due to a
      reduction in borrowing activity in 2008.




As
      of
      June 30, 2008, the Company’s principal source of liquidity was $97,970 in cash.




**Plan
      of Operation and Cash Requirements**




The
      Company currently does not have operating revenues from product sales or the
      performance of services and it continues to experience net operating losses.
      The
      Company is actively pursuing third party licensing agreements, collaboration
      agreements, distribution agreements and similar business arrangements in order
      to establish a revenue base utilizing its capabilities in disease diagnosis
      based on protein and biomarker identification, and drug resistance in the areas
      of cancers, neurodegenerative and neuromuscular diseases. The Company has
      undertaken clinical validation studies to demonstrate the diagnostic
      capabilities of its technologies. However, there can be no assurances when
      revenue-generating agreements will result in continuous revenue
      streams.




Absent
      a
      source of revenues, the Company will require funding in order to carry out
      its
      business plan until such time as it is able to generate sustained revenues.
      The
      Company’s current cash requirements are approximately $180,000 per month and the
      Company anticipates that it will require approximately $2,150,000 for the twelve
      months ended December 31, 2008, to continue its development activities,
      undertake and perform clinical validation studies, continue its marketing
      efforts and maintain its administrative infrastructure, as follows:




**Estimated
      Expenditures Required**


**During
      Next Twelve Months**





General
                and administrative
            
            $
            1,800,000Patent
                filings and intellectual property
            
            
            100,000Capital
                expenditures and research agreements
            
            
            250,000Total
            
            $
            2,150,000





The
      foregoing is based upon the Company’s current estimated cash requirements. The
      Company has no significant capital expenditure requirements and does not plan
      to
      increase its monthly expenditure rate absent an increase in revenues or
      additional funding.




The
      Company will continue to require additional debt or equity financing for its
      operations, which may not be readily available. The Company’s ability to
      continue as a going concern is subject to its ability to generate a profit
      or
      obtain necessary funding from outside sources.




**Off-Balance
      Sheet Arrangements**




At
      June
      30, 2008, the only off balance sheet agreements in place for the Company were
      a
      lease in effect for its office space, leases in effect for phone equipment,
      leases in effect for lab equipment and employment agreements entered with two
      principal officers.




Accounting
      for Derivative Instruments





Statement
      of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” as amended, requires all derivatives to be
      recorded on the balance sheet at fair value. These derivatives, including
      embedded derivatives in Power3's structured borrowings, are separately valued
      and accounted for on Power3's balance sheet. Fair values for exchange traded
      securities and derivatives are based on quoted market prices. Where market
      prices are not readily available, fair values are determined using market based
      pricing models incorporating readily observable market data and requiring
      judgment and estimates.




23




Lattice
      Valuation Model





Power3
      valued the conversion features in their convertible notes using a lattice
      valuation model, with the assistance of a valuation consultant. The lattice
      model values the embedded derivatives based on a probability weighted discounted
      cash flow model. This model is based on future projections of the five primary
      alternatives possible for settlement of the features included within the
      embedded derivative, including: (1) payments are made in cash, (2) payments
      are
      made in stock, (3) the holder exercises its right to convert the debentures,
      (4)
      Power3 exercises its right to convert the debentures and (5) Power3 defaults
      on
      the debentures. Power3 uses the model to analyze (a) the underlying economic
      factors that influence which of these events will occur, (b) when they are
      likely to occur, and (c) the common stock price and specific terms of the
      debentures such as interest rate and conversion price that will be in effect
      when they occur. Based on the analysis of these factors, Power3 uses the model
      to develop a set of potential scenarios. Probabilities of each scenario
      occurring during the remaining term of the debentures are determined based
      on
      management's projections. These probabilities are used to create a cash flow
      projection over the term of the debentures and determine the probability that
      the projected cash flow will be achieved. A discounted weighted average cash
      flow for each scenario is then calculated and compared to the discounted cash
      flow of the debentures without the compound embedded derivative in order to
      determine a value for the compound embedded derivative.





Black−Scholes
      Valuation Model





Power3
      uses the Black−Scholes pricing model to determine the fair values of its
      warrants. The model uses market sourced inputs such as interest rates, stock
      prices, and option volatilities, the selection of which requires management's
      judgment, and which may impact net income or loss. In particular, Power3 uses
      volatility rates based upon the closing stock price of Power3’s common stock.
      Power3 uses a risk free interest rate which is the U.S. Treasury bill rate
      for a
      security with a maturity that approximates the estimated expected life of the
      derivative or security.




**Item** **3.** **Quantitative
      and Qualitative Disclosures About Market Risk**




None.




**Item** **4.** **Controls
      and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**




The
      Company’s Chief Executive Officer and Chief Accounting Officer have
      evaluated the effectiveness of the Company’s disclosure controls and procedures
      (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
      the
      end of the period covered by this report on Form 10-Q. Based upon such
      evaluation, the Chief Executive Officer and Chief Accounting Officer have
      concluded that, as of the end of such period, the Company’s disclosure controls
      and procedures were not effective as required under Rules 13a-15(e) and
      15d-15(e) under the Exchange Act. This conclusion is based upon the number
      and
      magnitude of the year end and quarterly adjusting entries.




**Management’s
      Report on Internal Control Over Financial Reporting**




Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
      Act) of the Company. Internal control over financial reporting is a process
      designed to provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external purposes
      in
      accordance with accounting principles generally accepted in the United States
      of
      America.




The
      Company’s internal control over financial reporting includes those policies and
      procedures that (i) pertain to the maintenance of records that, in
      reasonable detail, accurately and fairly reflect the transactions and
      dispositions of the assets of the company; (ii) provide reasonable
      assurance that transactions are recorded as necessary to permit preparation
      of
      financial statements in accordance with accounting principles generally accepted
      in the United States of America, and that receipts and expenditures of the
      Company are being made only in accordance with authorizations of management
      and
      directors of the Company; and (iii) provide reasonable assurance regarding
      prevention or timely detection of unauthorized acquisition, use or disposition
      of the Company’s assets that could have a material effect on the financial
      statements.




24




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




Management,
      under the supervision of the Company’s Chief Executive Officer and Chief
      Accounting Officer, conducted an evaluation of the effectiveness of internal
      control over financial reporting. Based on this evaluation, management concluded
      that the Company’s internal control over financial reporting was not effective
      as of June 30, 2008. For the six months ended June 30, 2008 deficiencies related
      to transactions involving equity issuances and derivatives were identified.
      Following a review of the deficiencies, management determined that we had
      incorrectly accounted for equity issuances and derivative valuations during
      such
      period. As a result, management concluded that our disclosure controls and
      procedures were not effective. Management concluded that the following three
      deficiencies were identified in our control process:




·
            We
                did not have adequate transaction controls over the accounting, review
                and
                processing of certain unusual or complex accounting
                transactions.




·
            We
                did not have a systematic and documented program of internal controls
                and
                procedures over our accounting and financial reporting process to
                ensure
                that unusual or complex transactions are recorded, processed, summarized
                and reported on a timely basis in our financial disclosures.




·
            There
                is deficiency in segregation of duties due to the small size of the
                Company.




This
      quarterly report does not include an attestation report of the Company’s
      registered public accounting firm regarding internal control over financial
      reporting. Management’s report was not subject to attestation by our registered
      public accounting firm pursuant to temporary rules of the SEC that permit us
      to
      provide only management’s report in this quarterly report on Form 10-Q.




Additional
      effort is needed to fully remedy our identified deficiencies as discussed below
      and we are continuing our efforts to improve and strengthen our control
      processes and procedures. Our management intends to continue to work with our
      auditors and other outside advisors, as appropriate, to develop and then apply
      our controls and procedures with the goal of achieving adequate and effective
      disclosure controls. We believe that with a properly planned, designed and
      implemented system of internal controls over financial reporting, our disclosure
      controls and procedures are expected to become effective.




There
      have been no significant changes in internal controls, or in factors that could
      significantly affect internal controls, subsequent to the date the Chief
      Executive Officer and Chief Accounting Officer completed their
      evaluation.




**Changes
      in Internal Control Over Financial Reporting**




No
      change
      in the Company’s internal control over financial reporting occurred during the
      six months ended June 30, 2008, that materially affected, or is reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.




**Cautionary
      Statement Regarding Forward-Looking Statements**




This
      Report contains certain forward-looking statements of the intentions, hopes,
      beliefs, expectations, strategies, and predictions of the Company or its
      management with respect to future activities or other future events or
      conditions within the meaning of Section 27A of the Securities Act of 1933,
      as
      amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
      These statements are usually identified by the use of words such as “believes,”
“will,” “anticipates,” “estimates,” “expects,” “projects,” “plans,” “intends,”
“should,” “could,” or similar expressions. These statements are based on certain
      assumptions and analyses made by the Company’s management in light of its
      experience and its perception of historical trends, current conditions, expected
      future developments and other factors believed appropriate. Readers are
      cautioned that these forward-looking statements are only predictions and that
      the Company’s business is subject to significant risks and uncertainties,
      including, without limitation:




The
      Company’s history of operating losses;




25




The
      Company’s need and ability to raise significant capital and obtain adequate
      financing for its development efforts;




The
      Company’s ability to successfully develop and complete validation studies for
      its products;




The
      Company’s dependence upon and the uncertainties associated with obtaining and
      enforcing patents and intellectual property rights important to its
      business;




The
      uncertainties associated with the lengthy regulatory approval process, including
      uncertainties associated with the United States Food and Drug Administration
      (“FDA”) decisions and timing of product development or approval;




Development
      by competitors of new or competitive products or services;




The
      Company’s ability to retain management, implement its business strategy,
      assimilate and integrate any acquisitions;




The
      Company’s lack of operating experience and present commercial production
      capabilities; and




The
      increasing emphasis on controlling healthcare costs and potential legislation
      or
      regulation of healthcare pricing.




Although
      the Company believes that the assumptions underlying the forward-looking
      statements contained in this report are reasonable, any of the assumptions
      could
      be inaccurate, and, therefore, there can be no assurance that the
      forward-looking statements included in this report will prove to be accurate.
      In
      light of the significant uncertainties inherent in the forward-looking
      statements included in this report, the inclusion of such information should
      not
      be regarded as a representation by the Company or any other person that the
      objectives and plans of the Company will be achieved. Except for its ongoing
      obligation to disclose material information as required by the federal
      securities laws, the Company undertakes no obligation to release publicly any
      revisions to any forward-looking statements to reflect events or circumstances
      after the date of this report or to reflect the occurrence of unanticipated
      events. Accordingly, the reader should not rely on forward-looking statements,
      because they are subject to known and unknown risks, uncertainties, and other
      factors that may cause actual results to differ materially from those
      contemplated by the forward-looking statements.





**PART
      II**




**Item
      1** **.** **Legal
      Proceedings**




On
      October 28, 2005, Power3 received notice of a Petition to Enforce Foreign
      Judgment citation filed against the Company by KForce regarding an employment
      fee adjudicated in December 2003 in the state of Florida against the Company,
      in
      the amount of $15,873, together with $4,735 in interest. Power3 does not agree
      with the Foreign Judgment and is attempting to resolve the issue prior to
      enforcement. No resolution has been achieved on this issue at this time;
      however, the Company is endeavoring to resolve the petition. This debt is not
      recorded in accounts payable by the Company because it is the Company’s position
      that the judgment should never have been entered against Power3, but rather
      against a different corporate entity, not related to Power3 in any way. The
      Company’s attorney in this matter feels that no loss is probable, nor will the
      Company be obligated to pay any sums whatsoever on this matter. The Company
      has
      pled improper party and expects to be vacated from the suit since it does not
      apply to the Company. Power3 has counterclaimed KForce for frivolous
      claims.




On
      March
      12, 2008, all
      matters involving the dispute over the taking, by an ex-employee, of
      certain trade secrets, defamation and wrongful interference with Power3's
      contractual relations with other parties, and a pendent wage claim for severance
      pay, were resolved. In settlement the Company has paid the ex-employee $35,000
      and has issued to the ex-employee 325,000 shares of the Company’s common stock
      with restrictions.




In
      October of 2006, Trinity Financing filed a lawsuit against the Company claiming
      default on a promissory note dated December 9, 2005. As security for the Note,
      Steven Rash and Ira Goldknopf pledged their personal restricted shares of the
      Company’s stock. As a result of the alleged default in payment of the Note,
      Trinity Financing seeks to have the restrictive legend removed so the shares
      may
      be sold by Trinity Financing in satisfaction of the loan. The Company denied
      the
      material allegations and asserted three counterclaims against Trinity Financing.
      The company asserted that the Note, as well as a prior promissory note executed
      in favor of Trinity Financing, are usurious. The matter was settled February
      4,
      2008 with the removal of the restrictive legend.




26




On
      August
      13, 2007, Gryphon Master Fund LP and GSFF Master Fund, LP filed a lawsuit
      against the Company claiming a breach of a Securities Purchase Agreement,
      Convertible Debentures, and Registration Rights Agreement. The plaintiffs
      claimed the Company failed to timely obtain an effective registration statement
      for the shares issued to the plaintiffs and refused to recognize anti-dilution
      rights of the plaintiffs. The Company denies the material allegations of the
      complaint and asserts numerous affirmative defenses. Power3 has entered into
      settlement negotiations as of April 20, 2008. On August 13, 2008 the claim
      above, note, warrants, and all applicable penalties were settled in exchange
      for
      5,240,000 shares of common stock valued at approximately $420,000 based upon
      the
      closing price of our common stock at the settlement date.




In
      October of 2007, Winstead filed suit against the Company for approximately
      $17,000 in attorney fees. In March 2008, a settlement was reached. The fees
      have
      been reduced to $9,000 and a payout schedule has been agreed upon.




**Item
      1A. Risk Factors**




None.




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**




During
      the six months ended June 30, 2008, the Company issued 7,492,875 unregistered
      shares of common stock for cash proceeds of $647,404. Proceeds were used to
      fund
      operations.





**Item
      3. Defaults Upon Senior Securities**




The
      Company is in default under the provisions of its October 2004 Securities
      Purchase Agreement, and accompanying registration rights agreement and
      debentures. The default stems from the Company’s inability to obtain
      effectiveness of the registration statement on Form SB-2, as amended (File
      No. 333-122227) filed pursuant to the registration rights agreement. The
      registration statement was withdrawn on June 20, 2007. As of the six months
      ended June 30, 2008, the Company has settled with a number of its Convertible
      Debenture Holders as previously mentioned above.




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




No
      matters were submitted to the security holders for a vote during the six months
      ended June 30, 2008.




**Item** **5.** **Other
      Information**




None.




**Item
      6. Exhibits**





**Exhibit
                No.**
            
            **INDEX**31.1*
            
            Certification
                of Power3 Medical Products, Inc. Chief Executive Officer, Steven
                B. Rash,
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2*
            
            Certification
                of Power3 Medical Products, Inc. Chief Accounting Officer, Marion
                J.
                McCormick, pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32.1*
            
            Certification
                of Power3 Medical Products, Inc. Chief Executive Officer, Steven
                B. Rash,
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2*
            
            Certification
                of Power3 Medical Products, Inc. Chief Accounting Officer, Marion
                J.
                McCormick, pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




27


**SIGNATURES**




Pursuant
      to the requirements of the Exchange Act of 1934, this report has been signed
      by
      the following persons in the capacities and on the dates indicated.




**Signature**
            
            **Title**
            
            **Date**/s/
                Steven B. Rash
            
            Chairman
                and Chief Executive Officer
            
            August
                14, 2008Steven
                B. Rash/s/
                Marion J. McCormick
            
            Chief
                Accounting Officer
            
            August
                14, 2008Marion
                J. McCormick




28