UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





(Mark
One)





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





For the
quarterly period ended:  September
30, 2010





or





o
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF
  1934





For the
transition period from ___________ to ______________




Commission
File No. 000-24921





POWER3
      MEDICAL PRODUCTS, INC.(Exact
      name of registrant as specified in its
charter)





New
      York
            
            65-0565144(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (IRS
      Employer
              Identification
      No.)




26022
      Budde Road
              The
      Woodlands, Texas 77380(Address
      of Principal Executive Offices)





(281)
      298-7944(Issuer's
      Telephone Number, including Area
Code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1394 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.





Yes  x   No  o










Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).





Yes  x   No  o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
 See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer ̈
            Accelerated
      filer ̈Non-accelerated
      filer  ̈
              (Do
      not check if a smaller reporting company)
            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  o No x





APPLICABLE
ONLY TO ISSUERS INVOLVED IN


BANKRUPTCY
PROCEEDINGS DURING THE


PRECEDING
FIVE YEARS





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.





Yes  o   No  o





APPLICABLE
ONLY TO CORPORATE ISSUERS





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:  There were 472,237,565
shares of the issuer’s common stock, $0.001 par value per share, issued and
outstanding on November 8, 2010.










TABLE
OF CONTENTS




PagePART
      I – FINANCIAL INFORMATIONItem
      1.
                
                Financial
      Statements
                
                1Balance
      Sheets at September 30, 2010 (unaudited) and December 31,
    2009
                
                1Statements
      of Operations for the three and nine months ended September 30, 2010 and2009 (unaudited) and the period beginning May 18, 2004 (date of
      entering developmentstage) through September 30, 2010
      (unaudited)
                
                2Statements
      of Stockholders’ Deficit for all years subsequent to May 18, 2004 (date ofentering development stage) and the nine months ended September 30,
      2010 (unaudited)
                
                3Statements
      of Stockholders’ Deficit – Other Equity Items for all years subsequent toMay 18, 2004 (date of entering development stage) and the nine
      months endedSeptember 30, 2010
      (unaudited)
                
                4Statements
      of Cash Flows for the nine months ended September 30, 2010 and 2009
      (unaudited)and the period beginning May 18, 2004 (date of entering
      development stage) through September 30, 2010
      (unaudited)
                
                5Notes
      to Financial Statements (unaudited)
                
                6Item
      2.
                
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                21Item
      4T.
                
                Controls
      and Procedures
                
                29PART
      II – OTHER INFORMATIONItem
      1.
                
                Legal
      Proceedings
                
                29Item
      2.
                
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                
                31Item
      6.
                
                Exhibits
                
                32









PART
I – FINANCIAL INFORMATION





Item
1.  Financial Statements.




Power3
Medical Products, Inc.


(A
Development Stage Entity)


Balance Sheets


September
      30,2010
              
              
              December
      31,(Unaudited)
              
              
              2009AssetsCash
      and equivalents
              
              $
              6,319
              
              
              $
              -Total
      current assets
              
              
              6,319
              
              
              
              -Property
      and equipment, net of accumulated depreciation of$108,345
      and $107,581 at September 30, 2010 andDecember
      31, 2009, respectively
              
              
              2,244
              
              
              
              683Deposits
              
              
              11,332
              
              
              
              5,000Other
      assets
              
              
              100
              
              
              
              100Total
      assets
              
              $
              19,995
              
              
              $
              5,783Liabilities
      and stockholders' deficitAccounts
      payable
              
              $
              1,213,217
              
              
              $
              999,631Accounts
      payable – related party
              
              
              433,406
              
              
              
              96,507Notes
      payable
              
              
              68,800
              
              
              
              -Notes
      payable – in default
              
              
              451,000
              
              
              
              451,000Notes
      payable – related party
              
              
              15,000
              
              
              
              15,000Convertible
      debentures – in default
              
              
              351,255
              
              
              
              351,255Convertible
      debentures, net of unamortized discount of $-0-and
      $21,621 at September 30, 2010 and December 31, 2009,respectively
              
              
              50,000
              
              
              
              28,379Convertible
      debentures – related party
              
              
              30,000
              
              
              
              30,000Derivative
      liabilities
              
              
              2,457,358
              
              
              
              14,456,424Other
      current liabilities
              
              
              760,296
              
              
              
              593,891Total
      current liabilities
              
              
              5,830,332
              
              
              
              17,022,087Total
      liabilities
              
              
              5,830,332
              
              
              
              17,022,087Stockholders'
      deficit:Preferred
      Stock – $0.01 par value: 50,000,000 shares authorized;1,500,000
      shares issued and outstanding as of September 30,2010
      and December 31, 2009, respectively
              
              
              1,500
              
              
              
              1,500Common
      Stock – $0.001 par value: 600,000,000 shares authorized;471,237,565
      and 434,167,000 shares issued and outstanding asof
      September 30, 2010 and December 31, 2009, respectively
              
              
              471,237
              
              
              
              434,167Additional
      paid-in capital
              
              
              72,899,791
              
              
              
              71,984,083Treasury
      stock
              
              
              (16,000
              )
              
              
              (16,000
              )Common
      stock payable
              
              
              135,000
              
              
              
              135,000Deficit
      accumulated during development stage
              
              
              (67,620,365
              )
              
              
              (77,873,554
              )Deficit
      accumulated before entering development stage
              
              
              (11,681,500
              )
              
              
              (11,681,500
              )Total
      stockholders' deficit
              
              
              (5,810,337
              )
              
              
              (17,016,304
              )Total
      liabilities and stockholders' deficit
              
              $
              19,995
              
              
              $
              5,783
  The
accompanying notes are an integral part of these financial
statements
  1
 
  Power3
Medical Products, Inc.
 (A Development Stage Entity)
 Statements
of Operations (Unaudited)
 Period
      FromMay
      18, 2004For
      the Three Months Ended
                      
                      
                      For
      the Nine Months Ended
                      
                      ThroughSeptember
      30,
                      
                      
                      September
      30,
                      
                      
                      September
      30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009
                      
                      
                      2010Net
      revenue
                      
                      $
                      -
                      
                      
                      $
                      41,337
                      
                      
                      $
                      -
                      
                      
                      $
                      209,814
                      
                      
                      $
                      542,249-Operating
      expenses:
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      -Employee
      compensation and benefits
                      
                      
                      33,147
                      
                      
                      
                      117,429
                      
                      
                      
                      113,785
                      
                      
                      
                      393,723
                      
                      
                      
                      31,531,364Professional
      and consulting fees
                      
                      
                      654,920
                      
                      
                      
                      382,533
                      
                      
                      
                      1,153,419
                      
                      
                      
                      1,007,868
                      
                      
                      
                      17,382,188Impairment
      of goodwill
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      13,371,776Other
      selling, general and administrative expenses
                      
                      
                      95,028
                      
                      
                      
                      65,753
                      
                      
                      
                      394,684
                      
                      
                      
                      216,287
                      
                      
                      
                      2,581,005Total
      operating expenses
                      
                      
                      783,095
                      
                      
                      
                      565,715
                      
                      
                      
                      1,661,888
                      
                      
                      
                      1,617,878
                      
                      
                      
                      64,866,333Loss
      from operations
                      
                      
                      (783,095
                      )
                      
                      
                      (524,378
                      )
                      
                      
                      (1,661,888
                      )
                      
                      
                      (1,408,064
                      )
                      
                      
                      (64,324,084
                      )Other
      income (expense):Derivative
      gain (loss)
                      
                      
                      1,418,710
                      
                      
                      
                      (9,211,930
                      )
                      
                      
                      11,999,065
                      
                      
                      
                      (9,368,581
                      )
                      
                      
                      5,976,117Gain
      on legal settlement
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      36,764Interest
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      7,867Gain
      (loss) on settlement of debt
                      
                      
                      -
                      
                      
                      
                      (82,599
                      )
                      
                      
                      -
                      
                      
                      
                      (1,090,628
                      )
                      
                      
                      1,582,872Interest
      expense
                      
                      
                      (23,782
                      )
                      
                      
                      (53,662
                      )
                      
                      
                      (83,988
                      )
                      
                      
                      (368,497
                      )
                      
                      
                      (5,763,282
                      )Mandatory
      prepayment penalty
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (420,000
                      )Other
      income/(expense)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (194,886
                      )Total
      other income/(expense)
                      
                      
                      1,394,928
                      
                      
                      
                      (9,348,191
                      )
                      
                      
                      11,915,077
                      
                      
                      
                      (10,827,706
                      )
                      
                      
                      1,225,452Net
      income (loss)
                      
                      
                      611,833
                      
                      
                      
                      (9,872,569
                      )
                      
                      
                      10,253,189
                      
                      
                      
                      (12,235,770
                      )
                      
                      
                      (63,098,632
                      )Deemed
      dividend
                      
                      
                      -
                      
                      
                      
                      (13,012
                      )
                      
                      
                      -
                      
                      
                      
                      (47,115
                      )
                      
                      
                      (1,140,760
                      )Net
      income (loss) attributable to common stockholders
                      
                      $
                      611,833
                      
                      
                      $
                      (9,885,581
                      )
                      
                      $
                      10,253,189
                      
                      
                      $
                      (12,282,885
                      )
                      
                      $
                      (64,239,392
                      )Net
      income (loss) per share - basic
                      
                      $
                      0.00
                      
                      
                      $
                      (0.03
                      )
                      
                      $
                      0.02
                      
                      
                      $
                      (0.05
                      )Net
      income (loss) per share - diluted
                      
                      $
                      0.00
                      
                      
                      $
                      (0.03
                      )
                      
                      $
                      0.02
                      
                      
                      $
                      (0.05
                      )Weighted
      average number of sharesoutstanding
      - basic
                      
                      
                      468,521,746
                      
                      
                      
                      385,487,654
                      
                      
                      
                      449,898,509
                      
                      
                      
                      267,016,937Weighted
      average number of sharesoutstanding
      - diluted
                      
                      
                      469,832,091
                      
                      
                      
                      385,487,654
                      
                      
                      
                      459,768,500
                      
                      
                      
                      267,016,937
 The
accompanying notes are an integral part of these financial
statements
 2




Power3
Medical Products, Inc.


(A
Development Stage Entity)


Statement
of Stockholders' Deficit (Unaudited)




AdditionalCommon
      Stock
              
              
              Preferred
      Stock
              
              
              Paid-in
              
              
              Other
      Equity
              
              
              AccumulatedShares
              
              
              Par
      Value
              
              
              Shares
              
              
              Par Value
              
              
              Capital
              
              
              Items
      (1)
              
              
              Deficit
              
              
              TotalBalances
      as of Beginning ofDevelopment
      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 acquisitionof
      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 percancellation
      agreement
              
              
              (160,000
              )
              
              
              (160
              )
              
              
              -
              
              
              
              -
              
              
              
              (71,840
              )
              
              
              -
              
              
              
              -
              
              
              
              (72,000
              )Issued
      shares to convert Series Aperferred
      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 ofderivative
      liabilities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,347,077
              )
              
              
              -
              
              
              
              -
              
              
              
              (3,347,077
              )Net
      loss (from May 18, 2004 toDecember
      31, 2004)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (15,236,339
              )
              
              
              (15,236,339
              )Balance
      at December 31, 2004
              
              
              65,345,121
              
              
              
              65,345
              
              
              
              -
              
              
              
              -
              
              
              
              58,884,351
              
              
              
              (18,301,588
              )
              
              
              (30,298,814
              )
              
              
              10,349,294Cancelled
      shares returnedfrom
      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
      deferredcompensation
      expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13,222,517
              
              
              
              -
              
              
              
              13,222,517Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (27,134,865
              )
              
              
              (27,134,865
              )Balance
      at 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
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (6,415,969
              )
              
              
              (6,415,969
              )Balance
      at 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
              )Balance
      at December 31, 2007
              
              
              108,352,636
              
              
              
              108,353
              
              
              
              -
              
              
              
              -
              
              
              
              60,191,104
              
              
              
              -
              
              
              
              (69,083,571
              )
              
              
              (8,784,114
              )Common
      stock issued for services
              
              
              7,482,910
              
              
              
              7,483
              
              
              
              -
              
              
              
              -
              
              
              
              584,858
              
              
              
              -
              
              
              
              -
              
              
              
              592,341Common
      stock issued for cash
              
              
              7,492,875
              
              
              
              7,493
              
              
              
              -
              
              
              
              -
              
              
              
              639,911
              
              
              
              -
              
              
              
              -
              
              
              
              647,404Common
      stock issued forconversion
      of debt
              
              
              22,172,536
              
              
              
              22,173
              
              
              
              -
              
              
              
              -
              
              
              
              1,568,626
              
              
              
              -
              
              
              
              -
              
              
              
              1,590,799Common
      stock issued for lawsuitsettlement
              
              
              325,000
              
              
              
              325
              
              
              
              -
              
              
              
              -
              
              
              
              30,550
              
              
              
              -
              
              
              
              -
              
              
              
              30,875Issued
      shares for payables
              
              
              2,133,333
              
              
              
              2,133
              
              
              
              -
              
              
              
              -
              
              
              
              186,867
              
              
              
              -
              
              
              
              -
              
              
              
              189,000Common
      stock held in escrow
              
              
              2,000,000
              
              
              
              2,000
              
              
              
              -
              
              
              
              -
              
              
              
              18,000
              
              
              
              (20,000
              )
              
              
              -
              
              
              
              -Preferred
      stock issued for services
              
              
              -
              
              
              
              -
              
              
              
              1,500,000
              
              
              
              1,500
              
              
              
              357,000
              
              
              
              -
              
              
              
              -
              
              
              
              358,500Deemed
      dividends
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              12,071
              
              
              
              -
              
              
              
              (12,071
              )
              
              
              -Loss
      on related party debtconversion
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (89,049
              )
              
              
              -
              
              
              
              -
              
              
              
              (89,049
              )Common
      stock payable
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              123,286
              
              
              
              -
              
              
              
              123,286Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (136,784
              )
              
              
              (136,784
              )Balance
      at December 31, 2008
              
              
              149,959,290
              
              
              
              149,960
              
              
              
              1,500,000
              
              
              
              1,500
              
              
              
              63,499,938
              
              
              
              103,286
              
              
              
              (69,232,426
              )
              
              
              (5,477,742
              )Common
      stock issued forconversion
      of debt
              
              
              150,701,039
              
              
              
              150,701
              
              
              
              -
              
              
              
              -
              
              
              
              2,154,621
              
              
              
              (82,944
              )
              
              
              -
              
              
              
              2,222,378Common
      stock payable
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              116,000
              
              
              
              -
              
              
              
              116,000Common
      stock issed upon exerciseof
      warrants
              
              
              11,789,509
              
              
              
              11,790
              
              
              
              -
              
              
              
              -
              
              
              
              267,042
              
              
              
              -
              
              
              
              -
              
              
              
              278,832Common
      stock issued for services
              
              
              112,201,562
              
              
              
              112,201
              
              
              
              -
              
              
              
              -
              
              
              
              4,403,503
              
              
              
              (14,286
              )
              
              
              -
              
              
              
              4,501,418Common
      stock issued for cash
              
              
              11,515,600
              
              
              
              11,516
              
              
              
              -
              
              
              
              -
              
              
              
              73,640
              
              
              
              -
              
              
              
              -
              
              
              
              85,156Return
      of common stock held inescrow
              
              
              (800,000
              )
              
              
              (800
              )
              
              
              -
              
              
              
              -
              
              
              
              800
              
              
              
              -
              
              
              
              -
              
              
              
              -Deemed
      dividends
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              1,111,054
              
              
              
              -
              
              
              
              (1,111,054
              )
              
              
              -Release
      of common stock held inescrow
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              20,000
              
              
              
              4,000
              
              
              
              -
              
              
              
              24,000Common
      stock rescinded for debt
              
              
              (1,200,000
              )
              
              
              (1,200
              )
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              (7,056
              )
              
              
              -
              
              
              
              (8,256
              )Common
      stock contributed for debtpayment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              276,558
              
              
              
              -
              
              
              
              -
              
              
              
              276,558Options
      issued for services
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              176,927
              
              
              
              -
              
              
              
              -
              
              
              
              176,927Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (19,211,574
              )
              
              
              (19,211,574
              )Balance
      at December 31, 2009
              
              
              434,167,000
              
              
              
              434,167
              
              
              
              1,500,000
              
              
              
              1,500
              
              
              
              71,984,083
              
              
              
              119,000
              
              
              
              (89,555,054
              )
              
              
              (17,016,304
              )Common
      stock issued upon exerciseof
      warrants
              
              
              36,799,358
              
              
              
              36,799
              
              
              
              -
              
              
              
              -
              
              
              
              197,735
              
              
              
              -
              
              
              
              -
              
              
              
              234,534Common
      stock issued for services
              
              
              12,573,456
              
              
              
              12,573
              
              
              
              -
              
              
              
              -
              
              
              
              495,671
              
              
              
              -
              
              
              
              -
              
              
              
              508,244Vesting
      of common stock issued forservices
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              210,000
              
              
              
              -
              
              
              
              -
              
              
              
              210,000Common
      stock rescinded or canceled
              
              
              (12,302,249
              )
              
              
              (12,302
              )
              
              
              -
              
              
              
              -
              
              
              
              12,302
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,253,189
              
              
              
              10,253,189Balance
      at September 30, 2010
              
              
              471,237,565
              
              
              $
              471,237
              
              
              $
              1,500,000
              
              
              $
              1,500
              
              
              $
              72,899,791
              
              
              $
              119,000
              
              
              $
              (79,301,865
              )
              
              $
              (5,810,337
              )


(1) A
more detailed description of the items comprising "Other Equity Items" is set
forth herein following this Statement of Stockholders' Deficit.






3




Power3 Medical
Products, Inc. (A Development Stage
Entity) Statements
of Stockholders Deficit -- Other Equity Items (Unaudited)
  Deferred
      Compensation Expense
                
                
                Treasury
                  Stock
                
                
                Stock
      Held in Escrow
                
                
                Common
      Stock Payable
                
                
                TotalBalances
      as of beginning of development stageMay
      18, 2004
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Issued
      shares for compensation
                
                
                (25,451,500
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (25,451,500
                )Issued
      shares for services
                
                
                (535,000
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (535,000
                )Stock
      option expense
                
                
                (626,100
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (626,100
                )Stock
      based compensation
                
                
                8,311,012
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                8,311,012Balance
      at December 31, 2004
                
                
                (18,301,588
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (18,301,588
                )Amortize
      deferred compensation expense
                
                
                13,222,517
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                13,222,517Balance
      at December 31, 2005
                
                
                (5,079,071
                )
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (5,079,071
                )Adoption
      of FAS 123R
                
                
                475,324
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                475,324Amortize
      deferred compensation expense
                
                
                4,603,747
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,603,747Balance
      at December 31, 2006
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Balance
      at December 31, 2007
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Stock
      held in escrow
                
                
                -
                
                
                
                -
                
                
                
                (20,000
                )
                
                
                -
                
                
                
                (20,000
                )Common
      stock payable
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                123,286
                
                
                
                123,286Balance
      at December 31, 2008
                
                
                -
                
                
                
                -
                
                
                
                (20,000
                )
                
                
                123,286
                
                
                
                103,286Common
      stock issued for conversion of debt
                
                
                -
                
                
                
                7,056
                
                
                
                -
                
                
                
                (90,000
                )
                
                
                (82,944
                )Common
      stock payable
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                116,000
                
                
                
                116,000Common
      stock issued for services
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (14,286
                )
                
                
                (14,286
                )Return
      of common stock held in escrow
                
                
                -
                
                
                
                (16,000
                )
                
                
                16,000
                
                
                
                -
                
                
                
                -Release
      of common stock held in escrow
                
                
                -
                
                
                
                -
                
                
                
                4,000
                
                
                
                -
                
                
                
                4,000Common
      stock rescinded for debt
                
                
                -
                
                
                
                (7,056
                )
                
                
                -
                
                
                
                -
                
                
                
                (7,056
                )Balance
      at December 31, 2009
                
                
                -
                
                
                
                (16,000
                )
                
                
                -
                
                
                
                135,000
                
                
                
                119,000Balance
      at September 30, 2010
                
                $
                -
                
                
                $
                (16,000
                )
                
                $
                -
                
                
                $
                135,000
                
                
                $
                119,000
 The
accompanying notes are an integral part of these financial
statements
  4




Power3 Medical Products, Inc.


(A
Development Stage Entity)
 Statements
of Cash Flows
 Period
      FromMay
      18, 2004ThroughFor
      the Nine Months Ended
                  
                  
                  SeptemberSeptember
      30,
                  
                  
                  30,2010
                  
                  
                  2009
                  
                  
                  2010(unaudited)Cash
      flows from operating activitiesNet
      income (loss)
                  
                  $
                  10,253,189
                  
                  
                  $
                  (12,235,770
                  )
                  
                  $
                  (63,098,632
                  )Adjustments
      to reconcile net income (loss) to net cashused
      in operating activities:(Gain)
      loss on conversion of financial instruments
                  
                  
                  -
                  
                  
                  
                  1,090,628
                  
                  
                  
                  (1,579,670
                  )Impairment
      of goodwill
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  13,371,776Impairment
      of intangible assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  179,788Loss
      on previously capitalized lease
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  34,243Amortization
      of debt discounts and deferred finance costs
                  
                  
                  21,621
                  
                  
                  
                  234,021
                  
                  
                  
                  4,005,435Change
      in derivative liability, net of bifurcation
                  
                  
                  (11,999,066
                  )
                  
                  
                  9,368,581
                  
                  
                  
                  (4,822,217
                  )Stock
      issued for compensation and services
                  
                  
                  718,245
                  
                  
                  
                  947,679
                  
                  
                  
                  38,883,262Debt
      issued for compensation and services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,028,927Stock
      issued for settlement of lawsuit
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  30,875Depreciation
      expense
                  
                  
                  764
                  
                  
                  
                  12,008
                  
                  
                  
                  108,346Release
      of stock held in escrow
                  
                  
                  -
                  
                  
                  
                  24,000
                  
                  
                  
                  24,000Other
      non-cash items
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (34,933
                  )Changes
      in operating assets and liabilities:Prepaid
      expenses and other current assets
                  
                  
                  -
                  
                  
                  
                  (1,431
                  )
                  
                  
                  186,084Deposits
      and other assets
                  
                  
                  (6,332
                  )
                  
                  
                  (254
                  )
                  
                  
                  17,265Accounts
      payable and other liabilities
                  
                  
                  716,889
                  
                  
                  
                  413,256
                  
                  
                  
                  4,097,563Net
      cash used in operating activities
                  
                  
                  (294,690
                  )
                  
                  
                  (147,282
                  )
                  
                  
                  (7,567,888
                  )Cash
      flows from investing activitiesIncrease
      in property and equipment
                  
                  
                  (2,325
                  )
                  
                  
                  (52,500
                  )
                  
                  
                  (144,833
                  )Increase
      in other assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (179,786
                  )Net
      cash used in investing activities
                  
                  
                  (2,325
                  )
                  
                  
                  (52,500
                  )
                  
                  
                  (324,619
                  )Cash
      flows from financing activitiesProceeds
      from sale of common stock
                  
                  
                  -
                  
                  
                  
                  85,156
                  
                  
                  
                  2,349,327Borrowings
      on notes payable – related party
                  
                  
                  -
                  
                  
                  
                  20,000
                  
                  
                  
                  95,376Borrowings
      on notes payable
                  
                  
                  68,800
                  
                  
                  
                  50,000
                  
                  
                  
                  3,907,230Principal
      payments on notes payable – related party
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (47,300
                  )Principal
      payments on notes payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (122,478
                  )Proceeds
      from exercise of warrants
                  
                  
                  234,534
                  
                  
                  
                  -
                  
                  
                  
                  513,366Proceeds
      from issuance of convertible debt, warrants,and
      rights net of issuance cost
                  
                  
                  -
                  
                  
                  
                  74,666
                  
                  
                  
                  1,200,709Net
      cash provided by financing activities
                  
                  
                  303,334
                  
                  
                  
                  229,822
                  
                  
                  
                  7,896,230Net
      increase (decrease) in cash and equivalents
                  
                  
                  6,319
                  
                  
                  
                  30,040
                  
                  
                  
                  3,723Cash
      and equivalents, beginning of period
                  
                  
                  -
                  
                  
                  
                  8,331
                  
                  
                  
                  2,596Cash
      and equivalents, end of period
                  
                  $
                  6,319
                  
                  
                  $
                  38,371
                  
                  
                  $
                  6,319Supplemental
      disclosure of cash flow informationCash
      paid for interest
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  59,840Cash
      paid for income taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Schedule
      of non-cash financing activitiesStock
      for conversion of debt – related party
                  
                  
                  -
                  
                  
                  
                  1,047,794
                  
                  
                  
                  2,227,759Stock
      for subscriptions receivable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Warrants
      exercised for subscriptions receivable
                  
                  
                  -
                  
                  
                  
                  4,166
                  
                  
                  
                  -Stock
      issued for common stock payable
                  
                  
                  -
                  
                  
                  
                  112,286
                  
                  
                  
                  -Exchange
      of debt – related party
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  214,075Exchange
      of convertible notes for stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,525,070Stock
      issued for services and settlement of payables
                  
                  
                  718,245
                  
                  
                  
                  -
                  
                  
                  
                  1,496,919Deemed
      dividend
                  
                  
                  -
                  
                  
                  
                  47,115
                  
                  
                  
                  1,140,760Exchange
      of convertible preferred stock for common stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,380,975Preferred
      stock issued for payables
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  358,500Stock
      held in escrow
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,000Stock
      contributed for debt payment
                  
                  
                  -
                  
                  
                  
                  276,558
                  
                  
                  
                  276,558Return
      of stock held in escrow
                  
                  
                  -
                  
                  
                  
                  16,800
                  
                  
                  
                  16,800Cashless
      exercise of warrants
                  
                  
                  32,374
                  
                  
                  
                  133
                  
                  
                  
                  32,507Stock
      rescinded for debt
                  
                  
                  -
                  
                  
                  
                  8,256
                  
                  
                  
                  8,256Stock
      rescinded or canceled
                  
                  
                  12,302
                  
                  
                  
                  -
                  
                  
                  
                  12,302
 The
accompanying notes are an integral part of these  financial
statements
  5
  POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010




Note
1.  Description of Business





Power3
Medical Products, Inc. (the “Company”) was incorporated in the State of Florida
as “Sheffield Acres, Inc.” on May 15, 1992, and merged into a New York
corporation named “Surgical Safety Products, Inc.” in 1994. On September 12,
2003, Surgical Safety Products, Inc. amended its Certificate of Incorporation to
change its name to “Power3 Medical Products, Inc.”  The Company became
a development stage company on May 18, 2004, when it completed the acquisition
of certain intellectual property assets from Advanced Bio/Chem, Inc. and began
focusing on research and development relating to those assets.  The
Company currently focuses on the development of its intellectual properties by
focusing on disease diagnosis, protein and biomarker identification and early
detection indicators in the areas of cancers, neurodegenerative and
neuromuscular diseases, as well as other scientific areas of interest associated
with protein biomarkers.





The
Company has developed a portfolio of products including BC-SeraProTM, a
proteomic blood serum test for the early detection of breast cancer, and
NuroPro®, a serum
test for the detection of neurodegenerative diseases including Alzheimer’s,
Parkinson’s and ALS diseases.  These products are designed to analyze
proteins and their mutations to assess an individual’s risk for developing
disease later in life or a patient’s likelihood of responding to a particular
drug, assess a patient’s risk of disease progression and disease recurrence, and
measure a patient’s exposure to drug therapy to ensure optimal dosing and
reduced drug toxicity. Future products and services are expected to originate
from the Company’s internal research and development programs, collaborative
efforts and alliances with third parties, and acquisitions of complementary
technologies and businesses.  The Company intends to continue entering
into collaboration and licensing agreements with biotechnology companies,
academic and research institutions, and other organizations that have the
ability to market and sell the Company’s products in return for licensing fees,
royalties and milestone payments.





Note
2.  Basis of Presentation and Going Concern





Basis of
Presentation





The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and in conformity with the instructions to Form 10-Q and Article 8-03 of
Regulation S-X and the related rules and regulations of the Securities and
Exchange Commission (the “SEC”).  Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, the disclosures included in these financial
statements are adequate to make the information presented not
misleading.




6


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010




Note
2.  Basis of Presentation and Going Concern (Continued)





The
unaudited financial statements included in this document have been prepared on
the same basis as the annual financial statements and in management’s opinion,
reflect all adjustments, including normal recurring adjustments, necessary to
present fairly the Company’s financial position, results of operations and cash
flows for the interim periods presented. The unaudited financial statements
should be read in conjunction with the audited financial statements and the
notes thereto for the year ended December 31, 2009 included in the Company’s
Annual Report on Form 10-K.  The results of operations for the three-
and nine- month periods ended September 30, 2010 are not necessarily indicative
of the results that the Company will have for any subsequent quarter or full
fiscal year.





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes.  Actual results could differ from
those estimates.  Certain amounts in the financial statements for 2009
have been reclassified to conform to the 2010 presentation.  These
reclassifications did not result in any change to the previously reported total
assets, net loss or stockholders’ deficit.





As of
September 30, 2010, the Company’s significant accounting policies and estimates,
and applicable recent accounting policies, which are detailed in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009, have not
changed materially.





Going
Concern





The
Company’s financial statements have been prepared using accounting principles
generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business.  The Company has historically incurred
significant losses, which raises substantial doubt about the Company’s ability
to continue as a going concern.  The accompanying financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities that
might result from the outcome of this uncertainty.





7


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010


Note
3.  Net Income (Loss) Per Share





Basic
income (loss) per share is based on the weighted average number of shares of the
Company’s common stock outstanding during the applicable period, and is
calculated by dividing the reported net income (loss) for the applicable period
by the weighted average number of shares of common stock outstanding during the
applicable period.   The Company calculates diluted income (loss)
per share by dividing the reported net income (loss) for the applicable period
by the weighted average number of shares of common stock outstanding during the
applicable period as adjusted to give effect to the exercise of all potentially
dilutive warrants outstanding at the end of the period.





A total
of 70,947,707 and 37,323,899 shares of common stock underlying warrants that
were outstanding on September 30, 2010 have been excluded from the computation
of diluted earnings per share for the three- and nine-month periods ended
September 30, 2010 because the exercise price was greater than the average
market price of the Company’s common stock during these periods.  A
total of 2,000,000 and 35,623,808 shares of common stock underlying warrants
that were outstanding on September 30, 2010 have been included in the
computation of diluted earnings per share for the three- and nine-month periods
ended September 30, 2010 because the exercise price was less than the average
market price of the Company’s common stock during these
periods.  Application of the treasury stock method resulted in
dilution of 2,000,000 and 35,623,808 shares of common stock for the three- and
nine-month periods ended September 30, 2010, but had no effect on net income per
share.





All of
the 122,827,446 shares of common stock underlying warrants that were outstanding
on September 30, 2009, have been excluded from the computation of diluted
earnings per share for the three- and nine-month periods ended September 30,
2009 because they are anti-dilutive.  As a result, basic loss per
share was equal to diluted loss per share for the three- and nine- month periods
ended September 30, 2009.




8


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010




Note
4.  Property and Equipment




Property
and equipment consisted of the following at September 30, 2010 and December 31,
2009:




Asset
            
            September
      30,
              2010
            
            
            December
      31, 2009Computers
      and Related Devices
            
            $
            18,209
            
            
            $
            15,884Less:
      Accumulated Depreciation
            
            
            (15,964
            )
            
            
            (15,201
            )Total
            
            
            2,244
            
            
            
            683Lab
      Equipment
            
            
            92,380
            
            
            
            92,380Less:
      Accumulated Depreciation
            
            
            (92,380
            )
            
            
            (92,380
            )Total
            
            
            -0-
            
            
            
            -0-Total
      Property and Equipment, Net
            
            $
            2,244
            
            
            $
            683




Note
5.  Other Current Liabilities





Other
current liabilities consisted of the following at September 30, 2010 and
December 31, 2009:





Liability
            
            September
      30,
              2010
            
            
            December
      31, 2009Accrued
      interest and interest payable
            
            $
            386,471
            
            
            $
            312,252Accrued
      payroll taxes
            
            
            23,183
            
            
            
            21,464Accrued
      compensation and salaries payable
            
            
            348,831
            
            
            
            258,364Other
      accrued expenses and liabilities
            
            
            1,811
            
            
            
            1,811Total
            
            $
            760,296
            
            
            $
            593,891




9


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010




Note
6.  Derivative Liabilities





The
Company’s derivative liabilities were $2,457,358 and $14,456,424 at September
30, 2010 and December 31, 2009, respectively.  The Company recognized
gains of $1,418,710 and $11,999,065 for derivative liabilities for the three-
and nine- month periods ended September 30, 2010, respectively, compared to
losses of $9,211,930 and $9,368,581 for derivative liabilities for the three-
and nine- month periods ended September 30, 2009, respectively.  The
derivative gains recognized during the three- and nine-month periods ended
September 30, 2010 were due primarily to a decrease of the Company’s stock price
during 2010.





The
components of derivative financial instruments on the Company’s balance sheet at
September 30, 2010 and December 31, 2009 are as follows:





September
      30, 2010
            
            
            December
      31, 2009Common
      stock warrants
            
            $
            1,484,232
            
            
            $
            10,267,167Embedded
      conversion features –convertible
      promissory notes anddebentures
            
            
            973,126
            
            
            
            4,189,257Total
            
            $
            2,457,358
            
            
            $
            14,456,424




Duringthe three months ended
June 30, 2010, the Company changed the method by which it valued the conversion
features in its convertible notes by switching from the binomial lattice
valuation model to the Black-Scholes pricing model.  As a result, the
conversion features in the Company’s convertible notes were valued under the
binomial lattice valuation model at December 31, 2009, and were valued under the
Black-Scholes pricing model at September 30, 2010.  This change has
been deemed by the Company to be a change in accounting estimate.




10




POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010




Note
7.  Commitments and Contingencies





Litigation





In
September 2008, the Company entered into an Arbitration Agreement with Steven
Rash in connection with his agreement to resign as the Company’s Chief Executive
Officer.  The parties agreed to arbitrate claims for wages and other
compensation due, breach of contracts or covenants, and benefits.  The
Company agreed to arbitrate Mr. Rash’s claims for wages of $36,031 and its
claims for embezzlement, fraud and breach of contract by Mr. Rash.  As of
September 30, 2010, arbitration had not been initiated by either party. The
Company does not believe a material loss is probable at this time.





In March
2009, McLennon Law Corporation filed a law suit against the Company in the
Superior Court of the State of California in and for the County of San Francisco
for breach of contract for approximately $117,000 of accrued but unpaid attorney
fees.  In July 2010, a judgment was entered against us for the full amount
of unpaid attorney fees and interest and the law suit was
terminated.





In
September 2009, one of the Company’s former employees attempted to convert a
$30,000 convertible promissory note plus interest into shares of the Company’s
common stock.  The Company is disputing the amount, if any, that is
due to the former employee under the note.  As of September 30, 2010,
the note had not been converted.  In December 2009, the former
employee filed a law suit against the Company seeking damages and specific
performance.  In August 2010, the Company filed an amended answer and
counterclaims against the former employee for breach of fiduciary duty and
fraud. The Company does not believe a material loss is probable at this
time.





In
February 2010, Transgenomic, Inc. (“Transgenomic”) filed a lawsuit against the
Company in the United States District Court for the District of Nebraska. 
The lawsuit contained claims for fraud, breach of contract, libel and slander,
and sought a declaration of rights under the Collaboration and Exclusive License
Agreement, dated January 23, 2009, between the parties.  In April 2010, the
Company filed a partial motion to dismiss Transgenomic’s fraud claim.  In
June 2010, the Company filed a lawsuit against Transgenomic in the District
Court of Montgomery County, Texas, 359th Judicial District.  The
lawsuit contained claims for trade secret misappropriation, breach of contract,
misappropriation, conversion, unjust enrichment, quantum meruit and promissory
estoppel as well as a request for injunctive relief.  In July 2010,
the Company filed a non-suit to dismiss the case that we filed against
Transgenomic in Texas without prejudice.  As of September 30, 2010,
the Company intended to re-file the claims against Transgenomic in the United
States District Court for the District of Nebraska as counterclaims accompanying
its response to the claims filed by Transgenomic. The Company does not believe a
material loss is probable at this time.




11




POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010




Note
7.  Commitments and Contingencies (Continued)





In March
2010, Rockmore Investment Master Fund LTD (“Rockmore”) filed a lawsuit against
the Company in the Supreme Court for the State of New York.  The
lawsuit contained claims for breach of contract and specific performance related
to a convertible debenture and common stock warrant previously issued by the
Company to Rockmore.  In September 2010, Rockmore filed a motion for
summary judgment and injunction regarding its claims. The Company does not
believe a material loss is probable at this time.





In April
2010, the Company filed a lawsuit against Richard Kraniak and Roger Kazanowski
(“Kraniak and Kazanowski”) in the United States District Court for the Southern
District of Texas, Houston Division.  The lawsuit contained claims for
violations of the Securities Act of 1933, as amended (the “Securities Act”), and
the Securities and Exchange Act of 1934, as amended (the “Exchange
Act”).  In May 2010, Kraniak and Kazanowski filed a motion to dismiss
the lawsuit.  In June 2010, the Company filed a response to Kraniak
and Kazanowski’s motion to dismiss as well as a first amended complaint against
Kraniak and Kazanowski.  In July 2010, Kraniak and Kazanowski filed
counterclaims against the Company in the United States District Court for the
Southern District of Texas, Houston Division.  The counterclaims
contained claims for breach of contract, misrepresentation, civil conspiracy and
defamation.  In July 2010, the Company filed an answer to the
counterclaims denying each of the alleged claims. The Company does not believe a
material loss is probable at this time.





In April
2010, Neogenomics, Inc. (“Neogenomics”) filed a lawsuit and motion for summary
judgment against the Company in the Supreme Court of the State of New
York.  The lawsuit contained claims of breach of contract and specific
performance related to a convertible debenture previously issued by the Company
to Neogenomics.  In May 2010, the Company filed a response to the
motion for summary judgment. The Company does not believe a material loss is
probable at this time.





In April
2010, Lucas Associates, Inc. filed a lawsuit against the Company in the District
Court of Montgomery County, Texas, 359thJudicial
District.  The lawsuit contained claims for breach of contract,
quantum meruit and fraud related to allegations that the Company failed to pay
them a finder’s fee in connection with the hiring of John Ginzler as the
Company’s Chief Financial Officer in 2009.  In June 2010, the Company
filed a general denial to the claims alleged in the complaint. The Company does
not believe a material loss is probable at this time.




12




POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010




Note
7.  Commitments and Contingencies (Continued)





In April
2010, John Ginzler filed a lawsuit against the Company in the District Court of
Montgomery County, Texas, 359th Judicial District.  The lawsuit
contained claims for breach of contract related to an employment agreement
entered into between him and the Company.  In June 2010, the Company
filed a general denial to the claims alleged in the complaint.  As of
September 30, 2010, the case was pending. The Company does not believe a
material loss is probable at this time.





In May
2010, the Company filed a lawsuit against Able Income Fund LLC (“Able Income
Fund”) in the United States District Court for the Southern District of Texas,
Houston Division.  The lawsuit contained claims for violations of the
Securities Act and the Exchange Act.  In July 2010, Able Income Fund
filed a lawsuit against the Company in the Supreme Court of the State of New
York.  The lawsuit contained claims for breach of contract and
specific performance related to two convertible debentures previously issued by
the Company to Able Income Fund.  In September 2010, the Company filed
a motion to dismiss Able Income Fund’s lawsuit. The Company does not believe a
material loss is probable at this time.





Employment and Consulting
Agreements





On June
1, 2009, the Company entered into an Amended and Restated Consulting Agreement
with Bronco Technology, Inc.  Under the terms of the agreement, Ms.
Park agreed to continue to serve as the Company’s Interim Chief Executive
Officer until May 31, 2011.   In consideration for Ms. Park’s
services, the Company agreed to pay Bronco Technology, Inc. $8,334 per month,
subject to annual review by the Company’s board of directors or compensation
committee of the board of directors, if any.  The Company also agreed
to pay Bronco Technology a cash commission payment of an amount equal to one
percent (1.0%), but not to exceed $5,000 per month, of the royalties received by
the Company from the sale of certain of its products through license agreements
signed during the term of the agreement.





Effective
May 17, 2009, the Company entered into an Amended and Restated Employment
Agreement with Dr. Ira L. Goldknopf to continue serving as the Company’s
President and Chief Scientific Officer.  The agreement is for a three-year
term.  The Company agreed to pay Dr. Goldknopf an annual base salary
of $100,000 through May 31, 2009, and an annual base salary of $125,000 for the
remainder of the term, subject to annual review by the Company’s board of
directors or compensation committee of the board of directors, if
any.  The Company also agreed to pay Mr. Goldknopf a cash bonus of
$1,000 for each publication authored or co-authored by Dr. Goldknopf and
published in a scientific or professional journal that provides value to the
Company.




13


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010





Note
8.  Common Stock and Preferred Stock





The
Company’s authorized capital consisted of 600,000,000 shares of common stock,
$0.001 par value per share, at September 30, 2010 and December 31, 2009,
respectively, and 50,000,000 shares of preferred stock, $0.001 par value per
share, at September 30, 2010 and December 31, 2009,
respectively.  There were 471,237,565 and 434,167,000 shares of common
stock outstanding at September 30, 2010 and December 31, 2009, respectively, and
1,500,000 shares of preferred stock outstanding at September 30, 2010 and
December 31, 2009, respectively.





In
January 2010, the Company issued 409,906 shares of common stock to a consultant
for consulting services.  The shares were valued at the closing price
of the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $65,175, all of which was recognized as
expense during the nine months ended September 30, 2010.





In January and February 2010, the
Company issued a total of 4,425,166 shares of common stock to accredited
investors upon the exercise of outstanding warrants for aggregate gross proceeds
of $234,534.





In March
2010, the Company issued 500,000 shares of common stock to a consultant for
consulting services.  The shares were valued at the closing price of
the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $23,750, all of which was recognized as
expense during the nine months ended September 30, 2010.





In March
2010, the Company issued 197,490 shares of common stock to a consultant for
consulting services.  The shares were valued at the closing price of
the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $9,282, all of which was recognized as expense
during the nine months ended September 30, 2010.





In April
2010, the Company issued 400,000 shares of common stock to a consultant for
consulting services.  The shares were valued at the closing price of
the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $16,000, all of which was recognized as
expense during the nine months ended September 30, 2010.




14


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010





Note
8.  Common Stock and Preferred Stock (Continued)





In May
2010, the Company issued a total of 32,374,192 shares of common stock to
accredited investors upon the exercise of outstanding warrants.  The
warrants were exercised in accordance with cashless exercise provisions
contained in the warrants.  As a result, the Company received no
proceeds from the exercise of the warrants.





In May
2010, the Company issued 7,625,808 shares of common stock to consultants for
consulting services.  The shares were valued at the closing price of
the Company’s common stock on the date the consultants agreed to receive the
shares for total consideration of $305,032, all of which was recognized as
expense during the nine months ended September 30, 2010.





In August
2010, the Company issued 1,000,000 shares of common stock to a consultant for
consulting services.  The shares were valued at the closing price of
the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $28,000, all of which was recognized as
expense during the three months ended September 30, 2010.





In August
2010, the Company issued 440,252 shares of common stock to a consultant for
consulting services.  The shares were valued at the closing price of
the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $11,006, all of which was recognized as
expense during the three months ended September 30, 2010.





In
September 2010, the Company issued 2,000,000 shares of common stock to a
consultant for consulting services.  The shares were valued at the
closing price of the Company’s common stock on the date the consultant agreed to
receive the shares for total consideration of $50,000, all of which was
recognized as expense during the three months ended September 30,
2010.





During
the nine months ended September 30, 2010, the Company rescinded and canceled a
total of 12,302,249 shares of common stock that had been issued under restricted
stock awards that had terminated in accordance with the terms of the
awards.




15


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010


Note
9.  Stock Options and Warrants





The Company did not issue any stock
options or warrants during the three- and nine- month periods ended September
30, 2010, and no stock options were outstanding at September 30, 2010 and
December 31, 2009.  Warrants exercisable into a total of 72,947,707
and 131,323,437 shares of the Company’s common stock were outstanding on
September 30, 2010 and December 31, 2009, respectively.  The weighted
average exercise price of the warrants outstanding on September 30, 2010 and
December 31, 2009 was $0.05.  The Company estimates the fair value of
its warrants on the date of grant by using the Black-Scholes pricing model in
accordance with the provisions of ASC 718.  Under the Black-Scholes
pricing model, the Company used the following weighted-average assumptions to
determine the fair value of the warrants issued: a dividend yield of zero
percent, a historical volatility of 265%, a risk-free interest rate of 0.5%
and a remaining contractual life of 2.11 years.





During
the nine months ended September 30, 2010, the Company issued a total of
36,799,358 shares of common stock to warrant holders upon the exercise of
outstanding warrants for total cash proceeds of $234,534.  The average
exercise price of the warrants exercised was $0.005 per share.





Note
10.  Promissory Notes and Debentures





During
the three- and nine-month periods ended September 30, 2010, Rozetta-Cell Life
Sciences, Inc., a Nevada corporation that the Company is proposing to acquire
(“Rozetta-Cell”), made loans to the Company for a total of
$68,800.  The loans are interest free and payable on
demand.





The
carrying values of the Company’s notes payable, net of unamortized discounts,
amounted to $534,800 and $466,000 at September 30, 2010 and December 31,
2009, respectively, as follows.




September
      30,
              2010
            
            
            December
      31, 2009Notes
      Payable
            
            $
            68,800
            
            
            $
            -0-Notes
      Payable – in Default
            
            
            451,000
            
            
            
            451,000Notes
      Payable – Related Party
            
            
            15,000
            
            
            
            15,000Total
      Notes Payable, Net of Discount
            
            $
            534,800
            
            
            $
            466,000




16


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010




Note
10.  Promissory Notes and Debentures (Continued)





The
carrying values of the Company’s convertible debentures, net of unamortized
discounts, amounted to $431,255 and $409,634 at September 30, 2010 and December
31, 2009, respectively, as follows.





September
      30,
              2010
            
            
            December
      31, 2009Convertible
      Debentures
            
            $
            50,000
            
            
            $
            50,000Less:
      Unamortized Discount
            
            
            -0-
            
            
            
            (21,621
            )Total
            
            
            50,000
            
            
            
            28,379Convertible
      Debentures – in Default
            
            
            351,255
            
            
            
            351,255Convertible
      Debentures – Related Party
            
            
            30,000
            
            
            
            30,000Total
      Convertible Debentures, Net of
              Unamortized
      Discount
            
            $
            431,255
            
            
            $
            409,634





Note
11. Acquisition of StemTroniX





In May 2010, the Company elected to
terminate the Agreement and Plan of Merger (the “StemTroniX Merger Agreement”)
by and among the Company, Power3 Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of the Company, and StemTroniX, Inc., a Texas
corporation.  The Company did not incur any penalties in connection
with its decision to terminate the StemTroniX Merger Agreement.




17


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010


Note
12.  Acquisition of Rozetta-Cell





On
September 7, 2010, the Company entered into an Agreement and Plan of Merger (the
“Rozetta-Cell Merger Agreement”) by and between the Company and Rozetta-Cell
pursuant to which Rozetta-Cell will merge with and into the Company, the
separate corporate existence of Rozetta-Cell will cease, and the Company will
continue as the surviving company (the “Merger”).





Subject
to the terms and conditions of the Rozetta-Cell Merger Agreement, which has been
approved by the boards of directors of both the Company and Rozetta-Cell, if the
Merger is completed, each outstanding share of Rozetta-Cell common stock will be
converted into the right to receive ten (10) shares of the Company’s common
stock, subject to certain adjustments as provided in the Rozetta-Cell Merger
Agreement.





The
Rozetta-Cell Merger Agreement contains customary representations and warranties
of the Company and Rozetta-Cell, covenants of Rozetta-Cell to conduct its
business in the ordinary course until the Merger is consummated,
and covenants of Rozetta-Cell to not take certain actions until the Merger
is consummated.  Rozetta-Cell has also agreed to not solicit proposals
relating to business combination transactions with other parties or enter into
discussions concerning any proposals for business combination transactions with
other parties.





Consummation
of the Merger is subject to certain customary conditions, including, among
others, the approval of the Merger by the shareholders of Rozetta-Cell, the
approval of the issuance of Company common stock in connection with the Merger
by the shareholders of the Company, the approval of an amendment to the
certification of incorporation of the Company by the shareholders of the Company
to increase the number of shares of common stock authorized for issuance to that
number of shares necessary to ensure that an adequate number of shares is
available for issuance to the shareholders of Rozetta-Cell, the receipt of any
required governmental approvals and expiration of applicable waiting periods,
the accuracy of the representations and warranties of the Company and
Rozetta-Cell (generally subject to a material adverse effect standard), and
material compliance by the Company and Rozetta-Cell with their respective
obligations under the Rozetta-Cell Merger Agreement.





The
Rozetta-Cell Merger Agreement contains certain termination rights of the Company
and Rozetta-Cell, including the right to terminate the Rozetta-Cell Merger
Agreement if the Merger is not completed by December 31, 2010.




18


POWER3
MEDICAL PRODUCTS, INC.
 (A
Development Stage Entity)
 Notes to
Financial Statements (Unaudited)
 September
30, 2010


Note
13.  Subsequent Events





Other
than as set forth below, no additional significant subsequent events occurred as
of the date these financial statements were issued.





In
October 2010, the court granted Rockmore’s motion for summary judgment, but
denied its request for an injunction.





In
October 2010, the Company filed a second amended complaint against Kraniak and
Kazanowski.








19




DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS





This
report contains “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).  All statements other than statements of historical facts
included or incorporated by reference in this report, including, without
limitation, statements regarding our future financial position, business
strategy, budgets, projected revenue and costs, and plans and objectives of
management for future operations, are forward-looking statements.  In
addition, forward-looking statements generally can be identified by the use of
forward-looking terminology such as “may,” “will,” “expects,” “intends,”
“plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative
thereof or any variation thereon or similar terminology or
expressions.




These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from results proposed in such
statements.  Although we believe that the expectations reflected in
such forward-looking statements are reasonable, we can give no assurance that
such expectations will prove to have been correct.  Important factors
that could cause actual results to differ materially from our expectations
include, but are not limited to:





·
            our
      ability to fund future growth and implement our business
      strategy;




·
            our
      dependence on a limited number of business partners for substantially all
      of our revenue;




·
            projections
      of our future revenue, results of operations and financial
      condition;




·
            anticipated
      deployment, capabilities and uses of our products and our product
      development activities and product
innovations;




·
            the
      importance of proteomics as a major focus of biology
    research;




·
            competition
      and consolidation in the markets in which we
  compete;




·
            existing
      and future collaborations and
partnerships;




·
            the
      utility of biomarker discoveries;




·
            our
      belief that biomarker discoveries may have diagnostic and/or therapeutic
      utility;




·
            our
      ability to comply with applicable government
  regulations;




·
            our
      ability to expand and protect our intellectual property
      portfolio;




·
            the
      condition of the securities and capital
markets;




·
            general
      economic and business conditions, either nationally or internationally or
      in the jurisdictions in which we are doing
  business;




and
statements of assumption underlying any of the foregoing, as well as any other
factors set forth herein under “Item 2.  Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
below and “Item
1A.  Risk Factors” of our Annual Report on Form 10-K for our
fiscal year ended December 31, 2009.  All subsequent written and oral
forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by the foregoing.  Except as
required by law, we assume no duty to update or revise our forward-looking
statements.




20




Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations.





This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this report contain forward-looking statements
that involve risks and uncertainties.  All forward-looking statements
included in this report are based on information available to us on the date
hereof, and, except as required by law, we assume no obligation to update any
such forward-looking statements.  Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of a number of factors, including those set forth under “Item 1A. Risk Factors” of
our Annual Report on Form 10-K for our fiscal year ended December 31, 2009 and
elsewhere in this report.  The following should be read in conjunction
with our financial statements beginning on page 1 of this report.




Overview




We are a
leading bio-technology company focused on the development and marketing of novel
diagnostic products through the analysis of proteins.  Our business is
focused on the development of novel diagnostic tests in the fields of cancer and
neurodegenerative diseases such as amytrophic lateral sclerosis (commonly known
as ALS or Lou Gehrig’s disease), Alzheimer’s disease and Parkinson’s
disease. We also address clinical questions related to early disease
detection, treatment response, monitoring of disease progression, prognosis and
others through collaborations with leading academic and research
institutions. We apply proprietary methodologies to discover and identify
protein biomarkers associated with diseases. We also use advanced protein
separation methods to identify and resolve variants of specific biomarkers for
developing a procedure to measure a property or concentration of an assay and
commercializing novel diagnostic tests. By discovery and development of
protein-based disease biomarkers, we have developed tools for diagnosis,
prognosis, early detection and identification of new target drugs in cancer and
neurodegenerative diseases.





We
have developed a portfolio of products including BC-SeraProTM, a
proteomic blood serum test for the early detection of breast cancer for which we
have completed Phase I clinical trials, and NuroPro®, a serum
test for the detection of neurodegenerative diseases including Alzheimer’s,
Parkinson’s and ALS diseases for which we are currently engaged in Phase II
clinical trials.  These products are designed to analyze proteins and their
mutations to assess an individual’s risk for developing disease later in life or
a patient’s likelihood of responding to a particular drug, assess a patient’s
risk of disease progression and disease recurrence, and measure a patient’s
exposure to drug therapy to ensure optimal dosing and reduced drug toxicity.
Armed with this risk response assessment information, individuals can take
action to prevent or delay the onset of disease and physicians can ensure that
patients receive the most appropriate treatment for their disease.




Strategy





We are
currently developing proteomic and related biomarker tests that will assist
providers and payers in determining the most appropriate therapeutic
intervention for a particular patient. These tests are developed based on our
know-how and expertise, in partnership with thought leaders and leading
healthcare institutions, and intellectual property that we have developed on our
own, licensed from others, or acquired from other parties. Our tests are
available to patients by physician’s prescription to providers located primarily
in the United States and may be performed in our laboratory or partnered with
other test providers.




21





We intend
to complete Phase II clinical trials for NuroPro®and
begin commercialization of NuroPro® during
2011, and to complete Phase II clinical trials for BC-SeraProTM during
2011.  We also intend to develop additional diagnostic products
utilizing the proteomic research and results that we have achieved and for which
we have filed patent applications with the United States Patent and Trademark
Office.  By utilizing the intellectual property that we have in our
possession, building on the intellectual property portfolio through additional
clinical trials, and acquiring complementary intellectual property from other
bio-technology companies, we will have the ability to successfully create,
market and sell a diverse diagnostic product offering based on our proteomic
research.





Our goal
during the remainder of 2010 and 2011 is to enter into collaboration and
licensing agreements with other leading bio-technology companies, academic and
research institutions, like the Baylor College of Medicine, who have the
resources and expertise to engage in successful commercialization campaigns of
our products.  Through these agreements, we will generate revenue
through a combination of licensing fees, royalties and milestone payments that
we receive from our collaboration and licensing partners.





Recent
Developments





On
September 7, 2010, we entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Rozetta-Cell Life Sciences, Inc., a Nevada corporation
(“Rozetta-Cell”), pursuant to which Rozetta-Cell will merge with and into us,
the separate corporate existence of Rozetta-Cell will cease, and we will
continue as the surviving company (the “Merger”).




Subject
to the terms and conditions of the Merger Agreement, which has been approved by
the boards of directors of both us and Rozetta-Cell, if the Merger is completed,
each outstanding share of Rozetta-Cell common stock will be converted into the
right to receive ten shares of our common stock, subject to certain adjustments
as provided in the Merger Agreement.




The
Merger Agreement contains customary representations and warranties of us and
Rozetta-Cell, covenants of Rozetta-Cell to conduct its business in the
ordinary course until the Merger is consummated, and covenants of
Rozetta-Cell to not take certain actions until the Merger is
consummated.  Rozetta-Cell has also agreed to not solicit proposals
relating to business combination transactions with other parties or enter into
discussions concerning any proposals for business combination transactions with
other parties.




Consummation
of the Merger is subject to certain customary conditions, including, among
others, the approval of the Merger by the shareholders of Rozetta-Cell, the
approval of the issuance of Power3 common stock in connection with the Merger by
the shareholders of Power3, the approval of an amendment to the certification of
incorporation of Power3 by the shareholders of Power3 to increase the number of
shares of common stock authorized for issuance to that number of shares
necessary to ensure that an adequate number of shares is available for issuance
to the shareholders of Rozetta-Cell, the receipt of any required governmental
approvals and expiration of applicable waiting periods, the accuracy of the
representations and warranties of Power3 and Rozetta-Cell (generally subject to
a material adverse effect standard), and material compliance by Power3 and
Rozetta-Cell with their respective obligations under the Merger
Agreement.




22




The
Merger Agreement contains certain termination rights of Power3 and Rozetta-Cell,
including the right to terminate the Merger Agreement if the Merger is not
completed by December 31, 2010.




Outlook





We expect sales of our BC-SeraProTM and
NuroPro®
diagnostic products to increase during 2011 as we complete Phase II clinical
studies on these products.  We also expect to develop several
additional diagnostic products during 2011.  As a result, we expect
revenue to increase as we enter into additional collaboration and licensing
agreements with other bio-technology companies, academic and research
institutions and governmental agencies. We intend to reduce our liabilities by
retiring our outstanding debt, which will decrease substantially, if not
eliminate, the derivative liabilities that we have been incurring for the past
few years.  The combination of increased revenue and reduced debt,
coupled with significant capital-raising initiatives that we plan to complete
during the remainder of 2010 and 2011, will provide us with the assets and
operating results necessary to grow at an exponential rate for the foreseeable
future.





Critical
Accounting Policies





For
information regarding our critical accounting policies, please refer to the
discussion provided in our Annual Report on Form 10-K for our fiscal year ended
December 31, 2009 under the caption “Item 6.  Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Policies” and our Notes to Financial Statements
included therein.





Recent
Accounting Pronouncements





For
information regarding recent accounting pronouncements applicable to our
business, please refer to the discussion provided in our Annual Report on Form
10-K for our fiscal year ended December 31, 2009 under the caption “Item 6.  Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Recent Accounting Pronouncements” and our Notes to Financial Statements
included therein.





Comparison
of the Three-Month Periods Ended September 30, 2010 and 2009





Net
Revenue





Net revenue consists primarily of
licensing fees, royalties and milestone payments that we receive from our
licensing partners.  We generated revenue of $41,337 for the three
months ended September 30, 2009.  We did not generate any revenue for
the three months ended September 30, 2010.  The decrease in revenue
resulted primarily from our decision to terminate the Collaboration and
Exclusive License Agreement with Transgenomic, Inc. in January
2010.  We expect licensing fees, royalties and milestone payments
generated from our BC-SeraProTM and
NuroPro®
diagnostic products to increase during 2010 as we complete Phase II clinical
studies on these products.  As a result, we expect revenue to increase
as we enter into additional collaboration and licensing agreements with other
bio-technology companies, academic and research institutions and governmental
agencies.




23





Operating
Expenses





Operating expenses consist primarily of
employee compensation and benefits, professional and consulting fees, and other
selling, general and administrative expenses.





Employee Compensation and
Benefits.  Employee compensation and benefits consists of all
salaries and other cash compensation, equity-based compensation, employee
benefits and the related payroll taxes.  Employee compensation expense
decreased $84,282 to $33,147 for the three months ended September 30, 2010 from
$117,429 for the three months ended September 30, 2009.  The decrease
of $84,282 was due primarily to a decrease of $65,172 for salary and
equity-based compensation expenses associated with a decrease in the number of
individuals who we employed during the three months ended September 30,
2010.  We expect employee compensation expense to increase over the
next 12 months as we continue to retain additional executive management
personnel, lab technicians and other employees in connection with the growth of
our business.





Professional
Fees.  Professional fees consist of fees paid to our
independent accountants, lawyers, laboratory and technology consultants and
other professionals and consultants.  Professional fees increased
$272,387 to $654,920 for the three months ended September 30, 2010 from $382,533
for the three months ended September 30, 2009.  The increase of
$272,387 was due primarily to increases of $120,274 for legal fees and $149,794
for the amount of expense recognized in connection with equity-based
compensation paid to service providers and consultants for various services. We
expect professional fees to increase over the next 12 months as we incur
additional legal, accounting, laboratory and technology fees in connection with
the general expansion of our business and operations.





Other Selling, General and
Administrative Expenses.  Other selling, general and
administrative expenses consist of selling and marketing expenses, lab services
and supplies, clinical validation studies, computer hardware and system costs,
bank service charges, filing fees and dues, non-employee customer service
representative expense, rent expense, financial printer costs, transfer agent
costs, the costs of investor relations campaigns and activities, postage and
delivery expenses, severance expenses, general business expenses and
miscellaneous general and administrative expenses.  Other general and
administrative expenses increased $29,275 to $95,028 for the three months ended
September 30, 2010 from $65,753 for the three months ended September 30,
2009.  The increase of $29,275 resulted primarily from an increase of
$14,993 for relocation expenses and increases in other miscellaneous selling,
general and administrative expenses.  We expect other general and
administrative expenses to increase over the next 12 months as we continue to
incur expenses for clinical validation studies, lab supplies, selling and
marketing expenses, rent, computer hardware and systems, and other miscellaneous
items associated with the general operation and growth of our
business.





Interest
Expense





Interest expense consists of the
interest and discount amortization costs that we incur on the debt obligations
that we have.  Interest and amortization expense decreased $29,880 to
$23,782 for the three months ended September 30, 2010 from $53,662 for the three
months ended September 30, 2009.  The decrease of $29,880 was due
primarily to the retirement during 2009 of many of the debt obligations that
were outstanding during the three months ended September 30, 2009.  We
expect interest expense to decrease over the next 12 months as we continue to
retire our remaining debt obligations.




24





Derivative Gain /
Loss





Derivative
gain / loss consists of the non-operating, non-cash income or expense resulting
from changes in the fair value of the derivative instruments contained in the
convertible promissory notes and associated stock warrants that were outstanding
at September 30, 2010 and 2009, respectively.  During the three months
ended June 30, 2010, we changed the method by which we valued the conversion
features in our convertible notes by switching from the binomial lattice
valuation model to the Black-Scholes pricing model.  We recognized a
derivative gain of $1,418,710 for the three months ended September 30, 2010
compared to a derivative loss of $9,211,930 for the three months ended September
30, 2009.  The difference of $10,630,640 was due primarily to the
decrease in the trading price of our common stock that we experienced between
July 1, 2010 and September 30, 2010 compared to the large increase in the
trading price of our common stock that we experienced between July 1, 2009 and
September 30, 2009.  While future derivative gain / loss is largely
dependent upon the trading price of our common stock, we expect future
derivative gains and losses to be smaller in amount as our convertible
promissory notes are retired or converted into shares of common stock, and as
the associated stock warrants are exercised or expire by their
terms.





Gain / Loss on Settlement of
Debt





Gain / loss on settlement of debt
consists of the gains and losses that we have recognized in connection with the
retirement of outstanding debt and payment of outstanding invoices and results
when we issue shares of common stock having an aggregate value less than (in the
case of gains) or greater than (in the case of losses) the outstanding principal
amount of the note and accrued interest or the applicable invoice.  We
recognized a loss on the settlement of debt of $82,599 for the three months
ended September 30, 2009.  We did not recognize any gain or loss on
the settlement of debt for the three months ended September 30,
2010.  The difference of $82,599 was due primarily to our decision to
pay off a significant amount of our outstanding debt obligations and accrued
interest, and numerous outstanding invoices, during 2009 by issuing shares of
our common stock having an aggregate value that was greater than the outstanding
principal amount of the applicable note and accrued interest or the applicable
invoice.  While we may continue to incur losses on the settlement of
debt in the future as we continue to pay off outstanding debt and invoices with
shares of our common stock, we expect any such losses to decrease as the amount
of outstanding debt continues to decrease.





Net Income /
Loss





We
generated net income of $611,833 for the three months ended September 30, 2010
compared to a net loss of $9,885,581 for the three months ended September 30,
2009.  The difference of $10,497,414 was due primarily to a difference
of $10,630,640 for derivative gain recognized during 2010 compared to derivative
loss recognized during 2009, a difference of $82,599 resulting from losses from
the extinguishment of debt recognized during 2009, and decreases of $29,880 for
interest expense and $84,282 for employee compensation and
benefits.  This was partially offset by an increase of $272,387 for
professional fees.  We expect to generate net losses during the
remainder of 2010 as we continue to build our business.  However, we
expect these losses to decrease in the future as we generate additional revenue
through collaboration and licensing partners and as we continue to retire our
outstanding debt obligations.




25




Comparison
of the Nine-Month Periods Ended September 30, 2010 and 2009





Net
Revenue





We generated revenue of $209,814 for
the nine months ended September 30, 2009.  We did not generate any
revenue for the nine months ended September 30, 2010.  The decrease in
revenue resulted primarily from our decision to terminate the Collaboration and
Exclusive License Agreement with Transgenomic, Inc. in January
2010.





Operating
Expenses





Operating expenses consist primarily of
employee compensation and benefits, professional and consulting fees, and other
selling, general and administrative expenses.





Employee Compensation and
Benefits.  Employee compensation expense decreased $279,938 to
$113,785 for the nine months ended September 30, 2010 from $393,723 for the nine
months ended September 30, 2009.  The decrease of $279,938 was due
primarily to a decrease of approximately $202,065 for salary and equity-based
compensation expenses associated with a decrease in the number of individuals
who we employed during the nine months ended September 30, 2010.





Professional
Fees.  Professional fees increased $145,551 to $1,153,419 for
the nine months ended September 30, 2010 from $1,007,868 for the nine months
ended September 30, 2009.  The increase of $145,551 was due primarily
to an increase of $188,530 for legal and accounting fees, partially offset by a
decrease of $28,439 for the amount of expense recognized in connection with
equity-based compensation paid to service providers and consultants for various
services.





Other Selling, General and
Administrative Expenses.  Other general and administrative
expenses increased $178,397 to $394,684 for the nine months ended September 30,
2010 from $216,287 for the nine months ended September 30, 2009.  The
increase of $178,397 resulted primarily from increases of $35,026 for
administrative fees, $57,000 for general office expenses, $13,366 for lease
payments and $16,168 for relocation expenses, and increases in other
miscellaneous selling, general and administrative expenses.





Interest
Expense





Interest and amortization expense
decreased $284,509 to $83,988 for the nine months ended September 30, 2010 from
$368,497 for the nine months ended September 30, 2009.  The decrease
of $284,509 was due primarily to the retirement during 2009 of many of the debt
obligations that were outstanding during the nine months ended September 30,
2009.




26





Derivative Gain /
Loss





We
recognized a derivative gain of $11,999,065 for the nine months ended September
30, 2010 compared to a derivative loss of $9,368,581 for the nine months ended
September 30, 2009.  The difference of $21,367,646 was due primarily
to the decrease in the trading price of our common stock that we experienced
between January 1, 2010 and September 30, 2010 compared to the large increase in
the trading price of our common stock that we experienced between January 1,
2009 and September 30, 2009.





Gain / Loss on Settlement of
Debt





We recognized a loss on the settlement
of debt of $1,090,628 for the nine months ended September 30,
2009.  We did not recognize any gain or loss on the settlement of debt
for the nine months ended September 30, 2010.  The difference of
$1,090,628 was due primarily to our decision to pay off a significant amount of
our outstanding debt obligations and accrued interest, and numerous outstanding
invoices, during 2009 by issuing shares of our common stock having an aggregate
value that was greater than the outstanding principal amount of the applicable
note and accrued interest or the applicable invoice.





Net Income /
Loss





We
generated net income of $10,253,189 for the nine months ended September 30, 2010
compared to a net loss of $12,282,885 for the nine months ended September 30,
2009.  The difference of $22,536,074 was due primarily to a difference
of $21,367,646 resulting from the derivative gain recognized during 2010
compared to the derivative loss recognized during 2009, a difference of
$1,090,628 resulting from losses from the extinguishment of debt recognized
during 2009, and decreases of $284,509 for interest expense and $279,938 for
employee compensation and benefits.  This was partially offset by a
decrease of $209,814 for net revenue.




Liquidity
and Capital Resources





Since our
inception, we have funded our operations primarily through private sales of
equity securities and the use of short- and long-term debt.





Net cash
used by operating activities was $294,690 for the nine months ended September
30, 2010 compared to $147,282 for the nine months ended September 30,
2009.  The $147,408 increase in cash used by operating activities was
due primarily to a difference of $21,367,647 for changes in the amount of our
derivative liability, and decreases of $1,090,628 for loss on settlement of
debt, $718,245 for stock issued for compensation and services, and $212,400 for
amortization of debt discounts and deferred finance costs.  This was
partially offset by a difference of $22,488,959 between the net income generated
in 2010 and the net loss incurred during 2009.





Net cash
used by investing activities was $2,325 for the nine months ended September 30,
2010 compared to $52,500 for the nine months ended September 30,
2009.  The difference of $50,175 was due to a decrease in the amount
of property and equipment purchased during 2010.





Net cash
provided by financing activities was $303,334 for the nine months ended
September 30, 2010 compared to $229,822 for the nine months ended September 30,
2009.  The $73,512 increase in cash provided by financing activities
was due primarily to an increase of $234,534 for proceeds from the exercise of
warrants, partially offset by decreases of $85,156 for proceeds from the sale of
common stock and $74,666 for proceeds from the issuance of convertible debt and
warrants.




27





Our
primary sources of capital over the past 12 months are set forth
below.





In
September 2009, we issued 2,500,000 shares of common stock to an accredited
investor for total cash proceeds of $25,000.





In
September 2009, we issued 2,000,000 shares of common stock to an accredited
investor for total cash proceeds of $20,000.





In
September 2009, we issued a convertible promissory note and a warrant to acquire
shares of common stock to an accredited investor for consideration of
$25,000.  The note is for a principal amount of $25,000, is
convertible into 2,500,000 shares of common stock, has an interest rate of 8%
and was due March 3, 2010.  The warrant is exercisable into 1,000,000
shares of common stock and has an exercise price of $0.01 that may be subject to
adjustment depending upon the trading price of our common stock.





During
the three months ended September 30, 2010, Rozetta-Cell made loans to us for a
total of $68,800.  The loans are interest free and payable on
demand.





During
the period beginning January 1, 2009 and ending September 30, 2010, we issued a
total of 56,214,675 shares of common stock to warrant holders upon the exercise
of outstanding warrants at exercise prices ranging between $0.001 and $0.25 per
share for total cash proceeds of $513,366.





To date, our capital needs have been
met primarily through the issuance of convertible promissory notes and
debentures, sales of equity securities and proceeds received upon the exercise
of warrants held by our security holders.  We do not currently
maintain a line of credit or term loan with any commercial bank or other
financial institution.  We have used the proceeds from the exercise of
warrants and our private offerings of securities to pay virtually all of the
costs and expenses we have incurred.  These costs and expenses were
comprised of operating expenses, which consisted of the employee compensation
expenses, professional fees and other general and administrative expenses
discussed above.





We
believe that our current cash resources will not be sufficient to sustain our
operations for the next 12 months.  We will need to obtain additional
cash resources within the next 12 months to enable us to pay our ongoing costs
and expenses as they are incurred and finance the growth of our
business.  We intend to obtain these funds through internally
generated cash flows from operating activities, proceeds from the issuance of
equity securities and proceeds from the exercise of outstanding
warrants.  The issuance of additional equity would result in dilution
to our existing shareholders.  We have not made arrangements to obtain
additional financing and we can provide no assurance that additional financing
will be available in an amount or on terms acceptable to us, if at
all.  If we are unable to obtain additional funds when they are needed
or if such funds cannot be obtained on terms favorable to us, we may be unable
to execute upon our business plan or pay our costs and expenses as they are
incurred, which could have a material, adverse effect on our business, financial
condition and results of operations.




28





Off-Balance
Sheet Arrangements





As of September 30, 2010, we did not
have any relationships with unconsolidated entities or financial partners, such
as entities often referred to as structured finance or special purpose entities,
that had been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes.  As
such, we are not materially exposed to any financing, liquidity, market or
credit risk that could arise if we had engaged in such
relationships.





Item
4T.  Controls and Procedures.





As of
September 30, 2010, we carried out the evaluation of the effectiveness of our
disclosure controls and procedures required by Rule 13a-15(e) under the Exchange
Act under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial
Officer.  Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of September 30, 2010, our disclosure
controls and procedures were effective to provide reasonable assurance that
information we are required to disclose in reports that we file or submit under
the Exchange Act is: (i) recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission’s rules and
forms, and (ii) accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.





There has
been no change in our internal control over financial reporting identified in
connection with this evaluation that occurred during our fiscal quarter ended
September 30, 2010 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





PART
II – OTHER INFORMATION





Item
1.  Legal Proceedings.





In
September 2008, we entered into an Arbitration Agreement with Steven Rash in
connection with his agreement to resign as the Company’s Chief Executive
Officer.  The parties agreed to arbitrate claims for wages and other
compensation due, breach of contracts or covenants, and benefits.  We
agreed to arbitrate Mr. Rash’s claims for wages of $36,031 and our claims for
embezzlement, fraud and breach of contract by Mr. Rash.  Arbitration has
not been initiated by either party.





In March
2009, McLennon Law Corporation (“McLennon”) filed a law suit against us in the
Superior Court of the State of California in and for the County of San Francisco
for breach of contract for approximately $117,000 of accrued but unpaid attorney
fees plus interest.  In July 2010, a judgment was entered against us for
the full amount of unpaid attorney fees and interest and the law suit was
terminated.




29





In
September 2009, one of our former employees attempted to convert a $30,000
convertible promissory note plus interest into shares of our common
stock.  We are disputing the amount, if any, that is due to the former
employee under the note.  As of September 30, 2010, the note had not
been converted.  In December 2009, the former employee filed a law
suit against us in the District Court of Montgomery County, Texas, 9thJudicial
District seeking damages and specific performance.  In August 2010, we
filed an amended answer and counterclaims against the former employee for breach
of fiduciary duty and fraud.





In
February 2010, Transgenomic, Inc. (“Transgenomic”) filed a lawsuit against us in
the United States District Court for the District of Nebraska.  The lawsuit
contains claims for fraud, breach of contract, libel and slander, and seeks a
declaration of rights under the Collaboration and Exclusive License Agreement,
dated January 23, 2009, between the parties.  In April 2010, we filed a
partial motion to dismiss Transgenomic’s fraud claim, which was denied by the
court in October 2010.  In June 2010, we filed a lawsuit against
Transgenomic in the District Court of Montgomery County, Texas, 359th Judicial
District.  The lawsuit contains claims for trade secret
misappropriation, breach of contract, misappropriation, conversion, unjust
enrichment, quantum meruit and promissory estoppel as well as a request for
injunctive relief.  In July 2010, we filed a non-suit to dismiss the
case without prejudice.  We intend to re-file the claims against
Transgenomic in the United States District Court for the District of Nebraska as
counterclaims accompanying our response to the claims filed by
Transgenomic.




In March
2010, Rockmore Investment Master Fund LTD (“Rockmore”) filed a lawsuit against
us in the Supreme Court for the State of New York.  The lawsuit
contains claims for breach of contract and specific performance related to a
convertible debenture and common stock warrant that we previously issued to
Rockmore.  In September 2010, Rockmore filed a motion for summary
judgment and injunction regarding its claims, and in October 2010, we filed an
opposition to their motion.  In October 2010, the court granted
Rockmore’s motion for summary judgment, but denied its request for an
injunction.




In April
2010, we filed a lawsuit against Richard Kraniak and Roger Kazanowski (“Kraniak
and Kazanowski”) in the United States District Court for the Southern District
of Texas, Houston Division.  The lawsuit contains claims for
violations of the Securities Act of 1933, as amended (the “Securities Act”), and
the Securities and Exchange Act of 1934, as amended (the “Exchange
Act”).  In May 2010, Kraniak and Kazanowski filed a motion to dismiss
the lawsuit.  In June 2010, we filed a response to Kraniak and
Kazanowski’s motion to dismiss as well as a first amended complaint against
Kraniak and Kazanowski, and in October 2010 we filed a second amended complaint
against Kraniak and Kazanowski.  In July 2010, Kraniak and Kazanowski
filed counterclaims against the Company in the United States District Court for
the Southern District of Texas, Houston Division.  The counterclaims
contain claims for violations of securities laws, breach of contract,
misrepresentation, civil conspiracy and defamation.  We filed an
answer to the counterclaims denying each of the alleged claims.




In April
2010, Neogenomics, Inc. (“Neogenomics”) filed a lawsuit and motion for summary
judgment against us in the Supreme Court of the State of New
York.  The lawsuit contains claims for breach of contract and specific
performance related to a convertible debenture that we previously issued to
Neogenomics.  In May 2010, we filed a response to Neogenomic’s motion
for summary judgment.




30




In April
2010, Lucas Associates, Inc. filed a lawsuit against us in the District Court of
Montgomery County, Texas.  The lawsuit contains claims for breach of
contract, quantum meruit and fraud related to allegations that we failed to pay
them a finder’s fee in connection with the hiring of John Ginzler as the
Company’s Chief Financial Officer in 2009.  In June 2010, we filed a
general denial to the claims alleged in the complaint.




In April
2010, John Ginzler filed a lawsuit against us in the District Court of
Montgomery County, Texas, 359th Judicial District.  The lawsuit
contains claims for breach of contract related to an employment agreement
entered into between him and the Company.  In June 2010, the Company
filed a general denial to the claims alleged in the complaint.




In May
2010, we filed a lawsuit against Able Income Fund LLC (“Able Income Fund”) in
the United States District Court for the Southern District of Texas, Houston
Division.  The lawsuit contains claims for violations of the
Securities Act and the Exchange Act.  We subsequently moved for a
default judgment on our claims due to Able Income Fund’s failure to timely
respond to our lawsuit.  In July 2010, Able Income Fund filed a
lawsuit against us in the Supreme Court of the State of New York.  The
lawsuit contains claims for breach of contract and specific performance related
to two convertible debentures and common stock warrants that we previously
issued to Able Income Fund.  In September 2010, we filed a motion to
dismiss Able Income Fund’s lawsuit.




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




During
the three months ended September 30, 2010, we sold the following securities
without registration under the Securities Act of 1933, as amended (the
“Securities Act”):




In August
2010, we issued 1,000,000 shares of common stock to a consultant for consulting
services.  These securities were issued to an accredited investor in a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act directly by us
without engaging in any advertising or general solicitation of any kind and
without payment of underwriting discounts or commissions to any
person.





In August
2010, we issued 440,252 shares of common stock to a consultant for consulting
services.  These securities were issued to an accredited investor in a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act directly by us
without engaging in any advertising or general solicitation of any kind and
without payment of underwriting discounts or commissions to any
person.





In
September 2010, we issued 2,000,000 shares of common stock to a consultant for
consulting services.  These securities were issued to an accredited
investor in a private placement transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act directly by us without engaging in any advertising or general solicitation
of any kind and without payment of underwriting discounts or commissions to any
person.





During
the three months ended September 30, 2010, Rozetta-Cell made loans to us for a
total of $68,800.  The loans are interest free and payable on
demand.  These securities were issued to an accredited investor in a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act directly by us
without engaging in any advertising or general solicitation of any kind and
without payment of underwriting discounts or commissions to any
person.





31





During
the nine months ended September 30, 2010, we issued a total of 36,799,358 shares
of common stock to warrant holders upon the exercise of outstanding warrants for
total cash proceeds of $234,534.  These securities were issued to a
limited number of accredited investors in private placement transactions exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) of the Securities Act directly by us without engaging in any advertising or
general solicitation of any kind and without payment of underwriting discounts
or commissions to any person.





Item
6.  Exhibits.





The following exhibits are included
herein:




Exhibit No.
            
            Exhibit31.1
            
            Certification
      of Chief Executive Officer of the registrant required by Rule 13a-14(a)
      under the Securities Exchange Act of 1934, as amended31.2
            
            Certification
      of Chief Financial Officer of the registrant required by Rule 13a-14(a)
      under the Securities Exchange Act of 1934, as amended32.1
            
            Certification
      of Chief Executive Officer and Chief Financial Officer of the registrant
      required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as
      amended




32




SIGNATURES





Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.




POWER3
      MEDICAL PRODUCTS, INC.Date:  November
      10, 2010
            
            /s/ Helen
      R. ParkHelen
      R. ParkChief
      Executive Officer




33





EXHIBIT
INDEX
  Exhibit
              
              Exhibit Description31.1
              
              Certification
      of Chief Executive Officer required by Rule 13a-14(a) under the Securities
      Exchange Act of 1934, as amended31.2
              
              Certification
      of Chief Financial Officer required by Rule 13a-14(a) under the Securities
      Exchange Act of 1934, as amended32.1
              
              Certification
      of Chief Executive Officer and Chief Financial Officer required by Rule
      13a-14(b) under the Securities Exchange Act of 1934, as
      amended
   34