UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





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





FOR THE
QUARTERLY PERIOD ENDED June 30, 2009





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





FOR THE
TRANSITION PERIOD FROM ___________ TO _____________.





Commission
file number: 0-24921





POWER
3 MEDICAL PRODUCTS, INC.


(Exact
name of registrant as specified in its charter)





New
      York
              
              65-0565144(State
      or other Jurisdiction of incorporation or
                organization)
              
              (I.R.S.
      Employer Identification No.)





3400
      Research Forest Drive, Suite B2-3
                  The
      Woodlands, Texas(Address
      of principal executive
offices)





(281)
      466-1600(Registrant’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 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes x   No o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§323.405 of this
chapter) during the preceding 12 months (or shorter period that the registrant
was required to submit and post such files).  Yes o   No o





Indicate
by check mark whether the registrant is a large 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 o
              Accelerated
      filer oNon-accelerated
      filer   o    (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




The
number of shares of the registrant’s common stock outstanding as of August 11,
2009, was 380,472,766.





POWER
3 MEDICAL PRODUCTS, INC.


FORM
10-Q





INDEX





PART
      I – FINANCIAL INFORMATION
                3Item
      1 – Financial Statements
                3Item
      2- Management’s Discussion And Analysis Of Financial Condition And Results
      Of Operations
                22Item
      3 - Quantitive And Qualitative Disclosures About Market
    Risk
                24Item
      4 – Controls and Procedures
                24PART
      II – OTHER INFORMATION
                25Item
      1 – Legal Proceedings
                25Item
      1A – Risk Factors
                26Item
      2 - Unregistered Sales of Equity Securities
                26Item
      3 – Defaults Upon Senior Securities
                27Item
      4 - Submission of Matters to a Vote of Security Holders
                28Item
      5 – Other Information
                28Item
      6 – Exhibits
                28SIGNATURES
                29


2


PART
I – FINANCIAL INFORMATION




ITEM
1 – FINANCIAL STATEMENTS




POWER 3
MEDICAL PRODUCTS, INC.


(A
Development Stage Enterprise)


BALANCE
SHEETS





June 30, 2009
                        (Unaudited)
                      
                      
                      December 31,
                        2008ASSETSCash
      and cash equivalents
                      
                      $
                      19,312
                      
                      
                      $
                      8,331Other
      current assets
                      
                      
                      25,584
                      
                      
                      
                      6,645Total
      current assets
                      
                      
                      44,896
                      
                      
                      
                      14,976Furniture,
      fixtures and equipment, net of accumulated depreciation of $111,464
      and $101,253 at June 30, 2009 and December 31, 2008,
      respectively
                      
                      
                      48,542
                      
                      
                      
                      6,253Deposits
                      
                      
                      5,599
                      
                      
                      
                      5,450Total
      non-current assets
                      
                      
                      54,141
                      
                      
                      
                      11,703TOTAL
      ASSETS
                      
                      $
                      99,037
                      
                      
                      $
                      26,679


3


POWER 3
MEDICAL PRODUCTS, INC.


(A
Development Stage Enterprise)


BALANCE
SHEETS


(Continued)





June 30, 2009
                          (Unaudited)
                        
                        
                        December 31,
                          2008LIABILITIES
      AND STOCKHOLDERS' DEFICITAccounts
      payable
                        
                        $
                        1,022,568
                        
                        
                        $
                        1,043,682Notes
      payable – in default
                        
                        
                        451,000
                        
                        
                        
                        451,000Notes
      payable – net of unamortized discount of $26,900 and $47,736 at June 30,
      2009 and December 31, 2008, respectively
                        
                        
                        114,869
                        
                        
                        
                        64,174Notes
      payable to related parties
                        
                        
                        68,927
                        
                        
                        
                        68,927Convertible
      debentures-in default, net of unamortized discount of $-0- and $97,036 at
      June 30, 2009 and December 31, 2008, respectively
                        
                        
                        409,466
                        
                        
                        
                        767,974Convertible
      debentures, net of unamortized discount of $23,341 and $577,668 at June
      30, 2009 and December 31, 2008, respectively
                        
                        
                        106,659
                        
                        
                        
                        442,332Convertible
      debentures – related party, net of unamortized discount of $34,540 and
      $672,836 at June 30, 2009 and December 31, 2008,
    respectively
                        
                        
                        95,211
                        
                        
                        
                        696,599Other
      current liabilities
                        
                        
                        483,995
                        
                        
                        
                        617,486Derivative
      liabilities
                        
                        
                        1,508,898
                        
                        
                        
                        1,352,247Total
      current liabilities
                        
                        
                        4,261,593
                        
                        
                        
                        5,504,421TOTAL
      LIABILITIES
                        
                        
                        4,261,593
                        
                        
                        
                        5,504,421STOCKHOLDERS'
      DEFICITPreferred
      Stock - $0.01 par value: 50,000,000 shares authorized; 1,500,000 shares
      issued and outstanding as of June 30, 2009 and December 31,
      2008
                        
                        
                        1,500
                        
                        
                        
                        1,500Common
      Stock-$0.001 par value: 600,000,000 shares authorized; 365,645,098 and
      149,959,044 shares issued and outstanding as of June 30, 2009 and December
      31, 2008, respectively
                        
                        
                        365,645
                        
                        
                        
                        149,960Additional
      paid in capital
                        
                        
                        67,169,695
                        
                        
                        
                        63,499,938Stock
      held in escrow
                        
                        
                        (24,000
                        )
                        
                        
                        (20,000
                        )Treasury
      stock
                        
                        
                        (16,000
                        )
                        
                        
                        -Common
      stock payable
                        
                        
                        144,500
                        
                        
                        
                        123,286Common
      stock subscriptions receivable
                        
                        
                        (174,166
                        )
                        
                        
                        -Deficit
      accumulated before entering the development stage
                        
                        
                        (11,681,500
                        )
                        
                        
                        (11,681,500
                        )Deficit
      accumulated during the development stage
                        
                        
                        (59,948,230
                        )
                        
                        
                        (57,550,926
                        )TOTAL
      STOCKHOLDERS' DEFICIT
                        
                        
                        (4,162,556
                        )
                        
                        
                        (5,477,742
                        )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                        
                        $
                        99,037
                        
                        
                        $
                        26,679





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


4


POWER 3
MEDICAL PRODUCTS, INC.


(A
Development Stage Enterprise)


STATEMENTS
OF OPERATIONS


(Unaudited)





Three Months
                    Ended June 30,
                  
                  
                  Six Months
                    Ended June 30,
                  
                  
                  Period from
                    May 18, 2004
                    to June 30, 20092009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008REVENUES:Sales
                  
                  $
                  35,711
                  
                  
                  $
                  -
                  
                  
                  $
                  168,477
                  
                  
                  $
                  -
                  
                  
                  $
                  595,726Total
      revenue
                  
                  $
                  35,711
                  
                  
                  $
                  -
                  
                  
                  $
                  168,477
                  
                  
                  $
                  -
                  
                  
                  $
                  595,726OPERATING
      EXPENSES:Employee
      compensation and benefits
                  
                  
                  258,737
                  
                  
                  
                  242,984
                  
                  
                  
                  276,294
                  
                  
                  
                  526,905
                  
                  
                  
                  31,325,806Professional
      and consulting fees
                  
                  
                  544,518
                  
                  
                  
                  725,794
                  
                  
                  
                  625,335
                  
                  
                  
                  811,492
                  
                  
                  
                  11,928,275Impairment
      of Goodwill
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  13,371,776Impairment
      of intangible assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  179,788Occupancy
      and equipment
                  
                  
                  4,427
                  
                  
                  
                  23,444
                  
                  
                  
                  19,126
                  
                  
                  
                  67,940
                  
                  
                  
                  687,601Travel
      and entertainment
                  
                  
                  1,963
                  
                  
                  
                  22,246
                  
                  
                  
                  2,692
                  
                  
                  
                  78,702
                  
                  
                  
                  429,076Write
      off lease
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  34,243Other
      selling, general and administrative expenses
                  
                  
                  40,712
                  
                  
                  
                  48,089
                  
                  
                  
                  128,716
                  
                  
                  
                  155,262
                  
                  
                  
                  862,850Total
      operating expenses
                  
                  $
                  850,357
                  
                  
                  $
                  1,062,557
                  
                  
                  $
                  1,052,163
                  
                  
                  $
                  1,640,301
                  
                  
                  $
                  58,819,415LOSS
      FROM OPERATIONS
                  
                  $
                  (814,646
                  )
                  
                  $
                  (1,062,557
                  )
                  
                  $
                  (883,686
                  )
                  
                  $
                  (1,640,301
                  )
                  
                  $
                  (58,223,689
                  )OTHER
      INCOME AND (EXPENSE):Derivative
      gain/(loss)
                  
                  $
                  589,693
                  
                  
                  $
                  252,244
                  
                  
                  $
                  (156,651
                  )
                  
                  $
                  2,420,860
                  
                  
                  $
                  6,866,322Gain
      on legal settlement
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,875
                  
                  
                  
                  36,764Interest
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  575
                  
                  
                  
                  7,867Gain/(loss)
      on settlement of debt
                  
                  
                  (124,295
                  )
                  
                  
                  (2,384
                  )
                  
                  
                  (1,008,029
                  )
                  
                  
                  (2,384
                  )
                  
                  
                  1,001,417Mandatory
      prepayment penalty
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (420,000
                  )Other
      expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (194,886
                  )Interest
      expense
                  
                  
                  (137,739
                  )
                  
                  
                  (197,097
                  )
                  
                  
                  (314,835
                  )
                  
                  
                  (585,237
                  )
                  
                  
                  (5,577,243
                  )Total
      other income and (expense)
                  
                  $
                  327,659
                  
                  
                  $
                  52,763
                  
                  
                  $
                  (1,479,515
                  )
                  
                  $
                  1,851,689
                  
                  
                  $
                  1,720,241NET
      INCOME/(LOSS)
                  
                  $
                  (486,987
                  )
                  
                  $
                  (1,009,794
                  )
                  
                  $
                  (2,363,201
                  )
                  
                  $
                  211,388
                  
                  
                  $
                  (56,503,448
                  )Deemed
      dividend
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  $
                  (34,103
                  )
                  
                  $
                  (12,072
                  )
                  
                  $
                  (63,809
                  )Net
      income/(loss) attributable to common stockholders
                  
                  $
                  (486,987
                  )
                  
                  $
                  (1,009,794
                  )
                  
                  $
                  (2,397,304
                  )
                  
                  $
                  199,316
                  
                  
                  $
                  (56,567,257
                  )Net
      income/(loss) per share – basic and diluted
                  
                  $
                  (0.00
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.00Weighted
      average number of shares outstanding
                  
                  
                  335,461,585
                  
                  
                  
                  128,055,498
                  
                  
                  
                  267,016,937
                  
                  
                  
                  121,821,879





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


5


POWER 3
MEDICAL PRODUCTS, INC.


(A
Development Stage Enterprise)


STATEMENT
OF STOCKHOLDERS’ DEFICIT





Common Stock
                                  
                                  
                                  Preferred StockShares
                                  
                                  
                                  Par Value
                                  
                                  
                                  Shares
                                  
                                  
                                  Par Value
                                  
                                  
                                  Addt'l Paid
                                    In Capital
                                  
                                  
                                  Other Equity
                                    Items(1)
                                  
                                  
                                  Retained
                                    Earnings
                                  
                                  
                                  TotalBalances
      as of beginning of development stage May 18, 2004
                                  
                                  
                                  14,407,630
                                  
                                  
                                  $
                                  14,407
                                  
                                  
                                  
                                  3,870,000
                                  
                                  
                                  $
                                  3,870
                                  
                                  
                                  $
                                  14,225,974
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  (11,681,500
                                  )
                                  
                                  $
                                  2,562,751Issued
      shares for compensation
                                  
                                  
                                  27,945,000
                                  
                                  
                                  
                                  27,945
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  25,423,555
                                  
                                  
                                  
                                  (25,451,500
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Issued
      shares for services
                                  
                                  
                                  4,910,000
                                  
                                  
                                  
                                  4,910
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,850,090
                                  
                                  
                                  
                                  (535,000
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  4,320,000Issued
      shares for acquisition of equipment
                                  
                                  
                                  15,000,000
                                  
                                  
                                  
                                  15,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13,485,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13,500,000Stock
      option expense
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  626,100
                                  
                                  
                                  
                                  (626,100
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Issued
      shares for cash
                                  
                                  
                                  242,167
                                  
                                  
                                  
                                  242
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  314,575
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  314,817Cancelled
      shares per cancellation agreement
                                  
                                  
                                  (160,000
                                  )
                                  
                                  
                                  (160
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (71,840
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (72,000
                                  )Issued
      shares to convert Series A preferred shares to common
    shares
                                  
                                  
                                  3,000,324
                                  
                                  
                                  
                                  3,001
                                  
                                  
                                  
                                  (3,870,000
                                  )
                                  
                                  
                                  (3,870
                                  )
                                  
                                  
                                  3,377,974
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (3,380,975
                                  )
                                  
                                  
                                  (3,870
                                  )Stock
      based compensation
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  8,311,012
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  8,311,012Net
      reclassification of derivative liabilities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (3,347,077
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (3,347,077
                                  )Net
      loss 05/18/04 to 12/31/04
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (15,236,339
                                  )
                                  
                                  
                                  (15,236,339
                                  )BALANCE,
      DECEMBER 31, 2004
                                  
                                  
                                  65,345,121
                                  
                                  
                                  $
                                  65,345
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  58,884,351
                                  
                                  
                                  $
                                  (18,301,588
                                  )
                                  
                                  $
                                  (30,298,814
                                  )
                                  
                                  $
                                  10,349,294Cancelled
      shares returned from employee
                                  
                                  
                                  (1,120,000
                                  )
                                  
                                  
                                  (1,120
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,307,855
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,308,975
                                  )Issued
      shares for compensation
                                  
                                  
                                  140,000
                                  
                                  
                                  
                                  140
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  41,860
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  42,000Issued
      shares for services
                                  
                                  
                                  850,000
                                  
                                  
                                  
                                  850
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  155,150
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  156,000Amortize
      deferred compensation expense
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13,222,517
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13,222,517Net
      loss
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (27,134,865
                                  )
                                  
                                  
                                  27,134,865
                                  )BALANCE,
      DECEMBER 31, 2005
                                  
                                  
                                  65,215,121
                                  
                                  
                                  $
                                  65,215
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  57,773,506
                                  
                                  
                                  $
                                  (5,079,071
                                  )
                                  
                                  $
                                  (57,433,679
                                  )
                                  
                                  $
                                  (4,674,029
                                  )





1. A more
detailed description of the Other Equity Items in this statement can be found at
the end of the Statement of Stockholders’ Deficit


6


POWER 3
MEDICAL PRODUCTS, INC.


STATEMENT
OF STOCKHOLDERS’ DEFICIT


(Continued)





Common Stock
                                  
                                  
                                  Preferred StockShares
                                  
                                  
                                  Par Value
                                  
                                  
                                  Shares
                                  
                                  
                                  Par Value
                                  
                                  
                                  Addt’l Paid
                                    In Capital
                                  
                                  
                                  Other Equity
                                    Items(1)
                                  
                                  
                                  Retained
                                    Earnings
                                  
                                  
                                  TotalIssued
      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,
      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,
      DECEMBER 31, 2007
                                  
                                  
                                  108,352,636
                                  
                                  
                                  $
                                  108,353
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  60,191,104
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  (69,083,571
                                  )
                                  
                                  $
                                  (8,784,114
                                  )Issued
      shares for services
                                  
                                  
                                  7,482,910
                                  
                                  
                                  
                                  7,483
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  584,858
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  592,341Issued
      shares for cash
                                  
                                  
                                  7,492,875
                                  
                                  
                                  
                                  7,493
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  639,911
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  647,404Issued
      shares for conversion of debt
                                  
                                  
                                  22,172,536
                                  
                                  
                                  
                                  22,173
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,568,626
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,590,799Issued
      shares for lawsuit settlement
                                  
                                  
                                  325,000
                                  
                                  
                                  
                                  325
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  30,550
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  30,875Issued
      shares for payables
                                  
                                  
                                  2,133,333
                                  
                                  
                                  
                                  2,133
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  186,867
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  189,000Stock
      held in escrow
                                  
                                  
                                  2,000,000
                                  
                                  
                                  
                                  2,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  18,000
                                  
                                  
                                  
                                  (20,000
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Issued
      preferred shares
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,500,000
                                  
                                  
                                  
                                  1,500
                                  
                                  
                                  
                                  357,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  358,500Deemed
      dividend
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  12,071
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (12,071
                                  )
                                  
                                  
                                  -Loss
      on related party debt conversion
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (89,049
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (89,049
                                  )Common
      stock payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  123,286
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  123,286Net
      loss
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (136,784
                                  )
                                  
                                  
                                  (136,784
                                  )BALANCE,
      DECEMBER 31, 2008
                                  
                                  
                                  149,959,290
                                  
                                  
                                  $
                                  149,960
                                  
                                  
                                  
                                  1,500,000
                                  
                                  
                                  $
                                  1,500
                                  
                                  
                                  $
                                  63,499,938
                                  
                                  
                                  $
                                  103,286
                                  
                                  
                                  $
                                  (69,232,426
                                  )
                                  
                                  $
                                  (5,477,742
                                  )





1. A more
detailed description of the Other Equity Items in this statement can be found at
the end of the Statement of Stockholders’ Deficit


7


POWER 3
MEDICAL PRODUCTS, INC.


(A
Development Stage Enterprise)


STATEMENT
OF STOCKHOLDERS’ DEFICIT


(Continued)





Common Stock
                            
                            
                            Preferred StockShares
                            
                            
                            Par Value
                            
                            
                            Shares
                            
                            
                            Par Value
                            
                            
                            Addt’l Paid
                              In Capital
                            
                            
                            Other Equity
                              Items(1)
                            
                            
                            Retained
                              Earnings
                            
                            
                            TotalBALANCE,
      DECEMBER 31, 2008
                            
                            
                            149,959,290
                            
                            
                            $
                            149,960
                            
                            
                            
                            1,500,000
                            
                            
                            $
                            1,500
                            
                            
                            $
                            63,499,938
                            
                            
                            $
                            103,286
                            
                            
                            $
                            (69,232,426
                            )
                            
                            $
                            (5,477,742
                            )Issued
      shares for conversion of debt
                            
                            
                            119,465,770
                            
                            
                            
                            119,464
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,947,901
                            
                            
                            
                            7,056
                            
                            
                            
                            -
                            
                            
                            
                            3,074,421Common
      stock payable
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            43,500
                            
                            
                            
                            -
                            
                            
                            
                            43,500Issued
      shares upon exercise of warrants
                            
                            
                            6,883,332
                            
                            
                            
                            6,883
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            61,949
                            
                            
                            
                            (4,166
                            )
                            
                            
                            -
                            
                            
                            
                            64,666Stock
      contributed for debt payment
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            244,417
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            244,417Issued
      shares for services
                            
                            
                            30,833,333
                            
                            
                            
                            30,833
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            352,501
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            383,334Issued
      shares for cash
                            
                            
                            30,785,714
                            
                            
                            
                            30,786
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            174,214
                            
                            
                            
                            (170,000
                            )
                            
                            
                            -
                            
                            
                            
                            35,000Issued
      shares for payables
                            
                            
                            29,717,659
                            
                            
                            
                            29,719
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            550,750
                            
                            
                            
                            (22,286
                            )
                            
                            
                            -
                            
                            
                            
                            558,183Stock
      rescinded for debt
                            
                            
                            (1,200,000
                            )
                            
                            
                            (1,200
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (7,056
                            )
                            
                            
                            -
                            
                            
                            
                            (8,256
                            )Revaluation
      of stock held in escrow
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            20,000
                            
                            
                            
                            (20,000
                            )
                            
                            
                            -
                            
                            
                            
                            -Return
      of stock held in escrow
                            
                            
                            (800,000
                            )
                            
                            
                            (800
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            800
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Deemed
      dividends
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            34,103
                            
                            
                            
                            -
                            
                            
                            
                            (34,103
                            )
                            
                            
                            -Loss
      on related-party debt conversions
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (893,805
                            )
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (893,805
                            )Options
      issued for services
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            176,927
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            176,927Net
      loss
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (2,363,201
                            )
                            
                            
                            (2,363,201
                            )BALANCE,
      JUNE 30, 2009
                            
                            
                            365,645,098
                            
                            
                            $
                            365,645
                            
                            
                            
                            1,500,000
                            
                            
                            $
                            1,500
                            
                            
                            $
                            67,169,695
                            
                            
                            $
                            (69,666
                            )
                            
                            $
                            (71,629,730
                            )
                            
                            $
                            (4,162,556
                            )





1. A more
detailed description of the Other Equity Items in this statement can be found at
the end of the Statement of Stockholders’ Deficit





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


8


POWER 3
MEDICAL PRODUCTS, INC.


(A
Development Stage Enterprise)


STATEMENT
OF STOCKHOLDERS’ DEFICIT


SCHEDULE
OF OTHER EQUITY ITEMS





Deferred
                                              Compensation
                                              Expense
                                            
                                            
                                            Stock Held
                                              in Escrow
                                            
                                            
                                            Common Stock
                                              Payable
                                            
                                            
                                            Treasury Stock
                                            
                                            
                                            Subscriptions
                                              Receivable
                                            
                                            
                                            Total Other Equity
                                              ItemsBalances
      as of beginning of development stage May 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
                                            )Issued
      shares for cash
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Stock
      based compensation
                                            
                                            
                                            8,311,012
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            8,311,012BALANCE,
      DECEMBER 31, 2004
                                            
                                            $
                                            (18,301,588
                                            )
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            (18,301,588
                                            )Amortize
      deferred compensation expense
                                            
                                            
                                            13,222,517
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            13,222,517BALANCE,
      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,
      DECEMBER 31, 2006
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -BALANCE,
      DECEMBER 31, 2007
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -Stock
      held in escrow
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (20,000
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (20,000
                                            )Common
      stock payable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            123,286
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            123,286BALANCE,
      DECEMBER 31, 2008
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            (20,000
                                            )
                                            
                                            $
                                            123,286
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            103,286Issued
      shares for conversion of debt
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            7,056
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            7,056Common
      stock payable
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            43,500
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            43,500Issued
      shares upon exercise of warrants
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (4,166
                                            )
                                            
                                            
                                            (4,166
                                            )Issued
      shares for cash
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (170,000
                                            )
                                            
                                            
                                            (170,000
                                            )Issued
      shares for payables
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (22,286
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (22,286
                                            )Stock
      rescinded for debt
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (7,056
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (7,056
                                            )Return
      of stock held in escrow
                                            
                                            
                                            -
                                            
                                            
                                            
                                            16,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (16,000
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Revaluation
      of stock held in escrow
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (20,000
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (20,000
                                            )BALANCE,
      JUNE 30, 2009
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            (24,000
                                            )
                                            
                                            $
                                            144,500
                                            
                                            
                                            $
                                            (16,000
                                            )
                                            
                                            $
                                            (174,166
                                            )
                                            
                                            $
                                            (69,666
                                            )





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


9





POWER 3
MEDICAL PRODUCTS, INC.


(A
Development Stage Enterprise)


STATEMENTS
OF CASH FLOWS


(Unaudited)




Six Months Ended June 30,
                      
                      
                      Period from
                        May 18, 2004
                        to June 30,2009
                      
                      
                      2008
                      
                      
                      2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income/(loss)
                      
                      $
                      (2,363,201
                      )
                      
                      $
                      211,388
                      
                      
                      $
                      (56,503,448
                      )Adjustments
      to reconcile net income/(loss) to net cash used in operating
      activities:Gain/(loss)
      on conversion of financial instruments
                      
                      
                      1,008,029
                      
                      
                      
                      2,384
                      
                      
                      
                      (998,215
                      )Impairment
      of goodwill
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      13,371,776Impairment
      of intangible assets
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      179,788Loss
      on previously capitalized lease
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      34,243Amortization
      of debt discounts and deferred finance costs
                      
                      
                      209,104
                      
                      
                      
                      444,549
                      
                      
                      
                      3,934,534Change
      in derivative liability, net of bifurcation
                      
                      
                      156,651
                      
                      
                      
                      (2,420,860
                      )
                      
                      
                      (5,712,421
                      )Stock
      based compensation
                      
                      
                      603,761
                      
                      
                      
                      576,341
                      
                      
                      
                      33,974,433Debt
      issued for compensation and services
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,028,927Stock
      issued for settlement of lawsuit
                      
                      
                      -
                      
                      
                      
                      30,880
                      
                      
                      
                      30,875Depreciation
      expense
                      
                      
                      10,211
                      
                      
                      
                      1,146
                      
                      
                      
                      111,465Other
      non cash items
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (34,933
                      )Changes
      in operating assets and liabilities:Prepaid
      expenses and other current assets
                      
                      
                      (18,939
                      )
                      
                      
                      616
                      
                      
                      
                      167,145Inventory
      and other assets
                      
                      
                      (149
                      )
                      
                      
                      -
                      
                      
                      
                      16,453Accounts
      payable and other liabilities
                      
                      
                      338,348
                      
                      
                      
                      146,241
                      
                      
                      
                      3,511,556Net
      cash used in operating activities
                      
                      
                      (56,185
                      )
                      
                      
                      (1,007,315
                      )
                      
                      
                      (6,887,822
                      )CASH
      FLOWS FROM INVESTING ACTIVITIESCapital
      expenditures, net
                      
                      
                      (52,500
                      )
                      
                      
                      (2,798
                      )
                      
                      
                      (194,250
                      )Increase
      in other assets
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (179,786
                      )Net
      cash used in investing activities
                      
                      
                      (52,500
                      )
                      
                      
                      (2,798
                      )
                      
                      
                      (374,036
                      )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from sale of common stock
                      
                      
                      35,000
                      
                      
                      
                      647,404
                      
                      
                      
                      2,299,171Borrowings
      on notes payable related party
                      
                      
                      8,256 -
                      
                      
                      
                      45,000
                      
                      
                      
                      83,632Borrowings
      on notes payable
                      
                      
                      20,000
                      
                      
                      
                      290,000
                      
                      
                      
                      3,808,430Principal
      payments on notes payable related party
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (47,300
                      )Principal
      payments on notes payable
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (122,478
                      )Stock
      rescinded for debt
                      
                      
                      (8,256
                      )
                      
                      
                      -
                      
                      
                      
                      (8,256
                      )Proceeds
      from CD, warrants and rights net of issuance cost
                      
                      
                      64,666
                      
                      
                      
                      -
                      
                      
                      
                      1,265,375Net
      cash provided by financing activities
                      
                      
                      119,666
                      
                      
                      
                      982,404
                      
                      
                      
                      7,278,574Net
      change in cash and equivalents
                      
                      $
                      10,981
                      
                      
                      $
                      (
      27,709
                      )
                      
                      $
                      16,716Cash
      and equivalents, beginning of period
                      
                      $
                      8,331
                      
                      
                      $
                      125,679
                      
                      
                      $
                      2,596Cash
      and equivalents, end of period
                      
                      $
                      19,312
                      
                      
                      $
                      97,970
                      
                      
                      $
                      19,312





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


10


POWER 3
MEDICAL PRODUCTS, INC.


STATEMENTS
OF CASH FLOWS


(Unaudited)





Six Months Ended June 30,
                
                
                Period from
                  May 18, 2004
                  to June 30,2009
                
                
                2008
                
                
                2009SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONCash
      paid for interest
                
                $
                -
                
                
                $
                -
                
                
                $
                59,840Cash
      paid for income taxes
                
                $
                -
                
                
                $
                -
                
                
                $
                -Non-cash
      transactions:Stock
      for conversion of debt, related party
                
                $
                661,101
                
                
                $
                -
                
                
                $
                1,676,034Stock
      for subscriptions receivable
                
                $
                170,000
                
                
                $
                -
                
                
                $
                170,000Warrants
      exercised for subscriptions receivable
                
                $
                4,166
                
                
                $
                -
                
                
                $
                4,166Stock
      for common stock payable
                
                $
                22,286
                
                
                $
                -
                
                
                $
                22,286Exchange
      of debt, related party
                
                $
                -
                
                
                $
                -
                
                
                $
                214,075Exchange
      of convertible notes for stock
                
                $
                -
                
                
                $
                1,357,333
                
                
                $
                2,525,070Stock
      issued in settlement of payables
                
                $
                -
                
                
                $
                83,270
                
                
                $
                195,697Deemed
      dividend
                
                $
                34,103
                
                
                $
                12,072
                
                
                $
                63,809Exchange
      of convertible preferred stock for common stock
                
                $
                -
                
                
                $
                -
                
                
                $
                3,380,975Preferred
      stock issued for payables
                
                $
                -
                
                
                $
                360,000
                
                
                $
                358,500Stock
      held in escrow
                
                $
                20,000
                
                
                $
                190,000
                
                
                $
                40,000Stock
      contributed for debt payment
                
                $
                244,417
                
                
                $
                -
                
                
                $
                244,417Return
      of stock held in escrow
                
                $
                16,000
                
                
                $
                -
                
                
                $
                16,000





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


11


POWER
3 MEDICAL PRODUCTS, INC.


(A
Development Stage Enterprise)


NOTES
TO UNAUDITED FINANCIAL STATEMENTS




NOTE
1 – ORGANIZATION AND NATURE OF BUSINESS




Information
Regarding Forward-Looking Statements




This
report contains forward-looking statements that involve risks and uncertainties.
We generally use words such as "believe," "may," "could," "will," "intend,"
"expect," "anticipate," "plan," and similar expressions to identify
forward-looking statements. You should not place undue reliance on these
forward-looking statements. Our actual results could differ materially from
those anticipated in the forward-looking statements for many reasons, including
the risks described below and elsewhere in this report. Although we believe the
expectations reflected in the forward-looking statements are reasonable, they
relate only to events as of the date on which the statements are made, and our
future results, levels of activity, performance or achievements may not meet
these expectations. We do not intend to update any of the forward-looking
statements after the date of this document to conform these statements to actual
results or to changes in our expectations, except as required by
law.




History




Power3
Medical Products, Inc. was incorporated in New York in May 1993.  We
have been a development stage company since May 2004, with our primary business
activities focused on the development of our intellectual property assets in the
area of diagnoses for breast cancer, ALS, Alzheimer’s disease and Parkinson’s
disease.  In September 2008, Steven B. Rash, our Chief Executive
Officer and Chairman of the Board at the time, resigned from all of his
positions with us.  Ira L. Goldknopf, our sole remaining director and
Chief Scientific Officer, was appointed as President and Interim Chairman of the
Board.  Helen R. Park was appointed Interim Chief Executive
Officer.  Under the direction of our restructured management team, we
implemented a new strategy focusing on commercialization of our intellectual
property assets, with less emphasis on research and development.  In
connection with our new focus, and in an effort to preserve cash and reduce
operating costs, we reduced the amount of space we occupied and implemented a
reduction in force.





Prior to
May 2004, we were engaged in product development, sales, distribution and
services for the healthcare industry.  We transitioned to being a
development stage company on May 18, 2004, when we completed the acquisition of
certain intellectual property assets from Advanced Bio/Chem, Inc. and began
focusing on research and development relating to those assets.




NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES




Basis
of Presentation




The
unaudited interim financial statements of Power3 have been prepared in
accordance with generally accepted accounting principles in the United States of
America (GAAP) and should be read in conjunction with the audited financial
statements and notes thereto contained in Power3’s Annual Report filed with the
SEC on Form 10-K. Certain prior period amounts have been reclassified to conform
to the June 30, 2009 presentation. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the periods
presented have been reflected herein.




Use
of Estimates




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


12




Concentration
of Credit Risk




Our
revenues generated from the license agreement with Transgenomic, Inc. accounted
for nearly 100% of our total revenues during the six months ended June 30,
2009.




Lattice
Valuation Model




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




Black−Scholes
Valuation Model




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




Net
Loss Per Share




Basic and
diluted net loss per share calculations are calculated on the basis of the
weighted average number of common shares outstanding during the year. The per
share amounts include the dilutive effect of common stock equivalents in years
with net income. Basic and diluted loss per share is the same for the six months
ended June 30, 2009 and 2008 as the effect of our potential common stock
equivalents would be anti-dilutive.




Stock
Based Compensation




Effective
January 1, 2006, Power3 began recording compensation expense associated with
stock options and other forms of equity compensation in accordance with
Statement of Financial Accounting Standards (SFAS) 123R, “Share−Based Payment,”
as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 1,
2006, Power3 had accounted for stock options according to the provisions of APB
Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
interpretations, and therefore no related compensation expense was recorded for
awards granted with no intrinsic value. Power3 adopted the modified prospective
transition method provided for under SFAS 123R, and, consequently, has not
retroactively adjusted results from prior periods.





Stock
issued to employees is recorded at the fair value of the shares granted based
upon the closing market price of Power3’s stock at the measurement date and
recognized as compensation expense over the applicable requisite service period.
Warrants granted to non-employees are recorded at the estimated fair value of
the options granted using the Black-Scholes pricing model and recognized as
general and administrative expense over the applicable requisite service
period.


13


For the
six months ended June 30, 2009, we recorded compensation expense of
approximately $184,000 within employee compensation and benefits as a result of
the straight-line vesting of a restricted stock award of 12 million shares and
an option for 10 million shares during the year.  For the year ended
December 31, 2008, we recorded no compensation expense within employee
compensation and benefits as a result of the vesting of restricted stock or
option awards.  As of June 30, 2009, there was approximately $233,000
of unrecognized compensation expense related to the unvested restricted stock
award, which is expected to be recognized over a weighted average period of
nearly three years.





The fair
value of the option granted to an employee during 2009 was estimated on its
respective grant date using the Black-Scholes option pricing
model.  The Black-Scholes model was used with the following
assumptions: a risk-free interest rate of 0.72%, based on the U.S. Treasury
yield in effect at the time of grant; a dividend yield of zero percent; an
expected life of 1.5 years, based on half of the term of the agreement; a
volatility rate of 256.68% based on the historical volatility of our stock over
a time that is consistent with the expected life of the option; and no
forfeiture assumed.





All of
the Company’s accounting policies are not included in this Form
10-Q.  A more comprehensive set of accounting policies adopted by the
Company are included in our Form 10-K for the year ended December 31, 2008 and
are herein incorporated by reference.




Recent
Accounting Pronouncements




Power3
does not expect the adoption of recently issued accounting pronouncements to
have a significant impact on its results of operations, financial position or
cash flow.




NOTE
3 – GOING CONCERN




As shown
in the accompanying financial statements, Power3 incurred net loss chargeable to
common shareholders of $2,397,304 for the six months ended June 30, 2009 and has
total accumulated deficits of $71,629,730 as of that date. These conditions
create an uncertainty as to Power3's ability to continue as a going concern.
Management is trying to raise additional capital through various funding
arrangements. If Power3 is unable to successfully obtain additional financing,
it will not have sufficient cash to continue operations.  As of June
30, 2009, Power3 had $19,312 in cash and cash equivalents.  Power3
needs additional capital immediately to fund its liquidity
requirements.  Power3 is seeking between $3 million and $5 million in
new financing during 2009.  Power3 believes that $3 million is the
minimum amount of financing it needs to repay existing obligations and to
continue funding its new business strategy for at least 12 months following the
date of this report.  Power3 will need to raise additional funds from
either one or a combination of additional financings or otherwise obtain
capital, in order to satisfy its future liquidity requirements. The financial
statements do not include any adjustment that might be necessary if Power3 is
unable to continue as a going concern.


14


NOTE
4 – OTHER CURRENT LIABILITIES




Other
liabilities and accrued expenses consisted of the following at June 30, 2009 and
December 31, 2008:





June 30, 2009
                    
                    
                    December 31, 2008Accrued
      rent
                    
                    
                    7,142
                    
                    
                    
                    28,566Accrued
      interest
                    
                    
                    331,237
                    
                    
                    
                    335,033Prepayment
      penalty
                    
                    
                    25,000
                    
                    
                    
                    25,000Accrued
      payroll taxes
                    
                    
                    16,771
                    
                    
                    
                    44,347Accrued
      liabilities
                    
                    
                    10,939
                    
                    
                    
                    33,575Salaries
      payable
                    
                    
                    92,906
                    
                    
                    
                    150,965Total
                    
                    $
                    483,995
                    
                    
                    $
                    617,486




NOTE
5 – RELATED PARTY TRANSACTIONS




As is
more fully explained in Note 7 to these financial statements, we issued
46,910,896 common shares to our President, Chief Scientific Officer and Interim
Board Chairman to retire a portion of his convertible note in the amount of
$1,097,940 and accrued interest.





Also as
is more fully explained in Note 7, we issued 9,571,429 common shares to our
Interim Chief Executive Officer to retire a convertible note in the amount of
$150,000 and accrued interest.





Also as
is more fully explained in Note 7, we received 1,200,000 shares of common stock
from our President, Chief Scientific Officer and Interim Board Chairman in
exchange for a one-year convertible note payable to him in the amount of $8,256
with interest payable at 12% and warrants to purchase 1,200,000 shares at $0.04
per share.  The note itself is convertible into 1,200,000 shares of
common stock (or $0.00688 per share).





Also as
is more fully explained in Note 7, we issued 2,960,908 shares of common stock to
our Interim Chief Executive Officer for compensation accrued through May 31,
2009 related to services under the Agreement with Bronco Technology,
Inc.





Also as
is more fully explained in Note 7, we issued 7,422,558 shares of common stock to
our President, Chief Scientific Officer and Interim Board Chairman for
compensation accrued through May 31, 2009.





Also as
is more fully explained in Note 7, we issued 780,640 shares of common stock to
our Chief Financial Officer for compensation earned during May,
2009.





Also as
is more fully explained in Note 7, we issued 12,000,000 shares of restricted
common stock to our Chief Financial Officer and a warrant to purchase 10,000,000
shares of common stock at $0.02 per share to our Chief Financial
Officer.




NOTE
6 – OTHER COMMITMENTS AND CONTINGENCIES




A summary
of our commitments and contingencies can be found in Note 8 to the financial
statements filed on Form 10-K for the period ended December 31,
2008.





On
January 13, 2009, Marion McCormick, former Chief Accounting Officer, filed a
wage claim with the Texas Workforce Commission against the Company for wages
owed. The Texas Workforce Commission found Ms. McCormick’s wages to be due
and payable by the Company.   The Company appealed the finding on the
basis of the convertible promissory note issued to her. On June 26, 2009, the
Texas Workforce Commission found Ms. McCormick’s wages of $17,389 to be due and
payable by the Company.  The wages due are carried on the balance
sheet included in other current liabilities.


15


On June
25, 2009, the Company signed a Covenant Not to Execute agreement with IS&T
Consulting Group, LLC, with four equal payments of $2,500 commencing monthly
beginning August 1, 2009.  The fees are carried on the balance sheet
included in accounts payable.





There
have been no other changes to these commitments and contingencies since the
filing of that report.




NOTE
7 - EQUITY




We are
authorized to issue up to 600 million shares of $0.001 voting common stock and
up to 50 million shares of $0.001 par value preferred stock.




Capital
Stock Transactions




We began
2009 with 149,959,290 shares of common stock issued and
outstanding.  During the six months ended June 30, 2009, we undertook
the following with our common stock:





On
January 13, 2009, we received 1,200,000 shares of common stock from our
President, Chief Scientific Officer and Interim Board Chairman in exchange for a
one-year convertible note payable to him in the amount of $8,256 with interest
payable at 12% and warrants to purchase 1,200,000 shares at $0.04 per
share.  The note itself is convertible into 1,200,000 shares of common
stock (or $0.00688 per share).





On
January 20, 2009, we issued 1,200,000 common shares to Able Income Fund, LLC
(“Able”) to convert $8,256 of our obligation to them into equity.  We
recorded a loss of $3,744 upon conversion.





On
February 20, 2009, we issued 14,117,270 common shares to Able to convert
$130,000 of our obligation to them into equity.  We recorded a loss of
$22,345 upon conversion.





On March
2, 2009, the board granted a holder of 300,000 warrants to purchase common stock
a revision in the terms of the warrants from an exercise price of $0.98 to an
exercise price of $0.01.  Pursuant to SFAS 123 (revised 2004), Share-Based Payments, we
revalued these warrants using the old and new warrant terms and deemed the
difference in value a dividend.  Variables used in the calculation
were: stock price on measurement date: $0.02; exercise price of options: $0.98
(old) and $0.01 (new); option term: 0.25 years; discount rate: 0.28% and
computed volatility: 256.59%.  We deemed this revaluation as a
dividend in the amount of $3,895.  The exercise entitles the Company
to receive $3,000 in cash, which was received from the holder on June 29,
2009.





Also on
March 2, 2009, we issued 12,680,952 common shares to retire a convertible note
in the amount of $275,000 and accrued interest of $11,301.  Per the
terms of the conversion feature of the note, the principal balance was
convertible into 9,166,667 shares.  The excess of the shares issued
were to retire accrued interest.  We recorded a loss on conversion of
$218,738.





Also on
March 2, 2009 we issued 11,428,571 shares to an accredited investor for a
subscription of $80,000.  At June 30, 2009, the subscription remains
unpaid by the investor.





Also on
March 2, 2009, we issued 12,085,714 common shares to retire a convertible note
in the amount of $275,000 and accrued interest of $11,301.  Per the
terms of the conversion feature of the note, the principal balance was
convertible into 9,166,667 shares.  The excess of the shares issued
were to retire accrued interest.  We recorded a loss on conversion of
$206,833.





Also on
March 2, 2009 we issued 12,857,143 shares to an accredited investor for a
subscription of $90,000.  At June 30, 2009, the subscription remains
unpaid by the investor.





Also on
March 2, 2009, we issued 13,390,476 common shares to retire a convertible note
in the amount of $340,000 and accrued interest of $13,973.  Per the
terms of the conversion feature of the note, the principal balance was
convertible into 11,333,333 shares.  The excess of the shares issued
were to retire accrued interest.  We recorded a loss on conversion of
$224,685.


16


Also on
March 2, 2009, we issued 1,428,572 common shares to an accredited investor who
subscribed to our common stock during 2008.  We credited capital in
the amount of $14,286 and retired the liability at December 31, 2008 which was
included in “Common stock payable”.  This investor was issued an
additional 1,428,572 shares on that date which we recorded at the fair market
value on the grant date, crediting capital in the amount of $28,571 and charging
“Loss on settlement of debt”.





Also on
March 2, 2009, we issued 46,910,896 common shares to our President, Chief
Scientific Officer and Interim Board Chairman to retire a portion of his
convertible note in the amount of $1,097,940 and accrued interest of
$22,019.  Per the terms of the conversion feature of the note, the
principal balance was convertible into 36,598,000 shares.  The excess
of the shares issued were to retire accrued interest.  We recorded a
loss on conversion of $725,628 which was recorded as a reduction of Additional
paid in capital.





Also on
March 2, 2009, we issued 9,571,429 common shares to retire a convertible note to
our Interim Chief Executive Officer in the amount of $150,000 and accrued
interest of $5,819.  Per the terms of the conversion feature of the
note, the principal balance was convertible into 5,000,000
shares.  The excess of the shares issued were to retire accrued
interest.  We recorded a loss on conversion of $168,127 which was
recorded as a reduction of Additional paid in capital.





On March
13, 2009, we issued 2,761,878 common shares to a vendor to settle outstanding
invoices of $59,047.  We recorded these shares at the fair value on
the grant date, $0.02 per share, or $55,238 and included the resulting $3,809
gain as a reduction of “Loss on settlement of debt”.





On March
17, 2009, the board granted a holder of 3,333,333 warrants to purchase common
stock a revision in the terms of the warrants from an exercise price of $0.10 to
an exercise price of $0.01.  Pursuant to SFAS 123 (revised 2004),
Share-Based Payments,
we revalued these warrants using the old and new warrant terms and deemed the
difference in value a dividend.  Variables used in the calculation
were: stock price on measurement date: $0.02; exercise price of options: $0.10
(old) and $0.01 (new); option term: 1 year; discount rate: 0.67% and computed
volatility: 256.59%.  We deemed this revaluation as a dividend in the
amount of $17,191.  We received cash of $33,333 upon
exercise.





On March
17, 2009, the board granted a holder of 416,666 warrants to purchase common
stock a revision in the terms of the warrants from an exercise price of $0.08 to
an exercise price of $0.01.  Pursuant to SFAS 123 (revised 2004),
Share-Based Payments,
we revalued these warrants using the old and new warrant terms and deemed the
difference in value a dividend.  Variables used in the calculation
were: stock price on measurement date: $0.022; Exercise price of options: $0.08
(old) and $0.01 (new); option term: 0.66 years; discount rate: 0.56% and
computed volatility: 256.59%.  We deemed this revaluation as a
dividend in the amount of $2,702.  The exercise entitles the Company
to receive $4,166 in cash.  As of the date of this report, the amount
is still receivable and is included in equity on the balance sheet under “Common
stock subscriptions receivable”.





On March
16, 2009, we issued 10,000,000 common shares to retire a convertible note in the
amount of $100,000 and accrued interest of $14,345.  Per the terms of
the conversion feature of the note, the principal balance was convertible into
1,111,111 shares.  The excess of the shares issued were to retire
accrued interest.  We recorded a loss on conversion of
$178,643.





On March
16, 2009, the board granted a holder of 833,333 warrants to purchase common
stock a revision in the terms of the warrants from an exercise price of $0.09 to
an exercise price of $0.01.  Pursuant to SFAS 123 (revised 2004),
Share-Based Payments,
we revalued these warrants using the old and new warrant terms and deemed the
difference in value a dividend.  Variables used in the calculation
were: stock price on measurement date: $0.02; Exercise price of options: $0.09
(old) and $0.01 (new); option term: 1 year; discount rate: 0.67% and computed
volatility: 256.59%.  We deemed this revaluation as a dividend in the
amount of $4,053.  We received cash of $8,333 upon
exercise.





On March
17, 2009, the board granted a holder of 2,000,000 warrants to purchase common
stock a revision in the terms of the warrants from an exercise price of $0.10 to
an exercise price of $0.01.  Pursuant to SFAS 123 (revised 2004),
Share-Based Payments,
we revalued these warrants using the old and new warrant terms and deemed the
difference in value a dividend.  Variables used in the calculation
were: stock price on measurement date: $0.02; Exercise price of options: $0.10
(old) and $0.01 (new); option term: 1 year; discount rate: 0.67% and computed
volatility: 256.59%.  We deemed this revaluation as a dividend in the
amount of $10,315.  We received cash of $20,000 upon
exercise.


17


On March
20, 2009, we issued 900,000 common shares to a consultant to settle an
outstanding invoice of $10,000.  We recorded these shares at the fair
value on the grant date, $.02 per share, or $18,000 and included the resulting
$8,000 loss as an increase of “Loss on settlement of debt”.





On April
2, 2009, we issued 3,000,000 common shares to a consultant to settle an
outstanding invoice of $30,000.  We recorded these shares at the fair
value on the grant date, $0.02 per share, or $60,000 and included the resulting
$30,000 loss as an increase of “Loss on settlement of debt”.





On April
9, 2009, we issued 4,333,333 shares to a consultant for consulting
services.  We valued the shares on the grant date and included $86,667
of professional fees in “Professional and consulting fees”.





On April
24, 2009, we issued 500,000 shares to a consultant for consulting
services.  We valued the shares on the grant date and included $10,000
of professional fees in “Professional and consulting fees”.





On April
24, 2009, we issued 12,500,000 shares to a consultant pursuant to a consulting
agreement.  We valued the shares on the grant date and included
$250,000 of professional fees in “Professional and consulting
fees”.





On April
26, 2009, we issued 1,500,000 shares to a consultant pursuant to a consulting
agreement.  We valued the shares on the grant date and included
$30,000 of professional fees in “Professional and consulting fees”.





On May 5,
2009, we issued 460,970 common shares to a consultant to settle an outstanding
invoice of $6,223.  We recorded these shares at the fair value on the
grant date, $0.02 per share, or $9,216 and included the resulting $2,993 loss as
an increase of “Loss on settlement of debt”





On May 6,
2009, we issued 772,752 common shares to a consultant to settle an outstanding
invoice of $11,514.  We recorded these shares at the fair value on the
grant date, $0.02 per share, or $15,455 and included the resulting $3,941 loss
as an increase of “Loss on settlement of debt”.





On May
11, 2009, we issued 2,469,136 common shares to a consultant to settle
outstanding invoices of $24,510 and prepay future services totaling
$15,490.  We recorded these shares at the fair value on the grant
date, $0.02 per share, or $49,383 and included the resulting $9,383 loss as an
increase of “Loss on settlement of debt”.





On May
13, 2009, we issued 1,029,688 common shares to a consultant to settle
outstanding invoices of $18,123.  We recorded these shares at the fair
value on the grant date, $0.02, or $20,594 and included the resulting $2,471
loss as an increase of “Loss on settlement of debt”.





On May
13, 2009, we issued 568,182 common shares to a consultant to settle outstanding
invoices of $10,000.  We recorded these shares at the fair value on
the grant date, $0.02, or $11,364 and included the resulting $1,364 loss as an
increase of “Loss on settlement of debt”.





On May
19, 2009, we issued 848,990 common shares to a consultant to settle outstanding
invoices of $10,952. We recorded these shares at the fair value on the grant
date, $0.02, or $16,980 and included the resulting $6,028 loss as an increase of
“Loss on settlement of debt”.





On May
21, 2009, we issued 500,000 common shares to a consultant to settle outstanding
invoices of $5,000.  We recorded these shares at the fair value on the
grant date, $0.02, or $10,000 and included the resulting $5,000 loss as an
increase of “Loss on settlement of debt”.




18


On May
22, 2009, we issued 342,366 common shares to retire a convertible note in the
amount of $5,000 and accrued interest of $1,618.  The convertible note
was not previously recorded on the Company’s financial
statements.  The shares issued to retire the convertible note were
recorded to “Loss on conversion of debt”.  The excess of the shares
issued were to record interest expense.





On May
26, 2009, we rescinded our March 2, 2009 issue of 12,085,714 common shares to
retire a convertible note in the amount of $275,000 and accrued interest of
$11,301, and issued 11,252,381 common shares to retire the same convertible note
and accrued interest.  We included the resulting $15,000 gain as a
reduction of “Loss on settlement of debt”.





On June
3, 2009, we issued 1,500,000 common shares to a consultant to settle outstanding
invoices of $15,000.  We recorded these shares at the fair value on
the grant date, $0.02 per share, or $30,000 and included the resulting $15,000
loss as an increase of “Loss on settlement of debt”.





On June
3, 2009, we issued 396,700 common shares to a consultant to settle outstanding
invoices of $3,967.  We recorded these shares at the fair value on the
grant date, $0.02, or $7,934 and included the resulting $3,967 loss as an
increase of “Loss on settlement of debt”.





On June
3, 2009, we issued 488,293 common shares to a consultant to settle outstanding
invoices of $8,008.  We recorded these shares at the fair value on the
grant date, $0.02, or $9,766, and included the resulting $1,758 loss as an
increase of “Loss on settlement of debt”.





On June
4, 2009, we issued 7,422,558 common shares to our President, Chief Scientific
Officer and Interim Board Chairman for $92,142 of salaries due under the Amended
and Restated Employment Agreement through May 31, 2009, plus accrued
interest.  We recorded these shares at the fair value on the grant
date, $0.02, or $148,451 and included the resulting $52,849 loss as an increase
of “Loss on settlement of debt”.





On June
4, 2009, we issued 780,640 common shares to our Chief Financial Officer for
$10,000 of salaries due under the Employment Agreement through May 31,
2009.  We recorded these shares at the fair value on the grant date,
$0.02, or $15,613 and included the resulting $5,613 loss as an increase of “Loss
on settlement of debt”.


On June
4, 2009, we issued 2,560,908 common shares to our Interim Chief Executive
Officer for $32,000 due under the Consulting Agreement with Bronco Technology,
Inc. through May 31, 2009.  We recorded these shares at the fair value
on the grant date, $0.02, or $51,218 and included the resulting $19,218 loss as
an increase of “Loss on settlement of debt”.  We also issued 400,000
common shares due under the Consulting Agreement with Bronco Technology, Inc.
and retired the liability at December 31, 2008 which was included in “Common
stock payable”.




On June
4, 2009, we issued 12,000,000 common shares to our Chief Financial Officer for
services as described in the Employment Agreement.  We valued these
shares at the fair value on the grant date, $0.02, or $240,000.  These
shares vest in three equal annual installments, beginning June 1,
2010.  We recorded $6,667 in “Employment compensation and benefits” in
the current period.  If the Officer’s employment with the Company
terminates for cause, or if the Officer resigns from his position, all unvested
shares are forfeited.  If the Officer’s employment with the Company
terminates without cause, the vesting of the shares is accelerated by one year,
with the remaining unvested shares forfeited.




19




On June
4, 2009, we issued a three-year option to our Chief Financial Officer to
purchase an additional 10,000,000 shares of the Company’s common stock for $0.02
per share, beginning June 4, 2009.  We recorded $176,927 in
“Employment compensation and benefits” in the current period.  The
fair value of the option granted was estimated on its respective grant date
using the Black-Scholes option pricing model.  The Black-Scholes model
was used with the following assumptions: a risk-free interest rate of 0.72%,
based on the U.S. Treasury yield in effect at the time of grant; a dividend
yield of zero percent; an expected life of 1.5 years, based on half of the term
of the agreement; a volatility rate of 256.68% based on the historical
volatility of our stock over a time that is consistent with the expected life of
the option; and no forfeiture assumed.





On June
9, 2009 we issued 6,000,000 common shares to an accredited investor for a
subscription of $30,000.





On June
11, 2009, we issued 500,000 common shares to an accredited investor for a
subscription of $5,000.





On June
26, 2009, we received 800,000 common shares of our stock that was previously
held in escrow by a consultant and returned due to non-performance on an
agreement.  We returned these shares to treasury stock June 29,
2009.





At June
30, 2009, the Company owed 2,541,667 shares of common stock for consulting
services under the terms of a consulting agreement between the Company and
Lordes Bosquez.  The shares are valued based on the closing price at the
date they became due.  The total value of these shares is $42,500, which is
presented as a stock payable on the balance sheet.





At June
30, 2009, the Company owed 600,000 shares of common stock for consulting
services under the terms of a consulting agreement between the Company and
Bronco Technology, Inc., an affiliate of Helen R. Park, the Company’s Interim
Chief Executive Officer.  The shares are valued based on the closing price
at the date they became due.  The total value of these shares is $12,000,
which is presented as a stock payable on the balance sheet.





In order
to obtain bridge loan financing for the Company with Able Income Fund, LLC in
June and July, 2008, Steven B. Rash, the Company’s former Chief Executive
Officer of Power3 pledged 12,548,369 shares of Power3 common stock he owned
personally, as collateral for the bridge loans obtained.  During the
three months ended June 30, 2009, Able converted these shares and applied the
net proceeds of $244,417 to retire a portion of the principal and accrued
interest on the notes.





NOTE
8 – FINANCING ARRANGEMENTS AND DERIVATIVE LIABILITIES




New
Borrowings




During
the six months ended June 30, 2009, we received $50,000 in cash from two
existing creditors.  $20,000 of these amounts was appended to their
already-existing 12% notes due September 8, 2009.




Derivative
Liabilities




Our
derivative liabilities increased from $1,352,247 at December 31, 2008 to
$1,508,898 at June 30, 2009, due to the decrease in our stock price from March
31, 2009 to June 30, 2009 resulting in a gain of $589,693 in derivative
liabilities.





Many of
our warrants contain a reset provision which was triggered when we reduced the
strike price during March 2009.  The amount of increase in liabilities
due to these reset features was $116,147.


20


The
following tabular presentation reflects the components of derivative financial
instruments on the Company’s balance sheet at June 30, 2009 and December 31,
2008:





June 30, 2009
                    
                    
                    December 31, 2008Common
      stock warrants
                    
                    
                    1,347,126
                    
                    
                    
                    554,637Embedded
      conversion features
                    
                    
                    161,772
                    
                    
                    
                    778,178Other
      derivative instruments
                    
                    
                    -
                    
                    
                    
                    19,432Total
                    
                    $
                    1,508,898
                    
                    
                    $
                    1,352,247




NOTE
9 – TRANSGENOMIC DEFINITIVE AGREEMENT




On
January 23, 2009, the Company executed a definitive Collaboration and Exclusive
License agreement with Transgenomic, Inc.  The License Agreement
grants Transgenomic exclusive rights in the United States and certain other
countries to the Company’s proprietary test kits or systems for performing
Neurodegenerative Diagnostic Tests, for which the Company will receive an
up-front license execution fee, certain milestone fees, including fees payable
in cash, fees payable in shares of Transgenomic common stock, and royalties
based upon net sales of the Company’s tests, test kits or systems by
Transgenomic.





The
License Agreement also provides for Transgenomic to fund the Company’s
activities relating to the clinical validation of its Neurodegenerative
Diagnostic Tests.  Funds for such activities will be provided by
Transgenomic through a separate bank account pursuant to a Disbursement Control
Agreement.  The Company is obligated to cooperate with Transgenomic
during the period of continued development and to provide Transgenomic with
plans, budgets and reports regarding the progress of the Company’s development
activities.  Transgenomic has the right to assume the clinical
validation activities, with notice and a cure period, under certain
circumstances.





The
License Agreement has an infinite life and provides for each party to maintain
the confidentiality of the other party’s confidential information, and to not
make any public announcement concerning the transactions contemplated by the
License Agreement without the consent of the other party.  The License
Agreement also contains other covenants and indemnification provisions that are
typical for license agreements entered into by companies in connection with
similar licensing transactions.





During
the three months ended June 30, 2009, we recorded revenues of $167,772 relating
to this agreement which includes the $100,000 up-front license execution
fee.




NOTE
10 – SUBSEQUENT EVENTS




Subsequent
to June 30, 2009, we issued 5,528,446 unrestricted shares to contractors for
services, 833,330 restricted shares for services, 8,333,300 restricted shares
for the conversion of debt, and 132,592 restricted shares for the exercise of
warrants.





On July
10, 2009, Helen R. Park was appointed to our Board of Directors, to fill the
vacancy resulting from the resignation of Steven B. Rash on September 3,
2008.


21




ITEM
2- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




This
report contains “forward-looking statements”.  All statements other
than statements of historical fact are “forward-looking statements” for purposes
of federal and state securities laws, including: any projections of earnings,
revenues or other financial items; any statements of the plans, strategies and
objectives of management for future operations; any statements concerning
proposed new products, services or developments; any statements regarding future
economic conditions or performance; any statements of belief; and any statements
of assumptions underlying any of the foregoing.  “Forward-looking
statements” may include the words “may,” “will,” “estimate,” “intend,”
“continue,” “believe,” “expect,” “plan” or “anticipate” and other similar
words.





Although
we believe that the expectations reflected in our “forward-looking statements”
are reasonable, actual results could differ materially from those projected or
assumed.  Our future financial condition and results of operations, as
well as any “forward-looking statements”, are subject to change and to inherent
risks and uncertainties, such as those disclosed in this report.  In
light of the significant uncertainties inherent in the “forward-looking
statements” included in this report, the inclusion of such information should
not be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved. Except for its ongoing
obligation to disclose material information as required by the federal
securities laws, we do not intend, and undertake no obligation, to update any
“forward-looking statement”. Accordingly, the reader should not rely on
“forward-looking statements”, because they are subject to known and unknown
risks, uncertainties, and other factors that may cause actual results to differ
materially from those contemplated by the “forward-looking
statements”.





You
should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our unaudited financial statements,
including the notes to those financial statements, included elsewhere in this
report.





The
information contained below is subject to the “Risk Factors” and other risks
detailed in our Annual Report on Form 10-K for our fiscal year ended December
31, 2008 and our other reports filed with the Securities and Exchange
Commission.  We urge you to review carefully the section “Risk
Factors” included in our Annual Report on Form 10-K for our fiscal year ended
December 31, 2008 for a more complete discussion of the risks associated with an
investment in our securities.




Overview




Power3
Medical Products, Inc. has been a development stage company since May 2004, with
our primary business activities focused on the development of our intellectual
property assets in the area of diagnoses for breast cancer, ALS, Alzheimer’s
disease and Parkinson’s disease.  In September 2008, Steven B. Rash,
our then Chief Executive Officer and Chairman of the Board, resigned from all of
his positions with us.  Ira L. Goldknopf, our sole remaining director
and Chief Scientific Officer, was appointed as President and Interim Chairman of
the Board.  Helen R. Park was appointed Interim Chief Executive
Officer.  Under the direction of our restructured management team, we
implemented a new strategy focusing on commercialization of our intellectual
property assets, with less emphasis on research and development.  In
connection with our new focus, and in an effort to preserve cash and reduce
operating costs, we reduced the amount of space we occupied and implemented a
reduction in force.





Prior to
May 2004, we were engaged in product development, sales, distribution and
services for the healthcare industry.  We transitioned to being a
development stage company on May 18, 2004, when we completed the acquisition of
certain intellectual property assets from Advanced Bio/Chem, Inc. and began
focusing on research and development relating to those assets.  On
September 12, 2003, we completed a one-for-fifty reverse stock split and changed
our name from Surgical Safety Products, Inc. to Power3 Medical Products,
Inc.


22




Results
of Operations




Revenues




We had
our first substantial influx of revenues resulting from our January 2009 license
agreement with Transgenomic, Inc., which includes the $100,000 up-front license
execution fee.   Total revenues were $35,711 and $168,477 for the
three and six months ended June 30, 2009, respectively.  We had no
revenues in the same periods in 2008.




Operating
Expenses




Employee
compensation was reduced from $526,905 for the six months ended June 30, 2008 to
$276,294 for the same period in 2009 as we replaced our employees with
contractors and significantly reduced headcount.  Employee
compensation increased from $242,984 for the three months ended June 30, 2008 to
$258,737 for the same period in 2009 primarily due to the charge related to the
warrant issued to our Chief Financial Officer on June 1, 2009 to purchase 10
million common shares of our stock.  Professional and consulting fees,
mostly resulting from costs associated with our statutory filings and strategic
funding initiatives, were reduced from 2008; $725,794 and $811,492 for the three
and six months ended June 30, 2008, respectively versus $544,518 and $625,335
for the same three and six month periods in 2009,
respectively.  Occupancy and equipment is also substantially reduced
due to our scaling back of our office space in 2009; $23,444 and $67,940 for the
three and six months ended June 30, 2008, respectively versus $4,427 and $19,126
for the same three and six month periods in 2009.  Travel and
entertainment was reduced from $22,246 and $78,702 for the three and six months
ended June 30, 2008, respectively to just $1,963 and $2,692 for the three and
six months ended June 30, 2009, respectively, reflecting a more scaled back
operation from that in 2008.  Similarly, general and administrative
expenses were reduced from $48,089 and $155,262 for the three and six months
ended June 30, 2008 versus $40,712 and $128,716 for the three and six months
ended June 30, 2009.




Other
Income and Expense




The
upward change in the derivative liabilities resulted mostly from an increase in
our stock price from December 31, 2008 to June 30, 2009.  Our change
in derivative liabilities caused a corresponding expense of $156,651 for the six
months ended June 30, 2009 versus a gain of $2,420,860 for the same period in
2008.  However our decrease in our stock price from March 31, 2009 to
June 30, 2009 resulted in a gain of $589,693 in derivative liabilities versus a
gain of $252,244 for the same period in 2008.  Additionally, we had
$124,295 and $1,008,029 in losses for the three and six months ended June 30,
2009, respectively on conversion of certain debt instruments to equity as a
result of our attempt to reduce the Company’s debt load.  For the same
periods in 2008, our loss was $2,384.  Interest expense was
significantly reduced from $196,621 and $585,237 for the three and six months
ended June 30, 2008, respectively to $137,739 and $314,835 for the same periods
in 2009, owing to the above-mentioned reduction in debt and elimination of debt
discounts on their conversion.




Deemed
Dividends




Certain
of our warrants were re-priced during March 2009, resulting in a deemed dividend
charge to common shareholders of $34,103 for the six months ended June 30,
2009   For the same period in 2008, we had $12,072 of such deemed
dividends.




Net
Income/ (Loss)




Our net
loss attributable to common shareholders for the three and six months ended June
30, 2009 was $486,987 and $2,397,304. Our net loss attributable to common
shareholders for the three months ended June 30, 2008 was $1,009,795, and our
net income available to common shareholders for the six months ended June 30,
2009 was $199,316. The change is due to the factors listed above, most notably
the change in value of derivative liabilities resulting from the change in our
stock price.




Liquidity
and Capital Resources




Our
liquidity and capital needs relate primarily to working capital, development and
other general corporate requirements. Although we have recorded our first
significant revenues from our January 2009 contract with Transgenomic. Inc., we
have not yet generated any net positive cash from operations. We have an
immediate need for capital to continue our current operations, and in addition,
are seeking additional capital from research grants, collaboration agreements,
and other strategic alliances.


23


Net cash
used in operating activities amounted to $56,185 for the six months ended June
30, 2009, compared to $1,007,315 for the six months ended June 30,
2008.  The change in net cash used in operating activities during 2009
was primarily due to changes in the fair value of derivative liabilities, and
net income for the six months ended June 30, 2008 compared to the same period in
2009.





Net cash
provided by financing activities was $119,666 for the six months ended June 30,
2009, as compared to $982,404 for the six months ended June 30,
2008.  The decrease in cash provided by financing activities during
2009 is due to a reduction in the sale of our common stock.





As of
June 30, 2009, our principal source of liquidity was $19,312 in
cash.




Plan
of Operation and Cash Requirements




We
currently have few operating revenues from product sales or the performance of
services and we continue to experience net operating losses. We are actively
pursuing third party licensing agreements, collaboration agreements,
distribution agreements and similar business arrangements in order to establish
an adequate revenue base utilizing our capabilities in disease diagnosis based
on protein and biomarker identification, and drug resistance in the areas of
cancers, neurodegenerative and neuromuscular diseases. We have undertaken
clinical validation studies to demonstrate the diagnostic capabilities of our
technologies. However, there can be no assurances when revenue-generating
agreements will result in continuous revenue streams.





Our goal
over the next several months is to complete Phase II of our testing of our
Alzheimer’s and Parkinson’s disease clinical trials with Transgenomic,
Inc.  We hope to commercialize these tests in the fourth quarter of
2009.





We are
currently seeking grants and financing to fund our operation through the point
of commercialization.  We expect to incur costs of approximately
$1,000,000 to that point. There is no guarantee that we can raise the required
capital to fund our operation, or that our products, once commercialized, will
generate adequate revenues to sustain our operation.




Off
Balance Sheet Arrangements




None.




ITEM
3 - QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
applicable.




ITEM
4 – CONTROLS AND PROCEDURES






Evaluation
of Disclosure Controls and Procedures




We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)).  Based upon that evaluation, our principal executive
officer and principal financial officer concluded that, as of the end of the
period covered in this report, our disclosure controls and procedures were not
effective to ensure that information required to be disclosed in reports filed
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the required time periods and is accumulated and communicated to
our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.


24


Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud.  A control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are
met.  Further, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls must be
considered relative to their costs.  Due to the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, have been detected. To
address the material weaknesses, we performed additional analysis and other
post-closing procedures in an effort to ensure our financial statements included
in this report have been prepared in accordance with generally accepted
accounting principles. Accordingly, management believes that the financial
statements included in this report fairly present in all material respects our
financial condition, results of operations and cash flows for the periods
presented.





Because
of these material weaknesses, management has concluded that we did not maintain
effective internal control over financial reporting as of June 30, 2009, based
on the criteria established in "Internal Control-Integrated Framework" issued by
the COSO.




Change
In Internal Control Over Financial Reporting





During
our review of our internal control over financial reporting for the period ended
June 30, 2009, and in the process of preparing this report, our management
discovered that there are material weaknesses in our internal controls over
financial reporting.  A material weakness is a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of our
annual or interim financial statements will not be prevented or detected on a
timely basis.  The material weaknesses identified during the
preparation of this report were (i) insufficient evidence of a robust corporate
governance function; (ii) lack of sufficient resources to provide reasonable
assurance that the financial statements could be prepared in accordance with
GAAP; (iii) inadequate security over information technology; and (iv) lack of
evidence to document compliance with the operation of internal accounting
controls in accordance with our policies and procedures.  These
control deficiencies could result in a material misstatement of significant
accounts or disclosures that would result in a material misstatement to our
interim or annual financial statements that would not be prevented or
detected.  Accordingly, management has determined that these control
deficiencies constitute material weaknesses.





During
the three months ended June 30, 2009, we hired a Chief Financial Officer to
oversee financial reporting and instituting internal control over financial
reporting.  Management is currently evaluating additional remediation
plans for the above control deficiencies, including (i) appointing a director to
fill the vacancy on the Board of Directors resulting from the resignation of a
former director in September 2008; (ii) engaging an information technology
consultant to review present security over our information technology and
propose additional security measures to enhance the security of our information
technology; and, (iii) engaging a consultant licensed as a Certified Public
Accountant to assist us with the preparation and analysis of our interim and
financial reporting to ensure compliance with generally accepted accounting
principles and to ensure corporate compliance.




PART
II – OTHER INFORMATION




ITEM
1 – LEGAL PROCEEDINGS




On March
20, 2009, we were served with a lawsuit in McLennon Law Corporation vs. Power3
Medical Products, Inc. in Superior Court of California, County of San
Francisco.  In the lawsuit, McLennon Law Corporation is alleging
unpaid legal services of approximately $115,000 plus interest and
costs.  We previously accrued for this amount and it is carried in
accounts payable at June 30, 2009.





On June
12, 2006, we were served with a lawsuit in IS&T Consulting Group, LLC vs.
Power3 Medical Products, Inc. in Montgomery County, Texas, 9th
Judicial District.  In the lawsuit, IS&T Consulting Group is suing
for breach of contract for approximately $10,000.  Both parties
subsequently signed an agreed judgment in relation to the case, and a payout
schedule has been agreed upon.  We previously accrued for this amount
and it is carried in accounts payable at June 30, 2009.


25


On
October 14, 2008, we were served with a lawsuit in Woodlands Road Utility District #1
vs. Power 3 Medical Products, Inc. in Montgomery County, Justice Court,
Precinct 3.  In the lawsuit, the plaintiff alleged that we owed
personal property taxes on personal property that was not owned by us at the
time the taxes were assessed.  On July 15, 2009, the court in the
lawsuit ruled that we are responsible, as the successor in interest to Advanced
Bio/Chem, Inc., for the delinquent taxes, penalties and interest in the amount
of $3,810, plus $125 in costs of the plaintiff and court costs.  The
amount due bears interest at a rate of 12% from the date of
judgment.




ITEM
1A – RISK FACTORS




Not
applicable.




ITEM
2 - UNREGISTERED SALES OF EQUITY SECURITIES




On April
2, 2009, we issued 3,000,000 shares of our common stock to a consultant who we
reasonably believe is an “accredited investor,” as such term is defined in
Rule 501 under the Securities Act, in payment of $30,000 in consulting fees
due pursuant to a consulting agreement.  The offer and sale was made
without registration under the Securities Act, or the securities laws of certain
states, in reliance on the exemptions provided by Section 4(2) of the
Securities Act and Regulation D under the Securities Act and in reliance on
similar exemptions under applicable state laws.  No general
solicitation or general advertising was used in connection with the offering of
the shares.  We disclosed to the consultant that the shares of common
stock could not be sold unless they are registered under the Securities Act or
unless an exemption from registration is available.





On April
9, 2009, we issued 4,333,333 shares of our common stock to a consultant who we
reasonably believe is an “accredited investor,” as such term is defined in
Rule 501 under the Securities Act, for $86,667 in consulting
services.  The offer and sale was made without registration under the
Securities Act, or the securities laws of certain states, in reliance on the
exemptions provided by Section 4(2) of the Securities Act and
Regulation D under the Securities Act and in reliance on similar exemptions
under applicable state laws.  No general solicitation or general
advertising was used in connection with the offering of the
shares.  We disclosed to the consultant that the shares of common
stock could not be sold unless they are registered under the Securities Act or
unless an exemption from registration is available.





On April
24, 2009, we issued 500,000 shares of our common stock to a consultant who we
reasonably believe is an “accredited investor,” as such term is defined in
Rule 501 under the Securities Act, for $10,000 in consulting
services.  The offer and sale was made without registration under the
Securities Act, or the securities laws of certain states, in reliance on the
exemptions provided by Section 4(2) of the Securities Act and
Regulation D under the Securities Act and in reliance on similar exemptions
under applicable state laws.  No general solicitation or general
advertising was used in connection with the offering of the
shares.  We disclosed to the consultant that the shares of common
stock could not be sold unless they are registered under the Securities Act or
unless an exemption from registration is available.





On May
26, 2009, we rescinded our March 2, 2009 issuance of 12,085,714 shares of our
common stock upon the conversion of $286,301in principal and interest of a
convertible note, and issued 11,252,381 shares of our common stock upon
conversion of the same convertible note.  The issuance of the common
stock upon conversion of the convertible note was exempt from registration under
the Securities Act, or the securities laws of certain states, in reliance on the
exemptions provided by Section 3(9) of the Securities Act and in reliance on
similar exemptions under applicable state laws for exchanges of securities with
existing security holders.





On June
4, 2009, we issued 7,422,558 shares of our common stock to our President, Chief
Scientific Officer and Interim Board Chairman as payment for $92,142 of salaries
due under his employment agreement through May 31, 2009.  The offer
and sale of the shares was made without registration under the Securities Act,
or the securities laws of certain states, in reliance on the exemptions provided
by Section 4(2) of the Securities Act and Regulation D under the
Securities Act and in reliance on similar exemptions under applicable state
laws.  No general solicitation or general advertising was used in
connection with the offering of the shares.  We disclosed to our
President, Chief Scientific Officer and Interim Board Chairman that the shares
of common stock could not be sold unless they are registered under the
Securities Act or unless an exemption from registration is
available.


26


On June
4, 2009, we issued 2,960,908 shares of our common stock to Bronco Technology,
Inc., an affiliate of our Interim Chief Executive Officer, as payment due under
a consulting agreement through May 31, 2009.  The offer and sale of
the shares was made without registration under the Securities Act, or the
securities laws of certain states, in reliance on the exemptions provided by
Section 4(2) of the Securities Act and Regulation D under the
Securities Act and in reliance on similar exemptions under applicable state
laws.  No general solicitation or general advertising was used in
connection with the offering of the shares.  We disclosed to Bronco
Technology that the shares of common stock could not be sold unless they are
registered under the Securities Act or unless an exemption from registration is
available.





On June
4, 2009, we issued 780,640 shares of our common stock to our Chief Financial
Officer as payment for $10,000 of salaries due under his employment agreement
through May 31, 2009.  The offer and sale of the shares was made
without registration under the Securities Act, or the securities laws of certain
states, in reliance on the exemptions provided by Section 4(2) of the
Securities Act and Regulation D under the Securities Act and in reliance on
similar exemptions under applicable state laws.  No general
solicitation or general advertising was used in connection with the offering of
the shares.  We disclosed to our Chief Financial Officer that the
shares of common stock could not be sold unless they are registered under the
Securities Act or unless an exemption from registration is
available.





On June
4, 2009, we issued 12,000,000 shares of our common stock to our Chief Financial
Officer pursuant to the terms of his employment agreement.  The offer
and sale of the shares was made without registration under the Securities Act,
or the securities laws of certain states, in reliance on the exemptions provided
by Section 4(2) of the Securities Act and Regulation D under the
Securities Act and in reliance on similar exemptions under applicable state
laws.  No general solicitation or general advertising was used in
connection with the offering of the shares.  We disclosed to our Chief
Financial Officer that the shares of common stock could not be sold unless they
are registered under the Securities Act or unless an exemption from registration
is available.





On June
9, 2009 we issued 6,000,000 shares of our common stock to an investor who we
reasonably believe is an “accredited investor,” as such term is defined in
Rule 501 under the Securities Act, in exchange for an investment of $30,000
in cash.  The offer and sale was made without registration under the
Securities Act, or the securities laws of certain states, in reliance on the
exemptions provided by Section 4(2) of the Securities Act and
Regulation D under the Securities Act and in reliance on similar exemptions
under applicable state laws.  No general solicitation or general
advertising was used in connection with the offering of the
shares.  We disclosed to the investor that the shares of common stock
could not be sold unless they are registered under the Securities Act or unless
an exemption from registration is available.





On June
11, 2009 we issued 500,000 shares of our common stock to an investor who we
reasonably believe is an “accredited investor,” as such term is defined in
Rule 501 under the Securities Act, in exchange for an investment of $5,000
in cash.  The offer and sale was made without registration under the
Securities Act, or the securities laws of certain states, in reliance on the
exemptions provided by Section 4(2) of the Securities Act and
Regulation D under the Securities Act and in reliance on similar exemptions
under applicable state laws.  No general solicitation or general
advertising was used in connection with the offering of the
shares.  We disclosed to the investor that the shares of common stock
could not be sold unless they are registered under the Securities Act or unless
an exemption from registration is available.




ITEM
3 – DEFAULTS UPON SENIOR SECURITIES




In April
2009, we were declared in default in the payment of principal and interest with
respect to our 6% Convertible Debenture, in the aggregate principal amount of
$200,000, held by NeoGenomics, Inc.  The amount of the total arrearage
as of the date of this report is $200,000 in principal and approximately $26,482
in accrued interest.


27




ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




None.




ITEM
5 – OTHER INFORMATION




None.




ITEM
6 – EXHIBITS




Exhibit
                No.
              
              INDEX TO EXHIBITS10.1
              
              Collaboration
      and Exclusive License Agreement by and between the registrant and
      Transgenomic, Inc., dated January 23, 2009 (excluding schedules and
      exhibits).10.2
              
              Employment
      Agreement by and between the registrant and John P. Ginzler, dated as of
      May 1, 2009.10.3
              
              Second
      Amended and Restated Employment Agreement by and between the registrant
      and Ira L. Goldknopf, Ph.D., dated as of May 17, 2009.10.4
              
              Amended
      and Restated Consulting Agreement by and between the registrant and Bronco
      Technology, Inc., dated as of June 1, 2009.31.1
              
              Certification
      of Power3 Medical Products, Inc. Interim Chief Executive Officer, Helen R.
      Park, pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
              
              Certification
      of Power3 Medical Products, Inc. Chief Financial Officer, John Ginzler,
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.32.1
              
              Certification
      of Power3 Medical Products, Inc. Interim Chief Executive Officer, Helen R.
      Park, and Chief Financial Officer, John Ginzler, pursuant to Section 906
      of the Sarbanes-Oxley Act of
2002.


28


SIGNATURES




In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.




Power
      3 Medical Products, Inc.Date:
      August 11, 2009
              By:
              /s/Helen
      ParkHelen
      ParkInterim
      Chief Executive Officer




29