10KSB

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
o	TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to                 

COMMISSION FILE NO. 0-24921

POWER 3 MEDICAL PRODUCTS, INC.

(Name of small business issuer 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	77381
(Address of principal executive offices)	(Zip Code)

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

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

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

Common Stock, $.001 par value

(Title of class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

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

Revenues for the issuer’s fiscal year ended December 31, 2004 were $ 15,491.  The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the closing price of such stock on the Over-the-Counter Bulletin Board (“OTCBB”) administered by the National Association of Securities Dealers (“Nasdaq”) on
August 15, 2005 was $15,682,829 million.  For purposes of this calculation, affiliates include directors and executive officers.

The number of shares outstanding of the registrant’s common stock, par value .001 per share, as of August 15, 2005 was 65,345,121 shares.

Documents incorporated by reference:  None.

TABLE OF CONTENTS

Item 3. Legal Proceedings

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

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Item 6. Management’s Discussion and Analysis or Plan of Operation

Item 7. Financial Statements

Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

Item 8a. Controls and Procedures

Item 8b. Other Information

PART III

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

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 12. Certain Relationships and Related Transactions

Item 13. Exhibits

Item 14. Principal Accountant Fees and Services

SIGNATURES

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FORWARD-LOOKING STATEMENT

This Report contains certain forward-looking statements of the intentions, hopes, beliefs, expectations, strategies, and predictions of Power 3 Medical Products, Inc. (“Power 3” or the “Company”) or its management with respect to future activities or other future events or conditions within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are usually identified by the use of words such as “believes,” “will,” “anticipates,” “estimates,” “expects,” “projects,” “plans,” “intends,” “should,” “could,” or similar expressions.  These statements are based on certain assumptions and analyses made by the Company’s management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors believed appropriate.  Readers are cautioned that these forward-looking statements are only predictions and that the Company’s business is subject to significant risks and uncertainties, including, without limitation:

•The Company’s history of operating losses;

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

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

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

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

•Development by competitors of new or competitive products or services;

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

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

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

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

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PART I

Except for historical information, the matters set forth in this report include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth herein.  Power 3 Medical Products, Inc. refers you to cautionary information and risk factors contained elsewhere herein and in other documents filed with the Securities and Exchange Commission (“SEC”) from time to time.

Item 1. Description of Business.

General and Corporate History

Power 3 Medical Products, Inc. (the “Company” or “Power 3”) was incorporated in the State of Florida on May 15, 1992 and merged into a New York Corporation in 1994, under the name Sheffield Acres, Inc. Power3 and its wholly owned subsidiaries, C5 Health, Inc. (C5), which was officially dissolved in the State of Delaware and the State of Florida effective December 31, 2003 and Power3 Medical, Inc., a Nevada Corporation, were engaged in sales, distribution and services for the healthcare industry. On September 12, 2003  Surgical Safety Products, Inc. amended its Certificate of Incorporation to (a) declare a 1:50 reverse split of its common stock; (b) increase its authorized capital to 150,000,000 shares of common stock and 50,000,000 shares of preferred stock; and (c) change its name to Power3 Medical Products, Inc.

At December 31, 2004, the Company had one direct subsidiary, Tenthgate, Inc. (“Tenthgate”), a Nevada corporation formerly known as Power 3 Medical, Inc.  Tenthgate is not active in Power3’s current line of business activity.  Prior to the acquisition of substantially all the assets and certain liabilities from Advanced BioChem, it was contemplated that Power3 would distribute shares of its subsidiary to its shareholders of record, however the shares of Tenthgate were transferred to a trustee for distribution to the shareholders of Power3 on May 17, 2004, before the Advanced BioChem transaction.  Previous management of Power3 and Tenthgate have been independently operating Tenthgate since the Advanced BioChem transaction.  As a result, Power3 does not now control the operations or activities of Tenthgate.  As a result, Tenthgate’s activities are no longer controlled by, nor are their activities associated with Power3 in any manner whatsoever.  To the extent that additional actions are needed, Power3 intends to divest itself of its subsidiary due to the differences in business activity between Tenthgate and Power3 operating under its current business model.  Some of the principal reasons for the divestiture of Tenthgate and its subsidiary are that the disposition of Tenthgate will allow the Company’s management to focus exclusively on its business objectives and permit management of Tenthgate more flexibility in its operations and the disposition will allow the market to separately identify and evaluate each business.  The Company is continuing its efforts to complete the disposition of Tenthgate; however current management of Tenthgate has advised the Company that Tenthgate has issued a significant number of shares of its common stock purportedly reducing the Company’s ownership interest to less than 1%.  The Company believes this stock issuance to be invalid, however the Company does not have access to the records of Tenthgate and is considering its alternatives with respect to these actions.  The Company still desires to complete a divestiture of Tenthgate, but believes the operations are inconsistent with and not material to the current activities of the Company.  As a result, the operations and assets of Tenthgate are not consolidated or otherwise presented herein.

The Company’s common stock is quoted on the OTC Bulletin Board under the symbol “PWRM”. The Company’s principal executive offices are located at 3400 Research Forest Drive, Suite B2-3, The Woodlands, Texas 77381.  The Company’s telephone number is (281) 466-1600 and its facsimile number is (281) 466-1681.  During 2005, the Company’s failure to timely file its Form 10-KSB caused the OTCBB to append the symbol “E” to the Company’s trading symbol.  On June 14, 2005, the Company was notified of the OTCBB’s action to not allow the Company’s securities to be quoted on the OTCBB, as of June 16, 2005, pending the filing of the Company’s Form 10-KSB for 2004.  At the present time, the Company’s securities are no longer eligible for quotation on the OTCBB and all quotations of the Company’s securities are deleted from the OTCBB.  It is the Company’s intention to apply for reinstatement on the OTCBB immediately upon filing this Form 10-KSB for 2004.

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The Company transitioned to the development stage, from previously being an operating company, as of the asset purchase transaction with Advanced BioChem on May 18, 2004, as referenced below.  It is primarily engaged in commercializing its intellectual properties in the area of diagnosis and treatment of breast cancer, ALS, Alzheimer’s disease and Parkinson’s disease.  Shares of common stock issued for other than cash have been assigned amounts equivalent to the market value of the service or assets received in the exchange, with an effective date as the date of the agreement, per SEC requirement.

Purchase of a Set of Assets and Assumption of a Set of Liabilities from Advanced Bio/Chem, Inc.

On May 18, 2004, Power 3 purchased substantially all the assets of Advanced Bio/Chem, doing business as ProteEx.  Since the May 18, 2004 transaction, Advanced Bio/Chem has changed its name to Industrial Enterprises of America, Inc.  In this transaction, Power 3 purchased substantially all the assets and intellectual properties of Advanced Bio/Chem and assumed certain liabilities in exchange for the issuance of 15,000,000 shares of its common stock pursuant to an Asset Purchase Agreement of even date therewith. For financial statement purposes, the transaction has been accounted for as a purchase transaction.  Unless otherwise stated in this report, all financial information presented in this report is for Power3 Medical Products, Inc.,  in accordance with Regulation S-B for reporting the purchase of a set of assets and liabilities not constituting a change in control of Advanced BioChem or a merger or acquisition of Advanced BioChem into Power 3 Medical Products, Inc .

This accounting treatment represents a change in the accounting treatment previously used to report the Advanced BioChem transaction as a recapitalization of Power3 as in a reverse acquisition, as previously shown in the Form 10-QSB issued by Power3 for the 2^nd Quarter, 2004.  Power3 is amending its previously issued 10-QSB’s for the quarterly periods ending June 30, 2004, September 30, 2004 and March 31, 2005.   The Company, and its auditors, are in complete agreement as to the accounting treatment of purchase accounting as an appropriate treatment to account for its acquisition of the assets and a certain set of liabilities of Advanced BioChem on May 18, 2004.

Business of Issuer

Subsequent to the Company’s acquisition of assets from Advanced Bio/Chem on May 18, 2004, the Company’s overall business strategy was changed.  The Company’s current business directive is to engage in the early detection, monitoring, and targeting of diseases through the analysis of proteins. Power 3’s development stage business objective is to commercialize its intellectual properties by focusing on disease diagnosis, protein and biomarkers identification, and drug resistance in the areas of cancers, neurodegenerative and neuromuscular diseases. The Company has established a Scientific Advisory Board to assist in the research and development of its products. The members of this Scientific Advisory Board are recognized leaders in their chosen fields and the Company is working with them to find effective therapeutics and novel predictive medicine for important human diseases.

The Company’s business strategy, which is dependent upon obtaining sufficient additional financing, is to enhance the commercialization of its existing diagnostic products and to aggressively look for appropriate product and company strategic partnerships.

As a result of the acquisition of assets and certain liabilities of Advanced Bio/Chem, Power 3 has transitioned into an advanced proteomics company that applies existing proprietary methodologies to discover and identify protein biomarkers associated with diseases. By discovery and development of protein-based disease biomarkers, the Company has begun the development of tools for diagnosis, prognosis, early detection and identification of new targets for drugs in cancer, and neurodegenerative and neuromuscular diseases such as amyotrophic lateral sclerosis (commonly known as ALS or Lou Gehrig’s disease), Alzheimer’s disease, and Parkinson’s disease.

Power 3’s scientific team is headed by its Chief Scientific Officer, Dr. Ira L. Goldknopf.  Dr. Goldknopf was a pioneer in the science of clinical proteomics in the 1970s and 1980s and in so doing made a significant biochemistry discovery – the ubiquitin conjugation of proteins.  This discovery was cited in the announcement

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of the 2004 Nobel Prize for chemistry.  The team has leveraged these significant insights and has made progress in the discovery of unique disease protein footprints of biomarkers in breast cancer, neurodegenerative disease, and drug resistance to chemotherapeutic agents.

Proteomics is the study and analysis of proteins. Through proteomics, scientists can more accurately understand the functioning of a healthy body and are assisted in the identification of the proteins associated with specific diseases. Proteins that change in the course of disease are the building blocks for new screening and diagnostic tests which the Company is developing to provide earlier disease detection, enhanced treatment and monitoring assistance.

Product Candidates

Subsequent to the acquisition of assets from Advanced Bio/Chem, the Company changed its management team and is now focused on bringing the acquired technology to the forefront of the scientific/medical community. The strategy will concentrate on efforts to attain a leading position in the protein-based diagnostic and drug targeting markets utilizing the Company’s portfolio of proprietary biomarker disease footprints.  In the area of neurodegenerative disease, the Company has completed clinical validation studies involving 600 patient samples and is utilizing biostatistics to monitor appropriate biomarkers for diagnostic sensitivity, specificity, positive predictive value, and negative predictive value.  By testing patient body fluids and tissues, such as serum, nipple aspirate fluid, and bone marrow, the Company has discovered unique snapshots of protein patterns in diseases including:

•cancers such as breast, leukemia, prostate, bladder, stomach, and esophageal;and

•neurodegenerative diseases such as Alzheimer’s, ALS, and Parkinson’s disease.

The Company’s discovery platform uses both proprietary methodologies owned by or licensed to the Company and accepted technologies to discover biomarkers in clinical samples. Following sample preparation, a 2D Gel system is used for the separation of protein. The gels are stained, imaged and analyzed with unprecedented sensitivity for differences in the diseased vs. normal samples. The significance of these differences is evaluated relative to the status of the health of the individual. The proteins of interest are removed from the gel matrix and analyzed on a mass spectrometer. This information is then cross-referenced on a worldwide database to identify the protein of origin. This process requires a great deal of proteomics experience and expertise to make the end-data interpretable. In addition, all of the procedures are scaleable.  The Company’s biomarker discovery platform delivers significant discoveries that are capable of detecting up to 20 times as many proteins in nipple aspirate fluids as Mud Pit or SELDI TOF (competing technologies); exhibiting reproducible and reliable identification; and displaying broad dynamic range and linearity of disease protein footprints.

The Company has successfully identified more than 300 proteins, protein fragments and isoforms that are differentially expressed in response to disease by employing proprietary technologies gained from over 50 years of combined experience in protein biochemistry.

Power 3 is transitioning from a company focused only on research and development to one also demonstrating “proof of concept” of its technology in route to the commercialization of its technology, products and services.  The Company is engaged in the process of developing a portfolio of products including the NAFTest™ and blood serum tests (for early detection of breast cancer), NuroPro™ tests and blood serum tests (for neurodegenerative diseases including Alzheimer’s, Parkinson’s and ALS diseases) and tests for drug resistance screening in chemotherapeutics.

License and Sponsored Research

Advanced Bio/Chem entered into a license agreement with the Board of Regents of The University of Texas System, an agency of the State of Texas, on behalf of The University of Texas M.D. Anderson Cancer Center in September 2003, which the Company acquired in its transaction with Advanced Bio/Chem.  The

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license agreement gives the Company an exclusive, worldwide, royalty-bearing license to certain patent rights and technology rights for proteomic methods of diagnosis and monitoring of breast cancer using nipple aspirate fluids.  The license agreement also gives the Company a non-exclusive, worldwide, royalty-bearing license to certain patent rights and technology rights for methods of identifying specific nipple aspirate fluid proteins for diagnosis and monitoring of breast cancer.  The Company is permitted to grant sublicenses under the license agreement except for the identification of biological markers.  The Company is obligated to pay to M.D. Anderson an initial license fee, and a subsequent license fee, both of which have been paid.   The Company is also obligated to pay annual license maintenance fees, royalties and additional milestone payments upon the occurrence of certain designated events.  The license agreement imposes upon the Company an obligation to indemnify the Board of Regents, The University of Texas System, M.D. Anderson, the regents, officers, employees, students, and agents against claims arising on account of any injury or death, or damage to property caused by the exercise of the rights granted under the license agreement to the Company, its officers and affiliates.  The term of the license agreement is based on the date of expiration of the last patent rights to expire or, in the case of licensed technology rights, for a term of fifteen (15) years.  However, in addition to customary termination provisions, M.D. Anderson has the right to terminate the license in any country if the Company fails, within ninety (90) days after receiving written notification from M.D. Anderson, to provide satisfactory evidence that it has commercialized or is attempting to commercialize the licensed invention in such country.

Effective June 28, 2004, Power 3 entered into an exclusive license agreement with the Baylor College of Medicine which grants to the Company an exclusive, worldwide, sublicensable license for serum proteomics methods under certain patent rights for all biomarkers for both diagnostic and therapeutic use in neurodegenerative disease. Under the terms of the agreement, Power 3 paid Baylor an initial license fee and it has the obligation to pay future royalties and additional licensing fees upon the achievement of certain milestones.  The Company is obligated under the license agreement to indemnify Baylor, its faculty members, scientists, researchers, employees, officers, trustees and agents against claims arising from the design, process, manufacture or use of any of the patent rights or licensed products that are developed through the use of the license from Baylor.  Subject to customary termination provisions, the term of the agreement is established on a country-by-country basis and expires on the date of expiration of the last patent rights to expire in that country or the tenth anniversary of the first commercial sale of licensed products in countries where no patents exist in such country. After such expiration the Company will have a perpetual paid in full license in such country.

On August 1, 2004, Power 3 entered into an exclusive license agreement with M.D. Anderson which grants the Company an exclusive, worldwide, sublicensable license to patents and technologies for early detection screening tests, identified protein biomarkers and drug targets for cancer patient’s resistance to drug therapy. The licensed technology was developed through joint collaboration between the Company’s scientific team and M.D. Anderson. Under the terms of the agreement, the Company paid M.D. Anderson an initial license fee and the Company has the obligation to pay further royalties and additional licensing fees upon the achievement of certain milestones.  The license agreement imposes upon the Company an obligation to indemnify the Board of Regents, The University of Texas System, M.D. Anderson, the regents, officers, employees, students, and agents against claims arising on account of any injury or death or damage to property caused by the exercise of the rights granted under the license agreement to the Company, its officers and affiliates.  The term of the license agreement is based on the date of expiration of the last patent rights to expire or, in the case of licensed technology rights, for a term of fifteen (15) years.  However, in addition to customary termination provisions, M.D. Anderson has the right to terminate the license in any country if the Company fails, within ninety (90) days after receiving written notification from M.D. Anderson, to provide satisfactory evidence that it has commercialized or is attempting to commercialize the licensed invention in such country.

On August 31, 2004 the Company entered into a research agreement with Baylor College of Medicine for the purpose of discovering biomarkers in serum and plasma that are of particular utility in the diagnosis and drug targeting for metabolic syndrome and associated disorders including diabetes, cardiovascular disease, hypertension and stroke.  Under the terms of the agreement, Baylor College of Medicine will provide the Company sample materials for use in diagnosis in drug targeting metabolic syndrome and associated diseases including diabetes, cardiovascular disease, hypertension and stroke.  With respect to any inventions developed pursuant to the agreement, the party who develops such invention will retain sole and exclusive rights to such invention.  The other party will have the right to an exclusive license for the invention, which has been

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developed.  Inventions developed jointly by the parties will be jointly owned.  Power 3 does not have any obligations for the payment of fees or royalties pursuant to this agreement.  The agreement has a term ending June 30, 2007 and may be renewed for successive one-year periods.

The Company has entered into a collaborative research agreement with New Horizons Diagnostic effective March 21, 2005 for the development of antibody based diagnostic tests for neurodegenerative disease utilizing the Company’s identified biomarkers.  The research agreement is based on groups of biomarkers whose profiles are relatively sensitive and specific in distinguishing patients with ALS, Alzheimer’s disease and Parkinson’s disease from each other, as well as from normal patients and patients with other neuromuscular and neurological disorders. The purpose of the agreement is to tailor monoclonal and polyclonal antibodies to the biomarkers, which will be incorporated into immunoassays.  Once the assays are available, they will be developed to validate diagnostic tests specifically designed to detect and discriminate among the neurodegenerative diseases.  The research agreement provides that the parties will develop an agreed upon schedule and budget for the work contemplated thereunder within sixty (60) days of the effective date.  The agreement provides that in the event the parties are able to achieve specified goals relating to the development of a diagnostic kit as contemplated by the research agreement, New Horizons would be compensated in any one of the following manners with respect to such diagnostic kit:  (i) a contract to manufacture at least one key component of such diagnostic kit; (ii) royalties on the sale of such diagnostic kit; (iii) the opportunity to form a joint venture with the Company for the commercialization of such diagnostic kit; or (iv) a reasonable percentage of any cash consideration that the Company receives from a third party for such diagnostic kit.  Although the form and amounts of any consideration to be paid have not been agreed upon, the parties have agreed to be reasonable in negotiating such consideration.

On May 24, 2005, the Company entered into a Collaboration Agreement with BioSite Incorporated . The Agreement provides that the Company and Biosite will engage in a collaborative research program in which Biosite will attempt to develop antibodies and diagnostic assays for selected target biomolecules proposed by the Company. The Company and Biosite will then assess the diagnostic and therapeutic potential of these antibodies and diagnostic assays for breast cancer and neurological diseases. If the antibodies and diagnostic assays are found to have diagnostic and/or therapeutic potential, Biosite will develop and commercialize Biosite Products for the detection and/or treatment of breast cancer and/or neurological diseases. Biosite will make milestone payments to the Company, as well as pay royalties on the sale of any Biosite Products containing antibodies to any selected target biomolecule claimed in a patent application or an issued patent.

More specifically, the Agreement provides that the Company shall propose target biomolecules for the collaborative research program; Biosite and the Company shall mutually select certain target biomolecules for immunization (“Program Target”); and Biosite shall use commercially reasonable efforts to develop monoclonal and omniclonal antibodies to the selected target biomolecules that meet the specification set out by the parties (“Program Antibodies”). Upon Biosite’s written request subsequent to the delivery of Program Antibodies to the Company, the Company will provide Biosite with blood-based clinical samples useful in the assessment of the Program Antibodies.

Biosite will use commercially reasonable efforts to generate an ELISA-based assay for each Program Target for which Biosite has generated Program Antibodies. If Biosite successfully develops an ELISA-based assay for any such Program Target, Biosite shall analyze each of the clinical samples provided by Power3 with such assay and shall provide the resulting data to Power3.

Under the terms of the Agreement, Power3 grants to Biosite a worldwide, royalty-bearing license under the Power3 patent rights for the target biomolecules and Power3 know-how rights to develop, make, have made, use, offer for sale, sell and import Biosite Products for use in the detection, prognosis, diagnosis or monitoring of any breast cancer-related disease. This license is exclusive with the right to grant sublicenses for the assay of less than or equal to 100 patient samples per hour. This license is semi-exclusive, with the right for each party to grant one sublicense, for the assay of 100 or more patient samples per hour.

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Under the terms of the Agreement, Power3 grants to Biosite a non-exclusive, worldwide, royalty-bearing license under the Power3 patent rights for the target biomolecules and Power3 know-how rights to develop, make, have made, use, offer for sale, sell and import Biosite Products for use in the detection, prognosis, diagnosis or monitoring of any neurological-related disease. This license includes the right for Biosite to grant one sublicense for each Program Target, provided that the grant of such sublicense will replace Biosite’s own rights under the license.

In consideration for the collection and transfer of samples, Biosite shall pay specified fees to Power3 based on a minimum number of samples delivered to Biosite and per unit fees for samples delivered in excess of the minimum.

Biosite shall pay the Company milestone payments based on certain specified events as follows:

• upon the earlier of (a) the First Commercial Sale by Biosite of a Biosite Product, or the effective date of the first written agreement between Biosite and a Third Party sublicensee for a sublicense,

• upon demonstration, as determined in Biosite’s sole and reasonable discretion, that a panel of antibodies (including one or more antibodies to a Program Target) is suitable for development of a commercial product,

• upon the first submission by Biosite of the first 510(k) (premarket notification) or PMA (pre-market approval application) to the FDA for the first Biosite Product; and

• upon the first FDA approval of the first 510k or PMA submitted by Biosite for the first Biosite Product.

Commencing at the end of the first full calendar year following the date of First Commercial Sale for the first Biosite product, and at the end of each subsequent calendar year during the term of this Agreement, Biosite shall pay the Company specified annual minimum royalties.   During the applicable Royalty Term for a Biosite Product, on a country-by-country basis, Biosite shall pay the Company royalties, with respect to each Biosite Product equal to a specified percentage of Net Sales of each Biosite product in that country.   In addition to the specified royalty payments, to the extent that Biosite reaches certain specified sales targets, then Biosite shall be obligated to make additional payment to the Company.  The Agreement expires upon the expiration of the last to expire applicable Power3 patent right. The agreement may be terminated for cause, by either party or upon written notice by either party following the twenty four month anniversary date of the Agreement, or by Biosite if it is unable to develop and deliver Program antibodies to the to the Program Targets.

Breast Cancer Screening Test

An important factor in surviving cancer is early detection and treatment. According to the American Cancer Society Surveillance Research, when breast cancer is confined to the breast, the five-year survival rate is close to 100%.  Breast cancer is the second leading cause of cancer deaths in women, with over $7 billion spent on breast cancer diagnosis annually.  Due to the limitations of the current diagnostic techniques of mammograms and self-examination, diagnosis of cancer is often missed or inconclusive.  The Company’s proteomic discovery platform covered by pending patent applications and trade secrets for identifying proteins which signal pre-mammography stages of breast cancer has led to what the Company believes to be one of the first tests of its type that may detect breast cancer earlier than current technology allows. These discoveries establish the basis of a very sensitive, non-invasive, early detection breast cancer-screening test.

The Company’s Breast Cancer NAFTest™ analyzes fluids from the breast called nipple aspirates fluid (NAF). Initial success yielded the identification of groups of breast cancer proteins in the aspirates. The procedure utilizes a breast pump to obtain a drop of fluid from the nipple. The aspirate is analyzed to identify specific breast cancer protein footprints.

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Power 3 has completed the initial proof-of concept stage and the Company is currently moving forward with clinical validation studies. In the third quarter of 2004, the Company entered the clinical validation phase for the NAFTest™.  In 2004, the Company received approval from the Women’s Hospital of Texas, Mercy Women’s Center of Oklahoma City, and the New York University Medical Center to begin clinical validation studies for the NAFTest™ for the early detection of breast cancer. These three sites will provide the projected four hundred patient samples needed to establish clinical validation of the NAFTest™. This test will be used to monitor groups of breast cancer related protein biomarkers found in nipple aspirates fluids to provide early diagnosis of breast cancer.

Recently the Company also discovered a group of blood serum biomarkers for breast cancer and is moving forward to develop a blood-based cancer diagnostic test.

Neurodegenerative Screening Test

Early detection of neurodegenerative disease generally results in better patient outcomes. Three diseases of particular interest are Alzheimer’s disease, Parkinson’s disease and ALS.  The Alzheimer’s Association reports that Alzheimer’s disease is the most common form of dementia affecting over 4 million Americans.  People as young as 30 years old can contract the disease and one in ten people age 65 and over have Alzheimer’s disease. In addition, the American Parkinson’s Disease Association reports that more than 1.5 million people in the U.S. have Parkinson’s disease, affecting about 1 in 100 Americans over the age of 60. On a smaller scale, the ALS Association reports that an average of approximately 30,000 Americans are afflicted with ALS, with 5,000 new cases diagnosed annually.

The members of the Company’s scientific team have developed a method for the differential diagnosis of neurodegenerative diseases utilizing blood serum, which was co-developed with neurologist, Dr. Stan Appel, Chairman of Neurology and his team at Baylor College of Medicine in Houston. With this test, which involves monitoring the concentration of differentially expressed proteins, the Company has identified groups of unique markers that appear to distinguish normal patients from those with motor neuron, cognitive, and other neurological disorders.

The Company is continuing its ongoing clinical validation program in collaboration with Baylor College of Medicine.  The initial phase was completed in July 2004 and the latest phase was completed in December 2004.  During this time period, the Company’s database has increased from 183 to over 600 unique samples classified either as normal or being clinically diagnosed with ALS, Alzheimer’s, Parkinson’s, and other related neurological disorders.  During this time, the number of differentially expressed proteins used in the discriminant analysis has increased from 9 to 34.  The ability to differentiate normal from disease has improved using biostatistical analysis on the larger database and an expanded set of biomarkers.  Currently, select panels of biomarkers are being employed for development of blood serum-based tests for four disease diagnostics including neurological diseases of motor control such as Parkinson’s disease, ALS and their like disorders; ALS specific tests for ALS vs. ALS-like disorders; Alzheimer’s disease specific test; and a Parkinson’s disease-specific test.  Pre-IDE applications for the first two have been filed with the U.S. Food and Drug Administration.

Drug Resistance to Chemotherapeutic Agents

By the time a patient’s development of resistance to chemotherapeutic agents is detected, it is often too late to revise treatment or otherwise save the patient.  In 2002, the Company completed an initial “proof of concept,” which addresses drug resistance to a major chemotherapy agent.  Determining that a cancer patient is sensitive or detecting a development of resistance during the early stages of treatment may eliminate toxic effects from the treatment drugs, and the need for trial-and-error treatment regimens. These findings may ultimately provide the pharmaceutical industry with the technology to screen patients, on a molecular level, prior to clinical trials and design new drugs to overcome resistance.

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Strategic Partners Initiative

The Company continues to seek synergistic strategic partners to license and develop its growing portfolio of protein biomarker disease footprints.  The Company’s business plan includes the development of these strategic partnerships which it anticipates will assist in the Company’s evolution over the next several years including the commercialization of its proprietary technologies.

The Company recognizes that the licensing of its proprietary technologies to industry leaders is one of the most expedient approaches to develop the Company’s technology into important diagnostic tools for the detection of diseases.  The Company believes this focused positioning of its products and services will enable the Company to capture clinical and public awareness of its proprietary technologies, and apply a major portion of that technology to the early detection and screening markets.

Competition

The industry in which the Company operates is intensely competitive, and subject to significant change with respect to technology for diagnosis and treatment of disease.  Existing or future biotechnology, biomedical, pharmaceutical and other companies, government entities and universities may create developments that accomplish similar functions to the Company’s technologies in ways that are less expensive, receive faster regulatory approval or receive greater market acceptance than the Company’s potential products.  The Company expects that competition in the biomarker discovery field will be based primarily on each product’s efficacy, stability, timing of entry of the product into the market, cost, and acceptance by health care providers and health care payers.

The Company’s competitors have, in general, been in existence for considerably longer than the Company has, and may have greater capital resources and access to capital; greater internal resources for activities in research and development, clinical testing and trials, production and distribution; and existing collaborative relationships with third parties.

The existing market for biomarker discovery platforms and processes for Alzheimer’s disease alone has been estimated to be in excess of $4 billion in the U.S. based on a study prepared by Frost & Sullivan.  There are several other companies engaged in the research of proteomics and its application to biomarker discovery capabilities.  Some of these companies include:

•Celera Genomics, which is engaged in proteomics, bioinformatics and geonomics to identify and develop drug targets and discover and develop new therapeutics;

•Ciphergen Biosystems, which is active in biomarker discovery assay development and characterization;

•Europroteome, which applies proteomics to human epithelial cancers to identify cancer specific protein expression patterns for clinical applications;

•Matritech, which is a developer of proteomics-based diagnostic products for the early detection of cancer;

•Myriad Genetics, which is focused on the development of therapeutic and diagnostic products using genomic and proteomic technologies; and

•WITA Proteomics, which focuses on the potential role of proteins from specific cellular sources under particular conditions and analysis of the presence of modified proteins and the strategic use of this information for drug development and diagnostic use.

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Sources and Availability of Raw Materials and Names of Principal Suppliers

The Company is, as previously discussed in this section, in the developmental stage and has not commenced commercial production of products for sale.   Therefore the Company does not acquire, purchase, nor use any significant quantities of raw materials whatsoever and consequently has no principal suppliers.

Dependence on One or on a Few Major Customers

The Company is, as discussed in this section, in the developmental stage and has not commenced producing or marketing any products to customers at this stage and has no dependence on one customer or on a few major customers.  The Company does have a limited set of institutions and laboratories that it is currently involved with doing testing and development work, however these associations could change and the Company is not limited to which institutions, hospitals or laboratories it works with in the future.

Research and Development

The Company believes that research and development is an important factor in its future growth and operates a state of the art proteomics laboratory.  The Company has restricted the initiation of new research activities during the latter half of 2004 because of funding limitations and has focused its efforts on commercializing its current inventory of test products.

Patents, Copyrights and Trademarks

The Company is continuing to pursue patent protection for its proprietary technologies with the U.S. Patent and Trademark Office and in foreign jurisdictions.   The Company plans to prosecute, assert and defend its patent rights whenever appropriate.  However, securing patent protection does not necessarily assure the Company of competitive success.

With respect to the Company’s biomarker discovery process, antibody detection system and breast cancer biomarkers, the Company has three(3) provisional patents pending and three(3) utility patents pending.  The Company’s work in breast cancer and drug resistance depends on certain technologies that it has licensed from M.D. Anderson Cancer Center.  As licensor of the technology, M.D. Anderson Cancer Center has filed three(3) utility patent applications on the technology, one of which has issued, and is generally responsible for the prosecution and maintenance of these applications.  Foreign patent applications are anticipated in 2005.

In cooperation with Baylor College of Medicine, the Company has discovered a number of biomarkers for neurodegenerative diseases such as ALS, Alzheimer’s disease, and Parkinson’s disease.  The Company has received a license for the rights in this technology and is responsible for the filing, prosecution and maintenance of all patent applications covering this licensed technology.  To date, the Company has filed ten(10) provisional patent applications for the neurodegenerative biomarkers and assays using these biomarkers and has converted four(4) of those provisional patents into utility applications.

The Company also attempts to protect its proprietary products, processes and other information by relying on trade secret laws and nondisclosure and confidentiality agreements with its employees, consultants and certain other persons who have access to such products, processes and information.  The agreements affirm that all inventions conceived by employees are the exclusive property of the company.  Nevertheless, there can be no assurance that these agreements will afford significant protection against or adequate compensation for misappropriation or unauthorized disclosure of the Company’s trade secrets.

Governmental Regulation

The Food and Drug Administration sets out guidelines for clinical trials which are conducted in order to obtain FDA approval.  Clinical trials are required to find effective treatments to improve health.  All clinical trials are based on a protocol which is a study plan that describes the type of people who may participate in the trial, the schedule of tests and procedures, and the length of the study.

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Most clinical trials in the United States must be approved and monitored by an Institutional Review Board (IRB) to make sure the risks of the trial are as low as possible and are worth any potential benefits.  All institutions that conduct or support biomedical research are required by federal regulation to have an IRB that initially approves and periodically reviews the research.

Upon successful completion of a clinical trial validation study, an application based on the results of the clinical trial is submitted for FDA approval.  Upon receipt of FDA approval, the diagnostic screening test would be ready for commercialization.

In the United States, clearance or approval to commercially distribute new medical devices or products is received from the FDA through clearance of a 510(k) premarket notification, or 510(k), approval of a premarket approval application, or PMA.  It may take from three to nine months from submission to obtain 510(k) clearance, but may take longer or clearance may not be obtained at all.  The FDA may determine that additional information is needed before approval to distribute the product is given.

For any products that are cleared through the 510(k) premarket notification process, modifications or enhancements that could significantly affect safety or constitute a major change in the intended use of the product will require new 510(k) submissions.

A PMA application must be filed if a proposed product is not substantially equivalent to a medical product first marketed prior to May 1976, or if otherwise required by the FDA.  The PMA approval process can be expensive, uncertain and lengthy, and a number of products for which other companies have sought FDA approval of a PMA application have never been approved for marketing.  It generally takes from six to eighteen months from submission to obtain PMA approval, but it may take longer or the submission may not be approved at all.

On May 5, 2005 the Company submitted a pre-IDE application to the FDA in order to obtain the Agency’s guidance regarding: the appropriate regulatory pathway to pursue; the proper approach to refine and/or define its data and statistical analyses; and the study design for the Company’s pending neurodegenerative disease diagnostic blood tests. A submission made under the pre-IDE process is not an official IDE application as described in 21 CFR Part 812. The Pre-IDE process is designed to help companies obtain early, informal input on aspects of a future IDE application and offers assistance in establishing the parameters for official IDE applications when unique diagnostic tests involving innovative technologies are being pursued. The Company met with the Food and Drug Administration on June 1, 2005 regarding its Pre-IDE submission for the first in a series of its NuroPro™ Blood Tests for the early detection and differentiation of neuromuscular diseases, such as ALS and Parkinson’s disease.

In the meeting with the FDA, guidance was offered regarding requirements for study design, patient risk assessment and intended use.  In addition, the FDA concurred with how the Company had approached the biostatistics analysis utilized to interpret the test results.

Based on the FDA’s advice in preliminary discussions, Power3 presented optimized results with an increase in specificity to more than 92% and an increase in Positive Predicted Value to more than 96%.  Now, the Company is proceeding to make preparations for FDA applicable multiple site clinical studies for the NuroPro™ suite of blood serum tests.

The Company is also subject to the regulatory approval and compliance requirements for each foreign country to which it exports products.  In the European Union, a single regulatory approval process has been created, and approval is represented by the CE Mark.

Both before and after a product is commercialized, the Company has ongoing responsibilities under the regulations of the FDA and other agencies.  The Company’s manufacturing facilities and those of its contract manufacturers are, or can be, subject to periodic regulatory inspections by the FDA and other federal and state regulatory agencies, as well as civil penalties, recall or seizure of products, total or partial suspension of

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production, failure of the government to grant premarket clearance approval for products, withdrawal of marketing clearances or approvals, and criminal prosecution.  The FDA has the authority to request recall, repair, replacement or refund of the cost of any product, which the Company manufactures or distributes.  The FDA also administers certain controls over the export of medical devices from the United States.  The Company is also subject to routine inspection and must file periodic reports after the product is approved by the FDA for compliance with quality system requirements, or QSR, and medical device reporting requirements in the United States and other applicable regulations worldwide.  Changes in existing requirements or adoption of new laws or requirements could have a material adverse effect on the Company’s business, financial condition and results of operation.  The Company will incur significant costs to comply with laws and regulations.

The Company is also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances.  The Company may incur significant costs to comply with laws and regulations, or such laws or regulations in the future may have a material adverse effect upon its business, financial condition and results of operations.

Sales and Marketing

The Company currently has no sales or marketing employees, and no immediate plans to hire any personnel devoted to this area.   The Company will make decisions about sales and marketing at a later date, when its products are further along in the development stage.

Manufacturing

The Company does not currently have manufacturing capabilities, but it is exploring opportunities to produce and manufacture the Company’s diagnostic tests through collaborative agreements and strategic alliances.  Exploitation of these opportunities will depend on the availability of further capital, qualified personnel, sufficient production resources and the Company’s ability to establish these relationships with other parties who have existing manufacturing and distribution capabilities.  The Company does not currently have plans to manufacture any products in the near future.  The Company will make decisions about manufacturing at a later date, when its product portfolio is further along in the development stage.

Costs and Effects of Compliance with Environmental Laws (Federal, State or Local)

The Company, as discussed earlier in this section, does not manufacture any products, nor does it purchase, store or ship any products.  Consequently the Company does not have any compliance issues with regard to environmental laws as they relate to commercial operations.

The Company does store and handle certain organic wastes and human tissue samples in its laboratory operations.  The cost of complying with environmental laws which govern our research and development laboratory operations, during 2004, was $ 7,856.

Employees and Consultants

At December 31, 2004, the Company had fifteen (15) full-time employees.  None of the Company’s employees are represented by collective bargaining agreements, and the Company considers its employee relations to be good.  The Company utilizes part-time consultants as well as contract research organizations and other outside specialty firms for various services such as clinical trial support, manufacturing and regulatory approval advice.

Divestiture of Subsidiaries

At December 31, 2004, the Company had one direct subsidiary, Tenthgate, Inc. (“Tenthgate”), a Nevada corporation formerly known as Power 3 Medical, Inc.  Tenthgate is not active in Power3’s current line of business activity.  Prior to the acquisition of substantially all the assets and certain liabilities from Advanced

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BioChem, it was contemplated that Power3 would distribute shares of its subsidiary to its shareholders of record, however the shares of Tenthgate were transferred to a trustee for distribution to the shareholders of Power3 on May 17, 2004, before the Advanced BioChem transaction.  Previous management of Power3 and Tenthgate have been independently operating Tenthgate since the Advanced BioChem transaction.  As a result, Power3 does not now control the operations or activities of Tenthgate.  As a result, Tenthgate’s activities are no longer controlled by, nor are their activities associated with Power3 in any manner whatsoever.  Power3 intends to divest itself of its subsidiary due to the differences in business activity between Tenthgate and Power3 operating under its current business model.  Some of the principal reasons for the divestiture of Tenthgate and its subsidiary are that the disposition of Tenthgate will allow the Company’s management to focus exclusively on its business objectives and permit management of Tenthgate more flexibility in its operations and the disposition will allow the market to separately identify and evaluate each business.  The Company is continuing its efforts to complete the disposition of Tenthgate; however current management of Tenthgate has advised the Company that Tenthgate has issued a significant number of shares of its common stock purportedly reducing the Company’s ownership interest to less than 1%.  The Company believes this stock issuance to be invalid, however the Company does not have access to the records of Tenthgate and is considering its alternatives with respect to these actions.  The Company still desires to complete a divestiture of Tenthgate, and believes the operations are inconsistent with and not material to the current activities of the Company.  As a result, the operations and assets of Tenthgate are not consolidated or otherwise presented herein.

Risk Factors

In addition to the other information contained in this report, the following risks may affect us.  If any of these risks occurs, our business, financial condition or operating results could be adversely affected.

We have a history of operating losses, and we may not achieve or maintain profitability in the future.

We have experienced a net loss of ($19,081,344) for calendar year, 2004. We expect these losses to continue and it is uncertain when, if ever, we will become profitable. These losses have resulted primarily from non-cash, stock-based compensation costs incurred in consulting contracts, stock issued for compensation, research and development activities and from general and administrative costs associated with operations. Stock issued for compensation and for consulting fees has been valued at market price on the effective date of the agreement, per SEC requirement.  We expect to incur increasing operating losses in the future as a result of expenses associated with research and product development as well as general and administrative costs and we have estimated that we will require approximately $3,500,000 to carry out our business plan through the period ending March 31, 2006.  Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

We will need significant additional capital in the future and, if additional capital is not available, we may have to curtail or cease operations.

We have an immediate need for capital to continue our operations, and we will need to raise significant additional funds to implement our business plan.  Our current plans indicate we will need significant additional capital for research and development before we have any anticipated revenue generating products. The actual amount of funds that we will need will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include:

•the extent to which we enter into licensing arrangements, collaborations or joint ventures;

•our progress with research and product development;

•the costs and timing of obtaining new patent rights;

•the extent to which we acquire or license other technologies; and

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•regulatory changes and competition and technological developments in the market.

Our continued operations will therefore depend upon our ability to raise additional funds through additional equity or debt financing.  We may seek additional funding through private sales of our securities, public sales of our securities, strategic alliances or by licensing all or a portion of our technology.  Any such funding may significantly dilute existing shareholders or may limit our rights to our technology.  Moreover, the increase in the number of shares available in the public marketplace may reduce the market price for our common stock and, consequently, the price investors may receive at the time of sale.  When we require additional funds, general market conditions or the then-current market price of our common stock may not support capital raising transactions such as additional public or private offerings of our common stock.  If we are unable to obtain additional funds on a timely basis or on terms favorable to the Company, we may be required to scale back our development of new products, sell or license some or all of our technology or assets, or curtail or cease operations.

We may not be successful in developing or commercializing our products, which would harm the Company and force the Company to curtail or cease operations.

We have only recently commenced our business operations and our technologies are still in the early stages of development. The products we are currently developing may not be successfully developed or commercialized on a timely basis, or at all. If we are unable, for technological or other reasons, to complete the development, introduction or scale up of manufacturing of these products or other potential products, or if our products do not achieve a significant level of market acceptance, we would be forced to curtail or cease operations. Even if we develop our products for commercial use and obtain all necessary regulatory approvals, we may not be able to develop products that:

•are accepted by, and marketed successfully to, the marketplace;

•are safe and effective;

•are protected from competition by others;

•do not infringe the intellectual property rights of others;

•are developed prior to the successful marketing of similar products by competitors; or

•can be manufactured in sufficient quantities or at a reasonable cost.

Many of our research and development programs rely on technology licensed from third parties, and termination of any of those licenses would result in loss of significant rights to develop and market our products, which would impair our business.

We have rights to technology through license agreements with third parties.  We rely upon an exclusive license agreement from Baylor College of Medicine for identification and use of biomarkers for neurodegenerative diseases.  We have two license agreements from The University of Texas M.D. Anderson Cancer Center.  One license agreement from M.D. Anderson grants the Company an exclusive license for identifying specific proteins associated with sensitivity or resistance to kinase inhibitor.  The second license agreement from M.D. Anderson grants the Company an exclusive license to employ proteomic methods for diagnosis and monitoring of breast cancer using nipple aspirate fluid and a non-exclusive license for methods of identifying specific nipple aspirate fluid proteins for diagnosis and monitoring of breast cancer.  Our licenses generally may be terminated by the other party if we fail to perform our obligations, including milestone obligations to conduct a research and development program and develop the licensed products for commercialization. If terminated, we would lose the right to develop the licensed products, which would significantly harm our business. The license agreements include payments contingent upon achieving specified milestones toward commercialization of the licensed products. If disputes arise over the definition of these requirements or whether we have satisfied the requirements in a timely manner, or if any other obligations in the

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license agreement are disputed by the other party, the other party could terminate the agreement and we could lose our rights to develop the licensed technology.

If we are unable to form and maintain the collaborative relationships that our business strategy requires, our ability to develop products and revenue will suffer.

We must form research collaborations and licensing arrangements with several partners to operate our business successfully. To succeed, we will have to further develop our existing relationships and establish additional collaborations. We cannot be sure that we will be able to establish any additional research collaborations or licensing arrangements necessary to develop and commercialize products using our technology or that we can do so on terms favorable to the Company. If our collaborations are not successful or we are not able to manage multiple collaborations successfully, our programs may suffer.

Collaborative agreements generally pose the following risks:

•collaborators may not pursue further development and commercialization of products resulting from collaborations or may elect not to continue or renew research and development programs;

•collaborators may delay clinical trials, under fund a clinical trial program, stop a clinical trial or abandon a product, repeat or conduct new clinical trials or require a new formulation of a product for clinical testing;

•collaborators could independently develop, or develop with third parties, products that could compete with our future products;

•the terms of our agreements with our current or future collaborators may not be favorable to the Company;

•a collaborator with marketing and distribution rights to one or more products may not commit enough resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of a product;

•disputes may arise delaying or terminating the research, development or commercialization of our products, or result in significant litigation or arbitration; and

•collaborations may be terminated and, if terminated, we would experience increased capital requirements if we elected to pursue further development of the product.

In addition, business combinations or alliances among large pharmaceutical companies could result in a reduced number of potential future collaborators. If business combinations involving our collaborators were to occur, the effect could be to diminish, terminate or cause delays in one or more of our product development programs.

Our products are subject to United States, European Union and international medical regulations and controls, which impose substantial financial costs on the Company and which can prevent or delay the introduction of new products.  As a result, we may not obtain required approvals for the commercialization of our products.

Our ability to sell our products is subject to various federal, state and international rules and regulations.  In the United States, we are subject to inspection and market surveillance by the Food and Drug Administration, or FDA, to determine compliance with regulatory requirements.  The regulatory process is costly, lengthy and uncertain.

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Our future performance depends on, among other matters, estimates as to when and at what cost we will receive regulatory approval for our new products.  Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and cost of obtaining approvals difficult to predict.

In the United States, clearance or approval to commercially distribute new medical devices or products is received from the FDA through clearance of a 510(k) premarket notification, or 510(k), approval of a premarket approval application or PMA.  The process to obtain 510(k) clearance is lengthy and there is no assurance clearance will be obtained.

For any products that are cleared through the 510(k) premarket notification process, modifications or enhancements that could significantly affect safety or constitute a major change in the intended use of the product, will require new 510(k) submissions.

A PMA application must be filed if proposed products are not substantially equivalent to a medical product first marketed prior to May 1976, or if otherwise required by the FDA.  The PMA approval process can be expensive, uncertain and lengthy, and a number of products for which other companies have sought FDA approval of a PMA application have never been approved for marketing.

We are also subject to the regulatory approval and compliance requirements for each foreign country to which we export our products.  In the European Union, a single regulatory approval process has been created, and approval is represented by the CE Mark.

Both before and after products are commercialized, we have ongoing responsibilities under the regulations of the FDA and other agencies.  Our manufacturing facilities and those of our contract manufacturers are, or can be, subject to periodic regulatory inspections by the FDA and other federal and state regulatory agencies.  The FDA has the authority to request recall, repair, replace or refund of the cost of any product manufactured or distributed by the Company.  The FDA also administers certain controls over the export of medical devices from the United States.  We are also subject to routine inspection and must file periodic reports after the product is approved by the FDA for compliance with quality system requirements, or QSR, and medical device reporting requirements in the United States and other applicable regulations worldwide.  Changes in existing requirements or adoption of new laws or requirements could have a material adverse effect on our business, financial condition and results of operation.  We will incur significant costs to comply with laws and regulations.

Regulatory agencies have made, and continue to make, changes in their approval and compliance requirements and process.  We cannot predict what, how or when these changes will occur or what effect the changes will have on the regulation of our products.  Any new legislation may impose additional costs or lengthen review times of our products.  We may not be able to obtain necessary worldwide regulatory approvals or clearances for our products on a timely basis, if at all.  Delays in receipts of or failure to receive such approvals or clearances, the loss of previously received approvals or clearances, or failure to comply with existing or future regulatory requirements would have a material adverse effect on our business, financial condition and results of operations.

Because many of our competitors have substantially greater capital resources and more experience in research and development, manufacturing and marketing than we do, we may not succeed in developing our proposed products and bringing them to market in a cost-effective, timely manner.

We expect to compete with a broad range of organizations that are engaged in the development and production of products, services and strategies relating to the diagnosis, prognosis, early detection and development of new drugs in cancer, neurodegenerative and neuromuscular diseases.  They include:

•biotechnology, biomedical, pharmaceutical and other companies;

•academic and scientific institutions;

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•governmental agencies; and

•public and private research organizations.

We are an early stage development company engaged primarily in new product development.  Early in its existence, Power3 was a development stage company, striving to develop products for sale to the surgical industry.  After this stage, Power3 entered the operating company stage selling the products they had developed to hospitals and medical care providers, up until May 17, 2004.  At the time of the May 18, 2004 asset purchase transaction, Power3 changed its business model and entered back into the development stage to commercialize its intellectual properties acquired in the transaction. We have not yet completed the development of our first product and have no revenue from operations. Since the change of our focus, we may have difficulty competing with larger, established biomedical and pharmaceutical companies and organizations. These companies and organizations have much greater financial, technical, research, marketing, sales, distribution, service and other resources than the Company. Moreover, they may offer broader product lines, services and have greater name recognition than we do, and may offer discounts as a competitive tactic.

In addition, several early stage companies are currently developing products that may compete with our potential products.  We anticipate strong competition from several companies that include:

•Medarex, which is a biopharmaceutical company focused on the development of antibody-based therapeutics to treat life threatening and debilitating diseases including cancer and infectious diseases;

•Matritech, which is a developer of proteomics-based diagnostic products for the early detection of cancer;

•Ciphergen Biosystems, which is active in biomarker discovery assay development and characterization;

•Lexicon Genetics, which is using gene knockout technology for a number of therapeutic areas which include neurological disorders and cancer; and

•Cyberonics, which designs, develops, manufactures and markets medical devices for the treatment of Alzheimer’s disease and other chronic disorders.

Our competitive position depends on protection of our intellectual property.

Our success will depend on our ability to obtain and protect patents on our technology and to protect our trade secrets. The patents we currently license, and any future patents we may obtain or license, may not afford meaningful protection for our technology and products. Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or unenforceable.  In addition, our current and future patent applications may not result in the issuance of patents in the United States or foreign countries. Competitors may develop products similar to ours that conflict with our patent applications and any patents we ultimately receive. In order to protect or enforce our patent rights, we may initiate interference proceedings, oppositions, or patent litigation against third parties, such as infringement suits. These lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. The patent position of biotechnology firms generally is highly uncertain, involves complex legal and factual questions, and has recently been the subject of much litigation. No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree of protection afforded under biotechnology patents. In addition, there is a substantial backlog of biotechnology patent applications at the U.S. Patent and Trademark Office, and the approval or rejection of patent applications may take several years.

We also rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. Third parties may independently develop such know-how or otherwise obtain access to our technology. While our employees, consultants and corporate partners with access to proprietary information

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generally will be required to enter into confidentiality agreements, we cannot guarantee that these agreements will provide the Company with adequate protection against improper use or disclosure of confidential information. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisors have prior employment or consulting relationships. Further, others may gain access to our trade secrets or independently develop substantially equivalent proprietary information and techniques.

Our products could infringe on the intellectual property rights of others.

Third parties may challenge the patents that have been issued or licensed to the Company. We may have to pay substantial damages, possibly including treble damages, for past infringement if it is ultimately determined that our products infringe a third party’s patents. Further, we may be prohibited from selling our products before we obtain a license, which, if available at all, may require the Company to pay substantial royalties. Even if infringement claims against the Company are without merit, defending a lawsuit takes significant time, may be expensive and may divert management attention from other business concerns.

We depend on our key scientific and management personnel to develop our products and pursue collaborations.

Our performance is substantially dependent on the performance of our current senior management, board of directors and key scientific and technical personnel and advisers. The loss of the services of any member of our senior management, board of directors, scientific or technical staff or scientific advisory board may significantly delay or prevent the achievement of product development and other business objectives and could have a material adverse effect on our business, operating results and financial condition.

Recruiting and retaining qualified scientific personnel to perform research and development work are critical to our success. There is intense competition for qualified scientists and managerial personnel from numerous pharmaceutical, biomedical and biotechnology companies, as well as from academic and government organizations, research institutions and other entities. In addition, we may face particular difficulties because there is a limited number of scientists specializing in proteomics and its use for the discovery of diseases, the principal focus of our company. We expect to rely on consultants and advisors, including our scientific and clinical advisors, to assist the Company in formulating our research and development strategy. Any of those consultants or advisors could be employed by other employers, or be self-employed, and might have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to the Company. Such other employment, consulting or advisory relationships could place our trade secrets at risk, even if we require non-disclosure agreements.

Our lack of operating experience may cause the Company difficulty in managing our growth.

We have no experience in manufacturing or procuring products in commercial quantities, conducting other later-stage phases of the regulatory approval process or selling our products, and we have only limited experience in negotiating, establishing and maintaining strategic relationships. We have no experience with respect to the launch of a commercial product. Our ability to manage our growth, if any, will require the Company to improve and expand our management and our operational and financial systems and controls. If our management is unable to manage growth effectively, our business and financial condition would be materially harmed. In addition, if rapid growth occurs, it may strain our operational, managerial and financial resources.

We have no commercial production capability and we may encounter production problems or delays, which could result in lower revenue.

To date, we have not produced any product in commercial quantities. Customers for any potential products and regulatory agencies will require that we comply with current good manufacturing practices prescribed by the FDA that we may not be able to meet.  We have established and are in the process of establishing agreements with contract manufacturers to supply sufficient quantities of our products to conduct clinical trials as well as for the manufacture, packaging, labeling and distribution of finished products if our

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potential products are approved for commercialization.  If such arrangements are terminated and if we are unable to manufacture or contract for a sufficient supply of our potential products on acceptable terms, our clinical testing schedule may be delayed, resulting in the delay of submission of products for regulatory approval and initiation of new development programs.  If we determine to manufacture products ourselves, we may not be able to maintain acceptable quality standards if we ramp up production. To achieve anticipated customer demand levels, we will need to scale-up our production capability and maintain adequate levels of inventory. We may not be able to produce sufficient quantities to meet market demand. If we cannot achieve the required level and quality of production, we may need to outsource production or rely on licensing and other arrangements with third parties. This reliance could reduce our gross margins and expose the Company to the risks inherent in relying on others. We may not be able to successfully outsource our production or enter into licensing or other arrangements under acceptable terms with these third parties, which could adversely affect our business.

We have no marketing or sales staff, and if we are unable to develop sales and marketing capability, we may not be successful in commercializing our products.

We currently have no sales, marketing or distribution capability. As a result, we will depend on collaborations or agreements with third parties that have established distribution systems and direct sales forces. To the extent that we enter into co-promotion or other licensing arrangements, our revenues will depend upon the efforts of third parties, over which we may have little or no control.

If we are unable to reach and maintain agreement with one or more pharmaceutical, biomedical or biotechnology companies or other potential collaborators under acceptable terms, we may be required to market our products directly. We may elect to establish our own specialized sales force and marketing organization to market our products.  If we are unable to develop a marketing and sales force with technical expertise and with supporting distribution capability, we may not be able to successfully commercialize our products.

Our business is subject to technological obsolescence.

Proteomics, biotechnology and related pharmaceutical technology have undergone and are subject to rapid and significant change. We expect that the technologies associated with proteomics, biotechnology research and development will continue to develop rapidly. Our future will depend in large part on our ability to maintain a competitive position with respect to these technologies. Any processes, discovery platforms or products that we develop may become obsolete before we recover any expenses incurred in connection with developing these products.

We face intense competition in the proteomics, biotechnology and pharmaceutical industries.

The proteomics, biotechnology and pharmaceutical industries are intensely competitive. We have numerous competitors in the United States and elsewhere. Our competitors include major multinational pharmaceutical, biomedical and biotechnology companies, specialized firms and universities and other research institutions. Many of these competitors have greater financial and other resources, larger research and development staffs and more effective marketing and manufacturing organizations, than we do. In addition, academic and government institutions have become increasingly aware of the commercial value of their research findings. These institutions are now more likely to enter into exclusive licensing agreements with commercial enterprises, including our competitors, to market commercial products. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and established biotechnology companies. Many of these competitors have significant products that have been approved or are in development and operate large, well-funded research and development programs.

Our competitors may succeed in developing or licensing technologies and products that are more effective or less costly than any we are developing. Our competitors may succeed in obtaining FDA or other regulatory approvals for product candidates before we do.  Products resulting from our research and development efforts, if approved for sale, may not compete successfully with our competitors’ existing products or products under development.

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We face potential difficulties in obtaining product liability and related insurance.  If we are subject to product liability claims and have not obtained adequate insurance to protect against these claims, our financial condition would suffer.

We do not have product liability or other professional liability insurance. In the future, we may, in the ordinary course of business, be subject to substantial claims by, and liability to, persons alleging injury from the use of our products.  If we are successful in having products approved by the FDA, the sale of such products would expose the Company to additional potential product liability and other claims resulting from their use. This liability may result from claims made directly by consumers or by others selling such products. We do not currently have any product liability or professional liability insurance, and it is possible that we will not be able to obtain or maintain such insurance on acceptable terms or that any insurance obtained will provide adequate coverage against potential liabilities. Our inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or limit the commercialization of any products we develop. A successful product liability claim in excess of any insurance coverage we may procure could exceed our net worth. While we desire to reduce our risk by obtaining indemnity undertakings with respect to such claims from licensees and distributors of our products, we may not be able to obtain such undertakings and, even if we do, they may not be sufficient to limit our exposure to claims.

If we are subject to claims relating to improper handling, storage or disposal of the hazardous materials we use in our business, our financial condition would suffer.

Our research and development processes involve the controlled storage, use and disposal of hazardous materials including biological hazardous materials. We are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Although we believe that our safety procedures for handling and disposing of these hazardous materials comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result. We currently do not have insurance which covers any such accident and may not be able to maintain insurance on acceptable terms, or at all. We could be required to incur significant costs to comply with current or future environmental laws and regulations.

Health care cost containment initiatives may limit our returns.

Our ability to commercialize our products successfully will be affected by the ongoing efforts of governmental and third-party payers to contain or reduce the cost of health care. Governmental and other third-party payers increasingly are attempting to contain health care costs by:

•challenging the prices charged for health care products and services;

•limiting both coverage and the amount of reimbursement for new therapeutic products;

•denying or limiting coverage for products that are approved by the FDA but are considered experimental or investigational by third-party payors; and

•refusing in some cases to provide coverage when an approved product is used for disease indications in a way that has not received FDA marketing approval.

In addition, the trend toward managed health care in the United States, the growth of organizations such as health maintenance organizations, and legislative proposals to reform healthcare and government insurance programs could significantly influence the purchase of healthcare services and products, resulting in lower prices and reducing demand for our products.

Even if we succeed in bringing any products to the market, they may not be considered cost-effective and third-party reimbursement might not be available or sufficient. If adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our

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investment in research and product development. In addition, legislation and regulations affecting the pricing of diagnostic services and testing may change in ways adverse to the Company before or after any of our proposed products are approved for marketing. While we cannot predict whether any such legislative or regulatory changes will be adopted, the adoption of such changes could make it difficult or impossible to sell our products.

Stock prices for biomedical and biotechnology companies are volatile.

The market price for securities of biomedical and biotechnology companies historically has been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. Fluctuations in the trading price or liquidity of our common stock may adversely affect our ability to raise capital through future equity financings.

Factors that may have a significant impact on the market price and marketability of our common stock include:

•announcements of technological innovations or new commercial therapeutic products by the Company, our collaborative partners or our present or potential competitors;

•announcements by the Company or others of results of validation studies and clinical trials;

•developments or disputes concerning patent or other proprietary rights;

•adverse legislation, including changes in governmental regulation and the status of our regulatory approvals or applications;

•changes in health care policies and practices; and

•economic and other external factors, including general market conditions.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. If a securities class action suit is filed against the Company, we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business in order to respond to the litigation.

The resale in the open market of the shares we have issued, or shares issuable upon conversion or exercise of securities we have issued, in exempt transactions might adversely affect our stock price.

As of August 15, 2005, 65,345,121 shares of our common stock were outstanding.  We also intend to register, pursuant to a Registration Statement on Form SB-2 to be filed after we file this 10-KSB, approximately 13,600,000 shares issuable upon outstanding convertible debentures and warrants.  In addition to the shares included in the registration statement, the investors have additional investment rights to purchase additional convertible debentures in the aggregate principal amount of $2,500,000.  These additional convertible debentures are convertible into 2,314,815 shares of common stock, subject to adjustment.  The investors will be permitted to sell the shares covered by the registration statement in the open market from time to time without advance notice to the Company or to the market and without limitations on volume.  The sale of a substantial number of shares of our common stock by the investors, or the anticipation of such sales, could make it more difficult for the Company to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.  In addition to the shares listed in this prospectus, approximately 15,000,000 shares of common stock issued to Advanced Bio/Chem in our acquisition of substantially all of its assets may become available for resale.  Sales of shares pursuant to other exercisable options and warrants we have issued could also lead to subsequent sales of the shares in the public market. These sales could depress the market price of our stock by creating an excess in supply of shares for sale. Availability of these shares for sale in the public market could also impair our ability to raise capital by selling equity securities.

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Our stock is thinly traded, which could lead to price volatility and difficulty liquidating your investment.

The trading volume of our stock has been low, which can cause the trading price of our stock to change substantially in response to relatively small orders. During the quarter ended December 31, 2004, the average daily trading volume of our stock was approximately 215,000 shares and the shares traded as low as $0.67 and as high as $2.23 per share. Both volume and price could also be subject to wide fluctuations in response to various factors, many of which are beyond our control, including:

•actual or anticipated variations in quarterly and annual operating results;

•announcements of technological innovations by the Company or our competitors;

•developments or disputes concerning patent or proprietary rights; and

•general market perception of biotechnology and pharmaceutical companies.

Because our stock currently trades below $5.00 per share, and is traded on the Pink Sheets,  our stock is considered by the SEC a “penny stock,” which can adversely affect its liquidity.

Our common stock does not currently qualify for listing on the Nasdaq Stock Market or the OTCBB.. If the trading price of our common stock remains less than $5.00 per share, our common stock is considered a “penny stock,” and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, brokers or dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker or dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction.

SEC regulations also require additional disclosure in connection with any trades involving a penny stock, including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements could severely limit the liquidity of such securities in the secondary market because few brokers or dealers are likely to undertake these compliance activities. In addition to the applicability of the penny stock rules, another risk associated with trading in penny stocks may be high price fluctuations. Purchasers of stock may be subject to substantial dilution.

As stated in “Market Information”, during 2005, upon the Company’s failure to timely file its Form 10-KSB, the OTCBB appended the symbol “E” to the Company’s trading symbol and notified the Company of its jeopardy of having its securities no longer quoted on the OTCBB, pending the Company’s filing of its Form 10-KSB for 2004.  On June 14, 2005, the Company was notified of the OTCBB’s action to not allow the Company’s securities to be quoted on the OTCBB, as of June 16, 2005, pending the filing of the Company’s Form 10-KSB for 2004.  Accordingly, at time of this filing, all quotations of the Company’s securities are deleted from the OTCBB.

If the ownership of our common stock continues to be highly concentrated, it may prevent you from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.

As of March 24, 2005, our executive officers, directors and their affiliates beneficially own or control approximately 41% of the outstanding shares of our common stock (after giving effect to the exercise of all options and warrants held by them which are exercisable within sixty days of such date).  Additionally, based upon our stock records, Advanced Bio/Chem is the record owner of approximately 23% of the outstanding shares of our common stock as ofMarch 24, 2005.  Accordingly, our current executive officers, directors and their affiliates, as well as Advanced Bio/Chem, will have substantial control over the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions.  These shareholders may also

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delay or prevent a change of control of the Company, even if such a change of control would benefit our other shareholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

The terms of our convertible debentures have materially modified the rights of common shareholders, and the holders of preferred stock may be able to delay or prevent a change of control of the company.

We are authorized to issue up to 50,000,000 shares of preferred stock in one or more series.  Our board of directors will be able to determine the terms of preferred stock without further action by our shareholders. If we issue preferred stock, it could affect your rights or reduce the value of your common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with or sell our assets to a third party. These terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions.

Under the terms of our convertible debentures, we are prohibited from taking certain actions without the approval of the holders of a two-thirds majority of the then-outstanding principal amount of the debentures.  Specifically, we have agreed not to, and not to permit our subsidiary to, so long as any portion of the debentures are outstanding, (1) amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the holders of the debentures (with exception for the Series B preferred stock to be issued by the Company), or (2) repurchase more than a de minimis number of shares of its common stock or other equity securities other than as to the shares of common stock issuable upon conversion of the debentures described above.

We are contractually obligated to issue shares of a Series B preferred stock to our two directors and principal officers.  The Series B preferred stock will have special voting rights such that the holders of the Series B preferred stock will hold a majority of the voting rights of the company.

We previously entered into employment agreements with our two directors and executive officers in which we agreed to issue 1,500,000 shares of Series B preferred stock to each officer.  The shares were intended to be issued following the Advanced Bio/Chem transaction; however, we did not file the certificate of amendment necessary to designate powers and relative rights of the Series B preferred stock.  As a result of certain restrictions agreed to by the Company in connection with the sale of our convertible debentures, we are not permitted to issue common shares or common share equivalents such as the Series B preferred stock until 90 days after the effective date of the registration statement.  After such restrictions lapse, we intend to designate and issue the Series B preferred stock.  It is contemplated that the Series B preferred stock will have special voting rights such that the holders of the Series B preferred stock will hold a majority of the voting rights of the company.  Upon issuance of the Series B preferred stock, our current executive officers and directors may restrict our ability to merge with, or sell our assets to, a third party.

We do not anticipate paying dividends on our common stock.

We do not plan to pay dividends on our common stock for the foreseeable future. We currently intend to retain future earnings, if any, to finance operations, capital expenditures and the expansion of our business.

Item 2. Description of Property

The Company does not own any real estate.  The Company conducts its operations from leased premises of approximately 7,200 square feet in The Woodlands, Texas.

At this facility the Company maintains its executive offices and conducts development and product prototyping activities.   The Company expects this space will be adequate for its needs for the remainder of the lease term.

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Item 3. Legal Proceedings

In November 2004, Chapman Spira & Carson, LLC (“Chapman Spira”), an investment banking firm, filed a lawsuit in the Supreme Court of the State of New York for the County of New York against Advanced BioChem (the Predecessor), Power3 and Steven Rash.  The suit alleges that Advanced BioChem and Power3 are liable to Chapman Spira for damages allegedly resulting from the breach of a letter agreement between Chapman Spira and Advanced BioChem relating to the performance of strategic and investment banking services.  The suit further alleges that Mr. Rash made false statements regarding the performance of services by Chapman Spira.  Chapman Spira is seeking damages in the amount of $1,522,000 plus interest.  The Company has filed an answer in the lawsuit.  The Company believes that Chapman Spira’s claims are without merit; however, the Company cannot be assured it will prevail or if the outcome of the action will adversely affect the Company’s business, financial position or results of operations.  Inquiries to resolve this matter have been undertaken by the attorneys representing each party in this matter, but no resolution has been achieved thus far.

An equipment vendor filed a complaint, regarding equipment which the Company acquired in its May 18, 2004 transaction with Advanced BioChem, against Advanced BioChem in April of 2002 in a California court alleging breach of contract and seeking damages.  Advanced BioChem reached a settlement agreement in April of 2003 under which Advanced BioChem would pay the vendor $40,000 in installments through August, 2003.  At December 31, 2003, Advanced BioChem had a balance remaining of $20,000.   In April, 2005, the equipment vendor filed a lawsuit against Advanced BioChem, certain former officers of Advanced BioChem and against Power3 in order to enforce its claim for the remaining balance which is past due and may be assumed by the Company as part of the settlement of the dispute with Advanced BioChem.

On May 17, 2005, the Law Offices of Jerry Scheff filed suit against the Company seeking recovery of fees billed to Power3 for legal fees invoiced in November, 2004.  The Company believes that it is not liable for the specific dollar amounts claimed in the lawsuit, however the dollar amounts are included in the accounts payable section of the Company’s balance sheet.  The Company cannot be assured it will prevail or if the outcome of this action will adversely affect the Company’s financial position or results of operations.

In June, 2005, Charles Caudle et al filed a lawsuit in Harris County, Texas, against Advanced BioChem, Power3 and the officers and directors of both companies.  The suit alleges that Advanced BioChem, Power3 and the officers and directors of Power3, are liable to Charles Caudle et al for damages resulting from funds loaned to Advanced BioChem and which were subsequently converted into common stock of Advanced BioChem.  It is unclear as to the specific dollar amount of the claim.  The Company, and its officers and directors, has filed an answer denying all claims in the lawsuit.  The Company believes that Charles Caudle et al’s claims are without merit, however the Company cannot be assured it will prevail or if the outcome of the action will adversely affect the Company’s financial position or results of operations.

On June 27, 2005, the Company received a subpoena for documents regarding the SEC’s Division of Enforcement investigation In The Matter of Maui General Store, Inc.  It is the Company’s understanding that the Maui General Store matter relates to a promotional scheme by certain individuals to promote the stock and stock price of certain companies, during 2004.  The Company provided all documents in its possession pursuant to the subpoena and complied fully with the subpoena on July 11, 2005.  The Company has received no further correspondence from the Enforcement Division of the SEC.  The Company has not been notified that it is a subject of this investigation.

On August 8, 2005, Advanced BioChem filed suit against Power3, Steven B. Rash and Ira Goldknopf claiming damages of at least $3,000,000 including the costs of litigation and of addressing the claims of the creditors of Advanced BioChem that remain unpaid.  Advanced BioChem has, in its public reports, announced their assertion that the parties to the law suit are responsible for all of the liabilities of Advanced BioChem, at the date of the asset purchase transaction on May 18, 2004.   The terms of the Asset Purchase Agreement are not clear and are subject to different interpretations.  While the Company believes that it has properly interpreted the provisions of the Agreement, fulfilled its obligations thereunder and reflected the terms of the transaction in its financial statements and previous filings, the Company had previously had discussions and negotiations with Advanced BioChem in an effort to resolve this disagreement and the alleged liabilities.  Recently as a result of

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Advanced BioChem’s refusal to further negotiate to settle the question, management has reviewed the liabilities in question and has determined that Power3 is not liable for any of the aforementioned liabilities and these liabilities have not been included in the financial statements of the Company because the fair value of these contingent liabilities cannot be reasonably estimated at this time.  Power3 intends to file an answer denying all claims in the lawsuit.  Power3 believes that Advanced BioChem’s claims are without merit, however the Company cannot be assured it will prevail or if the outcome of the action will adversely affect the Company’s financial position or results of operations.

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

There were no matters submitted to the vote of the security holders during the fourth quarter 2004.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Market Information

During 2004, the Company’s common stock was traded on the OTC Bulletin Board under the symbol “PWRM.”  The high and low bid information for each quarter for the years ending December 31, 2003 and 2004, as reported by National Quotation Bureau, Inc., are as follows:

Quarter	Pre or Post Split Price(1)	High Bid		Low Bid
First Quarter 2004	Post-Split	$	0.87	$	0.15
Second Quarter 2004	Post-Split	$	2.87	$	0.28
Third Quarter 2004	Post-Split	$	7.79	$	1.70
Fourth Quarter 2004	Post-Split	$	2.23	$	0.67
First Quarter 2003	Pre-Split	$	0.02	$	0.01
Second Quarter 2003	Pre-Split	$	0.01	$	0.005
Third Quarter 2003	Pre-Split	$	0.01	$	0.005
Fourth Quarter 2003	Pre-Split	$	0.75	$	0.05

(1)On September 24, 2003, the Company effected a 1-for-50 reverse stock split of its common stock.

The quotations above reflect inter-dealer prices, without adjustment for retail mark-up, markdown or commissions and may not reflect actual transactions.

During 2005, upon the Company’s failure to timely file its Form 10-KSB, the OTCBB appended the symbol “E” to the Company’s trading symbol and notified the Company of its jeopardy of having its securities no longer quoted on the OTCBB, pending the Company’s filing of its Form 10-KSB for 2004.

On June 14, the Company was notified of the OTCBB’s action to not allow the Company’s securities to be quoted on the OTCBB, as of June 16, 2005, pending the filing of the Company’s Form 10-KSB for 2004.  Accordingly, the Company’s securities are no longer eligible for quotation on the OTCBB, as of June 16, 2005, and all quotations of the Company’s securities are deleted from the OTCBB.

Holders

As of March 24, 2005, there were 1,117 shareholders of record of the Company’s common stock.  The transfer agent for the Company’s common stock was Cottonwood Stock Transfer, through June 30, 2005.  In early July, 2005, the management and Board of Directors of Power3 terminated its relationship with

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Cottonwood Stock Transfer and contractually agreed to employ Integrity Stock Transfer as its new stock transfer agent.

Dividends

The Company has not paid or declared any dividends on its common stock for the last two fiscal years and does not anticipate paying cash dividends in the foreseeable future. There are no limitations on the ability of the Company to declare dividends; except those set forth in § 510 of theNew York Business Corporation Laws which prohibits dividends if the Company is insolvent or would be made insolvent by the declaration of a dividend and all dividends must be made out of surplus only.

Recent Sales of Unregistered Securities

The following summarizes information relating to the Company’s sale of equity securities that were not registered under the Securities Act of 1933 during the period covered by this annual report and which have not been previously disclosed by the Company in a Quarterly Report on Form 10-QSB or a Current Report on Form 8-K.

During the second quarter of 2004, the Company was informed that certain liabilities of the Company were settled for an aggregate of $70,000. An affiliate of former executive officers of the Company provided information to the Company that the previous management of the Company had agreed to issue shares of its common stock for such debt settlement.  However, after numerous requests for documentation of such agreement, the Company has not been provided with documentation.  Because the entity that provided the funds has not produced any documentation relative to this transaction and the liabilities themselves are in dispute, the liability for this alleged obligation has been removed from the balance sheet of the Company.  The outcome of this matter cannot be determined at this time, but is not considered by the Company to have a material effect on the financial statements.  If stock is issued at a later date, the shares will be issued in reliance on Section 4(2) of the Securities Act of 1933 as a transaction not involving a public offering on the basis of the limited number of persons that participated in the transaction, the lack of general solicitation and advertising, the sophistication of the investor, the information available to such investor and the restriction of the shares to be issued, from resale, by the investor.

On October 17, 2004, the Company reached agreement with Alan B. Hollingsworth, M. D. by which Dr. Hollingsworth would join the Company’s Scientific Advisory Board. Under the terms of the agreement, Dr. Hollingsworth will receive 10,000 shares of common stock for each year served, fees for attendance at each Scientific Advisory Board Meeting and warrants to purchase 50,000 shares of common stock of the Company.   Dr. Hollingsworth was issued 10,000 shares of common stock and a warrant to purchase 50,000 shares of the Company’s common stock in October 2004 in reliance on Section 4(2) of the Securities Act of 1933 as a transaction not involving a public offering on the basis of the limited number of persons that participated in the transaction, the lack of general solicitation and advertising, the sophistication of the investor, the information available to such investor and the restriction of the shares to be issued from resale by the investor.

On November 17, 2004, the Company issued an aggregate of 3,000,324 shares of common stock upon conversion of 3,870,000 outstanding shares of the Company’s Series A preferred stock.  These shares of common stock were issued in reliance upon exemptions from registration pursuant to Section 4(2) of the Securities Act of 1933 as a transaction not involving a public offering on the basis of the limited number of persons that participated in the transaction and the existing relationship between the Company and the holders of the Series A preferred stock.

Item 6. Management’s Discussion and Analysis or Plan of Operation

Overview

The Company is an early stage development company engaged in the early detection, monitoring, and targeting of diseases through the analysis of proteins.  As previously stated, prior to the date of the asset

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purchase transaction on May 18, 2004, the Company was an operating company.  After the acquisition, the Company significantly changed its business activity from being an operating company to a development stage company and returned to being a development stage company with its focus on commercializing the intellectual properties it acquired in the asset purchase transaction.  The Company’s business objective is to focus on disease diagnosis, protein and biomarkers identification, and drug resistance in the areas of cancers, neurodegenerative and neuromuscular diseases.  The Company has established a scientific advisory board to assist in the research and development of its products. The members of the scientific advisory board are recognized leaders in their chosen fields, and the Company is working with them in the development of effective early diagnosis and drug targets for early treatment of cancers, neurodegenerative and neuromuscular diseases.

Prior to the Company’s acquisition of substantially all the assets of Advanced Bio/Chem on May 18, 2004, the Company was primarily engaged in the production and distribution of surgical safety devices through the operations of its subsidiary, Power 3 Medical, Inc.  On May 18, 2004, the Company completed its acquisition of a set of assets from Advanced Bio/Chem.  The Company acquired substantially all the assets and intellectual properties of Advanced Bio/Chem and assumed certain liabilities in exchange for the issuance of 15,000,000 shares of the Company’s common stock. After May 18, 2004 the Company established the new business direction described in the “Business of Issuer” section of this document.

After the May 18, 2004, transaction , the Company completely changed its business activity and became an advanced proteomics company applying existing certain proprietary methodologies to discover and identify protein biomarkers associated with diseases.  The Company currently has no products or services for sale and is principally focused on research and development activities and, to a certain extent, initiating the “proof of concept” of its technologies.

The Company has had significant losses during 2004.   The Company anticipates that it will continue to incur substantial operating losses in future years as it progresses in its research and development activities as well as the commercializing of its technologies.  The Company does not expect to produce revenues from operations in the near term and expects that its revenues will be limited to research grants, collaboration agreements, and other strategic alliances which the Company is able to obtain.  The Company has an immediate need for capital to continue its current operations.  Assuming the Company successfully closes the final stage of its private placement, the Company anticipates that it will need to raise additional capital prior to October 2005 to meet its operating costs.  At December 31, 2004, the Company had an accumulated deficit of approximately $45,280,000. The following discussion should be read in conjunction with the Company’s audited financial statements as of December 31, 2004 and for the years ended December 31, 2004 and 2003, including the notes to those financial statements.  The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs.  Actual results could differ materially from those discussed in the forward-looking statements.  See “Item 1. Description of Business – Risk Factors” for additional discussion of these factors and risks.

Results of Operations

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

Revenues from operations for the year ended December 31, 2004 were $15,491 compared to $45,874 for the prior year, resulting in a decrease of $30,383.

Cost of Goods Sold for the year ended December 31, 2004 were $5,174, compared to $21,273 for the prior year, resulting in a decrease of $16,099.

Operating expenses were $19,674,890 for 2004 as compared to $2,253,657 for 2003, an increase of $17,421,233. The increase in operating expenses was primarily attributable to the increase in stock based compensation expense due to the issuance of shares of common stock and preferred stock rights to management and other employees as well as consultants and advisors.  Professional and consulting fees were $9,650,302 in 2004.    These fees increased substantially primarily due to the issuance of common shares, valued at market price on the effective date of the agreement, to consulting companies and individuals.   The total amount of non-cash,

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stock-based compensation issued during 2004, to both consultants and employees, is approximately $35,600,000, of which approximately $17,486,982 was amortized during 2004.

Employee compensation and benefits were $938,195 primarily due to employee compensation increases and costs associated with hiring additional employees to handle SEC compliance measures.

Occupancy and equipment expenses were $49,895 in 2004.  This resulted primarily from the Company’s office lease and utilities during 2004.

The above matters result in net loss increasing from $1,845,496 in 2003 to $19,081,344 in 2004.

Liquidity and Capital Resources

The Company has financed its operations primarily through the net proceeds generated from the sale of common stock and the recent sale of convertible debentures.  From the date of the Advanced Bio/Chem transaction to December 31, 2004, the Company raised approximately $1,000,000.  Then in January, 2005, the Company raised an additional $400,000 from a limited set of the original convertible debenture holders.  As described in “Recent Financing” below, the Company intends to sell an additional $1,600,000 in aggregate principal amount of convertible debentures following the effectiveness of the Registration Statement on Form SB-2 filed by the Company for the resale of certain shares of the Company’s stock by the purchasers of the Company’s convertible debentures.  The Company expects to use a portion of the proceeds from the sale and issuance of the remaining $1,600,000 aggregate principal amount of debentures to pay the $251,000 principal balance owing under the promissory note dated April 5, 2005 which is payable on the sooner of August 15, 2005 or one business day following the sale and issuance of such debentures.   This note is past due.

The Company’s liquidity and capital needs relate primarily to working capital, development and other general corporate requirements.  The Company has not received any cash from operations.  Under the terms of the license agreement with M.D. Anderson which the Company acquired from Advanced Bio/Chem, the Company is required to pay a nonrefundable license documentation fee of $40,000, payable in two installments.  The first $20,000 installment was previously paid following the execution of the license agreement and the second installment was paid in February 2005.  A similar license documentation fee is payable under the terms of the license agreement the Company entered into with M.D. Anderson and the Company will be obligated to pay the second installment of $20,000 in August of 2005.  The Company anticipates its sale and issuance of the remaining $1,600,000 in aggregate principal amount of convertible debentures, after repayment of the bridge note of $251,000 immediately following the sale and issuance of such debentures, will provide adequate cash to satisfy this obligation to M.D. Anderson and to allow the Company to meet its funding requirements through the third quarter of 2005.  In the event the sale and issuance of such debentures occurs and the investors exercise their warrants and additional investment rights, the Company anticipates it will have adequate cash to meet its funding requirements through the first quarter of 2007.

Net cash used in operating activities approximated ($946,293) for the year ended December 31, 2004, compared to ($170,499) for the year ended December 31, 2003.  The increase in net cash used in operating activities during 2004 was primarily due to increased payroll and laboratory costs during 2004.

Net cash used in investing activities during 2004 was ($331,061) as compared to $-0- in 2003.  Net cash provided by financing activities approximated $1,435,588 for the year ended December 31, 2004, as compared to $171,000 for the year ended December 31, 2003.  The increase in net cash provided by financing activities is primarily due to net proceeds received from the initial closing of the Company’s October 2004 private offering described below and the issuance of certain notes payable during 2004. In addition, cash proceeds from the sales of stock increased from $100,000 for the year ended December 31, 2003 to $449,807 for the year ended December 31, 2004.

As of December 31, 2004, the Company’s principal source of liquidity was approximately $158,782 in cash.  As of the date of filing this report, the Company only has funds on hand to pay operating expenses for the next three months.  We also have no confirmed source of funds for the next twelve months, although we expect

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that after filing this report and our SB-2 registration statement, additional debt and equity capital will become available to the Company.

In addition, pursuant to the recent financing described below, it is anticipated that the Company will receive an additional $1,600,000 upon the sale and issuance of $1,600,000 in aggregate principal amount of debentures at the final closing of the private placement, which is to occur on or before the fifth trading day after the effective date of the registration statement filed by the Company for the resale of securities by the investors.  In addition, the Company has received several bridge loans and officer advances during 2005.  It is expected that a portion of the proceeds received by the Company from the issuance and sale of the $1,600,000 aggregate principal amount of debentures will be used to repay certain bridge loans received after December 31, 2004, which are payable the sooner of August 15, 2005 or one business day after the sale and issuance of such debentures.  The Company has thus far, been unable to complete the funding of the convertible debentures, described below in “Recent Financing” due to its failure to timely file this 10-KSB for 2004.

Recent Financing

The Company entered into a securities purchase agreement, dated as of October 28, 2004, with certain investors.  Pursuant to the securities purchase agreement, the investors agreed to purchase from the Company convertible debentures due three (3) years from the date of issuance in the aggregate principal amount of $3,000,000.  Effective January 19, 2005, the Company entered into an amendment to the securities purchase agreement with each of the investors.  The securities purchase agreement, as amended, also provides for the issuance to the investors of warrants to purchase shares of the Company’s common stock and additional investment rights to purchase additional convertible debentures. In connection with the securities purchase agreement, the Company entered into a registration rights agreement which requires the Company to file a registration statement registering on behalf of the investors the resale of the shares of common stock issuable upon conversion of the debentures and the exercise of the warrants.  The Company will also file a registration statement registering on behalf of the investors the resale of shares of common stock issuable upon conversion of the debentures issued upon exercise of the additional investment rights previously issued by the Company.

Effective October 28, 2004, the Company issued and sold to the investors the first $1,000,000 in aggregate principal amount of such debentures at the initial closing under the securities purchase agreement.  Pursuant to the securities purchase agreement, as amended, effective January 26, 2005 the Company issued and sold to certain investors $400,000 aggregate principal amount of convertible debentures.  Subject to the Company’s satisfaction of the conditions set forth in the securities purchase agreement (which includes the effectiveness of the registration statement) the investors are required to purchase the remaining $1,600,000 in aggregate principal amount of such debentures at the final closing, which is to occur on or before the fifth trading day after the effective date of the registration statement.

The $1,000,000 aggregate principal amount of debentures issued on October 28, 2004 and the $400,000 aggregate principal amount of debentures issued January 26, 2005 are due and payable in full three (3) years after issuance and do not bear interest. The $1,600,000 aggregate principal amount of debentures issuable at the final closing will be due and payable in full three (3) years after the date of their issuance, and will not bear interest. The aggregate cash purchase price for the debentures will be $3,000,000, which is equal to the full face amount of the debentures. At any time from the closing date until the maturity date of the debentures, the purchasers have the right to convert the debentures, in whole or in part, into common stock at the then effective conversion price. The conversion price for the previously issued $1,400,000 aggregate principal amount of debentures is $0.90 but is subject to adjustment if either (1) 75% of the average of the daily volume weighted average price of the Company’s common stock for the five (5) consecutive trading days preceding the date that the registration statement is declared effective by the SEC or (2) the daily volume weighted average price of the common stock on such date is less than $0.90 per share. In such event, the conversion price will be adjusted down to equal the lower of (1) the 75% average of the daily volume weighted average price of the common stock for the five (5) consecutive days preceding the effective date of the registration statement or (2) the daily volume weighted average price of the common stock on the effective date of the registration statement. The $1,600,000 aggregate principal amount of debentures issuable at the final closing will have a conversion price equal to the lesser of (1) $0.90, (2) the 75% average of the daily volume weighted average price of the common

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stock for the five (5) consecutive days preceding the effective date of the registration statement of which this prospectus forms a part, or (3) the daily volume weighted average price of the common stock on the effective date of the registration statement. The conversion price shall be subject to adjustment under circumstances set forth in the debentures.

The debentures contain covenants that will limit the Company’s ability to, among other things: incur or guarantee additional indebtedness; incur or create liens; amend the Company’s certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the holders of the debentures; and repay or repurchase more than a de minimis number of shares of common stock other than as permitted in the debentures and other documents executed with the purchasers.

The debentures include customary default provisions and an event of default includes, among other things, a change of control of the Company, the sale of all or substantially all of the Company’s assets, the failure to have the registration statement declared effective on or before the 180th day after the initial closing date, and the lapse of the effectiveness of the registration statement for more than 30 consecutive trading days during any 12-month period (with certain exceptions), the Company’s failure to timely deliver certificates to holders upon conversion and a default by the Company in any obligations under any indebtedness of at least $150,000 which results in such indebtedness being accelerated. Upon the occurrence of an event of default, each debenture may become immediately due and payable, either automatically or by declaration of the holder of such debenture. The aggregate amount payable upon an acceleration by reason of an event of default shall be equal to the greater of 130% of the principal amount of the debentures to be prepaid or the principal amount of the debentures to be prepaid, divided by the conversion price on the date specified in the debenture, multiplied by the closing price on the date set forth in the debenture.

Concurrent with the issuance of the initial $1,000,000 aggregate principal amount of debentures dated October 28, 2004, the purchasers also received warrants to purchase an aggregate of up to 2,500,000 shares of common stock and additional investment rights to purchase up to an additional $2,500,000 principal amount of convertible debentures.  Pursuant to the terms of the amendment to the securities purchase agreement, concurrent with the issuance of the $400,000 aggregate principal amount of convertible debentures, the Company issued additional warrants to purchase an aggregate of up to 333,333 shares of its common stock.  The warrants are exercisable at a price of $1.44 per share (subject to adjustment), for a period of five (5) years from October 28, 2004. The additional investment rights are exercisable at a price equal to the principal amount of the debentures to be purchased, for (1) a period of nine months following the effective date of the registration statement, or (2) April 28, 2006. The debentures to be purchased upon the exercise of the additional investment rights will have the same terms as the debentures described above, except that the conversion price will be equal to $1.08 (subject to adjustment).

Each selling shareholder has contractually agreed to restrict its ability to convert the debentures, exercise the warrants and additional investment rights and receive shares of the Company’s common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such conversion or exercise.

In accordance with the provisions of Emerging Issues Task Force Issue 98-5 (“EITF 98-5”), a discount for the entire face amount of the convertible debentures was recorded on the date of the first closing to allocate value to the embedded beneficial conversion feature and the 2,500,000 warrants.  Since there is no assurance that the Company will receive the funds due at the time of the final closing and/or through the exercise of additional investment rights, no effect has been given to any value that may result from the issuance of additional convertible debentures, either through the remaining $1,600,000 or from exercise of additional investment rights associated with the original or subsequent convertible debenture purchases.

On April 5, 2005, the Company received a bridge loan in the amount of $251,000.  This bridge loan is due and payable on the sooner of August 15, 2005 or one business day following the closing of the Company’s sale and issuance of the $1,600,000 aggregate principal amount of debentures.  The Company expects to use proceeds from the sale and issuance of such debentures to repay such bridge loan.  The bridge loan bears interest

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at a rate of 10% per annum which, at the holder’s option, may be paid in (a) cash, or (b) that number of shares of the Company’s common stock determined by dividing $251,000 by the common stock price on date of payment and multiplying the quotient so obtained by 20%.  The payee of this Note Payable has agreed to allow the Company an extension of time to repay such bridge loan.

On May 31, 2005, the Company received an Officer Advance in the amount of $ 55,000.   This advance is in the form of a short-term Note Payable, to the Officer, Mr. Steven Rash, President and CEO, by the Company.  The Note Payable was originally due on June 30, 2005, and bears interest at 6 % per annum until paid.  The Company expects to use the proceeds from this note as working capital.  The Company expects to use the proceeds from later permanent financing obtained from issuing additional debentures to repay this Officer Advance.  The Officer has agreed to allow the Company an extension of time to repay this Note Payable.

On June 3, 2005, the Company received an Officer Advance in the amount of $ 50,000.  This advance is in the form of a short-term Note Payable, to the Officer, Dr. Ira Goldknopf, Chief Scientific Officer, by the Company.  The Note Payable is due on June 30, 2005, and bears interest at 6% per annum until paid.  The Company used the proceeds from this note as working capital.  The Company expects to use the proceeds from later permanent financing obtained from issuing additional debentures to repay this Officer Advance.   The Officer has agreed to allow the Company an extension of time to repay this Note Payable.

On June 13, 2005, the Company received a bridge loan in the amount of $ 396,500.   This bridge loan is due and payable on the sooner of August 11, 2005 or the fifth day following the effective date of the Company’s registration statement on Form SB-2.  The Company expects to use the proceeds from the sale and issuance of the remaining $1,600,000 of convertible debentures to repay the loan.  The note is secured by a Stock Pledge Agreement, entered into on June 17, 2005, by Steven B. Rash, Chairman and CEO of Power3, wherein Mr. Rash pledged 6,000,000 shares of common stock as security for the performance of the Company under the note.  The payee of this Note Payable has agreed to allow the Company an extension of time to repay such bridge loan.

Plan of Operations and Cash Requirements

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

Absent a source of revenues, the Company will require funding in order to carry out its business plan until such time as it is able to generate sustained revenues.  The Company’s current cash requirements are approximately $250,000 per month and the Company anticipates that it will require approximately $3,500,000 for the twelve months ended March 31, 2006 to continue its development activities, undertake and perform clinical validation studies, continue its marketing efforts and maintain its administrative infrastructure, broken down as follows:

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Estimated Expenditures Required
During Next Twelve Months

General and Administrative	$	2,550,000
Capital Expenditures	$	400,000
Patent filings and intellectual property	$	200,000
NAF clinical validation studies	$	350,000
Total	$	3,500,000

The Company has no significant capital expenditure requirements and does not plan to increase its monthly expenditure rate absent an increase in revenues or additional funding.

As noted in “Liquidity and Capital Resources” above, the Company entered into a securities purchase agreement and an amendment to the securities purchase agreement pursuant to which certain investors agreed to purchase convertible debentures in the aggregate principal amount of $3,000,000. The securities purchase agreement, as amended, also provides for the issuance of warrants to purchase shares of the Company’s common stock and additional investment rights to purchase additional convertible debentures. On the initial closing under the securities purchase agreement, which occurred effective as of October 28, 2004, the investors purchased the first $1,000,000 in aggregate principal amount of the convertible debentures of which the Company received approximately $860,000 after payment of fees and expenses.  Pursuant to the securities purchase agreement, as amended, certain investors have purchased an additional $400,000 aggregate principal amount of convertible debentures on January 26, 2005.  Subject to the Company’s satisfaction of the conditions set forth in the securities purchase agreement (which includes the effectiveness of the registration statement), the investors are required to purchase the remaining $1,600,000 in aggregate principal amount of such convertible debentures on or before the fifth trading day after the effective date of the registration statement.  Assuming the completion of the remaining closing and sale and issuance of the remaining $1,600,000 in aggregate principal amount of the convertible debentures, the Company estimates that, after repayment of the bridge note of $396,500 and the bridge note of $251,500, immediately following the sale and issuance of such debentures, the Company will have adequate cash to allow it to meet its funding requirements through the third quarter of 2005.  In the event the sale and issuance of such debentures occurs and the investors exercise their warrants and additional investment rights, the Company anticipates it will have adequate cash to meet its funding requirements through the first quarter of 2007.

In addition to the convertible debentures, the Company also issued warrants to purchase up to 2,500,000 shares of common stock, with an exercise price equal to $1.44.  The Company issued additional warrants to purchase up to 333,333 shares of common stock concurrent with its issuance of the $400,000 aggregate principal amount of debentures.  Full exercise of the warrants would generate funds in excess of $4,000,000.  The Company also issued additional investment rights, which give the investors the right to purchase up to an aggregate of $2,500,000 of convertible debentures with a conversion price of $1.08. However, the exercise of these warrants and additional investment rights is at the discretion of the purchasers and there are no assurances that the purchasers will exercise their rights under such securities.

The Company will continue to require additional debt or equity financing for its operations which may not be readily available.  The Company’s ability to continue as a going concern is subject to its ability to generate a profit or obtain necessary funding from outside sources.  Management believes that even though the Company currently has limited cash resources and liquidity, assuming exercise of the warrants and additional investment rights, the net funds available from the final closing under the Securities Purchase Agreement financing, after repayment of the bridge loans,will allow the Company to continue operations through October 2005.  In the event the final closing and sale of $1,600,000 in aggregate principal amount of debentures occurs

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but the warrants and additional investment rights are not exercised, the Company anticipates that it will need to raise additional capital prior to October 2005 to meet its operating costs.  The Company’s actual results may differ materially from these estimates, and no assurance can be given that additional funding will not be required sooner than anticipated or that such additional funding will be available when needed or on terms acceptable to the Company.  Insufficient funding will require the Company to curtail or terminate operations.

Off-Balance Sheet Arrangements

At December 31, 2004, with the exception of the lease for its operating facility, and employment agreements entered with its three principal officers, the Company did not have any significant off balance sheet commitments.

Critical Accounting Policies

Stock-Based Compensation

The Company accounts for equity instruments issued to employees that are fully vested and non-forfeitable based on the market value of the stock issued as of the effective date of the agreement, per SEC requirement.  Equity instruments issued to non-employees for services are also measured at market value on the effective date of the agreement.

The Company has adopted Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure” (SFAS No. 148). This statement amends FASB statement No. 123, “Accounting for Stock Based Compensation”. It provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for employee stock based compensation. It also amends the disclosure provision of FASB statement No. 123 to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. As permitted by SFAS No. 123 and amended by SFAS No. 148, the Company continues to apply the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for its stock-based employee compensation arrangements.

In December 2004, the Financial Accounting Standards Board issued Statement Number 123 (“FAS 123 (R)”), Share-Based Payments.  FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments such as stock options granted to employees.  The Company will be required to apply FAS 123 (R) on a modified prospective method.  Under this method, the Company will be required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption.  In addition, the Company may elect to adopt FAS 123 (R) by restating previously issued financial statements, basing the amounts on the expense previously calculated and reported in the pro forma disclosures that had been required by FAS 123, effective for the first reporting period during which the Company has such compensation.  The Company has not yet determined the impact that FAS 123 (R) will have on its financial statements; however, it does not believe the impact of adopting this Statement is material to this report as there are no unvested options and warrants at December 31, 2004.

Accounting for Convertible Securities

The Company accounts for the embedded beneficial conversion feature of the convertible debentures and the 2,500,000 warrants in accordance with the provisions of EITF 98-5.  In accordance with EITF 98-5, a discount for the appropriate portion of the face amount of the convertible debentures was recorded on the date of the first closing to allocate value to the embedded beneficial conversion feature and the 2,500,000 warrants.  Since there is no assurance that the Company will receive the funds due at the time of the final closing and/or through the exercise of additional investment rights, no effect has been given to any value that may result from the issuance of securities in the accompanying financial statements.

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Item 7.  Financial Statements

POWER3 MEDICAL PRODUCTS, INC.

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF POWER 3 MEDICAL PRODUCTS, INC.:

We have audited the accompanying balance sheet of Power 3 Medical Products, Inc.. (a New York corporation in the development stage) (“the Company”) as of December 31, 2004, and the related statements of operations, changes in stockholders’ equity and cash flows for the year ended December 31, 2004, and for the period from May 18, 2004 (date of entry into development stage) to December 31, 2004.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Power 3 Medical Products, Inc. as December 31, 2003 were audited by other auditors whose report dated April 13, 2004 expressed a modification based on the uncertainty that the company would continue as a going concern.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Power 3 Medical Products, Inc.at December 31, 2004, and the related results of their operations and cash flows for the year ended December 31, 2004 and for the period from May 18, 2004 (date of entry into development stage) to December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the development stage and is primarily involved in research and development and capital raising activities.  There is no assurance that research activities that the Company is involved in will generate sufficient funds that will be available for operations. The Company’s limited revenue history, its dependence on a narrow customer base and limited funding raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in note 7 to the financial statements, the Company is the defendant in certain lawsuits and is involved in a dispute with Advanced Biochem.   The Company believes these claims are without merit and intends to resolve them in the best interest of the Company.   Accordingly no provision for any liabilities related to the matters has been accrued.   However, due to the uncertainties with these legal issues, it is at least reasonably possible that adverse results will occur, although any such amount cannot be estimated.

John A. Braden & Company, PC

Houston, Texas

September 2, 2005

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INDEPENDENT AUDITORS’ REPORT

Letterhead of Kingery, Crouse & Hohl, P.A.

(now known as Kingery & Crouse, P.A.)

To the Shareholders and Board of Directors of Power 3 Medical Products, Inc. and subsidiaries:

We have audited the accompanying consolidated statements of operations, stockholders’ deficit and cash flows of Power 3 Medical Products, Inc. and subsidiaries (the “Company”) for the year ended December 31, 2003.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

The consolidated financial statements referred to above were prepared assuming that the Company would continue as a going concern.  As discussed in Note 2 to such consolidated financial statements, the Company has suffered recurring losses from operations, has working capital and stockholders’

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deficits at December 31, 2003 and will require a significant amount of capital and/or debt financing to proceed with its business plan. These factors, among others, raised substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters were also discussed in Note 2. The consolidated financial statements did not include any adjustments that might have resulted from the outcome of this uncertainty.

	/s/ Kingery, Crouse & Hohl, P.A. (now known as Kingery & Crouse, P.A.)
April 13, 2004
Tampa, FL

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BALANCE SHEET

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

BALANCE SHEET

AS OF DECEMBER 31, 2004

	2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents	158,782
Accounts Receivable	2,350
Prepaid expenses and other current assets	4,352
Total Current Assets	165,484
FIXED ASSETS
Furniture, Fixtures and Equipment	85,025
(Net of accumulated depreciation of $45,024)
Fixed Intangible Assets (patents and agreements)	146,799
Total Fixed Assets	231,824
OTHER ASSETS
Debt Issuance Cost (net of amortization of $8,888)	131,102
Deposits	25,900
Total Other Assets	157,002
TOTAL ASSETS	554,310
LIABILITIES AND STOCKHOLDER’S DEFICIT
CURRENT LIABILITIES
Accounts Payable and accrued liabilities	631,560
Note Payable	20,000
Other Current Liabilities	132,481
Total Current Liabilities	784,041
LONG TERM LIABILITIES
Convertible Debentures	1,000,000
Accrued Interest on Issued Debentures	(944,444	)
TOTAL LIABILITIES	839,597
STOCKHOLDER’S DEFICIT
Common Stock-$0.001 par value:150,000,000 shares authorized; 65,345,121 shares issued and outstanding	65,345
Additional Paid-In Capital	63,231,428
Deferred Compensation	(18,301,588	)
Deficit accumulated before entering development stage	(11,681,500	)
Deficit accumulated during the development stage	(33,598,972	)
Total Stockholder’s Deficit	(285,287	)
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT	554,310

SEE NOTES TO THE FINANCIAL STATEMENTS.

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STATEMENT OF OPERATIONS

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENT OF OPERATIONS

JANUARY 1, 2004 TO DECEMBER 31, 2004

	2004		2003		Development Stage Results May 18, 2004 - December 31, 2004
REVENUES:
Sales	11,491		45,874		4,000
Other Revenue	4,000
Total Revenue	15,491		45,874		4,000
COST OF GOODS SOLD:
Production costs	5,174		21,273
Total Production costs	5,174		21,273
GROSS PROFIT	10,317		24,601		4,000
OPERATING EXPENSES:
Stock based compensation- common stock	8,215,241				8,215,241
Stock based compensation-preferred stock			1,695,000
Employee compensation and benefits	938,195				831,915
Professional and consulting fees	9,650,302				7,485,436
Occupancy and equipment	49,895				44,895
Travel and entertainment	72,375				66,623
Other selling, general and administrative expenses	748,882		558,657		150,238
Total Operating Expenses	19,674,890		2,253,657		16,794,348
LOSS FROM OPERATIONS	(19,664,573	)	(2,229,056	)	(16,790,348	)
OTHER INCOME AND EXPENSE:
Interest Income	1,215				1,215
Other Income	641,854		402,709
Interest Expense	(59,840	)	(19,149	)	(57,088	)
Total Other Income(Expense)	583,229		383,560		(55,873	)
NET LOSS	(19,081,344	)	(1,845,496	)	(16,846,221	)
NET LOSS PER SHARE	(0.45	)	(1.81	)	(0.27	)
Weighted average number of shares outstanding	42,034,796		1,017,000		62,724,534

SEE NOTES TO THE FINANCIAL STATEMENTS.

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STATEMENT OF STOCKHOLDER’S DEFICIT

POWER3 MEDICAL PRODUCTS, INC.

A Development Stage Enterprise

STATEMENT OF STOCKHOLDERS’ DEFICIT

For Year Ended December 31, 2004

									Additional		Deferred		Common
	Common Stock				Preferred Stock				Paid In		Compensation		Stock		Deemed
	# of Shares		Par Value		# of Shares		Par Value		Capital		Expense		Subscribed		Distribution		Deficit
BALANCES, DECEMBER 31, 2002	997,830		997						6,315,951								(7,600,881	)
Issuance of preferred stock for cash and conversion of accred payroll					3,990,000		3,990		1,991,010
Issuance of common stock for services rendered	100,000		100						37,400
Conversion of convertible notes payable to common stock	95,000		95						27,405
Conversion of other note payable to common stock	50,000		50						12,450
Common stock subscriptions									89,700				300
Conversion of preferred stock	1,200,000		1,200		(120,000	)	(120	)	(1,080	)
Net Loss for the year																	(1,845,496	)
BALANCES, DECEMBER 31, 2003	2,442,830		2,442		3,870,000		3,870		8,472,836				300				(9,446,377	)
Correct beginning balance per transfer agent	433		1
Issued effective January 23, 2004, services	6,000,000		6,000						3,055,327
Issued effective April 1, 2004 for cash	583,334		583						134,417
Issued effective April 27,2004 for services	440,000		440						197,560
Issued effective May 10, 2004 to retire debt	300,000		300						194,700				(300	)
Issued effective May 11, 2004 for services	4,500,000		4,500						2,065,500
Issued effective May 17, 2004 for services	141,033		141						105,634
Issued effective May 18, 2004 compensation	27,805,000		27,805						24,996,695		(25,024,500	)
Issued effective May 18, 2004 for services	4,550,000		4,550						4,090,450
Issued effective May 18, 2004 for acquisition	15,000,000		15,000						13,485,000						(13,371,776	)
Issued effective June 1, 2004 for services	125,000		125						249,875		(250,000	)
Issued effective June 11, 2004 for services	100,000		100						211,900
Record stock option expense									626,100		(626,100	)
Issued effective July 1, 2004 compensation	140,000		140						426,860		(427,000	)
Issued effective July 23, 2004 for services	125,000		125						284,875		(285,000	)
Issued November 10, 2004 for cash	242,167		242						314,575
Issued November 10, 2004 for services	10,000		10						12,990
Cancelled November 15, 2004 (agreement)	(160,000	)	(160	)					(71,840	)
Issued November 17, 2004 to convert Series A Preferred Shares to Common Shares	1,031,316		1,031		(1,331,280	)	(1,330	)	1,391,246						(1,392,277	)
Issued November 23, 2004 to convert Series A Preferred Shares to common shares	1,969,008		1,970		(2,538,720	)	(2,540	)	1,986,728						(1,988,698	)
Record discount on convertible debentures									1,000,000
Net Loss for the year																	(19,081,344	)
Stock based compensation expensed during the year											8,311,012
BALANCES, DECEMBER 31,2004	65,345,121		65,345		0		0		63,231,428		(18,301,588	)	0		(16,752,751	)	(28,527,721	)

Additional Information:

Deficit accumulated during development stage	(16,846,221	)	(16,846,221	)
Deficit accumulated prior to the development stage			(11,681,500	)
Deemed Distribution	(16,752,751	)
Totals	(33,598,972	)	(28,527,721	)

SEE NOTES TO THE FINANCIAL STATEMENTS.

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STATEMENT OF CASH FLOWS

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENT OF CASH FLOWS

JANUARY 1, 2004 TO DECEMBER 31, 2004

	Year ended December 31,
	2004			2003			Cumulative during Development Stage (May 18, 2004 to December 31, 2004
Operating Activities:
Net loss	$	(19,081,344	)	$	(1,845,496	)	$	(16,846,221	)
Adjustments to reconcile net loss to net cash used in operating activities
Stock based services and compensation	17,932,787			1,722,500			15,155,488
Stock issued to retire preferred stock and debt	4,236						4,236
Gain on reversal of liabilities				(413,218		)
Depreciation and amortization	227,461						227,461
Decrease (increase) in receivables	9,006			(11,356		)	(2,350		)
Decrease (increase) in deposits	(25,900		)				(25,900		)
Decrease (increase) in prepaids	(4,352		)				(4,352		)
Increase (decrease) in interest payable
Increase (decrease) in accounts payable and accrued liabilities	(8,187		)	377,071			543,297
Net cash used in operating activities	(946,293		)	(170,499		)	(948,341		)
Investing Activities:
Capital expenditures, net	(331,061		)				(331,061		)
Increase in other assets	—
Net cash used in investing activities	(331,061		)				(331,061		)
Financing Activities:
Proceeds from sale of common stock, net	449,807						449,807
Proceeds from issuance of preferred stock				100,000
Proceeds from borrowings under notes payable				30,000
Repayment of related party notes payable				(39,000		)
Payments on other notes payable				(10,000		)
Proceeds from stock subscriptions				90,000
Proceeds from long term debt, net of issuance costs	985,781			—			985,781
Net cash provided by financing activities	1,435,588			171,000			1,435,588
Net increase in cash and cash equivalents	158,234			501			156,186
Cash and cash equivalents, beginning of period	548			47			2,596
Cash and cash equivalents, end of period	$	158,782		$	548		$	158,782

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	Year ended December 31,
	2004		2003		Cumulative during Development Stage (May 18, 2004 to December 31, 2004
Cash paid for:
Interest	$	59,840	$	6,400	$	59,840
Income taxes	—		—		—
Non-cash transactions:
Conversion of convertible notes payable and accrued interest to common stock	$		$	27,500	$
Conversion of accrued payroll to preferred stock			200,000
Conversion of stockholder advances to notes payable			34,500
Conversion of notes payable to equity			12,500		—
Conversion of preferred stock to common stock	—		9,000
Conversion of other liabilities to stockholder advances			5,000
Exchange of convertible preferred stock for common stock 3,000,324 shares	3,380,975				3,380,975
Common stock issued for services (At market, date of effective agreement):	—
For consulting contracts 15,831,466 shares	10,156,775				10,156,775
For asset acquisition 15,000,000 shares	13,500,000				13,500,000
For compensation contracts 27,945,000 shares	25,451,500				25,451,500
Issuance of warrants in connection with services	—
Issuance of warrants in connection with convertible debentures			—
Asset retirement obligation	—
Retirement of common stock	—		—

SEE NOTES TO THE FINANCIAL STATEMENTS

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POWER3 MEDICAL PRODUCTS, INC

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

Item 1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION

Power 3 Medical Products, Inc. (the “Company” or “Power 3”) was incorporated in the State of Florida on May 15, 1992 and merged into a New York Corporation in 1994, under the name Sheffield Acres, Inc..  Power3 and its wholly owned subsidiaries, C5 Health, Inc. (C5), which was officially dissolved in the State of Delaware and the State of Florida effective December 31, 2003 and Power3 Medical, Inc., a Nevada Corporation, now known as Tenthgate, Inc., were engaged in product development, sales, distribution and services for the healthcare industry.   On September 12, 2003, Surgical Safety Products, Inc. amended its Certificate of Incorporation to (a) declare a 1:50 reverse split of its common stock; (b) increase its authorized capital to 150,000,000 shares of common stock and 50,000,000 shares of preferred stock; and (c) change its name to Power3 Medical Products, Inc.  All references to the number of shares in the accompanying financial statements and notes thereto have been adjusted to reflect the stock split as if it occurred on January 1, 2004.

At December 31, 2004, the Company had one former direct subsidiary, Tenthgate, Inc. (“Tenthgate”).  Tenthgate is not active in Power3’s current line of business activity.  Prior to the acquisition of substantially all the assets and certain liabilities from Advanced BioChem, it was contemplated that Power3 would distribute shares of its subsidiary to its shareholders of record, however the shares of Tenthgate were transferred to a trustee for distribution to the shareholders of Power3 on May 17, 2004, before the Advanced BioChem transaction.  Previous management of Power3 and Tenthgate have been independently operating Tenthgate since the Advanced BioChem transaction.  As a result, Power3 does not now control the operations or activities of Tenthgate and Tenthgate activities are no longer controlled by, nor are their activities associated with Power3 in any manner whatsoever.  Power3 intends to divest itself of its subsidiary due to the differences in business activity between Tenthgate and Power3 operating under its current business model.  Some of the principal reasons for the divestiture of Tenthgate and its subsidiary are that the disposition of Tenthgate will allow the Company’s management to focus exclusively on its business objectives and permit management of Tenthgate more flexibility in its operations and the disposition will allow the market to separately identify and evaluate each business.  The Company is continuing its efforts to complete the disposition of Tenthgate; however current management of Tenthgate has advised the Company that Tenthgate has issued a significant number of shares of its common stock purportedly reducing the Company’s ownership interest to less than 1%.  The Company believes this stock issuance to be invalid, however the Company does not have access to the records of Tenthgate and is considering its alternatives with respect to these actions.  The Company still desires to complete a divestiture of Tenthgate, and believes the operations are inconsistent with and not material to the current activities of the Company.  As a result, the operations and assets of Tenthgate are not consolidated or otherwise presented herein.

In 2003, the Company was an operating company, marketing devices to aid surgical procedures. Prior to May 18, 2004, the products had received only minor market acceptance and sales had slowed to the point that Power3 was searching for other products and markets to increase its presence in the healthcare industry.  In early 2004, Power3 became aware of a biotech company that appeared to have a set of assets and intellectual properties that it required to more effectively pursue its business model.  That company, named Advanced BioChem, doing business as ProteEx, provided contract-for-fee lab services analyzing protein biomarkers. At the conclusion of negotiations with Advanced BioChem, Power3 entered into an Asset Purchase Agreement dated May 18, 2004, whereby it purchased substantially all the assets and intellectual properties of Advanced BioChem, and assumed certain liabilities, as scheduled in the agreement, from Advanced BioChem.   After the transaction, certain employees from Advanced BioChem became employees of Power3 and were later issued Employment

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Agreements by Power3.  As consideration in the Asset Purchase Agreement, Power3 issued 15,000,000 shares of common stock to Advanced BioChem.

Power3 Medical Products, Inc. did not continue the business activity of Advanced BioChem and never conducted any contract-for-fee lab service work whatsoever.  Subsequent to the asset purchase, the business model of Power3 was significantly changed, the Company entered into the development stage and began to commercialize the intellectual property it acquired in the transaction, with its focus in the early detection, monitoring and targeting of diseases through the analysis of proteins.  Power3’s new developmental stage objective, and activity, is to develop its intellectual properties by focusing on disease diagnosis, protein and biomarker identification and early detection indicators in the areas of cancers, neurodegenerative and neuromuscular diseases, as well as other scientific areas of interest associated with protein biomarkers.

After the asset purchase transaction on May 18, 2004, the previous management of Power3 resigned and left the employ of the Company.  Subsequent to these resignations, two employees of Advanced BioChem were granted employment agreements by Power3.  These two employees were Steven B. Rash as President and CEO and Dr. Ira Goldknopf as Chief Scientific Officer.

2.RESTATEMENT OF UNAUDITED FINANCIAL INFORMATION

On May 18, 2004, Power3 executed the Asset Purchase Agreement (“the Agreement”) referred to above, to purchase substantially all the assets of Advanced BioChem and assume certain liabilities in exchange for the issuance of 15,000,000 shares of common stock of Power3.  For financial statement purposes, the transaction was treated, at the time, as a recapitalization of the equity structure of Power3 and therefore, the accumulated deficit of Power3 was eliminated, no stock-based expenses were recorded as a result of this transaction, and the assets and liabilities of Power3 and Advanced BioChem were combined, based on the accounting treatment as recapitalization, in a reverse acquisition.   Subsequent to the filing of Form 10-QSB for the quarter ended March 31, 2005, during its interim revue, Power3 determined that the purchase of assets and the acquisition of certain liabilities of Advanced BioChem, which occurred on May 18, 2004, is properly accounted for as a purchase transaction, in a related party transaction.  In addition, management determined that, due to the specific nature of the transaction and because Power3 did not continue the business activity of Advanced BioChem whatsoever, Advanced BioChem cannot be considered a predecessor.  In addition, because the asset acquisition by Power3 was a purchase of equipment and intellectual property from an entity that continued its existence and its previous business activity after the purchase transaction, rather than being merged into Power 3, and because the combination did not contain other elements of an equity merger of the two companies, the Company determined that the facts of the transaction had been misapplied and that purchase accounting is the more appropriate accounting treatment and Advanced BioChem would not be presented as a predecessor.  This accounting treatment represents a restatement of the transaction referenced above, which was previously characterized as a recapitalization of Power3, as in a reverse acquisition.  The Balance Sheet, Statement of Operations and the Statement of Cash Flow shown in Part I, Item 1, display the financial statements of the Company consistent with the restatement of the asset acquisition as purchase accounting.

The effect of the restatement on the balance sheet of Power3 Medical Products, Inc., besides eliminating the financial condition of Advanced BioChem as the predecessor for the period of January 1, 2004 through May 17, 2004, is to restore Power3’s previously existing deficit in Retained Earnings, recognize the stock-based compensation expenses associated with the transaction and reclassify certain items within the Stockholder’s Deficit section of the Company’s balance sheet.

The effect of the restatement on the statement of operations of Power3 is primarily to increase the stock-based compensation expenses associated with the May 18, 2004 transaction and recognize the difference in the historical cost of the assets acquired and the liabilities assumed in the transaction.

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On August 10, 2005, the Company issued an 8-K reporting non-reliance on previously issued financial statements for the quarter ended June 30, 2004, September 30, 2004 and March 30, 2005, which had been previously presented under the previous accounting treatment.

Since Power3’s planned principal operations have not yet commenced, it was and is considered to be in the developmental stage, as of May 18, 2004, as defined in Financial Accounting Standards Board Statement No. 7.  Accordingly, some of the Company’s accounting policies and procedures have not yet been established.  The Company has been in its current developmental stage since its acquisition of its set of intellectual properties on May 18, 2004.

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Investments

The accompanying 2003 financial statements include the accounts of Power3 and its subsidiaries.  As described in Item 1, the Company’s former subsidiary, now known as Tenthgate, Inc., is not consolidated in 2004, since the Company has distributed the stock to a trustee for distribution to the shareholders, and the Company does not control Tenthgate, Inc.  As such, in 2003, the Company accounted for its interest in Tenthgate using the cost method.

Deemed Distribution

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

During the 4^th Quarter of 2004, the Company converted Series A Preferred Stock owned by former management of the Company to common shares, per the terms of the Series A Preferred Stock held by these individuals (Novak, Gray and Leonard.)  As part of that transaction the Company recorded a deemed distribution of $3,380,975, the market value of the common shares issued at the date of issue of the common shares.  Since both of these deemed distributions occurred after May 18, 2004, the date the Company entered the development stage, the total of these two deemed distributions ($16,752,751) is included in the deficit accumulated during the development stage in the Balance Sheet of the Company as presented for December 31, 2004.  The total presented in the Balance Sheet for deficit accumulated during development stage of ($33,598,972) is the combined deemed distributions of ($16,752,751) and the net loss during development stage of ($16,846,221).

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain 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. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions management is required to make.  Estimates that are critical to the accompanying financial statements include assessing the impact of contingencies and the amortization periods for the debt issuance costs and debt discount on the convertible debentures (see Note 8) as well as estimating

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depreciation and amortization periods of tangible and intangible assets, and long-lived impairments, among others.  The markets for the Company’s products are characterized by intense competition, evolving standards and price competition, all of which could impact the future realizability of the Company’s assets.  Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.

Financial Instruments and Concentrations of Credit Risk

Management believes the book value of the Company’s cash and cash equivalents, accounts payable and accrued liabilities approximates their fair values due to their short-term nature.  Management has used certain valuation techniques to estimate the fair value of the convertible debentures and other notes payable because of the lack of similar type arrangements in the marketplace.

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents.  The Company occasionally maintains cash and cash equivalents balances in excess of federally insured limits.  The Company has not experienced any losses in such accounts.

Furniture, Fixtures and Lab Equipment

Furniture, fixtures and lab equipment are stated at cost.  Major additions are capitalized, while minor additions and maintenance and repairs, which do not extend the useful life of an asset, are expensed as incurred. Depreciation and amortization are provided using the straight-line method over the assets’ estimated useful lives.  At December 31, 2004, certain lab equipment having a net book value of approximately $37,500 serves as security for certain liabilities.

Debt Acquisition Costs

Debt acquisition costs are being amortized over the maximum term of the convertible debentures of three years using the straight line method.

Unamortized Discount

Unamortized discount resulting from the allocation of value to warrants and the beneficial conversion feature embedded in the convertible debentures is being amortized to interest expense over the contractual lives of the debentures using the interest method.

Other Intangibles

Other intangibles consist primarily of patents which are recorded at cost and arise from legal and filing fees.  Patents and other intangibles are being amortized over ten years on a straight-line basis.

Long-Lived Assets

Statement of Financial Accounting Standards (SFAS) 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” requires that long-lived assets, including certain identifiable intangibles, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets in question may not be recoverable. The Company evaluated its long-lived assets at December 31, 2004 and determined that certain impairment losses were necessary. As a result, operations were charged for $45,024 during the year ended December 31, 2004.  Management believes that the remaining balances of the Company’s long-lived assets are recoverable at December 31, 2004.

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Net Loss Per Share

Net loss per share is computed in accordance with SFAS No. 128 “Earnings per Share” (“SFAS No. 128”) and SEC Staff Accounting Bulletin No. 98 (“SAB 98”).  Under the provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period.  Diluted net loss per share is computed by dividing the net loss for the period by the number of common and common equivalent shares outstanding during the period.  In periods in which they would be anti-dilutive, common equivalent shares are ignored in the loss per share calculations.  As a result, basic and diluted net loss per share is identical for each of the periods in the accompanying financial statements.

Stock – Based Compensation

The Company accounts for equity instruments issued to employees for services based on the intrinsic value of the equity instruments issued and accounts for equity instruments issued to those other than employees based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable.  Fair value is measured herein as the closing market price of the common stock on the effective date of the agreement or Board resolution, rather than imputed value of the agreement or imputed services.

The Company has adopted Statement of Financial Accounting Standards No. 148 “Accounting for Stock-Based Compensation - Transition and Disclosure” (SFAS No. 148). This statement amends FASB Statement No. 123, “Accounting for Stock Based Compensation”. It provides alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for employee stock based compensation. It also amends the disclosure provision of FASB statement No. 123 to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation. As permitted by SFAS No. 123 and amended by SFAS No. 148, the Company continues to apply the intrinsic value method under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for its stock-based employee compensation arrangements.

Income Taxes

The Company computes income taxes in accordance with Financial Accounting Standards Statement No. 109 “Accounting for Income Taxes” (“SFAS 109”). The Company also prepares its income taxes in accordance with this standard. Under SFAS 109, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Also, the effect on deferred taxes of a change in tax rates is recognized in income in the period that included the enactment date. There were no significant temporary differences at June 30, 2005.

Research and Development

Research and development costs, which approximated $411,174 for the year ended December 31, 2004 are expensed as incurred.

Cash Equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

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Revenue Recognition

In 2003, the Company shipped its product directly from the outsource manufacturer to the customer without taking ownership or possession of its products.  All shipments were FOB destination with freight allowed and payment terms were net 30 days after shipment.

The Company’s revenue recognition policy is consistent with the criteria set forth in Staff Accounting Bulletin 101-Revenue Recognition in Financial Statements (SAB 101) for determining when revenue is realized or realizable and earned.  In accordance with the requirements of SAB 101 the Company recognizes revenue when (1) Persuasive evidence of an arrangement exists; (2) Delivery has occurred; (3) the Seller’s price is fixed or determinable; and (4) collectibility is reasonably assured.

Sales Returns, Discounts and Other Reductions in Revenue

The Company does not allow returns for credit or discounts on purchases of surgical safety devices.  Based on historical experience, the Company does not recognize any allowance for warranty or defects and the costs of warranty or defects were expensed as incurred.

Advertising Costs

Advertising expenses, which were $-0- for the years ended December 31, 2004 and December 31, 2003, are expensed as incurred.

Investments

The accompanying financial statements for the year ended December 31, 2003 include the accounts of Power3 and its subsidiaries.  The Company accounted for its interest in Tenthgate, during 2003, using the cost method.

In the financial statements for the year ended December 31, 2004, the accounts of the Company’s former subsidiary, Tenthgate, are not consolidated since the Company has distributed the stock it held in Tenthgate to a trustee for distribution and the Company does not control Tenthgate, as of the year ended December 31, 2004.

Other Income

During the year ended December 31, 2003, various unsecured liabilities having a carrying value of approximately $413,200 were extinguished.  The transactions resulted because the age of the payables led management to conclude that the possibility of payment of such liabilities is remote.  Because none of the liabilities were to related parties, the extinguishments were included in other income in the accompanying 2003 consolidated statement of operations.

(2) GOING CONCERN

The Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company is in the development stage and has primarily been involved in research and development and capital raising activities; as such the Company has incurred significant losses from operations and has a significant stockholders’ deficit at December 31, 2004.

As a result, the Company has an immediate need for capital to continue its operations, and it will need to raise significant additional funds to implement its business plan.  This cash will have to come from equity sales

48

and/or borrowings as management has projected that the Company will need significant additional capital for development and other ongoing operational activities before it will have any anticipated revenue generating products. The actual amount of funds that the Company will need will be determined by many factors, some of which are beyond the Company’s control.  These factors include:

•The extent to which the Company enters into licensing arrangements, collaborations or joint ventures;

•The progress and results of research and product development;

•The costs and timing of obtaining new patent rights;

•The extent to which the Company requires or licenses other technologies; and

•Regulatory changes and competition and technological developments in the market.

A current possibility available to the Company is to raise the remaining funds of $1,600,000 potentially available to them pursuant to the Securities Purchase Agreement dated October 28, 2004 (the “Agreement”). These funds will be immediately reduced by the payment of certain delinquent payables of approximately $251,000 of certain bridge financing received in April 2005, the $396,500 of bridge loan financing and the two Officer Advances that are to be repaid upon the receipt of the $1,600,000. The Company is in immediate need for capital to continue its operations and as such its ability to continue as a going concern is subject to its ability to generate a profit or obtain necessary funding from outside sources. . Management believes that even though the Company currently has limited cash resources and liquidity, assuming exercise of the warrants and additional investment rights specified in the Agreement, that the net funds available from the final closing under such Agreement will allow the Company to continue operations through December 2005.  In the event the final closing and sale of $1,600,000 in aggregate principal amount of debentures occurs, but the warrants and additional investment rights are not exercised, the Company anticipates that it will need to raise additional capital prior to December 2005 to meet its operating costs. However, the Company is currently in default under the conditions set forth in the Agreement as well as the debentures and registration rights agreement and consequently, there is no assurance that the Company will be successful in completing the sale and issuance of the remaining $1,600,000 aggregate principal amount of debentures and/or the additional investments rights pursuant to the Agreement.  If the Company is unsuccessful in the closing of the sale and issuance of the $1,600,000 aggregate principal amount of debentures at the final closing, the Company will be required to obtain alternative financing, sell or license some of its technology, and/or to curtail or cease its operations. Any such funding may significantly further dilute existing shareholders or may limit the Company’s rights to its technology.  Moreover, the increase in the number of shares available in the public marketplace may reduce the market price for the Company’s common stock, and consequently, the price investors may receive at the time of sale.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

(3)  Loss Per Share

At December 31, 2003, common stock options and preferred stock were excluded from the fully diluted loss per share calculations because the effects would be anti-dillutive.  At December 31, 2004, the following common equivalent shares were excluded from such calculations for the same reason:

•2,500,000 warrants, and additional investment rights having a value of $2,500,000, which were issued to certain accredited investors on October 28, 2004 under the Agreement. In addition, pursuant to the Agreement, the investors purchased certain convertible debentures that if exercised, will result in the issuance of an indeterminate number of shares of common stock.

•333,333 warrants which were issued to certain accredited investors on January 26, 2005 under the Agreement. In addition, pursuant to the Agreement, the investors purchased certain convertible debentures that if exercised, will result in the issuance of an indeterminate number of shares of

49

common stock

•580,000 shares of warrants which were issued to members of the Company’s Scientific Advisory Board and various other consultants in 2004 (including 100,000 to the agent that placed the convertible debentures discussed above).  The warrants, which expire three to five years from the dates of the respective grants and were issued at no cost to such personnel, may be converted to a like number of shares of the Company’s common stock at any time prior to their expiration(s).  As a result, during the period May 18, 2004 (date of acquisition) to December 31, 2004, the Company recorded $626,100 of stock based compensation as a result of the issuance of these warrants, which amounts represent the fair value of the warrants on the dates they were granted.

(4)  Income Taxes

The Company recognized losses for both financial and tax reporting purposes during each of the periods in the accompanying statements of operations.  Accordingly, no provisions for income taxes and/or deferred income taxes payable have been provided for in the accompanying financial statements.

At December 31, 2004 the Company had net operating loss carryforwards for income tax purposes of approximately $9,551,000 arising primarily from stock based expenses that are considered to be permanent differences.  These net operating loss carryforwards expire at various times through the period ended December 31, 2022 however because the Company has experienced changes in control and has incurred significant operating losses, utilization of the income tax loss carryforwards are not assured. As a result, the non-current deferred income tax asset arising from these net operating loss carryforwards is not recorded in the accompanying balance sheet because the Company established a valuation allowance to fully reserve such assets as their realization did not meet the required asset recognition standard established by SFAS 109.

(5) Related Party Transactions

In connection with the related party notes which existed at December 31, 2003, the Company incurred interest expense of approximately $10,600 during the year ended December 31, 2003.

On July 1, 2003, the Company entered into a consulting arrangement with one of the holders of Series A Preferred Stock to provide strategic and corporate development services on behalf of the Company.  This arrangement was on a month to month basis and was for $10,000 per month.  On December 31, 2003, $60,000 was unpaid and due to this party.  This amount was included in accounts payable and accrued liabilities at December 31, 2003.

At December 31, 2003, Notes Payable-Related Party consisted of three unsecured promissory notes due to a former officer ($9,500), a former officer’s spouse ($25,000) and a preferred stockholder($20,000) totaling $54,500.  These notes, which were in default as of December 31, 2003, bear interest at fixed rates between 10% and 12% per annum.  Total interest incurred under these notes approximated $5,500 for the year ended December 31, 2003.

During the three months ended March 31, 2005 the chief financial officer advanced $35,000 to the Company.  The advance, which is due on demand and unsecured, bears interest at 6% per annum.  At June 30, 2005, the balance of the advance is included in accounts payable and accrued and other liabilities in the accompanying condensed balance sheet.

On May 31, 2005, the Company received an Officer Advance in the amount of $ 55,000.  This advance is in the form of a short-term Note Payable to the Officer, is payable on June 30, 2005, and bears interest at a rate of 6 % per annum until paid.  The Officer has agreed to allow the Company an extension of time to repay this Note.

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On June 3, 2005, the Company received an Officer Advance in the amount of $ 50,000.  This advance is in the form of a short-term Note Payable to the Officer, is payable on June 30, 2005, and bears interest at a rate of 6 % per annum until paid.  The Officer has agreed to allow the Company an extension of time to repay this Note.

(6) Notes Payable

At December 31, 2002, the Company had convertible promissory notes payable aggregating $57,500.  During the year ended December 31, 2003, the following conversions occurred:

•$37,500 of these notes were converted to 95,000 shares of the Company’s common stock.  The difference between the $37,500 reduction in these notes, and the $27,500 increase in common stock and additional paid-in capital resulted because the market value of the shares issued was less than the carrying amount of the notes.

•$20,000 of the convertible notes were converted to other notes payable.  These notes were unsecured, bore interest at a rate of 6 % per annum and were initially due on December 31, 2004.  However they were extended and remain outstanding as of such date.

In addition to the above, other notes payable at December 31, 2003, include $10,000 owed to the Company’s former landlord.  This note and 50,000 shares of the Company’s common stock were provided to the landlord as full consideration for a note payable of $33,009 owed to such landlord at December 31, 2002.  The $10,000 note was paid.

(7) Other Commitments and Contingencies

Operating Lease for Office and Laboratory Space

In August 2004, the Company entered into a new lease which expires on August 31, 2009, has an initial term of sixty-three months, and requires base monthly minimum lease payments ranging from approximately $6,000 to $9,600 (plus utilities and operating expenses) over the lease term.  The lease contains a provision which allows the Company to extend the lease for two additional terms of sixty months.  Rent expense (for the office lease) approximated $28,952 during the year ended December 31, 2004.

Other Leases

In June, 2004, the Company entererd into a new lease for a telephone system which expires in June, 2009, has an initial term of 60 months and requires base monthly minimum lease payments in the amount of $184.51 per month over the lease term.  The Company paid $1,107 on this lease during the year ended December 31, 2004.

In October, 2004, the Company entered into a new lease for computers which expires in September, 2006, has an initial term of 24 months and requires base monthly minimum lease payments in the amount of $344 per month over the lease term.  The Company paid $344 on this lease during the year ended December 31, 2004.

Future other lease commitments are as follows:

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2005	$	6,072
2006	5,109
2007	2,220
2008	2,220
2009	1,110

Employment Agreements

The Company is obligated under amended and restated employment agreements with its Chief Executive Officer, Chief Scientific Officer and Chief Financial Officer.   The significant terms of the agreements are as follows:

Chief Executive Officer – The amended and restated employment agreement is effective as of May 18, 2004 and has an initial term of five years, subject to each party’s termination rights.  The agreement provides for a base salary of $250,000 per year and the opportunity to receive cash bonuses based on performance upon the discretion of the board of directors.  The agreement also includes participation in employee benefit plans offered to employees, as well as a grant of 13,250,000 shares of restricted common stock and 1,500,000 shares of restricted Series B preferred stock (the Series B preferred shares have not yet been issued).  Either party may terminate the Chief Executive Officer’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice.  If the Company terminates the chief executive officer’s employment at any time during the initial term without cause, he will be entitled to receive compensation provided under the agreement for the remaining initial term of employment.  In addition, in the event of a change in control as defined in the agreement, the Company may waive, in whole or in part, any and all remaining restrictions on the restricted shares of common stock and Series B preferred stock granted to him.

Chief Scientific Officer – The amended and restated employment agreement is effective as of May 18, 2004 and has an initial term of five years, subject to each party’s termination rights.  The agreement provides for a current base salary of $125,000 through December 18, 2004 and $100,000 thereafter and the opportunity to receive cash bonuses based on performance upon the discretion of the board of directors.   The agreement also includes participation in employee benefit plans offered to employees, as well as a grant of 13,250,000 shares of restricted common stock and 1,500,000 shares of restricted Series B preferred stock (the Series B preferred shares have not yet been issued).  Either party may terminate the chief scientific officer’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice.  If the Company terminates the Chief Scientific Officer’s employment at any time during the initial term without cause, he will be entitled to receive compensation provided under the agreement for the remaining initial term of employment.  In addition, in the event of a change in control as defined in the agreement, the Company may waive, in whole or in part, any and all remaining restrictions on the restricted shares of common stock and Series B preferred stock granted to him.

Chief Financial Officer – The amended and restated employment agreement is effective as of July 2, 2004 and has an initial term of three years, subject to each party’s termination rights.  The agreement provides for a base salary of $120,000 per year and the opportunity to receive cash bonuses based on performance upon the discretion of our board of directors.  The agreement also includes participation in employee benefit plans offered by us to our employees, as well as a grant of 140,000 shares of restricted common stock.  Either party may terminate the Chief Financial Officer’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice.  If the Company terminates the chief financial officer’s employment at any time during the initial term without cause, he will be entitled to receive compensation provided under the agreement for the remaining initial term of employment.  In addition, in the event of a change in control as defined in the agreement, the Company may waive, in whole or in part, any and all remaining restrictions on the restricted shares of common stock granted to him.

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On June 3, 2005, Mr. Michael Rosinski, Chief Financial Officer of Power3, resigned and terminated his employment at the Company as of that date.   In accordance with his resignation, the employment agreement with Mr. Rosinski has terminated on June 5, 2005, and the stock grant of 140,000 shares of Restricted Stock to Mr. Rosinski is terminated.  The stock shares covered in this agreement have been returned to the Company.

On June 3, 2005, the Company named John P. Burton as Chief Accounting Officer and Controller.  Previously Mr. Burton was Chief Financial Officer of Affiniscape, Inc. and served as Chief Financial Officer and Controller for Bob Johnson & Associates, Inc. from 1999 to 2003.

Other Common Stock Grants

In addition to the above common stock grants, the Company granted 1,305,000 shares of its common stock to various other employees.  Because all of the shares were granted at no cost to the employees, and because the shares generally vest over a period of two years, the Company recorded $26,612,600 of deferred compensation upon the date of the grant (which amount was determined based on the total number of shares granted times the trading values of the shares on the dates the stock grants were made).  This amount is being amortized to stock based compensation expense over the vesting period.

As mentioned above, the Company has agreed to issue a total of 3,000,000 shares of Series B Preferred Stock to two of its officers.  However, for various reasons, including certain restrictions required by the indebtedness (which preclude the shares from being issued for at least 90 days after the effective date of the registration statement that has been filed to cover the resale of the shares of common stock that will be issued upon the conversion or exercise of the securities issued by the Company for such indebtedness), the shares have not yet been issued.  The Company intends to issue such shares of the Series B Preferred Stock at such time as it is permitted.

Future required payments for base compensation under all of the employment agreements discussed above are approximately as follows:

Periods Ending December 31,	Amounts
2005	$	470,000
2006	470,000
2007	410,000
2008	350,000
2009	131,250
Total	$	1,831,250

Contingencies

In the normal course of business, the Company is involved in certain litigation, including one matter in which the plaintiff is seeking $1,522,000 in damages.   Management believes the claim is without merit, and intends to vigorously contest such claim.  This matter is currently in the discovery stage and accordingly its ultimate resolution cannot presently be determined.  As such, no effect has been given to any loss that might result from the outcome of this litigation in the accompanying financial statements.

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In addition, an equipment vendor filed a complaint against Advanced BioChem (which related to equipment acquired by Power3 in the May 18, 2004 transaction) in April of 2002 in a California court alleging breach of contract and seeking damages. Advanced BioChem reached a settlement agreement in April of 2003 under which Advanced BioChem agreed to pay the vendor $40,000 in installments through August of 2003.  At December 31, 2003, Advanced BioChem had a balance remaining of $20,000. In April 2005 the equipment vendor filed a lawsuit against Advanced BioChem and certain former officers of Advanced BioChem, and against Power3, in order to enforce its claim for the remaining balance which is past due and may be assumed by the Company as part of the settlement of the dispute with Advanced BioChem as to liabilities assumed in the May 18, 2004 transaction.

Dispute with Advanced BioChem

Advanced BioChem recently advised the Company, and publicly announced, that it was reviewing the terms of the Company’s acquisition of substantially all of the assets and assumption of certain liabilities of Advanced BioChem pursuant to the Asset Purchase Agreement. Advanced BioChem has asserted that the Company did not assume all of the liabilities for which it was obligated under the terms of the purchase agreement.    On August 8, 2005, Advanced BioChem filed suit against Power3 and Steven B.Rash and Ira Goldknopf claiming damages of at least $3,000,000 including the costs of litigation and of addressing the claims of the creditors of Advanced BioChem that remain unpaid.  The terms of the Asset Purchase Agreement are not clear and are subject to different interpretations. While the Company believes that it has properly interpreted the provisions of the agreement, fulfilled its obligations thereunder and reflected the terms of the transaction in its financial statements and previous filings, the Company cannot be assured it will prevail.  Power3 has previously had discussions and negotiations with Advanced BioChem in an effort to resolve this disagreement. Notwithstanding this, because the Company had previously offered to assume certain additional liabilities of approximately $425,000 in connection with their efforts to resolve the dispute, the Company had previously recorded $425,000 in contingent liabilities on its balance sheet.  In accordance with Financial Accounting Standards Board Statement Number 5, “Accounting for Contingencies”, the Company was prepared to increase the purchase price by $425,000 (which amount represents the minimum amount of the range of additional liabilities that may ultimately be assumed upon the resolution of this matter).   Recently, as a result of Advanced BioChem’s refusal to further negotiate to settle the question, management has reviewed the liabilities in question and has determined that Power3 is not liable for any of the aforementioned liabilities and these contingent liabilities have been removed from the Company’s balance sheet.  However, the Company remains contingently liable for the claimed liabilities of $2,575,000. The purchase price and related financial statements have not been adjusted for these liabilities as the fair value of this contingency cannot be reasonably estimated at this time.

Subpoena from the SEC, Division of Enforcement

On June 27, 2005, the Company received a subpoena for documents regarding the SEC’s Division of Enforcement investigation In The Matter of Maui General Store, Inc.  It is the Company’s understanding that the Maui General Store matter relates to a promotional scheme by certain individuals to promote the stock and stock price of certain entities during 2004.  The Company provided all documents in its possession pursuant to the subpoena and complied fully with the subpoena on July 11, 2005.  The Company has received no further correspondence from the Enforcement Division of the SEC.  The Company has not been notified that it is a subject of this investigation.

Settlement Agreement

At December 31, 2003, accrued and other liabilities included $10,000 to a former supplier of support services for the Company’s Oasis systems, which amount arose from the settlement of certain litigation.  Pursuant to the terms of the settlement, the Company had agreed to pay the plaintiff $20,000 on or before May 31, 2002,

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however such payment was not made and therefore the Company became liable to the plaintiff for $100,000 plus interest from June 1, 2002.  The liability was settled for $20,000 in 2004 and the $100,000 liability was removed from accrued liabilities at such time.

Leases in 2003

In May, 2002, the Company entered a lease expiring on March 31, 2006.  This lease was terminated on October 29, 2002 and all future obligations were released in exchange for a promissory note totaling $33,009, which included termination and related fees.  This note and all accrued interest were due on October 29, 2003.  On December 29, 2003, this note was renegotiated and at December 31, 2003, only $10,000 remained outstanding.  The note was paid in 2004.

Subsequent to termination of such lease, the Company operated out of its President’s and Chief Financial Officer’s homes.  Effective October 15, 2003, the Board of Directors resolved that a stipend be provided to the two officers for use of their home offices and related equipment in the service of the Company’s goals until such time that permanent office space is secured.  This stipend of $500 per month for each of the officers was retroactive to September 2002 at the time when the previous office space was vacated.  As a result, $15,000 of rent expense has been included in selling, general and administrative expenses in the accompanying 2003 consolidated statement of operations.

Other

On January 30, 1998, the Company entered into an agreement with Sarasota Memorial Hospital (the “Provider”) in which the Provider was to perform clinical testing of ten surgical or medical products submitted by the Company.  The agreement, which was personally guaranteed by Dr. Michael Swor, the Company’s predecessor CEO, expired on January 30, 2003 and required the Company to pay the Provider a fixed amount of $25,000 for each of the ten studies.  The agreement further provided that the Company was obligated to pay the $250,000 even if the Company elected to forego having the Provider perform the clinical testing.  The Company did not submit any products for clinical testing during the term of the agreement and/or pay any amounts due under this arrangement.  For various reasons, the Provider agreed to waive their rights under the agreement provided that the Company either (1) entered into a new profit participation agreement with the Provider under which the Provider would receive no less than $250,000 within a four year period commencing on the date of such agreement or (2) made an immediate payment of $50,000 to the Provider.  As a result thereof, the Company recorded a $50,000 liability as of December 31, 2002, which amount represented the probable amount of the liability existing at such time, as well as at December 31, 2003.  The liability was paid in 2004.

(8) Securities Purchase Agreement

Convertible Debentures

The Company entered into a Securities Purchase Agreement, dated October 28, 2004 (the “Agreement”) with certain accredited investors, and an Amendment to such Securities Purchase agreement on January 19, 2005 in which four investors accelerated the purchase of debentures in exchange for additional warrants.   Pursuant to the Agreement, the purchasers agreed to purchase from the Company convertible debentures due three (3) years from the date of issuance in the aggregate principal amount of $3,000,000. The Agreement also provides for the issuance to the purchasers, at no additional cost to the purchasers, warrants to purchase shares of the Company’s common stock and additional investment rights to purchase additional convertible debentures.  In connection with the Agreement, the Company also entered into a registration rights agreement with the purchasers, which requires that the Company file a registration statement with the SEC registering on behalf of the purchasers the resale of the shares of common stock issuable upon conversion of the debentures and the exercise of the warrants. The Company will also file an additional registration statement for the resale of the shares issuable

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upon conversion of the debentures issuable upon exercise of the additional investment rights previously issued by the Company.

Effective October 28, 2004, the Company issued and sold to the purchasers the first $1,000,000 in aggregate principal amount of such debentures at the initial closing under the Agreement. Effective January 26, 2005, the Company issued and sold to certain investors $400,000 aggregate principal amount of debentures.  Subject to the conditions set forth in the Agreement, as amended, the purchasers are required to purchase the remaining $1,600,000 in aggregate principal amount of such debentures at the final closing, which is to occur on or before the fifth trading day after the effective date of the registration statement. The Company is currently in default under the Agreement and the previously issued debentures and related registration rights agreement, and therefore the conditions of the Agreement will not be satisfied or otherwise met on a timely basis. Consequently, there are no assurances that the investors will purchase all or any portion of the remaining $1,600,000 aggregate principal amount of debentures. The $1,000,000 aggregate principal amount of debentures issued in the initial closing and the $400,000 aggregate principal amount of debentures issued on January 26, 2005 are due and payable in accordance with their original terms in full three years after the date of issuance and will not bear interest. The debentures which may be issued at the final closing will be due and payable in full three (3) years after the date of their issuance, and will not bear interest. The aggregate cash purchase price for the debentures will be $3,000,000, which is equal to the full face amount of the debentures. At any time from the closing date until the maturity date of the debentures, the purchasers have the right to convert the debentures, in whole or in part, into common stock of the Company at the then effective conversion price. The conversion price for the previously issued $1,400,000 aggregate principal amount of debentures and the 1,600,000 aggregate principal amount of debentures issuable at the final closing is equal to the lesser of (1) $0.90, (2) the 75% average of the daily volume weighted average price of the common stock for the five (5) consecutive days preceding the effective date of the registration statement or (3) the daily volume weighted average price of the common stock on the effective date of the registration statement. The conversion price shall be subject to adjustment under circumstances set forth in the debentures.

Under the Agreement, the Purchasers also received at the first closing warrants to purchase an aggregate of up to 2,500,000 shares of common stock and additional investment rights to purchase up to an additional $2,500,000 principal amount of convertible debentures.  Pursuant to the Amendment to the agreement, concurrent with the Company’s issuance of the $400,000 aggregate principal amount of debentures on January 26, 2005, the Company issued additional warrants to purchase an aggregate of up to 333,333 shares of common stock.  The warrants are exercisable at a price of $1.44 per share (subject to adjustment), for a period of five (5) years from October 28, 2004.

The additional investment rights are exercisable at a price equal to the principal amount of the debentures to be purchased, for (1) a period of nine months following the effective date of the registration statement to be filed pursuant to the registration rights agreement, or (2) a period of 18 months from the date of issuance of the additional investment rights, whichever is shorter. The debentures to be purchased upon the exercise of the additional investment rights will have the same terms as the debentures described above, except that the conversion price will be equal to $1.08 (subject to adjustment).

The debentures contain covenants that will limit the Company’s ability to, among other things: incur or guarantee additional indebtedness; incur or create liens; amend the Company’s certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the holders of the debentures; and repay or repurchase more than a de minimus number of shares of common stock other than as permitted in the debentures and other documents executed with the purchasers.

The debentures include customary default provisions and an event of default includes, among other things, a change of control of the Company, the sale of all or substantially all of the Company’s assets, the failure to have the registration statement declared effective on or before the 180th day after the initial closing date, and the

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lapse of the effectiveness of the registration statement for more than 30 consecutive trading days during any 12-month period (with certain exceptions), the Company’s failure to timely deliver certificates to holders upon conversion and a default by the Company in any obligations under any indebtedness of at least $150,000 which results in such indebtedness being accelerated.

Upon the occurrence of an event of default, each debenture may become immediately due and payable, either automatically or by declaration of the holder of such debenture. The aggregate amount payable upon an acceleration by reason of an event of default shall be equal to the greater of 130% of the principal amount of the debentures to be prepaid or the principal amount of the debentures to be prepaid, divided by the conversion price on the date specified in the debenture, multiplied by the closing price on the date set forth in the debenture.

As mentioned above, the Company is in default under the provisions of the Agreement, registration rights agreement and previously issued debentures.  The events of default now principally relates to the Company’s inability to have its registration statement declared effective within the time period required by the agreements.  Although the Company intends to seek waivers or forbearance agreements from the holders of its debentures, there is no assurance that the Company will receive such concessions.  As such, the indebtedness has been classified as a current liability in the accompanying balance sheet.  If the Company is unable to obtain such concessions, the aggregate amount payable under the outstanding debentures due to the acceleration thereof by reason of the default is equal to the “Mandatory Prepayment Amount” as specified in the debentures.  The Mandatory Prepayment Amount equals the sum of (i) the greater of:  (a) 130% of the principal amount of the debentures to be prepaid, or (b) the principal amount of the debentures to be prepaid, divided by the conversion price on (x) the date the payment is demanded or otherwise due, or (y) the date the payment is paid in full, whichever is less, multiplied by the closing price of the Company’s common stock on (x) the date the payment is demanded or otherwise due, or (y) the date the payment is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of the debentures.  In addition to the foregoing, pursuant to the terms of the registration rights agreement, the Company is required to pay each holder of the debentures liquidated damages since the registration statement was not declared effective on or before February 25, 2005.  The amount of liquidated damages shall equal two percent (2%) of the aggregate purchase price paid by the holders for the debentures and shall be payable on each monthly anniversary of such date until the registration statement is declared effective.  As of June 30, 2005, the Company has recorded $188,000 of expense and accrued liabilities as a result of this provision.

The Company has received notice from one of the purchasers of the debentures informing the Company that it is in default under the debentures and demanding payment of the Mandatory Prepayment Amount, together with the liquidated damages, to which it is entitled pursuant to the agreement.

Upon filing its Form 10-KSB for 2004, the Company intends to file an amendment to its previously filed registration statement and will endeavor to have it declared effective as soon as practicable.  The Company is in discussion with its debenture holders regarding a resolution of this matter.

In connection with such financing, the Company became obligated to issue to its placement agent, Westor Online and Kogan and Associates, a warrant to purchase 100,000 shares of common stock at an exercise price of $3.00. If any investor exercises their additional investment rights and purchases additional debentures, the placement agent will be entitled to receive additional warrants to purchase up to a number of shares of common stock equal to ten percent (10%) of the exercise price paid upon exercise of the additional investment rights divided by ninety percent (90%) of the market price as of the initial closing.

In accordance with the provisions of Emerging Issues Task Force Issue 98-5 (“EITF 98-5”), discounts have been recorded for the entire face amount of the convertible debentures on the dates the debentures were sold (i.e. October 28, 2004 and January 25, 2005) of the first closing to allocate value to the embedded beneficial conversion feature and the 2,500,000 warrants.

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Similarly, a discount for the entire face amount of the convertible debentures was recorded on the date of the first closing to allocate value to the embedded beneficial conversion feature and the 2,500,000 warrants.

Since there is no assurance that the Company will receive the remaining funds due at the time of the final closing and/or through the exercise of additional investment rights, no effect has been given to any value that may result from the issuance of securities in the accompanying financial statements.

(9) Other Significant Equity Transactions

During the year ended December 31, 2003, a stockholder contributed $90,000 in exchange for the right to receive a total of 300,000 shares of the Company’s common stock.  These shares were not issued as of December 31, 2003, and accordingly the par value of such shares is reflected as common stock subscribed.

On December 31, 2003, an independent consultant was issued 100,000 shares of restricted common stock for assisting the Company in certain development activities.  Stock based compensation of $37,500 was recorded as a result of this transaction based on the fair value of the shares at the date of issuance.

At December 31, 2003, the Company had 9,500 warrants outstanding, which entitled the holders to purchase one share of the Company’s restricted common stock for $50 per share.  The warrants expired in 2004.

Series A Preferred Stock

On March 31, 2003, the Company’s Board of Directors authorized 4,000,000 shares of Series A Preferred Stock.  Simultaneously, the Company issued 2,660,000 shares of Series A Preferred Stock in consideration of accrued and unpaid salary totaling $200,000 to two officers of the Company and 1,330,000 shares of Series A Preferred Stock in consideration of $100,000 cash by an individual investor.  The Company recorded $1,695,000 of non-cash compensation expense as a result of this transaction during 2003.  The transaction was recorded in the fourth quarter of 2003 based on the value of the Company’s stock immediately subsequent to the stock split discussed previously.  On December 31, 2003 the two officers mentioned above converted a total of 120,000 shares of their Series A Preferred Stock into 1,200,000 common shares.   In November, 2004, the Series A Preferred stockholders converted their remaining preferred shares into 3,000,324 shares of common stock.

(10) Stock Option Plans

The Company has various stock option and warrant plans outstanding.   Options granted under the 1998 stock option plans are exercisable only after the respective vesting period, which is determined by the Company’s stock option committee. Options expire seven years from the date of grant. Under the 1999 stock option plan, options granted to employees vest ratably over three years; vesting is determined by the Company’s stock option committee for options granted to officers, directors, and consultants. Options expire ten years from the date of grant.

On March 31, 2003, the Company approved the 2003 Stock Compensation Plan, which provides for the granting of common stock, options and/or warrants to officers, directors and employees of the Company, as well as consultants and attorneys who provide services to the Company.  Under this plan the Company is authorized to issue up to 8,000,000 shares of common stock, options or warrants. The options and warrants shall expire according to terms as determined by a committee on the date of grant, which will not exceed ten years from the date of grant, or five years in cases of a grantee who owns more than 10% of the total combined voting power of all classes of stock (10% Stockholder). The exercise period of any options or warrants granted will also be determined by this committee at the date of grant. The exercise price shall be determined by the committee at the time of grant except that in the case of incentive stock options, the exercise price shall not be less than 100%

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of the fair market value of the shares on the date of grant, and in cases of a 10% Stockholder, for which the exercise price shall not be less than 110% of fair market value on the date of grant.

In addition to the above, in January 2004, the Company’s Board of Directors approved the 2004 Directors, Officers and Consultants Stock Option, Stock Warrant, and Stock Award Plan (the 2004 Plan).  Pursuant to the 2004 Plan, initially 10,000,000 shares of common stock, warrants, options, preferred stock or any combination thereof may be optioned.  After the grant of any option, warrant or share of preferred stock, the number of shares that may be optioned under the 2004 Plan will be increased.  The number of shares of such increase shall be an amount such that immediately following such increase, the total number of shares issuable under this plan and reserved for issuance upon exercise of options, warrants, or conversion of shares of preferred stock will equal 15% of the total number of issued and outstanding shares of the Company’s common stock.  At December 31, 2004 no warrants or options are outstanding under this plan.

Pro forma information regarding net income and earnings per share is required by SFAS 123, and has been determined as if the Company had accounted for all of its options and warrants (the “Warrants”)  under the fair value method of that Statement. The fair value for the Warrants was estimated at the date of grant using a Black-Scholes option pricing model with the following assumptions for Warrants granted in 2000: risk-free interest rate of 6.03%; dividend yield of 0%; volatility factor of the expected market price of the Company’s common stock of .34; and a weighted-average expected life of the options of 2.7 years. The following assumptions were used for Warrants granted in 2004: risk-free interest rate of 5.0%; dividend yield of 0%; volatility factor of the expected market price of the Company’s common stock of 1.86 and a weighted-average expected life of the options of -0- years (as all were immediately vested). The Black-Scholes option valuation model was developed for use in estimating the fair value of traded Warrants that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s Warrants have characteristics significantly different from those of traded Warrants, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.  .

All of the Company’s warrants were recorded at their fair values; accordingly stock based compensation actually recorded and stock based compensation that would be recorded using a fair value based method are identical.  For purposes of pro forma disclosures, the estimated fair value of the options is charged to expense over the options’ vesting period.  For the fiscal year ended December 31, 2003, the Company would have recorded compensation expense of approximately $11,750 as a result of outstanding options.

The Company’s pro forma information for the years ended December 31, 2004 and 2003 is as follows:

	2004			2003
Net Loss:
As reported	$	(19,081,344	)	$	(1,845,496	)
Stock based employee compensation expense
Determined under fair value based methods, net of tax				$	(11,750	)
Option Expense	$	(626,100	)
Pro forma net loss	$	(19,707,444	)	$	(1,857,246	)
Loss per share, basic and diluted:
As reported	$	(0.45	)	$	(1.81	)
Pro forma	$	(0.47	)	$	(1.83	)

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A summary of the Company’s warrant activity and related information for the years ended December 31, 2004 and 2003 is as follows:

	2004		2003
		Weighted		Weighted
		Average		Average
		Exercise		Exercise
	Warrants	Price	Warrants	Price
Outstanding at beginning of year	6,360	12.50	6,360	12.50
Cancelled	—	—	—	—
Granted	3,080,000	1.44
Exercised	—	—	—	—
Outstanding at end of year	3,086,360	1.46	6,360	12.50
Exercisable at the end of the year	3,086,360	1.46	6,360	12.50

The following table summarizes information about the Company’s Warrants outstanding at December 31, 2004:

Exercise Price		Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price
$	.98	300,000	2.4	$	.98
$	1.00	100,000	2.4	$	1.00
$	1.43	50,000	2.8	$	1.43
$	1.44	2,500,000	4.8	$	1.44
$	2.77	30,000	2.6	$	2.77
$	3.00	100,000	4.8	$	3.00
$	6.50	5,460	6.0	$	6.50
$	50.00	900	3.0	$	50.00
		3,086,360		$	1.46

In addition to the Warrants discussed above, during the six months ended June 30, 2005, the Company issued 333,333 warrants to certain holders of the convertible debentures (see Note 8).

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(11) Recent Pronouncements

FIN 46 – Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN 46, (revised in December 2003 as FIN46R) “Consolidation of Variable Interest Entities,” which clarifies the application of Accounting Research Bulletin (“ARB”) 51, Consolidated Financial Statements, to certain entities (called variable interest entities) in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The disclosure requirements of this Interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements apply to all variable interest entities created after January 31, 2003. In addition, public companies must apply the consolidation requirements to variable interest entities that existed prior to February 1, 2003 and remain in existence as of the beginning of annual or interim periods beginning after June 15, 2003. The adoption of FIN 46R had no impact on the financial statements of the Company as the Company has no variable interests in variable interest entities.

SFAS 150 - Accounting for Certain ‘Financial Instruments with Characteristics of Both Liabilities and Equity

In May 2003, SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” was issued to establish new standards for how an entity classifies and measures certain financial instruments with characteristics of both liabilities and equity.  It requires that an entity classify a financial instrument that is within its scope as a liability (or an asset in some circumstances).  Many of these instruments were previously classified as equity.  This statement was effective when issued for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for calendar year public companies for the third quarter of 2003.  The adoption of SFAS 150 had no impact on the financial statements of the Company.

SFAS 132 - Employers’ Disclosures about Pensions and Other Postretirement Benefits

In December 2003, FASB Statement No. 132 (revised) was issued which prescribes the required employers’ disclosures about pension plans and other postretirement benefit plans; but it does not change the measurement or recognition of those plans.  The Statement retains and revises the disclosure requirements contained in the original Statement 132.  It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans.  The Statement generally is effective for fiscal years ending after December 15, 2003.  Since the Company does not have any types of pension plans or other postretirement benefits, the adoption of this Statement did not have an effect on the Company’s financial statements.

SFAS 123(R) ‘Share-Based Payments’

In December 2004, the Financial Accounting Standards Board issued Statement Number 123 (“FAS 123 (R)”), Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of shared-based payments such as stock options granted to employees. The Company will be required to apply FAS 123 (R) on a modified prospective method. Under this method, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. In addition, the Company may elect to adopt FAS 123 (R) by restating previously issued financial statements, basing the amounts on the expense previously calculated and reported in the pro forma disclosures that had been required by FAS 123. FAS 123 (R) is effective for the first reporting period beginning after June 15, 2005. The Company does not believe the impact of adopting this Statement will be material as there are no unvested options and warrants at December 31, 2004.

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SFAS 153 - Exchanges of Non-monetary Assets an Amendment of APB Opinion No. 29

In December 2004, FASB Statement No. 153 was issued amending APB Opinion No. 29 to eliminate the exception allowing non-monetary exchanges of similar productive assets to be measured based on the carrying value of the assets exchanged as opposed to at their fair values.  This exception was replaced with a general exception for exchanges of non-monetary assets that do not have commercial substance.  A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  The provisions of this statement are effective for non-monetary asset exchanges occurring in fiscal periods beginning after the June 15, 2005.  The adoption of this statement did not have a material impact on the Company’s financial statements.

FIN- 45 Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others

In November 2002, the FASB issued FASB Interpretation (“FIN”) 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applied prospectively to guarantees issued or modified after December 31, 2002. The adoption of these recognition provisions will result in recording liabilities associated with certain guarantees provided by us. The disclosure requirements of this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. FIN 45 has no impact on the Company’s financial statements

(12) Subsequent Events

On April 5, 2005, the Company received a bridge loan in the amount of $ 251,000.  This bridge loan is due and payable on the sooner of August 15, 2005 or one business day following the closing of the Company’s sale and issuance of the $1,600,000 aggregate principal amount of debentures which come due on August 15, 2005.  This bridge loan bears interest at a rate of 10% per annum which, at the holder’s option may be paid in (a) cash or (b) that number of shares of the Company’s common stock determined by dividing $ 251,000 by the common stock price on the date of payment and multiplying the quotient so obtained by 20%.  The holder of this Note has agreed to allow the Company an extension of time to repay this Note.

On June 17, 2005, the Company received a bridge loan in the amount of $ 396,500.  This bridge loan is in the form of a promissory note, payable on the sooner of August 15, 2005, or the fifth day following the effective date of the Company’s registration statement on Form SB-2.  The note is secured by a Stock Pledge Agreement, entered into on June 17, 2005, by the CEO of Power3, wherein the Pledger agreed to pledge 6,000,000 shares of common stock as security for the performance of the Company under the note.   The note bears no interest, other than in case of default, in which case the note shall bear interest at the rate of 18% per annum from the date such interest would be due.  The holder of this Note has agreed to allow the Company an extension of time to repay this Note.

On June 3, 2005, Mr. Rosinski, Chief Financial Officer of the Company, resigned and terminated his employment at the Company as of that date.  In accordance with his resignation, the employment agreement with Mr. Rosinski terminated, on June 3, 2005, and the stock grant of 140,000 shares of Restricted Stock to Mr. Rosinski is terminated.  Mr. Rosinski has returned his stock shares in accordance with this forfeiture.

On July 28, 2005, the management of Power3 decided upon a change in its independent public accounting firm and decided to no longer engage Kingery & Crouse, P.A. as its independent public accounting firm.  On that same date, the Company engaged the services of John A. Braden & Company, P.C. as its independent public accounting firm.

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On August 12, 2005, Power3 issued an 8-K indicating that it was restating its financial statements previously presented for the three month periods ending June 30, 2004, September 30, 2004 and March 31, 2005.  In addition, the Company will amend its 8-K filed to report the asset purchase transaction with Advanced BioChem on May 18, 2004.

On August 15, 2005, Power3 issued a 12b-25 indicating that it would be filing its 10-QSB for June 30, 2005 late, within the 5 day grace period for late filing.

On August 29, 2005, Power3 issued an 8-K/A restating its previously reported financial statements for the three month period ended March 31, 2004.

Item 8. Changes In Accountants on Accounting and Financial Disclosure

On July 28, 2005, the management of Power3 Medical Products, Inc. (“the Company”) decided upon a change in its independent public accounting firm and confirmed that the Company would no longer engage Kingery & Crouse, P.A. as its independent public accounting firm.  On that same date, the Company engaged the services of John A. Braden & Company, PC, as its independent public accounting firm for its fiscal year ending December 31, 2004.  The Company’s Board of Directors authorized the engagement of John A. Braden & Company, PC as the Company’s independent public accounting firm.

The audit report of Kingery & Crouse on the Company’s financial statements as of and for the fiscal year ended December 31, 2003 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, but did contain modifications as to the Registrant’s ability to continue as a going concern.  From the date of Kingery & Crouse’s appointment through the date of their dismissal on July 28, 2005, there were no disagreements between the Company and Kingery & Crouse, P.A. on any matter listed under Item 304, Section (a) (1) (iv) A to E of Regulation S-B, including accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Kingery & Crouse, P.A. would have caused them to make reference to the matter in its reports on the Company’s financial statements.

In deciding to select John A. Braden & Company, the Board of Directors of Power3 reviewed auditor independence issues and existing commercial relationships with John A. Braden & Company and concluded that John A. Braden & Company has no commercial relationship with the Company that would impair its independence.

During the two most recent fiscal years ended December 31, 2003 and December 31, 2004, and the subsequent interim period through July 28, 2005, the Company did not consult with John A. Braden & Company, PC, regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

Item 8a. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act).  Based on this evaluation and for the reasons set forth below, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of December 31, 2004, the end of the period covered by this annual report.

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As reported in the Company’s Quarterly Reports on Form 10-QSB for the quarterly periods ended September 30, 2004 and March 31, 2005, the Company identified certain deficiencies which caused management to conclude that the Company’s disclosure controls were ineffective as of September 30, 2004.  The Company has undertaken steps and implemented actions as disclosed in its previous Form 10-QSB’s in an effort to resolve these deficiencies.  While the actions identified in the previously filed Form 10-QSB’s and the actions identified below have addressed many of these deficiencies, the Company continued to have deficiencies with respect to its disclosure controls and procedures at December 31, 2004 including the following:

Deficiencies have arisen from a lack of supporting documentation and records relating to periods prior to the Advanced Bio/Chem transaction and a lack of communication between the Company, its auditors and the management of Advanced Bio/Chem.  The Company had encountered delays in obtaining necessary supporting documentation and records for the audit of Advanced BioChem previously during 2004 prior to the date of the Advanced Bio/Chem transaction.  The delay in obtaining this supporting documentation resulted in a delay in the completion of the Company’s financial statements and the filing of this Annual Report on Form 10-KSB.  Under the purchase accounting treatment of the Advanced BioChem transaction discussed previously, this is no longer an issue because the financial statements of Advanced BioChem are no longer required for this report.

Although the Company has hired accounting personnel as reported in its previous Form 10-QSB, the Company’s limited financing and available capital have restricted the Company’s ability to fully implement its procedures for the improvement of its internal control over financial reporting and to engage outside professionals and advisors to the extent the Company has desired to support the Company’s accounting personnel in the preparation and/or audit of financial statements and reports to be filed with the SEC.

The Company continues to face disputed issues relating to the integration of the Advanced Bio/Chem transaction and with previous management of the Company, and such issues have caused the Company’s accounting personnel to devote significant and unanticipated time and attention to these matters.

The Company continues to believe that the deficiencies are attributable to many factors including issues relating to the quality of the Company’s disclosure controls and procedures at the time of the Advanced Bio/Chem transaction and the transition following the transaction.  Management is committed to a sound disclosure control and internal control environment and is continuing its efforts to improve the Company’s infrastructure, personnel, processes and controls to help ensure that the Company is able to produce accurate financial statements on a timely basis.

Changes in Internal Control Over Financial Reporting

As previously disclosed in the Company’s Quarterly Report on Form 10-QSB for the quarterly period ending September 30, 2004, the Company implemented several actions during the third quarter of 2004 in an effort to improve its internal control over financial reporting.  During the fourth quarter of 2004, the Company continued the implementation of more rigorous policies with respect to its disclosure and financial reporting review process including improvements of its infrastructure and processes to improve its internal control over financial reporting.  The Company also is continuing its implementation of procedures to improve its review and processing of non-accounting documentation and contracts.  Other than the changes described above, there were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Item 8b.  Other Information

None.

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PART III

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

Directors, Executive Officers, Promoters and Control Persons

Set forth below is certain information concerning each of the Company’s directors, executive officers and significant employees.  All directors of the Company hold office until the next annual meeting of shareholders or until their successors have been elected and qualified.  The officers of the Company are appointed by the board of directors and hold office until their death, resignation or removal from office.  The Company’s directors, executive officers, significant employees, and their ages, positions held and duration as such are as follows:

Name	Position Held with the Company	Age	Date First Elected or Appointed
Steven B. Rash	Chief Executive Officer and Director	57		May 18, 2004
Ira L. Goldknopf	Chief Scientific Officer and Director	59		May 18, 2004
Michael J. Rosinski	Chief Financial Officer	60		July 2, 2004
Brian R. Folsom	Director of Laboratory Operations	48		July 12, 2004
John P. Burton	Chief Accounting Officer	59		June 3, 2005

Certain additional information concerning the individuals named above is set forth below.  This information is based on information furnished by each director, executive officer and significant employee.

Steven B. Rash joined the Company in May 2004 as Chairman of the Board of Directors and Chief Executive Officer.  Mr. Rash was Chairman of the Board of Directors and Chief Executive Officer of Advanced Bio/Chem, Inc. from September 2003 to May 2004.  Prior to that time he was an independent consultant from February 2003 until September 2003.  In April 2001, Mr. Rash was employed as a consultant to Global Water Technologies, Inc. and was hired as President and interim CFO of the company in January 2002 and retained that position until February 2003.  From April 2000 until April 2001, he was an independent consultant.  From June 1995 until March 2000, Mr. Rash was employed as President and CEO of American Biomed, Inc., a publicly traded medical device company.  Mr. Rash has a B.S. in Business Administration from the University of Delaware and an M.B.A. from Southern Illinois University.

Ira L. Goldknopf, Ph.D. joined the Company in May 2004 as Chief Scientific Officer and Director.  From August 2000 until May 2004, Dr. Goldknopf was Chief Scientific Officer of Advanced Bio/Chem, which he co-founded in 2000.  From August 1997 until August 2000, Dr. Goldknopf was a biotechnology consultant.  Dr. Goldknopf has a B.A. in Chemistry from Hunter College and a Ph.D. in Biochemistry from Kansas State University.  Dr. Goldknopf spent ten years on the faculty of Baylor College of Medicine and is the author of over 70 publications and a principal inventor of the Company’s intellectual property.  Dr. Goldknopf also serves on the Company’s Scientific Advisory Board.

Michael J. Rosinski joined the Company on July 2, 2004 as Chief Financial Officer.  From January 1997 until June 2004, he was Senior Vice President and Chief Operating Officer for Municipal Energy Resource Corporation.  From August 1992 to December 1996, he was employed at Santa Fe Energy Resources, Inc., where he served as Chief Financial Officer from 1992 to 1994 and Senior Vice President from 1994 to 1996.  Mr. Rosinski has a B.S. in Mechanical Engineering from Georgia Tech and an M.B.A. from Tulane University.  On June 3, 2005, Michael Rosinski, Chief Financial Officer of the Company, resigned and thereby terminated

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his employment at the Company as of June 3, 2005.  Mr. Rosinski resigned to pursue personal interests and is available for communication with the Company as to questions and matters of import to the Company.

On June 6, 2005, John P. Burton was named Chief Accounting Officer and Controller of the Company.   Prior to joining the Company, Mr. Burton was employed at Affiniscape, Inc. where he served as Chief Financial Officer from December, 2003 until August, 2004.   From December, 1999 to March, 2003, he was employed at Bob Johnson & Associates, Inc. as Controller.  Mr. Burton has a BBA and MBA from The University of Texas at Austin.

Brian R. Folsom, Ph.D. joined the Company on July 12, 2004 as Director of Laboratory Operations.   From January 2001 to July 2003, he was a Staff Engineer at Diosynth-RTP.  From July 2003 until July 2004 he was an independent consultant.  From March 1995 until January 2001, he was the Manager, Process Development for Enchira Biotechnology Corporation.  In his prior positions, Dr. Folsom has been responsible for the management of laboratories involved in the development of biotechnological intellectual property over the past ten years.  Dr. Folsom has a B.A. in Chemistry from MacAlester College and a Ph.D. in Biochemistry from Washington State University.  Dr. Folsom is the author of 15 scientific publications and holds two patents.

There are no family relationships among any of the directors or executive officers of the Company.  Except as disclosed below with respect to the amended and restated employment agreements of Messrs. Rash, Goldknopf and Rosinski, no arrangement or understanding exists between any director or executive officer and any other person pursuant to which any director or executive officer was elected to serve.

Mr. Rash has many years of experience in corporate reorganizations, finance and new business development.  Mr. Rash was hired by American Biomed, Inc. in June 1995 to assist in the reorganization and turnaround of the company.  Mr. Rash remained with American Biomed until March 2000 as president and CEO during which time the company was restructured.  In July 2000, approximately four (4) months after Mr. Rash’s departure, American Biomed filed for Chapter 7 bankruptcy proceedings.  Mr. Rash was initially retained as a consultant in April 2001 to assist Global Water Technologies, Inc. and its Chairman/CEO in formulating a turnaround strategy for the company.  Mr. Rash was subsequently employed as president and interim CFO in January 2002.  Global Water was declared in default of its bank loan in January 2003 and sold its operating division in February 2003.  Mr. Rash resigned in February 2003 and, in May 2003, Global Water filed for Chapter 11 bankruptcy proceedings.

Except as described above with respect to Mr. Rash, none of the Company’s directors, executive officers, promoters or control persons have been involved in any of the following events during the past five years:

•any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

•any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

•being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

•being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

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The board of directors has not established an audit committee or any committee performing similar functions.  Consequently, the Company does not have an audit committee financial expert as defined in Item 401(3) of Regulation S-B.  Management believes that in light of the Company’s current size and its status as a company with no operations, the establishment of an audit committee and the retention of an audit committee financial expert is not necessary at this time and is cost-prohibitive.  The Company also does not have a standing nominating committee of its board of directors or any committee performing a similar function.

Scientific Advisory Board

The Company’s Scientific Advisory Board provides assistance in the research and development of the Company’s products.  Unlike members of the Company’s Board of Directors, members of the Scientific Advisory Board, other than Dr. Goldknopf, are not involved in the management or operations of the Company.  The members of the Scientific Advisory Board are as follows:

Dr. Stanley H. Appel, M. D. is Professor and Chair of Neurology at the Methodist Hospital Neurological Institute,  Professor of Neurology at Baylor College of Medicine, Director of the Vicki Appel MDA/ALS Clinic, and past-Director of the Alzheimer’s Disease Research Center at Baylor College of Medicine in Houston, Texas. He also serves as the Director of the Jerry Lewis Neuromuscular Research Center.  Dr. Appel is a leading authority on degenerative neurological diseases, such as Parkinson’s, Alzheimer’s and ALS.  Specifically, Dr. Appel focuses on the importance of neurotrophic factors and immune mechanisms, including the role of inflammatory cytokines in these diseases. He has served as an Advisory Board member of the Alzheimer’s Disease and Related Disorders Association and as a Council member of the American Society of Neurochemistry.

Dr. Zouhair Atassi, Ph. D. is the current Robert A. Welch Chair of Chemistry and the Professor of Biochemistry and Molecular Biology at Baylor College of Medicine, Houston, Texas. After completing his Ph.D. in Chemistry, University of Birmingham, England, Dr. Atassi started his career in 1960 as Postdoctoral Research Fellow in Chemistry at the University of Birmingham.  Dr. Atassi was the 2003 President of the Institute of Immunobiology and he is the current Editor-in-Chief for The Protein Journal, Protein Reviews and Critical Reviews in Immunology. Dr. Atassi has published 14 books and several volumes in Immunochemistry of Proteins and Immunobiology of Proteins and Peptides. He has given more than 150 lectures in national and international conferences and more than 180 invited seminars in U.S. and foreign universities and research institutions. In addition Dr. Atassi has more than several hundred scientific publications and has been awarded five United States patents between 1996 and 2000.

Dr. Ira L. Goldknopf, Ph. D. began his scientific career over 30 years ago, pioneering the field that is now known as Proteomics. More than a decade before the start of the Human Genome Project, Dr. Goldknopf made the earliest proteomic discovery at Baylor College of Medicine with Harris Busch, the isolation, identification, and sequencing of a new protein from a two-dimensional gel, Protein A24. During the course of these investigations, he discovered that protein A24 was the first known conjugate of two very important proteins, Histone H2A, a part of the subunit structure that packages DNA in the cell nucleus, and Ubiquitin. Through the work of Dr. Goldknopf and many others (over 9,000 publications in the ensuing years) – including Drs. Avram Hershko, Aaron Ciechanover, and Alex Varshavsky, who shared the 2000 Lasker Award for their achievements – the Ubiquitin Conjugation System is now known to play a major role in the management of the inventories of proteins in the cell, cell proliferation, programmed cell death, and most if not all major regulatory functions in health and disease at the cellular level.

Dr. Thomas E. Watts, M. D. received his M.D. in 1975 from Baylor College of Medicine. Dr. Watts is board certified, from American Board of Family Practice since 1972 and practiced medicine at Blue Earth Medical Center in Minnesota from 1975 to 1996 and is now practicing at the Kelsey-Seybold Clinic, The

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Woodlands, Texas.  As a physician with more than 30 years of practice experience, Dr. Watts provides the Company with insights from the perspective of the end user of the Company’s products.

Dr. Alan B. Hollingsworth, M. D. received his M.D. with Distinction from the University of Oklahoma College of Medicine in 1975 where he served as First Vice-President of Alpha Omega Alpha Honor Medical Society.  In addition to his general surgery residency at the University of Oklahoma, he completed a one-year fellowship in surgical pathology at U.C.L.A.  In the 1980s, he joined the first wave of surgeons who chose to limit their practices to breast cancer.  He was the Founding Medical Director of the University of Oklahoma Institute for Breast Health in 1993 where he held the G. Rainey Williams Chair of Surgical Breast Oncology.  Currently, he serves as Medical Director of Mercy Women’s Center (Mercy Health Center, Oklahoma City) and Medical Director, Breast MRI of Oklahoma.  His interest in breast cancer risk assessment led to the publication of the first lay book on the subject, The Truth About Breast Cancer Risk Assessment, and he served as lead author for the multi-institutional consensus paper published in the American Journal of Surgery by the national breast cancer risk assessment working group.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers, and the persons who beneficially own more than ten percent (10%) of the Company’s common stock to file reports of ownership and changes in ownership with the SEC.  Copies of all filed reports are required to be furnished to the Company.  Based solely on the reports received by the Company and on representations of the reporting persons, the Company determined that there were a number of transactions that were not timely reported.  With respect to its current directors, executive officers, and persons beneficially owning more than ten percent (10%) of the Company’s common stock, the Company undertook to file forms throughout the year.  The Company has implemented new procedures to ensure improved compliance with the reporting requirements on an on-going basis.  To the Company’s knowledge, based solely on its review of the reports received and on representations of the reporting persons, the Company believes that these persons have complied with all applicable filing requirements during the fiscal year ended December 31, 2004, except:  (i) Mr. Rash did not timely file a Form 3 which was subsequently filed with the SEC; (ii) Dr. Goldknopf did not timely file a Form 3 which was subsequently filed with the SEC; (iii) Mr. Rosinski did not timely file a Form 3 and Form 4, each of which was subsequently filed with the SEC; (iv) Advanced Bio/Chem, Inc. did not timely file a Form 3 which was subsequently filed with the SEC; (v) Mr. Behzadi, a former executive officer of the Company, did not timely file a Form 3 which was subsequently filed with the SEC; and (vi) Mr. Novak, a former executive officer and director of the Company, reported several transactions on five Form 5s rather than on Form 4 after he was no longer an executive officer or director of the Company and has not corrected such filings.

Code of Ethics

The Company has adopted a code of ethics applicable to its principal executive officer and principal financial officer, a copy of which is filed with this Annual Report.

Item 10. Executive Compensation

The following table sets forth the compensation paid by the Company for services performed on the Company’s behalf for the three fiscal years ended December 31, 2004, with respect to those persons who served as the Company’s Chief Executive Officer during the year ended December 31, 2004 and those executive officers who received more than $100,000 in compensation for fiscal year 2004 from either the Company or Advanced Bio/Chem.

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Summary Compensation Table

		Annual Compensation(1)			Long Term Compensation Awards
Name and Principal Position	Year	Salary		Bonus	Restricted Stock Award(s)(2)		Securities Underlying Options/SARs		All Other Compensation
		($)		($)	($)		(#)
Steven B. Rash, Chairman of the Board and Chief Executive Officer(3)	2004	190,623		0 0	11,925,000	(4) (5)	0	(5)	0 0
Ira L. Goldknopf, Chief Scientific Officer(6)	2004	96,214		0	11,925,000	(7)	0		0
Michael J. Rosinski, Chief Financial Officer(8)	2004	60,000		0	483,000 (483,000	(8) )(9)	0		0
Timothy S. Novak, Former Chairman of the Board and Chief Executive Officer  (10)	2004 2003 2002	13,706 157,500 139,000	(11)	0 0 0	0 0 0		0 0 0		0 0 0
R. Paul Gray, Former Chief Financial Officer, Secretary and Treasurer(10)	2004 2003 2002	4,960 157,500 87,500	(11)	0 0 0	0 0 0		0 0 0		0 0 0

(1)Other annual compensation provided to the named executive officers did not exceed the applicable disclosure requirements.

(2)At December 31, 2004 the aggregate number and value of all restricted shares held by each of the named executive officers was as follows:  Rash – 13,250,000 restricted shares, $12,190,000 value; Goldknopf – 13,250,000 restricted shares, $12,190,000 value; and Rosinski – 140,000 restricted shares, $128,800 value.  The values are based on the closing price of $0.90 of the Company’s common stock on May 18, 2004.  Although the Company does not expect to pay dividends on its common stock, any dividends which may be paid on its common stock will not be paid on the restricted stock unless and until such time as the restricted stock becomes nonforfeitable.

(3)Mr. Rash joined the Company in May 2004 with the completion of the acquisition of assets from Advanced Bio/Chem.  Mr. Rash was the Chairman of the Board and Chief Executive Officer of Advanced Bio/Chem.    Mr. Rash has entered into an employment agreement with the Company which is described below.

(4)Pursuant to Mr. Rash’s employment agreement, he was awarded 13,250,000 shares of restricted common stock.  The value is based upon a closing price of $0.90 of the Company’s common stock on May 18, 2004.  All of the shares are restricted stock and shall vest on May 18, 2006 if Mr. Rash continues to be employed by the Company on such date.  In addition, Mr. Rash is entitled to receive 1,500,000 shares of restricted Series B preferred stock to be designated by the Company.

(5)In 2003, Mr. Rash was granted by Advanced Bio/Chem pursuant to his employment agreement 825,000 shares of Advanced Bio/Chem’s common stock and the option to purchase 200,000 shares of common stock at $0.80 per share.  At the time the 825,000 shares were granted, the fair market value of such stock was $0.80 per share for a total of $660,000.  Mr. Rash continues to hold such shares and the value of such restricted stock holdings at December 31, 2004 was $206,250.  Advanced Bio/Chem was to enter into an option agreement with Mr. Rash; however, no such option agreement has been executed nor is it expected since Mr. Rash is no longer an officer of Advanced Bio/Chem.

(6)Dr. Goldknopf joined the Company in May 2004 with the completion of the acquisition of the assets of Advanced Bio/Chem.  Dr. Goldknopf was the Chief Scientific Officer of Advanced Bio/Chem.   Dr. Goldknopf has entered into an employment agreement with the Company described below.

(7)Pursuant to Dr. Goldknopf’s employment agreement, he was awarded 13,250,000 shares of restricted common stock.  The value is based upon a closing price of $0.90 of the Company’s common stock on May 18, 2004.  All of the shares are restricted stock and shall vest on May 18, 2006 if Dr. Goldknopf continues to be employed by the Company on such date.  In addition,

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Dr. Goldknopf is entitled to receive 1,500,000 shares of restricted Series B preferred stock to be designated by the Company.

(8)Mr. Rosinski joined the Company on a full-time basis in July 2004.

(9)Pursuant to Mr. Rosinski’s employment agreement, he was awarded 140,000 shares of restricted common stock.  The value is based upon a closing price of $3.45 of the Company’s common stock on July 2, 2004.  On June 3, 2005, Mr. Rosinski resigned and terminated his employment with the Company.  Therefore, according to his Employment Agreement, his shares were returned to the Company.

(10)Timothy S. Novak and R. Paul Gray each resigned from their respective positions with Power 3 Medical at the time of the Company’s acquisition of the assets of Advanced Bio/Chem in May 2004.  Messrs. Novak and Gray continue to be the president, and secretary/treasurer, respectively, of Tenthgate.

(11)On March 31, 2003, each of Messrs. Novak and Gray were issued 1,330,000 shares of Series A Preferred Stock in consideration of accrued and unpaid salary.  At the time of such issuance, the Series A Preferred Stock issued to each had a value of $100,000 which is reflected in the salary figure for 2003.

Director Compensation

Mr. Rash and Dr. Goldknopf are the Company’s sole directors at this time.  Except for the compensation to which each is entitled pursuant to the terms of their respective employment agreements, neither Mr. Rash nor Dr. Goldknopf receive any further compensation for service as directors.  The Company has no formal plan for compensating outside directors at this time.  However, at such time as the Company has outside directors, the Company expects to compensate its outside directors and to reimburse them for reasonable travel and other out-of-pocket expenses incurred in connection with the attendance at meetings.

Option Grants in Last Fiscal Year

No options were granted to the above named officers in 2004.

Employment Agreements

The Company has entered into an amended and restated employment agreement with Mr. Rash.  The employment agreement is effective as of May 18, 2004 and has an initial term of five years, subject to each party’s termination rights.  The agreement provides for a base salary of $250,000 per year and the opportunity to receive cash bonuses based on performance upon the discretion of the Company’s board of directors.  The agreement also includes participation in employee benefit plans offered by the Company to its employees, as well as a grant of 13,250,000 shares of restricted common stock and 1,500,000 shares of restricted Series B preferred stock.  The agreement contains a covenant not to compete with the Company during the period of employment and for a period of two years following the termination or expiration of his employment.  The employment agreement also contains a non-disclosure and non-use of proprietary information clause and a non-interference clause covering the period of employment and for a period of five (5) years thereafter.  Either party may terminate Mr. Rash’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice.  If the Company terminates Mr. Rash’s employment at any time during the initial term without cause, Mr. Rash will be entitled to receive compensation provided under the agreement for the remaining initial term of employment.  In addition, in the event of a change in control as defined in the agreement, the Company may waive, in whole or in part, any and all remaining restrictions on the restricted shares of common stock and Series B preferred stock granted to Mr. Rash.

The Company has entered into an amended and restated employment agreement with Dr. Goldknopf.  The employment agreement is effective as of May 18, 2004 and has an initial term of five years, subject to each party’s termination rights.  The agreement provides for a base salary of $125,000 per year through December 18, 2004 and $100,000 per year thereafter, with an opportunity to receive cash bonuses based on performance upon

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the discretion of the Company’s board of directors.  The agreement also includes participation in employee benefit plans offered by the Company to its employees, as well as a grant of 13,250,000 shares of restricted common stock and 1,500,000 shares of restricted Series B preferred stock.  The agreement contains a covenant not to compete with the Company during the period of employment and for a period of two years following the termination or expiration of his employment.  The employment agreement also contains a non-disclosure and non-use of proprietary information clause and a non-interference clause covering the period of employment and for a period of five (5) years thereafter.  Either party may terminate Dr. Goldknopf’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice.  If the Company terminates Dr. Goldknopf’s employment at any time during the initial term without cause, Dr. Goldknopf will be entitled to receive compensation provided under the agreement for the remaining initial term of employment.  In addition, in the event of a change in control as defined in the agreement, the Company may waive, in whole or in part, any and all remaining restrictions on the restricted shares of common stock and Series B preferred stock granted to Dr. Goldknopf.

The Company entered into an amended and restated employment agreement with Mr. Rosinski.  The employment agreement is effective as of July 2, 2004 and has an initial term of three years, subject to each party’s termination rights.  The agreement provides for a base salary of $120,000 per year and the opportunity to receive cash bonuses based on performance upon the discretion of the Company’s board of directors.  The agreement also includes participation in employee benefit plans offered by the Company to its employees, as well as a grant of 140,000 shares of restricted common stock.  The agreement contains a covenant not to compete with the Company during the period of employment and for a period of two (2) years following the termination or expiration of his employment.  The employment agreement also contains a non-disclosure and non-use of proprietary information clause and a non-interference clause covering the period of employment and for a period of five (5) years thereafter.  Either party may terminate Mr. Rosinski’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice.  If the Company terminates Mr. Rosinski’s employment at any time during the initial term without cause, Mr. Rosinski will be entitled to receive compensation provided under the agreement for the remaining initial term of employment.  In addition, in the event of a change in control as defined in the agreement, the Company may waive, in whole or in part, any and all remaining restrictions on the restricted shares of common stock granted to Mr. Rosinski.

On June 3, 2005, Mr. Rosinski, Chief Financial Officer of the Company, resigned and terminated his employment at the Company as of that date.  In accordance with his resignation, the employment agreement with Mr. Rosinski terminated, on June 3, 2005, and the stock grant of 140,000 shares of Restricted Stock to Mr. Rosinski is terminated.  Mr. Rosinski has returned his stock shares in accordance with this forfeiture.

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder’s Matters

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of March 24, 2005, the most recent practicable date, regarding beneficial ownership of the Company’s common stock by the following persons:  (i) each person who is known to the Company to beneficially own more than 5% of the outstanding shares of common stock; (ii) each of the Company’s directors; (iii) each of the Company’s executive officers named in the executive compensation table; and (iv) all of the Company’s directors and executive officers as a group.  There has been no change to any of the amounts reported in the table below, as of the date of filing this report.

Unless otherwise indicated below, to the Company’s knowledge, all persons listed below have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law.  Beneficial ownership is determined in accordance with the rules of the

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SEC based on factors including voting and investment power with respect to shares, subject to applicable community property laws. Shares of common stock subject to options or warrants exercisable within 60 days of March 24, 2005, are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other person.

Name of Beneficial Owner	Number of Shares of Common Stock		Percent of Class
Industrial Enterprises of America, Inc. (formerly known as Advanced Bio/Chem, Inc.) 770 South Post Oak Lane, Suite 330 Houston, Texas 77056	15,000,000		22.96	%
Steven B. Rash 3400 Research Forest Dr., Suite B2-3 The Woodlands, Texas 77381	13, 250,000		20.28	%
Ira L. Goldknopf 3400 Research Forest Dr., Suite B2-3 The Woodlands, Texas 77381	13, 250,000		20.28	%
Michael J. Rosinski 3400 Research Forest Dr., Suite B2-3 The Woodlands, Texas 77381	140,000 (140,000	)		*
Timothy S. Novak 44050 Ashburn Plaza, Suite 195 Ashburn, Virginia 20147	984,504		1.5	%
R. Paul Gray 44050 Ashburn Plaza, Suite 195 Ashburn, Virginia 20147	984,504		1.5	%
All current directors and executive officers as a group (3 persons)	26,500,000		40.55	%

*Indicates less than one percent.

At December 31, 2004, the Company held 100% of the outstanding common stock of its subsidiary, Tenthgate, Inc. (“Tenthgate”), formerly known as Power 3 Medical, Inc.  Tenthgate owned 100% of the outstanding common stock of Ice Therapies, Inc. Tenthgate is not active in Power3’s current line of business activity.  Prior to the acquisition of substantially all the assets and certain liabilities from Advanced BioChem, it was contemplated that Power3 would distribute shares of its subsidiary to its shareholders of record, however the shares of Tenthgate were transferred to a trustee for distribution to the shareholders of Power3 on May 17, 2004, before the Advanced BioChem transaction.  Previous management of Power3 and Tenthgate have been independently operating Tenthgate since the Advanced BioChem transaction.  As a result, Power3 does not now control the operations or activities of Tenthgate.  As a result, Tenthgate’s activities are no longer controlled by, nor are their activities associated with Power3 in any manner whatsoever.  Power3 intends to divest itself of its subsidiary due to the differences in business activity between Tenthgate and Power3 operating under its current business model.  Some of the principal reasons for the divestiture of Tenthgate and its subsidiary are that the disposition of Tenthgate will allow the Company’s management to focus exclusively on its business objectives and permit management of Tenthgate more flexibility in its operations and the disposition will allow the market to separately identify and evaluate each business.  The Company is continuing its efforts to complete the disposition of Tenthgate; however current management of Tenthgate has advised the Company that Tenthgate has issued a significant number of shares of its common stock purportedly reducing the Company’s ownership interest to less than 1%.  The Company believes this stock issuance to be invalid, however the Company does not have access to the records of Tenthgate and is considering its alternatives with respect to these actions.  The

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Company still desires to complete a divestiture of Tenthgate, and believes the operations are inconsistent with and not material to the current activities of the Company.  As a result, the operations and assets of Tenthgate are not consolidated or otherwise presented herein.

Changes of Control

In addition to the shares of the Company’s common stock beneficially owned by Mr. Rash and Dr. Goldknopf described above, the Company has entered into amended and restated employment agreements with Mr. Rash and Dr. Goldknopf which require the Company to issue 1,500,000 shares of restricted Series B preferred stock to each of Mr. Rash and Dr. Goldknopf. The Company has not filed the certificate of amendment designating the Series B preferred stock and its powers, designations and relative rights and has not issued the shares of the Series B preferred stock.  As a result of certain restrictions agreed upon with the investors in connection with the Company’s recent financing, the Company may not issue the Series B preferred stock until 90 days after the effective date of the registration statement filed by the Company on behalf of the investors.  After such restrictions lapse, the Company intends to file the certificate of amendment and issue the Series B preferred stock.

The terms of the Series B preferred stock agreed upon by the Company provide that while the shares of Series B preferred stock are held by Mr. Rash and Dr. Goldknopf, they will have the right to vote that number of votes equal to the number of outstanding shares of the Company’s common stock plus one additional vote such that they will hold a majority of the voting rights of the Company.  In the event of the death or termination of employment of either Mr. Rash or Dr. Goldknopf, the remaining holder of the Series B preferred stock will continue to hold such voting rights.  The issuance of such shares of Series B preferred stock will result in a change of control of the Company.

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Employee Stock Option Plans

Securities Authorized for Issuance Under Equity Compensation Plans

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)	(b)		(c)
Equity compensation plans approved by security holders	0	0		0
Equity compensation plans enacted by management and approved by the Board of Directors, but not submitted for a vote or approved by all holders of the Company’s securities	580,000	$	1.44	17,801,768
Total	580,000	$	1.44	17,801,768

The 17,801,768 securities that remain available for future issuance under equity compensation plans arise from the Company’s 2003 Stock Compensation Plan (“2003 Plan”) (8,000,000 of the total) and the Company’s 2004 Directors, Officers and Consultants Stock Option, Stock Warrant, and Stock Award Plan (“2004 Plan”) (9,801,768 of the total).  No options have been issued under the 2003 Plan.  The Company has issued 6,000,000 shares of common stock under the 2004 Plan.  The 2004 Plan initially authorized the issuance of 10,000,000 shares of the Company’s common stock pursuant to the Plan; however, the number of shares available under the 2004 Plan shall increase so that immediately following any grant of securities under the 2004 Plan, the total number of shares issuable under the 2004 Plan and reserved for issuance upon exercise of options, warrants, or conversion of shares of preferred stock will equal 15% of the total number of the Company’s issued and outstanding shares of common stock.

In March 2003, the Company’s board of directors approved the 2003 Plan, which provides for the granting of common stock, options and/or warrants to officers, directors and employees as well as consultants and attorneys who provide services to the Company.  Under this plan the Company is authorized to issue up to 8,000,000 shares of common stock, options or warrants.  The options and warrants shall expire according to the terms as determined by a committee on the date of grant, which shall not exceed ten years from the date of grant, or five years in cases of a grantee who owns more than 10% of the total combined voting power of all classes of the Company’s stock.  The exercise period of incentive stock options granted will also be determined by this committee at the date of grant.  The exercise price shall not be less than 100% of the fair market value of the incentive stock options on the date of grant, except in cases of a 10% shareholder, in which case the exercise price shall not be less than 110% of the fair market value on the date of grant.

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In January 2004, the Company’s board of directors approved the 2004 Plan.  Under this plan, initially 10,000,000 shares of common stock are reserved for issuance and 6,000,000 shares were issued under the Plan.  After the grant of any option, warrant or share of preferred stock, the number of shares that may be granted under this plan will be increased.  The number of shares available under the 2004 Plan shall increase so that immediately following any grant of securities under the 2004 Plan, the total number of shares issuable under this plan and reserved for issuance upon exercise of options, warrants or conversion of shares of preferred stock under the plan will equal 15% of the total number of the Company’s issued and outstanding shares of common stock.

On June 3, 2005, the Company’s Chief Financial Officer, Mr. Rosinski resigned and terminated his employment at the Company as of that date.  On June 3, 2005, in accordance with the resignation of Mr. Rosinski, the stock grant of 140,000 shares of Restricted Stock to Mr. Rosinski is terminated.   Mr. Rosinski has returned his stock shares in accordance with this forfeiture.

On June 3, 2005 the Company named a new Chief Accounting Officer and Controller, Mr. John Burton.  At the present time, Mr. Burton is employed at the Company without an Employment Contract.

Item 12.  Certain Relationships and Related Transactions

On May 18, 2004, the Company acquired a set of assets from Advanced Bio/Chem and assumed certain of its liabilities in exchange for the issuance of 15,000,000 shares of the Company’s common stock to Advanced Bio/Chem.  At the time of the acquisition, Mr. Rash owned approximately 3.92% of the common stock of Advanced Bio/Chem, thus resulting in indirect beneficial ownership at the time of the transaction of approximately 588,000 shares of the Company’s common stock through Advanced Bio/Chem.  Additionally, Dr. Goldknopf held approximately 8.23% of the common stock of Advanced Bio/Chem at the time of the transactions, thus resulting in his indirect beneficial ownership at the time of the transaction of approximately 1,234,500 shares of the Company’s common stock through Advanced Bio/Chem.

In October 2004, Mr. Rosinski loaned the Company $75,000.  The loan was repaid to Mr. Rosinski, without interest, in November 2004 with proceeds from the Company’s financing on October 28, 2004.

In March, 2005, Mr. Rosinski loaned the Company $ 35,000.  The loan, due to be repaid on or before April 30, 2005, is to be repaid with proceeds from later issue of permanent financing and is payable, with interest at rate of 6% per annum,  The loan remains outstanding and is carried on the Balance Sheet of the Company in Notes Payable.

On May 31, 2005, the Company received an Officer Advance in the amount of $55,000.  This advance is in the form of a short-term Note Payable, to the Officer, and is payable on June 30, 2005, and bears interest at a rate of 6 % per annum until paid.

On June 3, 2005, the Company received an Officer Advance in the amount of $50,000.  This advance is in the form of a short-term Note Payable, to the Officer, and is payable on June 30, 2005, and bears interest at a rate of 6 % per annum until paid.

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Item 13. Exhibits

(a)Exhibits

Exhibit No.	INDEX
2.1	Asset Purchase Agreement dated as of May 11, 2004 by and among Power 3 Medical Products, Inc., Advanced Bio/Chem, Inc. d/b/a ProteEx, Steven B. Rash and Ira Goldknopf (incorporated by reference to Exhibit 2.1 to the Company’s Registration State on Form SB-2 (File No. 333-122227)).
3.1	Certificate of Incorporation (incorporated by reference to Exhibit 2.5 to the Company’s Form 10-SB filed on September 28, 1998).
3.2	Certificate of Merger (incorporated by reference to Exhibit 2.7 to the Company’s Form 10-SB filed on September 28, 1998).
3.3	Certificate of Amendment of the Certificate of Incorporation (incorporated by reference to Exhibit 2.9 to the Company’s Form 10-SB filed on September 28, 1998).
3.4	Certificate of Amendment of the Certificate of Incorporation (incorporated by reference to Exhibit 3.(I).10 to the Company’s Form S-3 filed on March 2, 2000).
3.5	Certificate of Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on November 5, 2004).
3.6	Bylaws (incorporated by reference to Exhibit 2.10 to the Company’s Form 10-SB filed on September 28, 1998).
4.1	Form of Convertible Debenture Due October 28, 2007 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on November 3, 2004).
4.2	Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on November 3, 2004).
4.3	Form of Additional Investment Right (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K filed on November 3, 2004).
10.1(3)	Amended and Restated Employment Agreementfor Steven B. Rash (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 5, 2005).
10.2(3)	Amended and Restated Employment Agreement for Ira L. Goldknopf, Ph.D. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed January 5, 2005).
10.3(3)	Amended and Restated Employment Agreementfor Michael J. Rosinski (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed January 5, 2005).
10.4(4)	Exclusive License Agreement dated effective as of June 28, 2004 by and between Baylor College of Medicine and Power 3 Medical Products, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-QSB/A for the quarter ended September 30, 2004).
10.5(4)	Patent and Technology License Agreement dated August 1, 2004 by and between The Board of Regents of The University of Texas System, on behalf of The University of Texas M.D. Anderson Cancer Center, and Power 3 Medical Products, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-QSB/A for the quarter ended September 30, 2004).
10.6(4)	Patent and Technology License Agreement dated September 1, 2003 by and between The Board of Regents of The University of Texas System, on behalf of The University of Texas M.D. Anderson Cancer Center, and Advanced Bio/Chem, Inc. (d/b/a ProteEx) (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-QSB/A for the quarter ended September 30, 2004).
10.7	Securities Purchase Agreement dated as of October 28, 2004, among the Company and each purchaser identified therein (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on November 3, 2004).
10.8	Amendment to Securities Purchase Agreement dated January 19, 2005 among the Company and each purchaser identified therein (incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement on Form SB-2 (File No.333-122227)).
10.9	Registration Rights Agreement dated as of October 28, 2004, among the Company and each purchaser identified therein (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on November 3, 2004).
10.10(3)	2003 Stock Compensation Plan (incorporated by reference to Exhibit 4.1 of the Company’s Registration

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Exhibit No.	INDEX
	Statement on Form S-8 filed April 18, 2003).
10.11(3)	2004 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 filed January 20, 2004).
10.12(3)	Collaborative Research Agreement, dated March 21, 2005, by and between New Horizons Diagnostics and Power3
10.13(3)	Collaborative Research and Licensing Agreement, dated May 17, 2005, by and between BioSite Incorporated and Power3 for collaborative research and worldwide licensing to BioSite Incorporated
14.1(1)	Code of Ethics for Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer.
16.1	Letter re: change in certifying accountant
21.1(1)	List of subsidiaries.
31.1(1)	Certification of Power 3 Medical Products, Inc. Chief Executive Officer, Steven B. Rash, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2(1)	Certification of Power 3 Medical Products, Inc. Chief Accounting Officer, John P. Burton, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(2)	Certification of Power 3 Medical Products, Inc. Chief Executive Officer, Steven B. Rash, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2(2)	Certification of Power 3 Medical Products, Inc. Chief Accounting Officer, John P. Burton, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)Filed herewith.

(2)Furnished herewith.

(3)Management contract or compensatory plan or arrangement.

(4)Confidential treatment has been requested with respect to certain portions of this exhibit.  Omitted portions have been filed separately with the Securities and Exchange Commission.

Item 14. Principal Accountant Fees and Services

The following table sets forth the aggregate amount of fees billed by the Company’s independent accountants for the year ended December 31, 2004 and the year ended December 31, 2003:

	2003		2004
Audit Fees:	$	10,000	$	55,747
Audit Related Fees:	—		—
Tax Fees:	—		—
All Other Fees:	—		—
Total Fees:	$	10,000	$	55,747

The Company does not have an Audit Committee of the Board of Directors. All activities of the Company’s independent accountants are reviewed and approved prior to the engagement by the Board of Directors, who consider whether such activities could affect the independence of such accountants.

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SIGNATURES

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

	Power 3 Medical Products, Inc.
	By:	/s/ Steven B. Rash
	Name:	Steven B. Rash
	Title:	Chairman and Chief Executive Officer
Date: September 9, 2005		(Principal Executive Officer)

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

Signature	Title	Date
/s/ Steven B. Rash	Chairman and Chief Executive Officer (Principal Executive Officer)	September 9, 2005
Steven B. Rash
/s/ Ira L. Goldknopf	Chief Scientific Officer and Director	September 9, 2005
Ira L. Goldknopf, Ph.D.
/s/ John P. Burton	Chief Accounting Officer and Controller (Principal Financial and Accounting Officer)	September 9, 2005
John P. Burton

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EX-2.1

Exhibit 2.1

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this “Agreement”) is made as of May 11, 2004 by and among Power3 Medical Products, Inc., a New York corporation (“Buyer”), Advanced Bio/Chem, Inc. d/b/a ProteEx, a Nevada corporation (the “Company”) and Steven B. Rash an d Ira Goldknopf (collectively, the “Shareholders”). Capitalized terms that are not defined elsewhere in this Agreement are defined in Section 12. The Disclosure Letter, together with any supplements to the Disclosure Letter, is hereby incorporated in this Agreement, and made a part hereof, by this reference.

The Company desires to sell to Buyer, and Buyer desires to purchase from the Company, all of the Company’s assets for the consideration and on the terms set forth in this Agreement. In consideration of the benefits that they will receive by virtue of the Contemplated Transactions, each of the Shareholders is agreeing to make the representations, warranties, and indemnifications in this Agreement jointly and severally with the Company and each of t he Shareholders is agreeing to enter into and be bound by a Non-competition Agreement (“Non-competition Agreement”) and an Employment Agreement (“Employment Agreement”) containing, among other things, covenants respecting confidentiality, non competition and non-solicitation, with Buyer.

NOW THEREFORE, in consideration of the mutual covenants of the parties set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.SALE AND TRANSFER OF ASSETS; CLOSING

1.1ASSETS AND ASSUMED LIABILITIES

(a)Subject to the terms and conditions of this Agreement, at the Closing the Company will sell, transfer, and convey to Buyer, free and clear of any Encumbrances, and Buyer will purchase from the Company, all assets of the Company (collectively, the “Assets”), including all of the Company’s right, title, and interest in and to the following assets:

(i)all rights under Applicable Contracts;

(ii)all tangible personal property owned, used or leased by the Company, wherever located;

(iii)all phone systems, fixtures and furniture and phone numbers;

(iv)all trademarks, trademark applications, trade names, Trade Secrets and any and all other intellectual property rights,  including those derived, if any, from services previously rendered to customers and the right to sue for past infringements thereof;

(v)all software in which the Company has an interest including source and object codes; all causes of action, judgments, claims, and demands of any nature related to such software;

(vi)all customer lists, supplier lists, sales a nd marketing records and materials, problem lists, license and maintenance fee records, and other business records;

(vii)all current assets, including all cash, prepaid expenses, and trade and other accounts and notes receivable;

(viii)all intangible property, including goodwill and covenants not to compete; and

(ix)all right title and interest into the assumed name ProteEx.

(b)Subject to the terms and conditions of this Agreement, at the Closing the Buyer will assume all of the Company’s obligations arising on or after the date of the Closing under the Applicable Contracts listed in Part 2.5 of the Disclosure Letter, except to the extent such liabilities and obligations are specifically excluded by this or the next paragraph of this Section 1.1(b), and the liabilities listed on Schedule 1.1(b) (collectively, the “Assumed Obligations”). Notwithstanding anything to the contrary above, Buyer will not assume any liabilities or obligations of the Company if the existence of such liabilities or obligations either are, or give rise to or result from, facts or circumstances that constitute a misrepresentation or breach of the representati ons and warranties in Section 2 (irrespective of their period of survival in Section 10.1), either as of the date of this Agreement or as of the Closing Date as if made on the Closing Date. The Assumed Obligations are the only liabilities and obligations of the Company that Buyer will assume in connection with the Contemplated Transactions.

1.2PURCHASE PRICE

The purchase price (the “Purchase Price”) for the Assets will be paid partly by delivering 15,000,000 shares (the “Purchase Shares”) of Common Stock of Buyer, $.001 par value per share (the “Buyer Shares”).

2.REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS

The Company a nd the Shareholders, jointly and severally, represent and warrant to Buyer as follows:

2.1ORGANIZATION AND GOOD STANDING

The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada, with full power and authority to conduct its business as it is now being conducted, to own, hold under lease, or otherwise possess or use the properties and assets that it purports to own, hold under lease, or otherwise possess or use, and to perform all its obligations under the Contracts.

2.2AUTHORITY; NO CONFLICT

(a)This Agreement constitutes the legal, valid, and binding obligation of the Company and each of the Shareholders, enforceable against the Company and each of the Shareh olders in accordance with its terms. The Company has the absolute and unrestricted right, power, authority, and capacity to execute and deliver this Agreement and to perform its obligations under this Agreement. Each of the Shareholders has all requisite legal capacity to execute and deliver this Agreement and his Employment Agreement, if applicable, and to perform his obligations thereunder. This Agreement and the Employment Agreement of each Shareholder, if applicable, when executed, will constitute the legal, valid, and binding obligations of such Shareholder enforceable against him in accordance with their respective terms.

(b)     ;       Neither the execution and delivery of this Agreement or the Employment Agreements, nor the consummation or performance of any of the Contemplated Transactions will, directly or indirectly:

(i)contravene, conflict with, or result in (with or without notice or lapse of time) a violation or breach of (A) any provision of the organizational documents of the Company, (B) any resolution adopted by the board of directors (or any Person or group of Persons exercising similar aut hority) or the Shareholders, (C) any Legal Requirement or any Order to which the Company, any Shareholder or any of the Assets may be subject, or give any Governmental Body or other Person the right (with or without notice or lapse of time) to challenge any of the Contemplated Transactions or to exercise any remedy or obtain any relief under any such Legal Requirement or Order; (D) any of the terms or requirements of, or give any Governmental Body the right (with or without notice or lapse of time) to revoke, withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization that is held by the Company or that otherwise relates to the Company’s business or any of the Assets, or (E) any provision of, or give any Person the right (with or without notice or lapse of time) to declare a default or exercise any remedy under, including the release of any asset or property of the Company held in escrow, or to accelerate the maturity or performance of, or to cancel, terminate, or modi fy, any Contract;

(ii)cause Buyer or the Company to become subject to, or to become liable for the payment of, any tax or cause any of the Assets to be reassessed or revalued by any taxing authority or other Governmental body;

(iii)result in (with or without notice or lapse of time) the imposition or creation of any Encumbrance upon or with respect to any of the Assets; or

(iv)require any notice to or Consent from any P erson.

2.3TITLE TO PROPERTIES; ENCUMBRANCES

The Company has good, sole and marketable right, title and interest to the Assets, free and clear of any Encumbrances. The Company has the right to convey, and upon the consummation of the transactions contemplated by this Agreement, the Company will have conveyed and Buyer will be vested with, good and market able title and interest in and to the Assets, free and clear of all Encumbrances. The Company has not infringed, and is not infringing, on any copyright or Trade Secret of another person. Part 2.3 of the Disclosure Letter contains a complete list of all third party materials which are a component of or incorporated in or specifically required to develop or support any of the Company’s products (“Materials”), and a list of any restrictions on the Company’s unrestricted right to use, incorporate or distribute the Materials. The Company is not in violation of any license, sublicense or agreement with respect to an Embedded Product. Neither the Company nor any Shareholder has received any notice from any Person that is contrary to any of the foregoing representations.

2.4LEGAL PROCEEDINGS; ORDERS

Except as set forth in Part 2.4 of the Disclosure Letter, there is no claim, counter-claim, action, suit, order, proceeding or investigation pending or, to the knowledge of the Company or the Shareholders, threatened against or involving the Company (or pending or threatened against any of the officers, directors or key employees of the Company), its business or the Assets, or relating to the transactions contemplated hereby, before any court, agency or other governmental body; nor is there any reasonable basis for any such claim, action, suit, proceeding or governmental investigation. Neither the Company nor any Shareholder is directly subject to or affected by any Order. Neither the Company nor any Shareholder has received any opinion or memorandum or legal advice from legal counsel retained by them to the effect that any of them is exposed, from a legal standpoint, to any liability which may be material to the Company’s business or the Assets. The Company is not engaged in any legal action to recover monies due it or for damages sustained by it.

2.5CONTRACTS; NO DEFAULTS

Part 2.5 of the Disclosure Letter contains a correct and complete list of every Applicable Contract, correct and complete copies of which previously have been furnished to the Buyer (or forms thereof, where form agreements are used; provided that any and all deviations or changes to the forms in any individual case are described in Part 2.5 or the Disclosure Letter). Except as set forth in Part 2.5 of the Disclosure Letter, all of the Applicable Contracts may be assigned to Buyer without the consent, approval, novation or waiver of any third party. The Company is not in default, and no event has occurred which with the giving of notice or the passage of time or both would constitute a default, under any Applicable Contract or any other obligation owed by the Company, and no event has occurred which w ith the giving of notice or the passage of time or both would constitute a default by any other party to any such Applicable Contract or obligation. Each of the Applicable Contracts is in full force and effect, is valid and enforceable in accordance with its terms and is not subject to any claims, charges, setoffs or defenses. Without limiting the foregoing, Part 2.5 of the Disclosure

Letter includes a list of each licensing, distribution, maintenance or support, trial, beta test, consulting, development, escrow, sales, non-competition, reseller, and sales representative agreement, any other Applicable Contract containing covenants that in any way purport to restrict the Company’s business activity or limit the freedom of the Company to engage in any line of business or to compete with any Person which relates to or affects the Assets or Buyer’s right to use, sell, develop, modify, license or distribute the Assets.

2.6        ;    INTELLECTUAL PROPERTY

(a)Part 2.6(a) of the Disclosure Letter contains a true and complete list of all copyrights, trademarks, service marks, trade names, patents, business names, domain names and other similar intangible property rights and interests (hereinafter sometimes individually and collectively referred to as the “Intellectual Property Rights”) applied for, issued to or owned by the Company, under which the Company is licensed or franchised, or used in the conduct of the Company’s business, all of which are valid and in good standing and uncontested, except as disclosed on Part 2.6(a) of the Disclosure Letter. The Company has delivered to Buyer copies of all documents establishing the Intellectual Property Rights. Except as disclosed on Part 2.6(a) of the Disclosure Letter, the Company is not infringing upon or otherwise acting adversely to any Intellectual Property Right owned by any person or persons, and there is no such claim or action pending, or to the best knowledge of the Company and the Shareholders threatened with respect thereto. The Company and the Shareholders have no knowledge that any Person is infringing on any Intellectual Property Right of the Company.

(b)The Company has taken all reasonable security measures to protect the secrecy, confidentiality, and value of the Trade Secrets, and any other persons who have knowledge of or access to information relating to the Trade Secrets have been put on notice and, if appropriate, have entered into agreements that the Trade Secrets are proprietary to the Company and are not to be divulged or misused. All of the Trade Secrets are presently valid and protectable, are not part of the public domain, and have not been used, divulged, or appropriated for the benefit of any persons other than the Company or to the detriment of the Company. The Company and the Shareholders have no knowledge that any Person is infringing on any Trade Secret of the Company.

(c)Part 2.6(c) of the Disclosure Letter contains a complete and accurate list of all software developed by the Company (the “Software”). The Company is in actual and sole possession of the complete source code of the Software and all Design Documentation. Except as set forth in Part 2.6(c) of the Disclosure Letter there are no defects in any Software, and there are no errors in any Design Documentation, which defects or errors would in any material respect affect the use of any Software or the functioning of any Software in accordance with the specifications for the Software published by the Company or its customers, the Software has all the features desc ribed in the Design Documentation for that Software and materials made available to the Company’s customers, and the Software does not contain any “back door,” “time bomb,” “Trojan horse,” “worm,” “drop dead device,” “virus” (as these terms are commonly used in the computer software industry), or other software routines or hardware components designed to permit unauthorized access, to disable or erase software, hardware, or data, or to perform any other similar type of functions. The Company has delivered to Buyer complete and accurate records of the Company with respect to Software fixes (including fixes currently in progress), problem lists, maintenance of the Software, and customer complaints, and all warranty claims (including any pending claims) related to the Software are described in Part 2.6(c) of the Disclosure Letter. Except as set forth in Part 2.6(c) of the Disclosure Letter, the Company has made no representatio ns and warranties with respect to the Software.

2.7DISCLOSURE

(a)No representation or warranty of the Company or the Shareholders in this Agreement and no statement in the Disclosure Letter omits to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not mislea ding.

(b)No notice given pursuant to Section 4.2 will contain any untrue statement or omit to state a material fact necessary to make the statements therein or in this Agreement, in light of the circumstances in which they were made, not misleading.

(c)In the event of any inconsistency between the statements in the body of this Agreement and those in the Disclosure Letter (other than an exception expressly set forth as such in the Disclosure Letter with respect to a specifically identified representation or warranty), the statements in the body of this Agreement will control.

2.8BROKERS OR FINDERS

Except as set forth in Part 2.8 of the Disclosure Letter, the Company, the Shareholders and their agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement.

2.9OWNERS; OWNERSHIP DOCUMENTS.

Part 2.9 of the Disclosure Letter sets forth the names and address of all persons who have any equity interest in the Company. There are no outstanding warrants, options, commitments or rights of any kind to acquire from the Company any equity or other security interest in the Company of any kind. The Company has delivered to Buyer true and complete copies of all agreements governing the operation of the Company and the rights and obligations of Shareholders of the Company, including true and complete copies of the Company’s Articles of Incorporation, By Laws and all amendments thereto.

2.10FINANCIAL STATEMENTS

(a)The Company has heretofore provided to Buyer true, complete and correct copies of (i) audited balance sheets, statements of operations, Shareholder’s capital and cash flows for the Company (together with all notes and opinions thereto of independent auditors) for the fiscal years ended December 31, 2001 through December 31, 2003 and (ii) unaudited balance sheets, statements of income, sha reholder’s equity capital and cash flows for the Company for the first quarter ending March 31, 2004 (collectively, the “Financial Statements”). The Financial Statements have been prepared on the accrual basis and otherwise in conformity with GAAP and present fairly in all material respects the assets, liabilities, financial position and results of operations of the Company.

(b)The Company shall provide to Buyer true and correct copies of unaudited interim balance sheets, statements, of income, operations, Shareholder’s capital and cash flow for the Company for each month and three month period (together with year-to-date statements) beginning with the statements for the month ending April 30, 2004 and through the month preceding the Closing (collectively, the “Interim Statements”). The Interim Statements shall be prepared on the accrual basis and otherwise in conformity with GAAP (except for required and normal year-end adjustments) and present fairly in all material respects the assets, liabilities, financial position and results of operations of the Compa ny as of the respective dates and for the respective periods covered thereby.

2.11OPERATIONS SINCE March 31, 2004

(a)Since March 31, 2004, th ere has been (i) no material adverse change in the Assets (individually or in aggregate), or the operations of the Company, no fact or condition exists or is contemplated or threatened which might reasonably be expected to cause such a change in the future other than Buyer’s purchase and use of the Assets and conditions attributable to the overall economy and e-commerce business in general and  (ii) no damage, destruction, loss or claim, whether or not covered by insurance, or condemnation or other taking, adversely affecting, in any material respect, the Assets or the operations of the Company.

(b)Since June 14, 1990, the Company has conducted its business in the ordinary course consistent with existing operating procedures and practices. Without limiting the generality of the foregoing, since June 14, 1999, except as set forth on Part 2.11(b),the Company has not:

(i)sold, leased, transferred or otherwise disposed of (except in the ordinary course of business), or mortgaged or pledged, or imposed or suffered to be imposed by lien, charg e or encumbrance on, any of the Assets;

(ii)canceled any debts owed to, or claims held by the Company (including the settlement of any claims or litigation) other than in the ordinary course of business consistent with past practice;

(iii)canceled or terminated any material contact, relationship, lease or agreement or entered into and become bound by any material contract, relationship, lease or agreement;

(iv)delayed payment of any account payable or other liability beyond its due date or the date when such liability would have been paid in the ordinary course of business consistent with the past practice;

(v)entered into, amended, waived or declared (or received a declaration of) default under any Contract;

(vi)made any distribution or other payment to any equity owner; or

(vii)made any agreements, written or oral, to perform any of the above, other than this Agreement.

2.12NO UNDISCLOSED LIABILITIES

The Company is not subject to any liability, commitment or obligation (including unasserted claims whether known or unknown), whether absolute, contingent, accrued or otherwise, except as set forth on Schedule 1.1(b).

2.13TAXES

Except as set forth in Part  ;2.13 of the Disclosure Letter, the Company has and will timely file all required federal, state, county and local income, excise, withholding, property, sales, use, franchise and other tax returns, declarations and reports which are required to be filed on or before the date hereof and the Closing, and has paid or reserved for all taxes which have become due pursuant to such returns or pursuant to any assessment which has become payable. All monies required to be withheld by the Company from employees for income taxes, social security, workmen’s’ compensation, unemployment insurance and other payroll taxes have been collected or withheld, and either paid to the respective governmental agencies, set aside in accounts for such purposes, or accrued, reserved against and entered upon the books of the Company. The returns, declarations and reports referred to in the previous sentences of this Section 2.13 are or will be true and correct and reflect or will reflect accurately all taxable income or tax liabilities for the periods covered thereby. The Company has not received a notice that any examination of or proceeding with respect to any tax return or report has been scheduled or conducted. There are no outstanding agreements or waivers extending the statutory period of limitations applicable to any tax return of the Company.

2.14ACCOUNTS RECEIVABLE

All ac counts and notes receivable of the Company have arisen from bona fide transactions in the ordinary course of business, none of such accounts or notes receivable is subject to defense, counterclaim or set off, and none of the account debtors of such accounts or notes receivable is an affiliate of the Company or any Shareholder.

2.15EMPLOYEE RELATIONS

The Company doe s not have any employees.

3.REPRESENTATIONS AND WARRANTIES OF BUYER

Buyer hereby represents and warrants to the Company as follows:

3.1ORGANIZATION AND GOOD STANDING

Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, its state of incorporation.

3.2AUTHORITY; NO CONFLICT

(a)This Agreement and Buyer’s Closing Documents constitute the legal, valid, and binding obligation of Buyer, enforceable against Buyer in accordance with their terms. Buyer has the absolute and unrestricted right, power, and authority to execute and deliver this Agreement and Buyer’s Closing Documents and to perform its obligations under this Agreement and Buyer’s Closing Documents.

(b)Neither the execution and delivery of this Agreement and Buyer’s Closing Documents by Buyer nor the consummation or performance of any of the Contemplated Transactions by Buyer will give any Person the right to prevent, delay, or otherwise interfere with any of the Contemplated Transactions pursuant to: (i) any provision of Buyer’s charter documents or bylaws; (ii) any resolution adopted by the board of directors or the stockholders of Buyer; (iii) any Legal Requirement or Order to which Buyer may be subject; or (iv) any Contract to which Buyer is a party or by which Buyer may be bound. Buyer is no t required to give any notice to or obtain any Consent from any Person in connection with the execution and delivery of this Agreement by Buyer or the consummation or performance of any of the Contemplated Transactions by Buyer.

3.3CERTAIN PROCEEDINGS

There is no pending Proceeding that has been commenced against Buyer and that challenges, or may have t he effect of preventing, delaying, making illegal, or otherwise interfering with, any of the Contemplated Transactions. To Buyer’s knowledge, no such Proceeding has been threatened (orally or in writing).

3.4CAPITALIZATION

[Standard representations and warranties to follow]

3.5BROKERS OR FINDERS

Buyer and its officers and agents have incurred no obligation or liability, contingent or otherwise, for brokerage or finders’ fees or agents’ commissions or other similar payment in connection with this Agreement, except to Chapman, Spira & Carson, LLP.

4.COVENANTS OF THE COMPANY

4.1PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES

The Company and each Shareholder shall refrain from taking any action which would render any representation, warranty or covenant contained in Section 2 of this Agreement inaccurate as of the Closing Date. Not in limitation of the foregoing, between the date of execution of this Agreement and the Closing Date, neither the Company nor any

Shareholder shall, without the prior written approval of Buyer: (a) enter into any Contract, (b) materially change billing practices or rates, (c) change salaries, bonuses or compensation structure of any employee, (d) issue any additional equity interest or any warrant, option, commitment or right of any kind to acquire from the Company any equity or other security interest in the Company of any kind, (e) merge, liquidate, consolidate, reorganize or change the organic structure of the Company, (f) make any distribution or other payment to any equity owner, or (g) make any commitment or agreement with respect to the any of foregoing.

4.2NOTIFICATION

Between the date of this Agreement and the Closing Date, the Company and the Shareholders will promptly notify Buyer in writing if the Company or the Shareholders become aware of any fact or condition that causes or constitutes a misrepresentation or breach of any of the Company’s and the Shareholders’ representations and warranties as of the date of this Agreement, or if the Company or any Shareholder becomes aware of the occurrence after the date of this Agreement of any fact or condition that would cause or constitute a misrepresentation or breach of any such represe ntation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition. Should any such fact or condition require any change in the Disclosure Letter if the Disclosure Letter were dated the date of the occurrence or discovery of any such fact or condition, the Company will promptly deliver to Buyer a supplement to the Disclosure Letter specifying such change. During the same period, the Company will promptly notify Buyer of the occurrence of any breach of any covenant of the Company in this Section 4 or of the occurrence of any event that may make the satisfaction of the conditions in Section 6 impossible or unlikely.

4.3BEST EFFORTS

Between the date of this Agreement and the Closing Date, the Company will use its best efforts to cause the conditions in Section 6 to be satisfied.

4.4ACCESS AND INVESTIGATION

During the period from the date of this Agreement to the Closing Date, the Company will (i) afford Buyer and its Representatives full and free access to the Company’s personnel, properties, contracts, books and records, and other documents and data, (ii) furnish Buyer and its Representatives with copies of all such contracts, books and records, and other existing documents and data as Buyer may reasonably request, and (iii) furnish Buyer and its Representatives with such additional financial, operating, and other data and information as Buyer may reasonably request.

4.5REPAYMENT OF INDEBTEDNESS

Within five business days of the Closing Date, the Shareholders shall repay all outstanding indebtedness of the Company as of the Closing Date.

5.COVENANTS OF BUYER

5.1PRESERVE ACCURACY OF REPRESENTATIONS AND WARRANTIES

The Buyer shall refrain from taking any action which would render any representation, warranty or covenant contained in Section 3 of this Agreement inaccurate as of the Closing Date

5.2NOTIFICATION

Between the date of this Agreement and the Closing Date, the Buyer will promptly notify the Company in writing if the Buyer becomes aware of any fact or condition that causes or constitutes a misrepresentation or breach of any of the Buyer’s representations and warranties as of the date of this Agreement, or if the Buyer becomes aware of the occurrence after the date of this Agreement of any fact or condition that would cause or constitute a misrepresentation or breach of any such representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition.

5.3         & #160; BEST EFFORTS

Between the date of this Agreement and the Closing Date, Buyer will use its best efforts to cause the conditions in Section 7 to be satisfied.

6.CONDITIONS PRECEDENT TO BUYER’S OBLIGATION TO CLOSE

Buyer’s obligation to purchase the Assets and to take the other actions required to be taken by Buyer at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by Buyer, in whole or in part):

6.1ACCURACY OF REPRESENTATIONS

Each of the Company’s and the Shareholders’ representations and warranties in this Agreement must have been accurate in all respects as of the date of this Agreement, and must be accurate in all respects as of the Closing Date as if made on the Closing Date, without giving effect to any supplement to the Disclosure Letter.

6.2THE COMPANY’S PERFORMANCE

(a)Each of the covenants and obligations that the Company is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been duly performed and complied with in all material respects.

(b)The Company must have delivered to Buyer each of the documents and it ems required to be delivered by the Company pursuant to Section 9.2, and each of the other covenants and obligations in Section 4.1 and Section 4.3 must have been performed and complied with in all respects.

6.3CONSENTS

Each of the Consents identified in Part 2.2 of the Disclosure Letter must have been obtained and must be in full force and effect.

6.4& #160;          NO PROCEEDINGS

Since the date of this Agreement, there must not have been commenced or threatened (orally or in writing) against Buyer, or against any Related Person of Buyer, any material Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (b) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the Contemplated Transactions.

6.5NO CLAIM REGARDING ASSETS OR SALE PROCEEDS

There must not have been made or threatened (orally or in writing) by any Person any claim asserting that such Person (a) has the right to acquire or obtain any interest in the Assets, or (b) is entitled to all or any portion of the Purchase Price payable for the Assets.

6.6NO PROHIBITION

Neither the consummation nor the performance of any of the Contemplated Transactions by the Company will, directly or indirectly (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, or cause Buyer or any Person affiliated with Buyer to suffer any material adverse consequence under, (i) any applicable Legal Requirement or Order, or (ii) any Legal Requirement or Order that has been published, introduced, or otherwise formally proposed by or before any Governmental Body.

6.7DISCLOSURE LETTER

Buyer’s receipt and review and acceptance of the Disclosure Letter and the materials disclosed therein to Buyer’s satisfaction within 10 business days of the date hereof.

6.8DUE DILIGENCE

Buyer’s satisfactory completion of its “due diligence” investigation relating to the Company’s business and the Assets.

6.9       0;    CEO’S VERIFICATION

Verification by the CEO of the Company’s First Quarter Revenues, as more fully set forth in Schedule 1.2.

7.CONDITIONS PRECEDENT TO COMPANY’S OBLIGATION TO CLOSE

The Company’s obligation to sell the Assets and to take the other actions required to be taken by the Company at the Closing is subject to the satisfaction, at or prior to the Closing, of each of the following conditions (any of which may be waived by the Company, in whole or in part):

7.1ACCURACY OF REPRESENTATIONS

Each of Buyer’s representations and warranties in this Agreement must have been accurate in all respects as of the date of this Agreement and must be accurate in all respects as of the Closing Date as if made on the Closing Date.

7.2BUYER’S PERFORMANCE

(a)Each of the covenants and obligations that Buyer is required to perform or to comply with pursuant to this Agreement at or prior to the Closing must have been performed and complied with in all material respects.

(b)Buyer must have delivered to the Company each of the documents and payments required to be delivered by Buyer pursuant to Section 9.2.

7.3CONSENTS

Each of the Consents identified in Part 2.2 of the Disclosure Letter must have been obtained and must be in full force and effect.

7.4NO PROCEEDINGS

Since the date of this Agr eement, there must not have been commenced or threatened (orally or in writing) against the Company and the Shareholders, or against any Person affiliated with the Company and the Shareholders, any material Proceeding (a) involving any challenge to, or seeking damages or other relief in connection with, any of the Contemplated Transactions, or (b) that may have the effect of preventing, delaying, making illegal, or otherwise interfering with any of the Contemplated Transactions.

7.5NO PROHIBITION

Neither the consummation nor the performance of any of the Contemplated Transactions by the Company will, directly or indirectly (with or without notice or lapse of time), materially contravene, or conflict with, or result in a material violation of, or cause the Company and the Shareholders or any Person affiliated with the Company and the Shareholders to suffer any material adverse consequence under, (i) any applicable Legal Requirement or Order, or (ii) any Legal Requirement or Order that has been published, introduced, or otherwise formally proposed by or before any Govern mental Body.

8.TERMINATION

8.1TERMINATION EVENTS

This Agreement may, by written notice given prior to or at the Closing, be terminated:

(a)by either Buyer or the Company if a material breach of any provision of this Agreement has been committed by the other party and such breach has not been waived;

(i)by Buyer if any of the conditions in Section 6 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of Buyer to comply with its obligations under this Agreement) and Buyer has not waived such condition on or before the Closing Date; or

(ii)by the Company, if any of the conditions in Section 7 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of the Company to comply with its obliga tions under this Agreement) and the Company has not waived such condition on or before the Closing Date; or

(c)by mutual consent of Buyer and the Company.

8.2       0;    EFFECT OF TERMINATION

Each party’s right of termination under Section 8.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to Section 8.1, all further obligations of the parties under this Agreement will terminate, except that the obligations in Sections 13.1, 13.5 and 13.9 and the obligations under that certain Amended Mutual Non-Disclosure Agreement between Buyer and the Company, which by its terms survive, will survive; provided, however, that if this Agreement is terminated by a party because of the breach of the Agreement by the other party or because one or more of the conditions to the terminating party’s obligations under this Agreement is not satisfied as a result of the other party’s failure to comply with its obligations under this Agreement, the terminating party’s right to pursue all legal remedies will survive such termination unimpaired.

9.CLOSING

9.1CLOSING DATE

The purchase and sale (the “Closing”) provided for in this Agreement will take place at the offices of Sonfield & Sonfield, counsel to Buyer, at 770 South Post Oak Lane, Houston, Texas 77056 at 10:00 a.m. (local time) on May 15, 2004, or at such other time and place as the parties may agree. Subject to the provisions of Section 8, failure to consummate the purchase and sale provided for in this Agreement on the Closing Date will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement.

9.2CLOSING DELIVERIES

At the Closing:

(a)The Company and the Shareholders will deliver to Buyer:

(i)such bills of sale, assignments, and other good and sufficient instruments of conveyance as are necessary to vest Buyer with good title to the Assets;

(ii)all Design Documentati on, any lists of prospective customers, and any problem lists;

(iii)all copies of the source code for the Software and all copies of the Software in machine-readable form that are in the possession of the Company;

(iv)all of the Company’s business records (to the extent not previously delivered to Buyer) as described in Section 1.1(a)(v);

(v)a Non-competition Agreement, executed by each of the Shareholders in the form of Exhibit 9.2(a)(v)

(vi)an Employment Agreement, executed by each of the Shareholders in the form of Exhibit 9.2(a)(vi);

(vii)a Stockholders Agreement, executed by the Company, and each of the Shareholders, in the form of Exhibit 9.2(a)(vii);

(viii)a certificate executed by the Chief Executive Officer of the Company and the Shareholders to the effect that (A) each of the Company’s and the Shareholders’ representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date (giving full effect to any supplements to the Disclosure Letter that were delivered by the Company and the Shareholders to Buyer prior to the Clos ing Date in accordance with Section 4.2), and (B) the Company and the Shareholders have performed and complied with all covenants and conditions required to be performed or complied with by them prior to or at the Closing;

(ix)a Good Standing Certificate for the Company from all states in which the Company is authorized to do business;

(x)a copy of resolutions of the Company’s Shareholders, executed after review by them of the information described in Section 11, as authorizing and approving the Company’s execution and delivery of this Agreement and consummation of the Contemplated Transactions;

(xi)a Subscription Agreement in the form of Exhibit 9.2(a)(xi) hereto executed by Company, and if required by Buyer’s counsel, by each Shareholder;

(xii)an opinion of Roger L. Schoss, Esq., dated the date of the Closing, in the form attached hereto as Exhibit 9.2(a)(xii),

(xiii)such other documents, instruments, certificates and opinions as Buyer may reasonably request for the purpose of consummating the Contemplated Transactions.

(b)Buyer will deliver to the Company:

(i)a stock certificate, duly executed and registered in the Company’s name, representing the Buyer Shares, as defined on Schedule 1.2;

(ii)a certificate executed by Buyer to the effect that (A) each of Buyer’s representations and warranties in this Agreement was accurate in all respects as of the date of this Agreement and is accurate in all respects as of the Closing Date as if made on the Closing Date and (B) Buyer has performed and complied with all covenants and conditions required to be performed or complied with by it prior to or at the Closing;

(iii)the Employment Agreements, executed by Buyer;

(iv)a Stockholders Agreement, executed by the Buyer, in the form of Exhibit 9.2(a)(vii);

(v)a copy of resolutions adopted by Buyer’s board of directors, certified by an officer of Buyer as having been duly adopted and being in full force and effect as of the Closing Date, authorizing Buyer’s execution and delivery of this Agreement and consummation of the Contemplated Transactions;

(vi)a Good Standing Certificate for Buyer from the State of New York;

(vii)an opinion of Sonfield & Sonfield, dated the date of the Closing, in the form attached hereto as Exhibit 9.2(b)(vii); and

(viii)such other documents, instruments, certificates and opinions as the Company may reasonably request for the purpose of consummating the Contemplated Transactions.

10.INDEMNIFICATION; REMEDIES

10.1SURVIVAL

All representations and warranties in this Agreement, the Disclosure Letter, the supplements to the Disclosure Letter, and any other certificate or document delivered pursuant to this Agreement will survive the Closing. The right to indemnification, reimbursement or other remedy based on such representations and warranties will not be affected by any investigation conducted by Buyer or its agents. Notwithstanding the foregoing, (a) all representations and warranties shall continue in effect if a claim for breach thereof has been made prior to the expiration of the applicab le survival period and shall survive until such claim is resolved and (b) any representation or warranty of which either the Company or any Shareholder had knowledge of a misrepresentation or breach at any time prior to the date on which such representation or warranty is made shall survive indefinitely.

10.2INDEMNIFICATION AND REIMBURSEMENT BY THE COMPANY AND THE SHAREHOLDERS

The Company and the Shareholders jointly and severally, will indemnify and hold harmless Buyer and its employees, officers, directors, stockholders, controlling persons, and affiliates (collectively, the “Indemnified Persons”), and will reimburse the Indemnified Persons, for any loss, liability, claim, damage, expense (including costs of investigation and defense and reasonable attorneys’ fees) or dim inution of value, but excluding consequential or punitive damages, whether or not involving a third-party claim (collectively, “Damages”), arising from or in connection with:

(a)any material misrepresentation or breach of any representation or warranty made by the Company in or pursuant to this Agreement, the Disclosure Letter, the supplements to the Disclosure Letter, or any other certificate or document delivered by the Company or the Shareholders pursuant to this Agreement;

(b)any non-compliance with or breach by the Company or the Shareholders of any covenant or obligation of the Company or the Shareholders in this Agreement;

(c)(i) t he operation of the Company’s business (including the development, manufacture, sale, shipment, license or use of the Software or other product of, or services provided by, the Company) prior to the Closing Date, or (ii) any liabilities or obligations of the Company other than the Assumed Obligations; or

(d)any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by any such Person with the Company or the Shareholders (or any Person acting on it s or his behalf) in connection with any of the Contemplated Transactions.

10.3INDEMNIFICATION AND REIMBURSEMENT BY BUYER

Buyer shall indemnify and hold harmless the Company and the Shareholders, and will reimburse the Company and the Shareholders, for any Damages arising from or in connection with:

(a)any misrepresentation or breach of any representation or warranty made by Buyer in this Agreement or in any certificate delivered by Buyer pursuant to this Agreement;

(b)           < /font>any non-compliance with or breach by Buyer of any covenant or obligation of Buyer in this Agreement;

(c)any claim by any Person arising from the Buyer’s ownership or utilization of the Assets after the Closing Date (except to the extent such claim relates to a matter for which Buyer is entitled to indemnification pursuant to Section 10.2); or

  ;

(d)any claim by any Person for brokerage or finder’s fees or commissions or similar payments based upon any agreement or understanding alleged to have been made by such Person with Buyer (or any Person acting on its behalf) in connection with any of the Contemplated Transactions.

10.4RIGHT OF SETOFF

Upon notice to the Company specifying in reasonable detail the damages which are the basis for any such set-off, Buyer may set off an amount equal to the known or reasonably anticipated Damages to which it may be entitled underthis Section 10 against amounts otherwise payable under Section 1.2. Neither the exercise of nor the failure to exercise such right of set-off will constitute an election of remedies or limit Buyer in any manner in the enforcement of an y other remedies that may be available to it.

10.5PROCEDURE FOR INDEMNIFICATION-THIRD PARTY CLAIMS

(a)Promptly after receipt by an indemnified party under Section 10.2 or 10.3 of notice of a claim against it (a “Claim”), the indemnified party will, if a claim is to be made against an indemnifying party under such Section, give notice to the indemnifying party of the Claim, but the failure to notify the indemnifying party will not relieve the indemnifying party of any liability that it may have to any indemnified party, except to the extent that the indemnifying party demonstrates that the defense of such action is prejudiced by the indemnified party’s failure to give such notice.

(b)If any Claim referred to in Section 10.5(a) is made against an indemnified party and it gives notice to the indemnifying party of the Claim, the indemnifying party will, unless the Claim involves tax liabilities, be entitled to participate in the defense of the Claim and, to the extent that it wishes (unless (i) the indemnifying party is also a party to the Claim and the indemnified party determines in good faith that joint representation would result in a conflict of interest, or (ii) the indemnifying party fails to provide reasonable assurance to the indemnified party of its financial capacity to defend the Claim and provide indemnification with respect to the Claim), to assume the defense of the Claim with counsel satisfactory to the indemnified party and, after notice from the indemnifying party to the indemnified party of its election to assume the defense of the Claim, the indemnifying party will not, as long as it diligently conducts such defense, be liable to the indemnified party under such Section for any fees of other counsel or any other expenses with respect to the defense of the Claim in each case subsequently incurred by the indemnified party in connection with the defense of the Claim, other than reasonable costs of investigation. If the indemnifying party assumes the defense of a Claim, (a) no compromise or settlement of such claims may be effected by the indemnifying party without the indemnified partys consent unless (i) there is no finding or admission of any violation of Legal Requirements or any violation of the rights of any Person and no effect on any other Claims that may be made against the indemnified party, and (ii) the sole relief provided is monetary damages that are paid in full by the indemnifying party; and (b) the indemnifying party will have no liability with respect to any compromise or settlement of such claims effected without its consent. If notice is given to an indemnifying party of a Claim and the indemnifying party does not, within ten days after the i ndemnified partys notice is given, give notice to the indemnified party of its election to assume the defense of the Claim, the indemnifying party will be bound by any determination with respect to the Claim or any compromise or settlement effected by the indemnified party.

(c)Notwithstanding the foregoing, if an indemnified party determines in good faith that there is a reasonable probability that a Claim may adversely affect it or its Related Persons other than as a result of monetary

damages for which it would be entitled to indemnification under this Agreement, the indemnified party may, by notice to the indemnifying party, assume the exclusive right to defend, compromise, or settle the Claim, but the indemnifying party will not be bound by any determination of a Claim so defended or any compromise or settlement effected without its consent (which may not be unreasonably withheld).

(d)The Company, the Shareholders and Buyer hereby co nsent to the non-exclusive jurisdiction of any court in which a Claim is brought against any indemnified person for purposes of any claim that an indemnified party may have under this Agreement with respect to such Claim or the matters alleged therein, and agree that process may be served on the Company, the Shareholders and Buyer with respect to such a claim anywhere in the world.

10.6PROCEDURE FOR INDEMNIFICATION-OTHER CLAIMS

A claim for indemnification for any matter not involving a third-party claim may be asserted by notice to the party from whom indemnification is sought.

11.SECURITIES LAW MATTERS

The Company, the Shareholders and Buyer agree as follows with respect to the purchase and the sale or other disposition of the Purchase Shares by the Company and the Shareholders after the Closing:

11.1ACQUISITION AND DISPOSITION OF PURCHASE SHARES

The Company and each of the Shareholders represents and warrants that the Company and each Shareholder:

(a)has received and reviewed Buyer’s audited balance sheets, statements of operations, and cash flow (together with all notes and opinions thereto of Kingery, Crouse & Hohl, P.A.) for the fiscal year ended December 31, 2003 and a general description of Buyer’s business plan.

(b)  ;          (i) was provided the opportunity to ask questions of and receive answers from Buyer, or its representative, concerning the operations, business and financial condition of Buyer, and all such questions have been answered to his full satisfaction and any information necessary to verify such responses has been made available to him; (ii) has received such documents, materials and information as he deems necessary or appropriate for evaluation of Buyer Shares, and further confirms that he has carefully read and understands these materials and has made such further investigation as was deemed appropriate to obtain additional information to verify the accuracy of such materials; (iii) confirms that Buyer Shares were not offered to him by any means of general solicitation or general advertising; (iv) he has such knowledge and experience in financial and business matters that he is capable of evaluating th e merits and risks of an investment in the Purchase Shares;  (v) the Company is acquiring the Purchase Shares for its own account, for investment purposes only, and not with a view towards the sale or other distribution thereof, in whole or in part, except for a distribution to the Shareholders to the extent such distribution (A) will not violate any state or federal

security laws, (B) will not cause the issuance of such Purchased Shares to the Company to violate any state or federal security laws, and (C) will not require any registration of such Purchased Shares or other information to be filed by the Company or Buyer with respect to the Purchased Shares or any other Buyer Shares.

12.DEFINITIONS

For purposes of this Agreement, the following terms have the meanings specified:

“Applicable Contract”-any Contract which relates directly or indirectly tothe Assets or to services rendered to or by or to be rendered to or by the Company.

“Buyer’s Closing Documents”-the documents to be delivered by Buyer to the Company pursuant to Section 9.2(b).

“Closing Date”-the date and time as of which the Closing actually takes place.

“Company’s Closing Documents”-the documents to be delivered by the Company and the Shareholders to Buyer pursuant to Section 9.2(a).

“Consent”-any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization).

“Contemplated Transactions”-all of the transactions contemplated by this Agreement, including:

(i)the sale of the Assets by the Company to Buyer;

(ii)the execution, delivery, and performance of the Company’s Closing Documents and Buyer’s Closing Documents; and

(iii)the performance by Buyer and the Com pany and the Shareholders of their respective covenants and obligations under this Agreement and the Employment Agreement as applicable.

“Contract”-any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied) that is legally binding and (a) under which the Company has or may acquire any rights, (b) under which the Company has or may become subject to any obligation or liability, or (c) by which the Company or any of the Assets is or may become bound.

&# 147;Design Documentation”-all documentation, specifications, manuals, user guides, promotional material, internal notes and memos, technical documentation, drawings, flow-charts, diagrams, source language statements, demo disks, benchmark test results, and other written materials related to, associated with or used or produced in the development of the Software.

“Disclosure Letter”-the disclosure letter delivered by the Company to Buyer concurrently with the execution and delivery of this Agreement.

“Encumbrance”-any claim, lien, pledge, charge, security interest, equitable interest, option, right of first refusal, condition, or other restriction or adverse claim of rights of any kind, including any restriction on use, transfer, voting (in the case of a security), receipt of income, or exercise of any other attribute of ownership.

“Governmental Authorization” any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.

“Governmental Body”-any:

(i)nation, state, county, city, town, village, district, or other jurisdiction of any nature;

(ii)federal, state, local, municipal, foreign, or other government;

(iii)governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or other entity and any court or other tribunal);

(iv)multi-national organization or body; or

(v)body exercising, or entitled or purporting to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

“Legal Requirement”-any federal, state, local, municipal, foreign, or other constitution, ordinance, regulation, statute, treaty, or other law adopted, enacted, implemented, or promulgated by or under the authority of any Governmental Body or by the eligible voters of any jurisdiction, and any a greement, approval, consent, injunction, judgment, license, order, or permit by or with any Governmental Body to which the Company is a party or by which the Company is bound.

“Order”-any award, injunction, judgment, order, ruling, subpoena, or verdict or other decision entered, issued, made, or rendered by any court, administrative agency, or other Governmental Body or by any arbitrator.

“Ordinary Course of Business”-an action taken by a Person will be deemed to have been taken in the “Ordinary Course of Bus iness” only if:

(i)such action is consistent with the past practices of such Person and is taken in the ordinary course of the normal day-to-day operations of such Person;

(ii)     & #160;     such action is not required to be authorized by the board of directors of such Person (or by any Person or group of Persons exercising similar authority); and

(iii)such action is similar in nature and magnitude to actions customarily taken, without any authorization by the board of directors (or any Person or group of Persons exercising similar authority), in the ordinary course of the normal day-to-day operations of other Persons that are in the same line of business as such Person.

“Person” any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, or other entity or Governmental Body.

“Proceeding”-any suit, litigation, arbitration, hearing, audit, investigation, or other action (whether civil, criminal, administrative, investigative, or informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or arbitrator.

“Related Person”-with respect to a particular individual:

(i)each other member of such individual’s Family; and

(ii)any Person that is directly or indirectly c ontrolled by any one or more members of such individual’s Family.

With respect to a specified Person other than an individual:

(i)any Person that, directly or indirectly, controls, is controlled by, or is under common control with such specified Person; and

(ii)each Person that serves as a director, executive officer, general partner, executor, agent, employee or trustee of such specified Person (or in a similar capacity);

For purposes of this definition, the “Family” of an individual includes (i) such individual, (ii) the individual’s spouse and former spouses, (iii) any lineal ancestor descendant of the individual, or (iv) a trust for the benefit of the foregoing. A Person will be deemed to control another Person, for purposes of this definition, if the first Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management policies of the second Person, (x) through the ownership of voting securities, (y) through common directors, trustees or officers, or (z) by contract or otherwise.

“Representative”-with respect to a particular Person, any director, officer, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors.

“Trade Secrets”-all licenses, processes, algorithms, formulae, designs, methods, trade secrets, inventions, proprietary or technical information, Design Documentation and data covering or embodied in any software or other assets owned by the Company or used in the conduct of its business.

13.GENERAL PROVISIONS

13.1EXPENSES

The Company and the Shareholders, on the one hand , and Buyer, on the other hand, will each bear their own expenses incurred in connection with the Contemplated Transactions. The Company will pay any legal, accounting, or other expenses incurred by the Company in connection with the Contemplated Transactions.

13.2NOTICES

All notices, consents, waivers, and other communications under this Agreement must be in writi ng and will be deemed to have been duly given (a) when delivered by hand; (b) when sent by telecopier, provided that a copy is mailed by U.S. certified mail, return receipt requested; or (c) one day after deposit with a nationally recognized overnight delivery service, in each case to the appropriate addresses and telecopier numbers set forth below (or to such other addresses and telecopier numbers as a party may designate by notice to the other parties):

if to Power3:

Power3 Medical Products, Inc.

8374 Market Street, Suite 439

Bradenton, Florida 34202

Attn:  Tim Novak, President

Facsimile: (270) 423-6811

with a copy to (which shall not constitute notice to such party):

Robert L. Sonfield, Jr., Esq.

Sonfield & Sonfield

770 South Post Oak Lane, Suite 435

Houston, Texas  77056-1937

Facsimile:  (713) 877-1547

if to the Company:

Advanced Bio/Chem, Inc. d/b/a ProtcEx

4800 Research Forest Drive

The Woodlands, Texas 77381

Attn:  Stephen B. Rash, President

Facsimile: (281) 363-7935

with a copy to (which shall not constitute notice to the Company):

13.3FURTHER ASSURANCES

The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of the Contemplated Transactions.

13.4WAIVER

The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other ri ght, power, or privilege.

13.5ENTIRE AGREEMENT AND MODIFICATION

This Agreement supersedes all prior oral or written agreements between the parties with respect to its subject matter and constitutes (along with the documents referred to in this Agreement) a complete and exclusive statement of the terms of the agreement between the parties with respect to its subject matter. This Agreement may not be amended except by a written agreement executed by the party to be charged with the amendment.

13.6ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS

Neither party may assign any of its rights under this Agreement without the prior consent of the other parties except that Buyer may assign any of its rights under this Agreement to a ny subsidiary of Buyer; provided, no such assignment shall relieve Buyer of its obligations under this Agreement. Subject to the preceding sentence, this Agreement will apply to, be binding in all respects upon, and inure to the benefit of the successors and permitted assigns of the parties. Nothing expressed or referred to in this Agreement will be construed to give any Person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement.

13.7SEVERABILITY

If any provision of this Agreement is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Agreement will remain in full force and effect. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable.

13.8SECTION HEADINGS, CONSTRUCTION

The headings of Sections in this Agreement are provided for convenience only and will not affect their construction or interpretation. All references to “Sections” refer to the corresponding Sections of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Unless otherwise expressly provided, the word “include” or “including” does not limit the preceding words or terms. The language used in this

Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party.

13.9CONFIDENTIALITY OF AGREEMENT

The Company and the Shareholders will keep the terms of this A greement and the other agreements contemplated by this Agreement confidential and will not, without the prior consent of Buyer, disclose such terms to any person or entity other than their accountant ‘ s and attorneys who agree to be bound by this confidentiality provision, provided that this confidentiality obligation will terminate with respect to any information that becomes generally available to the public through no fault of the Company or the Shareholders or their accountants or attorneys or where required by law.

13.10GOVERNING LAW

This Agreement will be governed by and construed under the laws of the State of New York without regard to conflicts of laws principles.

13.11COUNTERPARTS

This Agreement may be executed in one or more counte rparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement.

IN WITNESS WHEREOF, the parties have executed this Purchase Agreement as of the date first written above.

Buyer:			Company:
Power3 Medical Products, Inc.			ADVANCED BIO/CHEM, INC. D/B/A PROTEEX
By:	/s/ Tim Novak		By:	/s/ Steven B. Rash
	Tim Novak, President			Steven B. Rash, CEO
		Shareholders:
		/s/ Steven B. Rash
		Steven B. Rash
		/s/ Ira L. Goldknopf
		Ira Goldknopf

EX-3.1

Exhibit 3.1

ARTICLES OF INCORPORATION OF
SHEFFELD ACRES, INC.

Under Section 402 of the Business Corporation Law.

KNOWN ALL PERSONS BY THESE PRESENTS, that the undersigned, for the purpose of forming a corporation pursuant to Section 402 of the Business Corporation Law of the State of New York, does hereby certify and set forth:

ARTICLE I — Name

The name of this corporation is SHEFFELD ACRES, INC.

ARTICLE II — Purposes and Powers

Section 1. Purpose. The purpose(s) for which the corporation is formed are:

< p style="margin:0in 0in .0001pt;text-indent:.5in;">To engage in any lawful act or activity for which corporation may be organized under the business corporation law, provided that the corporation is not formed to engage in any act or activity which requires the act or approval of any state official, department, board, agency or other body without such approval or consent first being obtained.

To carry on a general mercantile, industrial, investing and trading business in all its branches; to devise, invent, manufacture, fabricate, assemble, install, service, maintain, alter, buy, sell, import, export, license as licenser or licensee, leases lessor or lessee, distribute, job, enter into, negotiate, execute, a cquire, and assign contracts in respect of, acquire, receive, grant, and assign licensing arrangements, portions, franchises, and other rights in respect of and generally deal in and with at wholesale and retail, as principal, and as sales, business, special, or general agent, representative, broker, factor, merchant, distributor, jobber, advisor, or in any other lawful capacity, goods, wares, merchandise,  commodities,  and unimproved, improved, finished, processed and other real, personal and mixed property of any and all kinds, together with the components, resultants and by-products thereof..

To create, manufacture, contract for, sell, import, export, distribute, job and generally deal in and with, whether at wholesale or retail, and as principal, agent, br oker, factor, commission

merchant, licenser, licensee or otherwise, any and all kinds of goods, wars, and merchandise, and in connection therewith or independent thereof, to establish and maintain, by any manner or means, buying offices, distribution centers, specialty and other shops, stores, mail-order establishments, concessions, leased departments, and any and all other departments, sites and location necessary, convenient or useful in the furtherance of any business of the corporation.

To acquire by purchase, subscription, underwriting or otherwise, and to own, hold for investment, or otherwise, and to use, sell, assign, transfer, mortgage, pledge, exchange or otherwise dispose of real and per sonal property of every sort and description and wheresoever situated, including shares of stock, bonds, debentures,  notes, scrip, securities,  evidences of indebtedness, contracts or obligations of any corporation or association, whether domestic or foreign, or of any firm or individual or of the United States or any state, territory or dependency of the United States or any foreign country, or any municipality or local authority within or without the United States, and also to issue in exchange therefore, stocks, bonds or other securities or evidences of indebtedness of this corporation and, while the owner or holder of any such property, to receive, collect and dispose of the interest, dividends and income on or from such property and to possess and exercise in respect thereto all of the rights, powers and privileges of ownership. Including all voting powers thereon.

To construct, build purchase, lease or otherwise acquire, equip, hold, own, improve, develop, manage, maintain, control, operate, lease, mortgage, create liens upon, sell convey or otherwise dispose of and turn to account, any and all plants, machinery, works, implements and things or property, real and personal, of every kind and description, incidental to, connected with, or suitable, necessary or convenient for any of the purposes enumerated herein, including all or any part or parts of the properties, assets, business and good will of any persons, firms, associations or corporations.

The powers, right and privileges provided in this certificate are not to be deemed to be in limitation of similar, other or additional powers, rights and privileges granted or permitted to a corporation by the Business Corporation Law, it being intended that this corporation shall have all the rights, powers and privileges granted or permitted to a corporation by such statute.

ARTICLE III — Corporation Office

The office of the corporation is to be located in the County of Monroe, State of New York.

ARTICLE IV — Number of Shares

The aggregate number of shares which the corporation shall have the authority to issue is Twenty Million (20,000,000), all of which shall have a par value of One ($.001) Mill.

ARTICLE V — Agent for the Corporation

The Secretary of State is designated as agent of the corporation upon whom process against it may be served. The post office address to which the Secretary of State shall mail a copy of any process against the corporation served upon him is:

87 Armstrong Road

Rochester, New York  14616

ARTICLE VI — Directors Liability

The personal liability of directors to the corporation or its shareholders for damages for any breach of duty in such capacity is hereby eliminated except that such personal liability shall not be eliminated if a judgment or other final adjudication adverse to such director establishes that his acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that he personally gained in fact a financial profit or other advantage to which he was not legally entitled or that his acts violated Section 719 of the Business Corporation Law.

No shareholder of this corporation shall have a preemptive right because of his shareholdings to have first offered to him any part of any of the presently authorized shares of this corporation hereafter issued, optioned or sold, or any part of any debentures, bonds, notes or securities of this corporation convertible into shares hereafter issued, optioned or sold by the corporation. This provision shall operate to defeat rights in all shares and classes of shares now authorized and in all debentures, bonds, notes or securities of the corporation which may be convertible in to shares and also to defeat preemptive rights in any and all shares and classes of shares and securities convertible into shares which this corporation may be hereafter authorized to issue by any amended certificate duly filed.

IN WITNESS WHEREOF, this certificate has been subscribed to this 4^th day of May 1993 by the undersigned, who affirms that the statements made herein are true under the penalties of perjury.

/S/ Morris Diamond

MORRIS DIAMOND

105 SOUTHERN PARKWAY

ROCHESTER, NEW YORK 14618

EX-3.2

Exhibit 3.2

CERTIFICATE OF MERGER

CERTIFICATE OF MERGER OF SURGICAL SAFETY PRODUCTS, INC.,
INTO SHEFFELD ACRES,INC.,
UNDER ss.904 OF THE BUSINESS CORPORATION LAW.

We, G. Michael Swor and Jim Stuart, being respectively President and Secretary of Sheffeld Acres, Inc. a New York corporation, and we G. Michael Swor and Jim Stuart, being respectively President and Secretary of Surgical Safety Products, Inc. a Florida corporation, do hereby certify that said corporations have mutually agreed to, and hereby do, unite and merge into a single corporation under the same of Sheffeld Acres, Inc., pursuant to ss.904 of the New York Business Corporation Law.

The names of the constituent corporations are Surgical Safety Products, Inc., a Florida corporation and Sheffeld Acres, Inc., a New York corporation. The surviving corporation shall be Sheffeld Acres, Inc.

The date when the certificate of incorporation of Sheffield Acres Inc., was filed by the department of the State of New York was May 7, 1993. The date when the certificate of incorporation of Surgical Safety Products, Inc., was filed by the Department of State of Florida was May 15, 1992. Sheffield Acres Inc., now has 8,936,440 shares of capital stock outstanding, all of which is common stock and fully entitled to vote, and Surgical Safety Products, Inc., now has 21,383 shares of capital stock outstanding, all of which i s likewise common stock with full voting rights.

A plan of merger was initially agreed upon between the officers and directors of the above-named constituent corporations and was authorized and approved by affirmative vote of more than two-thirds of all outstanding shares of each of them at special meetings of shareholders duly called, noticed and held on November 28, 1994, in accordance with Section 903 of the New York Business Corporation Law, for the expressly stated purpose of considering and obtaining shareholder approval of such plan.

This merger is permitted by the laws of the state of Florida.

Surgical Safety Products, Inc., has never filed an application for authority to do business in the state of New York and this merger is in compliance with the laws of the state of Florida.

Pursuant to ss.902(a)(4) the certificate of incorporation of Sheffield Acres Inc., is hereby amended to change the name of the corporation to Surgical Safety Products, Inc.

This Certificate of Merger is effective on the date of filing.

IN WITNESS WHEREOF, the undersigned being the President and Secretary of the surviving corporation, execute this Certificate of Merger and affirm, subject to penalty of perjury that the statements co ntained herein are true this 27th day of January, 1995.

	SHEFFIELD ACRES INC.		SURGICAL SAFETY PRODUCTS
By:	\s\G M Swor	By:	\s\G M Swor
G. Michael Swor, President		G. Michael Swor,President
By:	\s\J Stuart	By:	\s\J Stuart
Jim Stuart, Secretary		Jim Stuart, Secretary

F950208000161

CERTIFICATE OF MERGER OF SHEFFELD ACRES INC., AND SURGICAL SAFETY PRODUCTS, INC. UNDER ss.904 OF THE NEW YORK BUSINESS CORPORATION LAW.

Please mail certificate to:

Henderson & Becker

c/o Patrick G. King

55 W. Wacker

Suite 1000

Chicago, IL 60601

EX-3.3

Exhibit 3.3

ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF SURGICAL SAFETY PRODUCTS, INC.

Pursuant to Florida Statute Section  607.1006,  the Articles of Incorporation of the above-named corporation (the “Corporation”) are hereby amended, pursuant to a written consent in lieu of meeting executed by all of the stockholders and directors of the Corporation dated the 1st day of June, 1992, as follows:

1. The name of the corporation is:

SURGICAL SAFETY PRODUCTS, INC.

2.Article III of the Articles of Incorporation of the corporation entitled “Capital Stock” is hereby deleted in its entirety and replaced with the following in its place and stead:

Article III.CAPITAL STOCK

The shares of stock of this Corporation shall consist of only one class. The Corporation shall not authorize the issuance of shares in series. The maximum number of shares of stock that the corporation is authorized to have outstanding at any one time is 20,000 shares of common stock.

3.Article IX entitled “Shareholders Preemptive Rights” is hereby denied in its entirety.

4.The foregoing amendments were adopted on the 1^st day of June, 1992.

5.The foregoing amendments were approved by unanimous consent of all stockholders and directors entitled to vote pursuant to Section 607.1006 of Florida Statutes.

IN WITNESS WHEREOF, the undersigned has executed these Articles of Amendment to the Articles of Incorporation of the Corporation this 1st day of June, 1992.

	\s\ G. Michael Swor
G. Michael Swor
President and Director

STATE OF FLORIDA

COUNTY OF SARASOTA

The foregoing instrument was acknowledge before me this 1st day of June, 1992, by G. Michael Swor, President and Director of SURGICAL SAFETY PRODUCTS, INC., a Florida corporation on behalf of said corporation. He is personally known to me and did not take an oath.

	\s\ Nancy M.Reeves
Notary Public

My Commission Expires: (Stamp)

(SEAL)

<PAGE>

(SEAL)

FLORIDA DEPARTMENT OF STATE

Jim Smith

Secretary of State

July 19, 1994

CIS

DANNY

TALLAHASSEE, FL

Re: Document Number V36535

The Articles of Amendment to the Articles of Incorporation for SURGICAL SAFETY PRODUCTS, INC., a Florida corporation, were filed on July 19, 1994. The certification requested in enclosed. Should you have any questions regarding this matter, please telephone (904) 487-6050, the Amendment Filing Section.

Joy Moon-French

Corporate Specialist

Division of Corporations Letter Number: 094A00033233

Division of Corporations P.O. Box 6327 Tallahassee, FL 32314

STATE OF FLORIDA

Department of State

I certify that the attached is a true and correct copy of the Articles of Amendment, filed on July 19, 1994 to Articles of Incorporation for SURGICAL SAFETY PRODUCTS, INC., a Florida corporation, as shown by the records of this office.

The document number of this corporation is V36535.

Given under my hand and the

Great Seal of the State of

Florida at Tallahassee, the

Capital, this the Nineteeth

day of July, 1994

(SEAL)

\s\ Jim Smith

Jim Smith

Secretary of State

ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF SURGICAL SAFETY PRODUCTS, INC.

Pursuant to Florida Statue Section 607.1006, the Articles of Incorporation of the above-named corporation (the “Corporation”) are hereby amended, pursuant to a written consent in lieu of meeting executed by the stockholder holding the majority of the outstanding shares of stock and by all of the directors of the Corporation dated the 6th day of July, 1994, as follows:

5.         ;     The name of the Corporation is:

SURGICAL SAFETY PRODUCTS, INC.

6.Article III of the Articles of Incorporation, as amended, entitled “Capital stock”is hereby deleted in its entirety and replaced with the following in its place and stead:

Article II.CAPITAL STOCK

The shares of stock of this Corporation shall consist of only one class. The Corporation shall not authorize the issuance of shares in series. The maximum number of shares of stock that the corporation is authorized to have outstanding at any one time 100,000 shares of common stock.

7.The foregoing amendments were adopted on the 6th day of July, 1994.

8.The number of votes cast for the amendment by the shareholders was sufficient for approval pursuant to Section 607.1006 of Florida Statues.< /font>

IN WITNESS WHEREOF, the undersigned has executed these Articles of Amendment to the Articles of Incorporation of the Corporation this 6th of July, 1994.

/s/ G.Michael Swor

G. Michael Swor

President and CEO

STATE OF FLORIDA

COUNTY OF SARASOTA

The foregoing instrument was acknowledges before me this 6th day of July, 1994, by G. Michael Swor, President and CEO of Surgical Safety Products, Inc., a Florida corporation on behalf of said corporation. He is personally known to me and did not take an oath.

\s\E.Jane Hall

Name: E. Jane Nall

Notary Public

My Commission Expires:

(SEAL/STAMP)

EX-3.4

Exhibit 3.4

Certificate of Amendment of the Certificate of Incorporation of
Surgical Safety Products, Inc. f/k/a Sheffeld Acres Inc.
under Section 805 of the Business Corporate Law

AMENDMENT TO ARTICLES OF INCORPORATION

IT IS HEREBY CERTIFIED THAT:

(1)     &# 160;     The name of the corporation is

Surgical Safety Products, Inc., f/k/a Sheffeld Acres Inc.

(2)The certificate of incorporation was filed by the department of state on the 7th day of May 1993.

(3)The certificate of incorporation of this corporation is hereby amended to effect the following change

The Certificate of Incorporation is amended to increase the number of shares that the corporation shall have the authority to isssue.

Article IV of the Certificate of Incorporation is amended to read a s follows:

ARTICLE IV - Number of Shares

The aggregate number of share of Common Stock that the corporation shall have the  authority  to issue is One  Hundred  Million, (100,000,000), all of which shall have a par value of One Mil ($.0001).

The Board of Directors, as it shall determine (1) shall have authority to issue other classes of shares and the authority to establish the class, the aggregate number of shares in such class, whether the class is with or without par value and the relative rights, preferences and limitations of the class and (2) shall have the authority to issue any and all series of any classes of preferred shares and any and all of the designations of

EX-3.5

Exhibit 3.5

CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION
OF
POWER 3 MEDICAL PRODUCTS, INC.

UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW

Article 1. The name of the Corporation is Power 3 Medical Products, Inc. f/k/a Sheffeld Acres, Inc. (the “Corporation”).

Article 2. The Certificate of Incorporation of the Corporation was filed with the Department of State of the State of New York on May 7, 1993.

Article 3. This Certificate of Amendment of the Certificate of Incorporation of Power 3 Medical Products, Inc. is filed for the purpose of amending the Certificate of Incorporation to amend and restate the powers, designations and relative rights of the Series A Preferred Stock as set forth in the Certificate of Amendment of the Certificate of Incorporation of Power 3 Medical Products, Inc. dated May 1, 2003. As amended and restated, such p owers, designations and relative rights are as follows:

1.Designation and Amount. There shall be a series of Preferred Stock designated as “Series A Preferred Stock,” and the number of shares constituting such series shall be 4,000,000. Such series is referred to herein as the “Series A Preferred Stock.”

2.Stated Capital. The amount to be represented in stated capital at all times for each share of Series A Preferred Stock shall be $.001.

3.Rank. All shares of Series A Preferred Stock shall rank prior to all of the Corporation’s Common Stock, par value $.001 per share (the “Common Stock”), now or hereafter issued, both as to payment of dividends and as to distributions of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary.

4.Dividends. If any dividend or other distribution payable in cash, securities or other property, including a dividend payable in shares of Common Stock, is declared on the Common Stock, each holder of shares of Series A Preferred Stock on the record date for such dividend or distribution shall be entitled to receive on the date of payment or distribution of such dividend or other distribution the same cash, securities or other property which such holder would have received on such record date if such holder was the holder of record of the number (including

any fraction) of shares of Common Stock into which the shares of Series A Preferred Stock then held by such holder are then convertible. No dividend or other distribution shall be declared or paid on the Common Stock unless an equivalent dividend or other distribution that satisfies this Section 4 is declared or paid on the Series A Preferred Stock.

5.Liquidation Preference.

(a)The liquidation value of shares of this Series A Preferred Stock, in case of the voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, shall be $.10 per share, plus an amount equal to the dividends accrued and unpaid thereon to the payment date.

(b)In the event of any vo luntary or involuntary liquidation, dissolution or winding-up of the Corporation, the holders of shares of this Series A Preferred Stock shall not be entitled to receive the liquidation value of such shares held by them until the liquidation value of all Senior Shares shall have been paid in full and shall be entitled to receive the liquidation value of such shares held by them in preference to and in priority over any distributions upon the Common Shares and all Junior Shares. Upon payment in full of the liquidation value to which the holders of shares of this Series A Preferred Stock are entitled, the holders of shares of this Series A Preferred Stock will not be entitled to any further participation in any distribution of assets by the Corporation. If the assets of the Corporation are not sufficient to pay in full the liquidation value payable to the holders of shares of this Series A Preferred Stock and the liquidation value payable to the holders of all Parity Shares, the holders of all such shares shall share ratably in such distribution of assets in accordance with the amounts which would be payable on such distribution if the amounts to which the holders of shares of this Series A Preferred Stock and the holders of Parity Shares are entitled were paid in full.

(c)Neither a consolidation or merger of the Corporation with or into any other corporation, nor a merger of any other corporation with or into the Corporation, nor a sale or transfer of all or any part of the Corporation’s assets for cash or securities or other property shall be considered a liquida tion, dissolution or winding-up of the Corporation within the meaning of this Paragraph 5.

6.Voting Rights.

Except as otherwise required by law, holders of Series A Preferred Stock are not entitled to vote.

7.No Redemption.

The shares of Series A Preferred Stock are not redeemable.

8.Conversion Provisions.

(a)Conversion at Option of Holders. Each share of Series A Preferred Stock shall be convertible at the option of the holder thereof, at any time after October 31, 2004, into fully paid and nonassessable shares of Common Stock and such other securities and property as hereinafter provided, initially at the rate of .7752 shares of Common Stock for each full share of Series A Preferred Stock (“Conversion Ratio”).

For the purpose of this Certificate of Amendment of the Certificate of Incorporation, the term “Common Stock” shall initially mean the class designated as Common Stock, par value $.001 per share, of the Corporation as of May 5, 2004 subject to adjustment as hereinafter provided.

(b)Mechanics of Conversion. Any holder of shares of Series A Preferred Stock desiring to convert such share s into Common Stock shall surrender the certificate or certificates for such shares of Series A Preferred Stock at the office of the transfer agent for the Series A Preferred Stock, which certificate or certificates, if the Corporation shall so require, shall be duly endorsed to the Corporation or in blank, or accompanied by proper instruments of transfer to the Corporation or in blank, accompanied by irrevocable written notice to the Corporation that the holder elects so to convert such shares of Series A Preferred Stock and specifying the name or names (with address) in which a certificate or certificates for Common Stock are to be issued. No adjustments in respect of any dividend on the Common Stock issued upon conversion shall be made upon the conversion of any shares of Series A Preferred Stock.

Any accrued and unpaid dividends on shares surrendered for conversion shall be paid upon the conversion of any shares of Series A Preferred Stock by issuing additional shares of Common Stock with an aggregate value based upon the Current Market Value (as defined below) as of the effective date of conversion equal to all accrued and unpaid dividends on the shares of Series A Preferred Stock converted.

The Corporation will, as soon as practicable after such deposit of certificates for Series A Preferred Stock accompanied by the written notice and, compliance with any other

conditions herein contained, deliver at the office of the transfer agent to the person for whose account such shares of Series A Preferred Stock were so surrendered, or to his nominee or nominees, certificates for the number of full shares of Common Stock to which he shall be entitled as aforesaid, together with a cash adjustment of any fraction of a share as hereinafter provided. Subject to the following provisions of this paragraph, such conversion shall be deemed to have been made as of the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or person entitled to receive the Common Stock deliverable upon conversion of such Series A Preferred Stock shall be treated for all purposes as the record holder or holders of such Common Stock on such date; provided, however, that the Corporation shall not be required to convert any shares of Series A Pre ferred Stock while the stock transfer books of the Corporation are closed for any purpose, but the surrender of Series A Preferred Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books as if the surrender had been made on the date of such reopening, and the conversion shall be at the conversion rate in effect on such date.

(c)The Conversion Ratio shall be subject to adjustment as follows:

(i)In case the Corporation shall (A) pay a dividend or make a distribution in Common Stock, or (B) subdivide or reclassify its outstanding shares of Common Stock into a greater number (but not smaller number) of shares, the Conversion Ratio in effect immediately prior thereto shall be adjusted retroactively as provided below so that the Conversion Ratio thereafter shall be determined by multiplying the Conversion Ratio at which such shares of this Series A Preferred Stock were theretofore convertible by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately following such action and of which the denominator shall be th e number of shares of Common Stock outstanding immediately prior thereto. Such adjustment shall be made whenever any event listed above shall occur and shall become effective retroactively immediately after the record date in the case of a dividend and shall become effective immediately after the effective date in the case of a subdivision or reclassification.

(ii)In case the Corporation shall issue rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the record date therefor) to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of Common Stock (as determined in accordance with the provisions of subclause (iv) of this clause (d)) at the record date therefor (the “Current Market Price”), or in case the Corporation shall issue other securities convertible into or exchangeable for Common

Stock for a consideration per share of Common Stock deliverable upon conversion or exchange thereof less than the Current Market Price; then the Conversion Ratio in effect immediately prior thereto shall be adjusted retroactively as provided below so that the Conversion Ratio therefor shall be equal to the price determined by multiplying the Conversion Ratio at which shares of this Series A Preferred Stock were theretofore convertible by a fraction of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such convertible or exchangeable securities, rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase and of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such shares, convertible or exchangeable securities, rights or warrants plus the number of additional shares of Common Stock which the aggregate offering price of the number of shares of Common Stock so offered would purchase at the Current Market Price per share of Common Stock (as determined in accordance with the provisions of subclause (iv) of this clause (d)). Such adjustment shall be made whenever such convertible or exchangeable securities rights or warrants are issued, and shall become effective retroactively immediately after the record date for the determination of stockholders entitled to receive such securities. However upon the expiration of any right or warrant to purchase Common Stock the issuance of which resulted in an adjustment in the Conversion Ratio pursuant to this subclause (ii), if any such right or warrant shall expire and shall not have been exercised, the Conversion Ratio shall be recomputed immediately upon such expiration and effective immediately upon such expiration shall be increased to the price it would have been (but reflecting any other adjustments to the Conversion Ratio made pursuant to the provisions of this clause (d) after the issuance of such rights or warrants) had the adjustment of the Conversion Ratio made upon the issuance of such rights or warrants been made on the basis of offering for subscription or purchase only that number of shares of Common Stock actually purchased upon the exercise of such rights or warrants actually exercised.

(iii)In case the Corporation shall distribute to all holders of its Common Stock (including any such distribution made in connection with a consolidation or merger in which the Corporation is the co ntinuing corporation) shares of capital stock (other than Common Stock), evidences of its indebtedness or assets (excluding cash dividends) or rights to subscribe (excluding those referred to in subclause (ii) of this clause (d)), then in each such case the number of shares of Common Stock into which each share of this Series A Preferred Stock shall thereafter be convertible shall be determined by multiplying the number of shares of Common Stock into which such share of this Series A Preferred Stock was theretofore convertible by a fraction of which the numerator shall be the number of outstanding shares of Common Stock multiplied by the Current Market Price per share of Common Stock (as determined in accordance with the provisions of subclause

(iv)of this clause (d)) on the date of such distribution and of which the denominator shall be the product of the number of outstanding shares of Common Stock and the Current Market Price per share of Common Stock, less the aggregate fair market value (as determined by the Board of Directors of the Corporation, whose determination shall be conclusive, and described in a statement filed with the transfer agent for the shares of this Series A Preferred Stock) of the capital stock, assets or evidences of indebtedness so distributed or of such subscription rights. Such adjustment shall be made whenever any such distribution is made, and shall become effective retroactively immediately after the record date for the det ermination of stockholders entitled to receive such distribution.

(iv)For the purpose of any computation under subclause (ii) and (iii) of this clause (d) and under clause (b) above, the Current Market Price per share of Common Stock at any date shall be deemed to be the average Sale Price for the thirty consecutive trading days commencing forty-five trading days before the day in question. As used herein, “Sale Price” means the closing sales price of the Common Stock (or if no sale price is reported, the average of the high and low bid prices) as reported by the pr incipal national or regional stock exchange on which the Common Stock is listed or, if the Common Stock is not listed on a national or regional stock exchange, as reported by national Association of Securities Dealers Automated Quotation System and if not so reported then as reported by the Electronic Bulletin Board or the National Quotation Bureau Incorporated.

(v)No adjustment in the Conversion Ratio shall be required unless such adjustment would require an increase or decrease of at least 1% in the price then in effect; provided, however, that any adjustments which by reason of this sub clause (v) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Paragraph 8 shall be made to the nearest cent.

(vi)In the event that, at any time as a result of an adjustment made pursuant to subclause (i) or subclause (iii) of this clause (d), the holder of any share of this Series A Preferred Stock thereafter surrendered for conversion shall become entitled to receive any shares of the Corporation other than shares of the Common Stock, thereafter the number of such other shares so receivable up on conversion of any share of this Series A Preferred Stock shall be subject to adjustment from time to time in a manner and on the terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in subclauses (i) through (v) of this clause (d), and the other provisions of this clause (d) with respect to the Common Stock shall apply on like terms to any such other shares.

(vii)Whenever the conversion rate is adjusted, as herein provided, the Corporation shall promptly file with the transfer agent for this Series A Preferred Stock, a certificate of an officer of the Corporation setting forth the conversion rate after such adjustment and setting forth a brief statement of the facts requiring such adjustment and a computation thereof. Such certificate shall be conclusive evidence of the correctness of such adjustment. The Corporation shall promptly cause a notice of the adjusted conversion rate to be mailed to each registered holder of shares of this Ser ies A Preferred Stock.

(d)If any of the following events occur, namely (i) any reclassification or change (other than a combination of reclassification into a smaller number of shares) of outstanding shares of Common Stock issuable upon conversion of shares of this Series A Preferred Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision) or (ii) any consolidation or merger to which the Corporation is a party (other than a consolidation or merger to which the Corporation is the conti nuing corporation and which does not result in any classification of, or change (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision) in, outstanding shares of Common Stock); then the Corporation or such successor, as the case may be, shall provide in its Certificate of Incorporation that each share of this Series A Preferred Stock shall be convertible into the kind and amount of shares of stock and other securities or property receivable upon such reclassification, change, consolidation or merger by a holder of the number of shares of Common Stock issuable upon conversion of each such share of this Series A Preferred Stock immediately prior to such reclassification, change, consolidation or merger. Such Certificate of Incorporation shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in clause (d). The Corporation shall cause notice of the execution of any such event contemplated by this clause (d) to be mailed to each holder of shares of this Series A Preferred Stock as soon as practicable.

The above provisions of this clause (d) shall similarly apply to successive reclassifications, consolidations and mergers.

9.Protective Provisions.

(a)Reservation of Shares; Transfer Taxes; Etc. The Corporation shall at all times serve and keep available, out of its authorized and unissued stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, such number of shares of its Common Stock free of preemptive rights as shall from time to time be sufficient to effect the conversion of

all shares of Series A Preferred Stock from time to time outstanding. The Corporation shall from time to time, in accordance with the laws of the State of New York, increase the authorized number of shares of Common Stock if at any time the number of shares of Common Stock not outstanding shall not be sufficient to permit the conversion of all the then outstanding shares of Series A Preferred Stock.

If any shares of Common Stock required to be reserved for purposes of conversion of the Series A Preferred Stock hereunder require registration with or approval of any governmental authority under any Federal o r State law before such shares may be issued upon conversion, the Corporation will in good faith and as expeditiously as possible endeavor to cause such shares to be duly registered or approved, as the case may be. If the Common Stock is listed on the New York Stock Exchange or any other national securities exchange, the Corporation will, if permitted by the rules of such exchange, list and keep listed on such exchange, upon official notice of issuance, all shares of Common Stock issuable upon conversion of the Series A Preferred Stock.

The Corporation will pay any and all issue or other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of the Series A Preferred Stock. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of Common Stock (or other securities or assets) in a name other than that which the shares of Series A Preferred Stock so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

(b)Prior Notice of Certain Events. In case:

(i)The Corporation shall (1) declare any dividend (or any other distribution) on its Common Stock, other than (A) a dividend payable in shares of Common Stock or (B) a dividend payable in cash out of its retained earnings other than any special or nonrecurring or other extraordinary dividend or (2) declare or authorize a redemption or repurchase of in excess of 10% of the than-outstanding shares of Common Stock; or

(ii)the Corporation shall authorize the granting to the holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or of any other rights or warrants (other than any rights specified in subclause (ii) of clause (d) of this Paragraph 9); or

(iii)of any reclassification of Common Stock (other than a subdivision of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Corporation is a party and for which approval of any stockholders of the Corporation shall be required, or of the sale or transfer of all or substantially all of the assets of the Corporation or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or

(iv)of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall cause to be filed with the transfer agent for the Series A Preferred Stock, and shall cause to be mailed to the holders of record of the Series A Preferred Stock, at their last address as they shall appear upon the stock transfer books of the Corporation, at least 15 days prior to the applicable record date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption or granting of rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rede mption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice).

(c)Class Voting Rights. So long as the Series A Preferred Stock is outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of all outstanding Series A Preferred Stock voting separately as a class, (i) amend, alter or repeal (by merger or otherwise) any provision of the Articles of Incorporation or the By-Laws of the Corporation, as amended, so as adversely to affect the relative rights, preferences, qualifications, limitations or restrictions of the Series A Preferred Stock, (ii) authorize or issue, or increase the authorized amount of, any additional class or series of stock, or any security convertible into stock of such class or series, ranking prior to the Series A Preferred Stock in respect of the payment of dividends or upon liquidation, dissolution or winding up of the Corporation or (iii) effe ct any reclassification of the Series A Preferred Stock. A class vote on the part of the Series A Preferred Stock shall, without limitation, specifically not be deemed to be required (except as otherwise required by law or resolution of the Corporation’s Board of Directors) in connection with: (a) the

authorization, issuance or increase in the authorized amount of any shares of any other class or series of stock which ranks junior to, or on a parity with, the Series A Preferred Stock in respect of the payment of dividends and distributions upon liquidation, dissolution or winding up of the Corporation; or (b) the authorization, issuance or increase in the amount of any bonds, mortgages, debentures or other obligations of the Corporation.

The affirmative vote or consent of the holders of a majority of the outstanding Series A Preferred Stock, voting or consenting separately as a class, shall be required to (a) authorize any sale, lease or conveyance o f all or substantially all of the assets of the Corporation, or (b) approve any merger, consolidation or compulsory share exchange of the Corporation with or into any other person unless (i) the terms of such merger, consolidation or compulsory share exchange do not provide for a change in the terms of the Series A Preferred Stock and (ii) the Series A Preferred Stock is, after such merger, consolidation or compulsory share exchange on a parity with or prior to any other class or series of capital stock authorized by the surviving corporation as to dividends and upon liquidation, dissolution or winding up other than any class or series of stock of the Corporation prior to the Series A Preferred Stock as may have been created with the affirmative vote or consent of the holders of at least 66-2/3% of the Series A Preferred Stock (or other than a class or series into which such prior stock is converted as a result of such merger, consolidation or share exchange).

10.Outstanding Shares. For purposes of this Certificate of Designation, all shares of Series A Preferred Stock shall be deemed outstanding except (i) from the date of surrender of certificates representing shares of Series A Preferred Stock, all shares of Series A Preferred Stock converted into Common Stock; (ii) from the date of registration of transfer, all shares of Series A Preferred Stock held of record by the Corporation or any subsidiary of the Corporation.

11.Certain Definitions. As used in this Certificate, the following terms shall have the following respective meanings:

“Affiliate” of any specified person means any other person directly or indirectly controlling or controlled by or under common control with such specified person. For purposes of this definition, “control” when used with respect to any person means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities or otherwise; and the term “controlling” and “controlled” having meanings correlative to the foregoing.

“Common Shares” shall mean any stock of the Corporation which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation and which is not subject to redemption by the Corporation. However, Common Shares issuable upon conversion of shares of this Series A Preferred Stock shall include only shares of the class designated as common Shares as of the original date of issuance of shares of this Series A Preferred Stock, or shares of the Corporation of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation and which are not subject to redemption by the Corporation; provided that if at an y time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from such reclassifications bears to the total number of shares of all classes resulting from all such reclassifications.

“Junior Shares” shall mean shares of any series or class of the Corporation which are by their terms expressly made junior to shares of this Series A Preferred Stock at the time outstanding either as to dividends or as to the distribution of assets on any voluntary or involuntary liquidation of the Corporation.

“Parity Shares” shall mean shares which are by their terms on a parity with the shares of this Series A Preferred Stock at the time outstanding both as to dividends and as to the distribution of assets on any voluntary or involuntary liquidation of the Corporation. For purposes of this Paragraph 11 Parity Shares shall mean shares which are by their terms on a parity with the shares of this Series A Preferred Stock at the time outstanding as to dividends regardless of such shares preference with respect to liquidation.

“Senior Shares” shall mean any class of shares of the Corporation ranking prior to at least one other class of shares of the Corporation as to dividends for purpose s of Paragraph 4 and the distribution of assets on any voluntary or involuntary liquidation of the Corporation for purposes of Paragraph 5.

12.Securities Not Registered Under the Securities Act of 1933. Neither the shares of Series A Preferred Stock nor the Common Stock issuable upon conversion thereof has been registered under the Securities Act of 1933 or the laws of any state of the United States and may not be transferred without such registration or an exemption from registration.

(a)Restrictive Legends. Each share of Series A Preferred Stock and certificate for Common Stock issued upon the conversion of any shares of Series A Preferred Stock, and each preferred stock certificate issued upon the transfer of any such shares of Series A Preferred Stock or Common Stock (except as otherwise permitted by this Section 12), shall be stamped or otherwise imprinted with a legend in substantially the following form:

“The securities repr esented hereby have not been registered under the Securities Act of 1933. Such securities may not be sold or transferred in the absence of such registration or an exemption therefrom under said Act.”

(b)Notice of Proposed Transfer; Opinions of Counsel. Except as provided in Paragraph (c) of this Section 11, prior to any transfer of any such shares of Series A Preferred Stock, or Common Stock, the holder thereof will give written notice to the Corporation of such holder’s intention to effect such transfer and to comply in all other respects with this Section 11 . Each such notice (A) shall describe the manner and circumstances of the proposed transfer in sufficient detail to enable counsel to render the opinions referred to below, and (B) shall designate counsel for the holder giving such notice (who may be house counsel for such holder). The holder giving such notice will submit a copy thereof to the counsel designated in such notice and the Corporation will promptly submit a copy thereof to its counsel, and the following provisions shall apply:

(i)If in the opinion of each such counsel the proposed transfer of such shares of Ser ies A Preferred Stock or Common Stock may be effected without registration under the Act, the Corporation will promptly notify the holder thereof and such holder shall thereupon be entitled to transfer such shares of Series A Preferred Stock or Common Stock in accordance with the terms of the notice delivered by such holder to the Corporation. Each share of Series A Preferred Stock or certificate, if any, issued upon or in connection with such transfer shall bear the appropriate restrictive legend set forth in Paragraph (a) of this Section 12, unless in the opinion of each such counsel such legend is no longer required to insure compliance with the Act. Except as provided in subclause (ii) below, if for any reason counsel for the Corporation (after having been furnished with the information required to be furnished by this Paragraph (b)) shall fail to deliver an opinion of the Corporation, or the Corporation shall fail to notify such holder thereof as aforesaid, within 20 days a fter counsel for such holder shall have delivered its opinion to such holder (with a copy to the Corporation), then for all purposes of this Certificate of Designation the opinion of counsel for the Corporation shall be deemed to be the same as the opinion of counsel for such holder.

(ii)If in the opinion of either or both of such counsel the proposed transfer of such shares of Series A Preferred Stock or Common Stock may not be effected without registration under the Act, the Corporation will promptly so notify the holder thereof and thereafter such holder shall not be entitled to transfer such share of Series A Preferred Stock or Common Stock until receipt of a further notice from the Corporation under subclause (i) above or, in the case of Common Stock, until registration of such Common stock under the Act has become effective.

13.Preemptive Rights. The Series A Preferred Stock is not entitled to any preemptive or subscription rights in respect of any securities of the Corporation.

14.Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be necessary to render the provision in question effective and valid under applicable law.

Article 4. This Certificate of Amendment of the Certificate of Incorp oration was authorized by the Board of Directors pursuant to Section 708 of the New York Business Corporation Law and by the holders of the outstanding Series A Preferred Stock pursuant to Section 804 of the New York Business Corporation Law.

IN WITNESS WHEREOF, Power 3 Medical Products, Inc. has caused this certificate to be signed by its Chief Executive Officer as of the 28th day of October, 2004.

POWER 3 MEDICAL PRODUCTS, INC.
By:	/s/ Steven B. Rash
Name: Steven B. Rash
Title: Chief Executive Officer

EX-3.6

Exhibit 3.6

BYLAWS OF
POWER3 MEDICAL PRODUCTS, INC.

ARTICLES I

Offices

The principal office of the corporation shall be located in the State of New York in the County of Monroe.  The corporation may have such other offices, either within or outside the state, as the Board of Directors may designate or as the business of the corporation may require from time to time.  The registered office of the corporation may be, but need not be, identical with the principal office, and the address of the registered office may be changed from time to time by the Board of Directors.

ARTICLE II

Shareholders

Section 1.  Annual Meeting.  The annual meeting of the shareholders shall be hold at the 4 o’clock 4:00 p.m. on the Third Tuesday in the month of January in each year, beginning with the year 1994.  If the day fixed of the annual meeting shall be a legal holiday, such meeting shall be held of the next succeeding business day.

Section 2.  Special Meetings.  Special meetings of the shareholders, for any purpose, unless otherwise prescribed by statues, may be called by the president or by the Board of Directors, and shall be called by the president at the request of the holders of not less than one-tenth on all the outstanding shares of the corporation entitled to vote at the meeting.

Section 3.  Place of Meeting.  The Board of Directors may designate any place as the place for any annual meeting or for any special meeting called by the Board of Directors.  A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place as the place for such meeting.  If no designation is made, or if a special meeting shall be called otherwise than by the Board, the place of meeting shall be the registered office of the corporation.

Section 4.  Notice of Meeting.  Written or printed notice stating the place, day and hour of the meeting, and, in case of a special meeting, the purposes for which the meeting is called, shall be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting, except that if the authorized capital stock is to be increased at least thirty days notice shall be given.  If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid.  If requested by the person or persons lawfully calling such meeting, the secretary shall give notice thereof at corporation expense.

Section 5.  Closing of Transfer of Books or Fixing of Record Date.  For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may provide that the stock transfer books shall be closed for any stated period not exceeding fifty days.  If the stock transfer books shall be closed for the purpose of

determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days, immediately preceding such meeting.  In lieu of closing the stock transfer books the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to e not more than fifty days, and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken.  If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall the record date for such determination of shareholders.  When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof except where the determination has been made through the closing of the stock transfer books and the stated period of the closing has expired.

Section 6.  Voting Lists.  The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each.  For a period of ten days prior to such meeting, this list shall be kept on file at the principal office of the corporation and shall be subject to inspection by any shareholder at any time during usual business hours.  Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder at any time during usual business hours.  Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting.  The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders.

Section 7.  Quorum.  Fifty One Percent (51%) of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum of the outstanding shares are represented at a meeting, a majority of the shares so represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice.  At such adjourned meetings at which a quorum shall be presented or represented, at any business may be transacted which might have been transacted at the meeting as originally notified.  The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

If a quorum is present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by law or the articles of incorporation.

Section 8. Proxies.  At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or his or her duly authorized attorney-in-fact.  Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting.  No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.

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Section 9.  Voting of Shares.  Each outstanding share, regardless of class, shall be entitled to one vote, and each fractional share shall be entitled to a corresponding fractional vote on each matter submitted to a vote at a meeting of shareholders.  Cumulative voting shall not be allowed.

Section 10.  Voting of Shares by Certain Holders.  Neither treasury shares, nor shares of its own stock held by the corporation in a fiduciary capacity, nor shares held by another corporation if a majority of the shares entitled to vote for the election of Directors of such other corporation is held by this corporation, shall be voted in any meeting or counted in determining the total number of outstanding shares at any given time.  Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe or, in the absence of such provision, as administrator, executor, guardian or conservator may be voted by him or her, either in person or by proxy, without a transfer of shares into his or her name.  Shares standing in the name of a trustee may be voted by him or her, either in person or by proxy, but no trustee shall be entitled to vote shares held by him or her without a transfer of such shares into his or her name.  Shares standing in the name of a receiver may be voted by such receiver, an shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority to do so be contained in an appropriate order of the court by which such receiver was appointed.  A shareholders whose shared are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pleaded, and thereafter the pledges shall be entitled to vote the shares so transferred.

Section 11.  Informal Action by Shareholders.  Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof.  Such consent shall have the same force and effect as a unanimous vote of the shareholders.

ARTICLE III

Board of Directors

Section 1.  General Powers.  The business and affairs of the corporation shall be managed by its Board of directors, except as otherwise provided by statute or the articles of incorporation.

Section 2.  Number, Tenure and Qualifications.  The number of Directors of the corporation shall be not less than three nor more than five, unless a lesser number is allowed by statute.  Directors shall be elected at each annual meeting as shareholders.  Each director shall hold office until the next annual meeting of shareholders and thereafter until his or her successor shall have been elected and qualified.

Directors need not be residents of this state or shareholders of the corporation.  Directors shall be removable in the manner provided by statute.

Section 3.  Vacancies.  Any director may resign at any time by giving written notice to the president or to the Board of Directors may be filled by the affirmative vote of a majority of

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the remaining Directors through not less than a quorum.  A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office.  Any Directorship to be filled by the affirmative vote of a majority of the Directors then in office or by an election at an annual meeting or at a special meeting of shareholders called for that purpose, and a director so chosen shall hold office for the term specified in Section 2 above.

Section 4.  Regular Meetings.  A regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately and at the same place as the annual meeting of shareholders.  The board of directors may provide by resolution the time and place for the holding of additional regular meetings without other notice than such resolution.

Section 5.  Special Meetings.  Special meetings of the Board of Directors may be called by or at the request of the president or any two Directors.  The person or persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by them.

Section 6.  Notice.  Notice of any special meeting shall be given personally or mailed to each director at his or her business address, or by notice given at least two days previously by telegraph.  If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid.  If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company.  Any director may waive notice of any meeting.  The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attend a meeting for the express purpose of objection to the transaction of any business because the meeting is not lawfully called or convened.  Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of waiver of notice of such meeting.

Section 7.  Quorum.  A majority of the number of Directors fixed by Section 2 shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at a meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice.

Section 8.  Manner of Acting.  The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

Section 9.  Compensation.  By resolution of the board of Directors, any director may be pain any one or more of the following:  expenses, if any, of attendance at meetings; a fixed sum for attendance at each meeting; or a stated salary as director.  No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefore.

Section 10.  Informal Action by Directors.  Any action required or permitted to be taken at a meeting for the Directors may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors entitled to vote with respect to the subject matter thereof.  Such consent shall have the same force and effect as a unanimous vote of the Directors.

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ARTICLE IV

Officer and Agents

Section 1.  General.  The officers of the corporation shall be a president, one or more vice presidents, a secretary and a treasurer.  The salaries of all the officers of the corporation shall be fixed by the Board of Directors.  One person may hold any tow offices, except that no person may simultaneously hold the offices of president and secretary.

Section 2.  Election and Term of Office.  The officers of the corporation shall be elected by the Board of Directors annually at the first meeting of the Board held after each annual meeting of the shareholders.

Section 3.   Removal.  Any officer or agent may be removed by the Board of Directors whenever in its judgment the best

interests of the corporation will be served thereby.

Section 4.  Vacancies.  A vacancy in any office, however occurring, may be filled by the Board of Directors for the unexpired portion of the term.

Section 5.  President.  The president shall:

a.Subject to the direction and supervision of the Board of Directors, be the chief executive officer of the corporation;

b.Shall have general and active control of its affairs and business and general supervision of its officers, agents and employees; and

c.The president shall have custody of the treasurer’s bond, if any.

Section 6. Vice Presidents.  The vice presidents shall:

a.Assist the president; and

b.Shall perform such duties as may be assigned to them by the president or by the Board of Directors.

Section 7. Secretary. The secretary shall:

a.Keep the minutes of the proceedings of the shareholders and the Board of Directors;

b.See that all notices are duly given in accordance with the provisions of these bylaws or as required by law;

c.Be custodian of the corporate records and of the seal of the corporation and affix the seal to all documents when authorized by the Board of Directors;

d.Keep at its registered office or principal place of business a record containing the names and addresses of all shareholders and the number and class of shareholder by each, unless such a record shall be kept at the office of the corporation’s transfer agent or registrar;

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e.Sign with the president, or vice president, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the Board of Directors;

f.Have general charge of the stock transfer books of the corporation, unless the corporation has a transfer agent; and

g.In general, perform all duties incident to the office as secretary and such other duties as from time to time may be assigned to him or her by the president or by the Board of Directors.

Section 8.  Treasurer.  The treasurer shall:

a.Be the principal financial officer of the corporation;

b.Perform all other duties incident to the office of the treasurer and, upon request of the Board, shall make such reports to it as may be required at any time;

c.Be the principal accounting officer of the corporation; and

d.Have such other powers and perform such other duties as may be from time to time prescribed by the Board of Directors or the president.

ARTICLE V

Stock

Section 1.  Certificates.  The shares of stock shall be represented by consecutively number certificates signed in the name of the corporation by its president or a vice president and the secretary, and shall be sealed with the seal of the corporation or with a facsimile thereof.  No certificat shall be issued until the shares represented thereby are fully paid.

Section 2.  Consideration for Shares.  Shares shall be issued for such consideration, expressed in dollars (but not less that the par value thereof, if any) as shall be fixed from time to time by the Board of directors.  Such consideration may consist, in whole or in part of money, other property, tangible or intangible or in labor or services actually performed for the corporation, but neither promissory notes nor future services shall constitute payment or part payment for shares.

Section 3.  Transfer of Shares.  Upon surrender to the corporation or to a transfer agent of the corporation of a certificate of stock duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and such documentary stamps as may be required by law, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate.  Every such transfer of stock shall be entered on the stock book of the corporation which shall be kept at its principal office, or by its principal office, or by its registrar duly appointed.

Section 4.  Transfer Agents, Registrars and Paying Agents.  The Board may at its discretion appoint one or more transfer agents, registrar and agents for making payment upon any class of stock, bond, debenture or other security of the corporation.

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ARTICLE VI

Indemnification of Officers and Directors

Each director and officer of this corporation shall be indemnified by the corporation against all costs and expense actually and necessarily incurred by him or her in connection with the defense of any action, suit or proceeding in which he or she may be involved or to which he or she may be made a party by reason of his or her begin or having been such director or officer, except in regulation to matters as to which he or she be finally adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty.

ARTICLE VII

Miscellaneous

Section 1.  Waivers of Notice.  Whenever notice is required by law, by the articles of incorporation or by these bylaws, a waiver thereof in writing signed by the director, shareholder or other person entitled to said notice, whether before or after the time stated therein, or his or her appearance at such meeting in person or (in the cause of a shareholders’ meeting) by proxy, shall be equivalent to such notice.

Section 2.  Seal.  The corporation seal of the corporation shall be in the form impressed on the margin hereof.

Section 3.  Fiscal Year.  The fiscal year of the corporation shall be as established by the Board of Directors.

Section 4.  Amendments.  The Board of Directors shall have power to make, amend and repeal the bylaws of the corporation at any regular meeting of the Board or at any special meeting call for the purpose.

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EX-4.1

Exhibit 4.1

EXHIBIT A

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: October        , 2004

Original Conversion Price (subject to adjustment herein): $         (1)

$                        

CONVERTIBLE DEBENTURE

DUE OCTOBER     , 2007

THIS DEBENTURE is one of a series of duly authorized and issued Convertible Debentures of Power 3 Medical Products, Inc., a New York corporation, having a principal place of business at                                                  (the “Company”), designated as its Convertible Debenture, due October        , 2007 (the “Debentures”).

FOR VALUE RECEIVED, the Company promises to pay to                                                     or its registered assigns (the “Holder”), the principal sum of $                                    on October        , 2007 or such earlier date as the Debentures are required or permitted to be repaid as provided hereunder (the “Maturity Date”).  This Debenture is subject to the following additional provisions:

(1)As to the Debentures issued at the First Closing, 75% of the Market Price and as to the Debentures issued at the Second Closing, the lesser of (a) 75% of the Market Price and (b) the lesser of (i) the average of the 5 consecutive Closing Prices immediately prior to the Effective Date (as defined in the Purchase Agreement) and (ii) the Closing Price on the Effective Date.

Section 1.Definitions.  For the purposes hereof, in addition to the terms defined elsewhere in this Debenture: (a) capitalized terms not otherwise defined herein have the meanings given to such terms in the Purchase Agreement, and (b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(e)(iii).

“Business Day” means any day except Saturday, Sunday and any day which shall be a federal legal holiday in the United States or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.

“Change of Control Transaction” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company, or (ii) a replacement at one time or within a three year period of more than one-half of the members of the Company’s board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), or (iii) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i) or (ii).

“Closing Price” means on any particular date (a) the daily volume weighted average price per share of Common Stock on such date (or the nearest preceding date) on the Trading Market (as reported by Bloomberg L.P. based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time) using the VAP function, or (b) if the Common Stock is not then listed or quoted on the Trading Market and if prices for the Common Stock are then reported in the “pink sheets” published by the National Quotation Bureau Incorporated (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (c) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined by a nationally-recognized independent appraiser selected in good faith by the Purchasers of a majority in interest of the principal amount of Debentures then outstanding and reasonably acceptable to the Company.

“Common Stock” means the common stock, par value $0.001 per share, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed.

“Conversion Date” shall have the meaning set forth in Section 4(a) hereof.

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“Conversion Price” shall have the meaning set forth in Section 4(b).

“Conversion Shares” means the shares of Common Stock issuable upon conversion of Debentures in accordance with the terms hereof.

“Dilutive Issuance” shall have the meaning set forth in Section 5(b) hereof.

“Effectiveness Period” shall have the meaning given to such term in the Registration Rights Agreement.

“Equity Conditions” shall mean, during the period in question, (i) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notice of Conversions, if any, (ii) all liquidated damages and other amounts owing in respect of the Debentures shall have been paid; (iii) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the shares issuable pursuant to the Transaction Documents (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for the foreseeable future), (iv) the Common Stock is trading on the Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed for trading on a Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (v) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the shares issuable pursuant to the Transaction Documents, (vi) there is then existing no Event of Default or event which, with the passage of time or the giving of notice, would constitute an Event of Default and (vii) all of the shares issued or issuable pursuant to the Transaction Documents in full, ignoring for such purposes any conversion or exercise limitation therein, would not violate the limitations set forth in Section 4(c) and (ix) no public announcement of a pending or proposed Fundamental Transaction, Change of Control Transaction or acquisition transaction has occurred that has not been consummated.

“Event of Default” shall have the meaning set forth in Section 8.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Fundamental Transaction” shall have the meaning set forth in Section 5(e)(iii) hereof.

“Late Fees” shall have the meaning set forth in the second paragraph to this Debenture.

“Mandatory Prepayment Amount” for any Debentures shall equal the sum of (i) the greater of: (A) 130% of the principal amount of Debentures to be prepaid, or (B) the principal amount of Debentures to be prepaid, divided by the Conversion Price on (x) the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date the

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Mandatory Prepayment Amount is paid in full, whichever is less, multiplied by the Closing Price on (x) the date the Mandatory Prepayment Amount is demanded or otherwise due or (y) the date the Mandatory Prepayment Amount is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of such Debentures.

“Original Issue Date” shall mean the date of the first issuance of the Debentures regardless of the number of transfers of any Debenture and regardless of the number of instruments which may be issued to evidence such Debenture.

“Person” means a corporation, an association, a partnership, a limited liability company, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of October     , 2004, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, to which the Company and the original Holder are parties, as amended, modified or supplemented from time to time in accordance with its terms.

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement, covering among other things the resale of the Conversion Shares and naming the Holder as a “selling stockholder” thereunder.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Subsidiary” shall have the meaning given to such term in the Purchase Agreement.

“Trading Day” means a day on which the Common Stock is traded on a Trading Market.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement.

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Section 2.Interest.

a)No Payment of Interest.  Except as set forth herein, the Company shall not pay interest to the Holder on this Debenture.

b)Prepayment.  Except as otherwise set forth in this Debenture, the Company may not prepay any portion of the principal amount of this Debenture without the prior written consent of the Holder.

Section 3.Registration of Transfers and Exchanges.

a)Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debentures of different authorized denominations, as requested by the Holder surrendering the same.  No service charge will be made for such registration of transfer or exchange.

b)Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c)Reliance on Debenture Register. Prior to due presentment to the Company for transfer of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.Conversion.

a)Voluntary Conversion. Subject to the terms hereof and restrictions and limitations contained herein, at any time after the Original Issue Date until this Debenture is no longer outstanding, this Debenture shall be convertible into shares of Common Stock at the option of the Holder, in whole or in part at any time and from time to time (subject to the limitations on conversion set forth in Section 4(c) hereof).  The Holder shall effect conversions by delivering to the Company the form of Notice of Conversion attached hereto as Annex A (a “Notice of Conversion”), specifying therein the principal amount of Debentures to be converted and the date on which such conversion is to be effected (a “Conversion Date”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is provided hereunder.  To effect conversions hereunder, the Holder shall not be required to physically surrender Debentures to the Company unless the entire principal amount of this Debenture has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Debenture in an amount equal to the applicable conversion.  The Holder and the Company shall maintain records showing the principal amount converted and the date of such conversions.  The Company shall deliver any objection to any Notice of Conversion within 1 Business Day of receipt of such notice.  In the event of any dispute or discrepancy, the records of the Holder shall be

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controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Debenture, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Debenture, the unpaid and unconverted principal amount of this Debenture may be less than the amount stated on the face hereof.

b)Conversion Price.  The conversion price in effect on any Conversion Date shall be equal to $        (2)(subject to adjustment herein) [AS TO THE FIRST CLOSING DEBENTURES ONLY; provided, however, if the lesser of (i) the average of the 5 consecutive Closing Prices immediately prior to the Effective Date (as defined in the Purchase Agreement) and (ii) the Closing Price on the Effective Date (“Effective Date Price”) is less than the Conversion Price, the Conversion Price shall be reduced to equal the Effective Date Price] (the “Conversion Price”).

c)Conversion Limitations; Holder’s Restriction on Conversion. The Company shall not effect any conversion of this Debenture, and the Holder shall not have the right to convert any portion of this Debenture, pursuant to Section 4(a) or otherwise, to the extent that after giving effect to such conversion, the Holder (together with the Holder’s affiliates), as set forth on the applicable Notice of Conversion, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such conversion.  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of this Debenture with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted portion of this Debenture beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Debentures or the Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act.  To the extent that the limitation contained in this section applies, the determination of whether this Debenture is convertible (in relation to other securities owned by the Holder) and of which portion of this Debenture is convertible shall be in the sole discretion of such Holder. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination.  For purposes of this Section 4(c), in determining the number of outstanding shares of Common Stock, the

(2)As to the Debentures issued at the First Closing, 75% of the Market Price and as to the Debentures issued at the Second Closing, the lesser of (a) 75% of the Market Price and (b) the lesser of (i) the average of the 5 consecutive Closing Prices immediately prior to the Effective Date (as defined in the Purchase Agreement) and (ii) the Closing Price on the Effective Date.

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Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of the Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Debenture, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.

d)Mechanics of Conversion

i.Conversion Shares Issuable Upon Conversion of Principal Amount.  The number of shares of Common Stock issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Debenture to be converted by (y) the Conversion Price.

ii.Delivery of Certificate Upon Conversion. Not later than three Trading Days after any Conversion Date, the Company will deliver to the Holder a certificate or certificates representing the Conversion Shares which shall be free of restrictive legends and trading restrictions (other than those required by the Purchase Agreement or applicable law) representing the number of shares of Common Stock being acquired upon the conversion of Debentures. The Company shall, if available and if allowed under applicable securities laws, use its commercially reasonable efforts to deliver any certificate or certificates required to be delivered by the Company under this Section electronically through the Depository Trust Corporation or another established clearing corporation performing similar functions.

iii.Failure to Deliver Certificates.  If such certificate or certificates are not delivered to or as directed by the applicable Holder by the third Trading Day after a Conversion Date, the Holder shall be entitled by written notice to the Company at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return the certificate representing the principal amount of Debentures tendered for conversion, if it was delivered to the Company by the Holder, and the Holder shall immediately return any stock certificates representing Conversion Shares from such rescinded conversion to the Company.

iv.Partial Liquidated Damages.  If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date, the Company shall pay to such Holder, in cash, as liquidated damages and not as a penalty, for each $1000

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of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day after 5 Trading Days after such damages begin to accrue) for each Trading Day after such third Trading Day until such certificates are delivered.  The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Debenture in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder.  In the event a Holder of this Debenture shall elect to convert any or all of the outstanding principal amount hereof, the Company may not refuse conversion based on any claim that the Holder or any one associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless, an injunction from a court, on notice, restraining and or enjoining conversion of all or part of this Debenture shall have been sought and obtained and the Company posts a surety bond for the benefit of the Holder in the amount equal to the principal amount of this Debenture outstanding, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment.  In the absence of an injunction precluding the same, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.  Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 herein for the Company’s failure to deliver Conversion Shares within the period specified herein and such Holder shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit the Holders from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

v.Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(d)(ii) by the third Trading Day after the Conversion Date, and if after such third Trading Day the Holder is required by its brokerage firm to purchase, or its brokerage firm purchases (in an open market transaction or otherwise) Common Stock to deliver in satisfaction of a sale by such Holder of the Conversion Shares which the Holder anticipated receiving upon such conversion (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any remedies

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available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that such Holder anticipated receiving from the conversion at issue multiplied by (2) the actual sale price of the Common Stock at the time of the sale (including brokerage commissions, if any) giving rise to such purchase obligation and (B) at the option of the Holder, either reissue Debentures in principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its delivery requirements under Section 4(d)(ii).  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of Debentures with respect to which the actual sale price of the Conversion Shares at the time of the sale (including brokerage commissions, if any) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.  The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In.  Notwithstanding anything contained herein to the contrary, if a Holder requires the Company to make payment in respect of a Buy-In for the failure to timely deliver certificates hereunder and the Company timely pays in full such payment, the Company shall not be required to pay such Holder liquidated damages under Section 4(d)(iv) in respect of the certificates resulting in such Buy-In.

vi.Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock solely for the purpose of issuance upon conversion of the Debentures free from preemptive rights or any other actual contingent purchase rights of persons other than the Holders, not less than such number of shares of the Common Stock as shall (subject to any additional requirements of the Company as to reservation of such shares set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the outstanding principal amount of the Debentures.  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid, nonassessable and, if the Registration Statement is then effective under the Securities Act, registered for public resale in accordance with such Registration Statement.

vii.Fractional Shares. Upon a conversion hereunder the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Closing Price at such time.  If the Company elects not, or is unable, to make such a cash payment, the Holder

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shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.

viii.Transfer Taxes.  The issuance of certificates for shares of the Common Stock on conversion of the Debentures shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of such Debentures so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.

Section 5.Certain Adjustments.

a)Stock Dividends and Stock Splits.  If the Company, at any time while the Debentures are outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to this Debenture, the Warrants or the Additional Investment Rights), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event.  Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales.  If the Company or any Subsidiary thereof, as applicable, at any time while Debentures are outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Conversion Price (“Dilutive Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is

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issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price), then the Conversion Price shall be reduced to equal the effective conversion, exchange or purchase price for such Common Stock or Common Stock Equivalents (including any reset provisions thereof) at issue.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  The Company shall notify the Holder in writing, no later than the business day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms.

c)Pro Rata Distributions. If the Company, at any time while Debentures are outstanding, shall distribute to all holders of Common Stock (and not to Holders) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be determined by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Closing Price determined as of the record date mentioned above, and of which the numerator shall be such Closing Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

d)Calculations.  All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 5, the number of shares of Common Stock outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) outstanding.

e)Notice to Holders.

i.Adjustment to Conversion Price.  Whenever the Conversion Price is adjusted pursuant to any of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company issues a variable rate security, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised in the case of a Variable Rate Transaction (as defined in the Purchase Agreement), or the lowest

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possible adjustment price in the case of an MFN Transaction (as defined in the Purchase Agreement).

ii.Notice to Allow Conversion by Holder.  If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of the Debentures, and shall cause to be mailed to the Holders at their last addresses as they shall appear upon the stock books of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  Holders are entitled to convert Debentures during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice.

iii.Fundamental Transaction. If, at any time while this Debenture is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental

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Transaction”), then upon any subsequent conversion of this Debenture, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion absent such Fundamental Transaction, the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, the holder of one share of Common Stock (the “Alternate Consideration”).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Debenture following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new debenture consistent with the foregoing provisions and evidencing the Holder’s right to convert such debenture into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (iii) and insuring that this Debenture (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

iv.Exempt Issuance. Notwithstanding the foregoing, no adjustment will be made under this Section 5 in respect of an Exempt Issuance.

Section 6.RESERVED.

Section 7.Negative Covenants. So long as any portion of this Debenture is outstanding, the Company will not and will not permit any of its Subsidiaries to directly or indirectly take any of the following actions unless approved by the holder(s) of a two-thirds majority of the then-outstanding principal amount of all Debentures:

a)enter into, create, incur, assume or suffer to exist any indebtedness or liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, in any respect, the Company’s obligations under the Debentures except for Permitted Indebtedness and Permitted Liens described below;

b)amend its certificate of incorporation, bylaws or to her charter documents so as to adversely affect any rights of the Holder (it being agreed by the Holder that the

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proposed amendments to the Company’s Series A Preferred Stock and the designation of the proposed Series B Preferred Stock shall not be considered as adversely affecting any rights of the Holder);

c)repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock or other equity securities other than as to the Conversion Shares to the extent permitted or required under the Transaction Documents or as otherwise permitted by the Transaction Documents; or

d)enter into any agreement with respect to any of the foregoing.

As used herein, “Permitted Indebtedness” shall mean:

i.indebtedness existing as of the date of the Purchase Agreement;

ii.indebtedness, including capitalized lease obligations, incurred by the Company or any subsidiary for the purpose of financing all or any part of the purchase price of property, plant, equipment or other assets (tangible or intangible) used in the business of the Company or any subsidiary; and

iii.funded indebtedness from a non-affiliated lending institution or other third party in an amount not to exceed $5,000,000.

As used herein, “Permitted Liens” shall mean:

i.liens for taxes, assessments for governmental charges or claims either not delinquent or contested in good faith by appropriate proceedings;

ii.statutory liens of landlords, carriers, warehousemen, mechanics, suppliers, materialmen and other liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith;

iii.liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of statutory obligations, surety and appeal bonds and other similar obligations;

iv.liens securing any Permitted Indebtedness; and

v.liens arising from filing Uniform Commercial Code financing statements regarding leases.

Section 8.Events of Default.

a)“Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

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i.any default in the payment of the principal amount of any Debenture, or liquidated damages in respect of, any Debenture, in each case free of any claim of subordination, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, is not cured, within 3 Trading Days;

ii.the Company shall fail to observe or perform any other covenant or agreement contained in this Debenture or any of the other Transaction Documents (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion which breach is addressed in clause (xii) below) which failure is not cured, if possible to cure, within 10 Trading Days after notice of such default sent by the Holder or by any other holder of Debentures;

iii.a default or event of default (subject to any grace or cure period provided for in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents other than the Debentures, or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is bound;

iv.any representation or warranty made herein, in any other Transaction Document, in any written statement pursuant hereto or thereto, or in any other report, financial statement or certificate made or delivered to the Holder or any other holder of Debentures pursuant to the Purchase Agreement shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v.(i) the Company or any of its Subsidiaries shall commence, or there shall be commenced against the Company or any such Subsidiary, a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Company or any Subsidiary commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or any Subsidiary thereof or (ii) there is commenced against the Company or any Subsidiary thereof any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of 60 days; or (iii) the Company or any Subsidiary thereof is adjudicated by a court of competent jurisdiction insolvent or bankrupt; or any order of relief or other

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order approving any such case or proceeding is entered; or (iv) the Company or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of 60 days; or (v) the Company or any Subsidiary thereof makes a general assignment for the benefit of creditors; or (vi) the Company shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (vii) the Company or any Subsidiary thereof shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (viii) the Company or any Subsidiary thereof shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or (ix) any corporate or other action is taken by the Company or any Subsidiary thereof for the purpose of effecting any of the foregoing;

vi.the Company or any Subsidiary shall default in any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company in an amount exceeding $150,000, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

vii.the Common Stock shall not be eligible for quotation on or quoted for trading on a Trading Market and shall not again be eligible for and quoted or listed for trading thereon within 10 Trading Days;

viii.the Company shall be a party to any Change of Control Transaction or Fundamental Transaction (other than a Fundamental Transaction undertaken for the purpose of changing the domicile of the Company), shall agree to sell or dispose of all or in excess of 33% of its assets in one or more transactions (whether or not such sale would constitute a Change of Control Transaction), provided, that any license by the Company of its intellectual property rights shall not be considered a sale or other disposal hereunder, or shall redeem or repurchase more than a de minimis number of its outstanding shares of Common Stock or other equity securities of the Company (other than redemptions

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of Conversion Shares and repurchases of shares of Common Stock or other equity securities of departing officers and directors of the Company; provided such repurchases shall not exceed $100,000, in the aggregate, for all officers and directors during the term of this Debenture);

ix.a Registration Statement shall not have been declared effective by the Commission on or prior to the 180^th calendar day after the First Closing Date;

x.if, during the Effectiveness Period (as defined in the Registration Rights Agreement), the effectiveness of the Registration Statement lapses for any reason or the Holder shall not be permitted to resell Registrable Securities (as defined in the Registration Rights Agreement) under the Registration Statement, in either case, for more than 30 consecutive Trading Days or 60 non-consecutive Trading Days during any 12 month period; provided, however, that in the event that the Company is negotiating a merger, consolidation, acquisition or sale of all or substantially all of its assets or a similar transaction and in the written opinion of counsel to the Company, the Registration Statement, would be required to be amended to include information concerning such transactions or the parties thereto that is not available or may not be publicly disclosed at the time, the Company shall be permitted an additional 10 consecutive Trading during any 12 month period relating to such an event;

xi.an Event (as defined in the Registration Rights Agreement) shall not have been cured to the satisfaction of the Holder prior to the expiration of thirty days from the Event Date (as defined in the Registration Rights Agreement) relating thereto (other than an Event resulting from a failure of an Registration Statement to be declared effective by the Commission on or prior to the Effectiveness Date (as defined in the Registration Rights Agreement), which shall be covered by Section 8(a)(ix);

xii.the Company shall fail for any reason to deliver certificates to a Holder prior to the fifth Trading Day after a Conversion Date pursuant to and in accordance with Section 4(d) or the Company shall provide notice to the Holder, including by way of public announcement, at any time, of its intention not to comply with requests for conversions of any Debentures in accordance with the terms hereof; or

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xiii.the Company shall fail for any reason to pay in full the amount of cash due pursuant to a Buy-In within 10 Trading Days after notice therefor is delivered hereunder or shall fail to pay all amounts owed on account of an Event of Default within 10 Trading Days of the date due.

b)Remedies Upon Event of Default. If any Event of Default occurs, the full principal amount of this Debenture, together with other amounts owing in respect thereof, to the date of acceleration shall become, at the Holder’s election, immediately due and payable in cash.   The aggregate amount payable upon an acceleration by reason of an Event of Default shall be equal to the Mandatory Prepayment Amount.  Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Debenture, the interest rate on this Debenture shall accrue at the rate of 18% per annum, or such lower maximum amount of interest permitted to be charged under applicable law.  All Debentures for which the full Mandatory Prepayment Amount hereunder shall have been paid in accordance herewith shall promptly be surrendered to or as directed by the Company.  The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law.  Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a Debenture holder until such time, if any, as the full payment under this Section shall have been received by it.  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 9.Miscellaneous.

a)Notices.  Any and all notices or other communications or deliveries to be provided by the Holders hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, facsimile number (281) 466-1480, Attn:  Steven B. Rash, or such other address or facsimile number as the Company may specify for such purposes by notice to the Holders delivered in accordance with this Section.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile telephone number or address of such Holder appearing on the books of the Company, or if no such facsimile telephone number or address appears, at the principal place of business of the Holder.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile (and the sender receives a confirmation of successful transmission) at the facsimile telephone number specified in this Section prior to 5:30 p.m. (New York City time), (ii) the date after the date of transmission, if such notice or communication is

18

delivered via facsimile at the facsimile telephone number specified in this Section later than 5:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the second Business Day following the date of mailing, if sent by nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and liquidated damages (if any) on, this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed.  This Debenture is a direct debt obligation of the Company.  This Debenture ranks pari passu with all other Debentures now or hereafter issued under the terms set forth herein.

c)Lost or Mutilated Debenture.  If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, and indemnity, if requested, all reasonably satisfactory to the Company.

d)Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, or such New York Courts are improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Debenture or the transactions contemplated

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hereby. If either party shall commence an action or proceeding to enforce any provisions of this Debenture, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

e)Waiver.  Any waiver by the Company or the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture.  The failure of the Company or the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture.  Any waiver must be in writing.

f)Severability.  If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.  If it shall be found that any interest or other amount deemed interest due hereunder violates applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum permitted rate of interest. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Debenture as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this indenture, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

g)Next Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day and no interest shall be payable in respect of such extension.

h)Headings.  The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

*********************

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IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

POWER 3 MEDICAL PRODUCTS, INC.
By:	/s/: Steven B. Rash
	Name:  Steven B. Rash
	Title:  Chairman and CEO

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Convertible Debenture of Power 3 Medical Products, Inc., a New York corporation (the “Company”), due on October        , 2007, into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Company according to the conditions hereof, as of the date written below.  If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts determined in accordance with Section 13(d) of the Exchange Act, specified under Section 4 of this Debenture.

The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Debentures to be Converted:

Number of shares of Common Stock to be issued:

Signature:

Name:

Address:

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Schedule 1

CONVERSION SCHEDULE

The Convertible Debentures due on October      , 2007, in the aggregate principal amount of $                           issued by Power 3 Medical Products, Inc., a New York corporation.  This Conversion Schedule reflects conversions made under Section 4 of the above referenced Debenture.

Dated:

Date of Conversion
(or for first entry,
Original Issue Date) Amount of
Conversion Aggregate
Principal
Amount
Remaining
Subsequent to
Conversion
(or original
Principal
Amount) Company Attest

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SCHEDULE TO

FORM OF CONVERTIBLE DEBENTURE

The Company has issued Convertible Debentures Due October 28, 2007 to the following listed holders. The terms of the Convertible Debentures issued by the Company to each of the following holders are identical except for the name of the holder and the original principal amount of the Convertible Debenture.

HOLDER	ORIGINAL PRINCIPAL AMOUNT
Cityplatz Limited	$	50,000
Crescent International Ltd.	$	200,000
Crestview Capital Master, LLC	$	150,000
DKR SoundShore Oasis Holding Fund Ltd.	$	50,000
Gryphon Master Fund L.P.	$	100,000
GSSF Master Fund, LP	$	100,000
Mohawk Funding	$	10,000
Omicron Master Trust	$	100,000
Otape Investments LLC	$	100,000
Platinum Partners Value Arbitrage Fund L.P.	$	83,333
Richard Molinsky	$	30,000
Sage Capital Investments Limited	$	25,000
Bach Farms LLC	$	1,667

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EX-4.2

Exhibit 4.2

EXHIBIT C

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

COMMON STOCK PURCHASE WARRANT

To Purchase                Shares of Common Stock of

Power 3 Medical Products, Inc.

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received,                        (the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on the fifth anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Power 3 Medical Products, Inc., a New York corporation (the “Company”), up to             shares (the “Warrant Shares”) of Common Stock, par value $0.001 per share, of the Company (the “Common Stock”).  The purchase price of one share of Common Stock under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1.Definitions.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated October      , 2004, among the Company and the purchasers signatory thereto.

Section 2.Exercise.

a)Exercise of Warrant.  Exercise of the purchase rights represented by this Warrant may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed  hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company); provided, however,

within 5 Trading Days of the date said Notice of Exercise is delivered to the Company, the Holder shall have surrendered this Warrant to the Company and the Company shall have received  payment of the aggregate Exercise Price of the shares thereby purchased by wire transfer or cashier’s check drawn on a United States bank.

b)Exercise Price.  The exercise price of each share of Common Stock under this Warrant shall be $                 (1), subject to adjustment hereunder (the “Exercise Price”).

c)Cashless Exercise.  If at any time after one year from the date of issuance of this Warrant there is no effective Registration Statement registering the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a certificate for the number of Warrant Shares equal to the quotient obtained by dividing [(A-B) (X)] by (A), where:

(A) = the Closing Price on the Trading Day immediately preceding the date of such election;

(B) =  the Exercise Price of this Warrant, as adjusted; and

(X) =  the number of Warrant Shares issuable upon exercise of this Warrant in accordance with the terms of this Warrant by means of a cash exercise rather than a cashless exercise.

d)Exercise Limitations; Holder’s Restrictions.  The Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2(c) or otherwise, to the extent that after giving effect to such issuance after exercise, the Holder (together with the Holder’s affiliates), as set forth on the applicable Notice of Exercise, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance.  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Debentures or Warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 2(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged by Holder that the Company is not representing to Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and Holder is solely responsible for any schedules required to be filed

(1)120% of the Market Price.

in accordance therewith.   To the extent that the limitation contained in this Section 2(d) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder) and of which portion of this Warrant is exercisable shall be in the sole discretion of such Holder, and the submission of a Notice of Exercise shall be deemed to be such Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by such Holder) and of which portion of this Warrant is exercisable, in each case subject to such aggregate percentage limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.  For purposes of this Section 2(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company’s most recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a more recent public announcement by the Company or (z) any other notice by the Company or the Company’s Transfer Agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of the Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.

e)Mechanics of Exercise.

i.Authorization of Warrant Shares.  The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by, and in accordance with the terms of, this Warrant, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).  The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under, and in accordance with the terms of, this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.

ii.Delivery of Certificates Upon Exercise.  Certificates for shares purchased hereunder shall be transmitted by the transfer agent of the Company to the Holder by crediting the account of the Holder’s prime

broker with the Depository Trust Company through its Deposit Withdrawal Agent Commission (“DWAC”) system if the Company is a participant in such system, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this Warrant and payment of the aggregate Exercise Price as set forth above (“Warrant Share Delivery Date”).  This Warrant shall be deemed to have been exercised on the date the Exercise Price is received by the Company.  The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised by payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 2(e)(vii) prior to the issuance of such shares, have been paid.

iii.Delivery of New Warrants Upon Exercise.  If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.

iv.Rescission Rights.  If the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to this Section 2(e)(iv) by the Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise.

v.Buy-In Compensation.  In addition to any other rights available to the Holder, if the Company fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (1) pay in cash to the Holder the amount by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been

issued had the Company timely complied with its exercise and delivery obligations hereunder.  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Company.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

vi.No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  As to any fraction of a share which Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price.

vii.Charges, Taxes and Expenses.  Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

viii.Closing of Books.  The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not

include any shares of Common Stock issued by the Company pursuant to this Warrant, the Debentures or the Additional Investment Rights), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price), then, the Exercise Price shall be reduced to equal the Base Share Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  The Company shall notify the Holder in writing, no later than the business day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms.

c)Pro Rata Distributions.  If the Company, at any time prior to the Termination Date, shall distribute to all holders of Common Stock (and not to Holders of the Warrants) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Closing Price determined as of the record date mentioned above, and of which the numerator shall be such Closing Price on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as

determined by the Board of Directors in good faith.  In either case the adjustments shall be described in a statement provided to the Holders of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

d)Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 3, the number of shares of Common Stock outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) outstanding.

e)Notice to Holders.

i.Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to this Section 3, the Company shall promptly mail to each Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. If the Company issues a variable rate security, despite the prohibition thereon in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion or exercise price at which such securities may be converted or exercised in the case of a Variable Rate Transaction (as defined in the Purchase Agreement), or the lowest possible adjustment price in the case of an MFN Transaction (as defined in the Purchase Agreement.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last addresses as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of

record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to exercise this Warrant during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice.

f)Fundamental Transaction. If, at any time while this Warrant is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent conversion of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise absent such Fundamental Transaction, the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Alternate Consideration receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (the “Alternate Consideration”).  For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (f) and insuring that this

Warrant (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

g)Exempt Issuance. Notwithstanding the foregoing, no adjustments, Alternate Consideration nor notices shall be made, paid or issued under this Section 3 in respect of an Exempt Issuance.

h)Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant reduce the then current Exercise Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

Section 4.Transfer of Warrant.

a)Transferability.  Subject to compliance with any applicable securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

b)New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.

c)Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

d)Transfer Restrictions. If, at the time of the surrender of this Warrant in connection with any transfer of this Warrant, the transfer of this Warrant shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant, as the

case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act.

Section 5.Miscellaneous.

a)Title to Warrant.  Prior to the Termination Date and subject to compliance with applicable laws and Section 4 of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed.  The transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company.

b)No Rights as Shareholder Until Exercise.  This Warrant does not entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof.  Upon the surrender of this Warrant and the payment of the aggregate Exercise Price (or by means of a cashless exercise), the Warrant Shares so purchased shall be and be deemed to be issued to such Holder as the record owner of such shares as of the close of business on the later of the date of such surrender or payment.

c)Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

d)Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

e)Authorized Shares.

The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its

officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under, and in accordance with the terms of, this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment.  Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

f)Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrant (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and

consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  The parties hereby waive, to the fullest extent permitted by applicable law, all rights to a trial by jury.  If either party shall commence an action or proceeding to enforce any provisions of this Warrant, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

g)Restrictions.  The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

h)Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

i)Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

j)Limitation of Liability.  No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant or purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

k)Remedies.  Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

l)Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns

of Holder.  The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

m)Amendment.  This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

n)Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

o)Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized.

Dated:  October     , 2004

POWER 3 MEDICAL PRODUCTS, INC.
By:
	Name:
	Title:

NOTICE OF EXERCISE

TO: POWER 3 MEDICAL PRODUCTS, INC.

(1)The undersigned hereby elects to purchase             Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box):

o in lawful money of the United States; or

o the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

The Warrant Shares shall be delivered to the following:

(4)Accredited Investor.  The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[PURCHASER]
By:
	Name:
	Title:
Dated:

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby are hereby assigned to

			whose address is
					.
		Dated:		,
	Holder’s Signature:
	Holder’s Address:
Signature Guaranteed:

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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SCHEDULE TO

FORM OF COMMON STOCK PURCHASE WARRANT

The Company has issued Common Stock Purchase Warrants to the following listed holders. The terms of the Common Stock Purchase Warrants are identical except for the name of the holder and the number of shares of the Company’s Common Stock issuable upon exercise of the warrant.

HOLDER	NUMBER OF WARRANT SHARES
Bach Farms LLC	4,167
Cityplatz Limited	125,000
Crescent International Ltd.	500,000
Crestview Capital Master, LLC	375,000
DKR SoundShore Oasis Holding Fund Ltd.	125,000
Gryphon Master Fund L.P.	250,000
GSSF Master Fund, LP	250,000
Mohawk Funding	25,000
Omicron Master Trust	250,000
Otape Investments LLC	250,000
Platinum Partners Value Arbitrage Fund L.P.	208,333
Richard Molinsky	75,000
Sage Capital Investments Limited	62,500

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EX-4.3

Exhibit 4.3

EXHIBIT E

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

ADDITIONAL INVESTMENT RIGHT

To Purchase $          principal amount of Convertible Debentures of

Power 3 Medical Products, Inc.

THIS ADDITIONAL INVESTMENT RIGHT (the “AIR”) certifies that, for value received,                   (the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date hereof (the “Initial Exercise Date”) and on or prior to the close of business on the earlier of (a) 9 month anniversary of the Effective Date and (b) the 18 month anniversary of the Initial Exercise Date (the “Termination Date”) but not thereafter, to subscribe for and purchase from Power 3 Medical Products, Inc., a New York corporation (the “Company”), up to $                 principal amount of convertible debentures (the “AIR Debenture”).  The AIR Debenture shall be in the form of the Debentures issued pursuant to the Purchase Agreement, mutatis mutandis, except that the conversion price thereof shall be equal to $         (1), subject to adjustment thereunder and hereunder (“AIR Conversion Price”).

Section 1.Definitions.  Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated October    , 2004, among the Company and the purchasers signatory thereto.

(1)  90% of the Market Price.

Section 2.Exercise.

a)Exercise of AIR.  Exercise of the purchase rights represented by this AIR may be made at any time or times on or after the Initial Exercise Date and on or before the Termination Date by delivery to the Company of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of such Holder appearing on the books of the Company) and the payment of the aggregate principal amount of the AIR Debentures thereby purchased by wire transfer or cashier’s check drawn on a United States bank.  Upon exercise of the AIR, the Company shall issue an AIR Debenture with a principal amount equal to the amount paid by the Holder.

b)Mechanics of Exercise.

i.Authorization of AIR Debenture.  The Company covenants that during the period this AIR is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of all of the shares of Common Stock underlying the AIR Debenture (the “AIR Debenture Shares”).  The Company further covenants that its issuance of this AIR shall constitute full authority to its officers who are charged with the duty of executing certificates to execute and issue the necessary certificates for the AIR Debenture upon the exercise of the purchase rights under, and in accordance with the terms of, this AIR and Common Stock certificates upon conversion of the AIR Debentures. The Company covenants that the AIR Debenture which may be issued upon the exercise of the purchase rights represented by this AIR and the AIR Debenture Shares issuable thereunder will, upon exercise of the purchase rights represented by this AIR, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).  The Company will take all such reasonable action as may be necessary to assure that the AIR Debenture and AIR Debenture Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.

ii.Delivery of Certificates Upon Exercise.  Certificates for the AIR Debenture purchased hereunder shall be delivered to the Holder within 3 Trading Days from the delivery to the Company of the Notice of Exercise Form, surrender of this AIR and payment of the principal amount as set forth above (“AIR Debenture Delivery Date”).  This AIR shall be deemed to have been exercised on the date the payment of the principal amount is received by the Company.  The AIR Debenture shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such

2

security for all purposes, as of the date the AIR has been exercised by payment to the Company of the principal amount and all taxes required to be paid by the Holder, if any, pursuant to Section 2(b)(v) prior to the issuance of such security, have been paid.

iii.Delivery of New AIRs Upon Exercise.  If this AIR shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing the AIR Debenture, deliver to Holder a new AIR evidencing the rights of Holder to purchase the remaining principal amount of the AIR Debenture called for by this AIR, which new AIR shall in all other respects be identical with this AIR.

iv.Rescission Rights.  If the Company fails to deliver to the Holder a certificate or certificates representing the AIR Debenture pursuant to this Section 2(b)(iv) by the AIR Debenture Delivery Date, then the Holder will have the right to rescind such exercise.

v.Charges, Taxes and Expenses.  Issuance of certificates for AIR Debentures shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for AIR Debentures are to be issued in a name other than the name of the Holder, this AIR when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder; and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.

vi.Closing of Books.  The Company will not close its records in any manner which prevents the timely exercise of this AIR, pursuant to the terms hereof or the conversion of the AIR Debentures pursuant to the terms thereof.

Section 3.Certain Adjustments.

a)Stock Dividends and Splits. If the Company, at any time while this AIR is outstanding: (A) pays a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company pursuant to the AIR Debentures, the Debentures or the Warrants), (B) subdivides outstanding shares of Common Stock into a larger number of shares, (C) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each

3

case the AIR Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event.  Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)Subsequent Equity Sales. If the Company or any Subsidiary thereof, as applicable, at any time while this AIR is outstanding, shall offer, sell, grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock, at an effective price per share less than the then AIR Conversion Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”), as adjusted hereunder (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which is issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the AIR Conversion Price, such issuance shall be deemed to have occurred for less than the AIR Conversion Price), then, the AIR Conversion Price shall be reduced to equal the Base Share Price.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued.  The Company shall notify the Holder in writing, no later than the business day following the issuance of any Common Stock or Common Stock Equivalents subject to this section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms.

c)Pro Rata Distributions. If the Company, at any time while this AIR is outstanding, distributes to all holders of Common Stock (and not to Holders) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(b)), then in each such case the AIR Conversion Price shall be determined by multiplying such AIR Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Closing Price determined as of the record date mentioned above, and of which the numerator shall be such Closing Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith.  In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to

4

one share of Common Stock.  Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

d)Calculations. All calculations and adjustments to the AIR Conversion Price under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 3, the number of shares of Common Stock outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) outstanding.

e)Notice to Holders.

i.Adjustment to AIR Conversion Price. Whenever the AIR Conversion Price is adjusted pursuant to this Section 3, the Company shall promptly mail to each Holder a notice setting forth the AIR Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

ii.Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last addresses as it shall appear upon the AIR Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided, that the failure to mail such notice or any

5

defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  The Holder is entitled to exercise this AIR during the 20-day period commencing the date of such notice to the effective date of the event triggering such notice.

f)Fundamental Transaction. If, at any time while this AIR is outstanding, (A) the Company effects any merger or consolidation of the Company with or into another Person, (B) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (C) any tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property, or (D) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this AIR the Holder shall have the right to receive upon conversion of the AIR Debenture, for each AIR Debenture Share that would have been issuable upon such exercise and then subsequent conversion absent such Fundamental Transaction shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and Alternate Consideration receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a Holder of the number of shares of Common Stock for which the underlying AIR Debentures are convertible immediately prior to such event (the “Alternate Consideration”).  For purposes of any such deemed conversion, the determination of the AIR Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the AIR Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of the AIR Debenture underlying this AIR following such Fundamental Transaction.  To the extent necessary to effectuate the foregoing provisions, any successor to the Company or surviving entity in such Fundamental Transaction shall issue to the Holder a new additional investment right consistent with the foregoing provisions and evidencing the Holder’s right to exercise such additional investment right ultimately into Alternate Consideration. The terms of any agreement pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to comply with the provisions of this paragraph (f) and insuring that this AIR (or any such replacement security) will be similarly adjusted upon any subsequent transaction analogous to a Fundamental Transaction.

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g)Exempt Issuance. Notwithstanding the foregoing, no adjustments, Alternate Consideration nor notices shall be made, paid or issued under this Section 3 in respect of an Exempt Issuance.

h)Voluntary Adjustment By Company. The Company may at any time during the term of this AIR reduce the then current AIR Conversion Price to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.

Section 4.Transfer of AIR.

a)Transferability.  Subject to compliance with any applicable securities laws and the conditions set forth in Sections 5(a) and 4(d) hereof and to the provisions of Section 4.1 of the Purchase Agreement, this AIR and all rights hereunder are transferable, in whole or in part, upon surrender of this AIR at the principal office of the Company, together with a written assignment of this AIR substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new AIR or AIRs in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new AIR evidencing the portion of this AIR not so assigned, and this AIR shall promptly be cancelled.  An AIR, if properly assigned, may be exercised by a new holder for the purchase of AIR Debentures without having a new AIR issued.

b)New AIRs. This AIR may be divided or combined with other AIRs upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new AIRs are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new AIR or AIRs in exchange for the AIR or AIRs to be divided or combined in accordance with such notice.

c)AIR Register. The Company shall register this AIR, upon records to be maintained by the Company for that purpose (the “AIR Register”), in the name of the record Holder hereof from time to time.  The Company may deem and treat the registered Holder of this AIR as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary

d)Transfer Restrictions. If, at the time of the surrender of this AIR in connection with any transfer of this AIR, the transfer of this AIR shall not be registered pursuant to an effective registration statement under the Securities Act and under applicable state securities or blue sky laws, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this

7

AIR, as the case may be, furnish to the Company a written opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that such transfer may be made without registration under the Securities Act and under applicable state securities or blue sky laws, (ii) that the holder or transferee execute and deliver to the Company an investment letter in form and substance acceptable to the Company and (iii) that the transferee be an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8) promulgated under the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act.

Section 5.Miscellaneous.

a)Title to the Additional Investment Right.  Prior to the Termination Date and subject to compliance with applicable laws and Section 4 of this AIR, this AIR and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company by the Holder in person or by duly authorized attorney, upon surrender of this AIR together with the Assignment Form annexed hereto properly endorsed.  The transferee shall sign an investment letter in form and substance reasonably satisfactory to the Company.

b)No Rights as Creditor/Debentureholder or Shareholder Until Exercise.  This AIR does not entitle the Holder to any rights as a creditor of the Company pursuant to the AIR Debenture prior to the exercise hereof nor does this AIR entitle the Holder to any voting rights or other rights as a shareholder of the Company prior to any conversion of the AIR Debenture.  Upon the surrender of this AIR and the payment of the aggregate principal amount, the AIR Debentures so purchased shall be and be deemed to be issued to such Holder as the record owner of such AIR Debentures as of the close of business on the later of the date of such surrender or payment.

c)Loss, Theft, Destruction or Mutilation of AIR. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this AIR or any certificate relating to the AIR Debentures, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the AIR, shall not include the posting of any bond), and upon surrender and cancellation of such AIR or certificate, if mutilated, the Company will make and deliver a new AIR or certificate of like tenor and dated as of such cancellation, in lieu of such AIR or certificate.

d)Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday, Sunday or a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a Saturday, Sunday or legal holiday.

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e)Authorized Shares.

The Company covenants that during the period the AIR is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the shares of Common Stock issuable upon conversion of the AIR Debenture.  The Company further covenants that its issuance of this AIR shall constitute full authority to its officers who are charged with the duty of executing certificates to execute and issue the necessary certificates for the AIR Debentures upon the exercise of the purchase rights under, and in accordance with the terms of, this AIR.  The Company will take all such reasonable action as may be necessary to assure that such AIR Debentures and AIR Debenture Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this AIR or the AIR Debentures, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this AIR and the AIR Debenture against impairment.  Without limiting the generality of the foregoing, the Company will (a) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable AIR Debentures upon the exercise of this AIR and AIR Debenture Shares upon conversion of the AIR Debentures, and (b) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this AIR and the AIR Debentures.

Before taking any action which would result in an adjustment in the AIR Debentures for which this AIR is exercisable or in the AIR Conversion Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

f)Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this AIR shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this AIR (whether brought against a

9

party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this AIR and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  The parties hereby waive, to the fullest extent permitted by applicable law, all rights to a trial by jury.  If either party shall commence an action or proceeding to enforce any provisions of this AIR, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

g)Restrictions.  The Holder acknowledges that the AIR Debentures acquired upon the exercise of this AIR, if not registered, will have restrictions upon resale imposed by state and federal securities laws.

h)Nonwaiver and Expenses.  No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies, notwithstanding the fact that all rights hereunder terminate on the Termination Date.  If the Company willfully and knowingly fails to comply with any provision of this AIR, which results in any material damages to the Holder, the Company shall pay to Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

i)Notices.  Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

j)Limitation of Liability.  No provision hereof, in the absence of any affirmative action by Holder to exercise this AIR or purchase AIR Debentures, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any AIR Debenture or any AIR

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Debenture Shares or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

k)Remedies.  Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this AIR.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this AIR and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate.

l)Successors and Assigns.  Subject to applicable securities laws, this AIR and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder.  The provisions of this AIR are intended to be for the benefit of all Holders from time to time of this AIR and shall be enforceable by any such Holder or holder of AIR Debentures.

m)Amendment.  This AIR may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

n)Severability.  Wherever possible, each provision of this AIR shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this AIR shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this AIR.

o)Headings.  The headings used in this AIR are for the convenience of reference only and shall not, for any purpose, be deemed a part of this AIR.

********************

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IN WITNESS WHEREOF, the Company has caused this AIR to be executed by its officer thereunto duly authorized.

Dated:  October    , 2004

POWER 3 MEDICAL PRODUCTS, INC.

By:

Name:

Title:

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NOTICE OF EXERCISE

TO:POWER 3 MEDICAL PRODUCTS, INC.

(1)The undersigned hereby elects to purchase $          principal amount of AIR Debentures of Power 3 Medical Products, Inc. pursuant to the terms of the attached AIR and tenders herewith payment of the principal in full, together with all applicable transfer taxes, if any.

(2)Payment shall take the form of (check applicable box) in lawful money of the United States; or

(3)Please issue a certificate or certificates representing said AIR Debentures in the name of the undersigned or in such other name as is specified below:

The AIR Debentures shall be delivered to the following:

(4)Accredited Investor.  The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity:

Signature of Authorized Signatory of Investing Entity:

Name of Authorized Signatory:

Title of Authorized Signatory:

Date:

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ASSIGNMENT FORM

(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, the foregoing AIR and all rights evidenced thereby are hereby assigned to

whose address is
	.

		Dated:	,
	Holder’s Signature:
	Holder’s Address:
Signature Guaranteed:

NOTE:  The signature to this Assignment Form must correspond with the name as it appears on the face of the AIR, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company.  Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing AIR.

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SCHEDULE TO FORM OF ADDITIONAL INVESTMENT RIGHT

The Company has issued Additional Investment Rights to the following listed holders. The terms of the Additional Investment Rights issued by the Company to each of the following holders are identical except for the name of the holder and the principal amount of convertible debentures to be purchased upon exercise of the Additional Investment Rights.

	PRINCIPAL AMOUNT OF
HOLDER	CONVERTIBLE DEBENTURES
Cityplatz Limited	$	125,000
Crescent International Ltd.	$	500,000
Crestview Capital Master, LLC	$	375,000
DKR SoundShore Oasis Holding Fund Ltd.	$	125,000
Gryphon Master Fund L.P.	$	250,000
GSSF Master Fund, LP	$	250,000
Mohawk Funding	$	25,000
Omicron Master Trust	$	250,000
Otape Investments LLC	$	250,000
Platinum Partners Value Arbitrage Fund L.P.	$	208,333
Richard Molinsky	$	75,000
Sage Capital Investments Limited	$	62,500
Bach Farms LLC	$	4,167

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EX-10.1

Exhibit 10.1

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (the “Agreement”) by and between Power 3 Medical Products, Inc., a New York corporation (the “Company”), and Steven B. Rash (the “Officer”) is executed this 29th day of December, 2004 but shall be effective for all purposes as of May 18, 2004 (the “Effective Date”).

RECITALS

WHEREAS, the Company and the Officer previously entered into that certain Employment Agreement dated as of May 18, 2004 (the “Original Agreement”);

WHEREAS, the Company and the Officer have determined that the Original Agreement did not accurately reflect the parties’ mutual intent in that it did not correctly set forth the parties’ mutual understanding and agreement regarding the restrictions applicable to the stock grants referenced therein and the risks of forfeiture intended to be applicable to such shares of stock; and

WHEREAS, the Company and the Officer desire to enter into this Agreement to reform the provisions of the Original Agreement to reflect the parties’ mutual understanding and intent and to restate the Original Agreement, as amended, in its entirety.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein provided, the parties hereto agree as follows:

1.EMPLOYMENT TERMS

1.1Term.  The Company hereby employs the Officer, and the Officer hereby accepts employment with the Company, all in accordance with the terms and conditions hereof, for a term commencing on May 18, 2004 and terminating on May 17, 2009.  However, the Officer shall be considered to be employed by the Company beyond the Termination Date for purposes of receiving certain benefits conferred under this Agreement, as described in Paragraph 3.1 hereof.

1.2Position and Duties.

(a)The Company hereby employs the Officer, and the Officer agrees to serve the Company, as an officer of the Company pursuant to the terms of this Agreement.  The Company has by action of its Board of Directors appointed the Officer to the position of Chairman/Chief Executive Officer, however it may, in the sole and unfettered discretion of the Board of Directors, amend the Officer’s title and/or duties and responsibilities, provided that the Officer remains an officer of the Company

pursuant to the terms of this Agreement.

(b)The Officer shall be responsible for such duties as are commensurate with the office in which he serves and as may from time to time be assigned to the Officer by the Company’s Board of Directors.

1.3Performance of Duties.

(a)At all times prior to the Termination Date, the Officer (i) shall devote his full business time, energies, best efforts, and attention to the business of the Company, (ii) shall faithfully and diligently perform the duties of his employment with the Company, (iii) shall do all reasonably in his power to promote, develop, and extend the business of the Company, and (iv) shall not enter into the service of, or be employed in any capacity or for any purpose whatsoever by, any person, firm or corporation other than the Company without the prior written consent of the Board of Directors of the Company.

(b)The Officer shall perform his duties in accordance with all applicable laws, rules, or regulations that apply to the Company and/or its business, assets (real or personal), or employees.

2.COMPENSATION.

2.1Salary.

(a)For so long as Officer is employed by the Company, the Company agrees to pay to the Officer, and the Officer shall accept from the Company, for all of his services rendered pursuant to this Agreement, a salary of Two Hundred Fifty Thousand Dollars ($250,000) per annum, payable semimonthly.

(b)The Company’s Board of Directors, or compensation committee of the Board of Directors (the “Compensation Committee”), shall review the Officer’s salary annually and merit increases thereon shall be considered and may be approved, in the sole and unlimited discretion of the Company’s Board of Directors, depending in part on the profits and cash flow of the Company.  If the Company’s Board of Directors elects in its discretion to increase the salary of the Officer at any time or from time to time, the new salary rate shall, without further action by the Officer or the Company, be deemed substituted for the amount set forth above.  At such time, this Agreement shall be deemed amended accordingly (notwithstanding the provisions of Paragraph 7.8 below), and, as so amended, shall remain in full force and effect.

2.2Bonuses.      The Company, in the sole and unfettered discretion of its Board of Directors or Compensation Committee, may from time to time award cash bonuses to the Officer based upon its measure of Officer’s performance.  Such bonuses may be awarded in a lump sum or may be conditioned upon the future performance or

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employment of Officer, in the sole and unfettered discretion of the Board of Directors of the Company.

2.3Expenses.      Upon submission of appropriate invoices or vouchers, the Company shall pay or reimburse the Officer for all reasonable expenses incurred by the Officer in the performance of his duties hereunder in furtherance of the business of the Company.

2.4Benefits.       The Company extends to the Officer the right to participate in whatever employee benefit plans (excluding any employee benefit plan covered separately in this Agreement) may be in effect from time to time, to the extent the Officer is eligible under the terms of the plans.  However, no employee benefits other than those specifically conferred by the terms of this Agreement have been promised to the Officer in connection with this employment.  The adoption of one or more employee benefit plans, the terms of the plans, and the Officer’s participation in the plans, if any, are in the sole discretion of the Company and may be changed by the Company at any time and from time to time.

2.5Stock Grant.

(a)To induce the Officer to accept the position of Chief Executive Officer, and subject to the terms of this Paragraph 2.5, the Officer is hereby granted by the Company, effective upon the Effective Date of this Agreement, Thirteen Million Two Hundred Fifty Thousand (13,250,000) shares of the Company’s common stock (the “Common Shares”) and One Million Five Hundred Thousand (1,500,000) shares of Series B preferred stock to be designated by the Company (the “Series B Shares”; and collectively with the Common Shares, the “Restricted Stock”).  The grant of the Restricted Stock shall be subject to the following terms and conditions:

(i)If at any time before May 18, 2006, the Officer’s employment with the Company shall cease or terminate for any reason, including but not limited to, termination by reason of [death or] disability, termination by the Company with or without cause and whether or not in breach of the Agreement, or termination by the Officer for any reason, voluntarily or otherwise, then the Officer shall forfeit all of such Restricted Stock to the Company, and the Officer shall have no claim or right, either express or implied, against the Company for any compensation, payment or benefit in lieu of the Restricted Stock so forfeited or otherwise.  In addition, unless and until the Officer’s rights in the foregoing Restricted Stock become nonforfeitable by virtue of the satisfaction of the foregoing condition, the Officer shall have no right to, and the Officer hereby agrees that he shall not, sell, pledge, assign, hypothecate, encumber, give, grant or otherwise transfer such Restricted Stock or alienate his then-current or expected future rights to such Restricted Stock, and the certificates representing all of such Restricted Stock shall prominently bear appropriate legends reflecting these restrictions and the Company’s stock register shall likewise reflect these restrictions.

(ii)Upon issuance of the Restricted Stock, except for the

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restrictions set forth in this Paragraph 2.5, the Officer shall have all rights of a shareholder of the Company with respect to such Restricted Stock including the right to vote such Restricted Stock and to receive all dividends and other distributions paid with respect to such Restricted Stock; provided, however, dividends, if any, paid or distributed on the Restricted Stock shall not be paid by the Company to the Officer unless and until such time as the Restricted Stock becomes nonforfeitable.

(iii)In the event of a Change in Control (as herein defined), the Company may waive in whole or in part any and all remaining restrictions on the Restricted Stock.  For purposes hereof, a Change of Control shall mean, and shall be deemed to have occurred:

(A)if any person, other than any benefit plan of the Company or the Officer and Ira Goldknopf, as holders of the Series B Preferred Stock, directly or indirectly, becomes the beneficial owner (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of securities representing 51% or more of the combined voting power of the Company’s then-outstanding securities, but excluding any such acquisition pursuant to a merger, consolidation or similar business combination involving the Company; or

(B)upon the consummation of a merger, consolidation, or similar business combination involving the Company, other than any such transaction which results in at least 75% of the total voting power represented by the voting securities of the surviving entity (or the parent entity thereof) outstanding immediately after such transaction being beneficially owned by at least 75% of the holders of the outstanding voting securities of the Company immediately prior to the transaction with the voting power of each such continuing holder relative to other such continuing holders not being substantially altered in the transaction; or

(C)upon the Board of Directors or the shareholders of the Company approving a plan of complete or substantially complete liquidation of the Company; or

(D)upon the consummation of the sale, lease, or disposition by the Company of 50% or more of the total assets of the Company in one or a series of related transactions (provided that a license, sublicense or similar transaction involving the Company’s intellectual property rights shall not be considered as a Change of Control); or

(E)upon the individuals who constitute the Board as of the Effective Date (the “Incumbent Board”) ceasing for any reason to constitute at least a majority of the members of the Board, provided that any person becoming a director after the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board (other than any individual whose initial assumption of office occurs as a result of either (a) an actual or threatened election

4

contest or (b) an actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board.

(v)The Common Shares shall have demand registration rights or piggyback registration rights (neither of which, however, shall be effective unless and until, after May 18, 2006, the Officer’s rights to such shares have ceased to be subject to the risks of forfeiture as provided herein).

(b)The Officer agrees to pay in a timely manner deemed suitable by the Company, and to indemnify and hold harmless the Company from, any and all taxes (including all penalties and interest, if any, thereon), resulting from the grant and/or transfer of the above-referenced Restricted Stock for which ultimate responsibility is assigned to or asserted against the Officer under applicable law.  For purposes of this provision, all withholding obligations of the Company in respect of the aforementioned taxes (including any and all taxes, penalties and interest imposed on or asserted against the Company for failure to properly withhold and remit any such amounts in a timely manner) shall be considered the responsibility of the Officer and, accordingly, the Officer agrees to pay in a timely manner deemed suitable by the Company, and to indemnify and hold harmless the Company from, any and all of such obligations.

2.6Vacation; Sick Leave.The Company’s vacation and sick leave policy has been established by the Company and may be changed by the Company at any time and from time to time.  Said policy is published in separate data files accessible to the Officer.  The Officer will not be entitled to receive payment for any unused sick leave either during employment or upon termination of employment.

2.7Withholding.The Company may withhold from any amounts payable under this Agreement any and all federal, state, city, or other taxes or other amounts required to be withheld by any applicable law.

3.TERMINATION.

3.1Termination Upon 30 Days Notice.

(a)Either party may terminate the Officer’s employment under this Agreement for any reason whatsoever, either with or without cause, upon giving the other party no less than thirty (30) days prior written notice of such termination ( the “Notice Date”).  The effective date of a termination pursuant to this Paragraph 3.1 shall be such termination date as stated on the notice, provided that the termination date can be no earlier than the 31^st day following the day the notice becomes effective pursuant to Paragraph 5.4 below (the “Termination Date”).

(b)Until the expiration of the contract on May 17, 2009

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(“Transition Period”), unless terminated for “Cause” as defined in Paragraph 3.4 or if the Officer resigns from his position or duties, the Officer will continue to be considered as an employee of the Company only for the purpose of receiving the compensation and benefits awarded in Paragraphs 2.1, 2.2, and 2.4 hereof.  More specifically, for the duration of Transition Period the Officer (i) shall continue to receive his salary at the rate in effect as of the Notice Date, (ii) shall continue to be considered an employee of the Company for purposes of determining eligibility to receive any contingent or deferred bonuses awarded to the Officer prior to the Termination Date, (iii) shall continue to be considered an officer of the Company for purposes of vesting in any stock options granted to Officer (but not for purposes of the forfeiture restrictions applicable to the Restricted Stock as set forth in Paragraph 2.5), and (iv) shall, to the extent allowed by such plan, remain eligible to participate in any benefit plan of the Company in which the Officer participates as of the Notice Date.

(c)Notwithstanding any provision herein to the contrary, however, the Officer will not be entitled to act as, or represent himself to be, an officer or employee of the Company following the Termination date and will not be entitled to receive or participate in any bonus, incentive, or benefit program, involving stock or otherwise, that is established following the Termination Date.

3.2Termination by Mutual Consent.   The Officer and the Company may at any time terminate the employment of the Officer under this Agreement by mutual consent in writing upon the terms and conditions stated in such writing.

3.3Termination Upon Death.    If the Officer dies, his employment shall immediately terminate automatically as of the date of his death.  In such event, the Officer shall be treated as if he had terminated his employment with the Company under the terms of Paragraph 3.1 above, with the date of his death serving as both the Notice Date and the Termination Date.

3.4Termination for Cause.    This Agreement may be terminated for Cause by either party for the following reasons, only:

3.4.a.1Commission of a criminal offense by either party in the course of performance of the Agreement shall entitle the other to effect immediate termination upon giving written notice;

3.4.a.2If either party becomes insolvent or makes a general assignment for the benefit of creditors or if petition in bankruptcy is filed against the defaulting party and is not discharged or disputed within five (5) working days of such filing or of the agent is adjudicated bankrupt or insolvent;

3.4.a.3The election of one party (the “aggrieved party”) to terminate this Agreement upon (1) the actual breach or actual default by the other party in the reasonable performance of the defaulting party’s obligations and

6

duties under this Agreement and (2) the failure of the defaulting party to cure the same within fifteen (15) days (the “cure period”) after receipt by the defaulting party of a good faith written notice from the aggrieved party specifying such breach or default and (3) provided that the defaulting party has not cured the default and the aggrieved party may then give written notice to defaulting party of his or its election to terminate ten (10) days after expiration of the cure period.

3.5Transition.    Officer shall make a good faith effort to aid in the transition of management necessitated by the termination of his employment pursuant to this Agreement.  To the extent feasible and/or practical, Officer shall devote the time and energy necessary to effect said goal of a smooth transition for the successor chairman and/or chief executive officer.  The salary payable to Officer by the Company pursuant to Paragraph 2.1(a) of this contract shall continue to be paid to Officer during such transition period.

4.PROPRIETARY INFORMATION AND ITEMS.

4.1Acknowledgments.    The Officer acknowledges that (a) the Officer has or will be afforded access to Proprietary Information of the Company or its affiliates; (b) public disclosure of such Proprietary Information could have an adverse effect on the Company and its affiliates; and (c) the provisions of this Section 4 are reasonable and necessary to prevent the improper use or disclosure of such Proprietary Information.

4.2Non-Disclosure and Non-Use of Proprietary Information.    During the Officer’s employment by the Company and for a period of five (5) years thereafter, the Officer covenants and agrees that the Officer (a) shall not disclose to others or use for the benefit of himself or others, any of the Company’s Proprietary Information, except that the Officer may disclose such information (i) in the course of and in furtherance of the Officer’s employment with the Company to the extent necessary for the benefit of the Company, (ii) with the prior specific written consent of the Board of Directors of the Company, or (iii) to the extent required by law; and (b) shall take all measures reasonably necessary to preserve the confidentiality of all Proprietary Information of the Company known to the Officer, shall cooperate fully with the Company’s or its affiliates’ enforcement of measures intended to preserve the confidentiality of all Proprietary Information, and shall notify the Board of Directors immediately upon receiving any request for, or making any disclosure of, any Proprietary Information from or to any person other than an officer or employee of the Company or of one of its affiliates who has a need to know such information.

4.3Proprietary Information.    For purposes of this Agreement, “Proprietary Information” means trade secrets, secret or confidential information or knowledge pertaining to, or any other nonpublic information pertaining to the business or affairs of the Company or any of its affiliates, including without limitation, medical imaging software programs (including source code and object code) and design documentation; identities, addresses, backgrounds, or other information regarding licensors, suppliers,

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customers, sublicensees, potential customers and sublicensees, employees, contractors, or sources of referral; marketing plans or strategies, business or personnel acquisition plans; pending or contemplated projects, ventures, or proposals; financial information (including historical financial statements; financial, capital, or operating budgets, plans or projections; historical or projected sales, royalties and license fees, and the amounts of compensation paid to employees and contractors); trade secrets, know-how, technical processes, or research projects; and notes, analysis, compilations, studies, summaries, and other material prepared by or for the Company containing or based, in whole or in part, on any information included in the foregoing, except information that is generally known in the industry (other than as a result of a disclosure by the Officer).

4.4Proprietary Items.     Upon termination or expiration of the Officer’s employment by the Company for any reason or by either party, or upon the request of the Company during such tenure, the Officer will immediately return to the Company all Proprietary Items in the Officer’s possession or subject to the Officer’s control, and the Officer shall not retain any copies, abstracts, sketches, or other physical embodiment of any Proprietary Items.  For purposes of this Agreement, “Proprietary Items” means all documents and tangible items (including all customer lists, memoranda, books, papers, records, notebooks, plans, models, components, devices, or computer software or code, whether embodied in a disk or in any other form) provided to the Officer by the Company, created by the Officer, or otherwise coming into the Officer’s possession for use in connection with is engagement with the Company or otherwise containing Proprietary Information (whether provided or created during the term of this agreement or prior thereto).

4.5Ownership Rights.    The Officer recognizes that, as between the Company and the Officer, all of the Proprietary Information and all of the Proprietary Items, whether or not developed by the Officer, are the exclusive property of the Company.  The Officer agrees that all intellectual property of every kind, including without limitation copyright, patent, trademarks, trade secrets, and similar rights, created or developed or realized in connection with the Officer’s performance of any duties or functions as an Officer of the Company (collectively, the “Intellectual Property”) shall be the exclusive property of the Company and shall constitute Proprietary Information.  The Officer hereby assigns unto the Company all rights, title, and interest that the Officer may have to such Intellectual Property and each and every derivative work thereof, and agrees to execute, acknowledge, and deliver to the Company as assignment to the Company of any right, title, or interest of the Officer in any and all such Intellectual Property, in such form as may be reasonably requested by the Company.

4.6Disputes of Controversies.    The Officer recognizes that, should a dispute or controversy arising from or relating to this portion of the Agreement (Section 4) be submitted for adjudication to any court, arbitration panel, or other third party, the preservation of the secrecy of Proprietary Information may be jeopardized.  The Officer agrees that he will use best efforts to ensure that all pleadings, documents, testimony, and records relating to any such adjudication will be maintained in secrecy.

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5.NON-INTERFERENCE; COMPLIANCE WITH LAW; COOPERATION

5.1Non-Interference.    During the Officer’s employment with the Company and for a period of five (5) years following termination or expiration of such tenure, the Officer covenants and agrees that the Officer shall not, directly or indirectly, for the benefit of the Officer or another (a) persuade or attempt to persuade any employee, independent contractor, consultant, agent, supplier, licensor, or distributor of the Company or of any affiliate of the Company to discontinue such person’s relationship with the Company or the affiliate; (b) hire away or solicit to hire away from the Company or from any of its affiliates any employee; (c) otherwise engage or seek to engage any employee or independent contractor of the Company or of any of its affiliates in a business relationship that would or might conflict with such employee’s or independent contractor’s obligations to the Company or affiliate; (d) interfere with the Company’s or any of its affiliates’ relationship with any governmental or business entity, including payor, supplier, licensor, lender, or contractor of the Company or the affiliate; or (e) disparage the Company or any of its affiliates or any of the shareholders, directors, officers, employees, or agents of any of them.

5.2Cooperation.    During the Officer’s Employment with the Company and for a period of five (5) years following the termination or expiration of such tenure, the Officer agrees to cooperate with the Company and its affiliates in connection with any litigation or investigation involving the Company or any of its affiliates or any of the shareholders, directors, officers, employees, or agents of any of them and shall furnish such information and assistance as may be lawfully requested by the Company.

6.NON-COMPETITION

During the Officer’s employment by the Company and for a period of two (2) years following the termination or expiration of such tenure, the officer covenants and agrees to refrain from carrying on or engaging in a business similar to that of the Company, and from soliciting customers of the Company, within the North America, so long as the Company carries on a like business therein.  It is further stipulated that as forbearance for this contract term, Company has provided Officer with separate and distinct consideration consisting of 25,000 shares of common stock.  Such shares are included in the Common Shares described in Paragraph 2.5 and shall be subject to the restrictions set forth therein.

Each word of the foregoing provision is severable.

7.GENERAL PROVISIONS

7.1Indemnification.    The Company hereby agrees to indemnify and hold harmless the Officer from and against any and all losses, claims, damages, expenses

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and/or liabilities which may incur arising out of the normal course of business in carrying out the duties and responsibilities associated with the position of Chief Executive Officer arising from the Officer’s reliance upon and approved use of information, reports and data furnished by and representations made by the Company, with respect to itself, where the Officer in turn distributes and conveys such information, reports and data to the public in the normal course of representing the Company.  Such indemnification shall include, but not be limited to, expenses (including all attorney’s fees), judgments, and amounts paid in settlement actually and reasonably incurred by Officer in connection with an action, suit or proceeding brought against the Company or Officer.

7.2Injunctive Relief.    The Officer acknowledges that the injury that would be suffered by the Company as a result of a breach of the provisions of this Agreement would be largely irreparable and that an award of monetary damages to the Company for such a breach would be an inadequate remedy.  The Company will have the right, in addition to any other rights it may have (including the right to damages that the Company may suffer), to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Company will not be obligated to post bond or other security in seeking such relief.  The Officer agrees to request neither bond nor security in connection with any such injunction.  The Officer agrees that if he breaches this Agreement, the Officer shall be liable for any attorney’s fees and costs incurred by the Company in enforcing its rights under this Agreement.

7.3Essential, Independent, and Surviving Covenants.

(a)The parties agree that the covenants by the Officer in Sections 4, 5, and 6 are essential elements of this Agreement, and without the Officer’s agreement to comply with such covenants, the Company would not have entered into this Agreement.

(b)The Officer’s covenants in Sections 4, 5, and 6 are independent covenants and the existence of any claim by the officer against the Company under this Agreement or otherwise will not excuse the Officer’s breach of any covenant in Section 4, 5, or 6.

(c)After the Officer’s employment by the Company is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Officer in Sections 4, 5, and 6.

7.4Binding Effect; Benefits; Assignment.    This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives.  Insofar as the Officer is concerned, this contract, being personal, cannot be assigned other than by will or the laws of descent and distribution.

7.5Notices.     All notices and other communications which are required or permitted hereunder shall be in writing and shall be sufficient if mailed by certified mail, postage prepaid, and shall be effective three days after such mailing or upon delivery,

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whichever is earlier, to the following addresses or such other address as the appropriate party may advise each other party hereto:

If to the Officer:

Steven Rash

10 Spiceberry Place

The Woodlands, TX 77382

If to the Company:

Power 3 Medical Products, Inc.

3400 Research Forest Drive

The Woodlands, TX  77381

Copy to:

Billings and Solomon, PLLC

2777 Allen Parkway, Suite 460

Houston, TX 77019

ATTN:  Richard P. Martini

7.6Entire Agreement.    This Agreement contains the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof including, without limitation, the Original Agreement.

7.7No Third-Party Beneficiaries.    This Agreement shall not confer any rights or remedies upon any person other than the Company, the Officer, and their respective successors and permitted assigns, other than as expressly set forth in this Agreement.

7.8Amendments and Waivers.    Except as set forth in Paragraph 2.1(b) above, this Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment sought.  Either party hereto may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with.  The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach.  No delay or failure by either party in exercising any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right.

7.9Headings.    The paragraph headings contained in this Agreement are for reference purposes only and shall not be deemed to be a part of this Agreement or to control or affect the meaning or construction of any provision of this Agreement.

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7.10Construction.The language used in this Agreement will be deemed to be the language chosen by the Company and the Officer to express their mutual intent, and no rule of strict construction shall be applied against either party.

7.11Counterparts.This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

7.12Severability.If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, this Agreement shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement.

7.13Expenses and Attorney’s Fees.In the event that a dispute arises under this Agreement that results in litigation or arbitration, the prevailing party, as determined by the decision of a court or forum of competent and final jurisdiction, shall be entitled to court costs and reasonable attorney’s fees.  A court or forum of “final” jurisdiction shall mean a court of forum from which no appeal may be taken or from whose decree, decision, judgment, or order no appeal is taken or prosecuted.

7.14Governing Law.This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the conflict of laws principles thereof.

7.15Agreement Preparation.The Officer acknowledges that this Agreement has been prepared by counsel for the Company, and the Officer has not relied on any representation made by the Company’s attorneys.  The Officer has engaged an attorney of his choice to review this agreement on his behalf.  By signing this employment agreement, officer is hereby certifying that officer (a) received a copy of this agreement for review and study before executing it; (b) read this agreement carefully before signing it; (c) had sufficient opportunity before signing the agreement to ask any questions officer had about the agreement and received satisfactory answers to all such questions; and (d) understands officer’s rights and obligations under the agreement.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Employment Agreement as of the date first written above but to be effective as of the Effective Date.

OFFICER:
/s/ Steven B. Rash
Steven Rash
COMPANY:
Power 3 Medical Products, Inc.
By:	s/ Ira L. Goldknopf, Ph.D.
	Ira L. Goldknopf, Ph.D.
	Chief Scientific Officer

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EX-10.2

Exhibit 10.2

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (the “Agreement”) by and between Power 3 Medical Products, Inc., a New York corporation (the “Company”), and Ira L. Goldknopf, Ph.D. (the “Officer”) is executed this 29^th day of December, 2004 but shall be effective for all purposes as of May 18, 2004 (the “Effective Date”).

RECITALS

WHEREAS, the Company and the Officer previously entered into that certain Employment Agreement dated as of May 18, 2004 (the “Original Agreement”);

WHEREAS, the Company and the Officer have determined that the Original Agreement did not accurately reflect the parties’ mutual intent in that it did not correctly set forth the parties’ mutual understanding and agreement regarding the restrictions applicable to the stock grants referenced therein and the risks of forfeiture intended to be applicable to such shares of stock; and

WHEREAS, the Company and the Officer desire to enter into this Agreement to reform the provisions of the Original Agreement to reflect the parties’ mutual understanding and intent and to restate the Original Agreement, as amended, in its entirety.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein provided, the parties hereto agree as follows:

1.EMPLOYMENT TERMS

1.1Term.  The Company hereby employs the Officer, and the Officer hereby accepts employment with the Company, all in accordance with the terms and conditions hereof, for a term commencing on May 18, 2004 and terminating on May 17, 2009.  However, the Officer shall be considered to be employed by the Company beyond the Termination Date for purposes of receiving certain benefits conferred under this Agreement, as described in Paragraph 3.1 hereof.

1.2Position and Duties.

(a)The Company hereby employs the Officer, and the Officer agrees to serve the Company, as an officer of the Company pursuant to the terms of this Agreement.  The Company has by action of its Board of Directors appointed the Officer to the position of Chief Scientific Officer, however it may, in the sole and unfettered discretion of the Board of Directors, amend the Officer’s title and/or duties and responsibilities, provided that the Officer remains an officer of the Company pursuant to

the terms of this Agreement.

(b)The Officer shall be responsible for such duties as are commensurate with the office in which he serves and as may from time to time be assigned to the Officer by the Company’s Board of Directors.

1.3Performance of Duties.

(a)At all times prior to the Termination Date, the Officer (i) shall devote his full business time, energies, best efforts, and attention to the business of the Company, (ii) shall faithfully and diligently perform the duties of his employment with the Company, (iii) shall do all reasonably in his power to promote, develop, and extend the business of the Company, and (iv) shall not enter into the service of, or be employed in any capacity or for any purpose whatsoever by, any person, firm or corporation other than the Company without the prior written consent of the Board of Directors of the Company.

(b)The Officer shall perform his duties in accordance with all applicable laws, rules, or regulations that apply to the Company and/or its business, assets (real or personal), or employees.

2.COMPENSATION.

2.1Salary.

(a)For so long as Officer is employed by the Company, the Company agrees to pay to the Officer, and the Officer shall accept from the Company, for all of his services rendered pursuant to this Agreement, a salary of One Hundred Twenty Five Thousand Dollars ($125,000) per annum, payable semimonthly for the period from May 18, 2004 to December 15, 2004 and a salary of One Hundred Thousand Dollars ($100,000) per annum, payable semimonthly for the period beginning December 16,2004.

(b)The Company’s Board of Directors, or compensation committee of the Board of Directors (the “Compensation Committee”), shall review the Officer’s salary annually and merit increases thereon shall be considered and may be approved, in the sole and unlimited discretion of the Company’s Board of Directors, depending in part on the profits and cash flow of the Company.  If the Company’s Board of Directors elects in its discretion to increase the salary of the Officer at any time or from time to time, the new salary rate shall, without further action by the Officer or the Company, be deemed substituted for the amount set forth above.  At such time, this Agreement shall be deemed amended accordingly (notwithstanding the provisions of Paragraph 7.8 below), and, as so amended, shall remain in full force and effect.

2.2Bonuses.   The Company, in the sole and unfettered discretion of

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its Board of Directors or Compensation Committee, may from time to time award cash bonuses to the Officer based upon its measure of Officer’s performance.  Such bonuses may be awarded in a lump sum or may be conditioned upon the future performance or employment of Officer, in the sole and unfettered discretion of the Board of Directors of the Company.

2.3Expenses.   Upon submission of appropriate invoices or vouchers, the Company shall pay or reimburse the Officer for all reasonable expenses incurred by the Officer in the performance of his duties hereunder in furtherance of the business of the Company.

2.4Benefits.   The Company extends to the Officer the right to participate in whatever employee benefit plans (excluding any employee benefit plan covered separately in this Agreement) may be in effect from time to time, to the extent the Officer is eligible under the terms of the plans.  However, no employee benefits other than those specifically conferred by the terms of this Agreement have been promised to the Officer in connection with this employment.  The adoption of one or more employee benefit plans, the terms of the plans, and the Officer’s participation in the plans, if any, are in the sole discretion of the Company and may be changed by the Company at any time and from time to time.

2.5Stock Grant.

(a)To induce the Officer to accept the position of Chief Scientific Officer, and subject to the terms of this Paragraph 2.5, the Officer is hereby granted by the Company, effective upon the Effective Date of this Agreement, Thirteen Million Two Hundred Fifty Thousand (13,250,000) shares of the Company’s common stock (the “Common Shares”) and One Million Five Hundred Thousand (1,500,000) shares of Series B preferred stock to be designated by the Company (the “Series B Shares”; and collectively with the Common Shares, the “Restricted Stock”).  The grant of the Restricted Stock shall be subject to the following terms and conditions:

(i)If at any time before May 18, 2006, the Officer’s employment with the Company shall cease or terminate for any reason, including but not limited to, termination by reason of [death or] disability, termination by the Company with or without cause and whether or not in breach of the Agreement, or termination by the Officer for any reason, voluntarily or otherwise, then the Officer shall forfeit all of such Restricted Stock to the Company, and the Officer shall have no claim or right, either express or implied, against the Company for any compensation, payment or benefit in lieu of the Restricted Stock so forfeited or otherwise.  In addition, unless and until the Officer’s rights in the foregoing Restricted Stock become nonforfeitable by virtue of the satisfaction of the foregoing condition, the Officer shall have no right to, and the Officer hereby agrees that he shall not, sell, pledge, assign, hypothecate, encumber, give, grant or otherwise transfer such Restricted Stock or alienate his then-current or expected future rights to such Restricted Stock, and the certificates representing all of such Restricted Stock shall prominently bear appropriate legends reflecting these

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restrictions and the Company’s stock register shall likewise reflect these restrictions.

(ii)Upon issuance of the Restricted Stock, except for the restrictions set forth in this Paragraph 2.5, the Officer shall have all rights of a shareholder of the Company with respect to such Restricted Stock including the right to vote such Restricted Stock and to receive all dividends and other distributions paid with respect to such Restricted Stock; provided, however, dividends, if any, paid or distributed on the Restricted Stock shall not be paid by the Company to the Officer unless and until such time as the Restricted Stock becomes nonforfeitable.

(iii)In the event of a Change in Control (as herein defined), the Company may waive in whole or in part any and all remaining restrictions on the Restricted Stock.  For purposes hereof, a Change of Control shall mean, and shall be deemed to have occurred:

(A)if any person, other than any benefit plan of the Company or the Officer and Steven B. Rash, as holders of the Series B Preferred Stock, directly or indirectly, becomes the beneficial owner (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of securities representing 51% or more of the combined voting power of the Company’s then-outstanding securities, but excluding any such acquisition pursuant to a merger, consolidation or similar business combination involving the Company; or

(B)upon the consummation of a merger, consolidation, or similar business combination involving the Company, other than any such transaction which results in at least 75% of the total voting power represented by the voting securities of the surviving entity (or the parent entity thereof) outstanding immediately after such transaction being beneficially owned by at least 75% of the holders of the outstanding voting securities of the Company immediately prior to the transaction with the voting power of each such continuing holder relative to other such continuing holders not being substantially altered in the transaction; or

(C)upon the Board of Directors or the shareholders of the Company approving a plan of complete or substantially complete liquidation of the Company; or

(D)upon the consummation of the sale, lease, or disposition by the Company of 50% or more of the total assets of the Company in one or a series of related transactions (provided that a license, sublicense or similar transaction involving the Company’s intellectual property rights shall not be considered as a Change of Control); or

(E)upon the individuals who constitute the Board as of the Effective Date (the “Incumbent Board”) ceasing for any reason to constitute at least a majority of the members of the Board, provided that any person becoming a director after the Effective Date whose election, or nomination for election by the

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Company’s shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board (other than any individual whose initial assumption of office occurs as a result of either (a) an actual or threatened election contest or (b) an actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board.

(v)The Common Shares shall have demand registration rights or piggyback registration rights (neither of which, however, shall be effective unless and until, after May 18, 2006, the Officer’s rights to such shares have ceased to be subject to the risks of forfeiture as provided herein).

(b)The Officer agrees to pay in a timely manner deemed suitable by the Company, and to indemnify and hold harmless the Company from, any and all taxes (including all penalties and interest, if any, thereon), resulting from the grant and/or transfer of the above-referenced Restricted Stock for which ultimate responsibility is assigned to or asserted against the Officer under applicable law.  For purposes of this provision, all withholding obligations of the Company in respect of the aforementioned taxes (including any and all taxes, penalties and interest imposed on or asserted against the Company for failure to properly withhold and remit any such amounts in a timely manner) shall be considered the responsibility of the Officer and, accordingly, the Officer agrees to pay in a timely manner deemed suitable by the Company, and to indemnify and hold harmless the Company from, any and all of such obligations.

2.6Vacation; Sick Leave.   The Company’s vacation and sick leave policy has been established by the Company and may be changed by the Company at any time and from time to time.  Said policy is published in separate data files accessible to the Officer.  The Officer will not be entitled to receive payment for any unused sick leave either during employment or upon termination of employment.

2.7Withholding.   The Company may withhold from any amounts payable under this Agreement any and all federal, state, city, or other taxes or other amounts required to be withheld by any applicable law.

3.TERMINATION.

3.1Termination Upon 30 Days Notice.

(a)Either party may terminate the Officer’s employment under this Agreement for any reason whatsoever, either with or without cause, upon giving the other party no less than thirty (30) days prior written notice of such termination ( the “Notice Date”).  The effective date of a termination pursuant to this Paragraph 3.1 shall be such termination date as stated on the notice, provided that the termination date can be no earlier than the 31^st day following the day the notice becomes effective pursuant

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to Paragraph 5.4 below (the “Termination Date”).

(b)Until the expiration of the contract on May 17, 2009 (“Transition Period”), unless terminated for “Cause” as defined in Paragraph 3.4 or if the Officer resigns from his position or duties, the Officer will continue to be considered as an employee of the Company only for the purpose of receiving the compensation and benefits awarded in Paragraphs 2.1, 2.2, and 2.4 hereof.  More specifically, for the duration of Transition Period the Officer (i) shall continue to receive his salary at the rate in effect as of the Notice Date, (ii) shall continue to be considered an employee of the Company for purposes of determining eligibility to receive any contingent or deferred bonuses awarded to the Officer prior to the Termination Date, (iii) shall continue to be considered an officer of the Company for purposes of vesting in any stock options granted to Officer (but not for purposes of the forfeiture restrictions applicable to the Restricted Stock as set forth in Paragraph 2.5), and (iv) shall, to the extent allowed by such plan, remain eligible to participate in any benefit plan of the Company in which the Officer participates as of the Notice Date.

(c)Notwithstanding any provision herein to the contrary, however, the Officer will not be entitled to act as, or represent himself to be, an officer or employee of the Company following the Termination date and will not be entitled to receive or participate in any bonus, incentive, or benefit program, involving stock or otherwise, that is established following the Termination Date.

3.2Termination by Mutual Consent.   The Officer and the Company may at any time terminate the employment of the Officer under this Agreement by mutual consent in writing upon the terms and conditions stated in such writing.

3.3Termination Upon Death.   If the Officer dies, his employment shall immediately terminate automatically as of the date of his death.  In such event, the Officer shall be treated as if he had terminated his employment with the Company under the terms of Paragraph 3.1 above, with the date of his death serving as both the Notice Date and the Termination Date.

3.4Termination for Cause.   This Agreement may be terminated for Cause by either party for the following reasons, only:

3.4.a.1Commission of a criminal offense by either party in the course of performance of the Agreement shall entitle the other to effect immediate termination upon giving written notice;

3.4.a.2If either party becomes insolvent or makes a general assignment for the benefit of creditors or if petition in bankruptcy is filed against the defaulting party and is not discharged or disputed within five (5) working days of such filing or of the agent is adjudicated bankrupt or insolvent;

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3.4.a.3The election of one party (the “aggrieved party”) to terminate this Agreement upon (1) the actual breach or actual default by the other party in the reasonable performance of the defaulting party’s obligations and duties under this Agreement and (2) the failure of the defaulting party to cure the same within fifteen (15) days (the “cure period”) after receipt by the defaulting party of a good faith written notice from the aggrieved party specifying such breach or default and (3) provided that the defaulting party has not cured the default and the aggrieved party may then give written notice to defaulting party of his or its election to terminate ten (10) days after expiration of the cure period.

3.5Transition.   Officer shall make a good faith effort to aid in the transition of management necessitated by the termination of his employment pursuant to this Agreement.  To the extent feasible and/or practical, Officer shall devote the time and energy necessary to effect said goal of a smooth transition for the successor chief scientific officer.  The salary payable to Officer by the Company pursuant to Paragraph 2.1(a) of this contract shall continue to be paid to Officer during such transition period.

4.PROPRIETARY INFORMATION AND ITEMS.

4.1Acknowledgments.   The Officer acknowledges that (a) the Officer has or will be afforded access to Proprietary Information of the Company or its affiliates; (b) public disclosure of such Proprietary Information could have an adverse effect on the Company and its affiliates; and (c) the provisions of this Section 4 are reasonable and necessary to prevent the improper use or disclosure of such Proprietary Information.

4.2Non-Disclosure and Non-Use of Proprietary Information.   During the Officer’s employment by the Company and for a period of five (5) years thereafter, the Officer covenants and agrees that the Officer (a) shall not disclose to others or use for the benefit of himself or others, any of the Company’s Proprietary Information, except that the Officer may disclose such information (i) in the course of and in furtherance of the Officer’s employment with the Company to the extent necessary for the benefit of the Company, (ii) with the prior specific written consent of the Board of Directors of the Company, or (iii) to the extent required by law; and (b) shall take all measures reasonably necessary to preserve the confidentiality of all Proprietary Information of the Company known to the Officer, shall cooperate fully with the Company’s or its affiliates’ enforcement of measures intended to preserve the confidentiality of all Proprietary Information, and shall notify the Board of Directors immediately upon receiving any request for, or making any disclosure of, any Proprietary Information from or to any person other than an officer or employee of the Company or of one of its affiliates who has a need to know such information.

4.3Proprietary Information.   For purposes of this Agreement,  “Proprietary Information” means trade secrets, secret or confidential information or knowledge pertaining to, or any other nonpublic information pertaining to the business or affairs of

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the Company or any of its affiliates, including without limitation, medical imaging software programs (including source code and object code) and design documentation; identities, addresses, backgrounds, or other information regarding licensors, suppliers, customers, sublicensees, potential customers and sublicensees, employees, contractors, or sources of referral; marketing plans or strategies, business or personnel acquisition plans; pending or contemplated projects, ventures, or proposals; financial information (including historical financial statements; financial, capital, or operating budgets, plans or projections; historical or projected sales, royalties and license fees, and the amounts of compensation paid to employees and contractors); trade secrets, know-how, technical processes, or research projects; and notes, analysis, compilations, studies, summaries, and other material prepared by or for the Company containing or based, in whole or in part, on any information included in the foregoing, except information that is generally known in the industry (other than as a result of a disclosure by the Officer).

4.4Proprietary Items.   Upon termination or expiration of the Officer’s employment by the Company for any reason or by either party, or upon the request of the Company during such tenure, the Officer will immediately return to the Company all Proprietary Items in the Officer’s possession or subject to the Officer’s control, and the Officer shall not retain any copies, abstracts, sketches, or other physical embodiment of any Proprietary Items.  For purposes of this Agreement, “Proprietary Items” means all documents and tangible items (including all customer lists, memoranda, books, papers, records, notebooks, plans, models, components, devices, or computer software or code, whether embodied in a disk or in any other form) provided to the Officer by the Company, created by the Officer, or otherwise coming into the Officer’s possession for use in connection with is engagement with the Company or otherwise containing Proprietary Information (whether provided or created during the term of this agreement or prior thereto).

4.5Ownership Rights.   The Officer recognizes that, as between the Company and the Officer, all of the Proprietary Information and all of the Proprietary Items, whether or not developed by the Officer, are the exclusive property of the Company.  The Officer agrees that all intellectual property of every kind, including without limitation copyright, patent, trademarks, trade secrets, and similar rights, created or developed or realized in connection with the Officer’s performance of any duties or functions as an Officer of the Company (collectively, the “Intellectual Property”) shall be the exclusive property of the Company and shall constitute Proprietary Information.  The Officer hereby assigns unto the Company all rights, title, and interest that the Officer may have to such Intellectual Property and each and every derivative work thereof, and agrees to execute, acknowledge, and deliver to the Company as assignment to the Company of any right, title, or interest of the Officer in any and all such Intellectual Property, in such form as may be reasonably requested by the Company.

4.6Disputes of Controversies.   The Officer recognizes that, should a dispute or controversy arising from or relating to this portion of the Agreement (Section 4) be submitted for adjudication to any court, arbitration panel, or other third party, the

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preservation of the secrecy of Proprietary Information may be jeopardized.  The Officer agrees that he will use best efforts to ensure that all pleadings, documents, testimony, and records relating to any such adjudication will be maintained in secrecy.

5.NON-INTERFERENCE; COMPLIANCE WITH LAW; COOPERATION

5.1Non-Interference.   During the Officer’s employment with the Company and for a period of five (5) years following termination or expiration of such tenure, the Officer covenants and agrees that the Officer shall not, directly or indirectly, for the benefit of the Officer or another (a) persuade or attempt to persuade any employee, independent contractor, consultant, agent, supplier, licensor, or distributor of the Company or of any affiliate of the Company to discontinue such person’s relationship with the Company or the affiliate; (b) hire away or solicit to hire away from the Company or from any of its affiliates any employee; (c) otherwise engage or seek to engage any employee or independent contractor of the Company or of any of its affiliates in a business relationship that would or might conflict with such employee’s or independent contractor’s obligations to the Company or affiliate; (d) interfere with the Company’s or any of its affiliates’ relationship with any governmental or business entity, including payor, supplier, licensor, lender, or contractor of the Company or the affiliate; or (e) disparage the Company or any of its affiliates or any of the shareholders, directors, officers, employees, or agents of any of them.

5.2Cooperation.   During the Officer’s Employment with the Company and for a period of five (5) years following the termination or expiration of such tenure, the Officer agrees to cooperate with the Company and its affiliates in connection with any litigation or investigation involving the Company or any of its affiliates or any of the shareholders, directors, officers, employees, or agents of any of them and shall furnish such information and assistance as may be lawfully requested by the Company.

6.NON-COMPETITION

During the Officer’s employment by the Company and for a period of two (2) years following the termination or expiration of such tenure, the officer covenants and agrees to refrain from carrying on or engaging in a business similar to that of the Company, and from soliciting customers of the Company, within the North America, so long as the Company carries on a like business therein.  It is further stipulated that as forbearance for this contract term, Company has provided Officer with separate and distinct consideration consisting of 25,000 shares of common stock.  Such shares are included in the Common Shares described in Paragraph 2.5 and shall be subject to the restrictions set forth therein.

Each word of the foregoing provision is severable.

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7.GENERAL PROVISIONS

7.1Indemnification.   The Company hereby agrees to indemnify and hold harmless the Officer from and against any and all losses, claims, damages, expenses and/or liabilities which may incur arising out of the normal course of business in carrying out the duties and responsibilities associated with the position of Chief Scientific Officer arising from the Officer’s reliance upon and approved use of information, reports and data furnished by and representations made by the Company, with respect to itself, where the Officer in turn distributes and conveys such information, reports and data to the public in the normal course of representing the Company.  Such indemnification shall include, but not be limited to, expenses (including all attorney’s fees), judgments, and amounts paid in settlement actually and reasonably incurred by Officer in connection with an action, suit or proceeding brought against the Company or Officer.

7.2Injunctive Relief.   The Officer acknowledges that the injury that would be suffered by the Company as a result of a breach of the provisions of this Agreement would be largely irreparable and that an award of monetary damages to the Company for such a breach would be an inadequate remedy.  The Company will have the right, in addition to any other rights it may have (including the right to damages that the Company may suffer), to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Company will not be obligated to post bond or other security in seeking such relief.  The Officer agrees to request neither bond nor security in connection with any such injunction.  The Officer agrees that if he breaches this Agreement, the Officer shall be liable for any attorney’s fees and costs incurred by the Company in enforcing its rights under this Agreement.

7.3Essential, Independent, and Surviving Covenants.

(a)The parties agree that the covenants by the Officer in Sections 4, 5, and 6 are essential elements of this Agreement, and without the Officer’s agreement to comply with such covenants, the Company would not have entered into this Agreement.

(b)The Officer’s covenants in Sections 4, 5, and 6 are independent covenants and the existence of any claim by the officer against the Company under this Agreement or otherwise will not excuse the Officer’s breach of any covenant in Section 4, 5, or 6.

(c)After the Officer’s employment by the Company is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Officer in Sections 4, 5, and 6.

7.4Binding Effect; Benefits; Assignment.   This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives.  Insofar as the Officer is concerned, this contract, being personal, cannot be assigned other than by will or the laws of descent and distribution.

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7.5Notices.   All notices and other communications which are required or permitted hereunder shall be in writing and shall be sufficient if mailed by certified mail, postage prepaid, and shall be effective three days after such mailing or upon delivery, whichever is earlier, to the following addresses or such other address as the appropriate party may advise each other party hereto:

If to the Officer:

Ira L. Goldknopf, Ph.D.

42 Bushwood Court

The Woodlands, TX 77380

If to the Company:

Power 3 Medical Products, Inc.

3400 Research Forest Drive

The Woodlands, TX  77381

Copy to:

Billings and Solomon, PLLC

2777 Allen Parkway, Suite 460

Houston, TX 77019

ATTN:  Richard P. Martini

7.6Entire Agreement.   This Agreement contains the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof including, without limitation, the Original Agreement.

7.7No Third-Party Beneficiaries.   This Agreement shall not confer any rights or remedies upon any person other than the Company, the Officer, and their respective successors and permitted assigns, other than as expressly set forth in this Agreement.

7.8Amendments and Waivers.   Except as set forth in Paragraph 2.1(b) above, this Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment sought.  Either party hereto may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with.  The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach.  No delay or failure by either party in exercising any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right.

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7.9Headings.   The paragraph headings contained in this Agreement are for reference purposes only and shall not be deemed to be a part of this Agreement or to control or affect the meaning or construction of any provision of this Agreement.

7.10Construction.   The language used in this Agreement will be deemed to be the language chosen by the Company and the Officer to express their mutual intent, and no rule of strict construction shall be applied against either party.

7.11Counterparts.   This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

7.12Severability.   If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, this Agreement shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement.

7.13Expenses and Attorney’s Fees.   In the event that a dispute arises under this Agreement that results in litigation or arbitration, the prevailing party, as determined by the decision of a court or forum of competent and final jurisdiction, shall be entitled to court costs and reasonable attorney’s fees.  A court or forum of “final” jurisdiction shall mean a court of forum from which no appeal may be taken or from whose decree, decision, judgment, or order no appeal is taken or prosecuted.

7.14Governing Law.   This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the conflict of laws principles thereof.

7.15Agreement Preparation.   The Officer acknowledges that this Agreement has been prepared by counsel for the Company, and the Officer has not relied on any representation made by the Company’s attorneys.  The Officer has engaged an attorney of his choice to review this agreement on his behalf.  By signing this employment agreement, officer is hereby certifying that officer (a) received a copy of this agreement for review and study before executing it; (b) read this agreement carefully before signing it; (c) had sufficient opportunity before signing the agreement to ask any questions officer had about the agreement and received satisfactory answers to all such questions; and (d) understands officer’s rights and obligations under the agreement.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Employment Agreement as of the date first written above but to be effective as of the Effective Date.

OFFICER:
/s/ Ira L. Goldknopf, Ph.D.
Ira L. Goldknopf, Ph.D.
COMPANY:
Power 3 Medical Products, Inc.
By:	/s/ Steven B. Rash
	Steven B. Rash
	Chief Executive Officer

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EX-10.3

Exhibit 10.3

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

This Amended and Restated Employment Agreement (the “Agreement”) by and between Power 3 Medical Products, Inc., a New York corporation (the “Company”), and Michael J. Rosinski (the “Officer”) is executed this 29th day of December, 2004 but shall be effective for all purposes as of July 2, 2004 (the “Effective Date”).

RECITALS

WHEREAS, the Company and the Officer previously entered into that certain Employment Agreement which was dated as of May 18, 2004 although the Officer did not commence employment until July 2, 2004 (the “Original Agreement”);

WHEREAS, the Company and the Officer have determined that the Original Agreement did not accurately reflect the parties’ mutual intent in that it did not correctly set forth the parties’ mutual understanding and agreement regarding the restrictions applicable to the stock grants referenced therein and the risks of forfeiture intended to be applicable to such shares of stock; and

WHEREAS, the Company and the Officer desire to enter into this Agreement to reform the provisions of the Original Agreement to reflect the parties’ mutual understanding and intent and to restate the Original Agreement, as amended, in its entirety.

NOW, THEREFORE, in consideration of the premises and of the covenants and agreements herein provided, the parties hereto agree as follows:

1.EMPLOYMENT TERMS

1.1Term.   The Company hereby employs the Officer, and the Officer hereby accepts employment with the Company, all in accordance with the terms and conditions hereof, for a term commencing on July 2, 2004 and terminating on July 1, 2007.  However, the Officer shall be considered to be employed by the Company beyond the Termination Date for purposes of receiving certain benefits conferred under this Agreement, as described in Paragraph 3.1 hereof.

1.2Position and Duties.

(a)The Company hereby employs the Officer, and the Officer agrees to serve the Company, as an officer of the Company pursuant to the terms of this Agreement.  The Company has by action of its Board of Directors appointed the Officer to the position of Chief Financial Officer, however it may, in the sole and unfettered discretion of the Board of Directors, amend the Officer’s title and/or duties and

responsibilities, provided that the Officer remains an officer of the Company pursuant to the terms of this Agreement.

(b)The Officer shall be responsible for such duties as are commensurate with the office in which he serves and as may from time to time be assigned to the Officer by the Company’s Board of Directors.

1.3Performance of Duties.

(a)At all times prior to the Termination Date, the Officer (i) shall devote his full business time, energies, best efforts, and attention to the business of the Company, (ii) shall faithfully and diligently perform the duties of his employment with the Company, (iii) shall do all reasonably in his power to promote, develop, and extend the business of the Company, and (iv) shall not enter into the service of, or be employed in any capacity or for any purpose whatsoever by, any person, firm or corporation other than the Company without the prior written consent of the Board of Directors of the Company.

(b)The Officer shall perform his duties in accordance with all applicable laws, rules, or regulations that apply to the Company and/or its business, assets (real or personal), or employees.

2.COMPENSATION.

2.1Salary.

(a)For so long as Officer is employed by the Company, the Company agrees to pay to the Officer, and the Officer shall accept from the Company, for all of his services rendered pursuant to this Agreement, a salary of One Hundred Twenty Thousand Dollars ($120,000) per annum, payable semimonthly.

(b)The Company’s Board of Directors, or compensation committee of the Board of Directors (the “Compensation Committee”), shall review the Officer’s salary annually and merit increases thereon shall be considered and may be approved, in the sole and unlimited discretion of the Company’s Board of Directors, depending in part on the profits and cash flow of the Company.  If the Company’s Board of Directors elects in its discretion to increase the salary of the Officer at any time or from time to time, the new salary rate shall, without further action by the Officer or the Company, be deemed substituted for the amount set forth above.  At such time, this Agreement shall be deemed amended accordingly (notwithstanding the provisions of Paragraph 7.8 below), and, as so amended, shall remain in full force and effect.

2.2Bonuses.   The Company, in the sole and unfettered discretion of its Board of Directors or Compensation Committee, may from time to time award cash bonuses to the Officer based upon its measure of Officer’s performance.  Such bonuses

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may be awarded in a lump sum or may be conditioned upon the future performance or employment of Officer, in the sole and unfettered discretion of the Board of Directors of the Company.

2.3Expenses.   Upon submission of appropriate invoices or vouchers, the Company shall pay or reimburse the Officer for all reasonable expenses incurred by the Officer in the performance of his duties hereunder in furtherance of the business of the Company.

2.4Benefits.   The Company extends to the Officer the right to participate in whatever employee benefit plans (excluding any employee benefit plan covered separately in this Agreement) may be in effect from time to time, to the extent the Officer is eligible under the terms of the plans.  However, no employee benefits other than those specifically conferred by the terms of this Agreement have been promised to the Officer in connection with this employment.  The adoption of one or more employee benefit plans, the terms of the plans, and the Officer’s participation in the plans, if any, are in the sole discretion of the Company and may be changed by the Company at any time and from time to time.

2.5Stock Grant.

(a)To induce the Officer to accept the position of Chief Financial Officer, and subject to the terms of this Paragraph 2.5, the Officer is hereby granted by the Company, effective upon the Effective Date of this Agreement, One Hundred Forty Thousand (140,000) shares of the Company’s common stock (the “Restricted Stock”).  The grant of the Restricted Stock shall be subject to the following terms and conditions:

(i)If at any time before July 1, 2006, the Officer’s employment with the Company shall cease or terminate for any reason, including but not limited to, termination by reason of [death or] disability, termination by the Company with or without cause and whether or not in breach of the Agreement, or termination by the Officer for any reason, voluntarily or otherwise, then the Officer shall forfeit all of such Restricted Stock to the Company, and the Officer shall have no claim or right, either express or implied, against the Company for any compensation, payment or benefit in lieu of the Restricted Stock so forfeited or otherwise.  In addition, unless and until the Officer’s rights in the foregoing Restricted Stock become nonforfeitable by virtue of the satisfaction of the foregoing condition, the Officer shall have no right to, and the Officer hereby agrees that he shall not, sell, pledge, assign, hypothecate, encumber, give, grant or otherwise transfer such Restricted Stock or alienate his then-current or expected future rights to such Restricted Stock, and the certificates representing all of such Restricted Stock shall prominently bear appropriate legends reflecting these restrictions and the Company’s stock register shall likewise reflect these restrictions.

(ii)Upon issuance of the Restricted Stock, except for the restrictions set forth in this Paragraph 2.5, the Officer shall have all rights of a

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shareholder of the Company with respect to such Restricted Stock including the right to vote such Restricted Stock and to receive all dividends and other distributions paid with respect to such Restricted Stock; provided, however, dividends, if any, paid or distributed on the Restricted Stock shall not be paid by the Company to the Officer unless and until such time as the Restricted Stock becomes nonforfeitable.

(iii)In the event of a Change in Control (as herein defined), the Company may waive in whole or in part any and all remaining restrictions on the Restricted Stock.  For purposes hereof, a Change of Control shall mean, and shall be deemed to have occurred:

(A)if any person, other than any benefit plan of the Company or Steven B. Rash and Ira L. Goldknopf, Ph.D., as holders of the Company’s Series B Preferred Stock, directly or indirectly, becomes the beneficial owner (as defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of securities representing 51% or more of the combined voting power of the Company’s then-outstanding securities, but excluding any such acquisition pursuant to a merger, consolidation or similar business combination involving the Company; or

(B)upon the consummation of a merger, consolidation, or similar business combination involving the Company, other than any such transaction which results in at least 75% of the total voting power represented by the voting securities of the surviving entity (or the parent entity thereof) outstanding immediately after such transaction being beneficially owned by at least 75% of the holders of the outstanding voting securities of the Company immediately prior to the transaction with the voting power of each such continuing holder relative to other such continuing holders not being substantially altered in the transaction; or

(C)upon the Board of Directors or the shareholders of the Company approving a plan of complete or substantially complete liquidation of the Company; or

(D)upon the consummation of the sale, lease, or disposition by the Company of 50% or more of the total assets of the Company in one or a series of related transactions (provided that a license, sublicense or similar transaction involving the Company’s intellectual property rights shall not be considered as a Change of Control); or

(E)upon the individuals who constitute the Board as of the Effective Date (the “Incumbent Board”) ceasing for any reason to constitute at least a majority of the members of the Board, provided that any person becoming a director after the Effective Date whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board (other than any individual whose initial assumption of office occurs as a result of either (a) an actual or threatened election contest or (b) an actual or threatened solicitation of proxies or consents by or on behalf

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of a person other than the Board) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board.

(v)The Common Shares shall have demand registration rights or piggyback registration rights (neither of which, however, shall be effective unless and until, after July 1, 2006, the Officer’s rights to such shares have ceased to be subject to the risks of forfeiture as provided herein).

(b)The Officer agrees to pay in a timely manner deemed suitable by the Company, and to indemnify and hold harmless the Company from, any and all taxes (including all penalties and interest, if any, thereon), resulting from the grant and/or transfer of the above-referenced Restricted Stock for which ultimate responsibility is assigned to or asserted against the Officer under applicable law.  For purposes of this provision, all withholding obligations of the Company in respect of the aforementioned taxes (including any and all taxes, penalties and interest imposed on or asserted against the Company for failure to properly withhold and remit any such amounts in a timely manner) shall be considered the responsibility of the Officer and, accordingly, the Officer agrees to pay in a timely manner deemed suitable by the Company, and to indemnify and hold harmless the Company from, any and all of such obligations.

2.6Vacation; Sick Leave.   The Company’s vacation and sick leave policy has been established by the Company and may be changed by the Company at any time and from time to time.  Said policy is published in separate data files accessible to the Officer.  The Officer will not be entitled to receive payment for any unused sick leave either during employment or upon termination of employment.

2.7Withholding.   The Company may withhold from any amounts payable under this Agreement any and all federal, state, city, or other taxes or other amounts required to be withheld by any applicable law.

3.TERMINATION.

3.1Termination Upon 30 Days Notice.

(a)Either party may terminate the Officer’s employment under this Agreement for any reason whatsoever, either with or without cause, upon giving the other party no less than thirty (30) days prior written notice of such termination ( the “Notice Date”).  The effective date of a termination pursuant to this Paragraph 3.1 shall be such termination date as stated on the notice, provided that the termination date can be no earlier than the 31^st day following the day the notice becomes effective pursuant to Paragraph 5.4 below (the “Termination Date”).

(b)Until the expiration of the contract on July 1, 2007 (“Transition Period”), unless terminated for “Cause” as defined in Paragraph 3.4 or if

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the Officer resigns from his position or duties, the Officer will continue to be considered as an employee of the Company only for the purpose of receiving the compensation and benefits awarded in Paragraphs 2.1, 2.2, and 2.4 hereof.  More specifically, for the duration of Transition Period the Officer (i) shall continue to receive his salary at the rate in effect as of the Notice Date, (ii) shall continue to be considered an employee of the Company for purposes of determining eligibility to receive any contingent or deferred bonuses awarded to the Officer prior to the Termination Date, (iii) shall continue to be considered an officer of the Company for purposes of vesting in any stock options granted to Officer (but not for purposes of the forfeiture restrictions applicable to the Restricted Stock as set forth in Paragraph 2.5), and (iv) shall, to the extent allowed by such plan, remain eligible to participate in any benefit plan of the Company in which the Officer participates as of the Notice Date.

(c)Notwithstanding any provision herein to the contrary, however, the Officer will not be entitled to act as, or represent himself to be, an officer or employee of the Company following the Termination date and will not be entitled to receive or participate in any bonus, incentive, or benefit program, involving stock or otherwise, that is established following the Termination Date.

3.2Termination by Mutual Consent.   The Officer and the Company may at any time terminate the employment of the Officer under this Agreement by mutual consent in writing upon the terms and conditions stated in such writing.

3.3Termination Upon Death.   If the Officer dies, his employment shall immediately terminate automatically as of the date of his death.  In such event, the Officer shall be treated as if he had terminated his employment with the Company under the terms of Paragraph 3.1 above, with the date of his death serving as both the Notice Date and the Termination Date.

3.4Termination for Cause.   This Agreement may be terminated for Cause by either party for the following reasons, only:

3.4.a.1Commission of a criminal offense by either party in the course of performance of the Agreement shall entitle the other to effect immediate termination upon giving written notice;

3.4.a.2If either party becomes insolvent or makes a general assignment for the benefit of creditors or if petition in bankruptcy is filed against the defaulting party and is not discharged or disputed within five (5) working days of such filing or of the agent is adjudicated bankrupt or insolvent;

3.4.a.3The election of one party (the “aggrieved party”) to terminate this Agreement upon (1) the actual breach or actual default by the other party in the reasonable performance of the defaulting party’s obligations and duties under this Agreement and (2) the failure of the defaulting party to

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cure the same within fifteen (15) days (the “cure period”) after receipt by the defaulting party of a good faith written notice from the aggrieved party specifying such breach or default and (3) provided that the defaulting party has not cured the default and the aggrieved party may then give written notice to defaulting party of his or its election to terminate ten (10) days after expiration of the cure period.

3.5Transition.  Officer shall make a good faith effort to aid in the transition of management necessitated by the termination of his employment pursuant to this Agreement.  To the extent feasible and/or practical, Officer shall devote the time and energy necessary to effect said goal of a smooth transition for the successor chief financial officer.  The salary payable to Officer by the Company pursuant to Paragraph 2.1(a) of this contract shall continue to be paid to Officer during such transition period.

4.PROPRIETARY INFORMATION AND ITEMS.

4.1Acknowledgments.   The Officer acknowledges that (a) the Officer has or will be afforded access to Proprietary Information of the Company or its affiliates; (b) public disclosure of such Proprietary Information could have an adverse effect on the Company and its affiliates; and (c) the provisions of this Section 4 are reasonable and necessary to prevent the improper use or disclosure of such Proprietary Information.

4.2Non-Disclosure and Non-Use of Proprietary Information.   During the Officer’s employment by the Company and for a period of five (5) years thereafter, the Officer covenants and agrees that the Officer (a) shall not disclose to others or use for the benefit of himself or others, any of the Company’s Proprietary Information, except that the Officer may disclose such information (i) in the course of and in furtherance of the Officer’s employment with the Company to the extent necessary for the benefit of the Company, (ii) with the prior specific written consent of the Board of Directors of the Company, or (iii) to the extent required by law; and (b) shall take all measures reasonably necessary to preserve the confidentiality of all Proprietary Information of the Company known to the Officer, shall cooperate fully with the Company’s or its affiliates’ enforcement of measures intended to preserve the confidentiality of all Proprietary Information, and shall notify the Board of Directors immediately upon receiving any request for, or making any disclosure of, any Proprietary Information from or to any person other than an officer or employee of the Company or of one of its affiliates who has a need to know such information.

4.3Proprietary Information.   For purposes of this Agreement,  “Proprietary Information” means trade secrets, secret or confidential information or knowledge pertaining to, or any other nonpublic information pertaining to the business or affairs of the Company or any of its affiliates, including without limitation, medical imaging software programs (including source code and object code) and design documentation; identities, addresses, backgrounds, or other information regarding licensors, suppliers, customers, sublicensees, potential customers and sublicensees, employees,

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contractors, or sources of referral; marketing plans or strategies, business or personnel acquisition plans; pending or contemplated projects, ventures, or proposals; financial information (including historical financial statements; financial, capital, or operating budgets, plans or projections; historical or projected sales, royalties and license fees, and the amounts of compensation paid to employees and contractors); trade secrets, know-how, technical processes, or research projects; and notes, analysis, compilations, studies, summaries, and other material prepared by or for the Company containing or based, in whole or in part, on any information included in the foregoing, except information that is generally known in the industry (other than as a result of a disclosure by the Officer).

4.4Proprietary Items.   Upon termination or expiration of the Officer’s employment by the Company for any reason or by either party, or upon the request of the Company during such tenure, the Officer will immediately return to the Company all Proprietary Items in the Officer’s possession or subject to the Officer’s control, and the Officer shall not retain any copies, abstracts, sketches, or other physical embodiment of any Proprietary Items.  For purposes of this Agreement, “Proprietary Items” means all documents and tangible items (including all customer lists, memoranda, books, papers, records, notebooks, plans, models, components, devices, or computer software or code, whether embodied in a disk or in any other form) provided to the Officer by the Company, created by the Officer, or otherwise coming into the Officer’s possession for use in connection with is engagement with the Company or otherwise containing Proprietary Information (whether provided or created during the term of this agreement or prior thereto).

4.5Ownership Rights.   The Officer recognizes that, as between the Company and the Officer, all of the Proprietary Information and all of the Proprietary Items, whether or not developed by the Officer, are the exclusive property of the Company.  The Officer agrees that all intellectual property of every kind, including without limitation copyright, patent, trademarks, trade secrets, and similar rights, created or developed or realized in connection with the Officer’s performance of any duties or functions as an Officer of the Company (collectively, the “Intellectual Property”) shall be the exclusive property of the Company and shall constitute Proprietary Information.  The Officer hereby assigns unto the Company all rights, title, and interest that the Officer may have to such Intellectual Property and each and every derivative work thereof, and agrees to execute, acknowledge, and deliver to the Company as assignment to the Company of any right, title, or interest of the Officer in any and all such Intellectual Property, in such form as may be reasonably requested by the Company.

4.6Disputes of Controversies.   The Officer recognizes that, should a dispute or controversy arising from or relating to this portion of the Agreement (Section 4) be submitted for adjudication to any court, arbitration panel, or other third party, the preservation of the secrecy of Proprietary Information may be jeopardized.  The Officer agrees that he will use best efforts to ensure that all pleadings, documents, testimony, and records relating to any such adjudication will be maintained in secrecy.

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5.NON-INTERFERENCE; COMPLIANCE WITH LAW; COOPERATION

5.1Non-Interference.   During the Officer’s employment with the Company and for a period of five (5) years following termination or expiration of such tenure, the Officer covenants and agrees that the Officer shall not, directly or indirectly, for the benefit of the Officer or another (a) persuade or attempt to persuade any employee, independent contractor, consultant, agent, supplier, licensor, or distributor of the Company or of any affiliate of the Company to discontinue such person’s relationship with the Company or the affiliate; (b) hire away or solicit to hire away from the Company or from any of its affiliates any employee; (c) otherwise engage or seek to engage any employee or independent contractor of the Company or of any of its affiliates in a business relationship that would or might conflict with such employee’s or independent contractor’s obligations to the Company or affiliate; (d) interfere with the Company’s or any of its affiliates’ relationship with any governmental or business entity, including payor, supplier, licensor, lender, or contractor of the Company or the affiliate; or (e) disparage the Company or any of its affiliates or any of the shareholders, directors, officers, employees, or agents of any of them.

5.2Cooperation.   During the Officer’s Employment with the Company and for a period of five (5) years following the termination or expiration of such tenure, the Officer agrees to cooperate with the Company and its affiliates in connection with any litigation or investigation involving the Company or any of its affiliates or any of the shareholders, directors, officers, employees, or agents of any of them and shall furnish such information and assistance as may be lawfully requested by the Company.

6.NON-COMPETITION

During the Officer’s employment by the Company and for a period of two (2) years following the termination or expiration of such tenure, the officer covenants and agrees to refrain from carrying on or engaging in a business similar to that of the Company, and from soliciting customers of the Company, within the North America, so long as the Company carries on a like business therein.  It is further stipulated that as forbearance for this contract term, Company has provided Officer with separate and distinct consideration consisting of 25,000 shares of common stock.  Such shares are included in the Restricted Stock described in Paragraph 2.5 and shall be subject to the restrictions set forth therein.

Each word of the foregoing provision is severable.

7.GENERAL PROVISIONS

7.1Indemnification.   The Company hereby agrees to indemnify and hold harmless the Officer from and against any and all losses, claims, damages, expenses and/or liabilities which may incur arising out of the normal course of business in carrying

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out the duties and responsibilities associated with the position of Chief Financial Officer arising from the Officer’s reliance upon and approved use of information, reports and data furnished by and representations made by the Company, with respect to itself, where the Officer in turn distributes and conveys such information, reports and data to the public in the normal course of representing the Company.  Such indemnification shall include, but not be limited to, expenses (including all attorney’s fees), judgments, and amounts paid in settlement actually and reasonably incurred by Officer in connection with an action, suit or proceeding brought against the Company or Officer.

7.2Injunctive Relief.   The Officer acknowledges that the injury that would be suffered by the Company as a result of a breach of the provisions of this Agreement would be largely irreparable and that an award of monetary damages to the Company for such a breach would be an inadequate remedy.  The Company will have the right, in addition to any other rights it may have (including the right to damages that the Company may suffer), to obtain injunctive relief to restrain any breach or threatened breach or otherwise to specifically enforce any provision of this Agreement, and the Company will not be obligated to post bond or other security in seeking such relief.  The Officer agrees to request neither bond nor security in connection with any such injunction.  The Officer agrees that if he breaches this Agreement, the Officer shall be liable for any attorney’s fees and costs incurred by the Company in enforcing its rights under this Agreement.

7.3Essential, Independent, and Surviving Covenants.

(a)The parties agree that the covenants by the Officer in Sections 4, 5, and 6 are essential elements of this Agreement, and without the Officer’s agreement to comply with such covenants, the Company would not have entered into this Agreement.

(b)The Officer’s covenants in Sections 4, 5, and 6 are independent covenants and the existence of any claim by the officer against the Company under this Agreement or otherwise will not excuse the Officer’s breach of any covenant in Section 4, 5, or 6.

(c)After the Officer’s employment by the Company is terminated, this Agreement will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements of the Officer in Sections 4, 5, and 6.

7.4Binding Effect; Benefits; Assignment.   This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs, and legal representatives.  Insofar as the Officer is concerned, this contract, being personal, cannot be assigned other than by will or the laws of descent and distribution.

7.5Notices.   All notices and other communications which are required or permitted hereunder shall be in writing and shall be sufficient if mailed by certified mail, postage prepaid, and shall be effective three days after such mailing or upon delivery,

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whichever is earlier, to the following addresses or such other address as the appropriate party may advise each other party hereto:

If to the Officer:

Michael J. Rosinski

3 West Windward Cove

The Woodlands, TX 77381

If to the Company:

Power 3 Medical Products, Inc.

3400 Research Forest Drive

The Woodlands, TX  77381

Copy to:

Billings and Solomon, PLLC

2777 Allen Parkway, Suite 460

Houston, TX 77019

ATTN:  Richard P. Martini

7.6Entire Agreement.   This Agreement contains the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral or written, between the parties hereto with respect to the subject matter hereof including, without limitation, the Original Agreement.

7.7No Third-Party Beneficiaries.   This Agreement shall not confer any rights or remedies upon any person other than the Company, the Officer, and their respective successors and permitted assigns, other than as expressly set forth in this Agreement.

7.8Amendments and Waivers.   Except as set forth in Paragraph 2.1(b) above, this Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement of any such modification or amendment sought.  Either party hereto may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with.  The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach.  No delay or failure by either party in exercising any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right.

7.9Headings.   The paragraph headings contained in this Agreement are for reference purposes only and shall not be deemed to be a part of this Agreement or to control or affect the meaning or construction of any provision of this Agreement.

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7.10Construction.   The language used in this Agreement will be deemed to be the language chosen by the Company and the Officer to express their mutual intent, and no rule of strict construction shall be applied against either party.

7.11Counterparts.   This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

7.12Severability.   If any term or provision of this Agreement is held or deemed to be invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, this Agreement shall be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement.

7.13Expenses and Attorney’s Fees.   In the event that a dispute arises under this Agreement that results in litigation or arbitration, the prevailing party, as determined by the decision of a court or forum of competent and final jurisdiction, shall be entitled to court costs and reasonable attorney’s fees.  A court or forum of “final” jurisdiction shall mean a court of forum from which no appeal may be taken or from whose decree, decision, judgment, or order no appeal is taken or prosecuted.

7.14Governing Law.   This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the conflict of laws principles thereof.

7.15Agreement Preparation.   The Officer acknowledges that this Agreement has been prepared by counsel for the Company, and the Officer has not relied on any representation made by the Company’s attorneys.  The Officer has engaged an attorney of his choice to review this agreement on his behalf.  By signing this employment agreement, officer is hereby certifying that officer (a) received a copy of this agreement for review and study before executing it; (b) read this agreement carefully before signing it; (c) had sufficient opportunity before signing the agreement to ask any questions officer had about the agreement and received satisfactory answers to all such questions; and (d) understands officer’s rights and obligations under the agreement.

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IN WITNESS WHEREOF, the parties hereto have duly executed this Employment Agreement as of the date first written above but to be effective as of the Effective Date.

OFFICER:
/s/ Michael J Rosinski
Michael J. Rosinski
COMPANY:
Power 3 Medical Products, Inc.
By:	/s/ Steven B. Rash
	Steven B. Rash
	Chief Executive Officer

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EX-10.4

Exhibit 10.4

Confidential Treatment Requested.  *** indicates material has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. A complete copy of this agreement has been filed separately with the Securities and Exchange Commission.

EXCLUSIVE LICENSE AGREEMENT

Re: Baylor OTA # 04-107 Entitled “Serum Proteomic Methods and Biomarkers for Diagnosis of Neurodegenerative Disease and Differential Diagnosis of Alzheimer’s, Parkinson’s Lou Gehrig’s (ALS) Diseases, and other Motor Neuron and Neurological Disorders”

This Exclusive License Agreement (hereinafter called “Agreement”), to be effective as of the 28th day of June, 2004 (hereinafter called “Agreement Date”), is by and between Baylor College of Medicine (hereinafter called “BAYLOR”), a Texas nonprofit corporation having its principal place of business at One Baylor Plaza, Houston, Texas 77030, and Power3 Medical Products, Inc., a corporation organized under the laws of New York and having a principal place of business at 3400 Research Forest Drive, Suite B2-3, The Woodlands, Texas 77381, and its Affiliates (hereinafter, collectively referred to as “LICENSEE”).

WITNESSETH:

WHEREAS, BAYLOR and LICENSEE each own an undivided interest in and to the Patent Rights as defined below; and

WHEREAS, BAYLOR is willing to grant a royalty bearing, worldwide, exclusive license to the Patent Rights to LICENSEE on the terms set forth herein; and

WHEREAS, LICENSEE desires to obtain said exclusive license under the Patent Rights.

NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto expressly agree as follows:

1.DEFINITIONS AS USED HEREIN

1.1  The term “Affiliates” shall mean any corporation, partnership, joint venture or other entity of which the common stock or other equity ownership thereof is twenty five percent (25%) or more owned by LICENSEE.

1.2  The term “Confidential Information” shall mean all information relating to the business of a Party that is not available to the general public, including but not limited to its technical and business information, products, assets, inventions, know-how, research programs, biological materials, software, trade secrets, designs, personnel, financial condition, business plans or prospects, protocols, clinical parameters or markers and other information associated with this Agreement, whether or not patentable or copyrightable, delivered or communicated to the other Party.

Confidential Information includes not only written information, but information transferred orally, visually, electronically or by any other means, that is designated as being confidential.  Confidential Information also includes any copies, notes or summaries prepared from the Confidential Information provided by either Party.

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1.3  The term “Field” shall mean all fields.

1.4  The term “Inventors” shall mean Stanley Appel, Ericka Simpson and Albert Yen, employees of BAYLOR, and Ira Goldknopf and Essam Sheta, employees of LICENSEE.

1.5  The term “Legal Costs” shall mean all legal fees and expenses, filing or maintenance fees, assessments and all other costs and expenses related to prosecuting, obtaining and maintaining patent protection on the Patent Rights in the United States and foreign countries.

1.6  The term “Licensed Product(s)” shall mean any product, process or service that incorporates, utilizes or is made with the use of the Patent Rights.

1.7  The term “Net Sales” shall mean the gross amount of monies or cash equivalent or other consideration which is paid by unrelated third parties to LICENSEE or sublicensees for the Licensed Products by sale or other mode of transfer, less all trade, quantity and cash discounts actually allowed, credits, and allowances actually granted on account of rejections, returns or billing errors, duties, transportation and insurance, taxes and other governmental charges actually paid.  The term “Net Sales” in the case of non-cash sales, shall mean the fair market value of all equivalent or other consideration received by LICENSEE for the Licensed Products.

1.8  The term “Party” shall mean either LICENSEE or BAYLOR, and “Parties” shall mean LICENSEE and BAYLOR.

1.9  The term “Patent Rights” shall mean United States Patent Application Serial No. TBA, entitled “Biomarkers for Neurodegenerative Disease,” filed TBA, which was developed by the Inventors, the inventions described and claimed therein, and all other pending United States patent applications or parts thereof and any United States patent which issues from any such pending applications and any and all divisions, reissues, re-examinations, renewals, continuations, continuations-in-part to the extent the claims are directed to subject matter specifically described in the aforementioned patent application and are dominated by the claims of the existing Patent Rights, and extensions thereof, and all other counterpart, pending or issued patents in all other countries.

1.10  The term “Sublicensing Revenue” shall mean all (i) cash, (ii) sublicensing fees and (iii) all other payments and the cash equivalent thereof, which are paid to LICENSEE by the sublicensees of its rights hereunder, other than research and development money paid to LICENSEE to conduct research.

2.GRANT OF LICENSE

2.1  Subject to the reservations of rights set forth in Paragraph 2.2, BAYLOR hereby grants to LICENSEE an exclusive, worldwide, sublicensable license under the Patent Rights to make, have made, use, market, sell, offer to sell, lease and import Licensed Products in the Field.

2.2  The grant in Section 2.1 shall be further subject to, restricted by and non-exclusive with respect to:

(i)   the making or use of the Patent Rights by BAYLOR for non-commercial research, patient care, teaching and other educationally related purposes;

(ii)   the making or use of the Patent Rights by the BAYLOR Inventors for non-commercial research purposes at academic or research institutions;

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(iii)   any non-exclusive license of the Patent Rights that BAYLOR grants to other academic or research institutions for non-commercial research purposes; and

(iv)   any non exclusive license of the Patent Rights that BAYLOR is required by law or regulation to grant to the United States of America or to a foreign state pursuant to an existing or future treaty with the United States of America.

2.3  Government Reservation.  Rights under this Agreement are subject to rights required to be granted to the Government of the United States of America pursuant to 35 USC Section 200-212, including a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States the subject inventions throughout the world.

3.MARKETING EFFORTS

LICENSEE shall use reasonable efforts, as defined herein, to effect assiduously the introduction of Licensed Products into the commercial market as soon as practicable.  Such efforts shall include, but not be limited to: (i) diligence in the patent filings and prosecution as described in Section 8 and (ii) working with Dr. Stan Appel to increase the clinical data and relevance of the diagnostic processes.

4.PAYMENTS

4.1   As partial consideration for the rights conveyed by BAYLOR under this Agreement, LICENSEE shall pay BAYLOR a license fee of  ***  upon execution of this Agreement.

4.2   In addition to the foregoing, LICENSEE shall pay BAYLOR a royalty of  ***.  Such royalties shall be payable as provided in Section 5.

4.3   After the first commercial sale, if the royalties paid in any calendar year do not reach the minimum amount of  *** , LICENSEE shall pay an additional amount with the payment due for the period ending December 31 of such year, so that the total amount paid for such year shall reach such minimum amount.

4.4   LICENSEE shall also pay BAYLOR the following milestone payment set forth below:

(i)  First FDA approval in the United States***

LICENSEE shall notify BAYLOR in writing within thirty (30) days upon the achievement of the milestone, such notice to be accompanied by payment of the appropriate milestone payment.  Milestones are to be paid regardless of whether LICENSEE or LICENSEE’s sublicensee attains such milestone.

4.5   In addition to the foregoing fees and royalties, LICENSEE agrees to pay to BAYLOR  *** .

4.6   LICENSEE will be responsible for all Legal Costs incurred after the Agreement Date.

4.7   Should LICENSEE fail to make any payment whatsoever due and payable to BAYLOR hereunder, BAYLOR may, at its sole option, terminate this Agreement as provided in Section 10.

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5.REPORTING

5.1   No later than sixty (60) days after December 31 of each calendar year, LICENSEE shall provide to BAYLOR a written annual Progress Report describing progress on research and development, regulatory approvals, manufacturing, sublicensing, marketing and sales during the most recent twelve (12) month period ending December 31 and plans for the forthcoming year.  If multiple technologies are covered by the license granted hereunder, the Progress Report shall provide the information set forth above for each technology.  LICENSEE shall also provide any reasonable additional data BAYLOR requires to evaluate LICENSEE’s performance.

5.2   LICENSEE shall report to BAYLOR the date of first sale of Licensed Products in each country within thirty (30) days of occurrence.

5.3   LICENSEE shall submit to BAYLOR within thirty (30) days after March 31, June 30, September 30 and December 31, a Royalty Report setting forth for such calendar quarter at least the following information:

(i)the number of Licensed Products sold by LICENSEE and sublicensees in each country;

(ii)total billings for such Licensed Products;

(iii)deductions applicable to determine the Net Sales thereof;

(iv)the amount of Sublicensing Revenue received by LICENSEE;

(v)the amount of royalty due thereon, or, if no royalties are due to BAYLOR for any reporting period, the statement that no royalties are due; and

(vi)the amount of other payments due BAYLOR, including but not limited to, milestone payments and minimum royalty payments.

Such report shall be certified as correct by an officer of LICENSEE and shall include a detailed listing of all deductions from royalties and other payments.  After termination or expiration of this Agreement, a final payment shall be made by LICENSEE covering the whole or partial calendar quarter.

5.4   LICENSEE shall pay to BAYLOR with each such Royalty Report the amount of royalties and other payments due with respect to such calendar quarter.  If multiple technologies are covered by the license granted hereunder, LICENSEE shall specify which Patent Rights are utilized for each Licensed Product included in the Royalty Report by citing the applicable OTA number listed on the front page of the Agreement.

5.5   All payments due hereunder shall be deemed received when funds are credited to BAYLOR’s bank account and shall be payable by check or wire transfer in United States dollars.  For sales of Licensed Products in currencies other than the United States, LICENSEE shall use exchange rates published in The Wall Street Journal on the last business day of the calendar quarter that such payment is due.  No transfer, exchange, collection or other charges, including any wire transfer fees, shall be deducted from such payments.

5.6   Late payments shall be subject to a charge of one and one-half percent (1.5%) per month, the interest being compounded annually, or two hundred fifty dollars ($250.00), whichever is greater.  LICENSEE shall calculate the correct late payment charge, and shall add it to each such late payment.

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Said late payment charge and the payment and acceptance thereof shall not negate or waive the right of BAYLOR to seek any other remedy, legal or equitable, to which it may be entitled because of the delinquency of any payment.

5.7   If payments are sent by check, they shall be sent to the address listed in Paragraph 14.1.  If payments are sent by wire transfer, they shall be sent using the wiring instructions sent by BAYLOR.

5.8   In the event of acquisition, merger, change of corporate name, or change of make-up, organization, or identity, LICENSEE shall notify BAYLOR in writing within thirty (30) days of such event.

5.9   If LICENSEE or sublicensee (or optionee) does not qualify as a “small entity” as provided by the United States Patent and Trademark Office, LICENSEE must notify BAYLOR immediately.

6.RECORDS AND INSPECTION

LICENSEE shall maintain or cause to be maintained a true and correct set of records pertaining to the Net Sales of Licensed Products by LICENSEE under this Agreement.  During the term of this Agreement and for a period of two (2) years thereafter, LICENSEE agrees to permit an accountant selected and paid by BAYLOR and reasonably acceptable to LICENSEE to have access during ordinary business hours to such records as are maintained by LICENSEE as may be necessary, in the opinion of such accountant, to determine the correctness of any report and/or payment made under this Agreement.  In the event that the audit reveals an underpayment of royalty by more than five percent (5%), the cost of the audit shall be paid by LICENSEE.  If the underpayment is less than five percent (5%) but more than two percent (2%), LICENSEE and BAYLOR shall each pay fifty percent (50%) of the cost of the independent audit.  Such accountant shall maintain in confidence, and shall not disclose to BAYLOR, any information concerning LICENSEE or its operations or properties other than information directly relating to the correctness of such reports and payments.  BAYLOR will be entitledto no more than one examination per year without LICENSEE’s written consent.

7.SUBLICENSES

All sublicenses granted by LICENSEE of its rights hereunder shall be subject to the terms of this Agreement.  LICENSEE shall be responsible for its sublicensees and shall not grant any rights which are inconsistent with the rights granted to and obligations of LICENSEE hereunder.  Any act or omission of a sublicensee which would be a breach of this Agreement if performed by LICENSEE shall be deemed to be a breach by LICENSEE of this Agreement.  Each sublicense agreement granted by LICENSEE shall include an audit right by BAYLOR of the same scope as provided in Section 6 hereof with respect to LICENSEE.  No such sublicense agreement shall contain any provision which would cause it to extend beyond the term of this Agreement.  LICENSEE shall give BAYLOR prompt notification of the identity and address of each sublicensee with whom it concludes a sublicense agreement and shall supply BAYLOR with a copy of each such sublicense agreement.

8.PATENTS AND INFRINGEMENT

8.1   From the Agreement Date and for the term of this Agreement, LICENSEE shall have primary responsibility using patent counsel of its choice reasonably acceptable to BAYLOR for filing, prosecuting and maintaining all patent applications and patents included in the Patent Rights licensed hereunder, except that BAYLOR may assume responsibility at its sole expense for pursuing any protection which LICENSEE declines to prosecute pursuant to Paragraph 8.2 of this Agreement.

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8.2   During the term of this Agreement, if LICENSEE decides not to file any or all United States and foreign applications or to continue prosecution of a patent application to issuance or maintain any United States or foreign patent application or patent, LICENSEE shall timely notify BAYLOR in writing in order that BAYLOR may file the United States and foreign applications and continue the prosecution or maintenance of such patent applications at its own expense.  If LICENSEE fails to notify BAYLOR in sufficient time for BAYLOR to assume the cost, LICENSEE shall be considered in default of this Agreement.

8.3   During the term of this Agreement, LICENSEE agrees to prosecute with good faith and due diligence all such patent applications and to take all actions reasonably necessary to maintain and enforce the patents and proprietary rights in and to the Patent Rights.

8.4   During the term of this Agreement LICENSEE shall instruct counsel for LICENSEE to keep BAYLOR reasonably informed, at LICENSEE’s expense, of prosecutions pursuant to this Section 8 including submitting to BAYLOR copies of all official actions and responses thereto.

8.5   BAYLOR agrees to cooperate with LICENSEE to whatever extent is necessary to procure patent protection of any rights, including fully agreeing to execute any and all documents to give LICENSEE the full benefit of the licenses granted herein.

8.6   During the term of this Agreement, each Party shall promptly inform the other of any suspected infringement of any claims in the Patent Rights or the misuse, misappropriation, theft or breach of confidence of other proprietary rights in the Patent Rights by a third party, and with respect to such activities as are suspected.  Any action or proceeding against such third party shall be instituted as following:

(i)BAYLOR and LICENSEE may agree to jointly institute an action for infringement, misuse, misappropriation, theft or breach of confidence of the proprietary rights against such third party.  Such joint action shall be brought in the names of both BAYLOR and LICENSEE.  If BAYLOR or LICENSEE decide to jointly prosecute an action or proceeding after it has been instituted by one Party, the action shall be continued in the name or names they both agree is expedient for efficient prosecution of such action.  LICENSEE and BAYLOR shall agree to the manner in which they shall exercise control over any joint action or proceeding, providing however that if they cannot agree BAYLOR shall have the right to unilaterally decide on control.  In such joint action or proceeding, the out-of-pocket costs shall be borne equally, and any recovery or settlement shall be shared equally.

(ii)If LICENSEE does not agree to participate in a joint action or proceeding then BAYLOR shall have the right, but not the obligation, to institute an action for infringement, misuse, misappropriation, theft or breach of confidence of the proprietary rights against such third party.  If BAYLOR elects to institute action, it does so at its own cost.  If BAYLOR fails to bring such an action or proceeding within a period of three (3) months after receiving notice or otherwise having knowledge of such infringement, then LICENSEE shall have the right, but not the obligation, to prosecute the same at its own expense.  Should either BAYLOR or LICENSEE commence suit under the provisions of this Paragraph 8.6 and thereafter elect to abandon the same, it shall give timely notice to the other Party who may, if it so desires, continue prosecution of such action or proceeding.  All recoveries, whether by judgment, award, decree or settlement, from infringement or misuse of Patent Rights shall be apportioned as follows: (a) the Party bringing the action or proceeding shall first recover an amount equal the costs and expenses incurred by such Party directly related to the prosecution of such action or proceeding, (b) the Party cooperating in such action or proceeding shall then recover costs and expenses incurred by such Party directly related to its cooperation in the prosecution of such action or proceeding and (c) the remainder shall be divided equally between LICENSEE and BAYLOR.

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8.7   Neither BAYLOR nor LICENSEE shall settle any action covered by Paragraph 8.6 without first obtaining the consent of the other Party, which consent will not be unreasonably withheld.

8.8   BAYLOR shall not be liable for any losses incurred as the result of an action for infringement brought against LICENSEE as the result of LICENSEE’s exercise of any right granted under this Agreement.  The decision to defend or not defend shall be in LICENSEE’s sole discretion.

9.TERM AND EXPIRATION

Unless sooner terminated as otherwise provided in Section 10, the license to employ Patent Rights granted herein as part of Section 2 shall expire on a country-by-country basis, on the later of (i) the date of expiration of the last of the Patent Rights to expire or (ii) in the event no patents included within the Patent Rights issue in such country, the first date following the tenth (10^th) anniversary of the first commercial sale of Licensed Products by LICENSEE in such country.  After such expiration, LICENSEE shall have a perpetual, paid-in-full (i.e., royalty free) license in such country.

10.TERMINATION

10.1   In the event of default or failure by LICENSEE to perform any of the terms, covenants or provisions of this Agreement, LICENSEE shall have thirty (30) days after the giving of written notice of such default by BAYLOR to correct such default.  If such default is not corrected within the said thirty (30) day period, BAYLOR shall have the right, at its option, to cancel and terminate this Agreement.  The failure of BAYLOR to exercise such right of termination, for non-payment of royalties/ fees or otherwise, shall not be deemed to be a waiver of any right BAYLOR might have, nor shall such failure preclude BAYLOR from exercising or enforcing said right upon any subsequent failure by LICENSEE.

10.2   BAYLOR shall have the right, at its option, to cancel and terminate this Agreement in the event that LICENSEE shall (i) become involved in insolvency, dissolution, bankruptcy or receivership proceedings affecting the operation of its business or (ii) make an assignment of all or substantially all of its assets for the benefit of creditors, or in the event that (iii) a receiver or trustee is appointed for LICENSEE and LICENSEE shall, after the expiration of thirty (30) days following any of the events enumerated above, have been unable to secure a dismissal, stay or other suspension of such proceedings.

10.3   LICENSEE shall have the right in its sole discretion to terminate this Agreement upon sixty (60) days’ written notice to BAYLOR.

10.4   In the event of termination of this Agreement, all rights in the Patent Rights conveyed by BAYLOR to LICENSEE shall automatically revert to BAYLOR, and BAYLOR shall be free to license such rights to third parties.

10.5   LICENSEE shall provide, in all sublicenses granted by it under this Agreement, that LICENSEE’s interest in such sublicenses shall, at BAYLOR’s option, terminate or be assigned to BAYLOR upon termination of this Agreement.

10.6   In the event this Agreement is terminated pursuant to this Section 10, or expires as provided for in Section 9, BAYLOR is under no obligation to refund any payments made by LICENSEE to BAYLOR, as set forth in Section 4, prior to the effective date of such termination or expiration.

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10.7   No termination of this Agreement shall constitute a termination or a waiver of any rights of either Party against the other Party accruing at or prior to the time of such termination.  The obligations of Sections 6, 7, 13, 15 and 16 shall survive termination of this Agreement.

11.ASSIGNABILITY

LICENSEE may assign this Agreement as part of:

(i)A sale or other transfer of LICENSEE’s entire business; or

(ii)A sale or other transfer of that part of LICENSEE’s business to which the license granted hereby relates;

and upon payment by LICENSEE to BAYLOR of an assignment fee of *** ..  LICENSEE shall give BAYLOR thirty (30) days prior written notice of such assignment, including the new contact information of assignee.  BAYLOR, however, shall not be deemed to have approved such assignment and transfer unless and until such assignee has agreed in writing to BAYLOR to be bound by all the terms and provisions of this Agreement and BAYLOR has received the assignment fee as specified above, in which event LICENSEE shall be released of liability hereunder.  Upon such assignment of this Agreement by such assignee, the term “ LICENSEE” as used herein shall include such assignee.

12.GOVERNMENTAL COMPLIANCE

12.1   LICENSEE shall at all times during the term of this Agreement and for so long as it shall use the Patent Rights, or sell Licensed Products, comply and cause its sublicensees to comply with all laws that may control the import, export, manufacture, use, sale, marketing, distribution and other commercial exploitation of the Patent Rights, Licensed Products or any other activity undertaken pursuant to this Agreement.

12.2   LICENSEE agrees that Licensed Products leased or sold in the United States shall be manufactured substantially in the United States.

13.ARBITRATION

13.1   Amicable Resolution.  The Parties shall attempt to settle any controversy between them amicably.  To this end, a senior executive from each Party shall consult and negotiate to reach a solution.  The Parties agree that the period of amicable resolution shall toll any otherwise applicable statute of limitations.  However, nothing in this clause shall preclude any Party from commencing mediation if said negotiations do not result in a signed written settlement agreement within thirty (30) days after written notice that these amicable resolution negotiations have commenced.

13.2.   Mediation.  If a controversy arises out of or relates to this agreement, or the breach thereof, and if the controversy cannot be settled through amicable resolution, the Parties agree to try in good faith to settle the controversy by mediation before resorting to final and binding arbitration.  The Party seeking mediation shall propose five mediators, each of whom shall be a lawyer licensed to practice by the state of Texas, having practiced actively in the field of commercial law for at least fifteen (15) years, to the other Party who shall select the mediator from the list. The Parties shall split the cost of the mediator equally.  The Parties agree that the period of mediation shall toll any otherwise applicable statute of limitations.  However, nothing in this clause shall preclude any Party from commencing arbitration if said negotiations do not result in a signed written settlement agreement within sixty (60) days after written notice that amicable resolution negotiations have commenced.

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13.3   Arbitration.  Any dispute, controversy, or claim arising out of or relating to this Agreement, or the breach, termination or invalidity thereof, including claims for tortious interference or other tortious or statutory claims arising before, during or after termination, providing only that such claim touches upon matters covered by this Agreement shall be finally settled by arbitration administered by the American Arbitration Association pursuant to the Commercial Arbitration Rules in force at the time of the commencement of the arbitration, except as modified by the specific provisions of this Agreement. It is the specific intent of the Parties that this arbitration provision is intended to be the broadest form allowed by law.

13.4   Parties to Arbitration.  This agreement to arbitrate is intended to be binding upon the signatories hereto, their principals, successors, assigns, subsidiaries and affiliates. This agreement to arbitrate is also intended to include any disputes, controversy or claims against any Party’s employees, agents, representatives, or outside legal counsel arising out of or relating to matters covered by this Agreement or any agreement in which this Agreement is incorporated.

13.5   Consolidation Permitted.  The Parties expressly agree that any court with jurisdiction may order the consolidation of any arbitrable controversy under this Agreement with any related arbitrable controversy not arising under this Agreement, as the court may deem necessary in the interests of justice or efficiency or on such other grounds as the court may deem appropriate.

13.6   Entry of Judgment.  The Parties agree that a final judgment on the arbitration award may be entered by any court having jurisdiction thereof.

13.7   Appointing Arbitrators.   The American Arbitration Association shall appoint the arbitrator(s) from its Large, Complex Claims Panel. If such appointment cannot be made from the Large, Complex Claims Panel, then from its Commercial Panel. The Parties hereby agree to and acquiesce in any appointment of an arbitrator or arbitrators that may be made by such appointing authority.

13.8   Qualifications of the Arbitrator(s).  The arbitrator(s) must be a lawyer, having practiced actively in the field of commercial law for at least fifteen (15) years.

13.9   Governing Substantive Law.   The arbitrator(s) shall determine the rights and obligations of the Parties according to the substantive laws of the State of Texas (excluding conflicts of law principles) as though acting as a court of the State of Texas.

13.10   Governing Arbitration Law.  The law applicable to the validity of the arbitration clause, the conduct of the arbitration, including any resort to a court for provisional remedies, the enforcement of any award and any other question of arbitration law or procedure shall be the Federal Arbitration Act.

13.11   Governing Convention.  The Parties elect to have the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (instead of the Inter-American New York Convention on International Commercial Arbitration of August 15, 1990) govern any and all disputes that may be the subject of arbitration pursuant to this Agreement.

13.12   Preliminary Issues of Law.  The arbitrator(s) shall hear and determine any preliminary issue of law asserted by a Party to be dispositive of any claim, in whole or part, in the manner of a court hearing a motion to dismiss for failure to state a claim or for summary judgment, pursuant to such terms and procedures as the arbitrator(s) deems appropriate.

13.13   Confidentiality.  The Parties and the arbitrator(s) shall treat all aspects of the arbitration proceedings, including without limitation discovery, testimony and other evidence, briefs and the award,

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as strictly confidential.  Further, except as may be required by law, neither Party nor the arbitrator(s) may disclose the existence, content, or results of any arbitration hereunder without the prior written consent of both Parties.

13.14   Place of Arbitration.  The seat of arbitration shall be Houston, Texas, USA.

13.15   Language.  The arbitration shall be conducted in the English language. All submissions shall be made in English or with an English translation. Witnesses may provide testimony in a language other than English, provided that a simultaneous English translation is provided. Each Party shall bear its own translation costs.

13.16   Punitive Damages Prohibited.  The Parties hereby waive any claim to any damages in the nature of punitive, exemplary, or statutory damages in excess of compensatory damages, or any form of damages in excess of compensatory damages, and the arbitrator(s) is/are specially divested of any power to award any damages in the nature of punitive, exemplary, or statutory damages in excess of compensatory damages, or any form of damages in excess of compensatory damages.

13.17   Costs.  The Party prevailing on substantially all of its claims shall be entitled to recover its costs, including attorneys’ fees, for the arbitration proceedings, as well as for any ancillary proceeding, including a proceeding to compel or enjoin arbitration, to request interim measures or to confirm or set aside an award.

13.18   Survival.  The provisions of this Section 13 shall survive expiration or termination of this Agreement.

14.ADDRESSES

14.1   All payments shall be made payable to “Baylor College of Medicine” and shall be sent to the address below, and shall reference OTA # 04-107.

BAYLOR Tax ID #: 74-1613878

Director, Baylor Licensing Group

Baylor College of Medicine

One Baylor Plaza, BCM210-600D

Houston, TX  77030

14.2   All notices, reports or other communication pursuant to this Agreement shall be sent to such Party via (i) United States Postal Service postage prepaid, (ii) overnight courier, or (iii) facsimile transmission, addressed to it at its address set forth below or as it shall designate by written notice given to the other Party.  Notice shall be sufficiently made, or given and received (a) on the date of mailing or (b) when a facsimile printer reflects transmission.

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In the case of BAYLOR:

Patrick Turley

Associate General Counsel

Baylor College of Medicine

One Baylor Plaza, BCM210-600D

Houston, TX  77030

Facsimile No. 713-798-1252

In the case of LICENSEE:

Power3 Medical Products, Inc.

3400 Research Forest Drive, Suite B2-3

The Woodlands, TX  77381

Facsimile No. 281-395-0881

14.3   Each such report, notice or other communication shall reference OTA # 04-107.

15.INDEMNITY, INSURANCE & WARRANTIES

15.1   INDEMNITY.  EACH PARTY SHALL NOTIFY THE OTHER OF ANY CLAIM, LAWSUIT OR OTHER PROCEEDING RELATED TO THE PATENT RIGHTS.  LICENSEE AGREES THAT IT WILL DEFEND, INDEMNIFY AND HOLD HARMLESS BAYLOR, ITS FACULTY MEMBERS, SCIENTISTS, RESEARCHERS, EMPLOYEES, OFFICERS, TRUSTEES AND AGENTS AND EACH OF THEM (THE “INDEMNIFIED PARTIES”), FROM AND AGAINST ANY AND ALL CLAIMS, CAUSES OF ACTION, LAWSUITS OR OTHER PROCEEDINGS (THE “BAYLOR CLAIMS”) FILED OR OTHERWISE INSTITUTED AGAINST ANY OF THE INDEMNIFIED PARTIES RELATED DIRECTLY OR INDIRECTLY TO OR ARISING OUT OF THE DESIGN, PROCESS, MANUFACTURE OR USE BY ANY PERSON OR PARTY OF THE PATENT RIGHTS, LICENSED PRODUCTS OR ANY OTHER EMBODIMENT OF THE PATENT RIGHTS EVEN THOUGH SUCH BAYLOR CLAIMS AND THE COSTS (INCLUDING, BUT NOT LIMITED TO, THE PAYMENT OF ALL REASONABLE ATTORNEYS’ FEES AND COSTS OF LITIGATION OR OTHER DEFENSE) RELATED THERETO RESULT IN WHOLE OR IN PART FROM THE NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES OR ARE BASED UPON DOCTRINES OF STRICT LIABILITY OR PRODUCT LIABILITY; PROVIDED, HOWEVER, THAT SUCH INDEMNITY SHALL NOT APPLY TO ANY BAYLOR CLAIMS ARISING FROM THE GROSS NEGLIGENCE OR INTENTIONAL MISCONDUCT OF ANY INDEMNIFIED PARTY.  LICENSEE WILL ALSO ASSUME RESPONSIBILITY FOR ALL COSTS AND EXPENSES RELATED TO SUCH BAYLOR CLAIMS FOR WHICH IT IS OBLIGATED TO INDEMNIFY THE INDEMNIFIED PARTIES PURSUANT TO THIS PARAGRAPH 15.1, INCLUDING, BUT NOT LIMITED TO, THE PAYMENT OF ALL REASONABLE ATTORNEYS’ FEES AND COSTS OF LITIGATION OR OTHER DEFENSE.

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15.2  Insurance.

(i)LICENSEE shall, for so long as LICENSEE manufactures, uses or sells any Licensed Product(s) for research applications, maintain in full force and effect policies of (a) worker’s compensation insurance within statutory limits, (b) employers’ liability insurance with limits of not less than one million dollars ($1,000,000) per occurrence and (c) general liability insurance with limits of not less than two million dollars ($2,000,000) per occurrence with an annual aggregate of two million dollars ($2,000,000).

(ii)During any period in which LICENSEE manufactures, uses or sells any Licensed Product(s) for clinical applications, LICENSEE shall immediately notify BAYLOR in writing, and LICENSEE shall maintain in full force and effect policies of (i) worker’s compensation insurance within statutory limits, (b) employers’ liability insurance with limits of not less than one million dollars ($1,000,000) per occurrence, (c) general liability insurance (with Broad Form General Liability endorsement) with limits of not less than five million dollars ($5,000,000) per occurrence with an annual aggregate of ten million dollars ($10,000,000) and (d) products liability insurance, with limits of not less than ten million dollars ($10,000,000) per occurrence with an annual aggregate of twenty million dollars ($20,000000).

(iii)During any period in which LICENSEE manufactures or uses any Licensed Product(s) in clinical trials, LICENSEE shall immediately notify BAYLOR in writing, and LICENSEE shall maintain in full force and effect a clinical trial insurance policy with limits of not less than five million dollars ($5,000,000) per occurrence with an annual aggregate of ten million dollars ($10,000,000).

(iv)Such coverage(s) shall be purchased from a carrier or carriers having an A. M. Best rating of at least A- (A minus) and shall name BAYLOR as an additional insured.  LICENSEE shall provide to BAYLOR copies of certificates of insurance within thirty (30) days after execution of this Agreement.  Upon request by BAYLOR, LICENSEE shall provide to BAYLOR copies of said policies of insurance.  It is the intention of the Parties hereto that LICENSEE shall, throughout the term of this Agreement, continuously and without interruption, maintain in force the required insurance coverages set forth in this Paragraph 15.2.  Failure of LICENSEE to comply with this requirement shall constitute a default of LICENSEE allowing BAYLOR, at its option, to immediately terminate this Agreement.

(v)BAYLOR reserves the right to request additional policies of insurance where appropriate and reasonable in light of LICENSEE’s business operations and availability of coverage.

15.3   DISCLAIMER OF WARRANTY.  BAYLOR AND LICENSEE MAKE NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF FITNESS OR MERCHANTABILITY, REGARDING OR WITH RESPECT TO THE PATENT RIGHTS OR LICENSED PRODUCTS AND BAYLOR AND LICENSEE MAKE NO WARRANTIES OR REPRESENTATIONS, EXPRESS OR IMPLIED, OF THE PATENTABILITY OF THE PATENT RIGHTS OR LICENSED PRODUCTS OR OF THE ENFORCEABILITY OF ANY PATENTS ISSUING THEREUPON, IF ANY, OR THAT THE PATENT RIGHTS OR LICENSED PRODUCTS ARE OR SHALL BE FREE FROM INFRINGEMENT OF ANY PATENT OR OTHER RIGHTS OF THIRD PARTIES.  NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS CONFERRING BY IMPLICATION, ESTOPPEL OR OTHERWISE ANY LICENSE OR RIGHTS UNDER ANY PATENTS OF BAYLOR OTHER THAN THE PATENT RIGHTS, REGARDLESS OF WHETHER SUCH PATENTS ARE DOMINANT OR SUBORDINATE TO THE PATENT RIGHTS.

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16.ADDITIONAL PROVISIONS

16.1   Use of BAYLOR Name.  LICENSEE agrees that it shall not use in any way the name of “Baylor College of Medicine” or any logotypes or symbols associated with BAYLOR or the names of any of the scientists or other researchers at BAYLOR without the prior written consent of BAYLOR.

16.2   Confidentiality.

(i)   Because BAYLOR and LICENSEE will be cooperating with each other, and because each may reveal to the other certain Confidential Information, BAYLOR and LICENSEE agree to hold any Confidential Information that is obtained in connection with this Agreement as confidential.

(ii)   A Party receiving Confidential Information shall use its best efforts to ensure that all Confidential Information of the disclosing Party is kept confidential.  Thus, for example, neither Party will disclose Confidential Information to any third party without the express written consent of the disclosing Party and no receiving Party will use such Confidential Information except pursuant to this Agreement.  A receiving Party also agrees to notify the disclosing Party immediately upon discovery of any unauthorized use or disclosure of Confidential Information and, in every reasonable way, to cooperate and to assist the disclosing Party to regain possession of the Confidential Information and to prevent its further unauthorized use.

(iii)   Each Party’s confidentiality obligations and the limitations upon the right to use the Confidential Information shall not apply to the extent that the receiving Party can demonstrate that the same:  (a) was already known by the receiving Party prior to the disclosure by the disclosing Party; (b) becomes patented, published or otherwise part of the public domain through no fault or omission of the receiving Party; (c) is disclosed to the receiving Party by a third party that has the right to make such disclosure; (d) is independently developed by the receiving Party without any use of the Confidential Information and otherwise in a manner not inconsistent with this Agreement; (e) is authorized to be disclosed by the disclosing Party in writing; or (f) is required to be disclosed by applicable law, rule or regulation, by order of governmental or judicial authority; provided that the receiving Party shall use reasonable efforts to obtain confidential treatment of such information and notifies the disclosing Party prior to making such disclosure.

16.3   BAYLOR’s Disclaimers.  Neither BAYLOR, nor any of its faculty members, scientists, researchers, employees, officers, trustees or agents assume any responsibility for the manufacture, product specifications, sale or use of the Patent Rights or Licensed Products which are manufactured by or sold by LICENSEE.

16.4   Independent Contractors.  The Parties hereby acknowledge and agree that each is an independent contractor and that neither Party shall be considered to be the agent, representative, master or servant of the other Party for any purpose whatsoever, and that neither Party has any authority to enter into a contract, to assume any obligation or to give warranties or representations on behalf of the other Party.  Nothing in this relationship shall be construed to create a relationship of joint venture, partnership, fiduciary or other similar relationship between the Parties.

16.5   Non-Waiver.  The Parties covenant and agree that if a Party fails or neglects for any reason to take advantage of any of the terms provided for the termination of this Agreement or if a Party, having the right to declare this Agreement terminated, shall fail to do so, any such failure or neglect by such Party shall not be a waiver or be deemed or be construed to be a waiver of any cause for the termination of this Agreement subsequently arising, or as a waiver of any of the terms, covenants or conditions of this

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Agreement or of the performance thereof.  None of the terms, covenants and conditions of this Agreement may be waived by a Party except by its written consent.

16.6   Reformation.  The Parties hereby agree that neither Party intends to violate any public policy, statutory or common law, rule, regulation, treaty or decision of any government agency or executive body thereof of any country or community or association of countries, and that if any word, sentence, paragraph or clause or combination thereof of this Agreement is found, by a court or executive body with judicial powers having jurisdiction over this Agreement or any of the Parties hereto, in a final, unappealable order to be in violation of any such provision in any country or community or association of countries, such words, sentences, paragraphs or clauses or combination shall be inoperative in such country or community or association of countries, and the remainder of this Agreement shall remain binding upon the Parties hereto.

16.7   Force Majeure.  No liability hereunder shall result to a Party by reason of delay in performance caused by force majeure, that is circumstances beyond the reasonable control of the Party, including, without limitation, acts of God, fire, flood, war, terrorism, civil unrest, labor unrest, or shortage of or inability to obtain material or equipment.

16.8   Entire Agreement.  The terms and conditions herein constitute the entire agreement between the Parties and shall supersede all previous agreements, either oral or written, between the Parties hereto with respect to the subject matter hereof.  No agreement of understanding bearing on this Agreement shall be binding upon either Party hereto unless it shall be in writing and signed by the duly authorized officer or representative of each of the Parties and shall expressly refer to this Agreement.

IN WITNESS WHEREOF, the Parties hereto have executed and delivered this Agreement in multiple originals by their duly authorized officers and representatives on the respective dates shown below, but effective as of the Agreement Date.

POWER3 MEDICAL PRODUCTS, INC.		BAYLOR COLLEGE OF MEDICINE
Name:	/s/ Steven B. Rash	Name:	/s/ W. Dalton Tomlin
			W. Dalton Tomlin
Title:	Chairman/CEO	Title:	Senior Vice President &
			General Counsel
Date:	6-28-04	Date:	6/21/04

6/11/04 LICENSEE OTA # 04-107

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EX-10.5

Exhibit 10.5

Confidential Treatment Requested.  *** indicates material has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. A complete copy of this agreement has been filed separately with the Securities and Exchange Commission.

PATENT AND TECHNOLOGY LICENSE AGREEMENT

This twenty-two (22) page AGREEMENT (“AGREEMENT”) is made on this 1st day of August, 2004, by and between THE BOARD OF REGENTS (“BOARD”) of THE UNIVERSITYOF TEXAS SYSTEM (“SYSTEM”), an agency of the State of Texas, whose address is 201 West 7th Street, Austin, Texas 78701, on behalf of THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER (“UTMDACC”), a component institution of SYSTEM, and Power3 Medical Products, Inc., a corporation organized under the laws of Nevada and having a principal place of business at 3400 Research Forest Drive, The Woodlands, Texas 77381 (“LICENSEE”).

TABLE OF CONTENTS

RECITALS
I.	EFFECTIVE DATE
II.	DEFINITIONS
III.	LICENSE
IV.	CONSIDERATION, PAYMENTS AND REPORTS
V.	SPONSORED RESEARCH
VI.	PATENTS AND INVENTIONS
VII.	INFRINGEMENT BY THIRD PARTIES
VIII.	PATENT MARKING
IX.	INDEMNIFICATION
X.	USE OF BOARD AND UTMDACC’S NAME
XI.	CONFIDENTIAL INFORMATION AND PUBLICATION
XII.	ASSIGNMENT
XIII.	TERM AND TERMINATION
XIV.	WARRANTY: SUPERIOR-RIGHTS
XV.	GENERAL
SIGNATURES

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RECITALS

A.BOARD owns certain PATE NT RIGHTS and TECHNOLOGY RIGHTS related to LICENSED SUBJECT MATTER developed at UTMDACC.

B.BOARD, through UTMDACC, desires to have the LICENSED SUBJECT MATTER and any DERIVED PRODUCTS developed in the LICENSED FIELD and used for the benefit of LICENSEE, BOARD, SYSTEM, UTMDACC, the inventor(s), and the public as outlined in BOARD’s Intellectua l Property Policy.

C.LICENSEE wishes to obtain a license from BOARD to practice LICENSED SUBJECT MATTER.

NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, the parties agree as follows:

I.EFFECTIVE DATE

1.1This AGREEMENT is effective as of the date written above (“EFFECTIVE DATE”).

II.DEFINITIONS

As used in this AGREEMENT, the following terms have the meanings indicated:

2.1     
60;                                       AFFILIATE means any business entity more than fifty percent (50%) owned by LICENSEE, any business entity which owns more than fifty percent (50%) of LICENSEE, or any business entity that is more than fifty percent (50%) owned by a business entity that owns more than fifty percent (50%) of LICENSEE.

2.2      0;                                       DERIVED PRODUCT means any service or product, whether or not a LICENSED PRODUCT, that utilizes or is based on biological markers, proteins or other proteomic information (including, but not limited to, protein fractions, protein patterns and protein profiles) identified, discovered, analyzed, developed or otherwise derived or made

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possible using LICENSED SUBJECT MATTER, PATENT RIGHTS and/or TECHNOLOGY RIGHTS.

2.3LICENSED FIELD means all fields of use.

2.4LICENSED PRODUCTS means any product or service sold by LICENSEE comprising LICENSED SUBJECT MATTER pursuant to this AGREEMENT.

2.5LICENSED SUBJECT MATTER means inventions and discoveries covered by PATENT RIGHTS or TECHNOLOGY RIGHTS within LICENSED FIELD.

2.6LICENSED TERRITORY means the entire world.

2.7                             &# 160;               NET SALES means the gross revenues received by LICENSEE or its sublicensee, as appropriate, from a SALE less sales discounts actually granted, sales and/or use taxes actually paid, import and/or export duties actually paid, outbound transportation actually prepaid or allowed,   and amounts actually allowed or credited due to returns (not exceeding the original billing or invoice amount)(“DEDUCTIONS”). NET SALES shall also include the gross revenues less DEDUCTIONS received by LICENSEE or any sublicensee, as appropriate, for any DERIVED PRODUCTS. All gross revenues and DEDUCTIONS shall be recorded by LICENSEE or sublicensee, as appropriate, in their respective official books and records in accordance with generally accepted accounting practices and consistent with LICENSEE’s or sublicensee’ ;s, as appropriate, published financial statements and/or regulatory filings with the United States Securities and Exchange Commission.

2.8PATENT RIGHTS means BOARD’s rights in information or discoveries claimed in the patents, and/or patent applications and any letters patent that issue thereon, w hether domestic or foreign, listed on Exhibit I attached hereto.

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2.9SALE OR SOLD means the transfer or disposition of a LICENSED PRODUCT or DERIVED PRODUCT for value to a party other than LICENSEE or AFFILIATE.

2.10TECHNOLOGY RIGHTS means BOARD’s rights in any technical information, know-how, processes, procedures, compositions, devices, methods, formulae, protocols, techniques, software, designs, drawings or data created by the inventor(s) listed in Exhibit I at UTMDACC before the EFFECTIVE DATE, which are not claimed in PATENT RIGHTS but that are necessary for practicing PATENT RIGHTS.

III.LICENSE

3.1              ;                                BOARD, through UTMDACC, hereby grants to LICENSEE a royalty-bearing, exclusive license under LICENSED SUBJECT MATTER to manufacture, have manufactured, use, import, offer to sell and/or sell LICENSED PRODUCTS within LICENSED TERRITORY for use within LICENSED FIELD. The foregoing grants are subject to Sections 14.2 and 14.3 hereinbelow, the payment by LICENSEE to UTMDACC of all consideration as provided herein, the timely payment of all amounts due under any related sponsored research agreement between UTMDACC and LICENSEE in effect during this AGREEMENT, and is further subject to the following rights retained by BOARD and UTMDACC to:

(a)Publish the general scientific findings from research related to LICENSED SUBJECT MATTER, subject to the terms of Article XI - Confidential Information and Publication; and

(b)Use LICENSED SUBJECT MATTER for research, teaching, patient care, and other educationally related purposes.

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3.2LICENSEE may extend the license granted herein to any AFFILIATE provided that the AFFILIATE consents in writing to be bound by this AGREEMENT to the same extent as LICENSEE.   LICENSEE agrees to deliver such contract to UTMDACC within thirty (30) calendar days following execution thereof.

3.3LICENSEE may grant sublicenses under LICENSED SUBJECT MATTER for any lawful purpose. Sublicenses may be granted consistent with the terms of this AGREEMENT provided that LICENSEE is responsible for its sublicensees relevant to this AGREEMENT, and for diligently collecting all amounts due LICENSEE or UTMDACC from sublicensees.  If a sublicensee pursuant hereto becomes bankrupt, insolvent or is placed in the hands of a receiver or trustee, LICENSEE, to the extent allowed under applicable law and in a timely manner, agrees to use its best reasonable efforts to collect all consideration owed to LICENSEE and to have the sublicense agreement confirmed or rejected by a court of proper jurisdiction.

3.4LICENSEE must deliver to UTMDACC a true and correct copy of each sublicense granted by LICENSEE, and any modification or termination thereof, within thirty (30) calendar days after execution, modification, or termination.

3.5If this AGREEMENT is terminated pursuant to Article XIII - Term and Termination, BOARD and UTMDACC agree to accept as successors to LICENSEE, existing sublicensees in good standing at the date of termination provided that each such sublicensee consents in writing to be bound by all of the terms and conditions of this AGREEMENT.

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IV.CONSIDERATION, PAYMENTS AND REPORTS

4.1 In consideration of rights granted by BOARD to LICENSEE under this AGREEMENT, LICENSEE agrees to pay UTMDACC each of the following:

(a)All out-of-pocket expenses incurred by UTMDACC in filing, prosecuting, enforcing and maintaining the PATENT RIGHTS, and all such future expenses incurred by UTMDACC, for so long as, and in such countries as this AGREEMENT remains in effect. UTMDACC will invoice LICENSEE within thirty (30) calendar days of the EFFECTIVE DATE for expenses billed as of that time and on a quarterly basis thereafter. The billed amount for expenses incurred prior to the EFFECTIVE DATE will be due and payable by LICENSEE within ninety (90) calendar days of invoice. The invoiced amounts for expenses billed after the EFFECTIVE DATE will be due within thirty (30) calendar days of invoice; and

(b)A nonrefundable license documentation fee in the amount of ***, payable in two payments of $***. This fee will not reduce the amount of any other payments provided for in this ARTICLE IV.  UTMDACC will invoice LICENSEE for the first payment of $*** after the AGREEMENT is fully executed by all parties. Said first payment shall be due and payable within thirty (30) days of invoice. The second payment of $*** shall be due and payable to UTMDACC on ***; and

(c)A nonrefundable annual license maintenance fee of $***. This maintenance fee is due to  UTMDACC  beginning on the first anniversary of the EFFECTIVE

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DATE and annually thereafter until ***.   This fee will not reduce any other payment provided for in this ARTICLE IV; and

(d)                                         & #160;   A running royalty equal to ***.  LICENSEE shall be responsible for diligently collecting and paying UTMDACC any royalties due for any sublicensee’s NET SALES; and

(e)After ***, minimum annual royalties of $***. Any royalties payable under Section 4.1(d) will be credited toward this amount for each Sales Year. For purposed of this AGREEMENT, Sales Year means a year measured from the first SALE or anniversary of such first SALE to the subsequent anniversary of first SALE. If royalties payable under Section 4.1(d) exceed *** nothing shall be owed under this Section 4.1(e); and

(f)A $*** milestone payment, payable in two installm ents, which shall become payable upon ***. The first installment of $*** shall be due ***, and a second installment of $*** shall be due ***; and

(g)*** (***%) of all consideration, other than research and development money and NET SALES, received by LICENSEE, from either (i) any sublicensee pursuant to Sections 3.3 and 3.4, or (ii) any assignee pursuant to Sec tion 12.1, including, but not limited to, minimum royalties, up-front payments, bonuses,

7

milestones, marketing fees, distribution fees, franchise fees, option fees, license fees, documentation fees, and equity securities.

4.2                                           ;   Unless otherwise provided, all such payments are payable within thirty (30) calendar days after March 31, June 30, September 30, and December 31 of each year during the term of this AGREEMENT, at which time LICENSEE will also deliver to UTMDACC a true and accurate report, giving such particulars of the business conducted by LICENSEE and its sublicensees, if any exist, during the preceding three (3) calendar months under this AGREEMENT as necessary for UTMDACC to account for LICENSEE’s payments hereunder. This report will include pertinent data, including, but not limited to:

(a) 
60;                                            the accounting methodologies used to account for and calculate the items included in the report and any differences in such accounting methodologies used by LICENSEE since the previous report; and

(b)                       &# 160;                     a list of LICENSED PRODUCTS and DERIVED PRODUCTS produced for the three (3) preceding calendar months; and

(c)the total quantities of LICENSED PRODUCTS and DERIVED P RODUCTS produced; and

(d)the total SALES; and

(e) the calculation of NET SALES; and

(f)the royalties so computed and due UTMDACC and/or minimum royalties; and

(g)all consideration received by each sublicensee or assignee and payments due UTMDACC; and

(h)all other amounts due UTMDACC herein.

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Simultaneously with the delivery of each such report, LICENSEE agrees to pay UTMDACC the amount due, if any, for the period of such report. These reports are required even if no payments are due.

4.3                                  & #160;          During the term of this AGREEMENT and for one (1) year thereafter, LICENSEE agrees to keep complete and accurate records of its and its sublicensees’ SALES and NET SALES in sufficient detail to enable the royalties and other payments due hereunder to be determined. LICENSEE agrees to permit UTMDACC or its representatives, at UTMDACC’s expense, to periodically examine LICENSEE’s books, ledgers, and records during regular business hours for the purpose of and to the extent necessary to verify any report required under this AGREEMENT. If any amounts due UTMDACC are determined to have been underpaid in an amount equal to or greater than five percent (5%) of the total amount due during the period so examined, then LICENSEE will pay the cost of the examination plus accrued interest at the highest allowable rate.

4.4Within thirty (30) calendar days following each anniversary of the EFFECTIVE DATE, LICENSEE will deliver to UTMDACC a written progress report as to LICENSEE’s (and any sublicensee’s) efforts and accomplishments during the preceding year in diligently commercializing LICENSED SUBJECT MATTER and DERIVED PRODUCTS in the LICENSED TERRITORY and LICENSEE’s (and sublicensees’) commercialization plans for the upcoming year.

4.5All amounts payable hereunder by LICENSEE will be paid in United States funds without deductions for taxes, assessments, fees, or charges of any kind. Checks are to be made payable to The University of Texas M. D. Anderson Cancer Center, and sent by

9

United States mail to Box 297402, Houston, Texas 77297, Attention Manager, Sponsored Programs or by wire transfer to:

BANK ONE TEXAS

910 TRAVIS

HOUSTON, TEXAS 77002

SWIFT: BONEUS44HOU

ABA ROUTING NO:	11000614
ACCOUNT NAME:	UNIV. OF TEXAS M. D. ANDERSON CANCER CENTER
ACCOUNT NO:	1586838979
REFERENCE:	include title and EFFECTIVE DATE of AGREEMENT and type
of payment (e.g., license documentation fee, milestone payment, royalty [including applicable patent/application identified by UTMDACC reference number and patent number or application serial number], or maintenance fee, etc.).

4.6No payments due or royalty rates owed under this AGREEMENT will be reduced as the result of co-ownership of LICENSED SUBJECT MATTER and DERIVED PRODUCTS by BOARD and another party, including, but not limited to, LICENSEE.

V.SPONSORED RESEARCH

5.1              ;                                If LICENSEE desires to sponsor research for or related to the LICENSED SUBJECT MATTER or DERIVED PRODUCTS, and particularly where LICENSEE receives payments for sponsored research pursuant to a sublicense under this AGREEMENT, LICENSEE (a) will notify UTMDACC in writing of all opportunities to conduct this sponsored research (including clinical trials, if applicable), (b) solicit research and/or clinical proposals from UTMDACC for this purpose, and (c) will give good faith consideration to funding the proposals at UTMDACC.

VI.PATENTS AND INVENTIONS

6.1All decisions regarding prosecution, maintenance and enforcement of PATENT RIGHTS shall be within the sole discretion of UTMDACC.

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VII.INFRINGEMENT BY THIRD PARTIES

7.1LICENSEE, at its expense, must enforce any patent exclusively licensed hereunder against infringement by third parties and is entitled to retain recovery from such enforcement. After reimbursement of LICENSEE’s reasonable legal costs and expenses related to such recovery, LICENSEE agrees to pay UTMDACC either: (a) if any award or damages awarded to LICENSEE constitutes lost profits on sales of LICENSED PRODUCTS or DERIVED PRODUCTS, such award or damages shall be considered as NET SALES for purposes of calculating royalties due UTMDACC; and (b) if any award or damages awarded to LICENSEE constitute “reasonable royalties” pursuant to 35 USC Section  ;284 or punitive damages, LICENSEE agrees to pay UTMDACC ***. LICENSEE must notify UTMDACC in writing of any potential infringement within thirty (30) calendar days of knowledge thereof. If LICENSEE does not file suit against a substantial infringer within six (6) months of knowledge thereof, then BOARD or UTMDACC may, at its sole discretion, enforce any patent licensed hereunder on behalf of itself and LICENSEE, with UTMDACC retaining all recoveries from such enforcement, and/or reduce the license granted hereunder to non-exclusive.

7.2In any suit or dispute involving an infringer of any PATENT RIGHTS, the parties agree to cooperate fully with each other. At the request and expense of the party bringing suit, the other party will permit access during regular business hours, to all relevant personnel, records, papers, information, samples, specimens, and the like in its possession.

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VIII.PATENT MARKING

8.1LICENSEE agrees that all packaging containing individual LICENSED PRODUCT(S), documentation therefor, and when possible for actual LICENSED PRODUCT(S) SOLD by LICENSEE, AFFILIATES, and/or sublicensees of LICENSEE will be permanently and legibly marked with the number of any applicable patent(s) licensed hereunder in accordance with each country’s patent laws, including Title 35, United States Code.

IX.INDEMNIFICATION

9.1LIC ENSEE agrees to hold harmless and indemnify BOARD, SYSTEM, UTMDACC, its Regents, officers, employees, students, and agents from and against any claims, demands, or causes of action whatsoever, costs of suit and reasonable attorney’s fees, including without limitation, those costs arising on account of any injury or death of persons or damage to property caused by, or arising out of, or resulting from, the exercise or practice of the rights granted hereunder by LICENSEE, its officers, its AFFILIATES or their officers, employees, agents or representatives.

X.    0;                                USE OF BOARD AND UTMDACC’S NAME

10.1LICENSEE will not use the name of (or the name of any employee of) UTMDACC, SYSTEM or BOARD in any advertising, pro motional or sales literature, on its Web site, or for the purpose of raising capital without the advance express written consent of BOARD secured through:

M. D. Anderson Services Corporation

7505 S. Main, Suite 500, Unit 0525

Houston, TX 77030

ATTENTION: Natalie Wright

Email: nwright@mdanderson .org

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Notwithstanding the above, LICENSEE may use the name of (or name of employee of) UTMDACC, SYSTEM or BOARD in routine business correspondence, or as needed in appropriate regulatory submissions without express written consent.

XI. CONFIDENTIAL INFORMATION AND PUBLICATION

11.1UTMDACC and LICENSEE each agree that all information contained in documents marked “confidential” and forwarded to one by the other (i) are to be received in strict confidence, (ii) used only for the purposes of this AGREEMENT, and (iii) not disclosed by the recipient party (except as required by law or court order), its agents or employees without the prior written consent of the other party, except to the extent that the recipient party can establish competent written proof that such information:

(a)	was in the public domain at the time of disclosure; or
(b)	later became part of the public domain through no act or omission of the recipient party, its employees, agents, successors or assigns; or
(c)	was lawfully disclosed to the recipient party by a third party having the right to disclose it; or
(d)	was already known by the recipient party at the time of disclosure; or
(e)	was independently developed by the recipient without use of the other party’s confidential information; or
(f)	is required by law or regulation to be disclosed.

11.2Each party’s obligation of confidence hereunder will be fulfilled by using at least the same degree of care with the other party’s confidential information as it uses to protect its own confidential information, but always at least a reasonable degree of care. This

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obligation will exist while this AGREEMENT is in force and for a period of three (3) years thereafter.

11.3UTMDACC re serves the right to publish the general scientific findings from research related to LICENSED SUBJECT MATTER or DERIVED PRODUCTS, with due regard to the protection of LICENSEE’s confidential information. UTMDACC will submit the manuscript of any proposed publication to LICENSEE at least thirty (30) calendar days before publication, and LICENSEE shall have the right to review and comment upon the publication in order to protect LICENSEE’s confidential information.  Upon LICENSEE’s request, publication may be delayed up to sixty (60) additional calendar days to enable LICENSEE to secure adequate intellectual property protection of LICENSEE’s confidential information that would otherwise be affected by the publication.

XII.ASSIGNMENT

12.1Except in conne ction with the sale of all of LICENSEE’s assets to a third party, this AGREEMENT may not be assigned by LICENSEE without the prior written consent of UTMDACC, which will not be unreasonably withheld.

XIII.TERM AND TERMINATION

13.1Subject to Sections 13.3, 13.4 hereinbelow, the term of this AGREEMENT is from the EFFECTIVE DATE to the full end of the term or terms for which PATENT RIGHTS have not expired, or if only TECHNOLOGY RIGHTS are licensed and no PATENT RIGHTS are applicable, for a term of fifteen (15) years.

13.2Any time after one (1) year from the EFFECTIVE DATE, BOARD or UTMDACC have the right to terminate this license in any national political jurisdiction within the

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LICENSED TERRITORY if LICENSEE, within ninety (90) calendar days after receiving written notice from UTMDACC of the intended termination, fails to provide written evidence satisfactory to UTMDACC that LICENSEE or its sublicensee(s) has commercialized or is actively and effectively attempting to commercialize a licensed invention in such jurisdiction(s). The following definitions apply to Section 13.2: (a) “commercialize” means having SALES in such jurisdiction; (b) “active attempts to commercialize” means having an effective, ongoing and active research, development, manufacturing, marketing or sales program as appropriate, directed toward obtaining regulatory approval, and/or production and/or SALES in any jurisdiction, and has provided plans acceptable to UTMDACC, in its sole discretion, to commercialize licensed inventions in the jurisdiction(s) that UTMDACC intends to terminate.

13.3Subject to any rights herein which survive termination, this AGREEMENT will earlier terminate in its entirety:

(a)automatically, if LICENSEE becomes bankrupt or insolvent and/or if the business of LICENSEE shall be placed in the hands of a receiver, assignee, or trustee, whether by voluntary act of LICENSEE or otherwise; or

(b)upon thirty (30) calendar days written notice from UTMDACC, if LICENSEE breaches or defaults on the payment or report obligations of ARTICLE IV, or use of name obligations of ARTICLE X, unless, before the end of the such thirty (30)-calendar day notice period, LICENSEE has cured the default or breach to UTMDACC’s satisfaction, and so notifies UTMDACC, stating the manner of the cure; or

15

(c)upon ninety (90) calendar days written notice from UTMDACC if LICENSEE breaches or defaults on any other obligation under this AGREEMENT, unless, before the end of the such ninety (90) calendar-day notice period, LICENSEE has cured the default or breach to UTMDACC’s satisfaction and so notifies UTMDACC, stating the manner of the cure; or< /p>

(d)at any time by mutual written agreement between LICENSEE, UTMDACC or BOARD, upon one hundred eighty (180) calendar days written notice to all parties and subject to any terms herein which survive termination; or

(e)if Section 13.2 is invoked; or

(f)                    ;                             if LICENSEE has defaulted or been late on its payment obligations pursuant to the terms of this AGREEMENT on any two (2) occasions in twelve (12) month period.

13.4Upon termination of this AGREEMENT:

(a)nothing herein will be construed to release either party of any obligation maturing prior to the effective date of the termination; and

(b)LICENSEE covenants and agrees to be bound by the provisions of Articles IX (Indemnification), X (Use of Board and UTMDACC’s Name) and XI (Confidential Information and Publication) of this AGREEMENT; and

(c)LICENSEE may, after the effective date of the termination, sell all LICENSED PRODUCTS and DERIVED PRODUCTS and parts therefor that it has on hand at the date of termination, if LICENSEE pays the earned royalty thereon and any other amounts due pursuant to Article IV of this AGREEMENT; and

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(d)LICENSEE grants to BOARD and UTMDACC a nonexclusive royalty bearing license with the right to sublicense others with respect to improvements made by LICENSEE in the LICENSED SUBJECT MATTER and DERIVED PRODUCTS. LICENSEE and UTMDACC agree to negotiate in good faith the royalty rate for the nonexclusive license. BOARD’s and UTMDACC’s right to subli cense others hereunder is solely for the purpose of permitting others to develop and commercialize the entire technology package; and

(e)if this AGREEMENT is terminated by UTMDACC, LICENSEE agrees to cease and desist all use and sale of LICENSED SUBJECT MATTER and DERIVED PRODUCTS immediately upon termination.

XIV. WARRANTY: SUPERIOR-RIGHTS

14.1Except for the rights, if any, of the Government of the Unit ed States of America as set forth below, BOARD represents and warrants its belief that (a) it is the owner of the entire right, title, and interest in and to LICENSED SUBJECT MATTER, (b) it has the sole right to grant licenses thereunder, and (c) it has not knowingly granted licenses thereunder to any other entity that would restrict rights granted hereunder except as stated herein.

14.2LICE NSEE understands that the LICENSED SUBJECT MATTER may have been developed under a funding agreement with the Government of the United States of America and, if so, that the Government may have certain rights relative thereto. This AGREEMENT is explicitly made subject to the Government’s rights under any such agreement and any applicable law or regulation, including P.L. 96-517 as amended by P.L. 98-620. To the extent that there is a conflict between any such agreement,

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applicable law or regulation and this AGREEMENT, the terms of such Government agreement, applicable law or regulation shall prevail.

14.3LICENSEE understands and agrees that BOARD and UTMDCC, by this AGREEMENT, make no representation as to the operability or fitness for any use, safety, efficacy, approvability by regulatory authorities, time and cost of development, patentability, and/or breadth of the LICENSED SUBJECT MATTER or DERIVED PRODUCTS. BOARD and UTMDACC, by this AGREEMENT, also make no representation as to whether any patent covered by PATENT RIGHTS is valid or as to whether there are any patents now held, or which will be held, by others or by BOARD or UTMDACC in the LICENSED FIELD, nor does BOARD and UTMDACC make any representation that the inventions contained in PATENT RIGHTS do not infringe any other patents now held or that will be held by others or by BOARD.

14.4LICENSEE, by execution hereof, acknowledges, covenants and agrees that LICENSEE has not been induced in any way by BOARD, SYSTEM, UTMDACC or employees thereof to enter into this AGREEMENT, and further warrants and represents that (a) LICENSESE has conducted sufficient due diligence with respect to all items and issues pertaining to this AGREEMENT; and (b) LICENSEE has adequate knowledge and expertise, or has used knowledgeable and expert consultants, to adequately conduct such due diligence, and agrees to accept all risks inherent herein.

XV.GENERAL

15.1                     &# 160;                 This AGREEMENT constitutes the entire and only agreement between the parties for LICENSED SUBJECT MATTER and all other prior negotiations, representations, agreements, and understandings are superseded hereby. No agreements altering or

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supplementing the terms hereof will be made except by a written document signed by both parties.

15.2Any notice required b y this AGREEMENT must be given by prepaid, first class, certified mail, return receipt requested, and addressed in the case of UTMDACC to:

The University of Texas M. D. Anderson Cancer Center

Office of Technology Commercialization

7515 S. Main, Suite 490, Unit 0510

Houston, Texas 77030

ATTENTION: William J. Doty

with copy to BOARD:

BOARD OF REGENTS

The University of Texas System

201 West Seventh Street

Austin, Texas 78701

ATTENTION: Office of General Counsel

or in the case of LICENSEE to:

Power3 Medical Products, Inc.

3400 Research Forest Drive

The Woodlands, Texas 77381

ATTENTION: Steven Rash

or other addresses as may be given from time to time under the terms of this notice provision.

15.3          &# 160;                            LICENSEE must comply with all applicable federal, state and local laws and regulations in connection with its activities pursuant to this AGREEMENT.

15.4LICENSEE covenants and agrees that it will not file a ny patent applications which claim priority, directly or indirectly, to any patent or patent application included in PATENT RIGHTS, without the advance express written consent of UTMDACC.

15.5This AGREEMENT will be construed and enforced in accordance with the laws of the United States of America and of the State of Texas, without regard to its conflict of law

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provisions. The Texas State Courts of Harris County, Texas (or, if there is exclusive federal jurisdiction, the United States District Court for the Southern District of Texas) shall have exclusive jurisdiction and venue over any dispute arising out of this AGREEMENT, and LICENSEE consents to the jurisdiction of such courts; however, nothing herein shall be deemed as a waiver by BOARD, SYSTEM or UTMDACC of its sovereign immunity.

15.6Failure of BOARD or UTMDACC to enforce a right under this AGREEMENT will not act as a waiver of right or the ability to later assert that right relative to the particular situation involved.

15.7                           & #160;           Headings included herein are for convenience only and will not be used to construe this AGREEMENT.

15.8If any part of this AGREEMENT is for any reason found to be unenforceable, all other parts nevertheless will remain enforceable.

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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this AGREEMENT.

BOARD OF REGENTS OF THE							POWER3 MEDICAL PRODUCTS, INC.
UNIVERSITY OF TEXAS SYSTEM
By:	/s/ John Mendelsohn, M.D.						By:	/s/ Steven Rash
					John Mendelsohn, M.D.			Steven Rash
					President			Chief Executive Officer
					The University of Texas
					M.D. Anderson Cancer Center
Date:					7/27/04		Date:	6/30/04
THE UNIVERSITY OF TEXAS
M.D. ANDERSON CANCER CENTER
By:		/s/ Leon Leach
				Leon Leach
				Executive Vice President
				The University of Texas
				M.D. Anderson Cancer Center
Date:			7/23/04
Approved as to Content:
By:	/s/ William J. Doty
	William J. Doty
	Managing Director, Technology
	Commercialization
	M.D. Anderson Cancer Center
Date:						7/19/04

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EXHIBIT I

MDA03-127 (UTSC:874) entitled “Using Plasma Proteomic Pattern for Diagnosis, Prediction of Response to Therapy and Clinical Behavior, and Monitoring Disease in Hematologic Malignancies,” invented by: Albitar, Maher, Ph.D.; Estey, Elihu H., M.D.; Kantarjian, Hagop, M., M.D.; Giles, Francis J., M.D.; Keating, Michael J., M.D.; and Goldknopf, Ira.

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EX-10.6

Exhibit 10.6

Confidential Treatment Requested. *** indicates material has been omitted pursuant to a Confidential Treatment Request filed with the Securities and Exchange Commission. A complete copy of this agreement has been filed separately with the Securities and Exchange Commission.

PATENT AND TECHNOLOGY LICENSE AGREEMENT

This twenty-three (23) page AGREEMENT (“AGREEMENT”) is made on this 1^st day of September, 2003, by and between THE BOARD OF REGENTS (“BOARD”) of THE UNIVERSITY OF TEXAS SYSTEM (“SYSTEM”), an agency of the State of Texas, whose address is 201 West 7th Street, Austin, Texas 78701, on behalf of THE UNIVERSITY OF TEXAS M. D. ANDERSON CANCER CENTER (“UTMDACC”), a component institution of SYSTEM, and Advanced Biochem, Inc. (dba ProteEx), a corporation organized under the laws of Nevada and having a principal place of business at 4800 Research Forest Drive, The Woodlands, Texas 77381. (“LICENSEE”).

TABLE OF CONTENTS

RECITALS

A.BOARD owns certain PATENT RIGHTS and TECHNOLOGY RIGHTS related to LICENSED SUBJECT MATTER developed at UTMDACC.

B.BOARD, through UTMDACC, desires to have the LICENSED SUBJECT MATTER developed in the LICENSED FIELD and used for the benefit of LICENSEE, BOARD, SYSTEM, UTMDACC, the inventor(s), and the public as outlined in BOARD’s Intellectual Property Policy.

C.LICENSEE wishes to obtain a license from BOARD to practice LICENSED SUBJECT MATTER.

NOW, THEREFORE, in consideration of the mutual covenants and promises herein contained, the parties agree as follows:

I.EFFECTIVE DATE

1.1This AGREEMENT is effective as of the date written above (“EFFECTIVE DATE”).

II.DEFINITIONS

As used in this AGREEMENT, the following terms have the meanings indicated:

2.1AFFILIATE means any business entity more than fifty percent (50%) owned by LICENSEE, any business en tity which owns more than fifty percent (50%) of LICENSEE, or any business entity that is more than fifty percent (50%) owned by a business entity that owns more than fifty percent (50%) of LICENSEE.

2.2DERIVED PRODUCT means any service or product, whether or not a LICENSED PRODUCT, that utilizes or is based on biological markers, proteins or other proteomic information (including, but not limited to, protein fractions, protein patterns and protein profiles) iden tified, discovered, analyzed, developed or otherwise derived or made

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possible using LICENSED SUBJECT MATTER, PATENT RIGHTS and/or TECHNOLOGY RIGHTS

2.3LICENSED FIELD means all fields of use.

2.4LICENSED PRODUCTS means any product or service sold by LICENSEE comprising LICENSED SUBJECT MATTER pursuant to this AGREEMENT.

2.5LICENSED SUBJECT MATTER means inventions and discoveries covered by PATENT RIGHTS or TECHNOLOGY RIGHTS within LICENSED FIELD.

2.6LICENSED TERRITORY means the entire world.

2.7NET SALES means the gross revenues received by LICENSEE or its sublicensee from a SALE less sales discounts actually granted, sales and/or use taxes actually paid, import and/or export duties actually paid, outbound transportation actually prepaid or allowed, and amounts actually allowed or credited due to returns (not exceeding the original billing or invoice amount)(“DEDUCTIONS”). NET SALES shall also include the gross revenues less DEDUCTIONS received by LICENSEE or any sublicensee for any DERIVED PRODUCTS. All gross revenues and DEDUCTIONS shall be recorded by LICENSEE in LICENSEE’s official books and records in accordance with generally accepted accounting practices and consistent with LICENSEE’s published financial statements and/or regulatory filings with the United States Securities and Exchange Commission.

2.8PATENT RIGHTS means BOARD’s rights in information or discoveries claimed in the patents, and/or patent applications and any letters patent that issue thereon, whether domestic or foreign, listed on Exhibit I attached hereto.

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(a)‘512 PATENT RIGHTS means BOARD’S rights in information or discoveries claimed in U.S. Patent Application No. 10/301,512 and any letters patent that issue thereon.

(b)         
60; ‘027 PATENT RIGHTS means BOARD’s rights in information or discoveries claimed in U.S. Patent Application No. 10/236,027 and any letters patent that issue thereon.

2.9SALE OR SOLD means the transfer or disposition of a LICENSED PRODUCT for value to a party other than LICENSEE or AFFILIATE.

2.10TECHNOLOGY RIGHTS means BOARD’s rights in any technical information, know-how, processes, procedures, compositions, devices, methods, formulae, protocols, techniques, software, designs, drawings or data created by the inventor(s) listed in Exhibit I at UTMDACC before the EFFECTIVE DATE, which are not claimed in PATENT RIGHTS but that are necessary for practicing PATENT RIGHTS.

III.LICENSE

3.1BOARD, through UTMDACC, hereby grants to LICENSEE a royalty-bearing, exclusive license under LICENSED SUBJECT MATTER to manufacture, have manufactured, use, import, offer to sell and/or sell LICE NSED PRODUCTS covered by the ‘512 PATENT RIGHTS within LICENSED TERRITORY for use within LICENSED FIELD. BOARD, through UTMDACC, hereby grants to LICENSEE a royalty-bearing, non-exclusive license under LICENSED SUBJECT MATTER to manufacture, have manufactured, use, import, offer to sell and/or sell LICENSED PRODUCTS covered by the ‘027 PATENT RIGHTS within LICENSED TERRITORY for use within LICENSED FIELD. To the extent a LICENSED PRODUCT is covered by both the ‘512 PATENT RIGHTS and the

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‘027 PATENT RIGHTS, the license granted hereunder shall be non-exclusive. The foregoing grants are subject to Sections 14.2 and 14.3 hereinbelow, the payment by LICENSEE to UTMDACC of all consideration as provided herein, the timely payment of all amounts due under any related sponsored research agreement between UTMDACC and LICENSEE in effect during this AGREEMENT, and is further subject to the following rights retained by BOARD and UTMDACC to:

(a)Publish the general sci entific findings from research related to LICENSED SUBJECT MATTER, subject to the terms of Article XI - Confidential Information and Publication; and

(b)Use LICENSED SUBJECT MATTER relating to the ‘512 PATENT RIGHTS for research, teaching, patient care, and other educationally-related purposes.  Nothing herein shall be construed as in any way limiting UTMDACC’s rights under ‘027 PATENT RIGHTS, including, but not limited to, the right to use LICENSED SUBJECT MATTER relating to the’027 PATENT RIGHTS for any purpose whatsoever.

3.2LICENSEE may extend the license granted herein to any AFFILIATE provided that the AFFILIATE consents in writing to be bound by this AGREEMENT to the same extent as LICENSEE.  LICENSEE agrees to deliver such contract to UTMDACC within thirty (30) calendar days following execution thereof.

3.3LICENSEE may grant sublicenses under LICENSED SUBJECT MATTER for any lawful purpose except that LICENSEE may not grant sublicenses to any entity for the identification of biological markers. Sublicenses may be granted consistent with the terms of this AGREEMENT provided that LICENSEE is responsible for its sublicensees

5

relevant to this AGREEMENT, and for diligently collecting all amounts due LICENSEE or UTMDACC from sublicensees. If a sublicensee pursuant hereto becomes bankrupt, insolvent or is placed in the hands of a receiver or trustee, LICENSEE, to the extent allowed under applicable law and in a timely manner, agrees to use its best reasonable efforts to collect all consideration owed to LICENSEE and to have the sublicense agreement confirmed or rejected by a court of proper jurisdiction.

3.4LICENSEE must deliver to UTMDACC a true and correct copy of each sublicense granted by LICENSEE, and any modification or termination thereof, within thirty (30) calendar days after execution, modification, or termination.

3.5If this AGREEMENT is terminated pursuant to Article XIII - Term and Termination, BOARD and UTMDACC agree to accept as successors to LICENSEE, existing sublicensees in good standing at the date of termination provided that each such sublicensee consents in writing to be bound by all of the terms and conditions of this AGREEMENT.

IV.CONSIDERATION, PAYMENTS AND REPORTS

4.1       &# 160;   In consideration of rights granted by BOARD to LICENSEE under this AGREEMENT, LICENSEE agrees to pay UTMDACC each of the following:

(a)All out-of-pocket expenses incurred by UTMDACC in filing, prosecuting, enforcing and maintaining ‘512 PATENT RIGHTS, and all such future expenses incurred by UTMDACC, for so long as, and in such countries as this AGREEMENT remains in effect. UTMDACC will invoice LICENSEE within thirty (30) calendar days of the EFFECTIVE DATE for expenses incurred as of that time and on a quarterly basis thereafter. The invoiced amount for expenses

6

incurred prior to the EFFECTIVE DATE will be due and payable by LICENSEE within ninety (90) calendar days of invoice. The invoiced amounts for expenses incurred after the EFFECTIVE DATE will be due within thirty (30) calendar days of invoice; and

(b)A non-refundable fee of $*** for ***. UTMDACC will invoice LICENSEE within thirty (30) calendar days of the EFFECTIVE DATE and payment is due to UTMDACC within ninety (90) days of the EFFECTIVE DATE; and

(c)A nonrefundable license documentation fee in the amount of $***, payable in two payments of $***. This fee will not reduce the amount of any other payments provided for in this ARTICLE IV. UTMDACC will invoice LICENSEE for the first payment of $*** after the AGREEMENT is fully executed by all parties. Said first payment shall be due and payable within ninety (90) days of the EFFECTIVE DATE. The second payment of $*** shall be due and payable to UTMDACC on ***; and

(d)A nonrefundable annual license maintenance fee of $***. This maintenance fee is due to UTMDACC beginning on the first anniversary of the EFFECTIVE DATE and annually thereafter until ***. This fee will not reduce any other payment provided for in this ARTICLE IV; and

(e)A running royalty equal to ***. LICENSEE shall be responsible for diligently

7

collecting and paying UTMDACC any royalties due for any sublicensee’s NET SALES; and

(f)Minimum annual royalties of $***; and

(g)A $*** milestone payment upon ***. A first payment of $*** shall be due and payable *** and a second payment of $*** shall be due and payable ***; and

(h)An adjusted share of TOTAL SUBLICENSEE CONSIDERATION as defined below, wherein the adjusted share shall be calculated by taking ***percent (***%) of the TOTAL SUBLICENSEE CONSIDERATION and multiplying the result by a fraction comprising the greater of (1)            *** or (2) ***, divided by ** *, e.g., as follows:

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Adjusted		TOTAL		***
share   =	***   X	SUBLICENSEE	X
		CONSIDERATION		***

As used in this Section, TOTAL SUBLICENSEE CONSIDERATION means all consideration, other than research and development money and NET SALES, received by LICENSEE, from either (i) any sublicensee pursuant to Sections .3 and 3.4, or (ii) any assignee pursuant to Section 12.1, including, but not limited to, minimum royalties, up-front payments, bonuses, milestones, marketing fees, distribution fees, franchise fees, option fees, license fees, documentation fees, and equity securities.

4.2Unless otherwise provided, all such payments are payable within thirty (30) calendar days after March 31, June 30, September 30, and December 31 of each year during the term of this AGREEMENT, at which time LICENSEE will also deliver to UTMDACC a true and accurate report, giving such particulars of the business conducted by LICENSEE and its sublicensees, if any exist, during the preceding three calendar months under this AGREEMENT as necessary for UTMDACC to account for LICENSEE’s payments hereunder. This report will include pertinent data, including, but not limited to:

9

(a)the accounting methodologies used to account for and calculate the items included in the report and any differences in such accounting methodologies used by LICENSEE since the previous report; and

(b)a list of LICENSED PRODUCTS produced for the three (3)&n bsp;preceding calendar months categorized by the technology it relates to under PATENT RIGHTS (including a breakdown of whether the it is covered by the ‘512 PATENT RIGHTS, the ‘027 PATENT RIGHTS, or both); and

(c)the total quantities of LICENSED PRODUCTS produced by the category listed in Section 4.2(b); and

(d)the total SALES by the category listed in Section 4.2(b); and

(e)the calculation of NET SALES by the category listed in Section4.2(b); and

(f)the royalties so computed and due UTMDACC by the category listed in Section 4.2(b) and/or minimum royalties; and

(g)all consideration received by each sublicensee or assignee and payments due UTMDACC; and

(h)all other amounts due UTMDACC herein.

Simultaneously with the delivery of each such report, LICENSEE agrees to pay UTMDACC the amount due, if any, for the period of such report. These reports are required even if no payments are due.

4.3During the term of this AGREEMENT and for one year thereafter, LICENSEE agrees to keep complete and accurate records of its and its sublicensees’ SALES and NET SALES in sufficient detail to enable the royalties and other payments due hereunder to be determined. LICENSEE agrees to permit UTMDACC or its representatives, at

10

UTMDACC’s expense, to periodically examine LICENSEE’s books, ledgers, and records during regular business hours for the purpose of and to the extent necessary to verify any report required under this AGREEMENT. If any amounts due UTMDACC are determined to have been underpaid in an amount equal to or greater than five percent (5%) of the total amount due during the period so examined, then LICENSEE will pay the cost of the examination plus accrued interest at the highest allowable rate.

4.4Within thirty (30) calendar days following each anniversary of the EFFECTIVE DATE, LICENSEE will deliver to UTMDACC a written progress report as to LICENSEE’s (and any sublicensee’s) efforts and accomplishments during the preceding year in diligently commercializing LICENSED SUBJECT MATTER in the LICENSED TERRITORY and LICENSEE’s (and sublicensees’) commercialization plans for the upcoming year.

4.5All amounts payable hereunder by LICENSEE will be paid in United States funds without deductions for taxes, assessments, fee s, or charges of any kind. Checks are to be made payable to The University of Texas M. D. Anderson Cancer Center, and sent by United States mail to Box 297402, Houston, Texas 77297, Attention: Manager, Sponsored Programs or by wire transfer to:

BANK ONE TEXAS

910 TRAVIS

HOUSTON, TEXAS 77002

SWIFT: BONEUS44HOU

ABA ROUTING NO: 111000614

ACCOUNT NAME:   UNIV. OF TEXAS M. D. ANDERSON CANCER CENTER

ACCOUNT NO:     1586838979

REFERENCE:      include title and EFFECTIVE DATE of AGREEMENT and type of payment (e.g., license documentation fee, milestone payment, royalty [including applicable patent/application identified by MDA reference number and patent number or application serial number], or maintenance fee, etc.).

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4.6No payments due or royalty rates owed under this AGREEMENT will be reduced as the result of co-ownership of LICENSED SUBJECT MATTER by BOARD and another party, including, but not limited to, LICENSEE.

V.SPONSORED RESEARCH

5.1If LICENSEE desires to sponsor research for or related to the LICENSED SUBJECT MATTER, and particularly where LICENSEE receives payments for sponsored research pursuant to a sublicense under this AGREEMENT, LICENSEE (a) will notify UTMDACC in writing of all opportunities to conduct this sponsored research (including clinical trials, if applicable), (b) solicit research and/or clinical proposals from UTMDACC for this purpose, and (c)will give good faith consideration to funding the proposals at UTMDACC.

VIPATENTS AND INVENTIONS

6.1    
60;      All decisions regarding prosecution, maintenance and enforcement of PATENT RIGHTS shall be within the sole discretion of UTMDACC.

VII.INFRINGEMENT BY THIRD PARTIES

7.1LICENSEE, at its expense, must enforce any patent exclusively licensed hereunder against infringement by third parties and is entitled to retain recovery from such enforcement. After reimbursement of LICENSEE’s reasonable legal costs and expenses related to such recovery, LICENSEE agrees to pay UTMDACC either: (a) the royalty detailed in Section 4.1(d) for any monetary recovery that is for sales of LICENSED PRODUCTS lost due to the infringement and related punitive damages; or (b) *** in any recovery in which the award is for reasonable royalties. LICENSEE must notify

12

UTMDACC in writing of any potential infringement within thirty (30) calendar days of knowledge thereof. If LICENSEE does not file suit against a substantial infringer within six (6) months of knowledge thereof, then BOARD or UTMDACC may, at its sole discretion, enforce any patent licensed hereunder on behalf of itself and LICENSEE, with UTMDACC retaining all recoveries from such enforcement, and/or reduce the license granted hereunder to non-exclusive.

7.2In any suit or di spute involving an infringer of any PATENT RIGHTS, the parties agree to cooperate fully with each other. At the request and expense of the party bringing suit, the other party will permit access during regular business hours, to all relevant personnel, records, papers, information, samples, specimens, and the like in its possession.

VIII.PATENT MARKING

8.1LICENSEE agrees that all packaging containing individual LICENSED PRODUCT(S), documentation therefor, and when possible for actual LICENSED PRODUCT(S) SOLD by LICENSEE, AFFILIATES, and/or sublicensees of LICENSEE will be permanently and legibly marked with the number of any applicable patent(s) licensed hereunder in accordance with each country’s patent laws, including Title 35, United States Code.

IX.INDEMNIFICATION

9.1LICENSEE agrees to hold harmless and indemnify BOARD, SYSTEM, UTMDACC, its Regents, officers, employees, students, and agents from and against any claims, demands, or causes of action whatsoever, costs of suit and reasonable attorney’s fees, including w ithout limitation, those costs arising on account of any injury or death of persons or damage to property caused by, or arising out of, or resulting from, the exercise or practice

13

of the rights granted hereunder by LICENSEE, its officers, its AFFILIATES or their officers, employees, agents or representatives.

X.USE OF BOARD AND UTMDACC’S NAME

10.1LICENSEE will not use the name of (or the name of any employee of) UTMDACC, SYSTEM or BOARD in any advertising, promotional or sales literature, on its Web site,or for the purpose of raising capital without the advance express written consent of BOARD secured through:

M. D. Anderson Services Corporation

7505 S. Main, Suite 500, Unit 0525

Houston, TX 77030

ATTENTION: Natalie Wright

Email: nwright@mdanderson.org

Notwithstanding the above, LICENSEE may use the name of (or name of employee of) UTMDACC, SYSTEM or BOARD in routine business correspondence, or as needed in appropriate regulatory submissions without express written consent.

XI.CONFIDENTIAL INFORMATION AND PUBLICATION

11.1UTMDACC and LICENSEE each agree that all information contained in documents marked “confidential” and forwarded to one by the other (i)& nbsp;are to be received in strict confidence, (ii) used only for the purposes of this AGREEMENT, and (iii) not disclosed by the recipient party (except as required by law or court order), its agents or employees without the prior written consent of the other party, except to the extent that the recipient party can establish competent written proof that such information:

(a)was in the public domain at the time of disclosure; or

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(b)later became part of the public domain through no act or omission of the recipient party, its employees, agents, successors or assigns; or

14

(c)was lawfully disclosed to the recipient party by a third party having the right to disclose it; or

(d)was already known by the recipient party at the time of disclosure; or

(e)was independently developed by the recipient without use of the other party’s confidential information; or

(f)is required by law or regulation to be disclosed.

11.2Each party’s obligation of confidence hereunder will be fulfilled by using at least the same degree of care with the other party’s confidential information as it uses to protect its own confidential information, but always at least a reasonable degree of care. This obligation will exist while this AGREEMENT is in force and for a period of three (3) years thereafter.

11.3UTMDACC reserves the right to publish the general scientific findings from research related to LICENSED SUBJECT MATTER, with due regard to the protection of LICENSEE’s confidential information. UTMDACC will submit the manuscript of any proposed publication to LICENSEE at least thirty (30) calendar days before publication, and LICENSEE shall have the right to review and comment upon the publication in order to protect LICENSEE’s confidential information. Upon LICENSEE’s request, publication may be delayed up to sixty (60) additional calendar days to enable LICENSEE to secure adequate intellectual property protection of LICENSEE’s confidential information that would otherwise be affected by the publication.

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XII.ASSIGNMENT

12.1Except in connection with the sale of all of LICENSEE’s assets to a third party, this AGREEMENT may not be assigned by LICENSEE without the prior written c onsent of UTMDACC, which will not be unreasonably withheld.

XIII.TERM AND TERMINATION

13.1    0;     Subject to Sections 13.3, 13.4 hereinbelow, the term of this AGREEMENT is from the EFFECTIVE DATE to the full end of the term or terms for which PATENT RIGHTS have not expired, or if only TECHNOLOGY RIGHTS are licensed and no PATENTRIGHTS are applicable, for a term of fifteen (15) years.

13.2Any time after one (1) year from the EFFECTIVE DATE, BOARD or UTMDACC have the right to terminate this license in any national political jurisdiction within the LICENSED TERRITORY if LICENSEE, within ninety (90) calendar days after recei ving written notice from UTMDACC of the intended termination, fails to provide written evidence satisfactory to UTMDACC that LICENSEE or its sublicensee(s) has commercialized or is actively and effectively attempting to commercialize a licensed invention in such jurisdiction(s). The following definitions apply to Section 13.2: (a)”commercialize” means having SALES in such jurisdiction; (b) “active attempts to commercialize” means having an effective, ongoing and active research, development, manufacturing, marketing or sales program as appropriate, directed toward obtaining regulatory approval, and/or production and/or SALES in any jurisdiction, and has provided plans acceptable to UTMDACC, in its sole discretion, to commercialize licensed inventions in the jurisdiction(s) that UTMDACC intends to terminate.

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13.3Subject to any rights herein which survive termination, this AGREEMENT will earlier terminate in its entirety:

(a)automatically, if LICENSEE becomes bankrupt or insolvent and/or if the business of LICENSEE shall be placed in the hands of a receiver, assignee, or truste e, whether by voluntary act of LICENSEE or otherwise; or

(b)upon thirty (30) calendar days written notice from UTMDACC, if LICENSEE breaches or defaults on the payment or report obligations of ARTICLE IV, or use of name obligations of ARTICLE X, unless, before the end of the such thirty (30)-calendar day notice period, LICENSEE has cured the default or breach to UTMDACC’s satisfaction, and so notifies UTMDACC, stating the manner of the cure; or

(c)upon ninety (90) calendar days written notice from UTMDACC if LICENSEE breaches or defaults on any other obligation under this AGREEMENT, unless, before the end of the such ninety (90) calendar-day notice period, LICENSEE has cured the default or breach to UTMDACC’s satisfaction and so notifies UTMDACC, stating the manner of the cure; or

(d)at any time by mutual written agreement between LICENSEE, UTMDACC or BOARD, upon one hundred eighty (180) calendar days written notice to all parties and subject to any terms herein which survive termination; or

(e)if Section 13.2 is invoked; or

(f)LICENSEE has defaulted or been late on its payment obligations pursuant to the terms of this AGREEMENT on any two (2) occasions in a twelve (12) month period.

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13.4Upon termination of this AGREEMENT:

(a)nothing herein will be construed to release either party of any obligation maturing prior to the effective date of the termination; and

(b)LICENSEE covenants and agrees to be bound by the provisions of Articles IX (Indemnification), X (Use of Board and UTMDACC’s Name) and XI (Confidential Information and Publication) of this AGREEMENT; and

(c)LICENSEE may, after the effective date of the termination, sell all LICENSED PRODUCTS and parts therefor that it has on hand at the date of termination, if LICENSEE pays the earned royalty thereon and any other amounts due pursuant to Article IV of this AGREEMENT; and

(d)LICENSEE grants to BOARD and UTMDACC a nonexclusive royalty bearing license with the right to sublicense others with respect to improvements made by LICENSEE in the LICENSED SUBJECT MATTER. LICENSEE and UTMDACC agree to negotiate in good faith the royalty rate for the nonexcl usive license. BOARD’s and UTMDACC’s right to sublicense others hereunder is solely for the purpose of permitting others to develop and commercialize the entire technology package.

XIV.WARRANTY: SUPERIOR-RIGHTS

14.1Except for the rights, if any, of the Government of the United States of America as set forth below, BOARD represents and warrants its belief that (a) it is the owner of the entire right, title, and interest in and to LICENSED SUBJECT MATTER, (b) it has the sole right to grant licenses thereunder, and (c) it has not knowingly granted licenses

18

thereunder to any other entity that would restrict rights granted hereunder except as stated herein.

14.2LICENSEE understands that the LICENSED SUBJECT MATTER may have been developed under a funding agreement with the Government of the United States of America and, if so, that the Government may have certain rights relative thereto. This AGREEMENT is explicitly made subject to the Government’s rights under any such agreement and any applicable law or regulation, including P.L. 96-517 as amended by P.L. 98-620. To the extent that there is a conflict between any such agreement, applicable law or regulation and this AGREEMENT, the terms of such Government agreement, applicable law or regulation shall prevail.

14.3LICENSEE understands and agrees that BOARD and UTMDACC, by this AGREEMENT, make no representation as to the operability or fitness for any use, safety, efficacy, approvablity by regulatory authorities, time and cost of development, patentability, and/or breadth of the LICENSED SUBJECT MATTER. BOARD and UTMDACC, by this AGREEMENT, also make no repr esentation as to whether any patent covered by PATENT RIGHTS is valid or as to whether there are any patents now held, or which will be held, by others or by BOARD or UTMDACC in the LICENSED FIELD, nor does BOARD and UTMDACC make any representation that the inventions contained in PATENT RIGHTS do not infringe any other patents now held or that will be held by others or by BOARD.

14.4LICENSEE, by execution hereof, acknowledges, covenants and agrees that LICENSEE has not been induced in any way by BOARD, SYSTEM, UTMDACC or employees thereof to enter into this AGREEMENT, and further warrants and represents that

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(a) LICENSEE has conducted sufficient due diligence with respect to all items and issues pertaining to this AGREEMENT; and (b)LICENSEE has adequate knowledge and expertise, or has used knowledgeable and expert consultants, to adequately conduct such due diligence, and agrees to accept all risks inherent herein.

XV.GENERAL

15.1This AGREEMENT constitutes the entire and only agreement between the parties for LICENSED SUBJECT MATTER and all other prior negotiations, representations, agreements and understandings are superseded hereby. No agreements altering or supplementing the terms hereof will be made except by a written document signed by both parties.

15.2Any notice required by this AGREEMENT must be given by prepaid, first class, certified mail, return receipt requested, and addressed in the case of UTMDACC to:

The University of Texas M. D. Anderson Cancer Center

Office of Technology Commercialization

7515 S. Main, Suite 490, Unit 0510

Houston, Texas 77030

ATTENTION: William J. Doty

with copy to BOARD:

BOARD OF REGENTS

The University of Texas System

201 West Seventh Street

Austin, Texas 78701

ATTENTION: Office of General Counsel

or in the case of LICENSEE to:

ProteEx

4800 Research Forest Drive

The Woodlands, Texas 77381

ATTENTION: Joseph Sk ip Marks

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or other addresses as may be given from time to time under the terms of this notice provision.

15.3LICENSEE must comply with all applicable federal, state and local laws and regulations in connection with its activities pursuant to this AGREEMENT.

15.4LICENSEE covenants and agrees that it will not file any patent applications which claim priority, directly or indirectly, to any patent or patent application included in PATENT RIGHTS, without the advance express written consent of UTMDACC.

15.5This AGREEMENT will be construed and enforced in accordance with the laws of the United States of America and of the State of Texas, w ithout regard to its conflict of law provisions. The Texas State Courts of Harris County, Texas (or, if there is exclusive federal jurisdiction, the United States District Court for the Southern District of Texas) shall have exclusive jurisdiction and venue over any dispute arising out of this AGREEMENT, and LICENSEE consents to the jurisdiction of such courts; however, nothing herein shall be deemed as a waiver by BOARD, SYSTEM or UTMDACC of its sovereign immunity.

15.6Failure of BOARD or UTMDACC to enforce a right under this AGREEMENT will not act as a waiver of right or the ability to later assert that right relative to the particular situation involved.

15.7Headings included herein are for convenience only and will not be used to construe this AGREEMENT.

15.8      ;    If any part of this AGREEMENT is for any reason found to be unenforceable, all other parts nevertheless will remain enforceable.

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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this AGREEMENT.

BOARD OF REGENTS OF THE			PROTEEX, INC.
UNIVERSITY OF TEXAS SYSTEM
By	/s/ John Mendelsohn, M.D.		By	/s/ Joseph Skip Marks
	John Mendelsohn, M.D.			Joseph Skip Marks
	President			President
	The University of Texas
	M. D. Anderson Cancer Center
Date:		10/8/03	Date:		9/15/03
THE UNIVERSITY OF TEXAS
M. D. ANDERSON CANCER CENTER
By	/s/ Leon Leach
	Leon Leach
	Executive Vice President
	The University of Texas
	M. D. Anderson Cancer Center
Date:		10/6/03
Approved as to Content:
By	/s/ William J. Doty
	William J. Doty
	Managing Director, Technology
	Commercialization
	M. D. Anderson Cancer Center
Date:		9/16/03

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EXHIBIT I

MDA02-085 (UTSC:764) entitled “Methods and Compositions for Detection of Breast Cancer”.

Inventors: Herbert A. Fritsche and Henry M. Kuerer

Serial No.: 10/236,027

Filing Date: September 5, 2002

MDA03-098 (UTSC:828US) entitled Proteomic Methods for Diagnosis and Monitoring of Breast Cancer”. Inventors:  Herbert A. Fritsche, Henry M. Kuerer, Ira L. Goldknopf and Helen R. Park.

Serial No.: 10/301,512

Filing Date: November 20, 2002

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EX-10.7

Exhibit 10.7

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of October 28, 2004, among Power 3 Medical Products, Inc., a New York corporation (the “Company”), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a ”Purchaser” and collectively the “Purchasers”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 promulgated thereunder, the Company desires to issue and sell to each Purchaser, and each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and each Purchaser agrees as follows:

ARTICLE I.
DEFINITIONS

1.1Definitions.    In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debentures (as defined herein), and (b) the following terms have the meanings indicated in this Section 1.1:

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Additional Investment Right” means the Additional Investment Rights as described in Section 2.2(a)(iv), in the form of Exhibit E attached hereto.

“Additional Investment Right Securities” means the Debentures issuable upon exercise of the Additional Investment Right.

“Additional Investment Right Shares” means the shares of Common Stock issuable upon conversion of the Additional Investment Right Securities.

“Affiliate” means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such first Person, as such terms are used in and construed under Rule 144 under the Securities Act.  With respect to a Purchaser, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as such Purchaser will be deemed to be an Affiliate of such Purchaser.

“Closing Dates” means, collectively, the dates of the First Closing and Second Closing.

“Closing Price” means on any particular date (a) the daily volume weighted average price per share of Common Stock on such date (or the nearest preceding date) on

1

the Trading Market as reported by Bloomberg Financial L.P. (based on a Trading Day from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time) using the VAP function, or (b) if the Common Stock is not then listed or quoted on the Trading Market and if prices for the Common Stock are then reported in the “pink sheets” published by Pink Sheets LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (c) if the shares of Common Stock are not then publicly traded the fair market value of a share of Common Stock as determined by a nationally-recognized independent appraiser selected in good faith by the Purchasers of a majority in interest of the principal amount of Debentures then outstanding and reasonably acceptable to the Company.

“Closings” means collectively, the closings of the purchase and sale of the Securities pursuant to Section 2.1, and any reference to “Closing” or “Closings” shall be construed to include the First Closing and the Second Closing unless only one such closing is expressly referred to.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any securities into which such common stock shall hereinafter have been reclassified into.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

“Company Counsel” means Andrews Kurth LLP.

“Conversion Price” shall have the meaning ascribed to such term in the Debentures.

“Debentures” means, the Convertible Debentures due, subject to the terms therein, 3 years from their date of issuance, issued by the Company to the Purchasers hereunder, in the form of Exhibit A.

“Disclosure Letter” shall have the meaning ascribed to such term in Section 3.1 hereof.

“Effective Date” means the date that the initial Registration Statement filed by the Company pursuant to the Registration Rights Agreement is first declared effective by the Commission.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan

duly adopted by the Board of Directors of the Company or a designated committee thereof, (b) securities upon the exercise of or conversion of any securities issued hereunder, convertible securities, options or warrants issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities (except for adjustments for stock splits, stock dividends or other similar transactions), (c) securities issued pursuant to acquisitions or strategic transactions, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities, and (d) securities having an initial issue price of at least $20 million and which are issued for cash in a firm commitment underwritten registered public offering and (e) securities issued in a stock dividend or similar transaction, relating to the spin-off and related distribution of the securities of the Company’s wholly-owned subsidiary, Power3 Medical, Inc. (“Power3 Subsidiary”).

“FW” means Feldman Weinstein LLP with offices at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

“First Closing” shall have the meaning ascribed to such term in Section 2.1 hereof.

“First Closing Date” means the date of the First Closing.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h) hereof.

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Market Price” means the average of the 5 consecutive Closing Prices immediately prior to the First Closing Date, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date hereof and prior to the time as of which the Market Price is determined.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b) hereof.

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Registration Rights Agreement” means the Registration Rights Agreement, dated the date hereof, among the Company and the Purchasers, in the form of Exhibit B attached hereto.

“Registration Statement” means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale of the Underlying Shares and the Additional Investment Right Shares [Note:  These are included in Underlying Shares.] by each Purchaser as provided for in the Registration Rights Agreement.

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

“Required Minimum” means, as of any date, the maximum aggregate number of shares of Common Stock then issued or potentially issuable in the future pursuant to the Transaction Documents, including any Underlying Shares issuable upon exercise or conversion in full of all Warrants, Debentures and Additional Investment Right Securities, ignoring any conversion or exercise limits set forth therein, and assuming that the Warrant exercise price, Conversion Price and the conversion price of the Additional Investment Rights Securities is at all times on and after the date of determination 75% of the then Warrant exercise price, Conversion Price or such conversion price, as the case may be, on the Trading Day immediately prior to the date of determination.

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h) hereof.

“Second Closing” shall have the meaning ascribed to such term in Section 2.1 hereof.

“Second Closing Date” means the date of the Second Closing.

“Securities” means the Debentures, the Warrants, the Warrant Shares, the Underlying Shares, the Additional Investment Right Securities and the Additional Investment Right Shares.

“Securities Act” means the Securities Act of 1933, as amended.

“Subscription Amount” means, as to each Purchaser, the amounts set forth below such Purchaser’s signature block on the signature pages hereto and next to the headings

“First Closing Subscription Amount” and “Second Closing Subscription Amount”, in United States Dollars and in immediately available funds.

“Subsequent Financing” shall have the meaning ascribed to such term in Section 4.13.

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a).

“Trading Day” means a day on which the Common Stock is traded on a Trading Market.

“Trading Market” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq SmallCap Market, the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market or the OTC Bulletin Board.

“Transaction Documents” means this Agreement, the Debentures, the Warrants, the Registration Rights Agreement, the Additional Investment Rights and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Underlying Shares” means the shares of Common Stock issuable upon conversion of the Debentures, the Warrant Shares and the Additional Investment Right Shares.

“Warrants” means collectively the Common Stock purchase warrants, in the form of Exhibit C delivered to the Purchasers at the First Closing in accordance with Section 2.2(a) hereof, which Warrants shall be exercisable immediately and have a term of exercise equal to 5 years.

“Warrant Shares” means the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE II.
PURCHASE AND SALE

2.1Closing.    The Company agrees to sell, and each Purchaser agrees, severally and not jointly, to purchase the respective principal amounts of the Debentures set forth below its name on the signature pages hereto.  The Closings shall take place in two stages as set forth below (respectively, the “First Closing” and the “Second Closing”).  Upon satisfaction of the conditions set forth in Section 2.2, each Closing shall occur at the offices of FW, or such other location as the parties shall mutually agree.

(a)First Closing.  The First Closing shall be for $1,000,000 aggregate principal amount of Debentures, and shall occur within 5 Trading Days of the date hereof.

(b)Second Closing.  The Second Closing shall be for $2,000,000 aggregate principal amount of Debentures, and shall occur on or before the 5^th Trading Day following the Effective Date.

2.2Deliveries.

(a)At or prior to each Closing, unless otherwise indicated below, the Company shall deliver or cause to be delivered to each Purchaser the following:

(i)on the First Closing Date, this Agreement duly executed by the Company;

(ii)a Debenture with a principal amount equal to such Purchaser’s Subscription Amount as to the applicable Closing, registered in the name of such Purchaser;

(iii)on the First Closing Date, a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 100% of such Purchaser’s Subscription Amounts for the First Closing and the Second Closing divided by the Market Price, with an exercise price equal to $         (1), subject to adjustment therein;

(iv)on the First Closing Date, a copy of an Additional Investment Right, registered in the name of such Purchaser, pursuant to which such Purchaser shall have the right to purchase up to such Purchaser’s pro rata share (based on the principal amount of Debentures purchased and to be purchased hereunder) of $2,500,000 of debentures in the form of the Debentures except that the conversion price thereof shall be equal to $        (2), subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of this Agreement (“AIR Conversion Price”);

(v)on the First Closing Date, the Registration Rights Agreement duly executed by the Company; and

(vi)on the First Closing Date, a legal opinion of Company Counsel, substantially in the form of Exhibit D attached hereto.

(b)At or prior to each Closing, unless otherwise indicated below, each Purchaser shall deliver or cause to be delivered to the Company the following:

(i)on the First Closing Date, this Agreement duly executed by such Purchaser;

(ii)such Purchaser’s Subscription Amount, as to the applicable Closing, by wire transfer to the account as specified in writing by the Company; and

(1)120% of the Market Price.

(2)90% of the Market Price.

(iii)on the First Closing Date, the Registration Rights Agreement duly executed by such Purchaser.

2.3Closing Conditions.

(a)The obligations of the Company hereunder in connection with each Closing are subject to the following conditions being met:

(i)the accuracy in all material respects when made and on each Closing Date of the representations and warranties of the Purchasers contained herein;

(ii)all obligations, covenants and agreements of the Purchasers required to be performed at or prior to each Closing Date shall have been performed; and

(iii)the delivery by the Purchasers of the items set forth in Section 2.2(b) of this Agreement.

(b)The respective obligations of the Purchasers hereunder in connection with the Closings are subject to the following conditions being met:

(i)the accuracy in all material respects on each Closing Date of the representations and warranties of the Company contained herein;

(ii)all obligations, covenants and agreements of the Company required to be performed at or prior to each Closing Date shall have been performed;

(iii)the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

(iv)there shall have been no Material Adverse Effect with respect to the Company since, for the First Closing, the date hereof, and as to the Second Closing, since the First Closing Date; and

(v)from the date hereof to such Closing Date, trading in the Common Stock shall not have been suspended by the Commission (except for any suspension of trading of limited duration agreed to by the Company, which suspension shall be terminated prior to each Closing), and, at any time prior to each Closing Date, trading in securities generally as reported by Bloomberg Financial Markets shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of each Purchaser, makes it impracticable or inadvisable to purchase the Debentures at each Closing.

(c)As to the Second Closing only, the Company shall have filed with the Commission the Registration Statement registering the resale of all of the Underlying Shares

and, on or before the 4-month anniversary of the date hereof, such Registration Statement shall have been declared effective by the Commission as to all such securities and been maintained effective since such date.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES

3.1Representations and Warranties of the Company.    Except as set forth in the disclosure letter delivered to the Purchasers concurrently herewith (the “Disclosure Letter”), which may or may not be expressly referred to in the following representations and warranties, the Company hereby makes the representations and warranties set forth below to each Purchaser.  All references to Schedules herein shall refer to the corresponding section of the Disclosure Letter.

(a)Subsidiaries.  All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a).  The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any Liens, and all the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.  If the Company has no subsidiaries, then references in the Transaction Documents to the Subsidiaries will be disregarded.

(b)Organization and Qualification.  Each of the Company and the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.  Neither the Company nor any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents.  Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

(c)Authorization; Enforcement.  The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations thereunder.  The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company and no further action is required by the Company in

connection therewith other than in connection with the Required Approvals.  Each Transaction Document has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies, and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(d)No Conflicts.  The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the other transactions contemplated thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

(e)Filings, Consents and Approvals.  The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than (i) filings required pursuant to Section 4.6, (ii) the filing with the Commission of the Registration Statement, (iii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Debentures and Warrants, the Additional Investment Rights, the Additional Investment Right Securities and the listing of the Underlying Shares for trading thereon in the time and manner required thereby and (iv) the filing of Form D with the Commission and such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”), except for any consent, approval or authorization the failure of which to obtain and for any filing or registration the failure of which to make would not have or reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

(f)Issuance of the Securities.  The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents or applicable law.  The Underlying Shares, when issued in accordance with the terms of the Transaction

Documents, will be validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents or applicable law.  The Company has reserved from its duly authorized capital stock a number of shares of Common Stock for issuance of the Underlying Shares at least equal to the Required Minimum on the date hereof.  The Company has not, and to the knowledge of the Company, no Affiliate of the Company has sold, offered for sale or solicited offers to buy or otherwise negotiated in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers, or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

(g)Capitalization.  The capitalization of the Company is as described in Schedule 3.1(g).  The Company has not issued any capital stock since June 30, 2004 other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock purchase plan and pursuant to the conversion or exercise of outstanding Common Stock Equivalents.  No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents.  Except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock.  The issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities.  All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.  No further approval or authorization of any stockholder or the Board of Directors of the Company is required for the issuance and sale of the Securities.  Except as disclosed in the SEC Reports, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s stockholders.

(h)SEC Reports; Financial Statements.  The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension.  As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports,

when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading except for such statements, if any, as have been modified or superseded by subsequent filings with the Commission prior to the date hereof.  The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing.  Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

(i)Material Changes.  Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock option plans.  The Company does not have pending before the Commission any request for confidential treatment of information.

(j)Litigation.  There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect.  Neither the Company nor any director or officer thereof (in his capacity as such), is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.  There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer (in his capacity as such) of the Company.  The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

(k)Labor Relations.  No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.

(l)Compliance.  The Company (i) is not in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is not in violation of any order of any court, arbitrator or governmental body, or (iii) is not nor has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business except in each case as could not have a Material Adverse Effect.

(m)Regulatory Permits.  The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct its business as described in the SEC Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and the Company has not received any notice of proceedings relating to the revocation or modification of any Material Permit.

(n)Title to Assets.  The Company has good and marketable title in fee simple to all real property owned by it that is material to the business of the Company and good and valid title in all personal property owned by it that is material to the business of the Company, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties.  Any real property and facilities held under lease by the Company are held by it under valid, subsisting and enforceable leases of which the Company is in compliance, except as could not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect.

(o)Patents and Trademarks.  The Company has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and other similar rights necessary or material for use in connection with its business as described in the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”).  The Company has not received a written notice that the Intellectual Property Rights used by the Company violates or infringes upon the rights of any Person.  To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights of others.

(p)Insurance.  The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged.  To the best of Company’s knowledge, such insurance contracts and policies are accurate and complete.  The

Company has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

(q)Transactions With Affiliates and Employees.  Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 other than (i) for payment of salary, consulting fees or director fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company.

(r)Sarbanes-Oxley; Internal Accounting Controls.  The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are currently applicable to it.  The Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed periodic report under the Exchange Act, as the case may be, is being prepared.  The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of the date prior to the filing date of the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”).  The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date.  Since the Evaluation Date, there have been no significant changes in the Company’s internal controls or, to the Company’s knowledge, in other factors that could significantly affect the Company’s internal controls.

(s)Certain Fees.  No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement.  The Purchasers shall have no obligation with respect to any fees or with respect to any claims (other than pursuant to an agreement entered by such Purchaser for which such fees or claims shall be the sole responsibility of the Purchaser) made by or on behalf of other Persons

for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement.

(t)Private Placement.  Assuming the accuracy of the Purchasers’ representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Purchasers as contemplated hereby.  The issuance and sale of the Securities hereunder does not contravene the rules and regulations of the Trading Market.

(u)Investment Company.  The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.  The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

(v)Registration Rights.  No Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.

(w)Listing and Maintenance Requirements.  The Company’s Common Stock is registered pursuant to Section 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.  The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market.  The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements.

(x)Application of Takeover Protections.  The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company’s Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to the Purchasers as a result of the Purchasers and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities and the Purchasers’ ownership of the Securities.

(y)Disclosure.  The Company confirms that except for the Disclosure Letter provided to the Purchasers, neither it nor any other Person acting on its behalf has provided any of the Purchasers or their agents or counsel with any information that constitutes or might constitute material, nonpublic information.  The Company understands and confirms that the Purchasers will rely on the foregoing representations and covenants in effecting transactions in securities of the Company.  All written materials provided to the Purchasers regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Letter, furnished by or on behalf of the Company with respect to the representations and warranties

made herein are true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.  The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

(z)No Integrated Offering.  Neither the Company, nor, to the Company’s knowledge, any of its affiliates nor other Person acting on its behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated.

(aa)Solvency.  Based on the financial condition of the Company as of each Closing Date after giving effect to the receipt by the Company of the proceeds from the sale of the Securities hereunder, (i) the Company’s fair saleable value of its assets exceeds the amount that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known contingent liabilities) as they mature; (ii) the Company’s assets do not constitute unreasonably small capital to carry on its business for the current fiscal year as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by the Company, and projected capital requirements and capital availability thereof; and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its debt when such amounts are required to be paid.  The Company does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).

(bb)[Intentionally Deleted.]

(cc)Tax Status.  Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary has filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

(dd)No General Solicitation.  Neither the Company nor, to the knowledge of the Company, any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising.  The Company has offered the Securities for sale only to the Purchasers and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

(ee)Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any corrupt funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(ff)Accountants.  The Company’s accountants are set forth on Schedule 3.1(ff) of the Disclosure Schedule.  To the Company’s knowledge, such accountants, who the Company expects will express their opinion with respect to the financial statements to be included in the Company’s Annual Report on Form 10-KSB for the year ending December 31, 2004 are a registered public accounting firm as required by the Securities Act.

(gg)Seniority.  As of each Closing Date, no indebtedness of the Company is senior to the Debentures in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

(hh)No Disagreements with Accountants and Lawyers.  There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the accountants and lawyers formerly or presently employed by the Company and the Company is current with respect to any fees owed to its accountants and lawyers.

(ii)Acknowledgment Regarding Purchasers’ Purchase of Securities.  The Company acknowledges and agrees that each of the Purchasers is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated hereby.  The Company further acknowledges that no Purchaser is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any advice given by any Purchaser or any of their respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to the Purchasers’ purchase of the Securities.  The Company further represents to each Purchaser that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

3.2Representations and Warranties of the Purchasers.    Each Purchaser hereby, for itself and for no other Purchaser, represents and warrants as of the date hereof and as of each Closing Date to the Company as follows:

(a)Organization; Authority.  Such Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its

obligations thereunder.  The execution, delivery and performance by such Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of such Purchaser.  Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

(b)Purchaser Representation.  Such Purchaser understands that the Securities are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing or reselling such Securities or any part thereof, has no present intention of distributing any of such Securities and has no arrangement or understanding with any other persons regarding the distribution of such Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws).  Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business.  Such Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.

(c)Purchaser Status.  At the time such Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises any Warrants or converts any Debentures or converts the Additional Investment Rights and Additional Investment Right Securities it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act.  Such Purchaser has not been formed for the purpose of acquiring the Securities and is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

(d)Experience of Such Purchaser.  Such Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities, and has so evaluated the merits and risks of such investment.  Such Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

(e)General Solicitation.  Such Purchaser is not purchasing the Securities as a result of any advertisement, article, notice or other communication regarding the Securities published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f)Short Sales.  Such Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to an understanding with the Purchaser, engaged in any

transactions in the securities of the Company (including, without limitation, short sales or other similar transactions with the same economic effect as a short sale) since the earlier to occur of (i) the time that such Purchaser was contacted regarding an investment in the Company and (ii) the thirtieth (30th) day prior to the date of this Agreement.

(g)Access to Information.  Such Purchaser acknowledges that it has received the SEC Reports and the Disclosure Letter and has had full and adequate opportunity to request additional information from and ask questions of the Company.  Each Purchaser acknowledges and agrees that the Company does not make and has not made, and Purchaser is not relying on, any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.1 hereof.

The Company acknowledges and agrees that each Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

4.1Transfer Restrictions.

(a)The Securities may only be disposed of in compliance with state and federal securities laws.  In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act.  As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement.

(b)The Purchasers agree to the imprinting, so long as is required by this Section 4.1(b), of a legend on any of the Securities in the following form:

[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [EXERCISABLE] [CONVERTIBLE]] HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT

SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON [EXERCISE/CONVERSION] OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

The Company acknowledges and agrees that a Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Securities to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and the Registration Rights Agreement and, if required under the terms of such arrangement, such Purchaser may transfer pledged or secured Securities to the pledgees or secured parties.  Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith.  Further, no notice shall be required of such pledge.  At the appropriate Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of Securities may reasonably request in connection with a pledge or transfer of the Securities, including, if the Securities are subject to registration pursuant to the Registration Rights Agreement, the preparation and filing of any required prospectus supplement under Rule 424(b)(3) under the Securities Act or other applicable provision of the Securities Act to appropriately amend the list of Selling Stockholders thereunder.

(c)Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in Section 4.1(b) hereof): [(i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act,] or (ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such Underlying Shares are eligible for sale under Rule 144(k), or (iv) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Commission); provided, however, in connection with the issuance of the Underlying Shares, each Purchaser, severally and not jointly with the other Purchasers, hereby agrees to adhere to and abide by all prospectus delivery requirements under the Securities Act and rules and regulations of the Commission.  If all or any portion of a Debenture, Warrant or Additional Investment Rights Security is converted or exercised (as applicable) at a time when there is an effective registration statement to cover the resale of the Underlying Shares, or if such Underlying Shares may be sold under Rule 144(k) or if such legend is not otherwise required under applicable requirements of the Securities Act (including judicial interpretations thereof) then such Underlying Shares shall be issued free of all legends.  The Company agrees that following the Effective Date or at such time as such legend is no longer required under this Section 4.1(c), it will, no later than three Trading Days following

the delivery by a Purchaser to the Company or the Company’s transfer agent of a certificate representing Underlying Shares, as applicable, issued with a restrictive legend (such third Trading Day, the “Legend Removal Date”), deliver or cause to be delivered to such Purchaser a certificate representing such shares that is free from all restrictive and other legends.  The Company may not make any notation on its records or give instructions to any transfer agent of the Company that enlarge the restrictions on transfer set forth in this Section.

(d)In addition to such Purchaser’s other available remedies, the Company shall pay to the Purchaser, in cash, as partial liquidated damages and not as a penalty, for each $1,000 of the Underlying Shares (based on the Closing Price of the Common Stock on the date such Securities are submitted to the Company’s transfer agent) delivered for removal of the restrictive legend and subject to this Section 4.1(c), $10 per Trading Day (including to $20 per Trading Day 5 Trading Days after such damages have begun to accrue) for each Trading Day after the Legend Removal Date until such certificate is delivered without a legend.  Nothing herein shall limit such Purchaser’s right to pursue actual damages for the Company’s failure to deliver certificates representing any Securities as required by the Transaction Documents, and such Purchaser shall have the right to pursue all remedies available to it at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.

(e)Each Purchaser, severally and not jointly with the other Purchasers, agrees that the removal of the restrictive legend from certificates representing Securities as set forth in this Section 4.1 is predicated upon the Company’s reliance that the Purchaser will sell any Securities pursuant to either the registration requirements of the Securities Act, including any applicable prospectus delivery requirements, or an exemption therefrom.

4.2Acknowledgment of Dilution.    The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock, which dilution may be substantial under certain market conditions.  The Company further acknowledges that its obligations under the Transaction Documents, including without limitation its obligation to issue the Underlying Shares pursuant to the Transaction Documents, are unconditional and absolute and not subject to any right of set off, counterclaim, delay or reduction, regardless of the effect of any such dilution or any claim the Company may have against any Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other stockholders of the Company.

4.3Furnishing of Information.    As long as any Purchaser owns Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.  As long as any Purchaser owns Securities, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchasers and make publicly available in accordance with Rule 144(c) such information as is required for the Purchasers to sell the Securities under Rule 144.  The Company further covenants that it will take such further action as any holder of Securities may reasonably request, all to the extent required from time to time to enable such Person to sell such Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144.

4.4Integration.    The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to the Purchasers or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market.

4.5Conversion and Exercise Procedures.    The form of Notice of Exercise included in the Warrants, the form of Notice of Conversion included in the Debentures and the form of Notice of Conversion set forth in the Additional Investment Rights and Additional Investment Right Securities set forth the totality of the procedures required of the Purchasers in order to exercise the Warrants, convert the Debentures or convert the Additional Investment Rights and Additional Investment Right Securities.  No additional legal opinion or other information or instructions shall be required of the Purchasers to exercise the Warrants or convert the Debentures or exercise the Additional Investment Rights and Additional Investment Right Securities.  The Company shall honor exercises of the Warrants, conversions of the Debentures and exercises of the Additional Investment Rights and conversions of the Additional Investment Right Securities and shall deliver the Additional Investment Securities and the Underlying Shares in accordance with the terms, conditions and time periods set forth in the Transaction Documents.

4.6Securities Laws Disclosure; Publicity.    The Company shall, by 8:30 a.m. Eastern time on the fourth Trading Day following the date hereof, issue a Current Report on Form 8-K, reasonably acceptable to each Purchaser disclosing the material terms of the transactions contemplated hereby, and shall attach the Transaction Documents thereto as exhibits.  The Company and each Purchaser shall consult with each other in issuing any other press releases with respect to the transactions contemplated hereby, and neither the Company nor any Purchaser shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of any Purchaser, or without the prior consent of each Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.  Notwithstanding the foregoing, the Company shall not publicly disclose the name of any Purchaser, or include the name of any Purchaser in any filing with the Commission or any regulatory agency or Trading Market, without the prior written consent of such Purchaser, except (i) as required by federal securities law in connection with the registration statement contemplated by the Registration Rights Agreement and (ii) to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchasers with prior notice of such disclosure permitted under subclause (i) or (ii).

4.7Shareholder Rights Plan.    No claim will be made or enforced by the Company or, to the knowledge of the Company, any other Person that any Purchaser is an “Acquiring Person” under any shareholder rights plan or similar plan or arrangement in effect or hereafter adopted by the Company, or that any Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any

other agreement between the Company and the Purchasers.  The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act.

4.8Non-Public Information.    The Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use of such information.  The Company understands and confirms that each Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company.

4.9Use of Proceeds.    Except as set forth on Schedule 4.9 attached hereto, the Company shall use the net proceeds from the sale of the Securities hereunder for working capital purposes and not for the satisfaction of any portion of the Company’s debt (other than payment of trade payables in the ordinary course of the Company’s business and prior practices), to redeem any Company equity or equity equivalent securities or to settle any outstanding litigation.

4.10[Intentionally Deleted.]

4.11Indemnification of Purchasers.    Subject to the provisions of this Section 4.11, the Company will indemnify and hold the Purchasers and their directors, officers, shareholders, partners, employees and agents (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against a Purchaser, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser’s representation, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by such Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance).  If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing.  Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party.  The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations,

warranties, covenants or agreements made by the Purchasers in this Agreement or in the other Transaction Documents.

4.12Reservation and Listing of Securities.

(a)The Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to the Transaction Documents in such amount as may be required to fulfill its obligations in full under the Transaction Documents.

(b)If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Required Minimum on such date, then the Board of Directors of the Company shall use commercially reasonable efforts to amend the Company’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Required Minimum at such time, as soon as possible and in any event not later than the 75^th date after such date.

(c)The Company shall, if applicable: (i) in the time and manner required by the Trading Market, prepare and file with such Trading Market an additional shares listing application covering a number of shares of Common Stock at least equal to the Required Minimum on the date of such application, (ii) take all steps reasonably necessary to cause such shares of Common Stock to be approved for listing on the Trading Market as soon as possible thereafter, (iii) provide to the Purchasers evidence of such listing, and (iv) use commercially reasonable efforts to maintain the listing of such Common Stock on any date at least equal to the Required Minimum on such date on such Trading Market or another Trading Market.

4.13Participation in Future Financing.    From the date hereof until the one year anniversary of the Effective Date, upon any financing by the Company or any of its Subsidiaries of Common Stock or Common Stock Equivalents (a “Subsequent Financing”), each Purchaser shall have the right to participate in up to 100% of the Subsequent Financing (the “Participation Maximum”).  At least 5 Trading Days prior to the closing of the Subsequent Financing, the Company shall deliver to each Purchaser a written notice of its intention to effect a Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask such Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”).  Upon the request of a Purchaser, and only upon a request by such Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than 1 Trading Day after such request, deliver a Subsequent Financing Notice to such Purchaser.  The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder, the Person with whom such Subsequent Financing is proposed to be effected, and attached to which shall be a term sheet or similar document relating thereto.  If by 5:30 p.m. (New York City time) on the 5^th Trading Day after all of the Purchasers have received the Pre-Notice, notifications by the Purchasers of their willingness to participate in the Subsequent Financing (or to cause their designees to participate) is, in the aggregate, less than the total amount of the Participation Amount, then the Company may effect the remaining portion of such Subsequent Financing on the terms and to the Persons set forth in the Subsequent Financing Notice.  If the Company receives no notice from a Purchaser as of such 5^th Trading Day, such Purchaser shall be deemed to have notified the Company that it does not elect to participate.  The Company must provide the Purchasers with a second Subsequent Financing

Notice, and the Purchasers will again have the right of participation set forth above in this Section 4.13, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 60 Trading Days after the date of the initial Subsequent Financing Notice.  In the event the Company receives responses to Subsequent Financing Notices from Purchasers seeking to purchase more than the aggregate amount of the Participation Amount, each such Purchaser shall have the right to purchase their Pro Rata Portion (as defined below) of the Participation Maximum.  “Pro Rata Portion” is the ratio of (x) the Subscription Amount of Securities purchased by a participating Purchaser and (y) the sum of the aggregate Subscription Amount of all participating Purchasers.  Notwithstanding the foregoing, this Section 4.13 shall not apply in respect of an Exempt Issuance.

4.14Subsequent Equity Sales.    From the date hereof until 90 days after the Effective Date, neither the Company nor any Subsidiary shall issue shares of Common Stock or Common Stock Equivalents; provided, however, the 90 day period set forth in this Section 4.14 shall be extended for the number of Trading Days during such period in which (y) trading in the Common Stock is suspended by any Trading Market, or (z) following the Effective Date, the Registration Statement is not effective or the prospectus included in the Registration Statement may not be used by the Purchasers for the resale of the Underlying Shares.  In addition to the limitations set forth herein, from the date hereof until such time as no Purchaser holds any of the Securities, the Company shall be prohibited from effecting or entering into an agreement to effect any Subsequent Financing involving a “Variable Rate Transaction” or an “MEN Transaction” (each as defined below).  The term “Variable Rate Transaction” shall mean a transaction in which the Company issues or sells (i) any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive additional shares of Common Stock either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock.  The term “MEN Transaction” shall mean a transaction in which the Company issues or sells any securities in a capital raising transaction or series of related transactions which grants to an investor the right to receive additional shares based upon future transactions of the Company on terms more favorable than those granted to such investor in such offering.  Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.  Notwithstanding the foregoing, this Section 4.14 shall not apply in respect of an Exempt Issuance or in respect of the issuance of securities issued in a stock dividend or similar transaction relating to the spin-off and related distribution of the securities of the Company’s wholly-owned subsidiary, Power3 Medical, Inc., except that no Variable Rate Transaction or MEN Transaction shall be an Exempt Issuance.

4.15Equal Treatment of Purchasers.    No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration is also offered to all of the parties to the Transaction Documents.  Further, the Company shall not make any payment of principal on the

Debentures in amounts which are disproportionate to the respective principal amounts outstanding on the Debentures at any applicable time.  For clarification purposes, this provision constitutes a separate right granted to each Purchaser by the Company and negotiated separately by each Purchaser, and is intended to treat for the Company the Debenture holders as a class and shall not in any way be construed as the Purchasers acting in concert or as a group with respect to the purchase, disposition or voting of Securities or otherwise.

4.16Short Sales.    During any periods in which the Conversion Price is being determined, no Purchaser nor any Person over which the Purchaser has direct control shall sell, offer to sell, solicit offers to buy, dispose of, loan, pledge or grant any right with respect to the Common Stock, nor shall any Purchaser, nor any Person over which the Purchaser has direct control, have made any purchases or sales of, or granted any option for the purchase of or entered into any hedging or similar transaction with the same economic effect as a short sale, of the Common Stock.  Such obligation of each Purchaser hereunder, as with all obligations under the Transaction Documents, are several and not joint with the other Purchasers.

ARTICLE V.
MISCELLANEOUS

5.1Termination.    This Agreement may be terminated by either the Company or any Purchaser, by written notice to the other parties, if the Closing has not been consummated on or before October 31, 2004; provided that no such termination will affect the right of any party to sue for any breach by the other party (or parties).

5.2Fees and Expenses.    The Company shall deliver, prior to the Closing, a completed and executed copy of the Closing Statement, attached hereto as Annex A.  Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.  The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties levied in connection with the issuance of any Securities.

5.3Entire Agreement.    The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4Notices.    Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile (and the sender receives a confirmation of successful transmission) at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second Trading Day following the date of mailing, if sent by U.S.

nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given.  The address for such notices and communications shall be as set forth on the signature pages attached hereto.

5.5Amendments; Waivers.    No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and each Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought.  No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

5.6Construction.    The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

5.7Successors and Assigns.    This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns.  The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Purchaser.  Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to the “Purchasers”.

5.8No Third-Party Beneficiaries.    This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.11.

5.9Governing Law.    All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing

a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  The parties hereby waive, to the fullest extent permitted by applicable law, all rights to a trial by jury.  If either party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

5.10Survival.    The representations and warranties contained herein shall survive each Closing and the delivery, exercise and/or conversion of the Securities, as applicable for the applicable statue of limitations.

5.11Execution.    This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

5.12Severability.    If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

5.13Rescission and Withdrawal Right.    Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then such Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights; provided, however, in the case of a rescission of a conversion of a Debenture, exercise of a Warrant or conversion and/or exercise of an Additional Investment Right Security, the Purchaser shall be required to return any shares of Common Stock subject to any such rescinded conversion notice.

5.14Replacement of Securities.    If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested.  The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities.

5.15Remedies.    In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents.  The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16Payment Set Aside.    To the extent that the Company makes a payment or payments to any Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17Usury.    To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by any Purchaser in order to enforce any right or remedy under any Transaction Document.  Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate.  It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law.  If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to any Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by such Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at such Purchaser’s election.

5.18Independent Nature of Purchasers’ Obligations and Rights.    The obligations of each Purchaser under any Transaction Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under any Transaction Document.  Nothing contained herein or in any Transaction Document, and no action taken by any Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other

kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Document.  Each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose.  Each Purchaser has been represented by its own separate legal counsel in their review and negotiation of the Transaction Documents.  For reasons of administrative convenience only, Purchasers and their respective counsel have chosen to communicate with the Company through FW.  FW does not represent all of the Purchasers but only RAM.  The Company has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers.

5.19Liquidated Damages.  The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

(Signature Pages Follow)

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

POWER 3 MEDICAL PRODUCTS, INC.			Address for Notice:
By:	/s/: Steven B. Rash
	Name:	Steven B. Rash
	Title:	Chairman and CEO
With a copy to (which shall not constitute notice):

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASER FOLLOWS]

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Otape Investments LLC

Signature of Authorized Signatory of Investing Entity: /s/ Richard M. Cayne

Name of Authorized Signatory: Richard M. Cayne

Title of Authorized Signatory: General Counsel

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

1 Manhattanville Rd

Purchase, NY  10577

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	100,000
Second Closing Subscription Amount:	$	200,000
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Mohawk Funding

Signature of Authorized Signatory of Investing Entity: /s/ Richard H. Bach

Name of Authorized Signatory: Richard H. Bach

Title of Authorized Signatory: Managing Member

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	10,000
Second Closing Subscription Amount:	20,000
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Richard Molinsky

Signature of Authorized Signatory of Investing Entity: /s/ Richard Molinsky

Name of Authorized Signatory:

Title of Authorized Signatory:

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

51 Lourdes Hwy E.

Weston, CT  06883

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	30,000
Second Closing Subscription Amount:	$	60,000
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Gryphon Master Fund L.P.

Signature of Authorized Signatory of Investing Entity: /s/ E. B. Lyon IV

Name of Authorized Signatory: E. B. Lyon IV

Title of Authorized Signatory: Authorized Agent

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

100 Crescent Court, Suite 490

Dallas, TX  75201

Address for Delivery of Securities for Investing Entity (if not same as above):

Same

First Closing Subscription Amount:	$	100,000
Second Closing Subscription Amount:	$	200,000
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: GSSF Master Fund, LP

Signature of Authorized Signatory of Investing Entity: /s/ E. B. Lyon IV

Name of Authorized Signatory: E. B. Lyon IV

Title of Authorized Signatory: Authorized Agent

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

100 Crescent Court, Suite 490

Dallas, TX  75201

Address for Delivery of Securities for Investing Entity (if not same as above):

Same

First Closing Subscription Amount:	$	100,000
Second Closing Subscription Amount:	$	200,000
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Sage Capital Investments Limited

Signature of Authorized Signatory of Investing Entity: /s/ Anthony Thompson

Name of Authorized Signatory: Anthony Thompson

Title of Authorized Signatory: Secretary

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

P. O. Box N-4826 (For regular mail)

Nassau, Bahamas

Address for Delivery of Securities for Investing Entity (if not same as above):

Marron House, Virginia Street (For delivery, Fed X, etc)

Nassau, Bahamas

First Closing Subscription Amount:	$	25,000	(Twenty Five Thousand and no/100)
Second Closing Subscription Amount:	$	50,000	(Fifty Thousand and no/100)
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Crestview Capital Master, LLC

Signature of Authorized Signatory of Investing Entity: /s/ Stewart R. Flink

Name of Authorized Signatory: Stewart R. Flink

Title of Authorized Signatory: Manager

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

95 Revere Drive, Suite A

Northbrook, Illinois  60062

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	150,000
Second Closing Subscription Amount:	$	300,000
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Omicron Master Trust

Signature of Authorized Signatory of Investing Entity: /s/ Bruce Bernstein

Name of Authorized Signatory: Bruce Bernstein

Title of Authorized Signatory: Managing Partner

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

650 Fifth Ave, 24th Fl

New York, NY  10019

Attn:  Brian Daly

Tel# 212 258-2302

Fax 212 258-2315

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$		100,000
Second Closing Subscription Amount:	$	200,000
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Citiplatz Limited

Signature of Authorized Signatory of Investing Entity: /s/ Francis [Illegible]

Name of Authorized Signatory: Francis [Illegible]

Title of Authorized Signatory: Secretary of Citiplatz Limited

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

12-14 Finch Road

Douglas

Isle of Man

IM991TT

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	50,000	USD
Second Closing Subscription Amount:	$	100,000	USD
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Platinum Partners Value Arbitrage Fund L.P.

Signature of Authorized Signatory of Investing Entity: /s/ Richard Geyser

Name of Authorized Signatory: Richard Geyser

Title of Authorized Signatory: Managing Director

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

Platinum Partners

152 W. 57th St., 54th Fl.

New York, NY  10019-3310

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	83,333
Second Closing Subscription Amount:
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity: Crescent International Ltd.

Signature of Authorized Signatory of Investing Entity: /s/ Mel Craw /s/ Maxi Brezzi

Name of Authorized Signatory: Mel Craw and Maxi Brezzi

Title of Authorized Signatory: Authorized Signatory

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

Crescent International Ltd.

C/o GreenLight (Switzerland) SA

84, av. Louis-Casai

CH 1216 COINTRIN

Geneva, Switzerland

Fax Number of Notice of Investing Entity:  +41 22 791 7171

Address for Delivery of Securities for Investing Entity (if not same as above):

Crescent International Ltd.

C/o GreenLight (Switzerland) SA

84, av. Louis-Casai

CH 1216 COINTRIN

Geneva, Switzerland

First Closing Subscription Amount:	$	200,000
Second Closing Subscription Amount:	$	400,000
Warrant Shaes:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	DKR SoundShore Oasis Holding Fund Ltd.
Signature of Authorized Signatory of Investing Entity:			/s/ Barbara Burger
Name of Authorized Signatory:		Barbara Burger
Title of Authorized Signatory:		Alternate Director

Email Address of Authorized Entity:

Address for Notice of Investing Entity:

c/o DKR Capital Partners L.P.

1281 East Main Street

Stambord, CT  06902

Address for Delivery of Securities for Investing Entity (if not same as above):

(Same)

Registered Address:

29 Richmond Road

Pembroke HM08

Bermuda

First Closing Subscription Amount:	$		50,000
Second Closing Subscription Amount:	$	100,000
Warrant Shares:
Additional Investment Right:

[PURCHASER SIGNATURE PAGES TO PWRM SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Bach Farms LLC
Signature of Authorized Signatory of Investing Entity:			/s/ Richard H. Bach
Name of Authorized Signatory:		Richard H. Bach
Title of Authorized Signatory:
Email Address of Authorized Entity:

Address for Notice of Investing Entity:

Address for Delivery of Securities for Investing Entity (if not same as above):

(Same)

Registered Address:

First Closing Subscription Amount:	$	1,667
Second Closing Subscription Amount:	$	3,333
Warrant Shares:
Additional Investment Right:

ANNEX A

CLOSING STATEMENT

Pursuant to the attached Securities Purchase Agreement, dated as of the date hereto, the purchasers shall purchase up to $3,000,000 of Debentures, Warrants and Additional Investment Rights from Power 3 Medical Products, Inc. (the “Company”). All funds will be wired into an escrow account maintained by HSBC Bank, as escrow agent. All funds will be disbursed in accordance with this

Closing Statement.

DISBURSEMENT DATE:         October    , 2004

I. PURCHASE PRICE

GROSS PROCEEDS TO BE RECEIVED IN ESCROW $ 1,000,000

II. DISBURSEMENTS

Westor Online, L.L.C.	$	130,000
Andrews Kurth, LLP	$	40,000
HSBC Bank - escrow fees	$	2,500
Power3 Medical Products, Inc.	$	827,500
TOTAL AMOUNT DISBURSED:	$	1,000,000

WIRE INSTRUCTIONS:

To:	Westor Online, L.L.C.
	Bank Name: Charter One Bank
	Address: 266 Genesee St.
	Utica, Ny 13502
Account Name:		Westor Online, Inc.
Address:		258 Genesee St., Suite 601
		Utica, NY 13502
ABA		221370030
Account #		5250030032

To:	Andrews Kurth, LLP
	Chase Bank, National Association, Houston, Texas
	Account Number 00100184952
	ABA Code 113000609
	Reference number 0024268/0156088
	Attention Jodie Hubbard, phone number 713-750-3725
To:	HSBC Bank
	452 Fifth Avenue
	New York, New York
	ABA#021-001-088
	Power3 Medical Products, Inc.
	Escrow Account
To:	Power3 Medical Products, Inc.
	JP Morgan Chase
	ABA # 113-000-609
	Account # 336915653665
	Power3 Medical Products

1

EX-10.8

Exhibit 10.8

Execution Copy

AMENDMENT TO
SECURITIES PURCHASE AGREEMENT

This Amendment to Securities Purchase Agreement (this “Amendment”) is dated as of January 19, 2005, among Power 3 Medical Products, Inc., a New York corporation (the “Company”) and each purchaser identified on the signature pages attached hereto (each, including its successors and assigns, a “Purchaser” and collectively the “Purchasers”).

WHEREAS, the Company and the Purchasers entered into that certain Securities Purchase Agreement dated as of October 28, 2004 (the “Securities Purchase Agreement”) providing for the purchase and sale of the securities more specifically described therein; and

WHEREAS, the Company and certain of the Purchasers have agreed to amend provisions of the Securities Purchase Agreement pertaining to the timing of their purchase of additional Debentures and the Company has agreed to amend provisions of the Securities Purchase Agreement regarding the number of Warrants issuable to such Purchasers; and

WHEREAS, pursuant to Section 5.5 of the Securities Purchase Agreement, the Company and each of the Purchasers are entering into this Amendment to set forth the terms and conditions of, and acknowledge their consent and agreement to, the following amendments to the Securities Purchase Agreement.

NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, the Company and the Purchasers hereby agree as follows:

Section 1.Definitions.  Except as otherwise amended or defined in this Amendment, all terms used herein with their initial letter capitalized shall have the meaning given to such terms in the Securities Purchase Agreement.

Section 2.Amendments to Securities Purchase Agreement.  The Securities Purchase Agreement shall be amended effective as of the date hereof in the manner provided in this Section 2.

2.1Amended Definitions. 

(a)The definition of “Closing Date” shall be and it is hereby amended and restated in its entirety to read as follows:

“Closing Date” means, collectively, the dates of the First Closing, Interim Closing and Second Closing.

(b)The definition of “Closings” shall be and it is hereby amended and restated in its entirety to read as follows:

“Closings” means, collectively, the closings of the purchase and sale of the Securities pursuant to Section 2.1, and any reference to

“Closing” or “Closings” shall be construed to include the First Closing, Interim Closing and the Second Closing unless only one such closing is expressly referred to.

(c)The definition of “Subscription Amount” shall be and it is hereby amended and restated in its entirety to read as follows:

“Subscription Amount” means, as to each Purchaser, the amount set forth below such Purchaser’s signature block on the signature pages hereto and next to the headings “First Closing Subscription Amount,” “Interim Closing Subscription Amount” and “Second Closing Subscription Amount,” in United States Dollars and in immediately available funds.

(d)The definition of “Warrants” shall be and it is hereby amended and restated in its entirety to read as follows:

“Warrants” means collectively the Common Stock purchase warrants in the form of Exhibit C delivered (i) to the Purchasers at the First Closing in accordance with Section 2.2(a) hereof, and (ii) to those Purchasers participating in the Interim Closing in accordance with Section 2.2(a) hereof, all of such Warrants shall be exercisable immediately and have a term of exercise equal to five (5) years from October 28, 2004.

2.2Additional Definitions.  Section 1.1 of the Securities Purchase Agreement shall be and it is hereby amended by adding the following definitions in proper alphabetical order:

(a)“Interim Closing” shall have the meaning ascribed to such term in Section 2.1 hereof.

(b)“Interim Closing Date” means the date of the Interim Closing.

(c)“Registration Statement Filing Date” means the date that the initial Registration Statement required to be filed by the Company pursuant to the Registration Rights Agreement is first filed by the Company with the Commission.

2.3Closing. 

(a)Section 2.1 of the Securities Purchase Agreement is hereby amended by deleting the second sentence of the initial paragraph of said Section and inserting the following sentence in lieu thereof:

The Closings shall take place in three stages as set forth below (respectively, the “First Closing,” the “Interim Closing” and the “Second Closing”).

2

(b)Section 2.1(b) of the Securities Purchase Agreement is deleted in its entirety and the following Sections 2.1(b) and 2.1(c) are inserted in lieu thereof:

(b)Interim Closing.  The Interim Closing shall be for $400,000 aggregate principal amount of Debentures, and shall occur on or before the third (3rd) Trading Day following the Registration Statement Filing Date.

(c)Second Closing.  The Second Closing shall be for $1,600,000 aggregate principal amount of Debentures, and shall occur on or before the fifth (5th) Trading Day following the Effective Date.

2.4Deliveries. 

(a)Section 2.2(a)(iii) of the Securities Purchase Agreement is hereby amended by adding the phrase “, Interim Closing” after the phrase “First Closing.”

(b)Section 2.2(a)(vi) of the Securities Purchase Agreement is hereby amended by deleting “.” at the end of such Section and inserting “; and” in lieu thereof.

(c)Section 2.2(a) of the Securities Purchase Agreement is hereby amended by adding the following new subparagraph to the end of such Section:

(vii)on the Interim Closing Date, a Warrant registered in the name of each Purchaser participating in the Interim Closing to purchase up to a number of shares of Common Stock equal to (1) 100% of such Purchaser’s Subscription Amounts for the First Closing, Interim Closing and Second Closing divided by $0.90, less (2) the original number of shares of Common Stock covered by the Warrant delivered to such Purchaser at the First Closing pursuant to Section 2.2(a)(iii) above.  All such Warrants delivered pursuant to this Section 2.2(a)(vii) shall have an exercise price equal to $1.44, subject to adjustment therein, and shall expire concurrently with the Warrants delivered at the First Closing.  (For the avoidance of doubt and as an example, the following will illustrate the calculation of the number of additional shares of Common Stock to be covered by the Warrants deliverable pursuant to this Section 2.2(a)(vii) to a Purchaser with an aggregate Subscription Amount of $300,000 who received a Warrant to purchase 250,000 shares of Common Stock pursuant to Section 2.2(a)(iii) in the First Closing:

($300,000 ) $0.90) – 250,000 = 83,333 additional Warrant Shares

3

2.5Closing Conditions.

(a)Section 2.3(b)(iv) of the Securities Purchase Agreement is hereby amended by adding the phrase “Interim Closing and” before the phrase “Second Closing.”

(b)Section 2.3 of the Securities Purchase Agreement is hereby amended by renumbering Section 2.3(c) as Section 2.3(d) and by inserting the following new Section 2.3(c):

(c)As to the Interim Closing only, the Company shall have filed with the Commission the Registration Statement registering the resale of all of the Underlying Shares.

Section 3.Acknowledgment and Consent of Purchasers.  By execution of this Amendment, each Purchaser agrees and consents to the foregoing amendments to the Securities Purchase Agreement and the terms of the transaction evidenced thereby.  Each Purchaser hereby acknowledges and confirms that pursuant to Section 4.15 of the Securities Purchase Agreement, each Purchaser was offered the opportunity to participate in the Interim Closing and to receive the additional Warrants issuable by the Company in the Interim Closing and that the Company has satisfied its obligations under Section 4.15 as they relate to the Interim Closing.

Section 4.Effectiveness.  This Amendment shall be effective as of the date hereof upon the execution of this Amendment by the Company and each of the Purchasers.

Section 5.Miscellaneous.

5.1Reaffirmation.  The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions of the Securities Purchase Agreement as set forth herein and shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Securities Purchase Agreement.  Except as expressly modified and superseded by this Amendment, the terms and provisions of the Securities Purchase Agreement are ratified and confirmed and shall continue in full force and effect.

5.2Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Amendment shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to principles of conflicts of laws thereof.

5.3Counterparts.  This Amendment may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement, it being understood that those parties need not sign the same counterpart.

5.4Parties.  This Amendment is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

4

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above. 

POWER 3 MEDICAL PRODUCTS, INC.		Address for Notice:
		3400 Research Forest Drive, Suite B2-3
By:	/s/ Steven B. Rash	The Woodlands, Texas 77381
Name:	Steven B. Rash
Title:	Executive Officer

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASERS FOLLOWS]

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Bach Farms LLC
Signature of Authorized Signatory of Investing Entity:			/s/Richard H. Bach
Name of Authorized Signatory:		Richard H. Bach
Title of Authorized Signatory:
Email Address of Authorized Entity:

Address for Notice of Investing Entity:

Bach Farms LLC
Attn:  Richard H. Bach
258 Genessee Street, Suite 601

Utica, New York  13502

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	1,667
Interim Closing Subscription Amount:	$	0
Second Closing Subscription Amount:	$	3,333
Warrant Shares:
First Closing:	4,167
Interim Closing:	0
Additional Investment Right:	$	4,167

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Citiplatz Limited
Signature of Authorized Signatory of Investing Entity:
Name of Authorized Signatory:
Title of Authorized Signatory:
Email Address of Authorized Entity:

Address for Notice of Investing Entity:

12-14 Finch Road
Douglas
Isle of Man
IM991TT

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	50,000
Interim Closing Subscription Amount:	$	50,000
Second Closing Subscription Amount:	$	50,000
Warrant Shares:
First Closing:	125,000
Interim Closing:	41,667
Additional Investment Right:	$	125,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Crescent International Ltd.
Signature of Authorized Signatory of Investing Entity:					/s/Mel Craw and Maxi Brezzi
Name of Authorized Signatory:			Mel Craw and Maxi Brezzi
Title of Authorized Signatory:		Authorized Signatory
Email Address of Authorized Entity:				info@greenlight.dmitrust.com

Address for Notice of Investing Entity:

Crescent International Ltd.
c/o GreenLight (Switzerland) SA

84, av. Louis-Casai

CH 1216 COINTRIN

Geneva, Switzerland

Fax Number of Notice of Investing Entity:  +41 22 791 7171

Address for Delivery of Securities for Investing Entity (if not same as above):

Crescent International Ltd.
c/o GreenLight (Switzerland) SA

84, av. Louis-Casai

CH 1216 COINTRIN

Geneva, Switzerland

First Closing Subscription Amount:	$		200,000
Interim Closing Subscription Amount:	$		0
Second Closing Subscription Amount:	$	400,000
Warrant Shares:
First Closing:	500,000
Interim Closing:	0
Additional Investment Right:	$	500,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Crestview Capital Master, LLC
Signature of Authorized Signatory of Investing Entity:					/s/Stewart R. Flink
Name of Authorized Signatory:			Stewart R. Flink
Title of Authorized Signatory:		Manager
Email Address of Authorized Entity:				stewart@crestviewcap.com

Address for Notice of Investing Entity:

95 Revere Drive, Suite A

Northbrook, Illinois  60062

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	150,000
Interim Closing Subscription Amount:	$	150,000
Second Closing Subscription Amount:	$	150,000
Warrant Shares:
First Closing:	375,000
Interim Closing:	125,000
Additional Investment Right:	$	375,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	DKR SoundShore Oasis Holding Fund, Ltd.
Signature of Authorized Signatory of Investing Entity:				/s/Barbara Burger
Name of Authorized Signatory:			Barbara Burger
Title of Authorized Signatory:		Alternate Director
Email Address of Authorized Entity:

Address for Notice of Investing Entity:

c/o DKR Capital Partners L.P.
1281 East Main Street

Stamford, Connecticut  06902

Address for Delivery of Securities for Investing Entity (if not same as above):

Registered Address:

29 Richmond Road

Pembroke HM08

Bermuda

First Closing Subscription Amount:	$	50,000
Interim Closing Subscription Amount:	$	0
Second Closing Subscription Amount:	$	100,000
Warrant Shares:
First Closing:	125,000
Interim Closing:	0
Additional Investment Right:	$	125,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Gryphon Master Fund L.P.
Signature of Authorized Signatory of Investing Entity:					/s/E.B. Lyon IV
Name of Authorized Signatory:			E.B. Lyon IV
Title of Authorized Signatory:		Authorized Agent
Email Address of Authorized Entity:				warren@gryphonlp.com

Address for Notice of Investing Entity:

100 Crescent Court, Suite 490

Dallas, Texas  75201

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	100,000
Interim Closing Subscription Amount:	$	100,000
Second Closing Subscription Amount:	$	100,000
Warrant Shares:
First Closing:	250,000
Interim Closing:	83,333
Additional Investment Right:	$	250,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	GSSF Master Fund, LP
Signature of Authorized Signatory of Investing Entity:					/s/E.B. Lyon IV
Name of Authorized Signatory:			E.B. Lyon IV
Title of Authorized Signatory:		Authorized Agent
Email Address of Authorized Entity:				warren@gryphonlp.com

Address for Notice of Investing Entity:

100 Crescent Court, Suite 490
Dallas, Texas  75201

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	100,000
Interim Closing Subscription Amount:	$	100,000
Second Closing Subscription Amount:	$	100,000
Warrant Shares:
First Closing:	250,000
Interim Closing:	83,333
Additional Investment Right:	$	250,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Mohawk Funding
Signature of Authorized Signatory of Investing Entity:					/s/ Richard H. Bach
Name of Authorized Signatory:			Richard H. Bach
Title of Authorized Signatory:		Manager Member
Email Address of Authorized Entity:				rick.bach@verizon.net

Address for Notice of Investing Entity:

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	10,000
Interim Closing Subscription Amount:	$	0
Second Closing Subscription Amount:	$	20,000
Warrant Shares:
First Closing:	25,000
Interim Closing:	0
Additional Investment Right:	$	25,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Richard Molinsky
Signature of Authorized Signatory of Investing Entity:			/s/ Richard Molinsky
Name of Authorized Signatory:
Title of Authorized Signatory:
Email Address of Authorized Entity:		RMOL15@aol.com

Address for Notice of Investing Entity:

51 Lourdes Hwy E.

Weston, CT  06883

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	30,000
Interim Closing Subscription Amount:	$	0
Second Closing Subscription Amount:	$	60,000
Warrant Shares:
First Closing:	75,000
Interim Closing:	0
Additional Investment Right:	$	75,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Omicron Master Trust
Signature of Authorized Signatory of Investing Entity:					/s/ Bruce Bernstein
Name of Authorized Signatory:			Bruce Bernstein
Title of Authorized Signatory:		Managing Partner
Email Address of Authorized Entity:				bb@omicroncapital.com

Address for Notice of Investing Entity:

650 Fifth Ave., 24^th Fl.
New York, NY  10019
Attn:  Brian Daly
Telephone:  212.258.2302

Fax:  212.258.2315

E-mail:  bd@omicroncapital.com

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	100,000
Interim Closing Subscription Amount:	$	0
Second Closing Subscription Amount:	$	200,000
Warrant Shares:
First Closing:	250,000
Interim Closing:	0
Additional Investment Right:	$	250,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Otape Investments LLC
Signature of Authorized Signatory of Investing Entity:					/s/Richard M. Cayne
Name of Authorized Signatory:			Richard M. Cayne
Title of Authorized Signatory:		General Counsel
Email Address of Authorized Entity:				rich@ox.com, paul.masters@ox.com

Address for Notice of Investing Entity:

1 Manhattanville Rd.

Purchase, NY  10577

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$		100,000
Interim Closing Subscription Amount:	$		0
Second Closing Subscription Amount:	$	200,000
Warrant Shares:
First Closing:	250,000
Interim Closing:	0
Additional Investment Right:	$	250,000

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Platinum Partners Value Arbitrage Fund L.P.
Signature of Authorized Signatory of Investing Entity:					/s/ Richard Geyser
Name of Authorized Signatory:			Richard Geyser
Title of Authorized Signatory:		Managing Director
Email Address of Authorized Entity:				rgeyser@platinumlp.com

Address for Notice of Investing Entity:

152 W. 57^th St., 54^th Fl.

New York, NY  10019-3310

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$		83,333
Interim Closing Subscription Amount:	$		0
Second Closing Subscription Amount:	$	166,667
Warrant Shares:
First Closing:	208,333
Interim Closing:	0
Additional Investment Right:	$	208,333

[PURCHASER SIGNATURE PAGES TO
AMENDMENT TO SECURITIES PURCHASE AGREEMENT]

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

Name of Investing Entity:	Sage Capital Investments Limited
Signature of Authorized Signatory of Investing Entity:					/s/Anthony Thompson
Name of Authorized Signatory:			Anthony Thompson
Title of Authorized Signatory:		Secretary
Email Address of Authorized Entity:				Rubicon532@cableone.net

Address for Notice of Investing Entity:

P. O. Box N-4826 (For regular mail)

Nassau, Bahamas

Address for Delivery of Securities for Investing Entity (if not same as above):

First Closing Subscription Amount:	$	25,000
Interim Closing Subscription Amount:	$	0
Second Closing Subscription Amount:	$	50,000
Warrant Shares:
First Closing:	62,500
Interim Closing:	0
Additional Investment Right:	$	62,500

EX-10.9

Exhibit 10.9

EXHIBIT B

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of October 28, 2004, among Power 3 Medical Products, Inc., a New York corporation (the “Company”), and the purchasers signatory hereto (each such purchaser is a “Purchaser” and all such purchasers are, collectively, the “Purchasers”).

This Agreement is made pursuant to the Securities Purchase Agreement, dated as of the date hereof among the Company and the Purchasers (the “Purchase Agreement”).

The Company and the Purchasers hereby agree as follows:

1. Definitions

Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

“Advice” shall have the meaning set forth in Section 6(d).

“Effectiveness Date” means, with respect to the initial Registration Statement required to be filed hereunder, the 90^th calendar day following the First Closing Date (120^th calendar day in the event the Registration Statement is reviewed by the Commission) and, with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the 90^th calendar day following the date on which the Company first knows, or reasonably should have known, that such additional Registration Statement is required hereunder (120^th calendar day in the event the Registration Statement is reviewed by the Commission); provided, however, in the event the Company is notified by the Commission that one of the above Registration Statements will not be reviewed or is no longer subject to further review and comments, the Effectiveness Date as to such Registration Statement shall be the fifth Trading Day following the date on which the Company is so notified if such date precedes the dates required above.

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Event” shall have the meaning set forth in Section 2(b).

“Event Date” shall have the meaning set forth in Section 2(b).

“Filing Date” means, with respect to the initial Registration Statement required hereunder, the 45^th calendar day following the First Closing Date and, with respect to any additional Registration Statements which may be required pursuant to Section 3(c), the

20^th day following the date on which the Company first knows, or reasonably should have known that such additional Registration Statement is required hereunder.

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Losses” shall have the meaning set forth in Section 5(a).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

“Registrable Securities” means (i) all of the shares of Common Stock issuable at the Closings or upon conversion in full of the Debentures, (ii) all Warrant Shares, (iii) all of the Additional Investment Right Shares, (iv) any securities issued or issuable upon any stock split, dividend or other distribution recapitalization or similar event with respect to the foregoing and (v) any additional shares issuable in connection with any anti-dilution provisions in the Debentures or the Warrants.

“Registration Statement” means the registration statements required to be filed hereunder and any additional registration statements contemplated by Section 3(c), including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or

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regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

2. Shelf Registration

(a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a “Shelf” Registration Statement covering the resale of 125% of the Registrable Securities on such Filing Date for an offering to be made on a continuous basis pursuant to Rule 415.  The Registration Statement shall be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another appropriate form in accordance herewith) and shall contain (unless otherwise directed by the Holders) substantially the “Plan of Distribution” attached hereto as Annex A.  Subject to the terms of this Agreement, the Company shall use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the applicable Effectiveness Date, and shall use its best efforts to keep such Registration Statement continuously effective under the Securities Act until all Registrable Securities covered by such Registration Statement have been sold or may be sold without volume restrictions pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter to such effect, addressed and acceptable to the Company’s transfer agent and the affected Holders (the “Effectiveness Period”).  The Company shall notify the Holders via facsimile of the effectiveness of the Registration Statement within 1 Trading Day of the day that the Company receives notification of the effectiveness from the Commission.  Failure to so notify the Holder within 1 Trading Day of such notification shall be deemed an Event under Section 2(b).

(b) If: (i) a Registration Statement is not filed on or prior to its Filing Date (if the Company files a Registration Statement without affording the Holders the opportunity to review and comment on the same as required by Section 3(a), the Company shall not be deemed to have satisfied this clause (i)), or (ii) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be “reviewed,” or not subject to further review, or (iii) prior to its Effectiveness Date, the Company fails to file a pre-effective amendment and otherwise respond in writing to comments made by the Commission in respect of such Registration Statement within 10 calendar days after the receipt of comments by or notice from the Commission that such amendment is required in order for a Registration Statement to be declared effective, or (iv) a Registration Statement filed or required to be filed hereunder is not declared effective by the Commission by its Effectiveness Date, or (v) after the Effectiveness Date, a Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities for which it is required to be effective, or the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities for 10 consecutive calendar days but no more than an aggregate of 45 calendar days during any 12-month period (which need not be consecutive Trading Days) (any such failure or breach being referred to as an “Event”, and for purposes of clause (i) or (iv) the date on which such Event occurs, or for purposes of clause (ii) the date on which such five Trading Day period is exceeded,

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or for purposes of clause (iii) the date which such 10 calendar day period is exceeded, or for purposes of clause (v) the date on which such 10 or 45 calendar day period, as applicable, is exceeded being referred to as “Event Date”), then in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 2.0% of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities then held by such Holder.  If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event.

3. Registration Procedures

In connection with the Company’s registration obligations hereunder, the Company shall:

(a)Not less than five Trading Days prior to the filing of each Registration Statement or any related Prospectus and not less than two Trading Days before the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall, (i) furnish to each Holder copies of all such documents proposed to be filed, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than 5 Trading Days, or 2 Trading Days, as applicable, after the Holders have been so furnished copies of such documents. Each Holder agrees to furnish to the Company such information as the Company may reasonably require to effect such Registration, including a completed Questionnaire substantially in the form attached to this Agreement as Annex B (a “Selling Holder Questionnaire”) not less than two Trading Days prior to the Filing Date or by the end of the fourth Trading Day following the date on which such Holder receives draft materials in accordance with this Section.

(b)(i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the

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Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and as promptly as reasonably possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to a Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

(c)If during the Effectiveness Period, the number of Registrable Securities at any time exceeds 90% of the number of shares of Common Stock then registered in a Registration Statement, then the Company shall, as necessary, file as soon as reasonably practicable but in any case prior to the applicable Filing Date, an additional Registration Statement covering the resale by the Holders of not less than 125% of the number of such Registrable Securities.

(d)Notify the Holders of Registrable Securities to be sold (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than two Trading Days prior to such filing) and (if requested by any such Person) confirm such notice in writing no later than one Trading Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement (the Company shall provide true and complete copies thereof and all written responses thereto to each of the Holders); and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not

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misleading; and (vi) the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of the Registration Statement or Prospectus; provided that any and all of such information shall remain confidential to each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided, further, notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information.

(e)Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(f)Furnish to each Holder, without charge, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference to the extent requested by such Person, and all exhibits to the extent requested by such Person (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

(g)Promptly deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request in connection with resales by the Holder of Registrable Securities.  Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(d).

(h)Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the Registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

(i)If requested by the Holders, cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement and applicable law, of all restrictive legends, and to enable

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such Registrable Securities to be in such denominations and registered in such names as any such Holders may request.

(j)Upon the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  If the Company notifies the Holders in accordance with clauses (ii) through (v) of Section 3(d) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.  The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company shall be entitled to exercise its right under this Section 3(j) to suspend the availability of a Registration Statement and Prospectus, subject to the payment of partial liquidated damages pursuant to Section 2(b), for a period not to exceed 60 days (which need not be consecutive days) in any 12 month period.

(k)Comply in all material respects with all applicable rules and regulations of the Commission.

(l)The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, if required by the Commission, the person thereof that has voting and dispositive control over such shares. During any periods that the Company is unable to meet its obligations hereunder with respect to the registration of the Registrable Securities solely because any Holder fails to furnish such information within three Trading Days of the Company’s request, any liquidated damages that are accruing at such time as to such Holder only shall be tolled and any Event that may otherwise occur solely because of such delay shall be suspended as to such Holder only, until such information is delivered to the Company.

4. Registration Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the Trading Market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders), (ii) printing expenses (including, without

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limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the holders of a majority of the Registrable Securities included in a Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.  In no event shall the Company be responsible for any underwriting discounts, broker or similar commissions, transfer taxes applicable to the sale of Registrable Securities or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

5. Indemnification

(a) Indemnification by the Company. The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based upon information furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that the Holder has approved Annex A hereto for this purpose), (ii) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), or (iii) the failure of Holder to deliver at or prior to the written confirmation of sale, the most recent Prospectus, as amended or supplemented.  The Company shall notify the Holders

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promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.

(b) Indemnification by Holders. Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act or (y) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is made in reliance upon and in conformity with any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus, as amended or supplemented, or (ii) to the extent that (1) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by such Holder expressly for use in the Registration Statement (it being understood that the Holder has approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (2) in the case of an occurrence of an event of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d), or (3) the failure of the Holder to otherwise deliver at or prior to the written confirmation of sale, the most recent Prospectus, as amended or supplemented. In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(c) Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party.

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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe, based upon the written opinion of counsel, that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten Trading Days of written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties.

(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy or otherwise), then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations.  The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

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The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

6. Miscellaneous

(a)Remedies.  In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.  The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b)No Piggyback on Registrations. Except as set forth on Schedule 6(b) attached hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the Registration Statement other than the Registrable Securities.  The Company shall not file any other registration statements (except Registration Statements on Form S-8) until the initial Registration Statement required hereunder is declared effective by the Commission, provided that this Section 6(b) shall not prohibit the Company from filing amendments to registration statements already filed.

(c)Compliance. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to the Registration Statement.

(d)Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(d), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement, or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration

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Statement.  The Company will use its best efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable.  The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(b).

(e)Piggy-Back Registrations. If at any time during the Effectiveness Period there is not an effective Registration Statement covering all of the Registrable Securities and the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity securities to be issued solely in connection with any acquisition of any entity or business or equity securities issuable in connection with the stock option or other employee benefit plans, then the Company shall send to each Holder a written notice of such determination and, if within fifteen days after the date of such notice, any such Holder shall so request in writing, the Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered; provided, that, the Company shall not be required to register any Registrable Securities pursuant to this Section 6(e) that are eligible for resale pursuant to Rule 144(k) promulgated under the Securities Act or that are the subject of a then effective Registration Statement.

(f)Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and each Holder of the then outstanding Registrable Securities.  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(g)Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be delivered as set forth in the Purchase Agreement.

(h)Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder. The Company may not assign its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding Registrable Securities. Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.

(i)No Inconsistent Agreements. Neither the Company nor any of its subsidiaries has entered, as of the date hereof, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts

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with the provisions hereof.  Except as set forth on Schedule 6(b), neither the Company nor any of its subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.

(j)Execution and Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(k)Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof.  Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law.  The parties hereby waive, to the fullest extent permitted by applicable law, all rights to a trial by jury.  If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

(l)Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(m)Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that

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they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

(n)Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(o)Independent Nature of Holders’ Obligations and Rights. The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder. Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement. Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any proceeding for such purpose.

********************

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

POWER 3 MEDICAL PRODUCTS, INC.
By:	Steven B. Rash
	Name: Steven B. Rash
	Title: Chairman and CEO

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Bach Farms LLC
Signature of Authorized Signatory of Investing Entity:			/s/:Richard H. Bach
Name of Authorized Signatory:		Richard H. Bach
Title of Authorized Signatory:

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Citiplatz Limited
Signature of Authorized Signatory of Investing Entity:			/s/: Francis (Illegible)
Name of Authorized Signatory:		Francis (Illegible)
Title of Authorized Signatory:

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Crescent International Ltd.
Signature of Authorized Signatory of Investing Entity:				/s/:Mel Craw and Maxi Brezzi
Name of Authorized Signatory:			Mel Craw and Maxi Brezzi
Title of Authorized Signatory:		Authorized Signatory

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Crestview Capital Master, LLC
Signature of Authorized Signatory of Investing Entity:				/s/Stewart R. Flink
Name of Authorized Signatory:			Stewart R. Flink
Title of Authorized Signatory:		Manager

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	DKR SoundShore Oasis Holding Fund, Ltd.
Signature of Authorized Signatory of Investing Entity:				/s/ Barbara Burger
Name of Authorized Signatory:			Barbara Burger
Title of Authorized Signatory:		Alternate Director

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Gryphon Master Fund L.P.
Signature of Authorized Signatory of Investing Entity:				/s/:E.B. Lyon IV
Name of Authorized Signatory:			E.B. Lyon IV
Title of Authorized Signatory:		Authorized Agent

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	GSSF Master Fund, LP
Signature of Authorized Signatory of Investing Entity:				/s/:E.B. Lyon IV
Name of Authorized Signatory:			E.B. Lyon IV
Title of Authorized Signatory:		Authorized Agent

[SIGNATURE PAGES CONTINUE]

22

[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Mohawk Funding
Signature of Authorized Signatory of Investing Entity:				/s/:Richard H. Bach
Name of Authorized Signatory:			Richard H. Bach
Title of Authorized Signatory:		Manager Member

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Richard Molinsky
Signature of Authorized Signatory of Investing Entity:		/s/ Richard Molinsky
Name of Authorized Signatory:
Title of Authorized Signatory:

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Omicron Master Trust
Signature of Authorized Signatory of Investing Entity:				/s/Bruce Bernstein
Name of Authorized Signatory:			Bruce Bernstein
Title of Authorized Signatory:		Managing Partner

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Otape Investments LLC
Signature of Authorized Signatory of Investing Entity:				/s/ Richard M. Cayne
Name of Authorized Signatory:			Richard M. Cayne
Title of Authorized Signatory:		General Counsel

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Platinum Partners Value Arbitrage Fund L.P.
Signature of Authorized Signatory of Investing Entity:				/s/Richard Geyser
Name of Authorized Signatory:			Richard Geyser
Title of Authorized Signatory:		Managing Director

[SIGNATURE PAGES CONTINUE]

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[SIGNATURE PAGE OF HOLDERS TO PWRM RRA]

Name of Investing Entity:	Sage Capital Investments Limited
Signature of Authorized Signatory of Investing Entity:				/s/ Anthony Thompson
Name of Authorized Signatory:			Anthony Thompson
Title of Authorized Signatory:		Secretary

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Plan of Distribution

Each Selling Stockholder (the “Selling Stockholders”) of the common stock (“Common Stock”) of Power 3 Medical Products, Inc., a New York corporation (the “Company”) and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock on the Trading Market or any other stock exchange, market or trading facility on which the shares are traded or in private transactions.  These sales may be at fixed or negotiated prices.  A Selling Stockholder may use any one or more of the following methods when selling shares:

•ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

•block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

•purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

•an exchange distribution in accordance with the rules of the applicable exchange;

•privately negotiated transactions;

•settlement of short sales entered into after the date of this prospectus;

•broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share;

•a combination of any such methods of sale;

•through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; or

•any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales.  Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated.  Each Selling Stockholder does not expect these commissions and discounts relating to its sales of shares to exceed what is customary in the types of transactions involved.

In connection with the sale of our common stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial

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institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume.  The Selling Stockholders may also sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities.  The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.  Each Selling Stockholder has informed the Company that it does not have any agreement or understanding, directly or indirectly, with any person to distribute the Common Stock.

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares.  The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

The Selling Shareholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares against certain liabilities, including liabilities arising under the Securities Act.

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act.  In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus.  Each Selling Stockholder has advised us that they have not entered into any agreements, understandings or arrangements with any underwriter or broker-dealer regarding the sale of the resale shares.  There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume limitations by reason of Rule 144(k) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to the prospectus or Rule 144 under the Securities Act or any other rule of similar effect.  The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

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Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to our common stock for a period of two business days prior to the commencement of the distribution.  In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our common stock by the Selling Stockholders or any other person.  We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale.

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Annex B

Power 3 Medical Products, Inc.

Selling Securityholder Notice and Questionnaire

The undersigned beneficial owner of common stock, par value $0.001 per share (the “Common Stock”), of Power 3 Medical Products, Inc., a New York corporation (the “Company”), (the “Registrable Securities”) understands that the Company has filed or intends to file with the Securities and Exchange Commission (the “Commission”) a registration statement (the “Registration Statement”) for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”), of the Registrable Securities, in accordance with the terms of the Registration Rights Agreement, dated as of October      , 2004 (the “Registration Rights Agreement”), among the Company and the Purchasers named therein.  A copy of the Registration Rights Agreement is available from the Company upon request at the address set forth below.  All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Registration Rights Agreement.

Certain legal consequences arise from being named as a selling securityholder in the Registration Statement and the related prospectus.  Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Registration Statement and the related prospectus.

NOTICE

The undersigned beneficial owner (the “Selling Securityholder”) of Registrable Securities hereby elects to include the Registrable Securities owned by it and listed below in Item 3 (unless otherwise specified under such Item 3) in the Registration Statement.

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The undersigned hereby provides the following information to the Company and represents and warrants that such information is accurate:

QUESTIONNAIRE

1.Name.

(a)Full Legal Name of Selling Securityholder

(b)Full Legal Name of Registered Holder (if not the same as (a) above) through which Registrable Securities Listed in Item 3 below are held:

(c)Full Legal Name of Natural Control Person (which means a natural person who directly you indirectly alone or with others has power to vote or dispose of the securities covered by the questionnaire):

2.  Address for Notices to Selling Securityholder:

Telephone:

Fax:

Contact Person:

3.  Beneficial Ownership of Registrable Securities:

(a)Type and Principal Amount of Registrable Securities beneficially owned:

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4.  Broker-Dealer Status:

(a)Are you a broker-dealer?

Yes   oNo   o

Note:If yes, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

(b)Are you an affiliate of a broker-dealer?

Yes   oNo   o

(c)If you are an affiliate of a broker-dealer, do you certify that you bought the Registrable Securities in the ordinary course of business, and at the time of the purchase of the Registrable Securities to be resold, you had no agreements or understandings, directly or indirectly, with any person to distribute the Registrable Securities?

Yes   oNo   o

Note:If no, the Commission’s staff has indicated that you should be identified as an underwriter in the Registration Statement.

5.  Beneficial Ownership of Other Securities of the Company Owned by the Selling Securityholder.

Except as set forth below in this Item 5, the undersigned is not the beneficial or registered owner of any securities of the Company other than the Registrable Securities listed above in Item 3.

(a)Type and Amount of Other Securities beneficially owned by the Selling Securityholder:

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6.  Relationships with the Company:

Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (owners of 5% of more of the equity securities of the undersigned) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years.

State any exceptions here:

The undersigned agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Registration Statement remains effective.

By signing below, the undersigned consents to the disclosure of the information contained herein in its answers to Items 1 through 6 and the inclusion of such information in the Registration Statement and the related prospectus.  The undersigned understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Registration Statement and the related prospectus.

IN WITNESS WHEREOF the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent.

Dated:	Beneficial Owner:
	By:
		Name:
		Title:

PLEASE FAX A COPY OF THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE, AND RETURN THE ORIGINAL BY OVERNIGHT MAIL, TO:

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EX-10.10

Exhibit 10.10

SURGICAL SAFETY PRODUCTS, INC.

2003 STOCK COMPENSATION PLAN

SECTION 1. PURPOSE OF THE PLAN.

The purpose of the 2003 Stock Compensation Plan (“Plan”) is to maintain the ability of Surgical Safety Products, Inc., a New York corporation (the “Company”) and its sub sidiaries to attract and retain highly qualified and experienced directors, employees and consultants and to give such directors, employees and consultants a continued proprietary interest in the success of the Company and its subsidiaries. In addition the Plan is intended to encourage ownership of common stock, $.001 par value (“Common Stock”), of the Company by the directors, employees and consultants of the Company and its Affiliates (as defined below) and to provide increased incentive for such persons to render services and to exert maximum effort for the success of the Company’s business. The Plan provides eligible employees and consultants the opportunity to participate in the enhancement of shareholder value by the grants of warrants, options, restricted Common Stock, unrestricted Common Stock and other awards under this Plan and to have their bonuses and/or consulting fees payabl3 in warrants, restricted Common Stock, unrestricted Common Stock and other awards, or any combination ther eof. In addition, the Company expects that the Plan will further strengthen the identification of the directors, employees and consultants with the stockholders. Certain options and warrants to be granted under this Plan are intended to qualify as Incentive Stock Options (“ISOs”) pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (“Code”), while other options and warrants granted under this Plan will be nonqualified options or warrants which are not intended to qualify as ISOs (“Nonqualified Options”), either or both as provided in the agreements evidencing the options or warrants described in Section 5. Employees, consultants and directors who participate or become eligible to participate in this Plan from time to time are referred to collectively herein as “Participants”. As used in this Plan, the term “Affiliates” means any “parent corporation” of the Company and any “subsidiary corporation” of the Company within t he meaning of Code Sections 424(e) and (f), respectively.

SECTION 2. ADMINISTRATION OF THE PLAN.

(a) Committee. The Plan shall be administered by the Board of Directors of the Company (the “Board”) or a committee thereof designated by the Board with the specific authority to administer the Plan. When acting in such capacity the Board is herein referred to as the “Committee”. If the Company is governed by Rule 16b-3 promulgated by the Securities and

Exchange Commission (“Commission”) pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”), no director shall serve as a member of the Committee unless he or she is a “disinterested person” within the meaning of such Rule 16b-3.

(b) Committee Action. The Committee shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum, and all determinations of the Committee shall be made by not less than a majority of its members. Any decision or determi nation reduced to writing signed by a majority of the members shall be fully as effective as if it had been made by a majority vote of its members at a meeting duly called and held. The Committee may designate the Secretary of the Company or other Company employees to assist the Committee in the administration of the Plan, and may grant authority to such persons to execute award agreements or other documents on behalf of the Committee and the Company. Any duly constituted committee of the Board satisfying the qualifications of this Section 2 may be appointed as the Committee.

(c) Committee Expenses. All expenses and liabilities incurred by the Committee in the administration of the Plan shall he borne by the Company. The Committee may employ attorneys, consultants, accountants or other p ersons.

SECTION 3. STOCK RESERVED FOR THE PLAN.

Subject to adjustment as provided in Section 5(d)(xiii) hereof the aggregate number of shares that may be optioned subject to conversion or issued under the Plan is 8,000,000 shares of Common Stock, warrants, options, or any combination thereof. The shares subject to the Plan shall consist of authorized but unissued shares of Common Stock and such number of shares shall be and is hereby reserved for sale for such purpose. Any of such shares which may remain unsold and which are not subject to issuance upon exercise of o utstanding options or warrants at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan or the termination of the last of the options or warrants granted under the Plan, whichever last occurs, the Company shall at all times reserve a sufficient number of shares to meet the requirements of the Plan. Should any option or warrant expire or be cancelled prior to its exercise in full, the shares theretofore subject to such option or warrant may again be made subject to an option or warrant under the Plan.

SECTION 4. ELIGIBILITY.

The Participants shall include directors, employees including officers, of the Company and its divisions and subsidiaries, and consultants and attorneys who provide bona fide services to the Company. Participants are eligible to be granted warrants, options, restricted Common Stock, unrestricted Common Stock and other awards under this Plan and to have their bonuses and/or consulting fees payable in warrants, restricted Common Stock, unrestricted Common Stock and other awards. A Participant who has been g ranted an option or warrant hereunder may be granted an additional option or warrant, options or warrants, if the Committee shall so determine.

SECTION 5. GRANT OF OPTIONS OR WARRANTS

(a)Committee Discretion. The Committee shall have sole and absolute discretionary authority

(b) (i) to determine, authorize, and designate those persons pursuant to this Plan who are to receive warrants, options, restricted Common Stock, or unrestricted Common Stock under the Plan,

(c)(ii) to determine the number of shares of Common Stock to be covered by such gr ant or such options or warrants and the terms thereof,

(d)(iii) to determine the type of Common Stock granted: restricted Common Stock, unrestricted Common Stock or a combination of restricted and unrestricted Common Stock, and

(e)   
60;      (iv) to determine the type of option or warrant granted: ISO, Nonqualified Option or a combination of ISO and Nonqualified Options. The Committee shall thereupon grant options or warrants in accordance with such determinations as evidenced by a written option or warrant agreement. Subject to the express provisions of the Plan, the Committee shall have discretionary authority to prescribe, amend and rescind rules and regulations relating to the Plan, to interpret the Plan, to prescribe and amend the terms of the option or warrant agreements (which need not be identical) and to make all other determinations deemed necessary or advisable for the administration of the Plan.

( f)Stockholder Approval. All ISOs granted under this Plan are subject to, and may not be exercised before, the approval of this Plan by the stockholders prior to the first anniversary date of the Board meeting held to approve the Plan, by the affirmative vote of the holders of a majority of the outstanding shares of the Company present, or represented by proxy, and entitled to vote thereat, or by written consent in accordance with the laws of the State of New York, provided that if such approval by the stockholders of the Company is not forthcoming, all options or warrants and stock awards previously granted under this Plan other than ISOs shall be valid in all respects.

(g)Limitation on Incentive Stock Options and Warrants. The aggregate fair market value (determined in accordance with Section 5(d)(ii) of this Plan at the time the option or warrant is granted) of the Common Stock with respect to which ISOs may be exercisable for the first time by any Participant during any calendar year under all such plans of the Company and its Affiliates shall not exceed $1,000,000.

(h)Terms and Conditions. Each option or warrant granted under the Plan shall be evidenced by an agreement, in a form approved by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions as the Committee may deem appropriate:

(i)Option or Warrant Peri od. The Committee shall promptly notify the Participant of the option or warrant grant and a written agreement shall promptly be executed and delivered by and on behalf of the Company and the Participant, provided that the option or warrant grant shall expire if a written agreement is not signed by said Participant (or his agent or attorney) and returned to the Company within 60 days from date of receipt by the Participant of such agreement. The date of grant shall be the date the option or warrant is actually granted by the Committee, even though the written agreement may be executed and delivered by the Company and the Participant after that date. Each option or warrant agreement shall specify the period for which the option or warrant hereunder is granted (which in no event shall exceed ten years from the date of grant) and shall provide that the option or warrant shall expire at the end of such period. If the original term of an option or warrant is less than ten years from the date of grant, the option or warrant may be amended prior to its expiration, with the approval of the Committee and the Participant, to extend the term so that the term as amended is not more than ten years from the date of grant. However, in the case of an ISO granted to an individual who, at the time of grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or its Affiliate (“Ten Percent Stockholder”), such period shall not exceed five years from the date of grant.

(ii) Option or Warrant Price. The purchase price of each share of Common Stock subject to each option or warrant granted pursuant to the Plan shall be determined by the Committee at the time the option warrant is granted and, in the case of ISO s, shall not be less than 100% of the fair market value of a share of Common Stock on the date the option or warrant is granted, as determined by the Committee. In the case of an ISO granted to a Ten Percent Stockholder, the option or warrant price shall not be less than 110% of the fair market value of a share of Common Stock on the date the option

or warrant is granted. The purchase price of each share of Common Stock subject to a Nonqualified Option or Warrant under this Plan shall be determined by the Committee prior to granting the option or warrant. The Committee shall set the purchase price for each share subject to a Nonqualified Option or Warrant at either the fair market value of each share on the date the option or warrant is granted, or at such other price as the Committee in its sole discretion shall determine.

At the time a determination of the fair market value of a share of Common Stock is required to be made hereunder, the determination of its fair market value shall be made by the Committee in such manner as it deems appropriate.

(iii)Exercise Period. The Committee may provide in the option or warrant agreement that an option or warrant may be exercised in whole, immediately, or is to be exercisable in increments. In addition, the Committee may provide that the exercise of all or part of an option or warrant is subject to specified performance by the Participant.

(iv)Procedure for Exercise. Options or warrants shall be exercised in the manner specified in the option or warrant agreement. The notice of exercise shall specify the address to which the certificates for such shares are to be mailed. A Participant shall be deemed to be a stockholder with respect to shares covered by an option or warrant on the date specified in the option or warrant agreement. As promptly as practicable, the Company shall deliver to the Participant or other holder of the warrant, certificates for the number of shares with respect to which such option or warrant has been so exercised, issued in the holder’s name or such other name as holder directs; provided, however, that su ch delivery shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates with a carrier for overnight delivery, addressed to the holder at the address specified pursuant to this Section 6(d).

(v)Termination of Employment. If an executive officer to whom an option or warrant is granted ceases to be employed by the Company for any reason other than death or disability, any option or warrant which is exercisable on the date of such termination of employment may be exercised during a period beginning on such date and ending at the time set forth in the option or warrant agreement; provided, however, that if a Participant’s employment is terminated because of the Participant’s theft or embezzlement from the Company, disclosure of trade secrets of the Company or the commission of a willful, felonious act while in the employment of the Company (such reasons shall hereinafter be collectively referred to as “for cause”), then any option or

warrant or unexercised portion thereof granted to said Participant shall expire upon such termination of employment. Notwithstanding the foregoing, no ISO may be exercised later than three months after an employee’s termination of employment for any reason other than death or disability.

(vi)Disability or Death of Participant. In the even t of the determination of disability or death of a Participant under the Plan while he or she is employed by the Company, the options or warrants previously granted to him may be exercised (to the extent he or she would have been entitled to do so at the date of the determination of disability or death) at any time and from time to time, within a period beginning on the date of such determination of disability or death and ending at the time set forth in the option or warrant agreement, by the former employee, the guardian of his estate, the executor or administrator of his estate or by the person or persons to whom his rights under the option or warrant shall pass by will or the laws of descent and distribution, but in no event may the option or warrant be exercised after its expiration under the terms of the option or warrant agreement. Notwithstanding the foregoing, no ISO may be exercised later than one year after the determination of disability or death. A Participant shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he or she is incapable of performing services for the Company of the kind he or she was performing at the time the disability occurred by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. The date of determination of disability for purposes hereof shall be the date of such determination by such physician.

(vii)Assignability. An option or warrant shall not be assignable or otherwise transferable, in whole or in part, by a Participant except that an option or wa rrant may be transferable to a member of the Participant’s immediate family or to a trust in which the Participant and members of his immediate family are the only beneficiaries.

(viii) Incentive Stock Options. Each option or warrant agreement may contain such terms and provisions as the Committee may determine to be necessary or desirable in order to qualify an option or warrant designated as an incentive stock option.

(ix)Restricted Stock Awards. Awards of restricted stock under this Plan shall be subject to all the applicable provisions of this Plan, including the following terms and conditions, and to such other terms and conditions not inconsistent therewith, as the Committee shall determine:

(A)Awards of restricted stock may be in addition to or in lieu of option or warrant grants. Awards may be conditioned on the attainment of particular performance goals based on criteria established by the Committee at the time of each award of restricted stock. During a period set forth in the agreement (the “Restriction Period”), the recipient shall not be permitted to sell, transfer, pledge, or otherwise encumber the shares of restricted stock; except that such shares may be used, if the agreement permits, to pay the option or warrant price pursuant to any option or warrant grant ed under this Plan, provided an equal number of shares delivered to the Participant shall carry the same restrictions as the shares so used. Shares of restricted stock shall become free of all restrictions if during the Restriction Period, (i) the recipient dies, (ii) the recipient’s directorship, employment, or consultancy terminates by reason of permanent disability, as determined by the Committee, (iii) the recipient retires after attaining both 59 1/2 years of age and five years of continuous service with the Company and/or a division or subsidiary, or (iv) if provided in the agreement, there is a “change in control” of the Company (as defined in such agreement). The Committee may require medical evidence of permanent disability, including medical examinations by physicians selected by it. Unless and to the extent otherwise provided in the agreement, shares of restricted stock shall be forfeited and revert to the Company upon the recipient’s termination of directorship, employment or consultancy during the Restriction Period for any reason other than death, permanent disability, as determined by the Committee, retirement after attaining both 59 1/2 years of age and five years of continuous service with the Company and/or a subsidiary or division, or, to the extent provided in the agreement, a “change in control” of the Company (as defined in such agreement), except to the extent the Committee, in its sole discretion, finds that such forfeiture might not be in the best interests of the Company and, therefore, waives all or part of the application of this provision to the restricted stock held by such recipient. Certificates for restricted stock shall be registered in the name of the recipient but shall be imprinted with the appropriate legend and returned to the Company by the recipient, together with a stock power endorsed in blank by the recipient. The recipient shall be entitled to vote shares of restricted stock and shall be entitled to all dividends paid thereon, except tha t dividends paid in Common Stock or other property shall also be subject to the same restrictions.

(B)Restricted Stock shall become free of the foregoing restrictions upon expiration of the applicable Restriction Period and the Company shall then deliver to the recipient Common Stock certificates evidencing such stock. Restricted stock and any Common

Stock received upon the expiration of the restriction period shall be subject to such other transfer restrictions and/or legend requirements as are specified in the applicable agreement.

(x)Bonuses and Past Salaries and Fees Payable in Unrestricted Stock.

(A)In lieu of cash bonuses otherwise payable under the Company’s or applicable division’s or subsidiary’s compensation practices to employees and consultants eligible to participate in this Plan, the Committee, in its sole discretion, may determine that such bonuses shall be payable in unrestricted Common Stock or partly in unrestricted Common Stock and partly in cash. Such bonuses shall be in consideration of services previously performed and as an incentive toward future services and shall consist of shares of unrestricted Common Stock subject to such terms as the Committee may determine in its sole discretion. The number of shares of unrestricted Common Stock payable in lieu of a bonus otherwise payable shall be determined by dividing such bonus amount by the fair market value of one share of Common Stock on the date the bonus is payable, with fair market value determined as of such date in accordance with Section 5(d)(ii).

(B)In lieu of salaries and fees otherwise payable by the Company to employees, attorneys and consultants eligible to participate in this Plan that were incurred for services rendered during, prior or after the year of 2003, the Committee, in its sole discretion, may determine that such unpaid salaries and fees shall be payable in unrest ricted Common Stock or partly in unrestricted Common Stock and partly in cash. Such awards shall be in consideration of services previously performed and as an incentive toward future services and shall consist of shares of unrestricted Common Stock subject to such terms as the Committee may determine in its sole discretion. The number of shares of unrestricted Common Stock payable in lieu of salaries and fees otherwise payable shall be determined by dividing each calendar month’s of unpaid salary or fee amount by the average trading value of the Common Stock for the calendar month during which the subject services were provided.

(xi)     &# 160;  No Rights as Stockholder. No Participant shall have any rights as a stockholder with respect to shares covered by an option or warrant until the option or warrant is exercised as provided in clause (d) above.

(xii)Extraordinary Corporate Transactions. The existence of outstanding options or warrants shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, exchanges, or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issuance of Common Stock or other securities or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereo f, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If the Company recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all of its assets or dissolves (each of the foregoing a “Fundamental Change”), then thereafter upon any exercise of an option or warrant theretofore granted the Participant shall be entitled to purchase under such option or warrant, in lieu of the number of shares of Common Stock as to which option or warrant shall then be exercisable, the number and class of shares of stock and securities to which the Participant would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Participant had been the holder of record of the number of shares of Common Stock as to which such option or warrant is then exercisable. If (i) the Compa ny shall not be the surviving entity in any merger or consolidation (or survives only as a subsidiary of another entity), (ii) the Company sells all or substantially all of its assets to any other person or entity (other than a wholly owned subsidiary), (iii) any person or entity (including a “group” as contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock, (iv) the Company is to be dissolved and liquidated, or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board (each such event in clauses (i) through (v) above is referred to herein as a “Corporate Change”), the Committee, in its sole discretion, may accelerate the time at which all or a portion of a Participant’s option or warrants may be exercised for a limited period of time before or after a specified date.

(xiii) Changes in Company’s Capital Structure. If the outstanding shares of Common Stock or other securities of the Company, or both, for which the option or warrant is then exercisable at any time be changed or exchanged by declaration of a stock dividend, stock split, combination of shares, recapitalization, or reorganization, the number and

kind of shares of Common Stock or other securities which are subject to the Plan or subject to any options or warrants theretofore granted, and the option or warrant prices, shall be adjusted only as provided in the option or warrant.

(xiv) Acceleration of Options and Warrants. Except as hereinbefore expressly provided, (i) the issuance by the Company of shares of stock or any class of securities convertible into shares of stock of any class, for cash, property, labor or servic es, upon direct sale, upon the exercise of rights or warrants to subscribe therefore, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, (ii) the payment of a dividend in property other than Common Stock or (iii) the occurrence of any similar transaction, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to options or warrants theretofore granted or the purchase price per share, unless the Committee shall determine, in its sole discretion, that an adjustment is necessary to provide equitable treatment to Participant. Notwithstanding anything to the contrary contained in this Plan, the Committee may, in its sole discretion, accelerate the time at which any option or warrant may be exercised, including, but not limited to, upon the occurrence of the events specified in this Section 5, and is authorized at any time (with the cons ent of the Participant) to purchase options or warrants pursuant to Section 6.

SECTION 6. RELINQUISHMENT OF OPTIONS OR WARRANTS.

(a)The Committee, in granting options or warrants hereunder, shall have discretion to determine whether or not options or warrants shall include a right of relinquishment as hereinafter provided by this Section 6. The Committee shall a lso have discretion to determine whether an option or warrant agreement evidencing an option or warrant initially granted by the Committee without a right of relinquishment shall be amended or supplemented to include such a right of relinquishment. Neither the Committee nor the Company shall be under any obligation or incur any liability to any person by reason of the Committee’s refusal to grant or include a right of relinquishment in any option or warrant granted hereunder or in any option or warrant agreement evidencing the same. Subject to the Committee’s determination in any case that the grant by it of a right of relinquishment is consistent with Section 1 hereof, any option or warrant granted under this Plan, and the option or warrant agreement evidencing such option or warrant, may provide:

(i)That the Participant, or his or her heirs or other legal representatives to the extent entitled to exercise the option or warrant under the terms thereof, in lieu of purchasing the entire number of shares subject to purchase there under, shall have the right to relinquish all or any part of the then unexercised portion of the option or warrant (to the extent then exercisable) for a number of shares of Common Stock to be determined in accordance with the following provisions of this clause (i):

(A)The written notice of exercise of such right of relinquishment shall state the percentage of the total number of shares of Common Stock issuable pursuant to such relinquishment (as defined below) that the Participant elects to receive;

(B) The number of shares of Common Stock, if any, issuable pursuant to such relinquishment shall be the number of such shares, rounded to the next greater number of full shares, as shall be equal to the quotient obtained by dividing (i) the Appreciated Value by (ii) the purchase price for each of such shares specified in such option or warrant;

(C)For the purpose of this clause (C), “Appreciated Value” means the excess, if any, of (x) the total current market value of the shares of Common Stock covered by the option or warrant or the portion thereof to be relinquished over (y) the total purchase price for such shares specified in such option or warrant;

(ii)That such right of relinquishment may be exercised only upon receipt by the Company of a written notice of such relinquishment which shall be dated the date of election to make such relinquishment; and that, for the purposes of this Plan, such date of election shall be deemed to be the date when such notice is sent by registered or certified mail, or when receipt is acknowledged by the Company, if mailed by other than registered or certified mail or if delivered by hand or by any telegraphic communications e quipment of the sender or otherwise delivered; provided, that, in the event the method just described for determining such date of election shall not be or remain consistent with the provisions of Section 16(b) of the Exchange Act or the rules and regulations adopted by the Commission there under, as presently existing or as may be hereafter amended, which regulations exempt from the operation of Section 16(b) of the Exchange Act in whole or in part any such relinquishment transaction, then such date of election shall be determined by such other method consistent with Section 16(b) of the Exchange Act or the rules and regulations there under as the Committee shall in its discretion select and apply;

(iii)That the “current market value” of a share of Common Stock on a particular date shall be deemed to be its fair market value on that date as determined in accordance with Paragraph 5(d)(ii); and

(iv)That the option or warrant, or any portion thereof, may be relinquished only to the extent that (A) it is exercisable on the date written notice of relinquishment is received by the Company, and (B) the holder of such option or warrant pays, or makes provision satisfactory to the Company for the payment of, any taxes which the Company is obligated to collect with respect to such relinquishment.

(b)The Committee shall have sole discretion to consent to or disapprove, and neither the Committee nor the Company shall be under any liability by reason of the Committee’s disapproval of, any election by a holder of options or warrants to relinquish such options or warrants in whole or in part as provided in Paragraph 6(a), except that no such consent to or approval of a relinquishment shall be required under the following circumstances. Each Participant who is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act (“Covered Participant”) shall not be entitled to receive shares of Common Stock when options or warrants are relinquished during any window period commencing on the third business day following the Company’s release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release (“Window Period”). A Covered Participant shall be entitled to receive shares of Common Stock upon the relinquishment of options or warrants outside a Window Period.

(c)The Committee, in granting options or warrants hereunder, shall have discretion to determine the terms upon which such options or warrants shall be relinquishable, subject to the applicable provisions of this Plan, and including such provisions as are deemed advisable to permit the exemption from the operation from Section 16(b) of the Exchange Act of any such relinquishment transaction, and options or warrants outstanding, and option agreements evidencing such options, may be amended, if necessary, to permit such exemption. If options or warrants are relinquished, such option or warrant shall be deemed to have been exercised to the extent of the number of shares of Common Stock covered by the option or warrant or part thereof which is relinquished, and no further options or warrants may be granted covering such shares of Common Stock.

(d)Any options or warrants or any right to relinquish the same to the Company as contemplated by this Paragraph 6 shall be assignable by the Participant, provided the transaction complies with any applicable securities laws.

(e)Except as provided in Section 6(f) below, no right of relinquishment may be exercised within the first six months after the initial award of any option or warrant containing, or the amendment or supplementation of any existing option or warrant agreement adding, the right of relinquishment.

(f)No right of relinquishment may be exercised after the initial award of any option or warrant containing, or the amendment or supplementation of any existing option or warrant agreement add ing the right of relinquishment, unless such right of relinquishment is effective upon the Participant’s death, disability or termination of his relationship with the Company for a reason other than “for cause.”

SECTION 7. AMENDMENTS OR TERMINATION.

The Board may amend, alter or discontinue the Plan, but no amendment or alteration shall be made which would impair the rights of any Participant, without his consent, under any option or warrant theretofore granted.

SECTION 8. COMPLIANCE WITH OTHER LAWS AND REGULATIONS.

The Plan, the grant and exercise of options or warrants there under, and the obligation of the Company to sell and deliver shares under such options or warrants, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of such shares under any federal or state law or issuance of any ruling or regulation of any govern ment body which the Company shall, in its sole discretion, determine to be necessary or advisable. Any adjustments provided for in subparagraphs 5(d)(xii), (xiii) and (xiv) shall be subject to any shareholder action required by the corporate law of the state of incorporation of the Company.

SECTION 9. PURCHASE FOR INVESTMENT.

Unless the options, warrants, and shares of Common Stock covered by this Plan have been registered under the Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person acquiring or exercising an option or warrant under this Plan may be required by the Company to give a representation in writing that he or she is acquiring such option or warrant or such shares for his own account for investment and not with a view to, or for sale in conn ection with, the distribution of any part thereof.

SECTION 10. TAXES.

(a)The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with any options or warrants granted under this Plan.

(b)Notwithstanding the terms of Paragraph 10(a), any Participant may pay all or any portion of the taxes required to be withheld by the Company or paid by him or her in connection with the exercise of a nonqualified option or warrant by electing to have the Company withhold shares of Common Stock, or by delivering previously owned shares of Common Stock, having a fair market value, determined in accordance with Paragraph 5(d)(ii), equal to the amount required to be withheld or paid. A Participant must make the foregoing election on or before the date that the amount of tax to be withheld is determined (“Tax Date”). All such elections are irrevocable and subject to disapproval by the Committe e. Elections by Covered Participants are subject to the following additional restrictions: (i) such election may not be made within six months of the grant of an option or warrant, provided that this limitation shall not apply in the event of death or disability, and (ii) such election must be made either six months or more prior to the Tax Date or in a Window Period. Where the Tax Date in respect of an option or warrant is deferred until six months after exercise and the Covered Participant elects share withholding, the full amount of shares of Common Stock will be issued or transferred to him upon exercise of the option or warrant, but he or she shall be unconditionally obligated to tender back to the Company the number of shares necessary to discharge the Company’s withholding obligation or his estimated tax obligation on the Tax Date.

SECTION 11. REPLACEMENT OF OPTIONS AND WARRANTS.

The Committee from time to time may permit a Participant under the Plan to surrender for cancellation any unexercised outstanding option or warrant and receive from the Company in exchange an option or warrant for such number of shares of Common Stock as may be designated by the Committee. The Committee may, with the consent of the holder of any outstanding option or warrant, amend such option or warrant, including reducing the exercise price of any option or warrant to not less than the fair market value of the Common Stock at the time of the amendment and extending the exercise term of any warrant or option.

SECTION 12. NO RIGHT TO COMPANY EMPLOYMENT. Nothing in this Plan or as a result of any option or warrant granted pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual’s employment at any time. The option or warrant agreements may contain such provisions as the Committee may approve with reference to the effect of approved leaves of absence.

SECTION 13. LIABILITY OF COMPANY. The Company and any Affiliate which is in existence or hereafter comes into existence shall not be liable to a Participant or other persons as to:

(a) The Non-Issuance of Shares. The non-issuance or sale of shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder; and

(b) Tax Consequences. Any tax consequence expected, but not realized, by any Participant or other person due to the exercise of any option or warrant granted hereunder.

SECTION 14. EFFECTIVENESS AND EXPIRATION OF PLAN. The Plan shall be effective on the date the Board adopts the Plan. The Plan shall expire ten years after the date the Board approves the Plan and thereafter no option or warrant shall be granted pursuant to the Plan.

SECTION 15. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of restricted stock or stock options or warrants otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

SECTION 16. GOVERNING LAW. This Plan and any a greements hereunder shall be interpreted and construed in accordance with the laws of the state of incorporation of the Company and applicable federal law.

SECTION 17. CASHLESS EXERCISE. The Committee also may allow cashless exercises as permitted under Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan’s purpose and applicable law. The proceeds from such a payment shall be added to the general funds of the Company and shall be used for general corporate purposes.

EX-10.11

Exhibit 10.11

Power3 Medical Products, Inc.

2004 DIRECTORS, OFFICERS AND CONSULTANTS
STOCK OPTION, STOCK WARRANT AND STOCK AWARD PLAN

SECTION 1. PURPOSE OF THE PLAN. The purpose of the 2004 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan (“Plan”) is to maintain the ability of Power3 Medical Products, Inc., a New York corporation (the “Company”) and its subsidiaries to attract and retain highly qualified and experienced directors, employees and consultants and to give such directors, employees and consultants a continued proprietary interest in the success of the Company and its subsidiaries. In addition the Plan is intended to encourage ownership of common stock, $.001 par value (“Common Stock”), of the Company by the directors, em ployees and consultants of the Company and its Affiliates (as defined below) and to provide increased incentive for such persons to render services and to exert maximum effort for the success of the Company’s business. The Plan provides eligible employees and consultants the opportunity to participate in the enhancement of shareholder value by the grants of warrants, options, restricted common or convertible preferred stock, unrestricted common or convertible preferred stock and other awards under this Plan and to have their bonuses and/or consulting fees payable in warrants, restricted common or convertible preferred stock, unrestricted common or convertible preferred stock and other awards, or any combination thereof. In addition, the Company expects that the Plan will further strengthen the identification of the directors, employees and consultants with the stockholders. Certain options and warrants to be granted under this Plan are intended to qualify as Incentive Stock Options (“ISOs”) pu rsuant to Section 422 of the Internal Revenue Code of 1986, as amended (“Code”), while other options and warrants and preferred stock granted under this Plan will be nonqualified options or warrants which are not intended to qualify as ISOs (“Nonqualified Options”), either or both as provided in the agreements evidencing the options or warrants described in Section 5 hereof and shares of preferred stock. As provided in the designation described in Section 7. Employees, consultants and directors who participate or become eligible to participate in this Plan from time to time are referred to collectively herein as “Participants”. As used in this Plan, the term “Affiliates” means any “parent corporation” of the Company and any “subsidiary corporation” of the Company within the meaning of Code Sections 424(e) and (f), respectively.

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SECTION 2. ADMINISTRATION OF THE PLAN.

(a)Composition of Committee. The Plan shall be administered by the Board of Directors of the Company (the “Board”). When acting in such capacity the Board is herein referred to as the “Committee,” which shall also designate the Chairman of the Committee. If the Company is

governed by Rule 16b-3 promulgated by the Securities and Exchange Commission (“Commission”) pursuant to the Securities Exchange Act of 1934, as amended (“Exchange Act”), no director shall serve as a member of the Committee unless he or she is a “disinterested person” within the meaning of such Rule 16b-3.

(b)Committee Action. The Committee shall hold its meetings at such times and places as it may determine. A m ajority of its members shall constitute a quorum, and all determinations of the Committee shall be made by not less than a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be fully as effective as if it had been made by a majority vote of its members at a meeting duly called and held. The Committee may designate the Secretary of the Company or other Company employees to assist the Committee in the administration of the Plan, and may grant authority to such persons to execute award agreements or other documents on behalf of the Committee and the Company. Any duly constituted committee of the Board satisfying the qualifications of this Section 2 may be appointed as the Committee.

(c)Committee Expenses. All expenses and liabilities incurred by the Committee in the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants or other persons.

SECTION 3. STOCK RESERVED FOR THE PLAN. Subject to adjustment as provided in Section 5(d)(xiii) hereof, the aggregate number of shares that may be optioned, subject to conversion or issued under the Plan is 10,000,000 shares of Common Stock, warrants, options, preferred stock or any combination thereof. The shares subject to the Plan shall consist of authorize d but unissued shares of Common Stock and such number of shares shall be and is hereby reserved for sale for such purpose. Any of such shares which may remain unsold and which are not subject to issuance upon exercise of outstanding options or warrants or conversion of outstanding shares of preferred stock at the termination of the Plan shall cease to be reserved for the purpose of the Plan, but until termination of the Plan or the termination of the last of the options or warrants granted under the Plan, whichever last occurs, the Company shall at all times reserve a sufficient number of shares to meet the requirements of the Plan. Should any option or warrant expire or be cancelled prior to its exercise in full, the shares theretofore subject to such option or warrant may again be made subject to an option, warrant or shares of convertible preferred stock under the Plan.

Immediately upon the grant of any option, warrant, shares of preferred stock or award, the number of shares of Common Stock that may be issued or optioned under the Plan will be

increased. The number of shares of such increase shall be an amount such that immediately after such increase the total number of shares issuable under the Plan and reserved for issuance upon exercise of outstanding options, warrants or conversion of shares of preferred stock will equal 15% of the total number of issued and outstanding shares of Common Stock of the Company. Such increase in the number of shares subject to the Plan shall occur without the necessity of any further corporate action of any kind or character.

SECTION 4. ELIGIBILITY. The Participants shall include directors, employees, including officers, of the Company and its divisions and subsidiaries, and consultants and attorneys who provide bona fide services to the Company. Participants are eligible to be granted warrants, options, restricted common or convertible preferred stock, unrestricted common or convertible preferred stock and other awards under this Plan and to have their bonuses and/or consulting fees payable in warrants, restricted common or convertible preferred stock, unrestricted common or convertible preferred stock and other awards. A Participant who has been granted an option, warrant or preferred stock hereunder may be granted an additional option, warrant options, warrants or preferred stock, if the Committee shall so determine.

SECTION 5. GRANT OF OPTIONS OR WARRANTS.

(a)Committee Discretion. The Committee shall have sole and absolute discretionary authority (i) to determine, authorize, and designate those persons pursuant to this Plan who are to receive warrants, options, restricted common or convertible preferred stock, or unrestricted common or convertible preferred stock under the Plan, (ii) to determine the number of shares of Common Stock to be covered by such grant or such options or warrants and the terms thereof, (iii) to determine the type of Common Stock granted: restricted common or convertible preferre d stock, unrestricted common or convertible preferred stock or a combination of restricted and unrestricted common or convertible preferred stock, and (iv) to determine the type of option or warrant granted: ISO, Nonqualified Option or a combination of ISO and Nonqualified Options. The Committee shall thereupon grant options or warrants in accordance with such determinations as evidenced by a written option or warrant agreement. Subject to the express provisions of the Plan, the Committee shall have discretionary authority to prescribe, amend and rescind rules and regulations relating to the Plan, to interpret the Plan, to prescribe and amend the terms of the option or warrant agreements (which need not be identical) and to make all other determinations deemed necessary or advisable for the administration of the Plan.

(b)Stockholder Approval. All ISOs granted under this Plan are subject to, and may not be exercised before, the approval of this Plan by the stockholders prior to the first anniversary date

of the Board meeting held to approve the Plan, by the affirmative vote of the holders of a majority of the outstanding shares of the Company present, or represented by proxy, and entitled to vote thereat, or by written consent in accordance with the laws of the State of New York, provided that if such approval by the stockholders of the Company is not forthcoming, all options or warrants and stock awards previously granted under this Plan other than ISOs shall be valid in all respects.

(c)Limi tation on Incentive Stock Options and Warrants. The aggregate fair market value (determined in accordance with Section 5(d)(ii) of this Plan at the time the option or warrant is granted) of the Common Stock with respect to which ISOs may be exercisable for the first time by any Participant during any calendar year under all such plans of the Company and its Affiliates shall not exceed $3,000,000.

(d)Terms and Conditions. Each option or warrant granted under the Plan shall be evidenced by an agreement, in a form approved by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions as the Committee may deem appropriate:

(i)Option or Warrant Period. The Committee shall promptly notify the Participant of the option or warrant grant and a written agreement shall promptly be executed and delivered by and on behalf of the Company and the Participant, provided that the option or warrant grant shall expire if a written agreement is not signed by said Participant (or his agent or attorney) and returned to the Company within 60 days from date of receipt by the Participant of such agreement. The date of grant shall b e the date the option or warrant is actually granted by the Committee, even though the written agreement may be executed and delivered by the Company and the Participant after that date. Each option or warrant agreement shall specify the period for which the option or warrant thereunder is granted (which in no event shall exceed ten years from the date of grant) and shall provide that the option or warrant shall expire at the end of such period. If the original term of an option or warrant is less than ten years from the date of grant, the option or warrant may be amended prior to its expiration, with the approval of the Committee and the Participant, to extend the term so that the term as amended is not more than ten years from the date of grant. However, in the case of an ISO granted to an individual who, at the time of grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or its Affiliate (“Ten Percent Stockholder”), such peri od shall not exceed five years from the date of grant.

(ii)Option or Warrant Price. The purchase price of each share of Common Stock subject to each option or warrant granted pursuant to the Plan shall be determined by the Committee at the time the option or warrant is granted and, in the case of ISOs, shall not be less than 100% of the fair market value of a share of Common Stock on the date the option or warrant is granted, as determined by the Committee. In the case of an ISO granted to a Ten Percent Stockholder, the option or warrant price shall not be less than 110% of the fair market value of a share of Common Stock on the date the option or warrant is granted. The purchase price of each share of Common Stock subject to a Nonqualified Option or Warrant under th is Plan shall be determined by the Committee prior to granting the option or warrant. The Committee shall set the purchase price for each share subject to a Nonqualified Option or Warrant at either the fair market value of each share on the date the option or warrant is granted, or at such other price as the Committee in its sole discretion shall determine. At the time a determination of the fair market value of a share of Common Stock is required to be made hereunder, the determination of its fair market value shall be made by the Committee in such manner as it deems appropriate.

(iii)Exercise Period. The Committee may provide in the option or warrant agreement that an option or warrant may be exercised in whole, immediately, or is to be exercisable in increments. In addition, the Committee may provide that the exercise of all or part of an option or warrant is subject to specified performance by the Participant.

(iv)Procedure for Exercise. Options or warrants shall be exercised in the manner specified in the option or warrant agreement. The notice of exercise shall specify the address to which the certificates for such shares are to be mailed. A Pa rticipant shall be deemed to be a stockholder with respect to shares covered by an option or warrant on the date specified in the option or warrant agreement . As promptly as practicable, the Company shall deliver to the Participant or other holder of the warrant, certificates for the number of shares with respect to which such option or warrant has been so exercised, issued in the holder’s name or such other name as holder directs; provided, however, that such delivery shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates with a carrier for overnight delivery, addressed to the holder at the address specified pursuant to this

Section 6(d).

(v)Termination of Employment. If an executive officer to whom an option or warrant is granted ceases to be employed by the Company for any reason other than death or disability, any option or warrant which is exercisable on the date of such termination of employment may be

exercised during a period beginning on such date and ending at the time set forth in the option or warrant agreement; provided, however, that if a Participant’s employment is terminated because of the Participant’s theft or embezzlement from the Company, disclosure of trade secrets of the Company or the commission of a willful, felonious act while in the employment of the Company (such reasons shall hereinafter be collectively referred to as “for cause”), then any option or warrant or unexercised portion thereof granted to said Participant shall expire upon such termination of employment Notwithstanding the foregoing, no ISO may be exercised later than three months after an employee’s termination of employment for any reason other than death or disability.

(vi)Disability or Death of Participant. In the event of the determination of disability or death of a Participant under the Plan while he or she is employed by the Company, the options or warrants previously granted to him may be exercised (to the extent he or she would have been entitled to do so at the date of the determination of disability or death) at any time and from time to time, within a period beginning on the date of such determination of disability or death and ending at the time set forth in the option or warrant agreement, by the former employee, the guardian of his estate, the executor or administrator of his estate or by the person or persons to whom his rights under the op tion or warrant shall pass by will or the laws of descent and distribution, but in no event may the option or warrant be exercised after its expiration under the terms of the option or warrant agreement. Notwithstanding the foregoing, no ISO may be exercised later than one year after the determination of disability or death. A Participant shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he or she is incapable of performing services for the Company of the kind he or she was performing at the time the disability occurred by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. The date of determination of disability for purposes hereof shall be the date of such determination by such physician.

(vii)Assignability. An option or warrant shall be assignable or otherwise transferable, in whole or in part, by a Participant as provided in the option, warrant or designation of the series of preferred stock.

(viii)Incentive Stock Options. Each option or warrant agreement may contain such terms and provisions as the Committee may determine to be necessary or desirable in order to qualify an option or warrant designated as an incentive stock option.

(ix)Restricted Stock Awards. Awards of restricted stock under this Plan shall be subject to all the applicable provisions of this Plan, including the following terms and conditions, and to such other terms and conditions not inconsistent therewith, as the Committee shall determine:

(A)Awards of restricted stock may be in addition to or in lieu of option or warrant grants. Awards may be conditioned on the attainment of particular performance goals based on criteria established by the Committee at the time of each award of restricted stock. During a period set forth in the agreement (the “Restriction Period”), the recipient shall not be permitted to sell, transfer, pledge, or otherwise encumber the shares of restricted stock; except that such shares may be used, if the agreement permits, to pay the option or warrant price pursuant to any option or warrant granted under this Plan, provided an equal number of shares delivered to the Participant shall carry the same restrictions as the shares so used. Shares of restricted stock shall become free of all restrictions if during the Restriction Period, (i) the recipient dies, (ii) the recipient’s directorship, employment, or consultancy terminates by reason of permanent disability, as determined by the Committee, (iii) the recipient retires after attaining both 59 1/2 years of age and five years of continuous service with the Company and/or a division or subsidiary, or (iv) if provided in the agreement, there is a “change in control” of the Company (as defined in such agreement). The Committee may require medical evidence of permanent disability, including medical examinations by physicians selected by it. Unless and to the extent otherwise provided in the agreement, shares of restricted stock shall be forfeited and revert to the Company upon the recipient’s termination of directorship, employment or consultancy during the Restriction Period for any reason other than death, permanent disability, as determined by the Committee, retirement after attaining both 59 1/2 years of age and five years of continuous service with the Company and/or a subsidiary or division, or, to the extent provided in the agreement, a “change in control” of the Company (as defined in such agreement), except to the extent the Committee, in its sole discretion, finds tha t such forfeiture might not be in the best interests of the Company and, therefore, waives all or part of the application of this provision to the restricted stock held by such recipient. Certificates for restricted stock shall be registered in the name of the recipient but shall be imprinted with the appropriate legend and returned to the Company by the recipient, together with a stock power endorsed in blank by the recipient. The recipient shall be entitled to vote shares of restricted stock and shall be entitled to all dividends paid thereon, except that dividends paid in Common Stock or other property shall also be subject to the same restrictions.

(B)Restricted Stock shall become free of the foregoing restrictions upon expiration of the applicable Restriction Period and the Company shall then deliver to the recipient Common Stock certificates evidencing such stock. Restricted stock and any Common Stock received upon the expiration of the restriction period shall be subject to such other transfer restrictions and/or legend requirements as are specified in the applicable agreement.

(x)Bonuses and Past Salaries and Fees Payable in UnrestrictedStock.

(A)In lieu of cash bonuses otherwise payable under the Company’s or applicable division’s or subsidiary’s compensation practices to employees and consultants eligible to participate in this Plan, the Committee, in its sole discretion, may determine that such bonuses shall be payable in unrestricted Common Stock or partly in unrestricted Common Stock and partly in cash. Such bonuses shall be in consid eration of services previously performed and as an incentive toward future services and shall consist of shares of unrestricted Common Stock subject to such terms as the Committee may determine in its sole discretion. The number of shares of unrestricted Common Stock payable in lieu of a bonus otherwise payable shall be determined by dividing such bonus amount by the fair market value of one share of Common Stock on the date the bonus is payable, with fair market value determined as of such date in accordance with Section 5(d)(ii).

(B)In lieu of salaries and fees otherwise payable by the Company to employee s, attorneys and consultants eligible to participate in this Plan that were incurred for services rendered during, prior or after the year of 2004, the Committee, in its sole discretion, may determine that such unpaid salaries and fees shall be payable in unrestricted Common Stock or partly in unrestricted Common Stock and partly in cash. Such awards shall be in consideration of services previously performed and as an incentive toward future services and shall consist of shares of unrestricted Common Stock subject to such terms as the Committee may determine in its sole discretion. The number of shares of unrestricted Common Stock payable in lieu of a salaries and fees otherwise payable shall be determined by dividing each calendar month’s of unpaid salary or fee amount by the average trading value of the Common Stock for the calendar month during which the subject services were provided.

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(xi)No Rights as Stockholder. No Participant shall have any rights as a stockholder with respect to shares covered by an option or warrant until the option or warrant is exercised as provided in clause (d) above.

(xii)Extraordinary Corporate Transactions. The existence of outstanding options or warrants shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, exchanges, or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issuance of Common Stock or other securities or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, o r any other corporate act or proceeding, whether of a similar character or otherwise. If the Company recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all of its assets or dissolves (each of the foregoing a “Fundamental Change”), then thereafter upon any exercise of an option or warrant theretofore granted the Participant shall be entitled to purchase under such option or warrant, in lieu of the number of shares of Common Stock as to which option or warrant shall then be exercisable, the number and class of shares of stock and securities to which the Participant would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Participant had been the holder of record of the number of shares of Common Stock as to which such option or warrant is then exercisable. If (i) the Company shall not be the surviving entity in any merger or consolidation (or survives only as a subsidiary of another entity), (i i) the Company sells all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary), (iii) any person or entity (including a “group” as contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock, (iv) the Company is to be dissolved and liquidated, or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board (each such event in clauses (i) through (v) above is referred to herein as a “Corporate Change”), the Committee, in its sole discretion, may accelerate the time at which all or a portion of a Participant’s option or warrants may be exercised for a limited period of time before or after a specified date.

(xiii)Changes in Company’s Capital Structure. If the outstanding shares of Common Stock or other securities of the Company, or both, for which the option or warrant is then exercisable at any time be changed or exchanged by declaration of a stock dividend, stock split, combination of shares, recapitalization, or reorganization, the number and kind of shares of Common Stock or other securities which are subject to the Plan or subject to any options or warrants theretofore granted, and the option or warrant prices, shall be adjusted only as provided in the option or warrant.

(xiv)Acceleration of Options and Warrants. Except as hereinbefore expressly provided, (i) the issuance by the Company of shares of stock or any class of securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, (ii) the payment of a dividend in property other than Common Stock or (iii) the occurrence of any similar transaction, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to o ptions or warrants theretofore granted or the purchase price per share, unless the Committee shall determine, in its sole discretion, that an adjustment is necessary to provide equitable treatment to Participant. Notwithstanding anything to the contrary contained in this Plan, the Committee may, in its sole discretion, accelerate the time at which any option or warrant may be exercised, including, but not limited to, upon the occurrence of the events specified in this Section 5, and is authorized at any time (with the consent of the Participant) to purchase options or warrants pursuant to Section 6.

SECTION 6. RELINQUISHMENT OF OPTIONS OR WARRANTS.

(a)The Committee, in granting options or warrants hereunder, shall have discretion to determine whether or not options or warrants shall include a right of relinquishment as hereinafter provided by this Section 6. The Committee shall also have discretion to determine whether an option or warrant agreement evidencing an option or warrant initially granted by the Committee without a right of relinquishment shall be amended or supplemented to include such a right of relinquishment. Neither the Committee nor the Company shall be under any obligation or incur any liability to any person by reason of the Committee’s refusal to grant or include a right of relinquishment in any o ption or warrant granted hereunder or in any option or warrant agreement evidencing the same. Subject to the Committee’s determination in any case that the grant by it of a right of relinquishment is consistent with Section 1 hereof, any option or warrant granted under this Plan, and the option or warrant agreement evidencing such option or warrant, may provide:

(i)That the Participant, or his or her heirs or other legal representatives to the extent entitled to exercise the option or warrant under the terms thereof, in lieu of purchasing the entire number of shares subject to p urchase thereunder, shall have the right to relinquish all or any part of the then unexercised portion of the option or warrant (to the extent then exercisable) for a number of shares of Common Stock to be determined in accordance with the following provisions of this clause (i):

(A)The written notice of exercise of such right of relinquishment shall state the percentage of the total number of shares of Common Stock issuable pursuant to such relinquishment (as defined below) that the Participant elects to receive;

(B)The number of shares of Common Stock, if any, issuable pursuant to such relinquishment shall be the number of such shares, rounded to the next greater number of full shares, as shall be equal to the quotient obtained by dividing (i) the Appreciated Value by (ii) the purchase price for each of such shares specified in such option or warrant;

(C)For the purpose of this clause (C), “Appreciated Value” means the excess, if any, of (x) the total current market value of the shares of Common Stock covered by the option or warrant or the portion thereof to be relinquished over (y) the total purchase price for such shares specified in such option or warrant;

(ii)That such right of relinquishment may be exercised only upon receipt by the Company of a written notice of such relinquishment which shall be dated the date of election to make such relinquishment; and that, for the purposes of this Plan, such date of election shall be deemed to be the date when such notice is sent by registered or certified mail, or when receipt is acknowledged by the Company, if mailed by other than registered or certified mail or if delivered by hand or by any telegraphic communications equipment of the sender or otherwise delivered; provided, that, in the event the method just described for determining su ch date of election shall not be or remain consistent with the provisions of Section 16(b) of the Exchange Act or the rules and regulations adopted by the Commission thereunder, as presently existing or as may be hereafter amended, which regulations exempt from the operation of Section 16(b) of the Exchange Act in whole or in part any such relinquishment transaction, then such date of election shall be determined by such other method consistent with Section 16(b) of the Exchange Act or the rules and regulations thereunder as the Committee shall in its discretion select and apply;

(iii)That the & #147;current market value” of a share of Common Stock on a particular date shall be deemed to be its fair market value on that date as determined in accordance with Paragraph 5(d)(ii); and

(iv)That the option or warrant, or any portion thereof, may be relinquished only to the extent that (A) it is exercisable on the date written notice of relinquishment is received by the Company, and (B) the holder of such option or warrant pays, or makes provision satisfactory to

the Company for the payment of, any taxes which the Company is obligated to collect with respect to such relinquishment.

(b)The Committee shall have sole discretion to consent to or disapprove, and neither the Committee nor the Company shall be under any liability by reason of the Committee’s disapproval of, any election by a holder of preferred stock to relinquish such preferred stock in whole or in part as provided in Paragraph 7(a), except that no such consent to or approval of a relinquishment shall be required under the following circumstances. Each Participant who is subject to the short-swing profits recapture provisions of Section 16(b) of the Exchange Act (“Covered Participant”) shall not be entitled to receive shares of Common Stock when options or warrants are relinquished during any window period commencing on the third business day following the Company’s release of a quarterly or annual summary statement of sales and earnings and ending on the twelfth business day following such release (“Window Period”). A Covered Participant shall be entitled to receive shares of Common Stock upon the relinquishment of options or warrants outside a Window Period.

(c)The Committee, in granting options or warrants hereunder, shall have discretion to determine the terms upon which such options or warrants shall be relinquishable, subject to the applicable provisions of this Plan, and including such provisions as are deemed advisable to permit the exemption from the operation from Section 16(b) of the Exchange Act of any such relinquishment transaction, and options or warrants outstanding, and option agreements evidencing such options, may be amended, if necessary, to permit such exemption. If options or warrants are relinquished, such option or warrant shall be deemed to have been exercised to the extent of the number of shares of Common Stock covered by the option or warrant or part thereof which is relinquished, and no further options or warrants may be granted covering such shares of Common Stock.

(d)Any options or warrants or any right to relinquish the same to the Company as contemplated by this Paragraph 6 shall be assignable by the Participant, provided the transaction complies with any applicable securities laws.

(e)       & #160;   Except as provided in Section 6(f) below, no right of relinquishment may be exercised within the first six months after the initial award of any option or warrant containing, or the amendment or supplementation of any existing option or warrant agreement adding, the right of relinquishment.

(f)No right of relinquishment may be exercised after the initial award of any option or warrant containing, or the amendment or supplementation of any existing option or warrant agreement adding the right of relinquishment, unless such right of relinquishment is effective upon the Participant’s death, disability or termination of his relationship with the Company for a reason other than “for cause.”

SECTION 7. GRANT OF C ONVERTIBLE PREFERRED STOCK.

(a)Committee Discretion. The Committee shall have sole and absolute discretionary authority (i) to determine, authorize, and designate those persons pursuant to this Plan who are to receive restricted preferred stock, or unrestricted preferred stock under the Plan, and (ii) to determine the number of shares of Common Stock to be issued upon conversion of such shares of preferred stock and the terms thereof. The Committee shall thereupon grant shares of preferred stock in accordance with such determinations as evidenced by a written preferred stock designation. Su bject to the express provisions of the Plan, the Committee shall have discretionary authority to prescribe, amend and rescind rules and regulations relating to the Plan, to interpret the Plan, to prescribe and amend the terms of the preferred stock designation (which need not be identical) and to make all other determinations deemed necessary or advisable for the administration of the Plan.

(b)Terms and Conditions. Each series of preferred stock granted under the Plan shall be evidenced by a designation in the form for filing with the Secretary of State of the state of incorporation of the Company, containing such terms as approved by the Committee, which shall be subject to the following express terms and conditions and to such other terms and conditions as the Committee may deem appropriate:

(i)Conversion Ratio. The number of shares of Common Stock issuable upon conversion of each share of preferred stock granted pursuant to the Plan shall be determined by the Committee at the time the preferred stock is granted. The conversion ration may be determined by reference to the fair market value of each share of Common Stock on the date the preferred stock is granted, or a t such other price as the Committee in its sole discretion shall determine. At the time a determination of the fair market value of a share of Common Stock is required to be made hereunder, the determination of its fair market value shall be made in accordance with Paragraph 5(d)(ii).

(ii)Conversion Period. The Committee may provide in the preferred stock agreement that an preferred stock may be converted in whole, immediately, or is to be convertible in

increments. In addition, the Committee may provide that the conversion of all or part of an preferred stock is subject to specified performance by the Participant.

(iii)Procedure for Conversion. Shares of preferred stock shall be converted in the manner specified in the preferred stock designation. The notice of conversion shall specify the address to which the certificates for such shares are to be mailed. A Participant shall be deemed to be a s tockholder with respect to shares covered by preferred stock on the date specified in the preferred stock agreement. As promptly as practicable, the Company shall deliver to the Participant or other holder of the warrant, certificates for the number of shares with respect to which such preferred stock has been so converted, issued in the holder’s name or such other name as holder directs; provided, however, that such delivery shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited such certificates with a carrier for overnight delivery, addressed to the holder at the address specified pursuant to this Section 6(d).

(iv)   ;        Termination of Employment. If an executive officer to whom preferred stock is granted ceases to be employed by the Company for any reason other than death or disability, any preferred stock which is convertible on the date of such termination of employment may be converted during a period beginning on such date and ending at the time set forth in the preferred stock agreement; provided, however, that if a Participant’s employment is terminated because of the Participant’s theft or embezzlement from the Company, disclosure of trade secrets of the Company or the commission of a willful, felonious act while in the employment of the Company (such reasons shall hereinafter be collectively referred to as “for cause”), then any preferred stock or unconverted portion thereof granted to said Participant shall expire upon such termination of employment. Notwithstanding the foregoing, no ISO may be converted later than three months after an employee’s termination of employment for any reason other than death or disability.

(v)Disability or Death of Participant. In the event of the determination of disability or death of a Participant under the Plan while he or she is employed by the Company, the preferred stock previously granted to him may be converted (to the extent he or she would have been entitled to do so at the date of the determination of disability or death) at any time and from time to time, within a period beginning on the date of such determination of d isability or death and ending at the time set forth in the preferred stock agreement, by the former employee, the guardian of his estate, the executor or administrator of his estate or by the person or persons to whom his rights under the preferred stock shall pass by will or the laws of descent and distribution, but in no event may the preferred stock be converted after its expiration under the

terms of the preferred stock agreement. Notwithstanding the foregoing, no ISO may be converted later than one year after the determination of disability or death. A Participant shall be deemed to be disabled if, in the opinion of a physician selected by the Committee, he or she is incapable of performing services for the Company of the kind he or she was performing at the time the disability occurred by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long, continued and indefinite duration. The date of determination of disability for purposes hereof shall be the date of such determination by such physician.

(vi)Assignability. Preferred stock shall be assignable or otherwise transferable, in whole or in part, by a Participant.

(vii)Restricted Stock Awards. Awards of restricted preferred stock under this Plan shall be subject to all the applicable provisions of this Plan, including the following terms and conditions, and to such other ter ms and conditions not inconsistent therewith, as the Committee shall determine:

(A)Awards of restricted preferred stock may be in addition to or in lieu of preferred stock grants. Awards may be conditioned on the attainment of particular performance goals based on criteria established by the Committee at the time of each award of restricted preferred stock. During a period set forth in the agreement (the “Restriction Period”), the recipient shall not be permitted to sell, transfer, pledge, or otherwise encumber the shares of restricted preferred stock. Shares of restricted preferred stock shall become f ree of all restrictions if during the Restriction Period, (i) the recipient dies, (ii) the recipient’s directorship, employment, or consultancy terminates by reason of permanent disability, as determined by the Committee, (iii) the recipient retires after attaining both 59 1/2 years of age and five years of continuous service with the Company and/or a division or subsidiary, or (iv) if provided in the agreement, there is a “change in control” of the Company (as defined in such agreement). The Committee may require medical evidence of permanent disability, including medical examinations by physicians selected by it. Unless and to the extent otherwise provided in the agreement, shares of restricted preferred stock shall be forfeited and revert to the Company upon the recipient’s termination of directorship, employment or consultancy during the Restriction Period for any reason other than death, permanent disability, as determined by the Committee, retirement after attaining both 59 1/2 year s of age and five years of continuous service with the Company and/or a subsidiary or division, or, to the extent provided in the agreement, a “change in control” of the Company (as defined in such agreement), except to the extent the Committee, in its sole discretion, finds that such forfeiture might not be in

the best interests of the Company and, therefore, waives all or part of the application of this provision to the restricted preferred stock held by such recipient. Certificates for restricted preferred stock shall be registered in the name of the recipient but shall be imprinted with the appropriate legend and returned to the Company by the recipient, together with a preferred stock power endorsed in blank by the recipient. The recipient shall be entitled to vote shares of restricted preferred stock and shall be entitled to all dividends paid thereon, except that dividends paid in Common Stock or other property shall also be subject to the same restrictions.

(B)Restricted preferred stock shall become free of the foregoing restrictions upon expiration of the applicable Restriction Period and the Company shall then deliver to the recipient Common Stock certificates evidencing such stock. Restricted preferred stock and any Common Stock received upon the expiration of the restriction period shall be subject to such other transfer restrictions and/or legend requirements as are specified in the applicable agreement.

(x)Bonuses and Past Salaries and Fees Payable in Unrestricted Preferred stock.

(A)In lieu of cash bonuses otherwise payable under the Company’s or applicable division’s or subsidiary’s compensation practices to employees and consultants eligible to participate in this Plan, the Committee, in its sole discretion, may determine that such bonuses shall be payable in unrestricted Common Stock or partly in unrestricted Common Stock and partly in cash. Such bonuses shall be in consideration of services previously performed and as an incentive toward future services and shall consist of shares of unrestricted Common Stock subject to such terms as the Committee may determine in its sole discretion. The number of shares of unrestricted Common Stock payable in lieu of a bonus otherwise payable shall be determined by dividing such bonus amount by the fair market value of one share of Common Stock on the date the bonus is payable, with fair market value determined as of such date in accordance with Section 5(d)(ii).

(B)In lieu of salaries and fees otherwise payable by the Company to employees, attorneys and consultants eligible to partic ipate in this Plan that were incurred for services rendered during, prior or after the year of 2004, the Committee, in its sole discretion, may determine that such unpaid salaries and fees shall be payable in unrestricted Common Stock or partly in unrestricted Common Stock and partly in cash. Such awards shall be in consideration of services previously performed and as an incentive toward future services and shall consist of shares of unrestricted Common Stock subject to such terms as the Committee may determine in

its sole discretion. The number of shares of unrestricted Common Stock payable in lieu of a salaries and fees otherwise payable shall be determined by dividing each calendar month’s of unpaid salary or fee amount by the average trading value of the Common Stock for the calendar month during which the subject services were provided.

(xi)No Rights as Stockholder. No Participant shall have any rights as a stockholder with respect to share s covered by an preferred stock until the preferred stock is converted as provided in clause (b)(iii) above.

(xii)Extraordinary Corporate Transactions. The existence of outstanding preferred stock shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations, exchanges, or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issuance of Common Stock or other securities or subscription rights thereto, or any issuance of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If the Company recapitalizes or otherwise changes its capital structure, or merges, consolidates, sells all of its assets or dissolves (each of the foregoing a “Fundamental Change”), then thereafter upon any conversion of preferred stock theretofore granted the Participant shall be entitled to the number of shares of Common Stock upon conversion of such preferred stock, in lieu of the number of shares of Common Stock as to which preferred stock shall then be convertible, the number and class of shares of stock and securities to which the Participant would have been entitled pursuant to the terms of the Fundamental Change if, immediately prior to such Fundamental Change, the Participant h ad been the holder of record of the number of shares of Common Stock as to which such preferred stock is then convertible. If (i) the Company shall not be the surviving entity in any merger or consolidation (or survives only as a subsidiary of another entity), (ii) the Company sells all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary), (iii) any person or entity (including a “group” as contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains ownership or control of (including, without limitation, power to vote) more than 50% of the outstanding shares of Common Stock, (iv) the Company is to be dissolved and liquidated, or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board (each such event in clauses (i) through (v) above is referred to herein as a “Corporate Change”), the Committee , in its sole discretion, may accelerate the time at

which all or a portion of a Participant’s shares of preferred stock may be converted for a limited period of time before or after a specified date.

(xiii)Changes in Company’s Capital Structure. If the outstanding shares of Common Stock or other securities of the Company, or both, for which the preferred stock is then convertible at any time be changed or exchanged by declaration of a stock dividend, stock split, combination of shares, recapit alization, or reorganization, the number and kind of shares of Common Stock or other securities which are subject to the Plan or subject to any preferred stock theretofore granted, and the conversion ratio, shall be adjusted only as provided in the designation of the preferred stock.

(xiv)Acceleration of Conversion of Preferred Stock. Except as hereinbefore expressly provided, (i) the issuance by the Company of shares of stock or any class of securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the conversion of rights or warrants to subscri be therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, (ii) the payment of a dividend in property other than Common Stock or (iii) the occurrence of any similar transaction, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Common Stock subject to preferred stock theretofore granted, unless the Committee shall determine, in its sole discretion, that an adjustment is necessary to provide equitable treatment to Participant. Notwithstanding anything to the contrary contained in this Plan, the Committee may, in its sole discretion, accelerate the time at which any preferred stock may be converted, including, but not limited to, upon the occurrence of the event specified in this Section 7(xiv).

SECTION 8. AMENDMENTS OR TERMINATION. The Board may amend, alter or discontinue the Plan, but no amendment or alteration shall be made which would impair the rights of any Participant, without his consent, under any option, warrant or preferred stock theretofore granted.

SECTION 9. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and exercise of options or warrants and grant and conversion of preferred stock thereunder, and the obligation of the Company to sell and deliver shares under such options, warrants or preferred stock, shall be subject to all applicable federal and state laws, rules and regulations and to such approvals by any governmental or regulatory agency as may be required. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to the completion of any registration or qualification of such shares under any federal or state law or issuance of any ruling or regulation of any government body which the Company shall, in its

sole discretion, determine to be necessary or advisable. Any adjustments provided for in subparagraphs 5(d)(xii), (xiii) and (xiv) shall be subject to any shareholder action required by the corporate law of the state of incorporation of the Company.

SECTION 10. PURCHASE FOR INVESTMENT. Unless the options, warrants, shares of convertible preferred stock and shares of Common Stock covered by this Plan have been registered under the Securities Act of 1933, as amended, or the Company has determined that such registration is unnecessary, each person acquiring or exercising an option or warra nt under this Plan or converting shares of preferred stock may be required by the Company to give a representation in writing that he or she is acquiring such option or warrant or such shares for his own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof.

SECTION 11. TAXES.

(a)The Company may make such provisions as it may deem appropriate for the withholding of any taxes which it determines is required in connection with any options, warrants or preferred stock granted under this Plan.

(b)Notwithstanding the terms of Paragraph 11 (a), any Participant may pay all or any portion of the taxes required to be withheld by the Company or paid by him or her in connection with the exercise of a nonqualified option or warrant or conversion of preferred stock by electing to have the Company withhold shares of Common Stock, or by delivering previousl y owned shares of Common Stock, having a fair market value, determined in accordance with Paragraph 5(d)(ii), equal to the amount required to be withheld or paid. A Participant must make the foregoing election on or before the date that the amount of tax to be withheld is determined (“Tax Date”). All such elections are irrevocable and subject to disapproval by the Committee. Elections by Covered Participants are subject to the following additional restrictions: (i) such election may not be made within six months of the grant of an option or warrant, provided that this limitation shall not apply in the event of death or disability, and (ii) such election must be made either six months or more prior to the Tax Date or in a Window Period. Where the Tax Date in respect of an option or warrant is deferred until six months after exercise and the Covered Participant elects share withholding, the full amount of shares of Common Stock will be issued or transferred to him upon exercise of the option or warra nt, but he or she shall be unconditionally obligated to tender back to the Company the number of shares necessary to discharge the Company’s withholding obligation or his estimated tax obligation on the Tax Date.

SECTION 12. REPLACEMENT OF OPTIONS, WARRANTS AND PREFERRED STOCK.

The Committee from time to time may permit a Participant under the Plan to surrender for cancellation any unexercised outstanding option or warrant or unconverted Preferred stock and receive from the Company in exchange an option, warrant or preferred stock for such number of shares of Common Stock as may be designated by the Committee. The Committee may, with the consent of the holder of any outstanding option, warrant or preferred stock, amend such option, warrant or preferred stock, including reducing the exercise price of any option or warrant to not less than the fair market value of the Common Stock at the time of the amendment, increasing the conversion ratio of any preferred stock and extending the exercise or conversion term of and warrant, option or preferred stock.

SECTION 13. NO RIGHT TO COMPANY EMPLOYMENT. Nothing in this Plan or as a result of any option or warrant granted pursuant to this Plan shall confer on any individual any right to continue in the employ of the Company or interfere in any way with the right of the Company to terminate an individual’s employment at any time. The option, warrant or preferred stock agreements may contain such provisions as the Committee may approve with reference to the effect of approved leaves of absence.

SECTION 14. LIABILITY OF COMPANY. The Company and any Affiliate which is in existence or hereafter comes into existence shall not be liable to a Participant or other persons as to:

(a)The Non-Issuance of Shares. The non-issuance or sale of shares as to which the Company has been unable to obtain from any regulatory body having jurisdiction the authority deeme d by the Company’s counsel to be necessary to the lawful issuance and sale of any shares hereunder; and

(b)Tax Consequences. Any tax consequence expected, but not realized, by any Participant or other person due to the exercise of any option or warrantor the conversion of any preferred stock granted hereunder.

SECTION 15. EFFECTIVENESS AND EXPIRATION OF PLAN. The Plan shall be effective on the date the Board adopts the Plan. The Plan shall expire ten years after the date the Board approves the Plan and thereafter no option, warrant or preferred stock shall be granted pursuant to the Plan.

SECTION 16. NON-EXCLUSIVITY OF THE PLAN. Neither the adoption by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as

creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of restricted stock or stock options, warrants or preferred stock otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

SECTION 17. GOVERNING LAW. This Plan and any agreements hereunder shall be interpreted and construed in accordance with the laws of the state of incorporation of the Company and applicable federal law.

SECTION 18. CASHLESS EXERCISE. The Committee also may allow cashless exercises as permitted under Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions. or by any other means which the Committee determines to be consistent with the Plan’s purpose and applicable law. The proceeds from such a payment shall be added to the general funds of the Company and shall be used for general corporate purposes.

EX-10.12

Exhibit 10.12

Collaborative Research Agreement

New Horizons Diagnostic (“New Horizons”), a Maryland corporation with an address at 9110 Red Branch Road, Columbia, Maryland 21045, and Power3 Medical Products, Inc. (“Power3”), with an address of 3400 Research Forest Drive, The Woodlands, TX  77381, enter into this Collaborative Research Agreement (“Agreement”) for the development and evaluation of a diagnostic tool for Neurodegenerative Disease.  This Agreement is effective as of March 21, 2005 (“Effective Date”).

1.SCOPE OF WORK.

1.1Within 60 days after the Effective Date, Power3 and New Horizons will develop an agreed upon time schedule and budget for accomplishing the Schedule of Work set forth under this Section and in Exhibit A.  The time schedule and budget will clearly define the obligations of each party and the expenses to be encumbered by each party.

1.2As soon as practicable after the Effective Date, Power3 will disclose to New Horizons, the identity of protein biomarkers for neurological disease and related information as set forth under Phase I of Exhibit A.

1.3Technical personnel of Power3 and New Horizons will meet to determine the most efficacious way to pursue the expression of the protein biomarkers as set forth under Phase III of Exhibit A.  Power3 and New Horizons shall work together to select which biomarkers to pursue first and to achieve milligram quantities of those protein biomarkers.

1.4Once sufficient quantities of a protein biomarker become available, New Horizons will initiate the production of monoclonal and polyclonal antibodies to that biomarker as set forth in Phase IV of Exhibit A.

1.5The technical personnel of Power3 and New Horizons will determine which biomarker antibodies to include in one or more diagnostic assays.  Once the antibodies to be included in a diagnostic assay become available, New Horizons and Power3 will initiate the development and validation of a diagnostic assay for a neurodegenerative or other disease pursuant to Phase V of Exhibit A.

1.6Technical personnel of Power3 will be available on a reasonable basis during the term of this Agreement to consult with New Horizons and provide assistance to New Horizons in the performance of Phases II, III, IV and V.

1.7New Horizons Diagnostics will co-develop with Power3 a test comparable to the standard serum test now run from a whole blood spot card.

1.8New Horizons Diagnostics will assist in expanding the testing platform currently developed (and future platforms) into other geographical locations where it has influences.

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1.9New Horizons Diagnostics will assist Power3 to raise the required capital (government or private) to enable the validation of the technology and test development.

2.CONFIDENTIALITY.  For the purposes of this Agreement, the term “Information” shall mean all information provided by either party to the other for the purposes of fulfilling this Agreement which the disclosing party shall deliver to the receiving party, marked “Confidential”, and all oral material which the disclosing party declares to be confidential and confirms such declaration in writing within thirty (30) days of disclosure.  The receiving party agrees to maintain the Information in confidence with the same degree of care it holds its own confidential information.  The receiving party will not use the Information except for the work described in Exhibit A and Section 1 of this Agreement.  The receiving party will disclose the Information only to its officers and employees directly concerned with the work, but will neither disclose Information to any third party nor use the Information for any other purpose.  All obligations of the receiving party under this Agreement shall survive the termination of this Agreement for a period of five (5) years.

3.EXCEPTIONS TO CONFIDENTIALITY.  The receiving party’s obligation of nondisclosure and the limitations upon the right to use the Information shall not apply to the extent that the receiving party can demonstrate by written documentation that the Information: (a) was in the possession of receiving party prior to the time of disclosure; or (b) is or becomes public knowledge through no fault or omission of receiving party; or (c) is obtained by receiving party from a third party under no obligation of confidentiality to the disclosing party; or (d) is ordered to be disclosed by a court of law.

4.CONSIDERATION.    New Horizons Diagnostics (NHD) and Power3 will work together to achieve the goals of Phases II, III, IV and V of Exhibit A for the development of at least one successful diagnostic kit for monitoring the presence of neurological and/or other diseases.  In the event that the goals of Phases II, III, IV and V are achieved, NHD will be compensated in any of the following fashions:

1.NHD will receive a business agreement to manufacture at least one key component of any diagnostic kit developed under this Agreement.

2.NHD will receive royalties on the sale of any diagnostic kit developed under this Agreement.

3.NHD will form a joint venture with Power3 for the commercialization of at least one diagnostic kit developed under this Agreement.

4.NHD will receive a reasonable percentage of any cash consideration that Power3 receives from a third party for the technology and/or diagnostic kit developed under this Agreement.

NHD realizes that it is too early to commit to precise numbers for the above considerations.  Both parties agree to be reasonable in assessing these.  If there is any disagreement they agree to arbitration by a mutually acceptable third party.

5.DISCLAIMER OF WARRANTIES.  THE INFORMATION THAT NEW HORIZONS SHALL RECEIVE, HAVE ACCESS TO, AND/OR BECOME FAMILIAR

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WITH PURSUANT TO THIS AGREEMENT IS PROVIDED “AS IS” AND “WHERE IS.”  THERE ARE NO REPRESENTATIONS OR WARRANTIES BY POWER3, EXPRESSED OR IMPLIED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

6.PUBLICITY.  No press releases or other statements, intended for use in the public or private media, in connection with this Agreement shall be made by Power3 or New Horizons without the prior written consent of the other Party.  If either Party is required by law or governmental regulation to describe its relationship to the other, it shall promptly give the other Party notice with a copy of any disclosure it proposes to make.  This does not include internal documents available to the public, which identify the existence of this agreement.

7.INDEMNIFICATION.  Each Party shall defend, indemnify and hold harmless the other Party, its employees, directors, trustees and officers (“Indemnities”), from and against any and all liability which an Indemnitee may incur by reason of the other Party’s use of the Information or results of the work, except to the extent arising from the negligence or willful malfeasance of the Indemnities.

8.ENTIRE AGREEMENT.  This Agreement sets forth the entire agreement between Power3 and New Horizons as to its subject matter.  None of the terms of this agreement shall be amended except in a writing signed by both parties.

9.BREACH.  If either party breaches this agreement, the other may terminate it if the breaching party does not cure the breach within thirty (30) days of written notice of the same.  The right of termination shall be in addition to any other rights the terminating party may have, at law or equity, pursuant to this Agreement.

10.COMPLIANCE WITH LAWS.  Both New Horizons and Power3 shall comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any government authority in handling or disposing of biological reagents.

11.CHOICE OF LAW.  This Agreement shall be construed in accordance with the laws of the State of Texas.

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IN WITNESS WHEREOF, the parties hereto have caused their duly authorized representatives to execute this Agreement.

Agreed:				Agreed:
Power3 Medical Products, Inc.				New Horizons Diagnostic Corporation
By:	/s/Steven B. Rash			By:	/s/Lawrence Loomis
Name:			Steven B. Rash			Name:		Lawrence Loomis
Title:		Chairman/CEO				Title:	President
Date:		3/21/05				Date:	3/21/05

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Exhibit A

Scope of Work

Phase IBiomarker Identification

1.Biomarker Identification

2.Accession Number in NCBI or Swiss Database

3.Protein and/or DNA sequence

4.Clinical and Patient data related to the Biomarker

Phase IIDevelopment of Diagnostic Test based upon current technology

1.NHD will develop, in conjunction with Power3 a test device and procedure that will enable Power3 to get results from a whole blood spot (on a card) comparable to their current results obtained from patient serum.

Phase IIIProtein Expression of Non-Commercially Available Biomarkers

1.Construct cDNA clone

2.Express at least 2 mg protein for injection

Phase IVAntibody Development and Evaluation

1.Determine Antibody Specifications (specificity, affinity, cross-reactivity, etc.)

1.Immunize Host

2.Produce Antibodies

3.Construct Antibody Libraries

4.Evaluate Antibodies

5.Deliver Antibodies that meet Specifications

Phase V.Diagnostic Kit Development

1.Identify Antibodies for Differential Diagnosis

2.Design and Develop Diagnostic Kit

3.Validation of Diagnostic Kit

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EX-10.13

Exhibit 10.13

COLLABORATION AGREEMENT

THIS COLLABORATION AGREEMENT (this “Agreement”) dated as of May 17, 2005 (the “Effective Date”), is entered into between BIOSITE INCORPORATED, a Delaware corporation (“Biosite”), having a place of business at 11030 Roselle Street, San Diego, California 92121, and POWER3 MEDICAL PRODUCTS, INC, a New York corporation (“Power3”), having a place of business at 3400 Research Forest Drive, Suite B2-3, The Woodlands, Texas 77381.

WHEREAS, Biosite owns or has rights in certain expertise, technology and intellectual property rights regarding the development of antibodies.

WHEREAS, Power3 owns or has rights in certain expertise, technology and intellectual property rights regarding certain target biomolecules for antibody development.

WHEREAS, Biosite and Power3 desire to engage in a collaborative research program to attempt to develop antibodies to certain target biomolecules selected by Power3, and to use such antibodies to conduct research to evaluate the diagnostic and therapeutic potential of such target biomolecules, on the terms and subject to the conditions of this Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants set forth below, the parties hereby agree as follows:

1.DEFINITIONS

For purposes of this Agreement, the terms defined in this Section 1 shall have the respective meanings set forth below:

1.1“Affiliate” shall mean, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person.  A Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other Person, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever.

1.2“Biosite Improvement” shall mean any Program Invention that constitutes an improvement or enhancement to (a) the antibody development technology of Biosite or (b) the bodily fluid in vitro diagnostic assay technology of Biosite.

1.3“Biosite Inventions” shall mean all Program Inventions that are solely owned by Biosite.

1.4“Biosite Product” shall mean any product for use in the Exclusive Field, Semi-Exclusive Field or Non-Exclusive Field that assays a Program Target and that if made, used, sold, offered for sale or imported absent the licenses granted hereunder would infringe at least one Valid Claim, or that otherwise uses or incorporates the Power3 Know-How Rights.

1.5“Confidential Information” shall mean, with respect to a party, all information (and all tangible and intangible embodiments thereof) that is disclosed by such party to the other party and is marked, identified as or otherwise acknowledged to be confidential at the time of disclosure to the other party.  Notwithstanding the foregoing, Confidential Information of a party shall not include information that the other party can establish by written documentation (a) to have been publicly known prior to disclosure of such information by the disclosing party to the receiving party; (b) to have become publicly known, without the fault of the receiving party, subsequent to disclosure of such information by the disclosing party to the receiving party; (c) to have been received by the receiving party at any time from a source, other than the disclosing party, rightfully having possession of and the right to disclose such information; (d) to have been otherwise known by the receiving party prior to disclosure of such information by the disclosing party to the receiving party; or (e) to have been independently developed by employees or agents on behalf of the receiving party without access to or use of such information disclosed by the disclosing party to the receiving party (each, a “Confidentiality Exception”).

1.6“Exclusive Field” shall mean the in vitro detection or measurement of one or more analytes, by means of a diagnostic device(s), instrument(s) or combination thereof, with a stated average throughput equal to or less than one hundred (100) patient samples per hour, for use in the detection, prognosis, diagnosis or monitoring of any breast cancer-related disease, state or condition in humans or animals.

1.7“First Commercial Sale” shall mean, with respect to any Biosite Product and any country, the first bona fide transaction for which consideration is received for the sale, use, lease, transfer or similar disposition of such Biosite Product by a party, its Affiliate or (sub)licensee to customers who are not Affiliates in such country after all applicable marketing and pricing approvals (if any) have been granted by the applicable governing health authority of such country.

1.8“Issued Royalty Term” shall mean, with respect to each Biosite Product in each country of sale, the term for which at least one (1) Valid Claim defined in Section 1.28(a) remains in effect and would be infringed, but for the license granted by this Agreement, by the use, offer for sale, sale or import of such Biosite Product in such country.

1.9“Joint Inventions” shall mean all Program Inventions that are jointly owned by Biosite and Power3.

1.10“Monoclonal Preparation” shall mean a preparation containing a Fab or Fab fragment with a specific affinity to a Program Target.

1.11“Net Sales” shall mean, with respect to any Biosite Product, the gross sales price of such Biosite Product invoiced by Biosite, its Affiliate, or its (sub)licensee to customers who are not Affiliates (or are Affiliates but are the end users of such Biosite Product) less, to the extent actually paid or accrued by Biosite or its Affiliate (as applicable), (a) credits, allowances, discounts and rebates to, and chargebacks from the account of, such customers for spoiled, damaged, out-dated and returned Biosite Product; (b) freight and insurance costs incurred by Biosite or its Affiliate (as applicable) in transporting such Biosite Product in final form to such customers; (c) cash, quantity and trade discounts, rebates and other price reductions for such

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Biosite Product given to such customers under price reduction programs that are consistent with industry practices and price reductions given for similar products by Biosite or its Affiliate (as applicable); (d) sales, use, value-added and other direct taxes incurred on the sale of such Biosite Product in final form to such customers; and (e) customs duties, surcharges and other governmental charges incurred in exporting or importing such Biosite Product in final form to such customers.  Notwithstanding anything to the contrary in this Agreement, if any reusable instrument (that is itself a Biosite Product) is used in combination with a separate diagnostic reagent-containing device (that is itself a Biosite Product) to detect or measure one or more analytes from a patient sample on or in such device, then for purposes of calculating Net Sales, such device shall constitute a Biosite Product, but such instrument shall not constitute a Biosite Product.

1.12“Net Sublicensing Revenues” shall mean, with respect to any Biosite Product, the aggregate cash consideration received by Biosite or its Affiliates in consideration for the sublicense under the Power3 Patent Rights or Power3 Know-How Rights by Biosite or its Affiliates to a Third Party sublicensee with respect to such Biosite Product (excluding (i) royalties received by Biosite or its Affiliates based on Net Sales of such Biosite Product by such sublicensee, and (ii) amounts received to reimburse Biosite or its Affiliates’ cost to perform research, development or similar services conducted for such Biosite Product after signing the agreement with the Third Party, in reimbursement of patent or other out-of-pocket expenses on such Biosite Product, or in consideration for the purchase of any securities of Biosite or its Affiliates at a price up to one hundred percent (100%) of the then fair market value of such securities).

1.13“Non-Exclusive Field” shall mean the in vitro detection or measurement of one or more analytes, by means of a diagnostic device(s), instrument(s) or combination thereof, for use in the detection, diagnosis and monitoring of any neurological-related disease, state or condition in humans and animals.

1.14“Omniclonal Preparation” shall mean a mixture containing a variety of Fab or Fab fragments with varying affinity to a Program Target.

1.15“Pending Royalty Term” shall mean, with respect to each Biosite Product in each country of sale that is not covered by at least one (1) Valid Claim as defined in Section 1.28(a), the term during which at least one (1) Valid Claim defined in Section 1.28(b) that has not been abandoned or finally disallowed without the possibility of appeal or refiling remains in effect and would be infringed (if in an issued patent), but for the license granted by this Agreement, by the use, offer for sale, sale or import of such Biosite Product in such country.

1.16“Person” shall mean an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

1.17“Power3 Inventions” shall mean all Program Inventions that are solely owned by Power3.

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1.18“Power3 Know-How Rights” shall mean all trade secret and other know how rights in all inventions, discoveries, compositions, technology, data and information of any type whatsoever, (a) that relates to a Program Antibody, Program Target or fragment thereof (or any nucleotide sequence that encodes, or amino acid sequences of the foregoing); (b) that are reasonably necessary or useful for Biosite to conduct its obligations or exercise its rights under this Agreement; (c) that are either (i) disclosed by Power3 to Biosite and do not fall within the scope of a Confidentiality Exception, or (ii) developed or generated by Power3 in the course of conducting its obligations under the Program; and (d) in which Power3 has an ownership or other licensable interest during the term of the Agreement.

1.19“Power3 Patent Rights” shall mean (a) all patent applications heretofore or hereafter filed or having legal force in any country that claim (i) a Program Antibody, Program Target or fragment thereof (or any nucleotide sequence that encodes, or amino acid sequences of the foregoing), or (ii) any process of manufacture or use of a Program Antibody, Program Target or fragment thereof (or any nucleotide sequence that encodes, or amino acid sequences of the foregoing) made or conceived prior to the Effective Date or in the performance of the Program; (b) all patents that have issued or in the future issue therefrom, including without limitation utility, model and design patents and certificates of invention; and (c) all divisionals, continuations, continuations-in-part, reissues, reexaminations, renewals, extensions or additions to any such patent applications and patents; in each case in which Power3 has an ownership or other licensable interest during the term of the Agreement.

1.20“Program” shall mean the collaborative research program to develop antibodies directed to certain target biomolecules from selected by Power3, and to use such antibodies to evaluate the diagnostic and therapeutic potential of such target biomolecules, described in Section 3 below.

1.21“Program Antibody” shall mean, with respect to each Program Target provided by Power3 under Section 3.1.1(d), (a) any Omniclonal Preparation to such Program Target (or any fragment thereof) that is developed by Biosite and delivered to Power3 pursuant to this Agreement; (b) any Monoclonal Preparation to such Program Target (or any fragment thereof) that is developed by Biosite and delivered to Power3 pursuant to this Agreement; and (c) any antibody to such Program Target (or any fragment thereof) derived in whole or in part from the preparations described in clauses (a) and (b) above, or the nucleotide sequences encoding or the amino acid sequences of the preparations described in clauses (a) and (b) above.

1.22“Program Invention” shall mean any invention, discovery, composition, enhancement, technology, data or information (whether or not patentable) made or conceived by employees or others on behalf of Biosite, Power3 or both in the performance of the Program during the term of the Program.

1.23“Program Target” shall mean a target biomolecule that is selected by Power3 pursuant to Section 3.1.1(a), designated by the parties pursuant to Section 3.1.1(b), and for which the parties reach agreement regarding the mutually acceptable specificity, affinity and other specifications (if any) desired for the antibody thereto pursuant to Section 3.1.1(c), together with (a) any derivatives, parts or polymorphisms (including without limitation splice variants) of such target biomolecule, (b) any nucleotide sequences with homology to such target biomolecule

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(together with any derivatives, parts or splice variants of such nucleotide sequences) and (c) amino acid sequences and proteins encoded by each such nucleotide sequences (together with any derivatives or parts of such amino acid sequences and proteins).

1.24“Samples” shall have the meaning set forth in Section 3.1.5(a) below.

1.25“Semi-Exclusive Field” shall mean, collectively, (a) research use for any diagnostic purpose, and (b) the in vitro detection or measurement of one or more analytes, by means of a diagnostic device(s), instrument(s) or combination thereof, with a stated average throughput greater than one hundred (100) patient samples per hour, for use in the detection, prognosis, diagnosis or monitoring of any breast cancer-related disease, state or condition in humans or animals.

1.26“Third Party” shall mean any Person other than Biosite, Power3 and their respective Affiliates.

1.27“Third Party License Agreement” shall mean a license agreement between Power3 and a Third Party in effect at the time that Power3 designates the applicable proposed target biomolecule under Section 3.1.1(a), or thereafter, which license agreement grants to Power3 a license (with the right to grant sublicenses) under any patent rights or know-how rights that would constitute Power3 Patent Rights or Power3 Know-How Rights relating to such proposed target biomolecule.

1.28“Valid Claim” shall mean (a) a claim of an issued and unexpired patent included within the Power3 Patent Rights that has not been held permanently unpatentable, revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and that has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise, and (b) a claim of a pending patent application included within the Power3 Patent Rights, which claim was filed in good faith and has not been abandoned or finally disallowed without the possibility of appeal or refiling of such application.

2.REPRESENTATIONS AND WARRANTIES

Each party hereby represents and warrants to the other party as follows:

2.1Corporate Existence.  Such party is a corporation duly organized, validly existing and in good standing under the laws of the state in which it is incorporated.

2.2Authorization and Enforcement of Obligations.  Such party (a) has the corporate power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder, and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of this Agreement and the performance of its obligations hereunder.  This Agreement has been duly executed and delivered on behalf of such party, and constitutes a legal, valid, binding obligation, enforceable against such party in accordance with its terms.

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2.3Consents.  All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by such party in connection with this Agreement have been obtained.

2.4No Conflict.  The execution and delivery of this Agreement and the performance of such party’s obligations hereunder (a) do not conflict with or violate any requirement of applicable laws or regulations and (b) do not conflict with, or constitute a default under, any contractual obligation of such party.

2.5DISCLAIMER OF WARRANTIES.  NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PROGRAM ANTIBODIES OR PROGRAM TARGETS, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF THE PATENT RIGHTS OR OTHER INTELLECTUAL PROPERTY RIGHTS OF ANY OTHER PERSON.

3.THE PROGRAM

3.1Responsibilities.

3.1.1Target Designation.

(a)Each calendar quarter during the term of the Program, Power3 shall select up to ten (10) target biomolecules from that Power3 desires to use in the Program, provided that at least one half (1/2) of the target biomolecules proposed by Power3 in any such calendar quarter shall be target biomolecules with application in the Exclusive Field and/or Semi-Exclusive Field.  With respect to each such target biomolecule with which Power3 desires to conduct immunizations hereunder, Power3 shall provide to Biosite in writing the following information:  (i) the common name of such target biomolecule, if any; (ii) other publicly known names of such target biomolecule and any fragment thereof; (iii) the nucleic acid sequence of the gene or cDNA encoding such target biomolecule, or sufficient information to enable access to such sequence from public databases; (iv) identification of the source of biological materials that resulted in the identification of such target biomolecule by Power3 in sufficient detail to allow Biosite to determine the potential disease specificity of such target biomolecule and whether, to the best of Power3’s knowledge, such target biomolecule is difficult to express or to generate antibodies thereto; (v) whether or not Power3 owns or has a licensable interest in any patent or other intellectual property rights in such target biomolecule, antibodies to such target biomolecule or the use thereof, which would be licensed to Biosite as set forth in Section 4.2; (vi) whether or not there exist any Third Party License Agreements relating to such proposed target biomolecule or antibodies thereto, and thereafter during the term of this Agreement Power3 shall notify Biosite of any additional Third Party License Agreements relating to a Program Target or antibodies thereto and provide a description of the applicable financial terms; (vii) whether or not such proposed target biomolecule or antibodies thereto are the subject of a collaboration, research, development, commercialization, out-license or similar agreement between Power3 and any Third Party; and (viii) copies of all patents and patent applications covering such target biomolecule, an antibody thereto, or any use of the foregoing.

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(b)Within thirty (30) days after Biosite receives from Power3 all the information required under Section 3.1.1(a) for a proposed target biomolecule, the parties shall attempt to reach mutual agreement on designating such proposed target biomolecule as a Program Target.

(c)With respect to each proposed target biomolecule that the parties mutually agree to designate as a Program Target, Biosite and Power3 shall discuss in good faith and attempt to reach mutually acceptable agreement regarding the specificity, affinity and other specifications (if any) desired for the antibody to such proposed target biomolecule to be developed under the Program.  A proposed target biomolecule that the parties mutually agree to designate as a Program Target shall be designated a Program Target upon the agreement by the parties on the mutually acceptable specificity, affinity and other specifications desired for the antibody thereto.

(d)With respect to each Program Target with which Biosite is to conduct immunizations hereunder, within thirty (30) days after designation of such Program Target, Power3 shall provide Biosite with (i) at least two (2) milligrams of purified protein of such Program Target or a reasonably sufficient quantity of a cell line producing or cDNA clone of such Program Target or cDNA sequence encoding such Program Target; provided that immunizations and antibody development will be delayed by at least three (3) months if a cDNA clone is provided, and an additional period equal to the time reasonably required by Biosite to express the target biomolecule if just the cDNA sequence is provided, and (ii) such information and data regarding such Program Target (including without limitation the nucleotide sequence encoding and the amino acid sequence of such Program Target), as reasonably necessary for Biosite to conduct its obligations under the Program.

3.1.2Antibody Development and Delivery.  With respect to each Program Target, Biosite shall use commercially reasonable efforts (a) to develop antibodies to the Program Target provided by Power3 under Section 3.1.1(d) with the specificity, affinity and such other specifications as mutually agreed by the parties, and (b) to deliver such antibodies within nine (9) months following the date Biosite first conducts immunizations with such Program Target.  Biosite shall: (i) make a library of antibodies for each Program Target, (ii) screen the antibodies in such library with the specified antigen or antigen mixture, and (iii) determine which such antibodies satisfy the specificity, affinity and other specifications mutually agreed by the parties.  After consultation with Power3, Biosite shall select one Omniclonal Preparation that meets such specifications for each Program Target, and Biosite shall sell and deliver to Power3 a minimum of one milligram (1mg) of such Omniclonal Preparation, and at least twenty (20) Monoclonal Preparations selected from such Omniclonal Preparation.

3.1.3Limitations on Use.  Power3 shall use all Omniclonal Preparations and Monoclonal Preparations sold and delivered by Biosite under Section 3.1.2 solely to conduct its obligations under the Program, or to conduct research.  Power3 shall not, and shall not cause or permit any other Person to, use any such Omniclonal Preparation or Monoclonal Preparation sold and delivered by Biosite under Section 3.1.2, other than to conduct its obligations under the Program, or to conduct research.

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3.1.4Target Validation and Evaluation.  Power3 shall conduct such tests (if any) as Power3 determines reasonably necessary to validate each Program Target, to evaluate the potential diagnostic and therapeutic utility of each Program Target, and to otherwise evaluate each Program Antibody.

3.1.5Sample Analysis.

(a)Upon Biosite’s written request, Power3 shall provide to Biosite, prior to one (1) month following the first delivery of Program Antibodies, non-degraded, intact, properly shipped, blood-based clinical samples (each sample being approximately 2ml, but not less than 1.5ml, in volume) previously obtained by Power3 from its clinical trials being conducted at New York University, Mercy Hospital and OGA (the “Samples”).  With respect to each Sample, Power3 shall (i) provide Biosite with such information, that is not subject to confidentiality obligations pursuant to the Health Insurance Portability and Accountability Act (“HIPPA”) and the clinical trial and material transfer agreements under which the Samples and clinical data were collected, regarding such Sample as Power3 has in its possession and control; (ii) have obtained the requisite patient consent forms to permit the use contemplated hereunder of all such Samples and associated clinical data, together with all progeny, products and information derived therefrom, for research and development without compensation to the donor; (iii) prepare and maintain complete and accurate records of Sample sources, donor medical history, Sample procurement and any infectious disease screening, together with any other records regarding the Samples required by applicable laws and regulations; (iv) provide Biosite with copies of all such patient consent forms and records upon request, provided that Power3 shall redact patient names and other patient identifying information for confidentiality purposes; and (v) advise Biosite of any Third Party restrictions applicable to the use of such Samples at the time of, or prior to, providing such Samples to Biosite.

(b)Biosite shall treat all Samples and clinical data as Confidential Information and shall not publish, sell, lease, or otherwise transfer or disclose such Samples and clinical data to any other party without the express consent of Power3; provided, however, that Biosite shall have the right to publish and include in its marketing brochures summaries of the clinical data.  Notwithstanding the foregoing, Biosite shall have the right to use all Samples and associated clinical data, together with all progeny, products and information derived therefrom, for research and development purposes, as long as Biosite use complies with HIPPA, Third Party restrictions provided to Biosite under Section 3.1.5(a) above, and any other current or future government regulations governing the transfer and use of such Samples and clinical data.

(c)Biosite shall use commercially reasonable efforts to generate an ELISA-based assay for each Program Target with application in the Exclusive Field and/or Semi-Exclusive Field and for which Biosite has generated appropriate antibodies (as determined by Biosite in its reasonable discretion) under the Program.

(d)If Biosite successfully develops an ELISA-based assay for any such Program Target, Biosite shall analyze each of the Samples provided by Power3 under Section 3.1.5(a) with such assay and shall provide the resulting data to Power3.

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3.1.6Conduct of Program.  Each party shall conduct the Program in good scientific manner, and in compliance in all material respects with all requirements of applicable laws and regulations to attempt to achieve its objectives efficiently and expeditiously.  Each party shall proceed diligently with its responsibilities under the Program, and shall allocate such personnel, equipment, facilities and other resources as reasonably necessary to conduct its obligations under the Program and to accomplish the objectives thereof.

3.2Results.

3.2.1Reports.  Within thirty (30) days following the end of each calendar year during the term of the Program and within thirty (30) days following the expiration or termination of the Program, each party shall prepare, and provide to the other party, a reasonably detailed written report that shall describe the work performed by such party, and the results achieved, to date under the Program, together with copies of all data resulting from the tests and evaluation performed by such party to date under the Program.

3.2.2Records.  Each party shall maintain records, in sufficient detail and in good scientific manner appropriate for patent purposes, which shall be complete and accurate and shall fully and properly reflect all work done and results achieved in the performance of the Program.

3.2.3Inspection of Records.  Each party shall have the right, during normal business hours and on reasonable notice, to inspect and copy such records of the other party regarding the work done and results achieved in the performance of the Program, to the extent reasonably necessary to enable such party to conduct its obligations under the Program or to exercise its rights hereunder.  Each party shall maintain such records of the other party (together with the information contained therein) in confidence in accordance with Section 7 below and shall not use such records (or information) except to the extent otherwise permitted by this Agreement.

3.3Program Leaders.  Each party shall appoint a person (a “Program Leader”) to coordinate its part of the Program.  The Program Leaders shall be the primary contacts between the parties with respect to the Program.  Each party shall notify the other within thirty (30) days after the date of this Agreement of the appointment of its Program Leader and shall notify the other party as soon as practicable upon changing this appointment.

3.4Subcontracts.  Either party may subcontract portions of the Program to be performed by it in the normal course of its business without the prior consent of the other party; provided, however, that (a) such subcontracting shall not involve the transfer of Confidential Information of the other party to any Third Party unless the subcontracted party shall enter into a confidentiality agreement with the subcontracting party in accordance with Section 7 below; (b) the subcontracting party shall supervise such subcontract work; and (c) the subcontracted party shall be in compliance in all material respects with all requirements of applicable laws and regulations.

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3.5Term of Program.  Unless this Agreement is terminated earlier under Section 10 below, the term of the Program shall commence on the Effective Date of this Agreement and shall continue for a period of three (3) years thereafter.

3.6Ownership of Inventions.

3.6.1As between Biosite and Power3, all right, title and interest in (a) all Program Targets, (b) all nucleotide sequences encoding Program Targets and (c) all amino acid sequences of Program Targets, in each case that are patented, patentable or Confidential Information of Power3, together with all patent rights and other intellectual property rights therein, shall be owned by Power3.

3.6.2As between Biosite and Power3, all right, title and interest in all uses of Program Targets, nucleotide sequences encoding Program Targets and amino acid sequences of Program Targets, in each case that are conceived in the performance and during the term of the Program (whether or not patentable), together with all patent rights and other intellectual property rights therein, shall be owned by Power3.  Biosite hereby sells, assigns and transfers to Power3 all of Biosite’s right, title and interest therein and thereto.

3.6.3As between Biosite and Power3, all right, title and interest in all Program Antibodies and all uses thereof, in each case that are conceived in the performance and during term of the Program (whether or not patentable), together with all patent rights and other intellectual property rights therein, shall be owned by Power3.  Biosite hereby sells, assigns and transfers to Power3 all of Biosite’s right, title and interest therein and thereto.

3.6.4All right, title and interest in all Biosite Improvements, together with all patent rights and other intellectual property rights therein, shall be owned by Biosite.  Power3 hereby sells, assigns and transfers to Biosite all of Power3’s right, title and interest therein and thereto.

3.6.5All right, title and interest in all Program Inventions constituting or pertaining to phage display libraries and cells containing any plasmid that encodes or secretes Program Antibodies and with all cell lines therefor, together with all patent rights and other intellectual property rights therein, shall be owned by Biosite.  Power3 hereby sells, assigns and transfers to Biosite all of Power3’s right, title and interest therein and thereto. Notwithstanding anything to the contrary in this Agreement, Biosite shall have no obligation to sell, assign or transfer to Power3 any phage display libraries or cells containing any plasmid that encodes or secretes Program Antibodies, or any cell lines therefor  Notwithstanding the foregoing, if Biosite does not pursue the commercialization of a Program Antibody used to designate a Reduced Royalty Rate Target within 6 months following the date of such designation, then Biosite shall negotiate in good faith with Power3 mutually acceptable and commercially reasonable terms and conditions for a supply agreement with Power3 for providing reasonable quantities of that Program Antibody to Power3, or a third party licensee, for research and diagnostic purposes within the neurological field.

3.6.6Subject to the provisions of Sections 3.6.1 through 3.6.5 above, Biosite and Power3 shall jointly own all right, title and interest in all non-patentable data resulting from

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testing of the Program Targets or Program Antibodies by employees or others on behalf of Biosite and Power3 or in the performance and during the term of the Program.

3.6.7Except as otherwise set forth in Sections 3.6.1 through 3.6.5 above, all right, title and interest in all Program Inventions, together with all patent rights and other intellectual property rights therein, (a) made or conceived solely by employees or others acting on behalf of Biosite shall be owned solely by Biosite, (b) made or conceived solely by employees or others acting on behalf of Power3 shall be owned solely by Power3, and (c) made or conceived jointly by employees or others acting on behalf of Biosite and by employees or others acting on behalf of Power3 shall be owned jointly by Biosite and Power3.

3.6.8Each party shall have the right, subject to the provisions of this Agreement, to freely exploit, transfer, license or encumber its rights in any Joint Invention (or the patent and other intellectual property rights therein) without the consent of, or compensation or accounting to, the other party.

3.6.9Each party shall cause all employees and other Persons acting on its behalf in performing its obligations under the Program to be obligated under a binding written agreement to assign to it, or as it shall direct, all Program Inventions made or conceived by such employees or other Persons.

4.LICENSE GRANTS

4.1Program License.  On the terms and subject to the conditions of this Agreement, Power3 hereby grants to Biosite a non-exclusive, worldwide, royalty-free license (without the right to grant sublicenses) under the Power3 Patent Rights and Power3 Know-How Rights during the term of the Program to conduct Biosite’s obligations under the Program.

4.2Commercialization Licenses.

4.2.1On the terms and subject to the conditions of this Agreement, Power3 hereby grants to Biosite an exclusive, worldwide, royalty-bearing license (together with the right to grant sublicenses) under the Power3 Patent Rights and Power3 Know-How Rights to develop, make, have made, use, offer for sale, sell and import Biosite Products for use in the Exclusive Field.

4.2.2On the terms and subject to the conditions of this Agreement, Power3 hereby grants to Biosite a semi-exclusive, worldwide, royalty-bearing license (together with the right to grant one (1) sublicense as described below) under the Power3 Patent Rights and Power3 Know-How Rights to develop, make, have made, use, offer for sale, sell and import Biosite Products for use in the Semi-Exclusive Field.  With respect to each Program Target, Biosite shall only have the right to grant one (1) exclusive (even as to Biosite) sublicense for such Program Target under the rights granted by Power3 to Biosite under this Section 4.2.2.  For purposes of this Section 4.2.2, “semi-exclusive” shall mean, with respect to a Program Target, that there shall not exist more than two (2) Persons (excluding Biosite, its Affiliates and sublicensees, but including Power3) at any time having either license from Power3, or, with respect to Power3, retaining the rights in any country under the Power3 Patent Rights or the Power3 Know-How Rights that permits such Person to use such Program Target in the Semi-Exclusive Field.

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4.2.3On the terms and subject to the conditions of this Agreement, Power3 hereby grants to Biosite a non-exclusive, worldwide, royalty-bearing license (together with the right to grant one (1) sublicense as described below) under the Power3 Patent Rights and Power3 Know-How Rights to develop, make, have made, use, offer for sale, sell and import Biosite Products for use in the Non-Exclusive Field.  With respect to each Program Target, Biosite shall have the right to grant one (1) sublicense for such Program Target under the rights granted by Power3 to Biosite under this Section 4.2.3; however, the grant of such sublicense will replace Biosite’s own right to develop, make, have made, use, offer for sale, sell and import Biosite Product for use in the Non-Exclusive Field.

4.2.4Biosite shall have the right to develop such assays, and conduct such tests as Biosite determines reasonably necessary to evaluate the potential diagnostic utility of such Program Target and to otherwise evaluate each Program Antibody.

4.2.5Any data generated by Biosite in the development of such assays and such tests to determine the potential diagnostic utility of such Program Target shall be owned by Biosite.  Biosite shall promptly provide such data to Power3.  Any data provided to Power3 under this Section 4.2.5 shall be treated as Confidential Information of Biosite subject to the provisions of Section 7.  Any data generated by Power3 in the testing of the Program Antibodies, including any data generated to determine the potential therapeutic or diagnostic utility of the Program Antibodies or Program Target shall be owned by Power3.  Power3 shall promptly provide such data to Biosite.  Any data provided to Biosite under this Section 4.2.5 shall be treated as Confidential Information of Power3 subject to the provisions of Section 7.

4.3Option.  If Biosite reasonably believes that, with respect to a Program Target, there is a diagnostic application or field of use that is outside of the Exclusive Field, Semi-Exclusive Field and Non-Exclusive Field, then, if such application or field of use has not then been exclusively licensed to a Third Party by Power3, Biosite shall have the right upon written notice to Power3 to designate such diagnostic application or field of use as within either (a) the Exclusive Field and Semi-Exclusive Field, or (b) the Non-Exclusive Field of this Agreement.  Following the date of such written notice and provided that Power3 on such date has the right to grant the inclusion of the designated diagnostic application or field of use within this Agreement and that such a grant would not result in a breach of the terms of a written agreement that Power3 previously entered into with a Third Party, the parties shall amend this Agreement to include such diagnostic application or field of use within the applicable Field(s) subject to the royalties and milestones owing on Biosite Products sold within such Field(s).

4.4Sublicenses.  Biosite’s right to sublicense under this Agreement is subject to the following conditions: (a) in each such sublicense, the sublicensee shall be prohibited from granting further sublicenses and shall be subject to the applicable terms and conditions of the license granted to Biosite under this Agreement; (b) Biosite shall forward to Power3, within thirty (30) days following execution, a complete and accurate copy written in the English language of each sublicense granted hereunder; (c) notwithstanding any such sublicense, Biosite shall remain primarily liable to Power3 for all of Biosite’s duties and obligations contained in this Agreement, and any act or omission of a sublicensee which would be a breach of this Agreement if performed by Biosite shall be deemed to be a breach by Biosite of this Agreement; provided, however, that if any sublicensee breaches any duty or obligation under its agreement with Biosite

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that would result in Biosite being deemed in breach of this Agreement, Biosite shall have the right to cure such breach by immediately terminating such sublicense; and (d) upon termination of this Agreement for any reason, all sublicenses shall, at Power3’s option, be terminated or assigned to Power3.

5.FINANCIAL TERMS

5.1Antibody Fees Payable by Power3.  In consideration for the sale of the Program Antibodies to Power3, Power3 shall pay to Biosite one thousand dollars ($1,000) for the approximately one milligram (1mg) quantity of Omniclonal Preparation, and the panel of twenty (20) Monoclonal Preparations selected from the Omniclonal Preparation, generated for each Program Target under the Program that is sold and delivered to Power3 under Section 3.1.2 above.  Biosite shall invoice Power3 for such amount at the time of delivery of such Omniclonal Preparation and twenty (20) Monoclonal Preparations, and Power3 shall pay to Biosite such amount within thirty (30) days after receipt by Power3 of such invoice.  Power3 shall pay all federal, state, county or municipal sales or use tax, excise or similar charge, or other tax assessment (other than that assessed against income), assessed or charged on the sale of the Omniclonal Preparations and Monoclonal Preparations sold and delivered to Power3 pursuant to this Agreement.

5.2Annual Maintenance Fee.  Commencing with the third (3rd) anniversary of the date Biosite makes a milestone payment to Power3 pursuant to Section 5.4 below following demonstration of a panel of antibodies is suitable for development of a commercial product for use in the Exclusive Field and/or Semi-Exclusive Field, and on each subsequent anniversary of such date until the date of submission by Biosite of the first 510k or PMA to the FDA for the first Biosite Product for use in the Exclusive Field and/or Semi-Exclusive Field, Biosite shall pay to Power3 an annual maintenance fee of one hundred thousand dollars ($100,000).

5.3Blood Sample Collection Fees.  In consideration for the collection and transfer of Samples requested by Biosite in writing, Biosite shall pay to Power3 (a) if Power3 collects and transfers to Biosite at least four hundred (400) approximately 2ml volume, but not less than 1.5ml volume, Samples, together with the associated clinical data and information (as the parties mutually determine as requested by Biosite and consistent with Section 3.1.5), three hundred and fifty thousand dollars ($350,000), and (b) for each approximately 2ml volume, but not less than 1.5ml volume, Sample in excess of four hundred (400) that is collected and transferred by Power3 together with the associated clinical data and information (as the parties mutually determine), four hundred and seventeen dollars ($417); provided, however, that in no event shall Biosite be obligated to pay more than six hundred thousand dollars ($600,000) in the aggregate for a total of 1000 Samples under this Section 5.3.  However, if Biosite requests in writing Samples in addition to the first 1000 Samples, Biosite will continue to pay $417 per Sample supplied by Power3.

5.4Milestones Payable by Biosite.  Biosite shall pay to Power3 the following milestone payments within thirty (30) days following the applicable event:

$ 150,000 upon the earlier of (a) the First Commercial Sale by Biosite of a Biosite Product for use in the Semi-Exclusive Field, or (b) the

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		effective date of the first written agreement between Biosite and a Third Party sublicensee for a sublicense under the rights in the Semi-Exclusive Field granted to Biosite under Section 4.2.2;
$	250,000	upon demonstration, as determined in Biosite’s sole and reasonable discretion, that a panel of antibodies (including one or more antibodies to a Program Target) is suitable for development of a commercial product for use in the Exclusive Field and/or Semi-Exclusive Field;
$	500,000	upon the first submission by Biosite of the first 510k or PMA to the FDA for the first Biosite Product for use in the Exclusive Field and/or Semi-Exclusive Field;
$	300,000	upon the first submission by Biosite of the first 510k or PMA to the FDA for the first Biosite Product for use in the Non-Exclusive Field;
$	1,000,000	upon the first FDA approval of the first 510k or PMA submitted by Biosite for the first Biosite Product for use in the Exclusive Field and/or Semi-Exclusive Field; and
$	300,000	upon the first FDA approval of the first 510k or PMA submitted by Biosite for the first Biosite Product for use in the Non-Exclusive Field.

5.5Royalties Payable by Biosite.

5.5.1Annual Minimum Royalty.  Commencing at the end of the first full calendar year following the date of First Commercial Sale for the first Biosite Product, and at the end of each subsequent calendar year during the term of this Agreement, Biosite shall pay to Power3 a fully-creditable annual minimum royalty of (a) for the first year, two hundred thousand dollars ($200,000), (b) for the second year, three hundred thousand dollars ($300,000), and (c) for the third and each subsequent year, five hundred thousand dollars ($500,000).  Biosite shall make each such payment within sixty (60) days following the end of the applicable year.  All royalties under Section 5.5.2 below paid by Biosite during the applicable year shall be fully creditable against royalties owing under this Section 5.5.1.

5.5.2Running Royalties.

(a)During the applicable Issued Royalty Term for a Biosite Product for use in the Exclusive Field and/or Semi-Exclusive Field, on a country-by-country basis, Biosite shall pay to Power3 royalties, with respect to each such Biosite Product, equal to (i) seven percent (7%) of Net Sales of such Biosite Product in such country, or (ii) if such Program Target has been designated as a Reduced Royalty Rate Target (as defined below), three and one-half percent (3.5%) of Net Sales of such Biosite Product in such country.  For each Program Target with application in the Non-Exclusive Field for which Biosite generates and delivers Program Antibodies to Power3 pursuant to Section 3.1.2, Biosite shall have the right upon written notice

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to Power3 to designate one (1) Program Target with application in the Exclusive Field and/or Semi-Exclusive Field as a “Reduced Royalty Rate Target.”  Once a Program Target with application in the Exclusive Field and/or Semi-Exclusive Field is designated as a Reduced Royalty Rate Target, Biosite shall not have the right to transfer the designation to another Program Target even if Biosite discontinues development of Biosite Products that assay the first such designated Program Target.  Notwithstanding the foregoing, if any Biosite Product contains antibodies that are not Program Antibodies or control antibodies, and are included in order to get FDA approval and/or to commercialize such Biosite Product, then the Net Sales of, and milestones owing for, such Biosite Product under this Section 5.5.2(a) shall be multiplied by the quotient of (i) the total number of different Program Antibodies (for detecting analytes) contained in such Biosite Product, divided by (ii) the total number of different antibody types contained in such Biosite Product that specifically bind known, non-antibody target biomolecules and do not represent experimental controls; provided, however, that if such Biosite Product is covered by intellectual property rights granted to Power3 under a Third Party License Agreement, then in no event shall the applicable royalty rate set forth in this Section 5.5.2(a) be reduced by reason of this sentence to a percentage rate less than one and one-half (1 1/2) times the applicable percentage rate owing by Power3 under such Third Party License Agreement.

(b)During the applicable Issued Royalty Term for a Biosite Product for use in the Non-Exclusive Field, on a country-by-country basis, Biosite shall pay to Power3 royalties, with respect to each Biosite Product, equal to three and one-half percent (3.5%) of Net Sales of such Biosite Product in such country.  Notwithstanding the foregoing, if any Biosite Product contains antibodies that are not Program Antibodies or control antibodies, and are included in order to get FDA approval and/or to commercialize such Biosite Product, then the Net Sales of, and milestones owing for, such Biosite Product under this Section 5.5.2(b) shall be multiplied by the quotient of (i) the total number of different Program Antibodies (for detecting analytes) contained in such Biosite Product, divided by (ii) the total number of different antibody types contained in such Biosite Product that specifically bind known, non-antibody target biomolecules and do not represent experimental controls; provided, however, that if such Biosite Product is covered by intellectual property rights granted to Power3 under a Third Party License Agreement, then in no event shall the applicable royalty rate set forth in this Section 5.5.2(b) be reduced by reason of this sentence to a percentage rate less than two (2) times the applicable percentage rate owing by Power3 under such Third Party License Agreement.

(c)Notwithstanding the foregoing (i) only one (1) royalty shall be due for each Biosite Product, and (ii) if any Biosite Product contains two (2) or more antibodies that bind to two (2) or more Program Targets, respectively, and for which different royalty rates apply pursuant to Sections 5.5.2(a) and/or 5.5.2(b), then the applicable royalty rate for such Biosite Product shall be calculated by taking the average of each applicable royalty rate.

(d)During the applicable Pending Royalty Term for a Biosite Product covered by intellectual property rights granted to Power3 under a Third Party License Agreement, on a country-by-country basis, Biosite shall pay to Power3 royalties, with respect to each such Biosite Product, equal to the royalties owing by Power3 under such Third Party License Agreement for Net Sales of such Biosite Product in such country.

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5.6Net Sales Milestones.  In addition to the aforementioned royalty payments, if (a) after one (1) year following the date of First Commercial Sale for the first Biosite Product, Biosite has aggregate Net Sales of at least ten million dollars ($10,000,000), Biosite shall pay to Power3 one million dollars ($1,000,000), or (b) if within two (2) years following the date of First Commercial Sale for the first Biosite Product, Biosite has aggregate Net Sales of at least twenty million dollars ($20,000,000), Biosite shall pay to Power3 five hundred thousand dollars ($500,000), or (c) if within two (2) years following the date of First Commercial Sale for the first Biosite Product, Biosite has aggregate Net Sales of at least ten million dollars ($10,000,000), Biosite shall pay to Power3 two hundred and fifty thousand dollars ($250,000); provided, however, that if Biosite achieves one or more of the foregoing milestones, Biosite shall only be obligated to make one (1) payment under this Section 5.6, corresponding to the highest applicable payment.

5.7Third Party Royalty Offset.  If Biosite, its Affiliates or sublicensees are required, in any country in any calendar quarter, to pay Third Party royalties or milestones in consideration for the (sub)license of rights under issued patents necessary to make, use, sell or import a Biosite Product in such country during such calendar quarter, then Biosite shall have the right to credit such Third Party royalties and milestone payments against the royalties and milestones owing under Sections 5.4 and 5.5 with respect to such Biosite Product during such calendar quarter.  In no event shall the royalties or milestones due under Sections 5.4 and 5.5 on any Biosite Product in any calendar quarter be reduced due to credits for Third Party royalties under this Section 5.7 to less than fifty percent (50%) of the amounts due under Sections 5.4 and 5.5 with respect to such Biosite Product in such country in such calendar quarter before giving effect to the application of this Section 5.7.  Notwithstanding the foregoing, if  a Biosite Product is covered by intellectual property rights granted to Power3 under a Third Party License Agreement, then in no event shall the effective royalty rate set forth in Section 5.5 be reduced by reason of this Section 5.7 to a percentage rate less than one and one-half (1 1/2) times the applicable percentage rate owing by Power3 under such Third Party License Agreement.

6.PAYMENT REPORTS AND PAYMENT TERMS

6.1Payment Reports.

6.1.1Within sixty (60) days after the end of each calendar quarter during the term of this Agreement following the First Commercial Sale of a Biosite Product by Biosite or its Affiliate or the first grant of a sublicense hereunder, and within sixty (60) days following the expiration or termination of this Agreement, Biosite shall furnish to Power3 a written report showing in reasonably specific detail, on a Biosite Product-by-Biosite Product and country-by-country basis, (a) the gross sales of all Biosite Products sold by Biosite or its Affiliates during such calendar quarter and the calculation of Net Sales from such gross sales; (b) all cash consideration received by Biosite from such sublicensees during such calendar quarter, the reason for each such payment, and the calculation of Net Sublicensing Revenues for such quarter; (c) the calculation of the royalties, if any, that shall have accrued based upon such Net Sales; (d) the withholding taxes, if any, required by law to be deducted with respect to such sales; and (e) the exchange rates, if any, used in determining the amount of United States dollars.

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6.1.2With respect to (a) sales of Biosite Products by Biosite or its Affiliate and invoiced in United States dollars and (b) cash consideration paid in United States dollars by Biosite’s sublicensees hereunder, all such amounts shall be expressed in United States dollars.  With respect to (i) sales of Biosite Products by Biosite or its Affiliate and invoiced in a currency other than United States dollars and (ii) cash consideration paid in a currency other than United States dollars by Biosite’s sublicensees hereunder, all such amounts shall be expressed both in the currency in which the distribution is invoiced and in the United States dollar equivalent.  The United States dollar equivalent shall be calculated using the average of the exchange rate (local currency per US$1) published in The Wall Street Journal, Western Edition, under the heading “Currency Trading” on the last business day of each month during the applicable calendar quarter.

6.1.3Biosite shall keep complete and accurate records in sufficient detail to enable the amounts payable hereunder to be determined.

6.2Audits.

6.2.1Upon the written request of Power3 and not more than once in each calendar year, Biosite shall permit an independent certified public accounting firm, selected by Power3 and reasonably acceptable to Biosite, at Power3’s expense, to have access during normal business hours to such of the records of Biosite as may be reasonably necessary to verify the accuracy of the payment reports hereunder for the eight (8) calendar quarters immediately prior to the date of such request (other than records for which Power3 has already conducted an audit under this Section).

6.2.2If such accounting firm concludes that additional amounts were owed during the audited period, Biosite shall pay such additional amounts within thirty (30) days of the date Power3 delivers to Biosite such accounting firm’s written report so concluding.  The fees charged by such accounting firm shall be paid by Power3; provided, however, if the audit discloses that the royalties payable by Biosite for such period are more than one hundred ten percent (110%) of the royalties actually paid for such period, then Biosite shall pay the reasonable fees and expenses charged by such accounting firm.

6.2.3Power3 shall cause its accounting firm to retain all financial information subject to review under this Section 6.2 in strict confidence; provided, however, that Biosite shall have the right to require that such accounting firm, prior to conducting such audit, enter into an appropriate non-disclosure agreement with Biosite regarding such financial information.  The accounting firm shall disclose to Power3 only whether the reports are correct or not and the amount of any discrepancy.  No other information shall be shared.  Power3 shall treat all such financial information as Biosite’s Confidential Information.

6.3Payment Terms.  All amounts shown to have accrued by each payment report provided for under Section 6.1 above shall be payable on the date such payment report is due.  Payment of amounts in whole or in part may be made in advance of such due date.

6.4Payment Method.  All payments by a party to the other party under this Agreement shall be paid in United States dollars and all such payments shall be originated from a

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United States bank located in the United States and made by bank wire transfer in immediately available funds to such account as the payee shall designate before such payment is due.

6.5Exchange Control.  If at any time legal restrictions prevent the prompt remittance of part or all royalties with respect to any country where a Biosite Product is sold by Biosite or its Affiliate, Biosite shall have the right, at its option, to make such payments by depositing the amount thereof in local currency to Power3’s account in a bank or other depository in such country.  If the royalty rate specified in this Agreement should exceed the permissible rate established in any country, the royalty rate for sales in such country shall be adjusted to the highest legally permissible or government-approved rate.

6.6Withholding Taxes.  Biosite shall be entitled to deduct the amount of any withholding taxes, value-added taxes or other taxes, levies or charges with respect to such amounts, other than United States taxes, payable by Biosite, or any taxes required to be withheld by Biosite, to the extent Biosite pays to the appropriate governmental authority on behalf of Power3 such taxes, levies or charges.  Biosite shall use reasonable efforts to minimize any such taxes, levies or charges required to be withheld on behalf of Power3 by Biosite.  Biosite promptly shall deliver to Power3 proof of payment of all such taxes, levies and other charges, together with copies of all communications from or with such governmental authority with respect thereto.

7.CONFIDENTIALITY

7.1Confidential Information.  During the term of this Agreement, and for a period of five (5) years following the expiration or earlier termination hereof, each party shall maintain in confidence all Confidential Information disclosed by the other party (including all Confidential Information disclosed prior to the term of this Agreement pursuant to a written confidentiality agreement between the parties), and shall not use, grant the use of or disclose to any third party the Confidential Information of the other party other than as expressly permitted hereby.  Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other party’s Confidential Information.

7.2Terms of this Agreement.  Except as otherwise provided herein, during the term of this Agreement and for a period of five (5) years thereafter, neither party shall disclose any terms or conditions of this Agreement to any Third Party without the prior consent of the other party.  Notwithstanding the foregoing, prior to execution of this Agreement, the parties have agreed in writing upon the substance of information that can be used to describe the terms of this transaction, and each party may disclose such information, as modified by mutual agreement from time to time, without the other party’s consent.

7.3Limitations on Disclosure.  Each party shall limit the disclosure of the Confidential Information of the other party and the terms of this Agreement on a need-to-know basis to those directors, officers, employees, consultants, licensors, legal and financial advisors, clinical investigators, contractors, (sub)licensees, distributors or permitted assignees, to the extent such disclosure is reasonably necessary in connection with such party’s activities as expressly authorized by this Agreement.  To the extent that disclosure is authorized by this Agreement, prior to disclosure, each party hereto shall obtain agreement of any such Person to

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hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by this Agreement.

7.4Permitted Disclosures.  The confidentiality obligations contained in this Section 7 shall not apply to the extent that such disclosure is reasonably necessary in the following instances: (a) complying with an applicable law, regulation of a governmental agency or order of a court of competent jurisdiction, or responding to a subpoena, request for production of documents or other lawful court process, (b) complying with any Third Party License Agreement requirements; (c) obtaining approval to test or market a Biosite Product, (d) filing or prosecuting patents relating to Program Inventions owned by the receiving party, (e) prosecuting or defending litigation, and (f) disclosure to investment bankers, investors, and potential investors, each of whom prior to disclosure must be bound by similar obligations of confidentiality and non-use at least equivalent in scope to those set forth in this Section 7, provided in each case that the party seeking to make such disclosure shall provide written notice thereof to the other party and reasonable opportunity to object to such disclosure or to request confidential treatment thereof, if available.

8.PUBLICATIONS.  Neither party shall publish or present (other than to applicable regulatory agencies for approval of a product) any data or information resulting from the Program unless such party has first submitted to the other party for its review, a copy of any such proposed publication or other presentation at least sixty (60) days prior to the date of submission for publication or other presentation.  If no response is received within sixty (60) days after the date such materials are submitted to the other party, the submitting party may proceed with the publication or presentation without delay.  If the other party, in good faith and for reasonable business purposes, notifies the submitting party that it does not want the publication or presentation disclosed, the submitting party shall not disclose the publication or presentation.

9.PATENT RIGHTS

9.1Program Inventions.

9.1.1Except as otherwise set forth in Section 9.2 below, Biosite shall have the right at its sole expense and in its sole discretion to control the preparation, filing, prosecution, maintenance and enforcement of all patent applications and patents that claim Biosite Improvements and Biosite Inventions.

9.1.2Except as otherwise set forth in Section 9.2 below, Power3 shall have the right at its sole expense and in its sole discretion to control the preparation, filing, prosecution, maintenance and enforcement of all patent applications and patents that claim Power3 Inventions.

9.1.3Except as otherwise set forth in Section 9.2 below, the parties shall determine by mutual consent which party shall control the preparation, filing, prosecution, maintenance and enforcement of the patent applications and patents that claim Joint Inventions.

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9.2Power3 Patent Rights.

9.2.1Power3 (or its licensor, as applicable) shall have the right and obligation at its sole expense to control the preparation, filing, prosecution and maintenance of the Power3 Patent Rights.  If Power3 and its licensor elect not to file such a patent application in any country, or decides to abandon such a pending application or issued patent in any country, Power3 shall provide written notice to Biosite, and Biosite shall have the right at its sole expense to assume control of the preparation, filing, prosecution, maintenance and enforcement of such patent application or patent at its own expense; provided, however, that except for the right to prepare, file, prosecute and maintain such patent rights, the rights of each party to such patent rights shall not be affected by reason of this Section 9.2.1.

9.2.2Power3 shall have the right at its sole expense and in its sole discretion to control the enforcement of the Power3 Patent Rights against infringers.  If (a) within three (3) months of receipt of written notice from Biosite that a Third Party is marketing in the Exclusive Field and/or Semi-Exclusive Field a diagnostic product that infringes the Power3 Patent Rights and that assays a Program Target, Power3 fails to abate the infringement or file suit to enforce such Power3 Patent Rights against the infringing party in the Exclusive Field and/or Semi-Exclusive Field, or (b) Power3 fails to, or notifies Biosite that it does not desire to, defend a declaratory judgment action brought by a Third Party against Power3 alleging that one or more of the Power3 Patent Rights are invalid or otherwise unenforceable, then Biosite shall have the right to take whatever action it deems appropriate in its own name or, if required for purposes of standing, in the name of Power3 to enforce or defend such Power3 Patent Rights in the Exclusive Field and/or Semi-Exclusive Field, and Power3 shall reasonably cooperate with Biosite in the planning and execution of any such action to enforce or defend the Power3 Patent Rights in the Exclusive Field and/or Semi-Exclusive Field.  The party controlling any such enforcement action may not settle, or otherwise consent to an adverse judgment in, such action that diminishes the rights or interests of the non-controlling party without the prior express written consent of the non-controlling party.  All monies recovered upon the final judgment or settlement of such action shall be shared, after reimbursement of expenses, seventy five percent (75%) by the controlling party and twenty five percent (25%) by the non-controlling party.

9.3Cooperation.  Each party shall cause its employees, agents or consultants, at the sole expense of the other party, to execute such documents and to take such other actions as reasonably necessary or appropriate to enable the other party to prepare, file, prosecute, maintain and enforce the other party’s patent rights.

9.4No Other Technology Rights.  Except as specifically provided in this Agreement, no other rights or licenses to any of Power3’s or Biosite’s technology are implied or granted hereunder.

9.5Third Party License Agreements.  Power3 shall use its best efforts to comply with all the applicable terms and conditions of each Third Party License Agreement and shall maintain in full force and effect each Third Party License Agreement.  Power3 shall promptly notify Biosite if it receives any notices regarding, or otherwise obtains any information that would, or has the potential to, result in, termination of a Third Party License Agreement, or any reduction or limitation of rights under a Third Party License Agreement.

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10.TERM AND TERMINATION

10.1Expiration.  Unless terminated earlier pursuant to Section 10.2 or 10.3 below, this Agreement shall expire upon the expiration of the last to expire patent contained within the Power3 Patent Rights.  The provisions of Section 4.2 shall survive the expiration of this Agreement on a fully-paid basis.

10.2Termination for Cause.  A party may terminate this Agreement by written notice to the other party upon or after the breach of any material provision of this Agreement by the other party, if the other party has not cured such breach within sixty (60) days after written notice thereof from the non-breaching party.  Upon such termination by Biosite, the provisions of Sections 4.2, 4.3, 4.4, 5.5, 5.7 and 6 shall survive any such termination of this Agreement.

10.3Termination by Either Party.  At any time following twenty-four (24) months of the Effective Date of this Agreement, either party may terminate this Agreement upon ninety (90) days prior express written notice to the other party.  The provisions of Sections 4.2, 4.3, 4.4, 5 and 6 shall survive any such termination of this Agreement.

10.4Termination by Biosite.  Biosite may terminate this Agreement with respect to any Program Target at any time by thirty (30) days prior written notice to Power3 if, despite its commercially reasonable efforts, Biosite is unable to develop and deliver Program Antibodies to such Program Target pursuant to Section 3.1.  Upon any such termination, this Agreement shall remain in full force and effect with respect to any unaffected Program Target.

10.5Effect of Expiration and Termination.  Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination.  In addition to those provisions that expressly survive pursuant to Sections 10.1 -10.4 above, the provisions of Sections 3.1.3, 3.1.5(b), 3.2.3, 3.6, 6.2, 7, 8, 9, 10.5, 11 and 12 shall survive the expiration or any termination of this Agreement.

11.INDEMNITY

11.1Indemnity.

11.1.1By Biosite.  Biosite shall indemnify and hold harmless, and hereby forever releases and discharges Power3 and its Affiliates and their respective officers, directors, employees and agents, from and against all losses, liabilities, damages and expenses (including reasonable attorneys’ fees and costs) resulting from all claims, demands, actions and other proceedings by any Third Party to the extent arising from (a) the breach of any representation, warranty or covenant of Biosite under this Agreement, (b) the use of the Program Antibodies by Biosite, its Affiliates or sublicensees, (other than under the Program), (c) the making, using or selling of Biosite Products (without regard to culpable conduct), or (d) the gross negligence or willful misconduct of Biosite, its Affiliates or sublicensees in the performance of its obligations, and its permitted activities, under this Agreement.

11.1.2By Power3.  Power3 shall indemnify and hold harmless, and hereby forever releases and discharges Biosite and its Affiliates and their respective officers, directors, employees and agents, from and against all losses, liabilities, damages and expenses (including

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reasonable attorneys’ fees and costs) resulting from all claims, demands, actions and other proceedings by any Third Party to the extent arising from (a) the breach of any representation, warranty or covenant of Power3 under this Agreement, (b) the use of the Program Antibodies by Power3, its Affiliates or licensees (other than Biosite, its Affiliates or sublicensees), (c) the making, using or selling of products (without regard to culpable conduct) by Power3, its Affiliates or licensees (other than Biosite, its Affiliates or sublicensees), which products were developed or derived through the use of the Program Antibodies, or (d) the gross negligence or willful misconduct of Power3, its Affiliates or licensees (other than Biosite, its Affiliates or sublicensees) in the performance of its obligations, and its permitted activities, under this Agreement.

11.2Procedure.  A party (the “Indemnitee”) that intends to claim indemnification under this Section 11 shall promptly notify the other party (the “Indemnitor”) of any claim, demand, action or other proceeding for which the Indemnitee intends to claim such indemnification.  The Indemnitor shall have the right to participate in, and to the extent the Indemnitor so desires jointly with any other indemnitor similarly noticed, to assume the defense thereof with counsel selected by the Indemnitor; provided, however, that the Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of the Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between the Indemnitee and any other party represented by such counsel in such proceedings.  The indemnity obligations under this Section 11 shall not apply to amounts paid in settlement of any claim, demand, action or other proceeding if such settlement is effected without the prior express written consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed.  The failure to deliver notice to the Indemnitor within a reasonable time after notice of any such claim or demand, or the commencement of any such action or other proceeding, if prejudicial to its ability to defend such claim, demand, action or other proceeding, shall relieve such Indemnitor of any liability to the Indemnitee under this Section 11 with respect thereto, but the omission so to deliver notice to the Indemnitor shall not relieve it of any liability that it may have to the Indemnitee otherwise than under this Section 11.  The Indemnitor may not settle or otherwise consent to an adverse judgment in any such claim, demand, action or other proceeding that diminishes the rights or interests of the Indemnitee without the prior express written consent of the Indemnitee, which consent shall not be unreasonably withheld or delayed.  The Indemnitee, its employees and agents, shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation of any claim, demand, action or other proceeding covered by this Section 11.

11.3Insurance.  Each party shall maintain such insurance with respect to the development, manufacture and sales of Biosite Products or Power3 products developed or derived through the use of the Program Antibodies, as applicable, by such party, its Affiliates, licensees, or (sub)licensees in such amounts as such party customarily maintains with respect to the development, manufacture and sales of its other products.  Each party shall maintain such insurance for so long as it continues to develop, manufacture or sell Biosite Products or Power3 products developed or derived through the use of the Program Antibodies, as applicable, and thereafter for so long as it customarily maintains insurance for itself covering the development, manufacture and sales of its other products.

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12.MISCELLANEOUS

12.1Notices.  Any consent, notice or report required or permitted to be given or made under this Agreement by one of the parties to the other shall be in writing and addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor, and shall be effective upon receipt by the addressee.

If to Biosite:	Biosite Incorporated
	11030 Roselle Street
	San Diego, California 92121
	Attention: Chief Executive Officer
	With a copy to: Legal Dept.
with a copy to:	Morrison & Foerster LLP
	3811 Valley Centre Drive, Site 500
	San Diego, California 92130
	Attention: Mark R. Wicker
If to Power3:	Power3 Medical Products, Inc
	3400 Research Forest Drive
	Suite B2-3
	The Woodlands, Texas 77381
	Attention: CEO

12.2Assignment.  Except as otherwise expressly provided under this Agreement neither this Agreement nor any right or obligation hereunder may be assigned or otherwise transferred (whether voluntarily, by operation of law or otherwise), without the prior express written consent of the other party; provided, however, that either party may, without such consent, assign this Agreement and its rights and obligations hereunder in connection with the transfer or sale of all or substantially all of its business, or in the event of its merger, consolidation, change in control or other similar transaction.  Any permitted assignee shall assume all obligations of its assignor under this Agreement.  Any purported assignment or transfer in violation of this Section 12.2 shall be void.

12.3Resolution of Disputes.  In the event of any dispute or disagreement between the parties either in interpreting any provision of this Agreement or about the performance of either party and upon the written request of either party, each of the parties will appoint a designated representative to attempt to resolve such dispute or disagreement.  The designated representatives will discuss the problem and negotiate in good faith in an effort to resolve the dispute without any formal proceedings.  The specific format of such discussion shall be left to the discretion of the designated representatives.  No litigation for the resolution of such dispute may be commenced until the designated representatives have met and either party has concluded in good faith that amicable resolution through continued negotiation does not appear likely (unless either party fails or refuses to appoint a designated representative and schedule a meeting of such representatives within thirty (30) days after a request to do so by the other party).  Notwithstanding the foregoing, either party shall have the right, without waiving any right or remedy available to such party under this Agreement or otherwise, to seek and obtain from any

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court of competent jurisdiction any interim or provisional relief that is necessary or desirable to protect the rights or property of such party, pending the discussions and negotiations set forth above.

12.4Applicable Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Texas, without regard to the conflicts of law principles thereof.

12.5Entire Agreement.  This Agreement contains the entire understanding of the parties with respect to the subject matter hereof.  All express or implied representations, agreements and understandings with respect to the subject matter hereof, either oral or written, heretofore made are expressly superseded by this Agreement.  This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both parties.

12.6Headings.  The captions to the several Sections hereof are not a part of this Agreement, but are merely guides or labels to assist in locating and reading the several Sections hereof.

12.7Independent Contractors.  Each party hereby acknowledges that the parties shall be independent contractors and that the relationship between the parties shall not constitute a partnership, joint venture or agency.  Neither party shall have the authority to make any statements, representations or commitments of any kind, or to take any action that shall be binding on the other party, without the prior consent of the other party to do so.

12.8Waiver.  The waiver by a party of any right hereunder, or of any failure to perform or breach by the other party hereunder, shall not be deemed a waiver of any other right hereunder or of any other breach or failure by the other party hereunder whether of a similar nature or otherwise.

12.9Force Majeure.  A party shall neither be held liable or responsible to the other party, nor be deemed to have defaulted under or breached this Agreement, for failure or delay in fulfilling or performing any obligation under this Agreement (other than an obligation for the payment of money) to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of such party including but not limited to fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other party.

12.10Other Activities.  Except as otherwise expressly provided in this Agreement, nothing in this Agreement shall preclude either party from conducting other programs (either for its own benefit or with or for the benefit of any other Person) to conduct research, or to develop or commercialize products or services, for use in any field.

12.11Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date.

BIOSITE INCORPORATED
By	/s/ Chris Hibberd
Name			Chris Hibberd
Title			SVP, Corporate Development
POWER3 MEDICAL PRODUCTS, INC
By		/s/ Steven B. Rash
Name				Steven B. Rash
Title				Chairman/CEO

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EX-14.1

Exhibit 14.1

Power3 Medical Code of Ethics

All employees shall be responsible for compliance with this Code of Ethics.  Any employee having information concerning any prohibited or unlawful act shall promptly report such matter to the Director of Human Resources. While this is the preferred reporting procedure, employees should also feel free to report to anyone in line management, including the Chief Executive, The Chief Scientific Officer, or the Chief Financial Officer.

Employees should be advised of this reporting obligation and encouraged to report any prohibited or unlawful activities of which they are aware. There will be no reprisals for reporting such information and employees should be so advised.

Conflicts of Interest

Every employee has a duty to avoid business, financial or other direct or indirect interests or relationships which conflict with the interests of the Company or which divide his or her loyalty to the Company. Any activity which even appears to present such a conflict must be avoided or terminated unless, after disclosure to the appropriate level of management, it is determined that the activity is not harmful to the Company or otherwise improper.

A conflict or the appearance of a conflict of interest may arise in many ways. For example, depending on the circumstances, the following may constitute an improper conflict of interest:

Ownership of or an interest in a competitor or in a business with which the Company has or is contemplating a relationship (such as a supplier, customer, landlord, distributor, licensee/ licensor, etc.) either directly or indirectly, such as through family members.

Profiting, or assisting others to profit, from confidential information or business opportunities that are available because of employment by the Company.

Providing service to a competitor or a proposed or present supplier or customer as an employee director, officer, partner, agent or consultant.

Soliciting or accepting gifts, payments, loans, services or any form of compensation from suppliers, customers, competitors or others

seeking to do business with the Company. Social amenities customarily associated with legitimate business relationships are permissible. These include the usual forms of entertainment such as lunches or dinners as well as occasional gifts of modest value. While it is difficult to define “& customary,” “modest,” or “usual” by stating a specific dollar amount, common sense should dictate what would be considered extravagant or excessive. If a disinterested third party would be likely to infer that it affected your judgment, then it is too much. All of our business dealings must be on arm’s-length terms and free of any favorable treatment resulting from the personal interest of our employees. Loans to employees from financial institutions which do business with the Company are permissible as long as the loans are made on prevailing terms and conditions.

Influencing or attempting to influence any business transaction between the Company and another entity in which an employee has a direct or indirect financial interest or acts as a director, officer, employee, partner, agent or consultant.

Buying or selling securities of any other company using non-public information obtained in the performance of an employee’s duties, or providing such information so obtained to others.

Disclosure is the key. Any employee who has a question about whether any situation in which he or she is involved amounts to a conflict of interest or the appearance of one should disclose the pertinent details, preferably in writing, to his or her supervisor. Each supervisor is responsible for discussing the situation with the employee and arriving at a decision after consultation with or notice to the appropriate higher level of management.

To summarize, each employee is obligated to disclose his or her own conflict or any appearance of a conflict of interest. The end result of the process of disclosure, discussion and consultation may well be approval of certain relationships or transactions on the ground that, despite appearances, they are not harmful to the Company. But all conflicts and appearances of conflicts of interest are prohibited, even if they do not harm the Company, unless they have gone through this process.

Compliance with Laws and Regulations

Our business is subject to extensive governmental regulation. The approval and sale of pharmaceutical products and medical devices is particularly heavily regulated, but many other aspects of our business are also covered by statutes and regulations.

Consistent with our business philosophy, it is the policy of Power3 Medical to comply with the laws of each country in which our company does business. It is the responsibility of all employees to be familiar with the laws and regulations that relate to their business responsibilities and to comply with them.

If an employee has any question whether a transaction or course of conduct complies with applicable statutes or regulations, it is the responsibility of that employee to obtain advice from the Human Resources Department.

Set forth below are several areas of regulated business activity that require particular attention.

Antitrust and Competition Laws

It is the policy of Power3 Medical to comply with the antitrust and competition laws of each country in which our companies do business. No employee of the Company shall engage in anti-competitive conduct in violation of any such antitrust or competition law.

Environmental Laws and Regulations

Power3 Medical is committed to conducting its business in an environmentally sound manner. In addition to carrying out the programs the Company has initiated, employees are required to be familiar with environmental laws and regulations which relate to their employment responsibilities and to comply with them. This includes ensuring that reports on environmental matters filed with government agencies or required by law to be published are complete and accurate.

Healthcare Compliance; Approval, Manufacture, Sales and Marketing of Medical Device, and Diagnostic Products

No aspect of our business is more subject to governmental regulation than the development, manufacture, approval, sales and marketing of

our health care products. Because of the complex nature of many of these regulations, the Company must take particular care to ensure appropriate employees are aware of regulatory requirements and take necessary steps to comply with them.

Employment and Labor Laws and Policies

Our most important resource is our employees. All employment must be in compliance with all applicable laws and regulations, including those concerning hours, compensation, opportunity, human rights and working conditions.

Power3 Medical strictly prohibits discrimination or harassment against any employee because of the individual’s race, color, religion, gender, sexual orientation, national origin, age, disability, veteran’s status or any status protected by law.

It is the policy of Power3 Medical that all employees work in a clean, orderly and safe environment. In the interest of maintaining a safe and healthy workplace, the Company requires full compliance with applicable workplace safety and industrial hygiene standards mandated by law.

Compliance with Securities Laws

The Company is often required by the Securities Laws of the United States to disclose to the public important information regarding the Company.

An employee who knows important information about the Company that has not been disclosed to the public must keep such information confidential. It is a violation of United States law to purchase or sell Power3 Medical stock on the basis of such important non-public information. Employees may not do so and may not provide such information to others for that or any other purpose.

Employees may not buy or sell securities of any other company using important non-public information obtained in the performance of their duties. Employees may not provide such information so obtained to others.

Respect for Trade Secrets

It is the policy of Power3 Medical to respect the trade secrets and proprietary information of others. Although information obtained from the public domain is a legitimate source of competitive information, a trade secret obtained through improper means is not.

If a competitor’s trade secrets or proprietary information are offered to an employee in a suspicious manner, or if an employee has any question about the legitimacy of the use or acquisition of competitive information, the Human Resources Department is to be contacted immediately.

No Company funds, assets or information shall be used for any unlawful purpose. No employee shall purchase privileges or special benefits through payment of bribes, illegal political contributions, or other illicit payments or otherwise give anything of value to a government official in order to influence inappropriately any act or decision on the part of the official.

No undisclosed or unrecorded fund or asset shall be established for any purpose.

No false or artificial entries shall be made in the books and records of the Company for any reason, and no employee shall engage in any arrangement that results in such prohibited act, even if directed to do so by a supervisor.

No payment shall be approved or made with the agreement or understanding that any part of such payment is to be used for any purpose other than that described by documents supporting the payment.

No payments of any kind (whether commissions, promotional expenses, personal expenses, free goods or whatever) shall be made to an unaffiliated distributor or sales agent (or employee or agent thereof) in any country other than that in which the sales were made or in which the distributor or sales agent has a substantial place of business.

EX-16.1

Exhibit 16.1

MINUTES OF BOARD
OF DIRECTOR’S MEETING

July 20, 2005

A special meeting of the Board of Directors of Power3 Medical Products, Inc. was held at 3400 Research Forest Drive, The Woodlands, TX 77381 at 10:00 am on July 20, 2005.

The following members of the Board of Directors were present and participated in the meeting:  Steven B. Rash and Ira L. Goldknopf, PhD.  Attending as a guest was John P. Burton.

The meeting having been duly commenced was ready to proceed with its business, where upon it was resolved:

•Whereas the Directors of the corporation desires to change its independent public accounting firm from Kingery & Crouse, P.A. to John A. Braden & Company, P.C.

Be it resolved that the Board of Directors hereby approves the engagement of John A. Braden & Company, P.C. as the Company’s independent public accounting firm.

There being no further business before the Board, the meeting was adjourned at 10:48 am.

Duly signed and executed this day by:

/s/: Steven B. Rash	/s/: Ira L. Goldknopf
Steven B. Rash	Ira L. Goldknopf
Chairman and CEO	CSO and Secretary

3400 Research Forest Drive, Suite B2-3, The Woodlands, TX  77381, (281) 466-1600, (281) 466-1481 Fax

EX-21.1

Exhibit 21.1

LIST OF
SUBSIDIARIES

TenthGate, Inc.  -  (Less than 1% ownership)

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Steven B. Rash, certify that:

1.I have reviewed this report on Form 10-KSB for the year ended December 31, 2004 of Power 3 Medical Products, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for the periods presented in this report;

4.The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize, and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

	By:	/s/ Steven B. Rash
	Name:	Steven B. Rash, Chariman and CEO
Date: September 9, 2005	(Principal Executive Officer)

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EX-31.2

Exhibit 31.2

CERTIFICATION

I, John P. Burton, certify that:

1.I have reviewed this report on Form 10-KSB for the year ended December 31, 2004of Power 3 Medical Products, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for the periods presented in this report;

4.The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5.The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize, and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

	By:	/s/ John P. Burton
	Name:	John P. Burton Chief Accounting Officer (Principal
Date:  September 9, 2005	Financial and Accounting Officer)

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EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Power 3 Medical Products, Inc. (the “Company”) on Form 10-KSB for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven B. Rash, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/ Steven B. Rash
	Name:	Steven B. Rash
Date:  September 9, 2005	Title:	Chief Executive Officer (Principal Executive Officer) Power 3 Medical Products, Inc.

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EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Power 3 Medical Products, Inc. (the “Company”) on Form 10-KSB for the year ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John P. Burton, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	By:	/s/ John P. Burton
	Name:	John P. Burton Chief Accounting Officer
Date:  September 9, 2005	(Principal Financial and Accounting Officer

1