10-K

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

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

For the fiscal year ended December 31, 2008

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

For the transition period from _______________ to ________________

COMMISSION FILE NO. 0-24921

Power3 Medical Products, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

Common stock, $.001 par value

(Title of class)

Indicate by check whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [  ] No [X]

Indicate by check whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes [  ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [  ]

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

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer   ¨ (Do not check is a smaller reporting company)

Smaller reporting company x

Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.  Yes [  ]  No [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K:  [  ]

The aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant at June 30, 2008, based on the $0.06 per share closing price for our common stock on the OTC Bulletin Board, was approximately $8,997,303.

The number of shares of the registrant’s common stock outstanding as of April 15, 2009 was 313,737,428

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

PART I
ITEM 1.	BUSINESS	2
ITEM 1A.	RISK FACTORS	10
ITEM 1B.	UNRESOLVED STAFF COMMENTS	14
ITEM 2.	PROPERTIES	14
ITEM 3.	LEGAL PROCEEDINGS	14
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	14
		14
PART II
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	14
ITEM 6.	SELECTED FINANCIAL DATA	15
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	17
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	17
ITEM 9A.	CONTROLS AND PROCEDURES	17
ITEM 9B.	OTHER INFORMATION	17
PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	20
ITEM 11.	EXECUTIVE COMPENSATION	21
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	23
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	25
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	25
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES	26
	SIGNATURES
	INDEX TO EXHIBITS	50
	INDEX TO FINANCIAL STATEMENTS	F-1
	INDEPENDENT AUDITOR’S REPORT	F-2
	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	F-3

SPECIAL NOTE ON FORWARD–LOOKING STATEMENTS AND RISK FACTORS

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

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

The information contained below is subject to the “Risk Factors” and other risks detailed in this report and our other reports filed with the Securities and Exchange Commission.  We urge you to review carefully the “Risk Factors” section included in this report for a more complete discussion of the risks associated with an investment in our securities.

PART I

ITEM 1. BUSINESS

Overview of Corporate History

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

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

SCIENTIFIC DEVELOPMENTS

CLIA Certification

On March 25, 2008, we received our CLIA (Clinical Laboratory Improvement Amendment) compliance recertification following a CLIA regulatory inspection.  We earned our CLIA recertification to offer high complexity tests after meeting standards for knowledge, training, expertise, quality control, quality assurance and testing proficiency. With CLIA recertification, we are able to continue offering our blood serum based tests, BC-SeraPro^™ and NuroPro^®.  Receipt of our CLIA recertification of compliance reflects our desire to offer the highest quality diagnostic tests in our continuing mission to commercialize our discoveries and serve the medical and scientific communities.

Our scientific team is currently headed by its President and Chief Scientific Officer, Dr. Ira L. Goldknopf.  Dr. Goldknopf is a recognized pioneer in the science of proteomics, protein Bio/Chemistry and discovery of new proteins. Our scientific team has leveraged Dr. Goldknopf’s insights into the discovery of unique disease protein footprints of biomarkers in breast cancer, neurodegenerative diseases, and drug resistance to chemotherapeutic agents.

PRODUCT CANDIDATES

Power3 is targeting the protein-based diagnostic and drug targeting markets.  This includes neurodegenerative diseases (Alzheimer’s and Parkinson’s) and breast cancer utilizing the Company’s portfolio of proprietary disease biomarkers and tests. In the area of neurodegenerative diseases and breast cancer, the Company has completed research and clinical validation studies involving over 1,500 patient samples.  Power3 uses biostatistical analysis to monitor panels of biomarkers for diagnostic sensitivity and specificity for disease, normal and disease controls. By testing patient body fluids and tissues, including blood serum (for breast cancer and neurodegenerative diseases), and bone marrow aspirates (for leukemia patients), the Company has discovered unique protein biomarker patterns in over 1,500 patient samples that cover a broad range of diseases:

· Cancer, including breast, bladder, stomach, and esophageal cancer, and leukemia.

· Neurodegenerative diseases, including Alzheimer’s, Parkinson’s and Lou Gehrig’s (ALS) diseases.

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

The Company has successfully identified more than 543 protein biomarkers that are differentially expressed in response to disease by employing its proprietary technologies gained from over 40 years of experience in protein Bio/Chemistry.  These biomarkers are used for its specific disease indication for diagnostic purposes in the evaluation of an individual’s health.

Power3 has transitioned from a company focused on research and development to one that is demonstrating “proof of concept” of its technology, as it enters the commercialization stage for its technology, products and services. The Company has developed a portfolio of products including BC-SeraPro^™, a proteomic blood serum test for the early detection of breast cancer, and NuroPro^®, a serum test for the detection of neurodegenerative diseases including Alzheimer’s, Parkinson’s and ALS diseases.  These tests are not approved by the FDA.

DEVELOPMENT OF BC-SeraPro^™, A BLOOD SERUM PROTEIN BREAST CANCER TEST

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

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

Mammography often leads to identification of a “probably benign” lesion or an inconclusive mammogram. Often such patients are referred for frequent repeat mammography examinations.

The availability of an accurate and minimally-invasive test would avoid such repeated mammogram exams, with their discomfort, inconvenience, x-ray exposure, and emotional stress. In such cases, BC-SeraPro^™, which in a 60 patient blinded study, demonstrated 80% sensitivity and 87% specificity for the detection of breast cancer, could exclude malignancy at higher accuracy than mammography.  BC-SeraPro^™ could detect the disease at a point when treatment is both more effective and less expensive.

During the year ended December, 31, 2008, Power3 continued its blood serum breast cancer biomarker discovery program using blood serum samples collected from clinical validation sites at the Mercy Woman’s Center in Oklahoma City, OK and at Obstetrics & Gynecological Associates, PA in Houston, TX. To date, in the latest clinical research/validation study involving Mercy Woman’s Center and Obstetrics & Gynecological Associates, 97 patient samples have been received and analyzed.  The results continue to meet the Company’s expectations.  

During the year ended December, 31, 2008, discussions were initiated to commence BC-SeraPro™ clinical validation studies in several Middle Eastern countries and in Greece. To commercialize BC-SeraPro™ in the Middle Eastern countries, Power3 has begun a collaboration with the Princess Haya Biotechnology Center in Irbid, Jordan.  Dr. Said Jaradat, the Director of Princess Haya Biotechnology Center, has acknowledged this collaboration and shared the Center’s collaboration experience with Power3 in his talk with the President of the National Institute of Health (NIH) during his visit to Jordan.  Power3 plans to commercialize BC-SeraPro™ in Jordan as soon as the Company finishes the validation study with the Princess Haya Biotechnology Center. This clinical validation study is expected to be concluded by the end of the third quarter, 2009.

Power3 is finalizing the research and development program for BC-SeraPro^™ and is moving forward with a strategy of providing a breast cancer diagnostic test that is utilitarian, accurate, and inexpensive. Application of this test will have a future impact on how breast disease will be diagnosed, monitored, and managed and is intended to be used in conjunction with mammography, breast MRI and other diagnostic tools used in the detection of breast cancer.

How BC-SeraPro^™ Works

BC-SeraPro^™ is a blood serum test designed to diagnose breast cancer in individuals.

Blood serum collection is a routine procedure performed by a clinician. A small sample of blood is drawn from a vein. This serum sample is then frozen and transported to the Power3 CLIA certified laboratory, utilizing pre-approved carriers/delivery services, where sample preparation and analysis begins.

DEVELOPMENT OF NuroPro^®, A BLOOD SERUM PROTEIN NEURODEGENERATIVE DISEASE DIAGNOSTIC SCREENING TEST

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

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

How NuroPro^® Works

Diagnosis of neurodegenerative diseases such as Alzheimer’s disease, Parkinson’s disease, and Amyotrophic lateral sclerosis (ALS) can be difficult, especially in early stages where there is often an insidious onset of symptoms overlapping with different disorders. This results in delayed diagnosis and treatment initiation.  The NuroPro^® test has the potential to become the first clinical diagnostic test available for the detection of neurodegenerative diseases. The NuroPro^®  blood test uses blood serum protein biomarkers to provide more accurate, quantifiable, minimally invasive tools for differential diagnosis of the neurodegenerative diseases to help provide more effective treatment.

NuroPro^® is a series of three separate and distinct blood serum tests to be commercialized, designed to diagnose Alzheimer’s, Parkinson’s or Lou Gehrig’s disease (ALS) in individuals. The test monitors the concentration of selected proteins residing in a panel of blood serum protein biomarkers.  It determines if a patient has a neurodegenerative disease, such as Alzheimer’s, Parkinson’s or Lou Gehrig’s disease (ALS). The biomarkers in the panel have been selected for their ability to discriminate patients with these diseases from patients who do not have the disease (normal and alternate disease controls). Power3’s statistical model evaluates the quantitative information of the protein biomarkers and assigns a probability score. The probability score indicates to the physician that the patient has a particular neurological disease or does not. The score reflects how strongly the patient sample fits the biostatistical model and if the patient should be recommended for further follow-up by the clinician.

Blood serum collection is a routine procedure performed by a clinician. A small sample of blood is drawn from a vein, the serum separated and collected, then frozen and transported to the Power3 Medical CLIA certified laboratory, utilizing pre-approved carriers/delivery services, where sample preparation and analysis begins.  

Neurodegenerative Disease Clinical Validation Trials with Prospective (Fresh) Patient Samples

In February 2008, the Company commenced the 200 patient prospective phase I clinical validation trials of its NuroPro^® diagnostic test for Alzheimer’s disease and Parkinson’s disease. As with the previous studies using retrospective patient samples, Power3 uses its existing proprietary and patent-pending technologies to analyze the samples, monitoring existing and seeking new additional NuroPro^® protein biomarkers for the blood tests for the early detection of these neurodegenerative diseases. To date, 36 AD, 62 PD, and 70 controls from and age and gender matched control samples, have been received and analyzed that show greater than expected sensitivity and specificity. The blood serum samples collected from patients in Greece and in Arizona utilized Power3’s rigid sample collection protocols and were shipped to the Company’s CLIA certified laboratory in Houston, Texas, where the analysis was performed. The consistency in the sample results from both the US and Greece indicate how robust this test is in diverse populations. The better than expected Parkinson's test results and the numerous validation studies that are underway for Alzheimer's disease, ALS, and similar neurological disorders confirm Power3’s commitment to bringing these tests to market in 2009-10.

Parkinson’s disease: The University of Thessaly School of Medicine / Principal Investigator Dr. Katerina Markopoulou

On November 11, 2006, University of Thessaly School of Medicine in Larissa, Greece signed a research agreement with Power3 focusing on the proteomic discovery of biomarkers for Parkinson’s disease. The collaboration will also extend to cover other neurodegenerative diseases including Alzheimer’s disease and ALS (Amyotrophic Lateral Sclerosis - Lou Gehrig's disease). In the Prospective Phase I Clinical Validation Trials, The University of Thessaly is providing Power3 with 100 clinically confirmed samples of Parkinson’s disease and age and gender matched control samples. The Principal Investigator is Katerina Markopoulou, MD PhD, of the Department of Neurology. A larger Phase II trial with Parkinson’s disease, Parkinson’s disease-like controls, and age and gender matched control samples will begin in the second quarter 2009.

Alzheimer’s disease: The Cleo Roberts Center of Clinical Research, Sun Health Research Institute / Principal Investigator Dr. Marwan N. Sabbagh

On October 12, 2007, Power3 appointed Marwan N. Sabbagh, MD FAAN to the Company's Scientific Advisory Board. Dr. Sabbagh, a national leader in Alzheimer’s disease, is collaborating with Power3 in a 300 patient Phase I-II prospective patient clinical validation trial of blood serum samples using Power3's NuroPro^® diagnostic screening test. For Phase I, Sun Health is providing Power3 with 100 clinically confirmed samples of Alzheimer’s disease and age and gender matched control samples. A larger Phase II trial with Alzheimer’s disease, Alzheimer’s disease-like controls, and age and gender matched control samples will begin in the second quarter 2009.

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

In February 2009, Power3 fulfilled a Letter of Intent signed late in 2008 with Transgenomic.  That agreement included an up-front licensing fee, which Power3 has received, milestone payments, and financial assistance for laboratory operations already underway in continuing collaboration with Transgenomic for clinical trials the company is conducting for NuroPro^®. The Collaboration and Licensing Agreement also calls for exclusive licensing by Transgenomic of Power3’s NuroPro^® in the U.S. and key international markets.

Moving toward commercializing and monetizing its research, IP and tests, Power3 is also continuing and expanding collaboration and clinical validation trials for NuroPro^® with physician scientists Dr. Marwan Sabbagh, Dr. Katarina Markopoulou, Dr. Bruce Chase, and Dr. Stanley H. Appel. The Company is also finalizing a research agreement for Clinical Validation of the Breast Cancer blood test (BC-SeraPro) in Greece, continuing negotiations in Jordan to establish a Center of Proteomic Excellence to offer BC-SeraPro and NuroPro tests in the Middle East, and

has signed a Letter of Intent to establish similar satellite labs in Asia.

Publications and Presentations at International Scientific Meetings

Power3’s Dr. Ira L. Goldknopf published an invited editorial in the February 2008 issue of the peer reviewed scientific journal Expert Review of Proteomics. The editorial, entitled “Blood Based Proteomics for Personalized Medicine, Examples from Neurodegenerative Disease,” outlines how “proteins in the blood serum can tell us what disease pathways and mechanisms…are active in patients.” In his editorial, Dr. Goldknopf cited research completed at Power3 and published in peer reviewed journals.

 Power3 has published the discovery of protein biomarkers for esophageal malignancies in the International Journal of Cancer.   The article, titled “Alterations in Barrett’s-related adenocarcinomas: A proteomic approach,” was authored by Dr. Wael El-Rifai, MD, PhD, Professor of Surgery, Medicine and Cancer Biology and Director of Surgical Oncology Research at Vanderbilt University Medical Center, Nashville, TN.  Esophageal malignancies are the sixth leading cause of cancer death in the world and represent about 1% of the cancers diagnosed in the United States. Dr. El Rifai stated that through the use of Power3’s leading edge proteomic discovery platform, twenty-three biomarkers were identified that have not been described before in this lethal malignancy. Dr. El-Rifai confirmed the differential expression of six of these novel protein biomarkers in a large panel of primary tumors using Western blot, immunohistochemical, and quantitative real time PCR techniques.

Power3 discovered differential expression of these protein biomarkers in esophageal biopsies of normal, pre-cancerous, and cancerous areas from the same patients, using the company’s quantitative 2D gel electrophoresis platform. Power3’s findings identify a previously unknown potential oncogenic signaling mechanism in Barrett’s tumors, representing a new area that can be developed.  

Dr. Goldknopf presented the Company’s results with Neurodegenerative diseases and drug resistance in leukemia at the Cambridge Healthtech Biomarker Discovery Summit in Philadelphia on October 1, 2008. Dr. Goldknopf was also invited to present a keynote address at the BIT International Drug Discovery Science and Technology conference in Beijing on October 18, 2008.

In addition, Dr. Katerina Markopoulou, academic partner at the University of Thessaly in Greece will present results of Power3’s Phase I Prospective Clinical Validation Trials for NuroPro^® conducted at the University at the annual meeting of the American Academy of Neurology (AAN) in Seattle on April 30, 2009.

Dr. Goldknopf and co-authors Dr. Markopoulou, Dr. Bruce Chase (The University of Nebraska at Omaha), Dr. Stanly H. Appel (Cornell Methodist Hospital, Houston), and Dr. Marwan Sabbagh (Sun Health Research Institute, Sun City, Arizona) will present the overall results of NuroPro^® blood tests -- from discovery through clinical validation of blood protein biomarkers and tests for Parkinson’s disease, ALS, and Alzheimer’s disease to the Alzheimer’s Association’s International Congress of Alzheimer’s Disease (ICAD) in Vienna, Austria in July 2009.

Dr. Goldknopf  will Keynote and serve as a member of the Scientific Advisory Board of BIT Life Sciences’ 2^nd Annual International Congress and Expo of Molecular Diagnostics (ICEMD-2009) in Beijing in November 2009.  Along with his keynote address, “Principles of Omic Medicine Applied to Early Detection and Differential Diagnosis of Breast Cancer and Neurodegenerative Diseases,” Dr. Goldknopf will also chair the session on “Biomarkers and Diagnostics in Personalized Medicine”

These publications and presentations at international scientific meetings are further validation of Power3’s reputation as a leader in diagnostic science, while moving ahead in commercialization of the company’s blood based early detection proteomic tests for breast cancer, Parkinson’s disease, and Alzheimer’s disease.

Competition

The industry in which we operate 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 our technologies in ways that are less expensive, receive faster regulatory approval or receive greater market acceptance than our potential products.  We expect 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.

Our competitors have, in general, been in existence for considerably longer than we have, 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, including:

Celera Genomics, which is engaged in proteomics, bioinformatics and genomics 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;

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; and

Provista Life Sciences, which is developing blood serum protein biomarker diagnostic tests for breast cancer and Alzheimer’s disease.

Intellectual Property

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

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

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

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

§ Early vs. more advanced neurodegenerative diseases

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

In the fourth quarter of 2008, the company filed two US Utility patent applications, building on its patent position in breast cancer for the BC-Sera-Pro biomarkers and blood tests:

§ Expanding the number of breast cancer biomarkers from 12 to 22

§ Strengthening the uniqueness of specific protein isoforms in terms of usage for specific categories of breast cancer, for 2D gel electrophoresis and in antibodies recognizing the specific isoforms

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

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

Patent Application Filed in Q3 2008	Application Date	Type of Patent
12/217,885: Diagnosis of Multiple Forms of Alzheimer’s Disease Based on Differences in Concentration of Protein Biomarkers in Blood Serum Of Patients	7/9/08	US Utility

Patent Applications Filed in Q4 2008	Application Date	Type of Patent
12/313,136: Identities, Specificities and Use of Twenty Two (22) Differentially Expressed Protein Biomarkers For Blood Based Diagnosis of Breast Cancer 12/313,139: Isoform Specificities of Blood Serum Proteins and Their Use as Differentially Expressed Protein Biomarkers For Diagnosis of Breast Cancer	11/17/08 11/17/08	US Utility US Utility

The number of pending patent applications as of the period ended December 31, 2008, is 15 as follows:

Qty*	Type of Patent
3	Breast Cancer
11	Neurodegenerative
1	Drug Resistance

*Of these patent applications, the following have published:

20090061457

Apolipoprotein E3 protein as a biomarker of Parkinson's disease

20090035801

Twelve (12) protein biomarkers for diagnosis and early detection of breast cancer

20080289964

Assays for diagnosis and therapeutics employing similarities and differences in blood serum concentrations of 3 forms of complement C3c and related protein biomarkers between amyotrophic lateral sclerosis and Parkinson's disease

20080108549

Actin proteins as biomarkers for indication and targeting of resistance and sensitivity to an Abl kinase inhibitor in patients with chronic myelogenous leukemia

20070042429

Assay for differentiating Alzheimer's and Alzheimer's-like disorders

20070017809

Assay for ALS and ALS-like disorders

20060278532

Assay for neuromuscular diseases

Employees

We had one full time employee, and no part time employees, as of March 31, 2009.  Our sole employee is a member of management.

Item 2. Description of Property

The Company does not own any real estate. During the year ended December 31, 2008, the Company conducted its operations from premises with a five year escalating lease expiring August 1, 2009, consisting 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. During the first quarter of 2009, the Company reduced the space it occupied from 7,200 square feet to 2,883 square feet and expects this space to be adequate for its needs for the remainder of the lease term. As a result of the reduction in space, monthly base rent decreased from $9,581 to $3,844. The rent schedule has been as follows:

Months	Monthly Base Rent
June 1, 2004 to August 1, 2004	$	0
September 1, 2004 to August 1, 2005	$	5,988
September 1, 2005 to August 1, 2006	$	6,587
September 1, 2006 to August 1, 2007	$	8,084
September 1, 2007 to August 1, 2008	$	8,983
September 1, 2008 to January 1, 2009	$	9,581
February 1, 2009 to August 1, 2009	$	3,844

ITEM 1A.  RISK FACTORS

Before you invest in our common stock, you should be aware that there are various risks involved in investing in our common stock.  We have described below all of the risks that we deem material to your investment decision.  You should consider carefully these risk factors, together with all of the other information included in this report and in the other periodic reports we have filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, before you decide to purchase any shares of our common stock.  Additional risks that we do not yet know of or that we currently think are immaterial may also impair our business operations.

Risk Factors Relating to our Common Stock

We may not pay dividends on our common stock in the foreseeable future.

We have not paid any dividends on our common stock.  We will pay dividends in the future at the discretion of our board of directors.  We are likely to retain earnings, if any, to fund our operations and to develop and expand our business.

We have a substantial number of authorized common and preferred shares available for future issuance that could cause dilution of our shareholders’ interest and adversely impact the rights of holders of our common stock.

We have a total of 600,000,000 shares of common stock and 50,000,000 shares of “blank check” preferred stock authorized for issuance.  As of March 31, 2009, we had 293,596,151 shares of common stock and 48,500,000 shares of preferred stock available for issuance.  We have reserved 86,668,410 shares for issuance upon the exercise of outstanding warrants and 40,000,000 additional shares available for future grants under our stock incentive plan.  We may seek financing that could result in the issuance of additional shares of our capital stock and/or rights to acquire additional shares of our capital stock. We may also make acquisitions that result in issuances of additional shares of our capital stock.  Those additional issuances of capital stock would result in a significant reduction of your percentage interest in us.  Furthermore, the book value per share of our common stock may be reduced. This reduction would occur if the exercise price of any issued warrants, the conversion price of any convertible notes or the conversion ratio of any issued preferred stock is lower than the book value per share of our common stock at the time of such exercise or conversion.

The addition of a substantial number of shares of our common stock into the market or by the registration of any of our other securities under the Securities Act may significantly and negatively affect the prevailing market price for our common stock.  The future sales of shares of our common stock issuable upon the exercise of outstanding warrants and options may have a depressive effect on the market price of our common stock, as such warrants and options would be more likely to be exercised at a time when the price of our common stock is greater than the exercise price.

Our board has the power to establish the dividend rates, preferential payments on any liquidation, voting rights, redemption and conversion terms and privileges for any series of our preferred stock.  We currently have outstanding 1,500,000 shares of our Series B Preferred Stock, which have voting rights that give the holders a majority of the votes in any vote of our common stock.  The sale or issuance of any additional shares of our preferred stock having rights superior to those of our common stock may result in a decrease in the value or market price of our common stock.  The issuance of preferred stock could have the effect of delaying, deferring or preventing a change of ownership without further vote or action by our stockholders and may adversely affect the voting and other rights of the holders of our common stock.

We are controlled by our management.

As of March 31, 2009, Ira Goldknopf, our President, Chief Scientific Officer and sole director, owned all of the outstanding shares of our Series B Preferred Stock, which has voting rights that give Dr. Goldknopf a majority of the votes in any vote of our common stock.  As a result, Dr. Goldknopf will effectively control the outcome of matters on which our shareholders are entitled to vote, including the election of directors and other significant corporate actions.  Because of his stock ownership and other relationships with us, Dr. Goldknopf will be in a position to greatly influence the election of our board of directors, and thus control our affairs.

There may not be an active market for shares of our common stock, which may cause our shares to trade at a discount and may make it difficult for you to sell your shares.

Our common stock is listed on the Over-the-Counter Bulletin Board market, which is viewed by most investors as a less desirable, and less liquid, marketplace.  Trading in our common stock has been limited.  There can be no assurance that an active trading market for our common stock will develop and continue.  As a result, an investor may find it more difficult to purchase, dispose of and obtain accurate quotations as to the value of the common stock.

In addition, since the trading price of our common stock is less than $5.00 per share, trading in our common stock is also subject to the requirements of Rule 15g-9 of the Exchange Act.  Our common stock is also considered a penny stock under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, which defines a penny stock, generally, as any equity security not traded on an exchange or quoted on the Nasdaq SmallCap Market that has a market price of less than $5.00 per share.  Under Rule 15g-9, brokers who recommend our common stock to persons who are not established customers and accredited investors, as defined in the Exchange Act, must satisfy special sales practice requirements, including requirements that they:

·

make an individualized written suitability determination for the purchaser; and

·

receive the purchaser’s written consent prior to the transaction.

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosures 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 the risks associated with that market.  Such requirements may severely limit the market liquidity of our common stock and the ability of purchasers of our equity securities to sell their securities in the secondary market.  For all of these reasons, an investment in our equity securities may not be attractive to potential investors.

Our stock could be subject to volatility.

The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including:

•

actual or anticipated fluctuations in our quarterly and annual results;

•

changes in market valuations of companies in the medical products industry;

•

announcements by us or our competitors of new strategies, significant contracts, acquisitions, strategic relationships, joint ventures, capital commitments or other material developments that may affect our prospects;

•

changes in governmental regulation of the medical products industry;

•

fluctuations in the quarterly revenues and earnings of other publicly held companies like us;

•

shortfalls in our operating results from levels forecasted by securities analysts;

•

additions or departures of our key personnel;

•

sales of our capital stock in the future;

•

liquidity or cash flow constraints; and

•

fluctuations in stock market prices and volume, which are particularly common for the securities of highly volatile companies pursuing untested strategies.

The medical products industry has been highly unpredictable and volatile. The market for common stock of companies in this industry may be equally volatile.

Risk Factors Relating to our Operations

There is uncertainty as to our ability to continue as a going concern.

We have suffered recurring losses from operations which raises substantial doubt about our ability to continue as a going concern. The Company needs additional capital immediately to fund its liquidity requirements. If the Company is unable to successfully obtain additional financing, it will not have sufficient cash to continue operations.    

We cannot predict our future results because we have a very limited operating history.

We changed our business model and became a development stage company in May 2004.  Since that date, we have only realized limited revenues from licensing our products.  Given our limited operating history, it will be difficult for you to evaluate our performance or prospects.  You should consider the uncertainties that we may encounter as an early stage company.  These uncertainties include:

•

our ability to develop medical products with value;

•

our ability to sell or license our products for a profit, if at all;

•

our ability to recruit and retain skilled personnel; and

•

our unproven and evolving business model.

If we are not able to address successfully some or all of these uncertainties, we may not be able to expand our business, compete effectively or achieve profitability.

We will not be able to develop or continue our business if we fail to attract and retain key personnel.

Our future success depends on our ability to attract, hire, train and retain a number of highly skilled employees and on the service and performance of our senior management and other key personnel.  The loss of the services of our executive officers or other key employees could adversely affect our business.  Competition for qualified personnel possessing the skills necessary to implement our acquisition strategy is intense, and we may fail to attract or retain the employees necessary to execute our business model successfully.  Because our common stock is not traded on a recognized national market, we may have a more difficult time in attracting and retaining the employees we need.  

We do not have agreements with most of our key employees that would likely preclude them from competing with us.  Moreover, we do not have “key person” life insurance policies covering any of our employees.

Our success will depend to a significant degree upon the continued contributions of our key management, engineering and other personnel, many of whom would be difficult to replace.  In particular, we believe that our future success is highly dependent on Ira Goldknopf, our President, Chief Scientific Officer and sole director.  If Dr. Goldknopf or other key members of our management team leaves our employment, our business could fail, and the share price of our common stock would likely decline.  Although we have entered into an employment agreement with Dr. Goldknopf, he may voluntarily terminate his services at any time, and may be free to compete with us, as long as he does not use our proprietary information after his departure.

We may not be able to compete effectively if we are not able to protect our intellectual property.

We rely, and intend to rely, on a combination of patent, trademark, trade secret and copyright law and contractual restrictions to protect the proprietary aspects of our products.  We have applied for 14 patents relating to our business.  None of those applications have been granted.  If we are not successful in obtaining the patent protection we need, our competitors may be able to replicate our technology and compete more effectively against us.  We also enter, and plan to continue to enter, into confidentiality or license agreements with our employees, consultants and other parties with whom we contract, and control access to and distribution of our proprietary information.  The legal protections described above would afford only limited protection.  Unauthorized parties may attempt to copy aspects of our products, or otherwise attempt to obtain and use our intellectual property.  Monitoring unauthorized use of our products will be difficult, and the steps we have taken may not prevent unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.

World events outside of our control may negatively affect our operations and financial condition.

World events beyond our control, such as the terrorist attacks on the United States on September 11, 2001, and the continuing response of the United States to these attacks, as well as the threat of future terrorist attacks, and the current worldwide recession continue to cause uncertainty in the world financial markets and may affect our business, results of operations and financial condition.  The current conflict in Iraq and the potential of conflict with Iran and other rogue states may lead to additional acts of terrorism and armed conflict around the world, which may contribute to further economic instability in the global financial markets.  These uncertainties, in addition to the current instability on the capital markets, could also have a material adverse effect on our ability to obtain additional financing on acceptable terms, if at all.

Because we do not have an audit or compensation committee, stockholders must rely on our sole director to perform these functions.

We do not have an audit or compensation committee comprised of independent directors.  All of the functions of the audit committee and the compensation committee are currently performed by the board of directors as a whole.  Our sole director is not considered independent.  Thus, board members who are part of management, or are otherwise not considered independent, will participate in discussions concerning management compensation and audit issues that may affect management decisions.

We will incur increased costs and may have difficulty attracting and retaining qualified directors and executive officers as a result of being a public company.

As a public company, we will incur significant legal, accounting, reporting and other expenses.  We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as related rules implemented by the Securities and Exchange Commission.  We expect these rules and regulations to increase legal and financial compliance costs and to make some activities more time-consuming and costly.  We also expect these new rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance.  As a result, we may experience difficulty attracting and retaining qualified individuals to serve on our board of directors or as our executive officers.  We cannot predict or estimate the amount of additional costs that we may incur as a result of these requirements or the timing of such costs.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

We do not own any real estate. During the year ended December 31, 2008, we conducted our operations from leased premises, with a five year escalating lease expiring August 1, 2009, consisting of approximately 7,200 square feet in The Woodlands, Texas.

At this facility, we maintain our executive offices and conduct development and product prototyping activities. During the first quarter of 2009, we reduced the space we occupied from 7,200 square feet to 2,883 square feet.  We expect this space to be adequate for our needs for the remainder of the lease term. As a result of the reduction in space, monthly base rent decreased from $9,581 to $3,844.

ITEM 3. LEGAL PROCEEDINGS

An equipment vendor filed a complaint, regarding equipment which the Company acquired in its May 18, 2004 transaction with Advanced Bio/Chem, now known as Industrial Enterprises of America, and against Advanced Bio/Chem in April of 2002 in a California court alleging breach of contract and seeking damages. Advanced Bio/Chem reached a settlement agreement in April of 2003 under which Advanced Bio/Chem would pay the vendor $40,000 in installments through August, 2003. At December 31, 2003, Advanced Bio/Chem had a balance remaining of $20,000. In April 2005, the equipment vendor filed a lawsuit against Advanced Bio/Chem, certain former officers of Advanced Bio/Chem and against Power3 in order to enforce its claim for the remaining balance which is past due and may have been assumed by the Company as part of the settlement of the dispute with Advanced Bio/Chem. No resolution has been achieved on this issue at this time and evaluation of the outcome is not possible due to Industrial Enterprises repeated failure to appear in court.

On March 6, 2009, McLennon Law Corporation filed suit against the Company in the Superior Court of the State of California for the County of San Francisco for breach of contract for approximately $117,000 in attorney fees.

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

No matters were submitted to the security holders for a vote during the fourth quarter of the fiscal year ended December 31, 2008.

PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 

Market Information

Our common stock is traded on the OTC Bulletin Board under the symbol “PWRM.” From June 2005 to September 2007, our common stock was quoted on the Pink Sheets.  The high and low bid information for each quarter for the years ended December 31, 2008 and 2007, as reported by National Quotation Bureau, Inc., are as follows:

Quarter	High Bid		Low Bid
First Quarter 2008	$	0.16	$	0.08
Second Quarter 2008	$	0.14	$	0.06
Third Quarter 2008	$	0.12	$	0.02
Fourth Quarter 2008	$	0.05	$	0.01
First Quarter 2007	$	0.22	$	0.06
Second Quarter 2007	$	0.29	$	0.13
Third Quarter 2007	$	0.19	$	0.15
Fourth Quarter 2007	$	0.17	$	0.12

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

Holders

As of March 31, 2009, there were 1,204 shareholders of record of our common stock.

Dividends

We have not paid or declared any dividends on our common stock for the last two fiscal years and we do not anticipate paying cash dividends in the foreseeable future. There are no limitations on our ability to declare dividends, except those set forth in § 510 of the New York Business Corporation Laws, which prohibits dividends if we are insolvent or would be made insolvent by the declaration of a dividend and provides that all dividends must be made out of surplus only.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

None.

Equity Compensation Plans

As of December 31, 2008, we did not have any compensation plans with equity securities available for issuance.

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

The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this report.

The information contained below may be subject to risk factors.  We urge you to review carefully the section “Risk Factors” above under Item 1A for a more complete discussion of the risks associated with an investment in our securities.  See “Special Note on Forward-Looking Statements and Risk Factors” above under Item 1.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Revenues from operations for the year ended December 31, 2008 were $1,025 compared to $122,224 for the year ended December 31, 2007.  The decrease in revenues was a result of no longer selling blood serum samples.  We did not incur any cost of goods sold for the years ended December 31, 2008 or December 31, 2007.

Operating expenses were $3,496,114 for 2008 as compared to operating expenses for 2007 of $3,008,304, an increase of $360,598. The increase in operating expenses was primarily due to an increase in consulting expense in 2008, compared to 2007.

Employee compensation and benefits were $1,041,522 in 2008 compared to $1,675,495 in 2007, a decrease of $633,973. The decrease is primarily a result of staff reduction in the fourth quarter of 2008.

Occupancy and equipment expenses were $136,071 in 2008 as compared to $142,080 in 2007. The decrease is primarily due to a decrease in repairs during 2008.

Derivative gain amounted to $4,415,110 during the year ended December 31, 2008.  This is a significant change from the loss of $1,712,956 during the year ended December 31, 2007.  The gain is primarily due to settlement of derivative instruments.  We generally do not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments.  However, certain other financial instruments, such as warrants and embedded conversion features that are indexed to our common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within our control.  In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement.  Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.  We have recorded fair value adjustments to our derivative financial instruments, which will result in charges or credits to our income, until we require the ability to settle these instruments with our common stock.

Interest expense amounted to $1,541,418 and $2,185,740 for the years ended December 31, 2008 and 2007, respectively. Interest expense decreased with settlement of financial instruments.

The above matters resulted in a net loss of $136,784 in 2008 as compared to a net loss of  $5,216,288 in 2007.  The net loss in 2008 was primarily due to losses on conversion of financial instruments and a significant increase in consulting fees.

Liquidity and Capital Resources

Our liquidity and capital needs relate primarily to working capital, research and development and other general corporate requirements.  We had not received any cash from our operations through the end of 2008.  We have an immediate need for capital to continue our current operations and, in addition, are seeking additional capital from research grants, collaboration agreements, and other strategic alliances.

Net cash used in operating activities amounted to $1,447,004 for the year ended December 31, 2008, compared to $2,083,548 for the year ended December 31, 2007.  The change in net cash used in operating activities during 2008 was primarily due to changes in the fair value of derivative liabilities.

Net cash provided by financing activities was $1,332,404 for the year ended December 31, 2008, as compared to $2,171,694 for the year ended December 31, 2007.  The increase in cash provided by financing activities during the year ended December 31, 2008 as compared to the year ended December 31, 2007 is due to a reduction in the cash received for stock and an increase in borrowing activity in 2008.

As of December 31, 2008, our principal source of liquidity was $8,331 in cash.

Total other current assets for the year ended December 31, 2008 amounted to $6,645 as compared to $23,247 at December 31, 2007.  This decrease was primarily due to a reduction in inventory.

Plan of Operation and Cash Requirements

Through the end of 2008, we limited operating revenues from product sales or the performance of services, and we continue to experience net operating losses.  We are actively pursuing third party licensing agreements, collaboration agreements, distribution agreements and similar business arrangements in order to establish a revenue base utilizing our capabilities in disease diagnosis based on protein and biomarker identification, and drug resistance in the areas of cancers, neurodegenerative and neuromuscular diseases.  We have undertaken clinical validation studies to demonstrate the diagnostic capabilities of our technologies.  However, there can be no assurances when revenue-generating agreements will result in continuous revenue streams.

Absent a source of significant revenues, we will require funding in order to carry out our business plan until such time as we are able to generate sustained revenues.  Our current cash requirements are approximately $90,000 per month, and we anticipate that we will require approximately $1,400,000 for the twelve months ending December 31, 2009, to continue our development activities, undertake and perform clinical validation studies, continue our marketing efforts and maintain our administrative infrastructure, as follows:

Estimated Expenditures Required
During Next Twelve Months

General and administrative	$	900,000
Patent filings and intellectual property		100,000
Capital expenditures and research agreements		400,000
Total	$	1,400,000

The foregoing is based upon our current estimated cash requirements.  We have no significant capital expenditure requirements and do not plan to increase our monthly expenditure rate absent an increase in revenues or additional funding.

We will continue to require additional debt or equity financing for our operations, which may not be readily available.  Our ability to continue as a going concern is subject to our ability to generate positive cash flow from operations or obtain necessary funding from outside sources.

Off-Balance Sheet Arrangements

At December 31, 2008, the only off balance sheet agreements we had in place were a lease in effect for our office space, leases in effect for phone equipment, leases in effect for lab equipment and an employment agreement  entered with our two principal officers.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

We do not use derivative financial instruments to hedge interest rate and foreign currency exposure.  We do not believe that we have any material exposure to interest rate risk.  We did not experience a material impact from interest rate risk during fiscal 2008.

Currently, we do not have any significant investments in financial instruments for trading or other speculative purposes, or to manage our interest rate exposure.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this item are set forth in Item 15(a)(1) and begin at page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act.  This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Our management has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K.  Based upon such evaluation, our management concluded that, as of the end of such period, our disclosure controls and procedures were not effective in ensuring that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.  This conclusion was based upon the number and magnitude of year end and quarterly adjusting entries and the continued existence of the deficiencies noted below. For the year ended December 31, 2008, our management concluded that the following three deficiencies previously identified still exist:

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

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

·  We have a deficiency in segregation of duties.

Management’s Report on Internal Control Over Financing Reporting  

Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act.  As of December 31, 2008, our internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with United State’s generally accepted accounting principles (GAAP), including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.  Our management conducted an evaluation of the effectiveness of our internal control over financial reporting.  Based upon its evaluation, our management concluded that there was a material weakness in our internal control over financial reporting as of December 31, 2008.  A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the issuer’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness related to the lack of monitoring or review of work performed by our management and lack of segregation of duties.  As of December 31, 2008, in the preparation of audited financial statements, footnotes and financial data all of our financial reporting was carried out by one individual, and we did not have an audit committee to monitor or review the work performed.  The lack of segregation of duties resulted from lack of sufficient accounting staff with accounting technical expertise necessary for an effective system of internal control.

Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting occurred during the quarter ended December 31, 2008, that materially affected, or was reasonably likely to materially affect, our internal control over financial reporting.

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

 Limitations on the Effectiveness of Internal Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Our management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Item 9B. Other Information

None. 

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors, Executive Officers, Promoters and Control Persons

Our executive officers and directors, and their respective ages and positions as of March 31, 2009, are as follows:

Name	Position Held with the Company	Age
Helen Park	Interim Chief Executive Officer and Interim Financial Officer	73
Ira L. Goldknopf	President, Chief Scientific Officer and Interim Chairman of the Board	62

Certain additional information concerning the individuals named above is set forth below. This information is based on information furnished by such individual.

Helen R. Park has served as our Interim Chief Executive Officer since September 7, 2008.  On December 12, 2008, Ms. Park also became our Interim Chief Financial Officer.  Ms. Park has an M.S. in Bio/Chemistry at Baylor College of Medicine with 40 plus years in Science and Bio Technology business management. She and Dr. Goldknopf co-founded Advanced Bio/Chem in 2000, and she served as in various executive positions, including Chief Executive Officer and Chairman of the Board, with that company through June 2004.  Ms. Park has been founder and CEO of Bronco Technology Inc., a contracting and consulting firm for bio-technology companies and institutions, including Bayer Services Technology, UTMD Anderson Cancer Center, Flow Genix, UT Health Science Center, Agennix, and Meta-Informatics, since 1994.  Ms. Park is also consulting on business management reorganization with other bio-technology companies in the greater Houston, Texas area.  Ms. Park is past President of the Houston chapter of The National Association of Women Business Owners (NAWBO) and sits on numerous other professional boards including; Clinical Ligand Assay Society, Women’s Chamber of Commerce of Texas, and Downs Syndrome Foundation of Houston.

Ira L. Goldknopf has served as our Chief Scientific Officer and as a director since May 2004.  On September 4, 2008, Dr. Goldknopf also became our President and Interim Chairman of the Board.  From August 2000 until May 2004, Dr. Goldknopf was Chief Scientific Officer of Advanced Bio/Chem, which he co-founded in 2000 with Ms. Park.  Dr. Goldknopf has a B.A. in Chemistry from Hunter College and a Ph.D. in Bio/Chemistry 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 our intellectual property.

There are no family relationships among any of our directors or executive officers.  Except as disclosed below with respect to the employment agreement of Dr. Goldknopf, 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.

Board of Directors and Committees of the Board

Our board of directors currently consists of one member, who is not considered “independent.” Dr. Goldknopf would not be considered an “independent director” under the Marketplace Rules of the Nasdaq Stock Market.  Members of our board of directors will be elected at the annual meeting of shareholders and will serve until the next annual meeting of shareholders, and until a successor has been elected and qualified or their earlier death, resignation or removal.  Vacancies on our board are filled by a majority vote of the remaining members of our board.

To date, our board of directors has not established a nominating and governance committee, a compensation committee or an audit committee.

Code of Conduct and Ethics

We have adopted a code of ethics applicable to our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial and accounting officer.  We will provide a copy of the code of ethics to any person, without charge, upon written request delivered to our offices at 3400 Research Forest Drive, Suite B2-3, The Woodlands, Texas 77381.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors, executive officers, and the persons who beneficially own more than ten percent (10%) of our common stock to file reports of ownership and changes in ownership with the SEC on a timely basis.  Such persons are required by the SEC regulations to furnish us with copies of those reports. Based solely on the reports furnished to us and our internal records, we have determined that the Section 16(a) filing requirements applicable to the following directors, officers and greater than ten percent beneficial owners were not satisfied on a timely basis: Ira Goldknopf, our sole director, President and Chief Scientific Officer, has not filed reports of ownership or changes in ownership with the SEC; Helen Park, our Interim Chief Executive Officer and Interim Chief Financial Officer, did not file her reports of ownership and change in ownership on a timely basis; Steven Rash, our former President, Chief Executive Officer and Chairman of the Board did not filed any reports of ownership or changes in ownership with the SEC; Marion McCormick, our former Chief Accounting Officer, did not file her reports of ownership and change in ownership on a timely basis; Able Income Fund, L.P., who we believe acquired beneficial ownership of more than ten percent of our common stock in September 2008, did not filed any reports of ownership or changes in ownership with the SEC; and Richard Kraniak, who beneficially owns over ten percent of our common stock, has not filed reports of ownership or changes in ownership with the SEC.   

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information with respect to compensation for the years ended December 31, 2008, 2007 and 2006 paid to our principal executive officer and principal financial officer, or anyone acting in a similar capacity during 2008, and our other most highly compensated executive officers as of December 31, 2008.  In this report, we refer to these individuals as our named executive officers.

Summary Compensation Table

								Long Term Compensation
			Annual Compensation					Awards
Name and Principal Position	Year		Salary ($)			Bonus ($)		Restricted Stock Award(s)(2)  ($)		Securities Underlying Options/SARs (#)		All Other Compe-nsation ($)		Total ($)
Steven B. Rash, Former		2008		145,838			0		0		0		0		145,838
Chairman of the Board /		2007		260,425			0		0		0		(2)		260,425
Chief Executive Officer(1)
Dr. Ira L. Goldknopf,		2008		69,399			0		0		0		(3)		69,399
President, Chief Scientific		2007		104,167			0		0		0				104,167
Officer,
Helen Park		2008		20,426	(4)		0		0		0		(5)		20,426
Interim Chief Executive Officer
Marion J. McCormick, Former		2008		58,227			0		0		0		0		58,227
Chief Accounting Officer(6)		2007		30,329			0		0		0		0		30,329

(1)	Mr. Rash resigned from all positions on September 3, 2008.
(2)	Pursuant to Mr. Rash’s employment agreement, on or about September 9, 2007, Mr. Rash received 1,500,000 shares of restricted Series B preferred stock.

(3)	Pursuant to Dr. Goldknopf’s employment agreement, on or about September 9, 2007, Dr. Goldknopf received 1,500,000 shares of restricted Series B preferred stock.
(4)	In addition to fees paid during year ended December 31, 2008 the outstanding balance for fees owed to Ms. Park was $12,000 at December 31, 2008

(5)	In addition to a monthly service fee, Ms. Park receives 100,000 shares of common stock monthly for her services as Interim Chief Executive Officer.
(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 as described below.

(7) Ms. McCormick resigned as Chief Accounting Officer on December 12, 2008.

Director Compensation

Dr. Goldknopf is the Company’s sole director at this time. Except for the compensation to which Dr. Goldknopf is entitled pursuant to the terms of his employment agreement, Dr. Goldknopf does not receive any further compensation for service as director. 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 2008 or 2007.

Fiscal Year End Option Values

The named executive officers do not hold any stock options and did not exercise any stock options as of and for the fiscal year ended December 31, 2008.

Employment Agreements

We entered into an amended and restated employment agreement with Dr. Goldknopf effective as of May 18, 2004.  The agreement 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, in 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 13,250,000 shares of restricted common stock and 1,500,000 shares of Series B preferred stock. The agreement contains a covenant not to compete during the period of employment and for a period of two years following the termination or expiration of Dr. Goldknopf’s 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 we terminate 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 remainder of the initial term of employment. In addition, in the event of a change in control as defined in the agreement, we 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. On or about September 9, 2007, we issued the shares of Series B preferred stock to Dr. Goldknopf.

We entered into an amended and restated employment agreement with Mr. Rash effective as of May 18, 2004.  The agreement had an initial term of five years, subject to each party’s termination rights. The agreement provided for a base salary of $250,000 per year and the opportunity to receive cash bonuses based on performance, in 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 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 during the period of employment and for a period of two years following the termination or expiration of Mr. Rash’s 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. On or about September 9, 2007, we issued the shares of Series B preferred stock to Mr. Rash. On September 3, 2008 Mr. Rash resigned as our Chairman of the Board of Directors and Chief Executive Officer.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table provides information as of March 31, 2009 concerning beneficial ownership of our common stock held by (i) each person or entity known by us to beneficially own more than 5% of our outstanding common stock, (ii) each of our directors, (iii) each of the “named executive officers”, and (iv) all of our current directors and executive officers as a group.  The information as to beneficial ownership has been furnished by our respective shareholders, directors and executive officers and, unless otherwise indicated, each of the shareholders has sole voting and investment power with respect to the shares beneficially owned. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities.

Unless indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws, where applicable. Pursuant to the rules of the Securities and Exchange Commission, certain shares of our common stock that a beneficial owner set forth in this table has a right to acquire within 60 days following the date hereof pursuant to the exercise of options or warrants for the purchase of shares of common stock are deemed to be outstanding for the purpose of computing the percentage ownership of that owner, but are not deemed outstanding for the purpose of computing percentage ownership of any other beneficial owner shown in the table.  Percentages are calculated based on 306,403,849 shares outstanding as of March 31, 2009.  The address for the officers and directors is our corporate office located at 3400 Research Forest Drive, Suite B2-3, The Woodlands, TX 77381.

	Shares Beneficially Owned
Name and Address	Number of Shares			Percent of Class
Ira L. Goldknopf, Ph.D. President, Chief Scientific Officer and Interim Chairman		79,417,236	(1)		20.7	%
Helen R. Park Interim Chief Executive Officer and Interim Chief Financial Officer		14,971,429	(2)		4.8	%
Steven B. Rash Former Chief Executive Officer and Chairman of the Board 10 Spiceberry Place The Woodlands, TX  77382		500,000			*
Marion McCormick Former Chief Accounting Officer 3711 Fern View Drive Kingwood, TX  77345		2,016,000	(3)		*
Able Income Fund, L.P. 198 Green Pond Road Rockaway, NJ  07866		20,117,270	(4)		6.4	%
Roger Kazanowski 5881 Turnberry Commerce, MI  48382		11,176,999	(5)		8.3	%
Richard J. Kraniak 101 West Long Lake Road Bloomfield, MI  48304		41,213,688	(6)		12.8	%
Lourdes R. Bosquez, M.D. 31 Tapestry Forest Place The Woodlands, TX  77381		21,794,872	(7)		6.6	%
All directors and executive officers, as a group (2 persons)		94,388,665	(8)		24.2	%

* Less than 1%

(1)	Includes (i) 1,671,403 shares held directly by Dr. Goldknopf, (ii) 1,500,000 shares issuable upon the conversion of an equal number of shares of Series B Preferred Stock, (iii) 39,647,833 shares issuable upon exercise of currently exercisable warrants and (iv) 36,598,000 shares issuable upon the conversion of a currently convertible note.
(2)	Includes (i) 9,571,429 shares held by Bronco Technology, Inc. an affiliate of Ms. Park, (ii) 400,000 shares issuable to Bronco Technology within the next 60 days pursuant to the terms of a consulting agreement, and (iii) 5,000,000 shares issuable upon exercise of currently exercisable warrants.

(3) Includes (i) 9,750 shares held directly by Ms. McCormick, (ii) 1,006,250 shares issuable upon exercise of currently exercisable warrants and (iii) 1,000,000 shares issuable upon the conversion of a currently convertible note.

(4) Includes (i) 14,117,270 shares held directly by Able Income Fund, (ii) 1,500,000 shares issuable upon surrender of an equal number of shares of Series B Preferred Stock, which automatically converted into an equal number of shares of our common stock upon transfer of the Series B Preferred Stock pursuant to the terms of the Series B Preferred Stock, and (iii) 4,500,000 shares issuable upon the exercise of currently exercisable warrants.

(5) Includes (i) 24,942,857 shares directly by Mr. Kazanowski, and (ii) 600,000 shares issuable upon the exercise of currently exercisable warrants.

(6) Includes (i) 15,118,453 shares directly by Mr. Kraniak, (ii) 8,428,571 shares held by Mr. Kraniak’s Roth IRA, and (iii) 15,666,664 shares issuable upon the exercise of currently exercisable warrants.

(7) Includes (i) 10,461,539 shares issuable upon the exercise of currently exercisable warrants and (ii) 11,333,333 shares issuable upon the conversion of a currently convertible note.

(10) Includes (i) 1,671,403 shares held directly by Dr. Goldknopf, (ii) 9,571,429 shares held by Bronco Technology, Inc. an affiliate of Ms. Park, (iii) 400,000 shares issuable to Bronco Technology within the next 60 days pursuant to the terms of a consulting agreement with the Company. (iv) 1,500,000 shares issuable upon the conversion of an equal number of shares of Preferred Stock, (v) 44,647,833 shares issuable upon exercise of currently exercisable warrants and (iv) 36,598,000 shares issuable upon the conversion of a currently convertible note.

Changes of Control

Pursuant to Amended and Restated Employment Agreements executed on December 29, 2004, Dr. Goldknopf and Mr. Rash were each granted the right to receive 1,500,000 shares of our Series B Preferred Stock.  On September 6, 2007, we filed a Certificate of Amendment to our Certificate of Incorporation that established and created the Series B Preferred Stock.  On or about September 9, 2007, we issued the shares of Series B Preferred Stock to Dr. Goldknopf and Mr. Rash.  On or about September 4, 2008, Mr. Rash resigned from all of his positions with us.  According to the terms of the Series B Preferred Stock, upon termination of his employment with us, Mr. Rash’s 1,500,000 shares of Series B Preferred Stock automatically converted into 1,500,000 shares of our common stock.  Because the shares of the outstanding Series B Preferred Stock have the number of votes equal to the number of votes of all outstanding shares of common stock plus one additional vote, Dr. Goldknopf, as the sole holder of Series B Preferred Stock, holds a majority of the voting rights of our shareholders.  As a result, the issuance of Series B Preferred Stock to Dr. Goldknopf and Mr. Rash, and the subsequent resignation of Mr. Rash, resulted in a change in control of us.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

In order for us to obtain bridge loan financing during 2005 Steven B. Rash, then our Chief Executive Officer, and Dr. Ira Goldknopf, a director and Chief Scientific Officer, both pledged a number of shares of stock they owned personally, as collateral for the bridge loans we obtained.  In the case of three of these bridge loan providers, pledged shares have been sold to pay back the notes payable due to the lenders.

On May 30, 2008, all notes payable to Mr. Rash owed for pledged shares sold were converted into 11,225,869 shares of our common stock.   

On November 4, 2008, all notes payable to Ira Goldknopf in the amounts of the value of his pledges shares were exchanged for a convertible note payable in the aggregate amount of the outstanding notes including interest.  As of December 31, 2008, the Company owed Dr. Goldknopf convertible notes payable of $1,189,435.

On November 20, 2008, Ira Goldknopf surrendered 1,100,000 shares of our common stock owned by him to Trinity Bui resulting in a $18,927 note payable to Dr. Goldknopf at 6% interest, maturing May 20, 2009.

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, 2008 and the year ended December 31, 2007:

	2008		2007
Audit Fees:	$	52,811	$	47,821	(a)
Audit Related Fees:	$	-	$	-
Tax Fees:	$	2,850	$	2,835
All Other Fees:	$	-	$	-
Total Fees:	$	96,661	$	50,656

(a)

$38,550 were fees paid to M&K CPAs, PLLC, other fees were paid to Maloney & Bailey PC, our former auditors.

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 considers whether such activities could affect the independence of such accountants.

PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, SIGNATURES

(a)

The following documents are filed as part of this Report:

(1)

Financial Statements:

	Page
Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets as of December 31, 2008 and 2007	F-3
Statements of Operation for the years ended December 31, 2008 and 2007 and the period from May 18, 2004 (inception) through December 31, 2008	F-5
Statements of Stockholders’ Deficit for all periods since Company entered development stage	F-7
Statements of Cash Flows for the years ended December 31, 2008 and 2007 and the period from May 18, 2004 (inception) through December 31, 2008	F-10
Notes to Financial Statements	F-13

(2)

Financial Statement Schedules:

Schedule II – Valuation and Qualifying Accounts and Reserves

(3)

Management Contract or Compensatory Plan:

See Index to Exhibits.  Each of the following Exhibits described on the Index to Exhibits is a management contract or compensatory plan: Exhibits [10. 1 and 10.2].

(b)

Exhibits:

See Index to Exhibits.

 (d)

Schedules:

See financial statements and the accompanying notes.

SIGNATURES

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

Signature	Title	Date
/s/ Helen R. Park	Interim Chief Executive Officer	April 15, 2009
Helen R. Park
/s/ Ira L. Goldknopf	President and Sole Director	April 15, 2009
Ira L. Goldknopf

Exhibit No.	INDEX TO EXHIBITS
2.1	Asset Purchase Agreement dated as of May 11, 2004 by and among Power3 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 Statement 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	Certificate of Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-KSB filed on November 14, 2007).
*3.7	Certificate of Amendment to the Certificate of Incorporation dated February 4, 2009.
3.8	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	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).
10.2*	2008 Compensation Plan
10.3*	2009 Stock Incentive Plan
10.2	Exclusive License Agreement dated effective as of June 28, 2004 by and between Baylor College of Medicine and Power3 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).
10.3	Research Agreement signed August 17, 2004 by and between Baylor College of Medicine and Power3 Medical Products, Inc. (incorporated by reference to Exhibit 10.13 to the Company’s Form 10-KSB for the year ended December 31, 2005).
10.4	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 Power3 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).
10.5	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).
10.6	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).
10.7	Promissory Note executed by Power3 and Cordillera Fund LP in the amount of $251,000, dated April 5, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-QSB filed August 22, 2005).
10.8	Promissory Note executed by Power3 and Cordillera Fund LP in the amount of $200,000, dated September 5, 2005 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed on September 9, 2005).
10.10	Clinical Trial Agreement effective August 24, 2007 by and between Sun Health Research Institute and Power3 Medical Products, Inc. signed 11/6/07. (incorporated by reference to Exhibit 10.53 to the Company’s Form 10-KSB for December 31, 2007).
31.1*	Certification of Power3 Medical Products, Inc. Interim Chief Executive Officer, Helen R. Park, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Power3 Medical Products, Inc. Interim Chief Executive Officer, Helen R. Park, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
10.11	Form of Convertible Debenture dated June 30, 2008 by and between registrant and Able Income Fund LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated June 30, 2008).
10.12	Form of Warrant dated June 30, 2008 by and between registrant and Able Income Fund LLC (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K dated June 30, 2008).
10.13	Form of Convertible Debenture dated July 29, 2008 by and between registrant and Able Income Fund LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated July 29, 2008).
10.14	Form of Warrant dated July 29, 2008 by and between registrant and Able Income Fund LLC (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K dated July 29, 2008).
10.15	Form of Convertible Promissory Note, dated November 4, 2008 by and between registrant and certain investors, including Ira Goldgnopf (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated November 4, 2008).
10.14	Form of Warrant dated November 4, 2008 by and between registrant and certain investors, including Ira Goldgnopf (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K dated November 4, 2008).
14.1	Code of Ethics for Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer (incorporated by reference to Exhibit 14.1 to the Company’s Form 10-KSB filed September 9, 2005).
14.2	Statement of Company Policy and Policy Regarding Confidentiality and Securities Trades by Company Personnel (incorporated by reference to Exhibit 10.10 to the Company’s Form 10-QSB for September 30, 2007).

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008 AND 2007

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

and the period from May 18, 2004 (inception) through December 31, 2008

	Page
Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets as of December 31, 2008 and 2007	F-3
Statements of Operation for the years ended December 31, 2008 and 2007 and the period from May 18, 2004 (inception) through December 31, 2008	F-5
Statements of Stockholders’ Deficit for all periods since Company entered development stage	F-7
Statements of Cash Flows for the years ended December 31, 2008 and 2007and the period from May 18, 2004 (inception) through December 31, 2008	F-10
Notes to Financial Statements	F-13

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Power3 Medical Products, Inc.

(A Development Stage Company)

The Woodlands, Texas

We have audited the accompanying balance sheets of Power3 Medical Products, Inc. (a Development Stage Enterprise) (“Power3”) as of December 31, 2008  and 2007, and the related statements of operations, stockholders' deficit and cash flows for the years then ended. The financial statements for the period May 18, 2004 (inception) through December 31, 2006, were audited by other auditors whose reports expressed unqualified opinions on those statements. The financial statements for the period May 18, 2004 (inception) through December 31, 2006, include total revenues and net loss of $304,000 and $48,787,175, respectively. Our opinion on the statements of operations, stockholders' deficit and cash flows for the period May 18, 2004 (inception) through December 31, 2006, insofar as it relates to amounts for prior periods through December 31, 2006, is based solely on the reports of other auditors. These financial statements are the responsibility of Power3's management. Our responsibility is to express an opinion on these financial statements based on our audits.  

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls 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 finical 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 Power3 as of December 31, 2008 and 2007, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that Power3 will continue as a going concern. As discussed in Note 3 to the financial statements, Power3 has suffered recurring losses from operations which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ M&K CPAs, PLLC

www.mkacpas.com 

Houston, Texas  

April 14, 2009

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

BALANCE SHEETS

AS OF DECEMBER 31, 2008 AND 2007

	December 31, 2008			December 31, 2007
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	8,331		$	125,679
Other Current Assets		6,645			23,247
TOTAL CURRENT ASSETS		14,976			148,926
OTHER ASSETS
Deferred Finance Costs, net of accumulated amortization of $304,149 and $176,952 at December 31, 2008 and 2007, respectively		—			127,197
Furniture, Fixtures and Equipment, net of accumulated depreciation of $101,253 and $98,960 at December 31, 2008 and 2007, respectively		6,253			5,799
Deposits		5,450			21,598
TOTAL ASSETS	$	26,679		$	303,520
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts Payable	$	1,043,682		$	969,387
Notes Payable – in default, net of unamortized discount of $45,827 and $0 at December 31, 2008 and 2007, respectively		451,000			451,000
Notes Payable		64,174			50,000
Notes Payable to Related Parties		68,927			1,934,816
Convertible Debentures-in default, net of unamortized discount of $97,036 and $489,821at December 31, 2008 and 2007, respectively		767,974			645,190
Convertible Debentures, net of unamortized discount of $577,668 and $0 at December 31, 2008 and 2007, respectively		442,332			—
Convertible Debentures – Related Party, net of unamortized discount of $672,836 and $0 at December 31, 2008 and 2007, respectively		696,599			—
Other Current Liabilities		617,486			1,242,936
Derivative Liabilities		1,352,247			3,794,305
TOTAL LIABILITIES		5,504,421			9,087,634
STOCKHOLDERS’ DEFICIT
Preferred Stock - $0.01 par value: 50,000,000 shares authorized; 1,500,000 and 0 shares issued and outstanding as of December 31, 2008 and 2007, respectively		1,500			—
Common Stock-$0.001 par value: 150,000,000 shares authorized; 149,959,044 and 108,352,636 shares issued and outstanding as of December 31, 2008 and 2007, respectively		149,960			108,353
Additional Paid-In Capital		63,499,938			60,191,104
Stock Held in Escrow		(20,000	)		—
Common Stock Payable		123,286			—
Deficit Accumulated Before Entering Development Stage		(11,681,500	)		(11,681,500	)
Deficit Accumulated During Development Stage		(57,550,926	)		(57,402,071	)
TOTAL STOCKHOLDERS’ DEFICIT		(5,477,742	)		(8,784,114	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	26,679		$	303,520

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

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2008 AND 2007

and the period from May 18, 2004 (inception) through December 31, 2008

	2008			2007			Period from
							May 18, 2004
							through
							December 31,
							2008
REVENUES:
Sales	$	1,025		$	122,224		$	427,249
TOTAL REVENUE		1,025			122,224			427,249
OPERATING EXPENSES:
Employee compensation and benefits		1,041,522			1,675,495			31,049,512
Professional and consulting fees		1,962,113			723,251			11,302,940
Impairment of goodwill		—			—			13,371,776
Impairment of intangible assets		—			179,788			179,788
Occupancy and equipment		136,071			142,080			668,475
Travel and entertainment		83,892			113,995			426,384
Write off lease		—			—			34,243
Other selling, general and administrative expenses		272,516			173,695			734,134
TOTAL OPERATING EXPENSES		3,496,114			3,008,304			57,767,252
LOSS FROM OPERATIONS		(3,495,089	)		(2,886,080	)		(57,340,003	)
OTHER INCOME (EXPENSE):
Derivative gain(loss)		4,415,110			(1,712,956	)		7,022,973
Gain on legal settlement		17,875			18,889			36,764
Gain on settlement of debt		464,872			1,544,574			2,009,446
Interest income		576			5,025			7,867
Mandatory prepayment penalty		—			—			(420,000	)
Other income (expense)		1,290			—			(194,886	)
Interest expense		(1,541,418	)		(2,185,740	)		(5,262,408	)
TOTAL OTHER INCOME (EXPENSE)		3,358,305			(2,330,208	)		3,199,756
NET LOSS		(136,784	)		(5,216,288	)		(54,140,247	)
Deemed dividend		(12,071	)		(17,635	)		(29,706	)
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	(148,855	)	$	(5,233,923	)	$	(54,169,953	)
NET LOSS PER SHARE BASIC AND DILUTED	$	0.00		$	(0.06	)
Weighted average number of shares outstanding		135,096,000			89,736,470

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

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENT OF STOCKHOLDERS' DEFICIT

FROM INCEPTION TO DECEMBER 31, 2008

													Additional			Deferred			Common
Common Stock						Preferred Stock							Paid In			Compensation			Stock		Retained
	Shares			Par Value			Shares			Par Value			Capital			Expense			Payable		Earnings				Equity
Balances as of beginning of development stage May 18, 2004	14,407,630		$	14,407			3,870,000		$	3,870		$	14,225,974		$	—		$	—	$	(11,681,500	)	$		2,562,751
Issued shares for compensation	27,945,000			27,945			—			—			25,423,555			(25,451,500	)		—		—				—
Issued shares for services	4,910,000			4,910			—			—			4,850,090			(535,000	)		—		—				4,320,000
Issued shares for acquisition of equipment	15,000,000			15,000			—			—			13,485,000			—			—		—				13,500,000
Stock option expense	—			—			—			—			626,100			(626,100	)		—		—				—
Issued shares for cash	242,167			242			—			—			314,575			—			—		—				314,817
Cancelled shares per cancellation of agreement	(160,000	)		(160	)	—				—			(71,840	)		—			—		—				(72,000			)
Issued shares to convert Series A preferred shares to common shares	3,000,324			3,001			(3,870,000	)		(3,870	)		3,377,974			—			—		(3,380,975	)		(3,870		)
Stock based compensation	—			—			—			—			—			8,311,012			—		—				8,311,012
Net reclassification of derivative liabilities	—			—			—			—			(3,347,077	)		—			—		—				(3,347,077			)
Net loss (from May 18, 2004 to December 31, 2004)	—			—			—			—			—			—			—		(15,236,339	)		(15,236,339			)
Balances, December 31, 2004	65,345,121		$	65,345			—		$	—		$	58,884,351		$	(18,301,588	)	$	—	$	(30,298,814	)	$		10,349,294
Cancelled shares returned from employee	(1,120,000	)		(1,120	)	—				—			(1,307,855	)		—			—		—				(1,308,975			)
Issued shares for compensation	140,000			140			—			—			41,860			—			—		—				42,000
Issued shares for services	850,000			850			—			—			155,150			—			—		—				156,000
Amortize deferred compensation expense	—			—			—			—			—			13,222,517			—		—				13,222,517
Net loss	—			—			—			—			—			—			—		(27,134,865	)		(27,134,865		)
Balances, December 31, 2005 (restated)	65,215,121		$	65,215			—		$	—		$	57,773,506		$	(5,079,071	)	$	—	$	(57,433,679	)	$		(4,674,029			)
Issued shares for services	2,449,990			2,449			—			—			311,865			—			—		—				314,314
Issued shares for cash	2,452,746			2,452			—			—			222,548			—			—		—				225,000
Issued shares for compensation	1,253,098			1,254			—			—			176,763			—			—		—				178,017
Adoption of FAS 123R	—			—			—			—			(475,324	)		475,324			—		—				—
Amortize deferred compensation expense	—			—			—			—			—			4,603,747			—		—				4,603,747
Net loss	—			—			—			—			—			—			—		(6,415,968	)		(6,415,968		)
Balances, December 31, 2006	71,370,955		$	71,370			—		$	—		$	58,009,358		$	—		$	—	$	(63,849,648	)	$		(5,768,920			)
Issued shares for services	1,810,000			1,810			—			—			282,390			—			—		—				284,200
Issued shares for conversion of debt	22,265,224			22,264			—			—			606,412			—			—		—				628,676
Issued shares for warrants exercised	5,270,832			5,272			—			—			336,396			—			—		—				341,668
Issued shares for cash	7,630,625			7,632			—			—			992,818			—			—		—				1,000,450
Placement agent fees	—			—			—			—			(58,500	)		—			—		—				(58,500			)
Stock received	—			—			—			—			100			—			—		—				100
Unreturned shares	5,000			5			—			—			4,495			—			—		—				4,500
Deemed dividend	—			—			—			—			17,635			—			—		(17,635	)		—
Net loss	—			—			—			—						—			—		(5,216,288	)		(5,216,288		)
Balances, December 31, 2007	108,352,636		$	108,353			—		$	—		$	60,191,104		$	—		$	—	$	(69,083,571	)	$		(8,784,114			)
Issued shares for services	7,482,910			7,483			—			—			584,858			—			—		—				592,341
Issued shares for cash	7,492,875			7,493			—			—			639,911			—			—		—				647,404
Issued shares for conversion of debt	22,172,536			22,173			—			—			1,568,626			—			—		—				1,590,799
Issued shares for lawsuit settlement	325,000			325			—			—			30,550			—			—		—				30,875
Issued shares for payables	2,133,333			2,133			—			—			186,867			—			—		—				189,000
Stock held in escrow	2,000,000			2,000			—			—			18,000			—			—		—				—
Issued preferred shares	—			—			1,500,000			1,500			357,000			—			—		—				358,500
Deemed dividend	—			—			—			—			12,071			—			—		(12,071	)		—
Loss on related party debt conversion	—			—			—			—			(89,049	)					—		—				(89,049			)
Common stock payable	—			—			—			—			—			—			123,286		—				123,286
Net loss	—			—			—			—			—			—			—		(136,784	)			(136,784			)
Balances, December 31, 2008	149,959,290		$	149,960			1,500,000		$	1,500		$	63,499,938		$	—		$	123,286	$	(69,232,426	)	$		(5,477,742			)

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

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2008 AND 2007

and the period from May 18, 2004 (inception) through December 31, 2008

								Period from
								May 18, 2004
								through
								December 31,
	2008				2007			2008
Operating Activities:
Net loss		$	(136,784	)	$	(5,216,288	)	$	(54,140,247	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on conversion of financial instruments			(461,670	)		(1,544,574	)		(2,006,244	)
Impairment of goodwill			—			—			13,371,776
Impairment of intangible assets			—			179,788			179,788
Loss on previously capitalized lease			—			—			34,243
Amortization of debt discounts and deferred    finance costs			1,198,688			2,112,288			3,725,430
Change in derivative liability, net of    bifurcation			(4,415,110	)		1,712,956			(5,869,072	)
Stock issued for compensation and services			714,627			288,700			33,370,672
Debt issued for compensation and services			1,028,927			—			1,028,927
Stock issued for settlement of lawsuit			30,875			—			30,875
Depreciation expense			2,294			13,644			101,254
Other non cash items			—						(34,933	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets			16,147			(38,845	)		186,084
Inventory			16,602			—			16,602
Accounts payable and other liabilities			558,400			408,783			3,173,208
Net cash used in operating activities			(1,447,004	)		(2,083,548	)		(6,831,637	)
Investing Activities:
Capital expenditures, net			(2,748	)		(3,069	)		(141,750	)
Increase in other assets			—			—			(179,786	)
Net cash used in investing activities			(2,748	)		(3,069	)		(321,536	)
Financing Activities:
Proceeds from sale of common stock			647,404			941,950			2,264,171
Borrowings on notes payable related party			45,000			30,376			75,376
Borrowings on notes payable			760,000			875,000			3,788,430
Principal payments on notes payable related party			(30,000	)		(17,300	)		(47,300	)
Principal payments on notes payable			(90,000	)		—			(122,478	)
Proceeds from CD, warrants and rights net of    issuance cost			—			341,668			1,200,709
Net cash provided by financing activities			1,332,404			2,171,694			7,158,908
Net change in cash and cash equivalents			(117,348	)		85,077			5,735
Cash and cash equivalents, beginning of    period			125,679			40,602			2,596
Cash and cash equivalents, end of period		$	8,331		$	125,679		$	8,331

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

F-0

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2008 AND 2007

and the period from May 18, 2004 (inception) through December 31, 2008

	2008		2007		Period from May 18, 2004 through December 31, 2008
Supplemental disclosures of cash flow information
Cash paid for:
Interest	$	—	$	—	$	59,840
Income taxes	$	—	$	—	$	—
Non-cash transactions
Stock for conversion of debt – related party	$	1,014,933	$	—	$	1,014,933
Exchange of debt – related party	$	214,075	$	—	$	214,075
Exchange of convertible notes for stock	$	965,266	$	1,559,804	$	2,525,070
Stock issued for settlement of payables	$	189,000	$	—	$	195,697
Deemed dividend	$	12,071	$	17,635	$	29,706
Exchange of convertible preferred stock for           common stock	$	—	$	—	$	3,380,975
Preferred stock issued for payables	$	358,500	$	—	$	358,500
Stock held in escrow	$	20,000	$	—	$	20,000

The accompanying notes are an integral part of these financial statements

F-1

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

Note 1. ORGANIZATION, PRINCIPLE ACTIVITIES AND BASIS OF PRESENTATION 

Power3 Medical Products, Inc. (the “Company” or “Power3”) was incorporated in the State of Florida on May 15, 1992 and merged into a New York Corporation in 1994, under the name Sheffield Acres, Inc. Power3 and its wholly owned subsidiaries, C5 Health, Inc., 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.

Prior to May 17, 2004, the Company had one direct subsidiary, Tenthgate, Inc. (“Tenthgate”), a Nevada corporation formerly known as Power3 Medical, Inc. Prior to this date, Tenthgate was accounted for, by Power3, as a wholly-owned subsidiary, operating as a “development stage company,” under the cost method. As part of the transaction which involved the acquisition of substantially all the assets and certain liabilities from Advanced Bio/Chem, now known as Industrial Enterprises of America, it was agreed that Power3 would distribute the shares of its subsidiary, Tenthgate, to its then existing shareholders . To fulfill this obligation, the shares of Tenthgate were transferred to a trustee for distribution to the shareholders of Power3 as of May 17, 2004. Tenthgate was spun off because the management of Power3, in place prior to May 17, 2004, desired to continue to own and eventually operate this subsidiary. At the time of the spin-off, Tenthgate was granted the rights to market a product line that had previously been marketed by Power3, but which the company had decided to abandon. Tenthgate had not been an operating company, and their management has apparently abandoned any plans to market the product as evidenced by their SEC filings, specifically their amended 10-QSB filed for the quarterly period ending January 31, 2005, wherein they specifically state that they are a “development stage company.” The prior operations of the company, which are reflected in the Company’s previous financial statements, prior to May 18, 2004, i.e. occurring prior to reentering the development stage, were the operations the Company had decided to abandon and which were transferred to the prior shareholders under the control of prior management. Any activities since May 17, 2004, are not consolidated with Power3 because Power3 does not now own or control the operations or activities of Tenthgate, nor are their activities associated with Power3 in any manner whatsoever.

In 2003, Power3 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 Bio/Chem, doing business as ProteEx, provided contract-for-fee lab services analyzing protein biomarkers. At the conclusion of negotiations with Advanced Bio/Chem, Power3 entered into an Asset Purchase Agreement dated May 18, 2004, whereby it purchased substantially all the assets and intellectual properties of Advanced Bio/Chem, and assumed certain liabilities, as scheduled in the agreement, from Advanced Bio/Chem. After the transaction, certain employees from Advanced Bio/Chem became employees of Power3 and were later issued employment agreements by Power3. As consideration in the Asset Purchase Agreement, Power3 issued 15,000,000 shares of common stock to Advanced Bio/Chem.

Power3 Medical Products, Inc. did not continue the business activity of Advanced Bio/Chem and never conducted any contract-for-fee lab service work. 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.

Coincident with the asset purchase transaction on May 18, 2004, the previous management of Power3 resigned and left the employ of the Company. Immediately thereafter, two employees of Advanced Bio/Chem were granted employment agreements by Power3. These two employees were Steven B. Rash as CEO and Dr. Ira Goldknopf as Chief Scientific Officer.

As a development stage company, Power3 is primarily engaged in commercializing its intellectual properties in the area of diagnosis and treatment of breast cancer, ALS, Alzheimer’s disease and Parkinson’s disease.

The accompanying financial statements of Power3 at December 31, 2008, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of Power3 have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP). Certain prior period amounts have been reclassified to conform to the December 31, 2008 presentation. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.

Fair Value of Financial Instruments

Statement of Financial Accounting Standards (SFAS) 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amount of Power3’s cash, accounts payables, and accrued expenses approximates their estimated fair values due to the short term maturities of those financial instruments. The fair value of related party transactions is not determinable due to their related party nature.

Credit Risk

Power3 does not require collateral from its customers with respect to accounts receivable but performs periodic credit evaluations of such customer's financial conditions. Power3 determines any required allowance by considering a number of factors including lengths of time accounts receivable are past due and Power3's previous loss history. Power3 provides reserves for accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

Power3’s cash may exceed FDIC protection levels at different points throughout the year; management believes the risk associated with this possible exposure is minimal. Power3 was within FDIC protection limits at December 31, 2008 and 2007, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.

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 accounted for using the straight-line method over the assets’ estimated useful lives.

Debt Discounts and Deferred Finance Costs

Debt discounts and deferred finance costs are being amortized through periodic charges to interest expense over the maximum term of the related financial instrument using the effective interest method. Total amortization of debt discounts and deferred financing costs amounted to $1,198,688 and $2,112,288 during the years ended December 31, 2008 and 2007, respectively.

Patents

Patent application costs, which approximated $1,800 and $35,000 for the years ended December 31, 2008 and 2007, respectively, are expensed as incurred.

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.

Statement of Financial Accounting Standards (SFAS) 142 “Accounting for Intangible Assets,” provides that some intangible assets are not subject to periodic amortization, but are evaluated at least annually for impairments. During March 2007, management reassessed future cash flow and concluded that the prior expectations did not appear to be obtainable. This updated analysis resulted in management’s decision to impair the remaining intangible assets completely, as of December 31, 2007, resulting in impairment losses of $179,788 during the year ended December 31, 2007.

Accounting for Derivative Instruments

Statement of Financial Accounting Standards (SFAS) 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires all derivatives to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in Power3's structured borrowings, are separately valued and accounted for on Power3's balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

Lattice Valuation Model

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

Black−Scholes Valuation Model

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

Net Loss Per Share

Basic and diluted net loss per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the year. The per share amounts include the dilutive effect of common stock equivalents in years with net income. Power3 had losses in 2008 and 2007. Basic and diluted loss per share is the same as the effect of our potential common stock equivalents would be anti-dilutive.

Stock Based Compensation

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

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

As of December 31, 2008, the Company has not granted options to employees.

Income Taxes

Power3 utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.

Research and Development

Research and development costs, which approximated $64,000 and $110,000 for the years ended December 31, 2008 and 2007, respectively, are expensed as incurred.

Cash Equivalents

For purposes of the statements of cash flows, Power3 considers all highly liquid debt instruments purchased with an original maturity of 90 days or less to be cash equivalents. As of December 31, 2008 and 2007,  there were no cash equivalents.

Revenue Recognition

Power3’s revenue recognition policy is consistent with the criteria set forth in Staff Accounting Bulletin 104-Revenue Recognition in Financial Statements (SAB 104) for determining when revenue is realized or realizable and earned. In accordance with the requirements of SAB 104 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) collectability is reasonably assured.

Recently Issued Accounting Pronouncements

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

Note 3.  GOING CONCERN 

As shown in the accompanying financial statements, Power3 incurred net loss chargeable to common shareholders of $148,855 and $5,233,923 in fiscal years 2008 and 2007, respectively, and has an accumulated deficit of $69,232,426 as of December 31, 2008. These conditions create an uncertainty as to Power3's ability to continue as a going concern. Management is trying to raise additional capital through various funding arrangements. If the Company is unable to successfully obtain additional financing, it will not have sufficient cash to continue operations.  As of December 31, 2008, the Company had approximately $8,300 in cash and cash equivalents.  The Company needs additional capital immediately to fund its liquidity requirements.  The Company is seeking between $3 million and $5 million in new financing in the first or second quarter of 2009.  The Company believes that $3 million is the minimum amount of financing it needs to repay existing obligations and to continue funding its new business strategy for at least 12 months following the date of this report.  The Company will need to raise additional funds from either one or a combination of additional financings or otherwise obtain capital, in order to satisfy its future liquidity requirements.The financial statements do not include any adjustment that might be necessary if Power3 is unable to continue as a going concern.

Note 4. EQUIPMENT

Equipment consisted of the following at December 31, 2008 and 2007:

Description	Life		2008			2007
Computers & Related Devices		5 years	$	15,126		$	12,377
Less: Accumulated Depreciation				(10,545	)		(9,113	)
			$	4,581		$	3,264
Lab Equipment		5 years	$	92,380		$	92,382
Less: Accumulated Depreciation				(90,708	)	$	(89,847	)
				1,672			2,535
Total Equipment Net of Depreciation			$	6,253		$	5,799

Note 5. OTHER CURRENT LIABILITIES

Other liabilities and accrued expenses consisted of the following at December 31, 2008 and 2007:

	2008		2007
Accrued rent	$	28,566	$	49,103
Accrued interest		335,033		447,647
Prepayment penalty		25,000		145,000
Accrued payroll taxes		44,347		6,021
Accrued liabilities		33,575		9,516
Salaries payable		150,965		56,899
Common stock payable		—		48,750
Preferred stock payable		—		480,000
	$	617,486	$	1,242,936

Note 6. INCOME TAXES

In 2008 and 2007, Power3 incurred net losses and, therefore, had no tax liability. The net deferred tax asset generated by the loss carry forward has been fully reserved. The cumulative net operating loss carry forward is approximately $19,839,201 and $16,812,667 at December 31, 2008 and 2007, respectively and will expire in the years 2019 through 2028.

At December 31, 2008 the deferred tax assets consisted of the following:

Net Operating loss	$	6,745,328
Less: Valuation allowance	$	(6,745,328	)
Net Deferred tax asset	$	—

Note 7. RELATED PARTY TRANSACTIONS

In order to obtain bridge loan financing for the Company, Steven B. Rash, the Company’s former Chief Executive Officer of Power3, and Dr. Ira Goldknopf, President, Chief Scientific officer and sole Director of Power3, have both pledged 9,914,500 and 8,753,000 shares of Power3 common stock they owned personally, as collateral for the bridge loans obtained. In certain instances, these bridge loan providers have sold pledged shares they were holding as collateral for the notes to pay back the notes payable. The amounts obtained from the sale of pledged shares have been reported to the Company by the lenders. On May 30, 2008, shares were issued to Mr. Rash in full satisfaction of his outstanding notes including interest as reported below.  The Company owed Steven B. Rash notes payable, for the amounts of his pledged shares that have been sold, in the amount of $0  and $924,456 at December 31, 2008 and 2007, respectively. On November 4, 2008, all notes payable to Ira Goldknopf in the amounts of his pledged shares were exchanged for a convertible note payable in the aggregate amount of the outstanding notes including interest as reported below. The Company owed Dr. Ira Goldknopf notes payable, for the amounts of his pledged shares that have been sold, in the amount of $0 and $975,360 at December 31, 2008 and 2007, respectively.

On May 30, 2008, 11,225,869 shares were issued to Steven Rash for conversion of all outstanding notes payable plus interest for his pledged shares mentioned above.  The shares were valued at $1,122,587 based upon the closing price of our common stock at the grant date resulting in a loss on extinguishment of debt of $107,654 that was recorded in additional paid-in capital due to the related party nature of the transaction.

On May 22, 2008, for $30,000 cash received, the Company issued Steven Rash a $30,000 note payable at 6% interest, maturing June 22, 2008.  On August 4, 2008, the note was repaid in full in the amount of $30,000 with $35 interest forgiven.

On June 18, 2008, for $15,000 cash received, the Company issued Steven Rash a $15,000 note payable at 6% interest, maturing July 19, 2008.  The loan remains outstanding, is in default and is carried on the balance sheet.

On November 4, 2008, Dr. Ira Goldknopf was issued a convertible promissory note for settlement of all notes issued for the pledged stock mentioned above including interest owed.  The convertible note matures November 4, 2009, has an initial principal amount of $1,189,435, at 12% interest, exchangeable into common stock of the company at $0.03 per share, and warrants to purchase an additional 36,598,000 shares of the Company’s common stock at $0.04 for three years from date of issue.  This resulted in a loss on exchange of debt of $89,049 that was recorded in additional paid-in capital due to the related party nature of the transaction.

On November 20, 2008, Ira Goldknopf surrendered personal shares of the Company to Trinity Bui resulting in a $18,927 note payable to Dr. Goldknopf at 6% interest, maturing May 20, 2009.  

On October 7, 2008, Helen Park, interim Chief Executive Officer, was granted 5,000,000 shares of common stock as compensation for services rendered by Ms. Park to the Company prior to her appointment as interim Chief Executive Officer.  At the time the shares were granted the Company did not have sufficient shares to issue to Ms. Park.  On November 18, 2008, the Company issued a convertible promissory note for the 5,000,000 shares with terms matching other convertible notes issued to investors, consultants and employees during November.  The convertible note matures November 18, 2009, has an initial principal amount of $150,000, at 12% interest, and warrants to purchase an additional 5,000,000 shares of the Company’s common stock at $0.04 for three years from date of issue.  

On October 7, 2008, Marion McCormick, former Chief Accounting Officer, was granted 1,000,000 shares of common stock as a performance bonus.  At the time the shares were granted the Company did not have sufficient shares to issue to Ms. McCormick.  On November 18, 2008, the Company issued a convertible promissory note for the 1,000,000 shares with terms matching other convertible notes issued to investors, consultants and employees during November.  The convertible note matures November 18, 2009, has an initial principal amount of $30,000, at 12% interest, and warrants to purchase an additional 1,000,000 shares of the Company’s common stock at $0.04 for three years from date of issue.  

During 2005, Michael Rosinski, a previous employee of the Company, loaned the Company $35,000 at 6% interest. The loan remains outstanding, is in default and is carried on the balance sheet.

Amounts owed to Steven B. Rash, Dr. Ira Goldknopf, Michael Rosinski , Helen Park, and Marion McCormick total $1,438,362 and $1,934,816 at December 31, 2008 and 2007, respectively.

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

Note 8. OTHER COMMITMENTS AND CONTINGENCIES

An equipment vendor filed a complaint, regarding equipment which the Company acquired in its May 18, 2004 transaction with Advanced Bio/Chem, now known as Industrial Enterprises of America, and against Advanced Bio/Chem in April of 2002 in a California court alleging breach of contract and seeking damages. Advanced Bio/Chem reached a settlement agreement in April of 2003 under which Advanced Bio/Chem would pay the vendor $40,000 in installments through August, 2003. At December 31, 2003, Advanced Bio/Chem had a balance remaining of $20,000. In April 2005, the equipment vendor filed a lawsuit against Advanced Bio/Chem, certain former officers of Advanced Bio/Chem and against Power3 in order to enforce its claim for the remaining balance which is past due and may have been assumed by the Company as part of the settlement of the dispute with Advanced Bio/Chem. No resolution has been achieved on this issue at this time and evaluation of the outcome is not possible due to Industrial Enterprises repeated failure to appear in court.

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

On March 12, 2008, all matters involving the dispute over the taking, by an ex-employee, of certain trade secrets, defamation and wrongful interference with Power3's contractual relations with other parties, and a pendent wage claim for severance pay, were resolved.  In settlement the Company has paid the ex-employee $35,000 and has issued to the ex-employee 325,000 shares of the Company’s common stock with restrictions.  The $35,000 reduced salaries payable by an equal amount.  The shares were valued at the $48,750 based on the closing price of our common stock at the settlement date.

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

On August 13, 2007, Gryphon Master Fund LP and GSFF Master Fund, LP filed a lawsuit against the Company claiming a breach of a Securities Purchase Agreement, Convertible Debentures, and Registration Rights Agreement.  The plaintiffs claimed the Company failed to timely obtain an effective registration statement for the shares issued to the plaintiffs and refused to recognize anti-dilution rights of the plaintiffs. The Company denies the material allegations of the complaint and asserts numerous affirmative defenses.  Power3 entered into settlement negotiations as of April 20, 2008.  On August 13, 2008, the claim above, note, warrants, and all applicable penalties were settled in exchange for 5,240,000 shares of common stock valued at approximately $233,000 based upon the closing price of our common stock at the settlement date.

In October of 2007, Winstead filed suit against the Company for approximately $17,000 in attorney fees. In March 2008, a settlement was reached. The fees have been reduced to $9,000 and a payout schedule has been agreed upon.  At December 31, 2008 the balance of $6,416 is carried on the balance sheet included in accounts payable.

On September 4, 2008, Steven Rash, former CEO of the Company agreed to resign from the Company and executed an Arbitration Agreement contemporaneous with his agreement to resign from the Company.  The parties agreed to arbitrate claims for wages or other compensation due, claims for breach of any contract or covenant, along with, but not exclusive of claims for benefits.  The Company agreed to arbitrate the wage claim and the Company’s claims against Mr. Rash for embezzlement, fraud and breach of contract.  As of April 15, 2009, arbitration had not been entered into.  The $36,031 in wages due are carried on the balance sheet included in other current liabilities.

On January 13, 2009, Marion McCormick, former Chief Accounting Officer, filed a wage claim with the Texas Workforce Commission against the Company for wages owed in the amount of approximately $17,700.  The Texas Workforce Commission found Ms. McCormick’s wages to be due and payable by the Company.   The Company is appealing the finding on the basis of the convertible promissory note issued to her. The $17,700 in wages due are carried on the balance sheet included in other current liabilities.

On March 6, 2009, McLennon Law Corporation filed suit against the Company breach of contract for approximately $117,000 in attorney fees.  The fees are carried on the balance sheet included in accounts payable.

Warrants:

Warrants have been issued to various investors and others in connection with financing arrangements and for services. A summary table of the warrants outstanding is as follows:

	2008				2007
			Weighted				Weighted
			Average				Average
			Exercise				Exercise
	Warrants		Price		Warrants		Price
Outstanding at beginning of year		28,893,119	$	.04		14,499,996	$	.40
Cancelled		—	$	—		550,000	$	.20
Granted		58,441,957	$	.05		20,213,955	$	.10
Exercised		666,666	$	.08		5,270,832	$	.08
Outstanding at end of year		86,668,410	$	.07		28,893,119	$	.12
Exercisable at the end of the year		86,668,410	$	.07		28,893,119	$	.12

The following table summarizes information about the Company’s warrants outstanding at December 31, 2008:

Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life (in years)
$        0.03		1,666,667		1
$        0.04		45,178,482		1
$        0.06		8,000,000		7
$        0.08		12,845,829		2
$        0.09		500,000		3
$        0.10		13,557,833		2
$        0.12		190,000		3
$        0.14		1,666,666		4
$        0.15		729,600		2
$        0.20		833,333		1
$        0.25		1,000,000		4
$        0.98		300,000		.38
$        1.00		100,000		Ind
$        3.00		100,000		1
		86,668,410		2

Note 9. FINANCING ARRANGEMENTS

Securities Purchase Agreement—Convertible Debentures

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

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

Under the Agreements, the Purchasers also received warrants to purchase an aggregate of up to 2,500,000 and 333,333 shares of common stock for tranche one and two, respectively, and additional investment rights to purchase up to an additional $2,500,000 of convertible debentures. The warrants are now exercisable at a price of $0.04 per share, subject to adjustment, including anti-dilution protection. The additional investment rights are exercisable at a price equal to the principal amount of the debentures to be purchased, for (1) a period of nine months following the effective date of the registration statement to be filed pursuant to the Registration Rights Agreement, or (2) a period of 18 months from the date of issuance of the additional investment rights, whichever is shorter. The rights debentures will have the same terms as the debentures described above, except that the conversion price will be equal to $1.08.

The Company is in default under the provisions of the Agreement, Registration Rights Agreement and previously issued debentures. The aggregate amount payable upon an acceleration by reason of an event of default is equal to the greater of 130% of the principal amount of the debentures to be prepaid or the principal amount of the debentures to be prepaid, divided by the conversion price on the date specified in the debenture, multiplied by the closing price on the date set forth in the debenture. The default stems from the Company’s inability to obtain effectiveness of the registration statement on Form SB-2, as amended (File No. 333-122227) filed pursuant to the registration rights agreement. The registration statement was withdrawn on June 20, 2007. As of December 31, 2008, the Company has settled with a number of its convertible debenture holders and expects to settle with the remaining convertible debenture holders in 2009.

Of the $1,400,000 Convertible Debentures mentioned above the Company has settled $1,284,990 and $884,990 as of December 31, 2008, and December 31, 2007, respectively, resulting in a balance of $115,010 and $515,010 at December 31, 2008 and December 31, 2007, respectively.

On April 3, 2007, the Company entered into a joint venture agreement with NeoGenomics to form a Contract Research Organization (CRO) and collaborate on research work in the future. Currently, Power3 and NeoGenomics are in discussion concerning the collaboration and notes due to NeoGenomics.

On June 30, 2008, the Company issued a $200,000, convertible debenture at 15% interest, convertible at the option of the holder into shares of common stock at a conversion price equal to $0.04 per share, with detachable warrants to purchase 3,500,000 shares of common stock to Able Income Fund LLC.  The note has a maturity date of December 30, 2008.  The warrants have a five-year term and a strike price of $0.06. The note is in default and is carried on the balance sheet.

On July 29, 2008, the Company issued a $250,000, convertible debenture at 15% interest, convertible at the option of the holder into shares of common stock at a conversion price equal to $0.04 per share, with detachable warrants to purchase 4,500,000 shares of common stock to Able Income Fund LLC.  The note has a maturity date of October 15, 2008. The warrants have a five-year term and a strike price of $0.06.  The note is in default and is carried on the balance sheet.

Power3 has converted several notes and plans to continue doing so. In some instances, Power3 has offered terms of conversion lower than the original agreement including raising the strike price of warrants attached to these instruments. As a result of this additional consideration, upon conversion the Company recorded a $464,872 and $1,549,574 gain on the conversion of notes and settlement of penalties during the years ended December 31, 2008 and 2007, respectively.  The change in the conversion terms represented greater than 10% of the principal value of the notes and as a result extinguishment accounting has been applied consistent with EITF 96-19.

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

Convertible Debentures, Warrants and Additional Investment Rights:

The total convertible debentures held by related parties increased from $0 as of December 31, 2007, to $696,599 as of December 31, 2008.  The notes are unsecured and accrue interest at a rate of 12% per annum.  All outstanding principal and accrued interest is due and payable at maturity, and is convertible at the option of the holder into shares of common stock at a conversion price equal to $0.03 per share.  The Company can prepay the notes only with ten days prior written notice to the holders.  The form of note is filed as an exhibit to Form 8-K filed by the Company with the Securities and Exchange Commission on November 10, 2008.

The warrants have an exercise price of $0.04 per share of common stock and expire on the date three years after the issuance of the warrants.  The warrants include a cashless exercise option. The form of warrant is filed as an exhibit to Form 8-K filed by the Company with the Securities and Exchange Commission on November 10, 2008.

The carrying values of the Company’s convertible debentures amounted to $12,10,306 and $645,190, at December 31, 2008 and December 31, 2007, as follows.  

Convertible Debentures In Default:	As of December 31, 2008			As of December 31, 2007
Securities Purchase Agreement Holders	$	115,010		$	515,010
Discount		—			(86,844	)
Note 3:
Chosid		—			200,000
Wood		—			120,000
Seyburn		100,000			100,000
Discount on Note 3		—			(210,417	)
NeoGenomics		200,000			200,000
Discount		(97,036	)		(192,559	)
Able Income Fund Note I		200,000			—
Able Income Fund Note II		250,000			—
		767,974			645,190
Convertible Debentures:
Kazanowski Note  II		325,000			—
Discount on Kazanowsk Note II		(184,347	)		—
Kraniak Note II		325,000			—
Discount on  Kraniak II		(184,347	)		—
Dr. Lourdes Bosquez Note I		340,000			—
Discount on Bosquez Note I		(192,857	)		—
Bart Jones Note I		30,000			—
Discount on Bart Jones Note I		(16,117	)		—
		442,332			—
Convertible Debentures – Related Party					—
Ira Goldknopf		1,189,435			—
Discount – Ira Goldknopf		(578,607	)		—
Bronco Technologies – Helen Park		150,000			—
Discount – Bronco technologies		(80,578	)		—
Marion McCormick		30,000			—
Discount – Marion McCormick		(13,651	)		—
		696,599			—
Totals	$	1,906,905		$	645,190

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

Derivative Liabilities:		2008			2007
Common stock warrants		$		554,637	$	1,563,183
Embedded conversion feature				778,178		1,205,719
Additional investment rights				—		642,792
Other derivative instruments				19,440		382,611
Totals	$		1,352,247		$	3,794,305

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

Other Notes, Preferred Stock and Warrants:

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

On September 8, 2008, the company issued a promissory note to Roger Kazanowski for $30,000 cash, at 12% interest, maturing on September 08, 2009.  The note is convertible into common shares at a price of $0.04 per share and has option to purchase 600,000 warrants at $0.06 per share. The promissory note carries a default interest rate of 15%.

On September 8, 2008, the company issued a promissory note to Richard Kraniak for $30,000 cash, at 12% interest, maturing on September 08, 2009.  The note is convertible into common shares at a price of $0.04 per share and has option to purchase 600,000 warrants at $0.06 per share. The promissory note carries a default interest rate of 15%.

On June 18, 2008, for $15,000 cash received, the Company issued Steven Rash a $15,000 note payable at 6% interest, maturing July 19, 2008.  The loan remains outstanding, is in default and is carried on the balance sheet.

On November 20, 2008, Ira Goldknopf surrendered shares of our common stock owned by him to Trinity Bui in final payment on financial instrument held by Trinity Bui which resulted in a $18,927 note payable to Dr. Goldknopf at 6% interest, maturing May 20, 2009.   

Notes Payable, in Default and to Related Parties

The Company is in default under the provisions of its October 2004 Securities Purchase Agreement, and accompanying registration rights agreement and debentures. The default stems from the Company’s inability to obtain effectiveness of the registration statement on Form SB-2, as amended (File No. 333-122227) filed pursuant to the registration rights agreement. The registration statement was withdrawn on June 20, 2007. As of the year ended December 31, 2008, the Company has settled with a number of its Convertible Debenture Holders as previously mentioned above.

The total Notes Payable to related parties decreased from $1,934,816 as of December 31, 2007, to $68,927 as of December 31, 2008, as follows:

	As of December 31, 2008			As of December 31, 2007
Notes payable in default:
Cordillera I	$	251,000		$	251,000
Cordillera II		200,000			200,000
Totals		451,000			451,000
Notes payable:
Kazanowski I		80,000			50,000
Discount on Kazanowski I note		(22,913	)		—
Kraniak I		30,000			—
Discount on Kraniak I note		(22,913	)		—
		64,174			50,000
Notes payable - related parties:
Rash		15,000			924,456
Goldknopf		18,927			975,360
Rosinski		35,000			35,000
Totals	$	68,927		$	1,934,816

 NOTE 10. OTHER SIGNIFICANT EQUITY TRANSACTIONS

Stock payable:

In September 2008, Steven B. Rash, our Chief Executive Officer and Chairman of the Board, resigned from all of his positions with the Company.  This resulted in 1,500,000 shares of the outstanding Series B Preferred Stock converting to 1,500,000 shares of common stock, which remained unissued due to insufficient authorized shares at December 31, 2008.  As  of December 31, 2008, these shares are presented as a stock payable on the balance sheet of $90,000, based on the closing share price of our common stock.  

On December 16, 2008, the Company received $14,286 cash in exchange for a subscription agreement for the purchase of 1,428,571 shares of the companies common stock.  At December 31, 2008 the shares had not been issued and are carried on the balance sheet as a stock payable.

At November 18, 2008, the Company owed 500,000 shares of common stock for consulting services under the terms of a consulting agreement between the Company and Lordes Bosquez.  The shares are valued based on the closing price at the date they became due.  The total value of these shares is $11,000, which is presented as a stock payable 0n the balance sheet.

At December 31, 2008, the Company owed 400,000 shares of common stock for consulting services under the terms of a consulting agreement between the Company and Bronco Technology, Inc., an affiliate of Helen R. Park, the Company’s Interim Chief Executive Officer.  The shares are valued based on the closing price at the date they became due.  The total value of these shares is $8,000, which is presented as a stock payable on the balance sheet.

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 Bio/Chem in the asset purchase transaction of May 18, 2004.  Because this transaction was between individuals and entities considered to be related parties, under the rules of the SEC, the assets are recorded at historical cost and the amount in excess of historical cost is considered to be a deemed distribution to the shareholders. As part of that transaction, the Company recorded a deemed distribution of $13,371,776 as the difference between the market value of the stock at $0.90 per share on the date of the agreement ($13,500,000) and $128,224, debt in excess of the assets received in the transaction.

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

Deemed dividend:

As part of Power3’s attempt to induce exercise, the strike price of several warrants was reduced resulting in a deemed dividend of $12,071 and $17,635, consistent with EITF 98-5, for the year ended Decenber 21, 2008 and the year ended December 31, 2007, respectively.  The deemed dividends were valued using the Black−Scholes model immediately before and after the inducement, consistent with paragraph 51 of SFAS 123R.

Preferred shares issued during the year ended December 31, 2007:

None.

Sales of common stock during the year ended December 31, 2007:

On June 13, 2007, 1,750,000 shares of common stock were sold to a private investor to raise $300,000. There were no warrants associated with this transaction.

On June 13, 2007, 1,500,000 shares of common stock were sold to a private investor to raise $350,000. There were no warrants associated with this transaction.

On June 13, 2007, $58,500 was paid to placement agents in connection with the two sales above. These costs were deducted from the proceeds of this transaction and resulted in a reduction of additional paid in capital.

On November 15, 2007 700,000 shares of common stock were sold to private investors to raise $56,000.

On November 19, 2007 250,000 shares of common stock were sold to private investors to raise $20,000.

On November 20, 2007 177,500 shares of common stock were sold to private investors to raise $14,200.

On November 26, 2007 12,500 shares of common stock were sold to private investors to raise $1,000.

On November 27, 2007 768,750 shares of common stock were sold to private investors to raise $61,500.

On November 30, 2007 600,000 shares of common stock were sold to private investors to raise $48,000.

On December 5, 2007 603,750 shares of common stock were sold to private investors to raise $48,300.

On December 14, 2007 49,375 shares of common stock were sold to private investors to raise $3,950.

On December 18, 2007 118,750 shares of common stock were sold to private investors to raise $9,500.

On December 31, 2007 1,100,000 shares of common stock were sold to private investors to raise $88,000.  

Shares issued for services during the year ended December 31, 2007:

5,000 shares of common stock issued to an employee for services were added to the books to reflect shares issued but not recorded.

On January 2, 2007, 100,000 shares were issued for services. The Company estimated the fair value of this transaction to be $8,000 based upon the closing stock price of the Company’s stock at the measurement date.

On January 30, 2007, 500,000 shares were issued for services. The Company estimated the fair value of this transaction to be $42,500 based upon the closing stock price of the Company’s stock at the measurement date.

On June 13, 2007, 400,000 shares were issued for services. The Company estimated the fair value of this transaction to be $80,000 based upon the closing stock price of the Company’s stock at the measurement date.

Shares issued for debt during the year ended December 31, 2007:

On April 13, 2007, 460,000 shares were issued for debt. The Company estimated the fair value of this transaction to be $101,200 based upon the closing stock price of the Company’s stock at the measurement date.

On December 6, 2007, 350,000 shares were issued for debt.  The Company estimated the fair value of this transaction to be $52,500 based upon the closing stock price of the Company’s stock at the measurement date.

Shares issued for conversion of debt during the year ended December 31, 2007:

26,265,224 shares of common stock were issued for the conversion of convertible notes as discussed in Note 9 above resulting in a gain on extinguishment of debt of $1,544,574.

Shares issued for exercise of warrants during the year ended December 31, 2007:

5,270,832 shares of common stock were issued for the exercise of warrants resulting in cash receipts of $341,667.

Preferred shares issued during the year ended December 31, 2008:

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

In September 2008, Steven B. Rash, our Chief Executive Officer and Chairman of the Board, resigned from all of his positions with the Company.  This resulted in 1,500,000 shares of the outstanding Series B Preferred Stock converting to 1,500,000 shares of common stock, which remain unissued due to insufficient authorized shares.  As  of December 31, 2008, these shares are presented as a stock payable on the balance sheet of $90,000, based on the closing share price of our common stock.  1,500,000 shares of Series B Preferred Stock are issued and outstanding as of December 31, 2008.

Shares issued for cash during the year ended December 31, 2008:

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

Shares issued for payables during the year ended December 31, 2008:

2,133,333 shares of common stock were issued in payment on outstanding invoices for services.  The shares were valued at $189,000 based upon the closing price of our common stock at the grant date resulting in a loss on extinguishment of debt of $14,730.

Shares issued for services during the year ended December 31, 2008:

7,482,910 shares of common stock were issued for services to employees and consultants.  The shares were valued at $592,341 based upon the closing price of our common stock at the grant date.  2,000,000 additional shares are being held in escrow.  The 2,000,000 shares held in escrow are being carried in equity on the balance sheet at a value of $20,000.

Shares issued in settlement of legal proceedings during the year ended December 31, 2008:

325,000 shares of common stock were issued in settlement of a dispute with a former employee as mentioned above.  The shares were valued at $30,875 based upon the closing price of our common stock at the grant date.

Shares issued for conversion of debt during the year ended December 31, 2008:

22,172,536 shares of common stock were issued for conversion of convertible notes in the amount of $1,644,456 as mentioned in Note 3 above.  The shares were valued at $1,698,453 based upon the closing price of our common stock at the grant date resulting in a gain on extinguishment of debt of $419,825.

NOTE 11. SUBSEQUENT EVENTS

On January 14, 2009, Dr. Ira Goldknopf cancelled 1,200,000 shares of our common stock owned by him.  The shares were canceled to enable the company to issue 1,200,000 shares to Able Income Fund for partial payment on convertible debenture owed to Able.

On January 14, 2009, the Company issued 1,200,000 shares of common stock to Able Income fund in partial payment of convertible debentures in the amount of $8,256.  The shares were valued per the agreement set forth in the convertible debenture.  

On January 16, 2009, the company issued subscription agreements for $40,000 cash based on a share price per the agreement of $0.007 per common share, which was 70% of the closing price on Dec. 31, 2008, and which included 100% warrant coverage reset to $0.01 per share.

On January 23, 2009, the Company executed a definitive Collaboration and Exclusive License agreement Transgenomic, Inc.  The License Agreement grants Transgenomic exclusive rights in the United States and certain other countries to the Company’s proprietary test kits or systems for performing Neurodegenerative Diagnostic Tests, for which the Company will receive an up-front license execution fee, certain milestone fees, including fees payable in cash and fees payable in shares of Transgenomic common stock, and royalties based upon net sales of the Company’s tests, test kits or systems by Transgenomic. In the first quarter of 2009, the Company has received approximately $150,000 from Transgenomic pursuant to that agreement.

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

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

On January 26, 2009, a Special Meeting of Shareholders of the Company was held at the offices of the Company to vote on approval of an amendment to the Company’s Certificate of Incorporation increasing the authorized amount of the Company’s Common Stock, par value $0.001, from 150,000,000 shares to 600,000,000 shares.  The vote passed in favor of the amendment.  The Company plans to use 178,020,189 of the newly authorized shares of Common Stock for issuance under existing convertible notes, warrants and options.  In addition, under the terms of a consulting agreement between the Company and Bronco Technology, Inc., an affiliate of Helen R. Park, the Company’s Interim Chief Executive Officer, Bronco Technology’s right to receive 100,000 shares of Common Stock per month of Ms. Park’s services, is subject to an increase in the number of authorized shares of Common Stock pursuant to the Certificate of Amendment.  The Company currently has no other specific proposals, plans or arrangements with respect to the issuance of the newly authorized shares of Common Stock.

On February 20, 2009, the Company issued 14,117,270 shares to Able Income Fund in settlement of convertible debt of $182,274.

On March 2, 2009, the Company issued 16,247,619 shares to Lordes Bosquez in settlement of debt.  11,333,333 shares were issued in settlement of convertible debt of $340,000 with the shares valued at $0.03 per share per the agreement.  2,857,143 shares were issued in settlement of a $20,000 note payable.  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  2,057,143 shares were issued for interest on the convertible debt and the note payable the aggregate amount of $14,400.  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  

On March 2, 2009, the Company issued 46,910,896 shares to Ira Goldknopf in settlement of debt.  36,598,000 shares were issued in settlement of convertible debt of $1,097,940 with the shares valued at $0.03 per share per the agreement.  3,883,609 shares were issued in settlement of a $27,185 note payable.  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  6,429,287 shares were issued for interest on the convertible debt and the note payable the aggregate amount of $45,005  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  

On March 2, 2009, the Company issued 9,571,429 shares to Bronco Technologies in settlement of debt for services provided by Ms. Helen Park.  5,000,000 shares were issued in settlement of convertible debt of $150,000 for prior services rendered.  The shares were valued at $0.03 per share per the agreement.  3,571,429 shares were issued in settlement of a $25,000 note payable for services rendered.  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  1,000,000 shares were issued for interest on the convertible debt and the note payable in the aggregate amount of $7,000.  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  

On March 2, 2009, the Company issued 24,109,524 shares to Richard Kraniak in settlement of debt.  9,166,667 shares were issued in settlement of convertible debt of $325000.  The convertible note was reduced to $275,000 with the shares valued at $0.03 per share per the agreement.  12,857,143 shares were issued in settlement of $90,000 in notes payable.  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  2,085,714 shares were issued for interest on the convertible debt and the notes payable in the aggregate amount of $14,600.  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  

On March 2, 2009, the Company issued 24,942,857 shares to Roger Kazanowski in settlement of debt.  10,000,000 shares were issued in settlement of convertible debt of $325000.  The convertible note was reduced to $275,000 with the shares valued at $0.03 per share per the agreement.  12,857,143 shares were issued in settlement of $90,000 in notes payable.  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  2,085,714 shares were issued for interest on the convertible debt and the notes payable in the aggregate amount of $14,600.  The shares were valued at $0.007, seventy percent of the $0.01 closing price at December 31, 2008.  

On March 11, 2009, the company issued 300,000 shares of stock for cash upon the exercise of an incentive stock option held by the Chairman of the Scientific Advisory Board.  The shares were issued for $3,000 based upon an exercise price of $0.01 per share.

On March 12, 2009, the company issued 2,761,878 in settlement of debt of $59,047.  

On March 16, 2009, the company issued 10,000,000 shares of common stock in settlement of $100,000 convertible note.

On March 16, 2009, the company issued 833,333 shares of common stock for the exercise of warrants in the amount of $8,333.

On March 17, 2009, the company issued 5,749,999 shares of common stock for the exercise of warrants in the amount of $57,499.

On March 20, 2009, the company issued 500,000 shares of common stock $0.01 per share for consulting services of $5,000 based on the closing price of our common stock on the date of issuance.

On March 20, 2009, the company issued 400,000 shares of common stock $0.01 per share for consulting services.  The shares were valued at $8,800 based on the closing price of our common stock on the date of issuance.

On April 2, 2009, the company issued 3,000,000 share of common stock at $0.01 per share for accounts payable in the amount of $30,000 based on the closing price of our common stock on the date of issuance.

On April 9, 2009, the company issued 4,333,333 share of common stock for previously rendered consulting services.  The stock was valued at $130,000 based on pricing the shares at $0.03 per share.  This valuation is consistent with convertible notes issued for consulting services during the same period.

F-2

EX-10.2

POWER3 MEDICAL PRODUCTS, INC.

2008 COMPENSATION PLAN

THIS POWER3 MEDICAL PRODUCTS, INC. 2008 COMPENSATION PLAN (the "Plan") is designed to retain non-executive employees, consultants, and advisors (“Participants) and reward them for making major contributions to the success of the Company.  These objectives are accomplished by making long-term incentive awards under the Plan thereby providing Participants with a proprietary interest in the growth and performance of the Company.

1.

Definitions.

(a)

"Board" - The Board of Directors of the Company.

(b)

"Code" - The Internal Revenue Code of 1986, as amended from time to time.

(c)

"Committee" - The Compensation Committee of the Company's Board, or such other committee of the Board that is designated by the Board to administer the Plan, composed of not less than two members of the Board all of whom are disinterested persons, as contemplated by Rule 16b-3 ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

(d)

"Company" – Power3 Medical Products, inc. and its subsidiaries.

(e)

"Exchange Act" - The Securities Exchange Act of 1934, as amended from time to time.

(f)

"Fair Market Value" - The fair market value of the Company's issued and outstanding Stock as determined in good faith by the Board or Committee.

(g)

"Grant" - The grant of any stock award to a Participant pursuant to such terms, conditions and limitations as the Committee may establish in order to fulfill the objectives of the Plan.

(h)

"Grant Agreement" - An agreement between the Company and a Participant that sets forth the terms, conditions and limitations applicable to a Grant.

(i)

“Option” – An Option to purchase the Company's Stock that may be awarded to a Participant under the Plan. A Participant who receives an award of an Option shall be referred to as an "Optionee."

(j)

"Participant" - An outside consultant, professional and service provider of the Company to whom an Award has been made under the Plan.

(k)

"Securities Act" - The Securities Act of 1933, as amended from time to time.

(l)

"Stock" - Authorized and issued or unissued shares of common stock of the Company.

(m)

"Stock Award" - A Grant made under the Plan in Stock, Options to purchase Stock, or denominated in units of stock for which the Participant is not obligated to pay additional consideration.

2.

Administration.

The Plan shall be administered by the Board, provided however, that the Board may delegate such administration to the Committee. Subject to the provisions of the Plan, the Board and/or the Committee shall have authority to (a) grant, in its discretion, Stock Awards; (b) determine in good faith the fair market value of the Stock covered by any Grant; (c) determine which eligible persons shall receive Grants and the number of shares, restrictions, terms and conditions to be included in such Grants; (d) construe and interpret the Plan; (e) promulgate, amend and rescind rules and regulations relating to its administration, and correct defects, omissions and inconsistencies in the Plan or any Grant; (f) consistent with the Plan and with the consent of the Participant, as appropriate, amend any outstanding Grant; (g) determine the duration and purpose of leaves of absence which may be granted to Participants without constituting termination of their engagement for the purpose of the Plan or any Grant; and (h) make all other determinations necessary or advisable for the Plan's administration. The interpretation and construction by the Board of any provisions of the Plan or selection of Participants shall be conclusive and final. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Grant made thereunder.

3.

Eligibility.

The persons who shall be eligible to receive Grants shall be retain non-executive employees, consultants, and advisors to the Company. The term consultant shall mean any person, other than an employee, who is engaged by the Company to render services and is compensated for such services.

4.

Stock.

(a)

Authorized Stock: Stock subject to Grants may be either unissued or reacquired Stock.

(b)

Number of Shares:  The total number of shares of Stock which may be purchased or granted directly by Options or Stock Awards or purchased indirectly through exercise of Options granted under the Plan shall not exceed Five Million (5,000,000) shares.  If any Grant shall for any reason terminate or expire, any shares allocated thereto but remaining unpurchased upon such expiration or termination shall again be available for Grants with respect thereto under the Plan as though no Grant had previously occurred with respect to such shares. Any shares of Stock issued pursuant

- 2 -

to a Grant and repurchased pursuant to the terms thereof shall be available for future Grants as though not previously covered by a Grant.

(c)

Reservation of Shares:  The Company shall reserve and keep available at all times during the term of the Plan such number of shares as shall be sufficient to satisfy the requirements of the Plan. If, after reasonable efforts, which efforts shall not include the registration of the Plan or Grants under the Securities Act, the Company is unable to obtain authority from any applicable regulatory body, which authorization is deemed necessary by legal counsel for the Company for the lawful issuance of shares hereunder, the Company shall be relieved of any liability with respect to its failure to issue and sell the shares for which such requisite authority was so deemed necessary unless and until such authority is obtained.

5.

Stock Awards.

All or part of any Stock Award under the Plan may be subject to conditions established by the Board or the Committee, and set forth in a Stock Award Agreement, which may include, but are not limited to, continuous service with the Company, achievement of specific business objectives, increases in specified indices, attaining growth rates and other comparable measurements of Company performance. Such Awards may be based on Fair Market Value or other specified valuation. All Stock Awards will be made pursuant to the execution of a Stock Award Agreement.

(a)

Conditions and Restrictions.  Shares of Stock which Participants may receive as a Stock Award under a Stock Award Agreement may include such restrictions as the Board or Committee, as applicable, shall determine, including restrictions on transfer, repurchase rights, right of first refusal, and forfeiture provisions. When transfer of Stock is so restricted or subject to forfeiture provisions it is referred to as "Restricted Stock."  Further, with Board or Committee approval, Stock Awards may be deferred, either in the form of installments or a future lump sum distribution. The Board or Committee may permit selected Participants to elect to defer distributions of Stock Awards in accordance with procedures established by the Board or Committee to assure that such deferrals comply with applicable requirements of the Code including, at the choice of Participants, the capability to make further deferrals for d istribution after retirement. Any deferred distribution, whether elected by the Participant or specified by the Stock Award Agreement or by the Board or Committee, may require the payment be forfeited in accordance with the provisions of Section 5(b). .Dividends or dividend equivalent rights may be extended to and made part of any Stock Award, subject to such terms, conditions and restrictions as the Board or Committee may establish.

(b)

Cancellation and Rescission of Grants.  Unless the Stock Award Agreement specifies otherwise, the Board or Committee, as applicable, may cancel any unvested or deferred Grants at any time if the Participant is not in compliance with all other applicable provisions of the Stock Award Agreement, the Plan and with the

- 3 -

following conditions:

(i)

A Participant shall not render services for any organization or engage directly or indirectly in any business which, in the judgment of the chief executive officer of the Company or other senior officer designated by the Board or Committee, is or becomes competitive with the Company, or which organization or business, or the rendering of services to such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company. For Participants whose engagement has terminated, the judgment of the chief executive officer shall be based on the Participant's position and responsibilities while employed by the Company, the Participant's post-engagement responsibilities and position with the other organization or business, the extent of past, current and potential competition or conflict between the Company and the other organization or business, the effect on the Company's customers, suppliers and compe titors and such other considerations as are deemed relevant given the applicable facts and circumstances. A Participant who has retired shall be free, however, to purchase as an investment or otherwise, stock or other securities of such organization or business so long as they are listed upon a recognized securities exchange or traded over-the-counter, and such investment does not represent a substantial investment to the Participant or a greater than five percent (5%) equity interest in the organization or business.

(ii)

A Participant shall not, without prior written authorization from the Company, disclose to anyone outside the Company, or use in other than the Company's business, any confidential information or material relating to the business of the Company, acquired by the Participant either during or after engagement with the Company.

(iii)

A Participant shall disclose promptly and assign to the Company all right, title and interest in any invention or idea, patentable or not, made or conceived by the Participant during engagement by the Company, relating in any manner to the actual or anticipated business, research or development work of the Company and shall do anything reasonably necessary to enable the Company to secure a patent where appropriate in the United States and in foreign countries.

(iv)

Upon exercise, payment or delivery pursuant to a Grant, the Participant shall certify on a form acceptable to the Committee that he or she is in compliance with the terms and conditions of the Plan.

(c)

Nonassignability.

(i)

Except as set forth in Section 5(c)(ii), no Grant or any other benefit under the Plan shall be assignable or transferable, or payable to, anyone other than the Participant to whom it was granted.

(ii)

Where a Participant terminates engagement and retains a Grant pursuant to Section 5(d)(ii) in order to assume a position with a governmental, charitable or

- 4 -

educational institution, the Board or Committee, in its discretion and to the extent permitted by law, may authorize a third party (including but not limited to the trustee of a "blind" trust), acceptable to the applicable governmental or institutional authorities, the Participant and the Board or Committee, to act on behalf of the Participant with regard to such Awards.

(d)

Termination of Engagement.  If the engagement or service to the Company of a Participant terminates, other than pursuant to any of the following provisions under this Section 5(d), all unvested or deferred Stock Awards shall be cancelled immediately, unless the Stock Award Agreement provides otherwise:

(i)

Retirement Under a Company Retirement Plan.  When a Participant's engagement terminates as a result of retirement in accordance with the terms of a Company retirement plan, the Board or Committee may permit Stock Awards to continue in effect beyond the date of retirement in accordance with the applicable Grant Agreement and vesting of any such Grants may be accelerated.

(ii)

Rights in the Best Interests of the Company.  When a Participant resigns from the Company and, in the judgment of the Board or Committee, the acceleration and/or continuation of outstanding Stock Awards would be in the best interests of the Company, the Board or Committee may (i) authorize, where appropriate, the acceleration and/or continuation of all or any part of Grants issued prior to such termination and (ii) permit the vesting of such Grants for such period as may be set forth in the applicable Grant Agreement, subject to earlier cancellation at such time as the Board or Committee shall deem the continuation of all or any part of the Participant's Grants are not in the Company's best interest.

(iii)

Death or Disability of a Participant.

(1)

In the event of a Participant's death, the Participant's estate or beneficiaries shall have a period up to the expiration date specified in the Grant Agreement within which to receive or exercise any outstanding Grant held by the Participant under such terms as may be specified in the applicable Grant Agreement. Rights to any such outstanding Grants shall pass by will or the laws of descent and distribution in the following order: (a) to beneficiaries so designated by the Participant; if none, then (b) to a legal representative of the Participant; if none, then (c) to the persons entitled thereto as determined by a court of competent jurisdiction. Grants so passing shall be made at such times and in such manner as if the Participant were living.

(2)

In the event a Participant is deemed by the Board or Committee to be unable to perform his or her usual duties by reason of mental disorder or medical condition which does not result from facts which would be grounds for termination for cause, Grants and rights to any such Grants may be paid to the Participant, if legally competent, or a committee or other legally

- 5 -

designated guardian or representative if the Participant is legally incompetent by virtue of such disability.

(3)

After the death or disability of a Participant, the Board or Committee may in its sole discretion at any time (1) terminate restrictions in Grant Agreements; (2) accelerate any or all installments and rights; and (3) instruct the Company to pay the total of any accelerated payments in a lump sum to the Participant, the Participant's estate, beneficiaries or representative; notwithstanding that, in the absence of such termination of restrictions or acceleration of payments, any or all of the payments due under the Grant might ultimately have become payable to other beneficiaries.

(4)

In the event of uncertainty as to interpretation of or controversies concerning this Section 5, the determinations of the Board or Committee, as applicable, shall be binding and conclusive.

6.

Investment Intent.  All Grants under the Plan are intended to be exempt from registration under the Securities Act provided by Rule 701 thereunder. Unless and until the sale and issuance of Stock subject to the Plan are registered under the Securities Act or shall be exempt pursuant to the rules promulgated thereunder, each Grant under the Plan shall provide that the purchases or other acquisitions of Stock thereunder shall be for investment purposes and not with a view to, or for resale in connection with, any distribution thereof. Further, unless the issuance and sale of the Stock have been registered under the Securities Act, each Grant shall provide that no shares shall be purchased upon the exercise of the rights under such Grant unless and until (i) all then applicable requirements of state and federal laws and regulatory agencies shall have been fully complied with to the satisfaction of the Company and its counsel, and (ii) i f requested to do so by the Company, the person exercising the rights under the Grant shall (i) give written assurances as to knowledge and experience of such person (or a representative employed by such person) in financial and business matters and the ability of such person (or representative) to evaluate the merits and risks of receiving the Stock as compensation, and (ii) execute and deliver to the Company a letter of investment intent and/or such other form related to applicable exemptions from registration, all in such form and substance as the Company may require. If shares are issued upon exercise of any rights under a Grant without registration under the Securities Act, subsequent registration of such shares shall relieve the purchaser thereof of any investment restrictions or representations made upon the exercise of such rights.

7.

Amendment, Modification, Suspension or Discontinuance of the Plan.  The Board may, insofar as permitted by law, from time to time, with respect to any shares at the time not subject to outstanding Grants, suspend or terminate the Plan or revise or amend it in any respect whatsoever, except that without the approval of the shareholders of the Company, no such revision or amendment shall (i) increase the number of shares subject to the Plan, (ii) decrease the price at which Grants may be granted, (iii) materially increase the benefits to Participants, or (iv) change the class of persons eligible to receive Grants under the Plan; provided, however, no such action shall alter or impair the rights and obligations under any Stock Award outstanding as of the date thereof

- 6 -

without the written consent of the Participant thereunder. No Grant may be issued while the Plan is suspended or after it is terminated, but the rights and obligations under any Grant issued while the Plan is in effect shall not be impaired by suspension or termination of the Plan.

In the event of any change in the outstanding Stock by reason of a stock split, stock dividend, combination or reclassification of shares, recapitalization, merger, or similar event, the Board or the Committee may adjust proportionally (a) the number of shares of Stock (i) reserved under the Plan, (ii) covered by outstanding Stock Awards; (b) the Stock prices related to outstanding Grants; and (c) the appropriate Fair Market Value and other price determinations for such Grants. In the event of any other change affecting the Stock or any distribution (other than normal cash dividends) to holders of Stock, such adjustments as may be deemed equitable by the Board or the Committee, including adjustments to avoid fractional shares, shall be made to give proper effect to such event. In the event of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board or the C ommittee shall be authorized to issue or assume stock options, whether or not in a transaction to which Section 424(a) of the Code applies, and other Grants by means of substitution of new Grant Agreements for previously issued Grants or an assumption of previously issued Grants.

8.

Tax Withholding. The Company shall have the right to deduct applicable taxes from any Grant payment and withhold, at the time of delivery or exercise of Stock Awards or vesting of shares under such Grants, an appropriate number of shares for payment of taxes required by law or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for withholding of such taxes. If Stock is used to satisfy tax withholding, such stock shall be valued based on the Fair Market Value when the tax withholding is required to be made.

9.

Availability of Information. During the term of the Plan and any additional period during which a Grant granted pursuant to the Plan shall be payable, the Company shall make available, not later than one hundred and twenty (120) days following the close of each of its fiscal years, such financial and other information regarding the Company as is required by the bylaws of the Company and applicable law to be furnished in an annual report to the shareholders of the Company.

10.

Notice. Any written notice to the Company required by any of the provisions of the Plan shall be addressed to the chief personnel officer or to the chief executive officer of the Company, and shall become effective when it is received by the office of the chief personnel officer or the chief executive officer.

11.

Indemnification of Board. In addition to such other rights or indemnifications as they may have as directors or otherwise, and to the extent allowed by applicable law, the members of the Board and the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any claim, action, suit or proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any

- 7 -

action taken, or failure to act, under or in connection with the Plan or any Grant granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such claim, action, suit or proceeding, except in any case in relation to matters as to which it shall be adjudged in such claim, action, suit or proceeding that such Board or Committee member is liable for negligence or misconduct in the performance of his or her duties; provided that within sixty (60) days after institution of any such action, suit or Board proceeding the member involved shall offer the Company, in writing, the opportunity, at its own expense, to handle and defend the same.

12.

Governing Law. The Plan and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the Code or the securities laws of the United States, shall be governed by the law of the State of Delaware and construed accordingly.

[SIGNATURE PAGE FOLLOWS]

- 8 -

The foregoing 2008 COMPENSATION PLAN (consisting of 8 pages, including this page) was duly adopted and approved by the Board of Directors on June 6, 2008.

POWER3 MEDICAL PRODUCTS, INC.
a New York corporation

- 9 -

EX-10.3

POWER3 MEDICAL PRODUCTS, INC.

2009 STOCK INCENTIVE PLAN

1.

Purpose.  The purpose of the Power3 Medical Products, Inc. 2009 Stock Incentive Plan (the “Plan”) is to enhance the ability of Power3 Medical Products, Inc. (the “Company”) and its Subsidiaries to attract, compensate and retain officers, employees, directors and consultants of outstanding ability and to provide selected officers, employees, directors and consultants with an interest in the Company parallel to that of the Company’s stockholders.  The term “Company” as used in this Plan with reference to employment will include the Company and its Subsidiaries, as appropriate.

2.

Definitions.

(a)

“Award” means an award determined in accordance with the terms of the Plan.

(b)

“Board” means the Board of Directors of the Company.

(c)

“Cause” means (i) if a Participant is party to an employment agreement or similar agreement with the Company and such agreement includes a definition of Cause, the definition contained therein or (ii) if no such employment or similar agreement exists, it means (A) the Participant’s commission of an act of fraud or embezzlement against the Company,  (B) a good faith finding by the Company of the Participant’s consistent willful dishonesty, gross negligence or misconduct after written notice of such and reasonable opportunity to cure, (C) a material breach by the Participant of any fiduciary duty to the Company, any agreement between the Company and the Participant relating to Employee’s employment or any written Company employment policies or rules, if such breach causes material harm to the Company, after written notice of such breach and reasonable opportunity to cur e or (D) the Participant’s conviction for, or his or her plea of guilty or nolo contendere to, a felony under the laws of the United States or any state.

(d)

“Change in Control” of the Company means any of the following that occurs in a single transaction or series of related transactions:  (i) the direct or indirect sale or exchange by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company (other than the sale or exchange of such voting stock to (A) a trustee or other fiduciary holding stock under one or more employee benefit plans maintained by the Company, or (B) any entity that, immediately prior to such sale or exchange, is owned directly or indirectly by the stockholders of the Company in approximately the same proportion as their ownership of voting stock in the Company immediately prior to such sale or exchange); (ii) a merger or consolidation in which the stockholders of the Company immediately before the transaction do not retain, immediately after the transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company; (iii) the sale, exchange, lease or transfer of all or substantially all of the assets of the Company (unless, following such transaction, such assets are owned by a company or other entity and the stockholders of the Company immediately before

the transaction have direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of such company or entity) or (iv) the complete liquidation or dissolution of the Company.  Notwithstanding the foregoing provisions of this Section 2(d), in the event an Award issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Section 409A of the Code, the definition of “Change in Control” for purposes of such Award shall be the definition provided for under Section 409A of the Code and the regulations or other guidance issued thereunder.

(e)

“Code” means the Internal Revenue Code of 1986, as amended.

(f)

“Committee” means a committee of at least two members of the Board appointed by the Board to administer the Plan and to perform the functions set forth herein and who are “non-employee directors” within the meaning of Rule 16b-3 as promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and who are also “outside directors” within the meaning of Section 162(m) of the Code.

(g)

“Common Stock” means the common stock, par value $0.001 per share, of the Company.

(h)

“Continuous Service” means that the Participant’s service as an employee, director or consultant with the Company or a Subsidiary is not interrupted or terminated.  The Participant’s Continuous Service will not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or a Subsidiary as an employee, director or consultant or a change in the entity for which the Participant renders such service; provided, that, there is no interruption or termination of the Participant’s Continuous Service other than an approved leave of absence.  The Committee, in its sole discretion, may determine whether Continuous Service will be considered interrupted.  Notwithstanding the foregoing provisions of this Section 2(h), in the event an Award issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Section 409A of the Code, the termination of “Continuous Service” for purposes of such Award shall be the definition of “separation from service” provided for under Section 409A of the Code and the regulations or other guidance issued thereunder.

(i)

“Covered Employee” has the meaning set forth in Section 162(m)(3) of the Code.

(j)

“Disability” has the same meaning as provided in any long-term disability plan maintained by the Company or any Subsidiary in which a Participant then participates (the “LTD Plans”); provided, that, if no such plan exists, it will have the meaning set forth in Section 22(e)(3) of the Code.  Notwithstanding the foregoing provisions of this Section 2(j), in the event an Award issued under the Plan is subject to Section 409A of the Code, then, in lieu of the foregoing definition and to the extent necessary to comply with the requirements of Section 409A of the Code, the definition of “Disability” for purposes of such Award shall be the definition of “disability” provided for under Section 409A of the Code and the regulations or other guidance issued thereunder.

2

(k)

“Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

(i)

If the shares of Common Stock are not Publicly Traded, such amount as may be determined by the Committee (acting on the advice of an Independent Third Party, should the Committee elect in its sole discretion to utilize an Independent Third Party for this purpose), in good faith, to be the fair market value per share of Common Stock, or

(ii)

If the shares of Common Stock are Publicly Traded and (i) if the shares of Common Stock are listed on any established national securities exchange, the closing sales price per share of Common Stock on the consolidated transaction reporting system for the principal securities exchange for the Common Stock on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, (ii) if the shares of Common Stock are not so listed but are quoted on the Nasdaq Stock Market, the closing sales price per share of Common Stock on the Nasdaq Stock Market on that date, or, if there shall have been no such sale so reported on that date, on the last preceding date on which such a sale was so reported, or  (iii) if the Common Stock is not so listed or quoted, the mean between the closing bid and asked price on that date, or, if there are no quota tions available for such date, on the last preceding date on which such quotations shall be available, as reported by Nasdaq, or, if not reported by Nasdaq, by the Financial Industry Regulatory Authority, Inc.

(l)

“Immediate Family Member” means, except as otherwise determined by the Committee, a Participant’s spouse, ancestors and descendants.

(m)

“Incentive Stock Option” means a stock option that is intended to meet the requirements of Section 422 of the Code.

(n)

“Nonqualified Stock Option” means a stock option that is not intended to be an Incentive Stock Option.

(o)

“Option” means either an Incentive Stock Option or a Nonqualified Stock Option.

(p)

“Participant” means an employee or director of the Company or its Subsidiaries, or an individual performing advisory or consulting services for the Company or a Subsidiary, with or without compensation, provided that bona fide services must be rendered by such person and such services shall not be rendered in connection with the offer or sale of securities in a capital raising transaction, who is selected to participate in the Plan in accordance with Section 5.

(q)

“Performance Goals” means or may be expressed in terms of any of the following business criteria:  revenue, earnings before interest, taxes, depreciation and amortization (“EBITDA”), funds from operations, funds from operations per share, operating income, pre or after tax income, cash available for distribution, cash available for distribution per share, net earnings, earnings per share, return on equity, return on assets, share price performance, improvements in the Company’s attainment of expense levels, and implementing or completion of critical projects, or improvement in cash-flow (before or after tax).  A

3

Performance Goal may be measured over a Performance Period on a periodic, annual, cumulative or average basis and may be established on a corporate-wide basis or established with respect to one or more operating units, divisions, subsidiaries, acquired businesses, minority investments, partnerships or joint ventures.  Unless otherwise determined by the Committee by no later than the earlier of the date that is 90 days after the commencement of the Performance Period or the day prior to the date on which 25 percent of the Performance Period has elapsed, the Performance Goals will be determined by not accounting for a change in GAAP during a Performance Period.   

(r)

“Performance Objective” means the level or levels of performance required to be attained with respect to specified Performance Goals in order that a Participant becomes entitled to specified rights in connection with an Award of performance shares.

(s)

“Performance Period” means the calendar year, or such other shorter or longer period designated by the Committee, during which performance will be measured in order to determine a Participant’s entitlement to receive payment of an Award.

(t)

The Common Stock is “Publicly Traded” if the Common Stock subjects the Company to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act.

(u)

“Subsidiary” means any affiliate of the Company selected by the Board; provided, that, with respect to Incentive Stock Options, it means any subsidiary of the Company that is a corporation and that at the time qualifies as a “subsidiary corporation” within the meaning of Section 424(f) of the Code.

3.

Shares Subject to the Plan.  Subject to adjustment in accordance with Section 18, the total of the number of shares of Common Stock which will be available for the grant of Awards under the Plan may not exceed 40,000,000 shares of Common Stock; provided, that, for purposes of this limitation, any Common Stock subject to an Option that is canceled or expires without exercise will again become available for subsequent Awards under the Plan.  Upon forfeiture of Awards in accordance with the provisions of the Plan and the terms and conditions of the Award, such shares will again be available for subsequent Awards under the Plan.  Subject to adjustment in accordance with Section 18, no employee may be granted, during any one year period, Options to purchase more than 10,000,000 shares of Common Stock and, the number of shares of Common Stock subject to any Awards oth er than Options or stock appreciation rights may not exceed 40,000,000 shares of Common Stock.  Common Stock available for issue or distribution under the Plan will consist of authorized and unissued shares or shares reacquired by the Company in any manner.

4.

Administration.  

(a)

The Plan will be administered by the Committee.  All references to the Committee hereinafter means the Board if the Board has not appointed any such Committee.  Notwithstanding the foregoing, the Board or Committee may (i) delegate to a committee of one or more members of the Board who are not “outside directors” within the meaning of Section 162(m) of the Code the authority to grant Awards to eligible persons who are either (A) not then

4

Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Award or (B) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code or (ii) delegate to a committee of one or more members of the Board who are not “non-employee directors” within the meaning of Rule 16b-3 the authority to grant Awards to eligible persons who are not subject to Section 16 of the Exchange Act.

(b)

The Committee will (i) approve the selection of Participants, (ii) determine the type of Awards to be made to Participants, (iii) determine the number of shares of Common Stock subject to Awards, (iv) determine the terms and conditions of any Award granted hereunder (including, but not limited to, any restriction and forfeiture conditions on such Award) and (v) have the authority to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any agreements entered into hereunder, and to make all other determinations necessary or advisable for the administration of the Plan.  The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent it deems desirable to carry it into effect.

(c)

Any action of the Committee will be final, conclusive and binding on all persons, including the Company and its Subsidiaries and stockholders, Participants and persons claiming rights from or through a Participant.

(d)

The Committee may delegate to officers or other employees of the Company or any Subsidiary, and to service providers, the authority, subject to such terms as the Committee determines, to perform administrative functions with respect to the Plan and Award agreements.

(e)

Members of the Committee and any officer or other employee of the Company or any Subsidiary acting at the direction of, or on behalf of, the Committee will not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and will, to the extent permitted by law, be fully indemnified by the Company with respect to any such action or determination.

5.

Eligibility.  Individuals eligible to receive Awards under the Plan will be the Participants selected by the Committee; provided, that, only employees of the Company and its Subsidiaries may be granted Incentive Stock Options.  In addition, Awards (other than Incentive Stock Options) may be made to individuals who are not currently employees, directors, or consultants of the Company and its Subsidiaries, which are granted conditioned on such individual becoming an employee, director or consultant.  

6.

Awards.  Awards under the Plan may consist of Options, restricted Common Stock, restricted Common Stock units, performance shares, performance share units, purchases, share awards, stock appreciation rights or other awards based on the value of the Common Stock.  Incentive Stock Options may only be granted to employees of the Company and its Subsidiaries.  Awards will be subject to the terms and conditions of the Plan and, to the extent an Award issued under the Plan is subject to Section 409A of the Code, in compliance with the applicable requirements of Section 409A of the Code and the regulations or other guidance issued

5

thereunder.  Awards may be evidenced by an agreement containing such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Committee deems desirable.

7.

Options.  Options may be granted under the Plan in such form as the Committee may from time to time approve pursuant to terms set forth in an Option agreement.

(a)

Types of Options.  Each Option agreement must state whether or not the Option will be treated as an Incentive Stock Option or Nonqualified Stock Option.  The aggregate Fair Market Value of the Common Stock for which Incentive Stock Options granted to any one employee under this Plan or any other incentive stock option plan of the Company or of any of its Subsidiaries may by their terms first become exercisable during any calendar year may not exceed $100,000 (based upon Fair Market Value of the Common Stock on the date each respective Option is granted).  In the event such threshold is exceeded in any calendar year, such excess Options will be automatically deemed to be Nonqualified Stock Options.  To the extent that any Option granted under this Plan that is intended to be an Incentive Stock Option fails for any reason to qualify as such at any time, such Option will be a Nonqualified Stock Option.

(b)

Option Price. The purchase price per share of the Common Stock purchasable under an Option will be determined by the Committee; provided, however, the exercise price for Incentive Stock Options may be not less than 100% of the Fair Market Value of the Common Stock on the date of the grant and in the case of Incentive Stock Options granted to an employee owning stock possessing more than 10% of the total combined voting power of all classes of shares of the Company and its Subsidiaries (a “10% Stockholder”) the price per share specified in the agreement relating to such Option may not be less than 110% of the Fair Market Value per share of the Common Stock on the date of grant.  Notwithstanding any other provision in this Plan to the contrary, the Committee may reduce the option price of any outstanding Option either through a direct amendment to such Option or t hrough a cancellation of such Option and immediate grant of a new Option with a lower option price or in any other manner it deems appropriate.  

(c)

Option Period.  The term of each Option will be fixed by the Committee, but no Option may be exercisable after the expiration of ten years from the date the Option is granted; provided, that, in the case of Incentive Stock Options granted to 10% Stockholders, the term of such Option may not exceed five years from the date of grant.  Notwithstanding the foregoing, unless otherwise provided in an Award agreement, upon the death or Disability of a Participant, Options (other than Incentive Stock Options) that would otherwise remain exercisable following such death or Disability, will remain exercisable for one year following such death, notwithstanding the term of such Option.

(d)

Exercisability.  Each Option will vest and become exercisable at a rate determined by the Committee on the date of grant.

(e)

Method of Exercise.  Options may be exercised, in whole or in part, by giving written notice of exercise to the Company in a form approved by the Company specifying the number shares of Common Stock to be purchased.  Such notice must be accompanied by the payment in full of the Option exercise price. The exercise price of the Option may be paid by (i) cash or certified or bank check, (ii) surrender of Common Stock held by the optionee for at least

6

six months prior to exercise (or such longer or shorter period as may be required to avoid a charge to earnings for financial accounting purposes) or the attestation of ownership of such shares, in either case, if so permitted by the Company, when such Common Stock has a Fair Market Value equal to the aggregate exercise price of the Option at the time of exercise, (iii) if established by the Company, through a “same day sale” commitment from optionee and a broker-dealer that is acceptable to the Company that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby the optionee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased sufficient to pay for the total exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the total exercise price directly to the Company, (iv) through addi tional methods prescribed by the Committee, all under such terms and conditions as deemed appropriate by the Committee in its discretion, or (v) by any combination of the foregoing, and, in all instances, to the extent permitted by applicable law.   A Participant’s subsequent transfer or disposition of any Common Stock acquired upon exercise of an Option will be subject to any Federal and state laws then applicable, specifically securities law, and the terms and conditions of this Plan.

8.

Restricted Common Stock.  The Committee may from time to time award restricted Common Stock under the Plan to eligible Participants.  Shares of restricted Common Stock may not be sold, assigned, transferred or otherwise disposed of, or pledged or hypothecated as collateral for a loan or as security for the performance of any obligation or for any other purpose, for such period (the “Restricted Period”) as the Committee determines.  The Committee may define the Restricted Period in terms of the passage of time or in any other manner it deems appropriate.  The Committee may alter or waive at any time any term or condition of restricted Common Stock that is not mandatory under the Plan.  Unless otherwise determined by the Committee, upon termination of a Participant’s Continuous Service with the Company for any reason prior to the end of the Restricted P eriod, the restricted Common Stock will be forfeited and the Participant will have no right with respect to the Award.  Except as restricted under the terms of the Plan and any Award agreement, any Participant awarded restricted Common Stock will have all the rights of a stockholder including, without limitation, the right to vote restricted Common Stock.  If a share certificate is issued in respect of restricted Common Stock, the certificate will be registered in the name of the Participant, but will be held by the Company for the account of the Participant until the end of the Restricted Period.  The Committee may also award restricted Common Stock in the form of restricted Common Stock units having a value equal to an identical number of shares of Common Stock.  Payment of restricted Common Stock units will be made in Common Stock or in cash or in a combination thereof (based upon the Fair Market Value of the Common Stock on the day the Restricted Period expires), all as determined by the Committee in its sole discretion.  The provisions of Restricted Stock need not be the same with respect to each Participant.

9.

Performance Shares.  

(a)

Type of Awards.  Performance shares may be granted in the form of actual shares of Common Stock or Common Stock units having a value equal to an identical number of shares of Common Stock.  In the event that a share certificate is issued in respect of performance shares, such certificate will be registered in the name of the Participant, but will be held by the Company until the time the performance shares are earned.  The Performance Objectives and the length of the Performance Period will be determined by the Committee.  The

7

Committee determines in its sole discretion whether performance shares granted in the form of Common Stock units will be paid in cash, Common Stock, or a combination of cash and Common Stock.

(b)

Performance Objectives. The Committee will establish the Performance Objective for each Award of performance shares, consisting of one or more business criteria permitted as Performance Goals hereunder, one or more levels of performance with respect to each such criteria, and the amount or amounts payable or other rights that the Participant will be entitled to upon achievement of such levels of performance.  The Performance Objective will be established by the Committee prior to, or reasonably promptly following the inception of, a Performance Period but, to the extent required by Section 162(m) of the Code, by no later than the earlier of the date that is 90 days after the commencement of the Performance Period or the day prior to the date on which 25 percent of the Performance Period has elapsed. More than one Performance Goal may be incorporated in a Performance Objective, in which case achievement with respect to each Performance Goal may be assessed individually or in combination with each other.  The Committee may, in connection with the establishment of Performance Objectives for a Performance Period, establish a matrix setting forth the relationship between performance on two or more Performance Goals and the amount of the Award of performance shares payable for that Performance Period.  The level or levels of performance specified with respect to a Performance Goal may be established in absolute terms, as objectives relative to performance in prior periods, as an objective compared to the performance of one or more comparable companies or an index covering multiple companies, or otherwise as the Committee may determine.  Performance Objectives must be objective and must otherwise meet the requirements of Section 162(m) of the Code.  Performance Objectives may differ for performance shares granted to any one Participant or to different Participant An Award of performance shares to a Participant who is a Covered Employee must (unless the Committee determines otherwise) provide that in the event of the Participants termination of Continuous Service prior to the end of the Performance Period for any reason, such Award will be payable only (i) if the applicable Performance Objectives are achieved and (ii) to the extent, if any, as the Committee determines.

(c)

Certification.  Following the completion of each Performance Period, the Committee must certify in writing, in accordance with the requirements of Section 162(m) of the Code, whether the Performance Objectives and other material terms of an Award of performance shares have been achieved or met.  Unless the Committee determines otherwise, performance shares may not be settled until the Committee has made the certification specified under this Section 9(c).  

(d)

Adjustment.  The Committee may, in its discretion, reduce or eliminate the amount of payment with respect to an Award of performance shares to a Covered Employee, notwithstanding the achievement of a specified Performance Objectives; provided, that, no such adjustment may be made that would adversely impact a Participant following a Change in Control.  

(e)

Maximum Amount Payable.  Subject to Section 18, the maximum number of performance shares subject to any Award to a Covered Employee is 1,000,000 for each 12 month period during the Performance Period (or, to the extent the Award is paid in cash,

8

the maximum dollar amount of any such Award is the equivalent cash value, based on the Fair Market Value of the Common Stock, of such number of shares of Common Stock on the last day of the Performance Period).  

10.

Share Purchases.  The Committee may authorize eligible individuals to purchase Common Stock in the Company at a price equal to, below or above the Fair Market Value of the Common Stock at the time of grant.  Any such offer may be subject to the conditions and terms the Committee may impose.  

11.

Stock Appreciation Rights.  The Committee may in its discretion, either alone or in connection with the grant of another Award, grant stock appreciation rights in accordance with the Plan, the terms and conditions of which must be set forth in an agreement. If granted in connection with an Option, a stock appreciation right will cover the same number of shares of Common Stock covered by the Option (or such lesser number of shares as the Committee may determine) and will, except as provided in this Section 11, be subject to the same terms and conditions as the related Option.

(a)

Time of Grant.  A stock appreciation right may be granted (i) at any time if unrelated to an Option, or (ii) if related to an Option, either at the time of grant, or in the case of Nonqualified Stock Options, at any time thereafter during the term of such Option.

(b)

Stock Appreciation Right Related to an Option.

(i)

A stock appreciation right granted in connection with an Option will be exercisable at such time or times and only to the extent that the related Options are exercisable, and will not be transferable except to the extent the related Option may be transferable. A stock appreciation right granted in connection with an Incentive Stock Option will be exercisable only if the Fair Market Value of a share of Common Stock on the date of exercise exceeds the purchase price specified in the related Incentive Stock Option agreement.

(ii)

Upon the exercise of a stock appreciation right related to an Option, the Participant will be entitled to receive an amount determined by multiplying (A) the excess of the Fair Market Value of a share of Common Stock on the date preceding the date of exercise of such stock appreciation right over the per share purchase price under the related Option, by (B) the number of shares of Common Stock as to which such stock appreciation right is being exercised.  Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any stock appreciation right by including such a limit in the agreement evidencing the stock appreciation right at the time it is granted.

(iii)

Upon the exercise of a stock appreciation right granted in connection with an Option, the Option will be canceled to the extent of the number of shares as to which the stock appreciation right is exercised, and upon the exercise of an Option granted in connection with a stock appreciation right, the stock appreciation right will be canceled to the extent of the number of shares of Common Stock as to which the Option is exercised or surrendered.

9

(c)

Stock Appreciation Right Unrelated to an Option.  The Committee may grant to a Participant stock appreciation rights unrelated to Options.  Stock appreciation rights unrelated to Options will contain such terms and conditions as to exercisability, vesting and duration as the Committee determines, but in no event may they have a term of greater than ten years; provided, that, unless otherwise provided in an Award agreement, upon the death or Disability of a Participant, stock appreciation rights that would otherwise remain exercisable for a period of time following such death or Disability, will remain exercisable for one year following death notwithstanding the term of the Award.  Upon exercise of a stock appreciation right unrelated to an Option, the Participant will be entitled to receive an amount determined by multiplying (i) the excess of the Fair Market Va lue of a share on the date preceding the date of exercise of such stock appreciation right over the per share exercise price of the stock appreciation right, by (ii) number of shares of Common Stock as to which the stock appreciation right is being exercised.  Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to any stock appreciation right by including such a limit in the agreement evidencing the stock appreciation right at the time it is granted.

(d)

Method of Exercise.  Stock appreciation rights may be exercised by a Participant only by a written notice delivered in person or by mail to the Company at the Company's principal executive office, specifying the number of shares of Common Stock with respect to which the stock appreciation right is being exercised.  If requested by the Committee, the Participant must deliver the agreement evidencing the stock appreciation right being exercised and the agreement evidencing any related Option to the Secretary of the Company, who will endorse thereon a notation of such exercise and return such agreement to the Participant.

(e)

Form of Payment.  Payment of the amount determined under this Section 11 may be made in the discretion of the Committee solely in whole shares of Common Stock in a number determined at their Fair Market Value on the date preceding the date of exercise of the stock appreciation right, or solely in cash, or in a combination of cash and shares. If the Committee decides to make full payment in shares in Common Stock and the amount payable results in a fractional share, payment for the fractional share will be made in cash.

12.

Share Awards.  Subject to such performance and employment conditions, if any, as the Committee may determine, awards of Common Stock or awards based on the value of the Common Stock may be granted either alone or in addition to other Awards granted under the Plan.  Any Awards under this Section 12 and any Common Stock covered by any such Award may be forfeited to the extent so provided in the Award agreement, if any, as determined by the Committee.  Payment of Common Stock awards made under this Section 12 that are based on the value of Common Stock may be made in Common Stock or in cash or in a combination thereof (based upon the Fair Market Value of the Common Stock on the date of payment), all as determined by the Committee in its sole discretion.

13.

Special Provisions.

(a)

  Change in Control.  The Committee may, in its discretion, provide in any Award agreement whether, upon the occurrence of a Change in Control, all Options and stock appreciation rights represented by such Award agreement may automatically become

10

vested and exercisable in full, and all restrictions or performance conditions, if any, on any Common Stock awards, restricted Common Stock, restricted Common Stock units, performance shares or performance share units granted thereunder will automatically lapse.  The Committee may, in its discretion, include such further provisions and limitations in any agreement documenting such Awards as it may deem equitable and in the best interests of the Company.

(b)

Forfeiture.  Notwithstanding anything in the Plan to the contrary, and unless otherwise specifically provided in an Award agreement, in the event of a serious breach of conduct by a Participant or former Participant (including, without limitation, any conduct prejudicial to or in conflict with the Company or its Subsidiary or any material breach of a contractual obligation to the Company or its Subsidiary) the Committee may (i) cancel any outstanding Award granted to such Participant or former Participant, in whole or in part, whether or not vested, and/or (ii) if such conduct or activity occurs within one year following the exercise or payment of an Award, require such Participant or former Participant to repay to the Company any gain realized or payment received upon the exercise or payment of such Award (with such gain or payment valued as of the date of exercise or payment).   Such cancellation or repayment obligation will be effective as of the date specified by the Committee.  Any repayment obligation must be satisfied in cash or, if permitted in the sole discretion of the Committee, it may be satisfied in shares of Common Stock (based upon the Fair Market Value of the share of Common Stock on the date of payment), and the Committee may provide for an offset to any future payments owed by the Company or any Subsidiary to the Participant or former Participant if necessary to satisfy the repayment obligation.  The determination of whether a Participant or former Participant has engaged in a serious breach of conduct will be determined by the Committee in good faith and in its sole discretion.

(c)

Deferral.  The Committee will be authorized to establish procedures pursuant to which the payment of any Award may be deferred.  Subject to the provisions of the Plan and any Award agreement, the recipient of an Award (including, without limitation, any deferred Award) may, if so determined by the Committee, be entitled to receive, currently or on a deferred basis, cash dividends, or cash payments in amounts equivalent to cash dividends on shares (“dividend equivalents”), with respect to the number of shares of Common Stock covered by the Award, as determined by the Committee, in its sole discretion, and the Committee may provide that such amounts (if any) will be deemed to have been reinvested in additional shares or otherwise reinvested.

(d)

Withholding. Upon (a) disposition of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option granted pursuant to the Plan within two years of the grant of the Incentive Stock Option or within one year after exercise of the Incentive Stock Option, or (b) exercise of a Nonqualified Stock Option (or an Incentive Stock Option treated as a Nonqualified Stock Option), exercise of a stock appreciation right or the vesting or payment of any other Award under the Plan or (c) under any other circumstances determined by the Committee in its sole discretion, the Company will have the right to require any Participant, and such Participant by accepting the Awards granted under the Plan agrees, to pay to the Company the amount of any Federal, state, local income taxes or other taxes incurred by reason of the exercise of Options granted hereunder that the Company may be requir ed to withhold with respect thereto.  In the event of clauses (a), (b) or (c), Participant will pay to the Company such amount as the Company deems necessary to satisfy its minimum tax withholding

11

obligation and such payment will be made: (i) in cash, (ii) to the extent authorized by the Committee, having the Company retain shares which would otherwise be delivered upon exercise of an Option, (iii) to the extent authorized by the Committee, delivering or attesting to ownership of Shares owned by the holder of the Option for at least 6 months prior to the exercise of such Option or (iv) any combination of any such methods.  For purposes hereof, Shares will be valued at Fair Market Value.

14.

Nontransferability; Beneficiaries.  Unless otherwise determined by the Committee with respect to the transferability of Nonqualified Stock Options by a Participant to his Immediate Family Members (or to trusts or partnerships or limited liability companies established for such family members), no Award may be assigned or transferred by the Participant, otherwise than by will or the laws of descent and distribution or pursuant to a beneficiary designation, and Options may be exercised, during the Participant’s lifetime, only by the Participant (or by the Participant’s legal representatives in the event of the Participant’s incapacity).  Each Participant may designate a beneficiary to exercise any Option held by the Participant at the time of the Participant’s death or to be assigned any other Award outstanding at the time of the Participant’s death.  I f no beneficiary has been named by a deceased Participant, any Award held by the Participant at the time of death will be transferred as provided in his will or by the laws of descent and distribution.  Except in the case of the holder’s incapacity, an Option may only be exercised by the holder thereof.

15.

No Right to Continuous Service.  Nothing contained in the Plan or in any Award under the Plan will confer upon any Participant any right with respect to the continuation of service with the Company or any of its Subsidiaries, or interfere in any way with the right of the Company or its Subsidiaries to terminate his or her Continuous Service at any time.  Nothing contained in the Plan will confer upon any Participant or other person any claim or right to any Award under the Plan.

16.

Governmental Compliance.  Each Award under the Plan will be subject to the requirement that if at any time the Committee determines that the listing, registration or qualification of any shares issuable or deliverable thereunder upon any securities exchange or under any Federal or state law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition thereof, or in connection therewith, no such grant or award may be exercised or shares issued or delivered unless such listing, registration, qualification, consent or approval has been effected or obtained free of any conditions not acceptable to the Committee.

17.

Adjustments; Corporate Events.  

(a)

In the event of any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, reclassification, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, liquidation, dissolution, or sale, transfer, exchange or other disposition of all or substantially all of the assets of the Company, or exchange of Common Stock or other securities of the Company, issuance of warrants or other rights to purchase Common Stock or other securities of the Company, or other similar corporate transaction or event (an “Event”), and in the Committee’s opinion, such event affects the Common Stock such that an adjustment is

12

determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to an Award, then the Committee may, in such manner as it may deem equitable, without limitation, adjust any or all of the following: (i) the number and kind of shares of Common Stock (or other securities or property) with respect to which Awards may be granted or awarded; (ii) the number and kind of shares of Common Stock (or other securities or property) subject to outstanding Awards; and (iii) the grant or exercise price with respect to any Award.  Any such adjustment made to an Incentive Stock Option must be made in accordance with Section 424(a) of the Code unless otherwise determined by the Committee in its sole discretion.  The Committee’s determination under this Section 18(a) will be final, binding and co nclusive.  

(b)

Upon the occurrence of an Event in which outstanding Awards are not to be assumed or otherwise continued following such an Event, the Committee may, in its discretion, terminate any outstanding Award without a Participant’s consent and (i) provide for either the purchase of any such Award for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award been currently exercisable or payable or fully vested or the replacement of such Award with other rights or property selected by the Committee in its sole discretion and/or (ii) provide that such Award may be exercised (whether or not vested) as to all shares covered thereby for at least 30 days prior to such Event.

(c)

The existence of the Plan, the Award agreement and the Awards granted hereunder will not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, 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.

18.

Amendment.  The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that (a) no amendment may be made without stockholder approval if such approval is necessary to comply with any applicable law, regulation or stock exchange rule and (b) except as provided in Section 18, no amendment may be made that would adversely affect the rights of a Participant under an Award theretofore granted, without such Participant’s written consent.

19.

General Provisions.

(a)

The Committee may require each Participant purchasing or acquiring shares pursuant to an Award under the Plan to represent to and agree with the Company in writing that such Participant is acquiring the shares for investment and without a view to distribution thereof.

13

(b)

All certificates for Common Stock delivered under the Plan pursuant to any Award will be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed and any applicable Federal or state securities law; and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.  If the Committee determines that the issuance of Common Stock hereunder is not in compliance with, or subject to an exemption from, any applicable Federal or state securities laws, such shares may not be issued until such time as the Committee determines that the issuance is permissible.

(c)

It is the intent of the Company that the Plan satisfy, and be interpreted in a manner that satisfies, the applicable requirements of Rule 16b-3 as promulgated under Section 16 of the Exchange Act so that Participants will be entitled to the benefit of Rule 16b-3, or any other rule promulgated under Section 16 of the Exchange Act, and will not be subject to short-swing liability under Section 16 of the Exchange Act.  Accordingly, if the operation of any provision of the Plan would conflict with the intent expressed in this Section 20(c), such provision to the extent possible will be interpreted and/or deemed amended so as to avoid such conflict.

(d)

Except as otherwise provided by the Committee in the applicable grant or Award agreement, a Participant will have no rights as a stockholder with respect to any shares of Common Stocks subject to an Award until a certificate or certificates evidencing shares of Common Stock will have been issued to the Participant and, subject to Section 18, no adjustment may be made for dividends or distributions or other rights in respect of any share for which the record date is prior to the date on which Participant becomes the holder of record thereof.

(e)

The law of the State of New York will apply to all Awards and interpretations under the Plan regardless of the effect of such state’s conflict of laws principles.

(f)

Where the context requires, words in any gender will include any other gender.

(g)

Headings of Sections are inserted for convenience and reference; they do not constitute any part of this Plan.

(h)

The Committee will have the power to accelerate the time at which an Award may be exercisable or vest notwithstanding the terms of any Award agreement.

(i)

No payment pursuant to the Plan may be taken into account in determining any benefits pursuant to any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Subsidiary, except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

(j)

The expenses of administering the Plan will be borne by the Company and its Subsidiaries.

14

(k)

No fractional shares of Common Stock may be issued and the Committee determines, in its discretion, whether cash will be given in lieu of fractional shares or whether such fractional shares will be eliminated by rounding up or down, as appropriate.

(l)

The Plan is intended to be an “unfunded” plan for incentive compensation.  With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Award agreement will give the Participant any rights that are greater than those of a general creditor of the Company or any Subsidiary.

20.

Expiration of the Plan.  Subject to earlier termination pursuant to Section 19, no Award may be granted following the ten year anniversary of the Effective Date and, except with respect to outstanding Awards, this Plan will terminate on such date.

21.

Effective Date; Approval of Stockholders.  The Plan is effective as of the date it is approved by the Board (the “Effective Date”); provided, that, no Incentive Stock Option may be exercised, unless and until the Plan has been approved by the affirmative vote of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of New York within twelve months after the date the Plan is adopted by the Board.  If such stockholder approval is not obtained within twelve months after the date the Plan is adopted by the Board, all outstanding Awards other than Incentive Stock Options will be valid in all respects.  Unless the Company determines to submit Section 9 of the Plan and the definition of Performance Goal to the Company&# 146;s stockholders at the first stockholder meeting that occurs in the fifth year following the year in which the Plan was last approved by stockholders (or any earlier meeting designated by the Board), in accordance with the requirements of Section 162(m) of the Code, and such stockholder approval is obtained, then no further performance shares may be made to Covered Employees under Section 9 after the date of such annual meeting, but the remainder of the Plan will continue in effect.

15

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Helen R. Park, certify that:

1.    I have reviewed this annual report on Form 10-K for the year ended December 31, 2008 of Power3 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 registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) 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)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’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

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 5.    The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’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 registrant’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 registrant’s internal control over financial reporting.      

Date:           April 15, 2009	By:	/s/    Helen R. Park
		Helen R. Park, Interim Chief Executive Officer and Interim Chief Financial Officer

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

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of Power3 Medical Products, Inc. (the “Company”) does hereby certify, to such officer’s knowledge, that:

(1)

The Company’s Annual Report of Form 10-K for the year ended December 31, 2008 (the “Report”) fully complies with the requirements of section 13(a) or 15(d) of the Securities     Exchange Act of 1934, as amended; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Report.

Date:           April 15, 2009	By:	/s/    Helen R. Park
		Helen R. Park, Interim Chief Executive Officer andInterim Chief Financial Officer

The forgoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Report for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing by the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.