SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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

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

For the transition period from ___________ to ______________

~~3400 Research Forest Drive, Suite B2-3~~26022 Budde Road

The Woodlands, Texas ~~77381~~77380

Large accelerated filer¨ o	Accelerated filer¨ o

Non-accelerated filer ¨o	~~Smaller reporting company~~ x
~~(Do~~(Do not check if a smaller reporting company)
	Smaller reporting company x

APPLICABLE ONLY TO ISSUERS INVOLVED IN

BANKRUPTCY PROCEEDINGS DURING THE

PRECEDING FIVE YEARS

APPLICABLE ONLY TO CORPORATE ISSUERS

		~~Page~~
			Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements		1

	Balance Sheets at March 31, ~~2010~~2011 (unaudited) and December 31, ~~2009~~2010		1

	Statements of Operations for the three months ended March 31, 2011 and 2010 ~~and 2009~~ (unaudited)
	and the period beginning May 18, 2004 (date of entering development stage) through March 31, ~~2010~~2011 (unaudited)		2

	Statements of Stockholders’ Deficit for all years subsequent to May 18, 2004 ~~(inception)~~
	(date of entering development stage) and the three months ended March 31, ~~2010~~2011 (unaudited)		3

	Statements of Stockholders’ Deficit – Other Equity Items for all years subsequent to
	May 18, 2004 (date of entering development stage) and the three months ended March 31, ~~2010~~2011 (unaudited)		4

	Statements of Cash Flows for the three months ended March 31, 2011 and 2010 ~~and 2009~~ (unaudited)
	and the period beginning May 18, 2004 (date of entering development stage) through March 31, ~~2010~~2011 (unaudited)		5

	Notes to Financial Statements (unaudited)		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17	24

Item 4T.	Controls and Procedures	23	30

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	24	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25	33

~~Item 3.~~	~~Defaults Upon Senior Securities~~	25

Item 6.	Exhibits	26	34

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Power3 Medical Products, Inc.

(A Development Stage Entity)

Balance Sheets

~~(A Development Stage Entity)~~

~~Balance Sheets~~

	March 31,
	2011			December 31,
	(Unaudited)			2010

Assets

Cash and equivalents	$	-		$	-
Other current assets		-			-

Total current assets		-			-

Property and equipment, net of accumulated depreciation of $108,577 and $108,461 at March 31, 2011 and December 31, 2010, respectively		2,012			2,128
Deposits		11,332			11,332
Other assets		100			100

Total assets	$	13,444		$	13,560

Liabilities and stockholders’ deficit

Accounts payable	$	1,288,751		$	1,643,510
Accounts payable – related party		525,701			525,701
Notes payable – related party		225,933			154,482
Notes payable – in default		501,000			501,000
Notes payable – in default – related party		80,000			80,000
Convertible debentures – in default		272,176			303,853
Derivative liabilities		629,171			1,460,472
Other current liabilities		819,871			788,225

Total current liabilities		4,342,603			5,457,243

Total liabilities		4,342,603			5,457,243

Stockholders’ deficit:

Preferred Stock – $0.001 par value: 50,000,000 shares authorized; 1,500,000 shares issued and outstanding as of March 31, 2011 and December 31, 2010, respectively		1,500			1,500
Common Stock – $0.001 par value: 600,000,000 shares authorized; 513,271,617 and 472,237,565 shares issued and outstanding as of March 31, 2011 and December 31, 2010, respectively		513,272			472,237
Additional paid-in capital		73,833,040			72,994,212
Treasury stock		(16,000	)		(16,000	)
Common stock payable		135,000			135,000
Deficit accumulated during development stage		(67,114,471	)		(67,349,132	)
Deficit accumulated before entering development stage		(11,681,500	)		(11,681,500	)

Total stockholders’ deficit		(4,329,159	)		(5,443,683	)

Total liabilities and stockholders’ deficit	$	13,444		$	13,560

March 31,
2010 December 31,
(Unaudited) 2009

Assets

Cash and equivalents $ 8,130 $ -
Other current assets - -

Total current assets 8,130 -

Property and equipment, net of accumulated depreciation of $108,264 and $107,581 at March 31, 2010 and December 31, 2009, respectively - 683
Deposits 5,000 5,000
Other assets 100 100

Total assets $ 13,230 $ 5,783

Liabilities and stockholder's deficit

Accounts payable $ 1,006,259 $ 999,631
Accounts payable – related party 124,175 96,507
Notes payable – in default 451,000 451,000
Notes payable – related parties 15,000 15,000
Convertible debentures – in default 351,381 351,255
Convertible debentures, net of unamortized discount of $-0- and $21,621 at March 31, 2010 and December 31, 2009, respectively 50,000 28,379
Convertible debentures – related party 30,000 30,000
Derivative liabilities 3,752,729 14,456,424
Other current liabilities 649,413 593,891

Total current liabilities 6,429,957 17,022,087

Total liabilities 6,429,957 17,022,087

Stockholders' deficit:

Preferred Stock – $0.01 par value: 50,000,000 shares authorized; 1,500,000 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively 1,500 1,500
Common Stock – $0.001 par value: 600,000,000 shares authorized; 427,397,313 and 434,167,000 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively 427,397 434,167
Additional paid-in capital 72,393,594 71,984,083
Treasury stock (16,000 ) (16,000 )
Common stock payable 135,000 135,000
Deficit accumulated during development stage (67,676,718 ) (77,873,554 )
Deficit accumulated before entering development stage (11,681,500 ) (11,681,500 )

Total stockholders' deficit (6,416,727 ) (17,016,304 )

Total liabilities and stockholders' deficit $ 13,230 $ 5,783

The accompanying notes are an integral part of these financial statements

Power3 Medical Products, Inc.

(A Development Stage Entity)

Statements of Operations

~~(A Development Stage Entity)~~

~~Statements of Operations (Unaudited)~~

							Period From
							May 18, 2004
	For the Three Months Ended						Through
	March 31,						March 31,
	2011			2010			2011

Net revenue	$	-		$	-		$	542,249

Operating expenses:
Employee compensation and benefits		31,250			34,918			31,598,092
Professional and consulting fees		382,761			245,001			18,053,409
Impairment of goodwill		-			-			13,371,776
Other selling, general and administrative expenses		61,986			177,742			2,716,134

Total operating expenses		475,997			457,661			65,739,411

Loss from operations		(475,997	)		(457,661	)		(65,197,162	)

Other income:
Derivative gain		752,811			10,703,695			7,725,815
Loss on settlement of litigation		-			-			(267,865	)
Interest income		-			-			7,867
Gain (loss) on settlement of debt		(20,263	)		-			1,562,609
Interest expense		(21,890	)		(49,198	)		(5,809,116	)
Mandatory prepayment penalty		-			-			(420,000	)
Other expense		-			-			(194,886	)

Total other income		710,658			10,654,497			2,604,424

Net income (loss)		234,661			10,196,836			(62,592,738	)

Deemed dividend		-			-			(1,140,760	)

Net income (loss) attributable to common stockholders	$	234,661		$	10,196,836		$	(63,733,498	)

Net income per share - basic	$	0.00		$	0.02

Net income per share - diluted	$	0.00		$	0.02

Weighted average number of shares outstanding - basic		486,993,960			478,823,366

Weighted average number of shares outstanding - diluted		510,842,272			500,029,456

Period From
May 18, 2004
For the Three Months Ended Through
March 31, March 31,
2010 2009 2010

Net revenue $ - $ 100,000 $ 542,249
-
Operating expenses: -
Employee compensation and benefits 34,918 17,557 31,452,497
Professional and consulting fees 245,001 80,817 16,473,770
Impairment of goodwill - - 13,371,776
Other selling, general and administrative expenses 177,742 70,666 2,364,063
-
Total operating expenses 457,661 169,040 63,662,106
-
Loss from operations (457,661 ) (69,040 ) (63,119,857 )

Other income (expense):
Derivative gain (loss) 10,703,695 (746,344 ) 4,680,747
Gain on legal settlement - - 36,764
Interest income - - 7,867
Gain (loss) on settlement of debt - (883,734 ) 1,582,872
Interest expense (49,198 ) (177,096 ) (5,728,492 )
Mandatory prepayment penalty - - (420,000 )
Other income/(expense) - - (194,886 )

Total other income/(expense) 10,654,497 (1,807,174 ) (35,128 )

Net income (loss) 10,196,836 (1,876,214 ) (63,154,985 )

Deemed dividend - (34,103 ) (1,140,760 )

Net income (loss) attributable to common stockholders $ 10,196,836 $ (1,910,317 ) $ (64,295,745 )

Net income (loss) per share - basic and diluted $ 0.02 $ (0.01 )

Weighted average number of shares outstanding - basic 478,823,366 200,466,378

Weighted average number of shares outstanding - diluted 500,029,456 200,466,378

The accompanying notes are an integral part of these financial statements

Power3 Medical Products, Inc.

(A Development Stage Entity)

Statement of Stockholders’ Deficit

~~(A Development Stage Entity)~~

~~Statement of Stockholders' Deficit (Unaudited)~~

													Additional
	Common Stock						Preferred Stock						Paid-in			Other Equity			Accumulated
	Shares			Par Value			Shares			Par Value			Capital			Items (1)			Deficit			Total
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 agreement		(160,000	)		(160	)		-			-			(71,840	)		-			-			(72,000	)
Issued shares to convert Series A perferred 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	)

Balance at 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	)

Balance at December 31, 2005		65,215,121			65,215			-			-			57,773,506			(5,079,071	)		(57,433,679	)		(4,674,029	)

Issued shares for services		2,449,990			2,449			-			-			311,865			-			-			314,314
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		-			-			-			-			-			-			(6,415,969	)		(6,415,969	)

Balance at December 31, 2006		71,370,955			71,370			-			-			58,009,358			-			(63,849,648	)		(5,768,920	)

Issued shares for services		1,810,000			1,810			-			-			282,390			-			-			284,200
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	)

Balance at December 31, 2007		108,352,636			108,353			-			-			60,191,104			-			(69,083,571	)		(8,784,114	)

Common stock issued for services		7,482,910			7,483			-			-			584,858			-			-			592,341
Common stock issued for cash		7,492,875			7,493			-			-			639,911			-			-			647,404
Common stock issued for conversion of debt		22,172,536			22,173			-			-			1,568,626			-			-			1,590,799
Common stock issued for lawsuit settlement		325,000			325			-			-			30,550			-			-			30,875
Issued shares for payables		2,133,333			2,133			-			-			186,867			-			-			189,000
Common stock held in escrow		2,000,000			2,000			-			-			18,000			(20,000	)		-			-
Preferred stock issued for services		-			-			1,500,000			1,500			357,000			-			-			358,500
Deemed dividends		-			-			-			-			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	)

Balance at December 31, 2008		149,959,290			149,960			1,500,000			1,500			63,499,938			103,286			(69,232,426	)		(5,477,742	)

Common stock issued for conversion of debt		150,701,039			150,701			-			-			2,154,621			(82,944	)		-			2,222,378
Common stock payable		-			-			-			-			-			116,000			-			116,000
Common stock issed upon exercise of warrants		11,789,509			11,790			-			-			267,042			-			-			278,832
Common stock issued for services		112,201,562			112,201			-			-			4,403,503			(14,286	)		-			4,501,418
Common stock issued for cash		11,515,600			11,516			-			-			73,640			-			-			85,156
Return of common stock held in escrow		(800,000	)		(800	)		-			-			800			-			-			-
Deemed dividends		-			-			-			-			1,111,054			-			(1,111,054	)		-
Release of common stock held in escrow		-			-			-			-			20,000			4,000			-			24,000
Common stock rescinded for debt		(1,200,000	)		(1,200	)		-			-			-			(7,056	)		-			(8,256	)
Common stock contributed for debt payment		-			-			-			-			276,558			-			-			276,558
Options issued for services		-			-			-			-			176,927			-			-			176,927
Net loss		-			-			-			-			-			-			(19,211,574	)		(19,211,574	)

Balance at December 31, 2009		434,167,000			434,167			1,500,000			1,500			71,984,083			119,000			(89,555,054	)		(17,016,304	)

Common stock issued upon exercise of warrants		36,799,358			36,799			-			-			197,735			-			-			234,534
Common stock issued for services		13,573,456			13,573			-			-			518,671			-			-			532,244
Vesting of common stock issued for services		-			-			-			-			280,000			-			-			280,000
Common stock rescinded or canceled		(12,302,249	)		(12,302	)		-			-			12,302			-			-			-
Imputed interest on no-interest loans		-			-			-			-			1,421			-			-			1,421
Net income		-			-			-			-			-			-			10,524,422			10,524,422

Balance at December 31, 2010		472,237,565		$	472,237			1,500,000		$	1,500		$	72,994,212		$	119,000		$	(79,030,632	)	$	(5,443,683	)

Common stock issued for services		16,986,799			16,987			-			-			287,687			-			-			304,674
Common stock issued for settlement of debt and litigation		27,747,253			27,748			-			-			463,914			-			-			491,662
Common stock issued for cash		300,000			300			-			-			2,700			-			-			3,000
Common stock rescinded or canceled		(4,000,000	)		(4,000	)		-			-			4,000			-			-			-
Imputed interest on no-interest loans		-			-			-			-			2,037			-			-			2,037
Settlement of derivative liability		-			-			-			-			78,490			-			-			78,490
Net income		-			-			-			-			-			-			234,661			234,661

Balance at March 31, 2011 (unaudited)		513,271,617		$	513,272			1,500,000		$	1,500		$	73,833,040		$	119,000		$	(78,795,971	)	$	(4,329,159	)

Additional

Common Stock

Preferred Stock
Paid-in Other Equity Accumulated

Shares

Par Value

Shares

Par Value

Capital

Items (1)

Deficit

Total

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 agreement (160,000 ) (160 ) - - (71,840 ) - - (72,000 )
Issued shares to convert Series A perferred 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 )

Balance at 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 )

Balance at December 31, 2005 65,215,121 65,215 - - 57,773,506 (5,079,071 ) (57,433,679 ) (4,674,029 )

Issued shares for services 2,449,990 �� 2,449 - - 311,865 - - 314,314
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 - - - - - - (6,415,969 ) (6,415,969 )

Balance at December 31, 2006 71,370,955 71,370 - - 58,009,358 - (63,849,648 ) (5,768,920 )

Issued shares for services 1,810,000 1,810 - - 282,390 - - 284,200
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 )

Balance at December 31, 2007 108,352,636 108,353 - - 60,191,104 - (69,083,571 ) (8,784,114 )

Common stock issued for services 7,482,910 7,483 - - 584,858 - - 592,341
Common stock issued for cash 7,492,875 7,493 - - 639,911 - - 647,404
Common stock issued for conversion of debt 22,172,536 22,173 - - 1,568,626 - - 1,590,799
Common stock issued for lawsuit settlement 325,000 325 - - 30,550 - - 30,875
Issued shares for payables 2,133,333 2,133 - - 186,867 - - 189,000
Common stock held in escrow 2,000,000 2,000 - - 18,000 (20,000 ) - -
Preferred stock issued for services - - 1,500,000 1,500 357,000 - - 358,500
Deemed dividends - - - - 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 )

Balance at December 31, 2008 149,959,290 149,960 1,500,000 1,500 63,499,938 103,286 (69,232,426 ) (5,477,742 )

Common stock issued for conversion of debt 150,701,039 150,701 - - 2,154,621 (82,944 ) - 2,222,378
Common stock payable - - - - - 116,000 - 116,000
Common stock issed upon exercise of warrants 11,789,509 11,790 - - 267,042 - - 278,832
Common stock issued for services 112,201,562 112,201 - - 4,403,503 (14,286 ) - 4,501,418
Common stock issued for cash 11,515,600 11,516 - - 73,640 - - 85,156
Return of common stock held in escrow (800,000 ) (800 ) - - 800 - - -
Deemed dividends - - 1,111,054 - (1,111,054 ) -
Release of common stock held in escrow - - 20,000 4,000 - 24,000
Common stock rescinded for debt (1,200,000 ) (1,200 ) - - (7,056 ) - (8,256 )
Common stock contributed for debt payment - - - - 276,558 - - 276,558
Options issued for services - - - - 176,927 - - 176,927
Net loss - - - - - (19,211,574 ) (19,211,574 )

Balance at December 31, 2009 434,167,000 434,167 1,500,000 1,500 71,984,083 119,000 (89,555,054 ) (17,016,304 )

Common stock issed upon exercise of warrants 4,425,166 4,425 - - 230,109 - - 234,534
Common stock issued for services 1,107,396 1,107 - - 97,100 - - 98,207
Vesting of common stock issued for services - - - - 70,000 - - 70,000
Common stock rescinded or canceled (12,302,249 ) (12,302 ) - - 12,302 - - -
Net income - - - - - - 10,196,836 10,196,836

Balance at March 31, 2010 427,397,313 $ 427,397 $ 1,500,000 $ 1,500 $ 72,393,594 $ 119,000 $ (79,358,218 ) $ (6,416,727 )

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

The accompanying notes are an integral part of these financial statements

Power3 Medical Products, Inc.

(A Development Stage Entity)

Statement of Stockholders’ Deficit -- Other Equity Items

The accompanying notes are an integral part of these financial statements

~~Power3 Medical Products, Inc.~~

Power3 Medical Products, Inc.

(A Development Stage Entity)

Statements of Cash Flows

~~Statements of Stockholders Deficit — Other Equity Items (Unaudited)~~

							Period From
							May 18, 2004
	For the Three Months Ended						Through
	March 31,						March 31,
	2011			2010			2011
							(unaudited)

Cash flows from operating activities

Net income (loss)	$	234,661		$	10,196,836		$	(52,068,316	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Gain on conversion of financial instruments		-			-			(1,579,670	)
Impairment of goodwill		-			-			13,371,776
Impairment of intangible assets		-			-			179,788
Loss on previously capitalized lease		-			-			34,243
Loss on settlement of litigation and debt		20,263			-			629,521
Amortization of debt discounts and deferred finance costs		-			21,747			4,027,056
Change in derivative liability, net of bifurcation		(752,811	)		(10,703,695	)		(19,567,866	)
Stock issued for compensation and services		304,674			70,000			40,094,179
Debt issued for compensation and services		-			-			1,028,927
Stock issued for settlement of litigation and debt		-			-			30,875
Depreciation expense		116			683			109,458
Release of stock held in escrow		-			-			24,000
Other non-cash items		2,037			-			(30,054	)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		-			-			186,084
Deposits and other assets		-			-			10,933
Accounts payable and other liabilities		116,609			188,025			5,398,035

Net cash used in operating activities		(74,451	)		(226,404	)		(8,121,031	)

Cash flows from investing activities

Increase in property and equipment		-			-			(147,158	)
Increase in other assets		-			-			(179,786	)

Net cash used in investing activities		-			-			(326,944	)

Cash flows from financing activities

Proceeds from sale of common stock		3,000			-			2,352,327
Borrowings on notes payable		-			-			3,838,430
Borrowings on notes payable – related party		71,451			-			475,791
Principal payments on notes payable		-			-			(122,478	)
Principal payments on notes payable – related party		-			-			(47,300	)
Proceeds from exercise of warrants		-			234,534			747,900
Stock rescinded for debt		-			-			-
Proceeds from issuance of convertible debt, warrants, and rights net of issuance cost		-			-			1,200,709

Net cash provided by financing activities		74,451			234,534			8,445,379

Net increase (decrease) in cash and equivalents		-			8,130			(2,596	)
Cash and equivalents, beginning of period		-			-			2,596

Cash and equivalents, end of period	$	-		$	8,130		$	-

Supplemental disclosure of cash flow information

Cash paid for interest		-			-			59,840
Cash paid for income taxes		-			-			-

Schedule of non-cash financing activities

Stock for conversion of debt – related party		-			-			2,227,759
Stock for subscriptions receivable		-			-			-
Warrants exercised for subscriptions receivable		-			-			-
Stock issued for common stock payable		-			-			-
Exchange of debt – related party		-			-			214,075
Exchange of convertible notes for stock		-			-			2,525,070
Stock issued for settlement of litigation and debt		471,399			98,207			1,543,333
Deemed dividend		-			-			1,140,760
Exchange of convertible preferred stock for common stock		-			-			3,380,975
Preferred stock issued for payables		-			-			358,500
Stock held in escrow		-			-			20,000
Stock contributed for debt payment		-			-			276,558
Return of stock held in escrow		-			-			16,800
Cashless exercise of warrants		-			-			32,507
Stock rescinded for debt		-			-			8,256
Stock rescinded or canceled		4,000			12,302			16,302
Settlement of derivative liability		78,490			-			78,490

Deferred
Compensation
Expense

Treasury
Stock

Stock Held
in Escrow

Common
Stock
Payable
Total

Balances as of beginning of development stage May 18, 2004 - - - - -

Issued shares for compensation (25,451,500 ) - - - (25,451,500 )
Issued shares for services (535,000 ) - - - (535,000 )
Stock option expense (626,100 ) - - - (626,100 )
Stock based compensation 8,311,012 - - - 8,311,012

Balance at December 31, 2004 (18,301,588 ) - - - (18,301,588 )

Amortize deferred compensation expense 13,222,517 - - - 13,222,517

Balance at December 31, 2005 (5,079,071 ) - - - (5,079,071 )

Adoption of FAS 123R 475,324 - - - 475,324
Amortize deferred compensation expense 4,603,747 - - - 4,603,747

Balance at December 31, 2006 - - - - -

Balance at December 31, 2007 - - - - -

Stock held in escrow - - (20,000 ) - (20,000 )
Common stock payable - - - 123,286 123,286

Balance at December 31, 2008 - - (20,000 ) 123,286 103,286

Common stock issued for conversion of debt - 7,056 - (90,000 ) (82,944 )
Common stock payable - - - 116,000 116,000
Common stock issued for services - - - (14,286 ) (14,286 )
Return of common stock held in escrow - (16,000 ) 16,000 - -
Release of common stock held in escrow - - 4,000 - 4,000
Common stock rescinded for debt - (7,056 ) - - (7,056 )

Balance at December 31, 2009 - (16,000 ) - 135,000 119,000

Balance at March 31, 2010 $ - $ (16,000 ) $ - $ 135,000 $ 119,000

The accompanying notes are an integral part of these financial statements

~~Power3 Medical Products, Inc.~~

~~(A Development Stage Entity)~~

~~Statements of Cash Flows~~

Period From
May 18, 2004
For the Three Months Ended Through
March 31, March 31,
2010 2009 2010
(unaudited)

Cash flows from operating activities

Net income (loss) $ 10,196,836 $ (1,876,214 ) $ (63,154,985 )
Adjustments to reconcile net loss to net cash used in operating activities:
(Gain) loss on conversion of financial instruments - 854,988 (1,579,670 )
Impairment of goodwill - - 13,371,776
Impairment of intangible assets - - 179,788
Loss on previously capitalized lease - - 34,243
Amortization of debt discounts and deferred finance costs 21,747 146,532 4,005,561
Change in derivative liability, net of bifurcation (10,703,695 ) 746,344 (3,526,846 )
Stock issued for compensation and services 70,000 69,071 38,235,017
Debt issued for compensation and services - - 1,028,927
Stock issued for settlement of lawsuit - - 30,875
Depreciation expense 683 6,253 108,265
Release of stock held in escrow - - 24,000
Other non-cash items - - (34,933 )
Changes in operating assets and liabilities:
Prepaid expenses and other current assets - - 186,084
Inventory and other assets - - 23,597
Accounts payable and other liabilities 188,025 (4,075 ) 3,568,699

Net cash used in operating activities (226,404 ) (57,101 ) (7,499,602 )

Cash flows from investing activities

Increase in property and equipment - - (142,508 )
Increase in other assets - - (179,786 )

Net cash used in investing activities - - (322,294 )

Cash flows from financing activities

Proceeds from sale of common stock - 41,666 2,349,327
Borrowings on notes payable – related party - 8,256 95,376
Borrowings on notes payable - 20,000 3,838,430
Principal payments on notes payable – related party - - (47,300 )
Principal payments on notes payable - - (122,478 )
Proceeds from exercise of warrants 234,534 - 513,366
Proceeds from CD, warrants and rights net of issuance cost - - 1,200,709

Net cash provided by financing activities 234,534 69,922 7,827,430

Net increase (decrease) in cash and equivalents 8,130 12,821 5,534
Cash and equivalents, beginning of period - 8,331 2,596

Cash and equivalents, end of period $ 8,130 $ 21,152 $ 8,130

Supplemental disclosure of cash flow information

Cash paid for interest - - 59,840
Cash paid for income taxes - - -

Schedule of non-cash financing activities

Stock for conversion of debt – related party - 661,101 2,227,759
Stock for subscriptions receivable - 170,000 170,000
Warrants exercised for subscriptions receivable - 27,166 27,166
Stock issued for common stock payable - 14,286 14,286
Exchange of debt – related party - - 214,075
Exchange of convertible notes for stock - - 2,525,070
Stock issued for settlement of payables 98,207 55,238 876,881
Deemed dividend - 34,103 1,140,760
Exchange of convertible preferred stock for common stock - - 3,380,975
Preferred stock issued for payables - - 358,500
Stock held in escrow - 20,000 20,000
Stock contributed for debt payment - - 276,558
Return of stock held in escrow - - 16,800
Cashless exercise of warrants - - 133
Stock rescinded for debt - - 8,256
Stock rescinded or canceled 12,302 - 12,302

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

~~POWER3 MEDICAL PRODUCTS, INC.~~Power3 Medical Products, Inc.

Note 1. Description of Business

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 products are designed to analyze proteins and their mutations to assess an individual’s risk for developing disease later in life or a patient’s likelihood of responding to a particular drug, assess a patient’s risk of disease progression and disease recurrence, and measure a patient’s exposure to drug therapy to ensure optimal dosing and reduced drug toxicity. Future products and services are expected to originate from the Company’s internal research and development programs, collaborative efforts and alliances with third parties, and acquisitions of complementary technologies and businesses. The Company intends to continue entering into collaboration and licensing agreements with ~~other~~ biotechnology companies, academic and research institutions, and other organizations that have the ability to market and sell the Company’s products in return for licensing fees, royalties and milestone payments.

Note 2. Basis of Presentation and Going Concern

Basis of Presentation

~~POWER3 MEDICAL PRODUCTS, INC.~~

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, ~~2010~~2011

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

The unaudited financial statements included in this document have been prepared on the same basis as the annual financial statements and in management’s opinion, reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The unaudited financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, ~~2009~~2010 included in the Company’s Annual Report on Form 10-K. The results of operations for the three months ended March 31, ~~2010~~2011 are not necessarily indicative of the results that the Company will have for any subsequent quarter or full fiscal year.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain amounts in the financial statements for ~~2009~~2010 have been reclassified to conform to the ~~2010~~2011 presentation. These reclassifications did not result in any change to the previously reported total assets, net loss or stockholders’ deficit.

As of March 31, ~~2010,~~2011, the Company’s significant accounting policies and estimates, and applicable recent accounting policies, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2009,~~2010, have not changed materially.

Going Concern

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

~~POWER3 MEDICAL PRODUCTS, INC.~~Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, ~~2010~~

2011

Note 3. Net Income ~~(Loss)~~ Per Share

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to ~~diluted loss per share for the three months Ended~~ Financial Statements (Unaudited)

March 31, ~~2009.~~2011

Note 4. Property and Equipment

~~POWER3 MEDICAL PRODUCTS, INC.~~

~~(A Development Stage Entity)~~

~~Notes to Financial Statements (Unaudited)~~

~~March 31, 2010~~

Note 5. Other Current Liabilities

Liability
March 31,
2010

December 31,
2009

Accrued interest and interest payable 338,907 312,252
Accrued payroll taxes 22,364 21,464
Accrued compensation and salaries payable 286,331 258,364
Other accrued expenses and liabilities 1,811 1,811
Total $ 649,413 $ 593,891

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, 2011

Note 6. Derivative Liabilities

As described more fully in Note 2. Significant Accounting Policies – Derivative Financial Instruments of the notes to the Company’s audited financials statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, the Company changed the method by which it valued the conversion features in its convertible notes and convertible debentures by switching from the binomial lattice valuation model to the Black-Scholes pricing model during the three months ended June 30, 2010. As a result, the conversion features in the Company’s notes and debentures were valued under the binomial lattice valuation model at March 31, 2010, and were valued under the Black-Scholes pricing model at March 31, 2011.

In March 2011, the Company entered into a settlement agreement with Rockmore Investment Master Fund LTD (“Rockmore”) pursuant to which the Company agreed to issue 12 million shares of its common stock to Rockmore in full payment of the outstanding balance of the debenture in the amount of $31,677 and accrued interest thereon, and for a full release from all claims filed by Rockmore against the Company. The Company recorded a contingent loss in the amount of $169,818 in its financial statements for the year ended December 31, 2010 in accordance with the provisions of ASC 450. The Company recognized a reduction in derivative liability of $78,490 which resulted in a corresponding increase in additional paid-in capital.

Convertible Promissory Notes and

March 31,
2010

December 31,
2009

Common stock warrants $ 2,880,183 $ 10,267,167
Embedded conversion features – convertible promissory notes and debentures 872,546 4,189,257
Total $ 3,752,729 $ 14,456,424

Convertible Promissory Notes

~~POWER3 MEDICAL PRODUCTS, INC.~~Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, ~~2010~~

2011

Note 7. Commitments and Contingencies

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, ~~2010, the Company had engaged counsel and was preparing a response to the complaint.~~2011

In March 2010, Rockmore ~~Investment Master Fund LTD (“Rockmore”)~~ filed a lawsuit against the Company in the Supreme Court for the State of New York. The lawsuit contained claims offor breach of contract and specific ~~performance. As~~performance related to a convertible debenture in the amount of $31,677 and common stock warrant previously issued by the Company to Rockmore. In September 2010, Rockmore filed a motion for summary judgment and injunction regarding its claims, and in October 2010, the Company filed an opposition to Rockmore’s motion. In October 2010, the court granted Rockmore’s motion for summary judgment, but denied its request for an injunction. In March 2011, the Company entered into a settlement agreement with Rockmore pursuant to which the Company agreed to issue 12 million shares of its common stock to Rockmore in full payment of the outstanding balance of the debenture and accrued interest thereon, and for a full release from all claims filed by Rockmore against the Company. The Company recorded a contingent loss in the amount of $169,818 in its financial statements for the year ended December 31, 2010 in accordance with the ~~case was pending.~~provisions of ASC Topic 450, “Contingencies” (“ASC 450”).

~~POWER3 MEDICAL PRODUCTS, INC.~~Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, 2011

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, 2011

In April 2010, Lucas Associates, Inc. (“Lucas Associates”) filed a lawsuit against the Company in the District Court of Montgomery County, Texas, 359th Judicial District. The lawsuit contained claims for breach of contract, quantum meruit and fraud related to allegations that the Company failed to pay Lucas Associates a finder’s fee in connection with the hiring of John Ginzler as the Company’s Chief Financial Officer in 2009. In June 2010, the Company filed a general denial to the claims alleged in the complaint. In November 2010, the Company entered into a settlement with Lucas Associates pursuant to which the Company agreed to pay $20,000 to Lucas Associates in monthly installments of $1,250 beginning January 14, 2011.

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, 2011

Employment and Consulting Agreements

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, 2011

Note 8. Common Stock and Preferred Stock

Shares Issued in Capital-Raising Transactions

Shares Issued for Services

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, 2011

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, ~~2010,~~2011

Shares Issued in Settlement of Litigation

Note 9. Stock Options and Warrants

~~POWER3 MEDICAL PRODUCTS, INC.~~Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, ~~2010~~2011

~~POWER3 MEDICAL PRODUCTS, INC.~~

~~(A Development Stage Entity)~~

~~Notes to Financial Statements (Unaudited)~~

~~March 31, 2010~~

Note 10. Promissory Notes and Debentures

In March 2011, the Company entered into a settlement agreement with Rockmore pursuant to which the Company agreed to issue 12 million shares of its common stock to Rockmore in full payment of the outstanding balance of the debenture and accrued interest thereon, and for a full release from all claims filed by Rockmore against the Company. The Company recorded a contingent loss in the amount of$169,818 in its financial statements for the year ended December 31, 2010 in accordance with the provisions of ASC 450. The Company recognized a reduction in derivative liability of $78,490 which resulted in a corresponding increase in additional paid-in capital.

March 31,
2010

December 31,
2009

Notes Payable – in Default $ 451,000 $ 451,000

Notes Payable – Related Party 15,000 15,000

Total Notes Payable, Net of Discount $ 466,000 $ 466,000

March 31,
2010

December 31,
2009

Convertible Debentures $ 50,000 $ 50,000
Less: Unamortized Discount -0- (21,621 )
Total 50,000 28,379

Convertible Debentures – in Default 351,381 351,255

Convertible Debentures – Related Party 30,000 30,000

Total Convertible Debentures, Net of Unamortized Discount $ 431,381 $ 409,634

~~POWER3 MEDICAL PRODUCTS, INC.~~Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, ~~2010~~

2011

Note 11. Fair Value Measurements

The Company has issued several convertible promissory notes, convertible debentures and stock warrants that have conversion features that represent freestanding derivative instruments that meet the requirements for liability classification under ASC Topic 815, Derivatives and Hedging (“ASC 815”). As a result, the fair value of the derivative financial instruments in these securities is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instruments in these securities was measured at the inception date of the securities and each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments were recorded as non-operating, non-cash income or expense at each balance sheet date.

The following table presents the Company’s derivative liabilities within the fair value hierarchy utilized to measure fair value on a recurring basis as of March 31, 2011 and December 31, 2010:

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, 2011

Note 12. 2011 Equity Awards Plan

Note 13. Acquisition of ~~StemTroniX~~Rozetta-Cell

Subject to the terms and conditions of the Merger Agreement, which has been approved by the boards of directors of both the Company and ~~StemTroniX,~~Rozetta-Cell, if the ~~Merger~~merger is completed, each outstanding share of ~~StemTroniX~~Rozetta-Cell common stock will be converted into the right to receive ~~fourteen and sixth-tenths (14.60)~~10 shares of the Company’s common stock, ~~(the “Exchange Ratio”),~~ subject to certain adjustments as provided in the Merger Agreement.

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

Power3 Medical Products, Inc.

(A Development Stage Entity)

Notes to Financial Statements (Unaudited)

March 31, 2011

The Merger Agreement contains certain termination rights of the Company and ~~StemTroniX,~~Rozetta-Cell, including the right to terminate the Merger Agreement if the ~~Merger~~merger is not completed by ~~June 30,~~December 31, 2010.

~~POWER3 MEDICAL PRODUCTS, INC.~~

~~March~~On December 31, 2010,

Note ~~12.~~14. Subsequent Events

~~In April 2010,~~

Subsequent to March 31, 2011, the Company issued ~~400,000~~a total of 577,112 shares of common stock to ~~a consultant in full~~various consultants as payment ~~of outstanding invoices~~ for services ~~rendered.~~performed during the month of April 2011 in accordance with the terms of the consultants’ respective consulting agreements.

~~In May 2010, the Company elected to terminate the Merger Agreement. The Company did not incur any penalties in connection with its decision to terminate the Merger Agreement.~~

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

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

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

●

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

●

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

●

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

●

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

●

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

●

competition and consolidation in the markets in which we compete;

●

existing and future collaborations and partnerships;

●

the utility of biomarker discoveries;

●

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

●

our ability to comply with applicable government regulations;

●

our ability to expand and protect our intellectual property portfolio;

●

the condition of the securities and capital markets;

●

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

and statements of assumption underlying any of the foregoing, as well as any other factors set forth herein under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and “Item 1A. Risk Factors” of our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2009.~~2010. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements.

1623

Item 2.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations and other parts of this report contain forward-looking statements that involve risks and uncertainties. All forward-looking statements included in this report are based on information available to us on the date hereof, and, except as required by law, we assume no obligation to update any such forward-looking statements. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Item 1A. Risk Factors” of our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2009~~2010 and elsewhere in this report. The following should be read in conjunction with our financial statements beginning on page 1 of this report.

Overview

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

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

~~Recent Developments~~Strategy

On May 6, 2010, we exercised our right to terminate the Agreement and Plan of Merger (the “Merger Agreement”), dated February 9, 2010, by and among us, Power3 Acquisition Corp., a Delaware corporation and our wholly-owned subsidiary (“Merger Sub”), and StemTroniX, Inc., a Texas corporation (“StemTroniX”), pursuant to which Merger Sub was going to merge with and into StemTroniX, the separate corporate existence of Merger Sub was going to cease, and StemTroniX was going to continue as the surviving company and our wholly-owned subsidiary (the “Merger”).

~~Strategy~~

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

We intend to complete Phase II clinical trials for NuroPro® and ~~begin commercialization of NuroPro~~® ~~during 2010, and to complete Phase II clinical trials for~~ BC-SeraPro™ during ~~2010.~~2011. We also intend to develop additional diagnostic products utilizing the proteomic research and results that we have achieved and for which we have filed patent applications with the ~~United States Patent and Trademark Office.~~USPTO. By utilizing the intellectual property that we have in our possession, building on the intellectual property portfolio through additional clinical trials, and acquiring complementary intellectual property from other bio-technology companies, we will have the ability to successfully create, market and sell a diverse diagnostic product ~~offering based on our proteomic research.~~offering.

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

Recent Developments

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

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

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

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

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

On December 31, 2010, we entered into a First Amendment and Waiver to Agreement and Plan of Merger with Rozetta-Cell (the “Amendment”) which amends the Merger Agreement. Under the terms of the Amendment, we and Rozetta-Cell agreed to extend the outside date by which the merger must close to June 30, 2011 and require the conversion of all issued and outstanding shares of our Series B preferred stock into shares of our common stock by the holders thereof subsequent to approval of the merger by our shareholders, but prior to completion of the merger.

Outlook

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

Critical Accounting Policies

For information regarding our critical accounting policies, please refer to the discussion provided in our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2009~~2010 under the caption “Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and our Notes to Financial Statements included therein.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements applicable to our business, please refer to the discussion provided in our Annual Report on Form 10-K for our fiscal year ended December 31, ~~2009~~2010 under the caption “Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Accounting Pronouncements” and our Notes to Financial Statements included therein.

Comparison of the Three-Month Periods Ended March 31, ~~2010~~2011 and ~~2009~~2010

Net Revenue

Net revenue ~~consists primarily~~has historically consisted of licensing fees, royalties and milestone payments that we receive from our licensing partners. We ~~generated~~did not generate any revenue ~~of $100,000 for~~during the three months ended March 31, ~~2009. We did not generate any revenue for the three months ended March 31, 2010. The decrease in revenue resulted primarily from our decision to terminate the Collaboration~~2011 and ~~Exclusive License Agreement with Transgenomic, Inc. in January~~ 2010. We ~~expect licensing fees, royalties and milestone payments generated from our BC-SeraPro~~™ ~~and NuroPro~~® ~~diagnostic products~~intend to ~~increase during 2010 as we complete Phase II clinical studies on these products. As a result, we expect revenue to increase as we~~ enter into ~~additional~~ collaboration and licensing agreements with ~~other~~ bio-technology companies, academic and research institutions and governmental ~~agencies.~~agencies during 2011. As a result, we expect to begin to generate revenue during the next 12 months as we begin to generate licensing fees, royalties and milestone payments under these new agreements.

Operating Expenses

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

Employee Compensation and Benefits. Employee compensation and benefits consists of all salaries and other cash compensation, equity-based compensation, employee benefits and the related payroll taxes. Employee compensation expense ~~increased $17,361~~decreased $3,668 to $31,250 for the three months ended March 31, 2011 from $34,918 for the three months ended March 31, ~~2010 from $17,557 for the three months ended March 31, 2009.~~2010. The ~~increase~~decrease of ~~$17,361~~$3,668 was due ~~primarily~~ to ~~an increase~~a decrease in the amount of ~~$17,221 for~~ salary and equity-based compensation ~~expenses associated with an increase in~~that we paid to the ~~number of~~ individuals who we employed during the three months ended March 31, ~~2010.~~2011. We expect employee compensation expense to increase over the next 12 months as we ~~continue~~attempt to retain additional executive management personnel, lab technicians and other employees in connection with the growth of our business.

Professional Fees. Professional fees consist of fees paid to our independent accountants, lawyers, laboratory and technology consultants and other professionals and consultants. Professional fees increased ~~$164,184~~$137,760 to $382,761 for the three months ended March 31, 2011 from $245,001 for the three months ended March 31, ~~2010 from $80,817 for the three months ended March 31, 2009.~~2010. The increase of ~~$164,184~~$137,760 was due primarily to an increase of ~~$145,023~~$130,460 for the amount of expense recognized in connection with equity-based compensation paid to service providers and consultants for various services. We expect professional fees to increase over the next 12 months as we incur additional legal, accounting, laboratory and technology fees in connection with the general expansion of our business and operations.

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses consist of selling and marketing expenses, lab services and supplies, clinical validation studies, computer hardware and system costs, bank service charges, filing fees and dues, non-employee customer service representative expense, rent expense, financial printer costs, transfer agent costs, the costs of investor relations campaigns and activities, postage and delivery expenses, severance expenses, general business expenses and miscellaneous general and administrative expenses. Other general and administrative expenses ~~increased $107,076~~decreased $115,756 to $61,986 for the three months ended March 31, 2011 from $177,742 for the three months ended March 31, ~~2010 from $70,666 for the three months ended March 31, 2009.~~2010. The ~~increase~~decrease of ~~$107,076 resulted~~$115,756 was due primarily ~~from increases~~to decreases of ~~$26,344~~$34,991 for lab ~~service expenses, $22,441~~services and supplies, $39,302 for administrative ~~fees~~ and ~~$16,719~~support expenses, and $16,179 for insurance, ~~partially offset by~~as well as decreases in other miscellaneous general and administrative expenses. We expect other general and administrative expenses to increase over the next 12 months as we continue to incur expenses for clinical validation studies, lab supplies, selling and marketing expenses, rent, computer hardware and systems, and other miscellaneous items associated with the general operation and growth of our business.

~~Interest Expense~~

Interest expense consists of the interest and discount amortization costs that we incur on the debt obligations that we have. Interest and amortization expense decreased $127,898 to $49,198 for the three months ended March 31, 2010 from $177,096 for the three months ended March 31, 2009. The decrease of $127,898 was due primarily to the retirement during 2009 of many of the debt obligations that were outstanding during the three months ended March 31, 2009. We expect interest expense to decrease over the next 12 months as we continue to retire our remaining debt obligations.

Derivative Gain / Loss

Derivative gain / loss consists of the non-operating, non-cash income or expense ~~resulting~~that results from changes in the fair value of the derivative instruments contained in the convertible promissory notes and associated stock warrants that were outstanding at March 31, 2011 and 2010, respectively. During the three months ended June 30, 2010, we changed the method by which we valued the conversion features in its convertible notes and convertible debentures by switching from the binomial lattice valuation model to the Black-Scholes pricing model. As a result, the conversion features in our notes and debentures were valued under the binomial lattice valuation model at March 31, 2010, and ~~2009, respectively.~~ were valued under the Black-Scholes pricing model at March 31, 2011.

We recognized a derivative gain of $752,811 for the three months ended March 31, 2011 compared to a derivative gain of $10,703,695 for the three months ended March 31, ~~2010 compared to a~~2010. The derivative ~~loss of $746,344 for~~gains that we recognized during the three months ended March 31, ~~2009.~~2011 and 2010 were due primarily to a decrease in the price of our common stock during 2011 and 2010, respectively. The ~~difference~~decrease of ~~$11,450,039~~$9,950,884 was due primarily to the ~~decrease in~~fact that our stock price dropped a smaller percentage amount during the ~~trading price of our common stock between January 1, 2010 and~~three months ended March 31, 2011 than it did during the three months ended March 31, 2010, ~~compared~~and was generally at a lower level during the three months ended March 31, 2011 than it was during the three months ended March 31, 2010. While we expect our outstanding convertible promissory notes to continue to be retired or converted into shares of common stock during the ~~increase~~next 12 months, we cannot predict what our future derivative gains or losses will be in the ~~trading price of our common stock between January 1, 2009~~future since such gains and ~~March 31, 2009. While future derivative gain / loss is~~losses are largely dependent upon the trading price of our common stock, we expect future derivative gains and losses to be smaller in amount as our convertible promissory notes are retired or converted into shares of common stock, and as the associated stock warrants are exercised or expire by their terms.stock.

Gain / Loss on Settlement of Debt

Gain / loss on settlement of debt consists of the gains and losses that we ~~have~~ recognized in connection with the retirement of outstanding debt and payment of outstanding invoices, and results when we issue shares of common stock having an aggregate value less than (in the case of gains) or greater than (in the case of losses) the outstanding principal amount of the applicable note and accrued interest thereon or the applicable invoice. We recognized a loss on the settlement of debt of ~~$883,734 for~~$20,263 during the three months ended March 31, ~~2009.~~2011. We did not recognize any gain or loss on the settlement of debt ~~for~~during the three months ended March 31, 2010. The difference of ~~$883,734~~$20,263 was due primarily to our decision to pay off ~~a significant amount of our outstanding debt obligations and accrued interest, and numerous~~ outstanding invoices during ~~2009~~2011 by issuing shares of our common stock having an aggregate value that was greater than the outstanding ~~principal~~ amount of the ~~applicable note and accrued interest or the applicable invoice.~~invoices. While we may ~~continue to~~ incur additional gains and losses on the settlement of debt in the future asin the event we ~~continue to~~ pay off additional outstanding ~~debt~~debts and invoices with shares of our common stock, we expect any such gains or losses to decrease as the amount of our outstanding debt ~~continues~~decreases.

Interest Expense

Interest expense consists of the interest and discount amortization costs that we incur on the debt obligations that we have. Interest and amortization expense decreased $27,308 to ~~decrease.~~$21,890 for the three months ended March 31, 2011 from $49,198 for the three months ended March 31, 2010. The decrease of $27,308 was due primarily to our decision to retire certain of our debt obligations during 2010 that were outstanding during the three months ended March 31, 2010. We expect interest expense to decrease over the next 12 months as we continue to retire our remaining debt obligations.

Net Income / Loss

We generated net income of $234,661 for the three months ended March 31, 2011 compared to net income of $10,196,836 for the three months ended March 31, ~~2010 compared to a net loss~~2010. The decrease of ~~$1,910,317 for the three months ended March 31, 2009. The difference of $12,107,153~~$9,962,175 was due primarily to ~~a difference~~decreases of ~~$11,450,039 resulting from the~~$9,950,884 for derivative gain recognized during 2011 compared to derivative gain recognized during 2010 ~~compared to the derivative~~and increases of $130,460 for professional fees and $20,263 for loss ~~recognized during 2009, a difference~~on settlement of ~~$883,734 resulting from losses from the extinguishment of debt recognized during 2009, and a decrease of $127,898 for interest expense.~~debt. This was partially offset by ~~a decrease~~decreases of ~~$100,000 for net revenue, and increases of $164,184 for professional fees and $107,076~~$115,756 for other selling, general and administrative ~~expenses.~~expenses and $27,308 for interest expense. We expect to generate net losses during ~~the remainder of 2010~~2011 as we continue to build our business. However, we expect these losses to decrease in the future as we begin to generate ~~additional~~ revenue through collaboration and licensing ~~partners~~agreements and as we continue to retire our outstanding debt obligations.

Liquidity and Capital Resources

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

Net cash used by operating activities was ~~$226,404 for~~$74,451 during the three months ended March 31, ~~2010~~2011 compared to ~~$57,101 for~~$226,404 during the three months ended March 31, ~~2009.~~2010. The ~~$169,303 increase in~~decrease of $151,953 for cash used by operating activities was due primarily to a ~~difference~~decrease of ~~$12,107,153 between the net income generated in 2009 and the net loss incurred during 2008~~$9,950,884 for derivative gain and an increase of ~~$188,025 in~~$234,674 for stock issued for compensation and services, partially offset by decreases of $9,962,175 for net income and $71,416 for accounts payable and other liabilities. This was partially offset by a difference of $10,196,836 for changes in the amount of our derivative liability and decreases of $854,988 for loss on settlement of debt and $124,785 for amortization of debt discounts and deferred finance costs.

We did not have any cash flows from investing activities during the three months ended March 31, ~~2010~~2011 and ~~2009.~~2010.

Net cash provided by financing activities was $74,451 for the three months ended March 31, 2011 compared to $234,534 for the three months ended March 31, ~~2010 compared to $69,922 for the three months ended March 31, 2009.~~2010. The ~~$164,612 increase~~$160,083 decrease in cash provided by financing activities was due ~~primarily~~ to ~~an increase~~a decrease of $234,534 for proceeds from the exercise of warrants, partially offset by ~~decreases~~increases of ~~$41,666~~$71,451 for proceeds from the issuance of notes payable to related parties and $3,000 for proceeds from the sale of common ~~stock and $20,000 for proceeds from the issuance of debt.~~stock.

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

~~In June 2009, we issued 6,000,000 shares of common stock to an accredited investor for total cash proceeds of $30,000.~~

~~In June 2009, we issued 500,000 shares of common stock to an accredited investor for total cash proceeds of $5,000.~~

~~In August 2009, we issued 515,600 shares of common stock to two accredited investors for total cash proceeds of $5,156.~~

In August 2009, we issued a convertible promissory note and a warrant to acquire shares of common stock to an accredited investor for consideration of $25,000. The note is for a principal amount of $25,000, is convertible into 2,500,000 shares of common stock, has an interest rate of 8% and was due February 26, 2010. The warrant is exercisable into 1,000,000 shares of common stock and has an exercise price of $0.01 that may be subject to adjustment depending upon the trading price of our common stock.

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

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

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

During the period beginning January 1, ~~2009~~2010 and ending ~~March 31,~~May 12, 2011, Rozetta-Cell made loans to us for a total of $251,433. The loans are interest free and payable on demand.

During the period beginning January 1, 2010 and ending May 12, 2011, we issued a total of ~~16,214,675~~36,799,358 shares of common stock to warrant holders upon the exercise of outstanding warrants at exercise prices ranging between $0.01 and ~~$0.25~~$0.053 per share for total cash proceeds of ~~$513,366.~~$234,534.

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

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

Off-Balance Sheet Arrangements

As of March 31, ~~2010,~~2011, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Item 4T. Controls and Procedures.

As of March 31, ~~2010,~~2011, we carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, ~~2010,~~2011, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting identified in connection with this evaluation that occurred during our fiscal quarter ended March 31, ~~2010~~2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

In March 2009, McLennon Law Corporation filed a ~~law suit~~lawsuit against us in the Superior Court of the State of California in and for the County of San Francisco for breach of contract for ~~approximately $117,000 of~~ accrued but unpaid attorney ~~fees. We are currently in negotiations with McLennon to settle its claim~~fees and accrued interest thereon. In July 2010, a judgment was entered against us for a total of $148,683 for unpaid attorney ~~fees.~~fees and interest. We do not intend to appeal the court’s ruling.

In September 2009, Marion McCormick, one of our former non-executive employees, ~~attempted to convert~~filed a lawsuit against us in the District Court of Montgomery County, Texas, 9th Judicial District, seeking damages and specific performance under a $30,000 convertible promissory note ~~plus interest~~and a warrant exercisable into 1,000,000 shares of ~~our~~ common stock. In August 2010, we filed an amended answer and counterclaims against Ms. McCormick for breach of fiduciary duty and fraud. We are disputing the amount, if any, that is due to ~~the employee~~her under the note. As of March 31, 2010, the note had not been converted. In December 2009, the employee filed a law suit against us seeking damages and specific performance. We have engaged counsel and are preparing a response to the complaint.

In February 2010, Transgenomic, Inc. (“Transgenomic”) filed a lawsuit against us in the United States District Court for the District of Nebraska. The lawsuit ~~contained~~contains claims for fraud, breach of contract, ~~slander,~~ libel and ~~for~~slander, and seeks a declaration of rights under a Collaboration and Exclusive License Agreement, dated January 23, 2009, between the ~~parties. We have engaged counsel and~~parties that we terminated on February 2, 2010. In April ~~12,~~ 2010, we filed a ~~Partial Motion~~partial motion to ~~Dismiss~~dismiss Transgenomic’s fraud claim. In June 2010, we filed a lawsuit against Transgenomic in the District Court of Montgomery County, Texas, 359th Judicial District. The lawsuit contained claims for trade secret misappropriation, breach of contract, misappropriation, conversion, unjust enrichment, quantum meruit and promissory estoppel, as well as a request for injunctive relief. In July 2010, we filed a non-suit to dismiss the case that we had filed against Transgenomic in Texas without prejudice. We ~~are currently preparing a~~intend to re-file the claims against Transgenomic in the United States District Court for the District of Nebraska as counterclaims accompanying our response to the ~~complaint.~~claims filed by Transgenomic. We have agreed to enter mediation with Transgenomic in an attempt to resolve this matter.

In March 2010, Rockmore Investment Master Fund LTD (“Rockmore”) filed a lawsuit against us in the Supreme Court for the State of New York. The lawsuit contained claims offor breach of contract and specific performance related to ~~allegations~~a convertible debenture in the amount of $31,677 and common stock warrant that we ~~failed~~previously issued to ~~repay~~Rockmore. In September 2010, Rockmore filed a ~~promissory note~~motion for summary judgment and injunction regarding its claims, and in October 2010, we filed an opposition to Rockmore’s motion. In October 2010, the court granted Rockmore’s motion for summary judgment, but denied its request for an injunction. In March 2011, we entered into a settlement agreement with Rockmore pursuant to which we agreed to issue 12 million shares ~~upon~~of our common stock to Rockmore in return for a full release from all claims filed by Rockmore against us.

In April 2010, we filed a lawsuit against Richard Kraniak (“Kraniak”) and Roger Kazanowski (“Kazanowski”) in the ~~exercise~~United States District Court for the Southern District of ~~warrants. We have engaged counsel~~Texas, Houston Division. The lawsuit contains claims for violations of the Securities Act and ~~are currently preparing~~the Securities and Exchange Act. In May 2010, Kraniak and Kazanowski filed a motion to dismiss the lawsuit. In June 2010, we filed a response to Kraniak and Kazanowski’s motion to dismiss as well as a first amended complaint against Kraniak and Kazanowski. In July 2010, Kraniak and Kazanowski filed counterclaims against us for breach of contract, misrepresentation, civil conspiracy and defamation. In July 2010, we filed an answer to the ~~complaint.~~counterclaims denying each of the alleged claims. In October 2010, we filed a second amended complaint against Kraniak and Kazanowski, which we revised and re-filed in November 2010. In December 2010, we filed motions for partial summary judgment with respect to each of the counterclaims filed by Kraniak and Kazanowski, and in March 2011, filed supplements to certain of the motions for partial summary judgment.

In April 2010, Neogenomics, Inc. (“Neogenomics”) filed a lawsuit and motion for summary judgment against us in the Supreme Court of the State of New York. The lawsuit contained claims for ~~failure~~breach of contract and specific performance related to ~~repay~~a convertible debenture in the ~~principal~~ amount of ~~and accrued interest under, a Convertible Debenture, dated~~$200,000 that we issued to Neogenomics in April ~~17, 2009, issued by us in favor of Neogenomics. We have engaged counsel and are currently preparing~~2007. In May 2010, we filed a response to Neogenomic’s motion for summary judgment. In December 2010, the ~~complaint.~~court granted Neogenomic’s motion for summary judgment, awarding Neogenomics $217,457, comprised of $200,000 of principal under the debenture and $17,457 of accrued interest thereon. We intend to appeal the court’s ruling.

In April 2010, Lucas Associates, Inc. (“Lucas Associates”) filed a lawsuit against us in the District Court of Montgomery County, ~~Texas.~~Texas, 359th Judicial District. The lawsuit contained claims for breach of contract, quantum meruit and fraud related to allegations that we failed to pay ~~them~~Lucas Associates a finder’s fee in connection with the hiring of John Ginzler as our Chief Financial Officer in 2009. In June 2010, we filed a general denial to the claims alleged in the complaint. In November 2010, we entered into a settlement with Lucas Associates pursuant to which we agreed to pay $20,000 to Lucas Associates in monthly installments of $1,250 beginning January 14, 2011.

In April 2010, John Ginzler, our former Chief Financial Officer, filed a lawsuit against us in the District Court of Montgomery County, Texas, 359th Judicial District. The lawsuit contained claims for breach of contract related to an employment agreement that we had entered into with him. In June 2010, we filed a general denial to the claims alleged in the complaint. In February 2011, we entered into a settlement agreement with Mr. Ginzler pursuant to which we agreed to issue 12,285,714 shares of our common stock to him in return for a full release from all claims that he had filed against us.

In May 2010, we filed a lawsuit against Able Income Fund LLC (“Able Income Fund”) in the United States District Court for the Southern District of Texas, Houston Division. The lawsuit contains claims for violations of the Securities Act and the Exchange Act. We subsequently moved for a default judgment on our claims due to Able Income Fund’s failure to timely respond to our lawsuit. In November 2010, the court denied our motion for a default judgment. We have ~~engaged counsel and are currently preparing a response~~entered mediation with Able Income Fund in an attempt to ~~the complaint.~~resolve this matter.

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In July 2010, Able Income Fund filed a lawsuit against us in the Supreme Court of the State of New York. The lawsuit contains claims for breach of contract and specific performance related to two convertible debentures in the aggregate amount of $450,000 that we previously issued to Able Income Fund. In September 2010, we filed a motion to dismiss Able Income Fund’s lawsuit. In November 2010, Able Income Fund filed an amended complaint alleging the existence of an outstanding convertible debenture in the amount of $72,176. We filed an answer with affirmative defenses to Able Income Fund’s amended complaint in March 2011.

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

During the three months ended March 31, ~~2010,~~2011, we sold the following securities without registration under the Securities Act of 1933, as amended (the “Securities Act”):

In ~~January 2010, we issued 409,906~~February 2011, the Company sold 300,000 shares of common stock and Class A warrants exercisable into 300,000 shares of common stock to an accredited investor for aggregate gross proceeds of $3,000. The Class A warrants have an exercise price of $0.025 per share, are exercisable during the period commencing on the date of grant and ending December 31, 2011, and expire at the end of the exercise period. These securities were issued to an accredited investor in a ~~consultant~~private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person

In February 2011, the Company entered into a settlement agreement with John Ginzler pursuant to which the Company agreed to issue 12,285,714 shares of its common stock to him in full payment of all amounts owed to him under the employment agreement and for ~~consulting services.~~a full release from all claims filed by him against the Company. These securities were issued to an accredited investor in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person.

In March ~~2010, we issued 500,000~~2011, the Company entered into a settlement agreement with Rockmore pursuant to which the Company agreed to issue 12 million shares of its common stock to Rockmore in full payment of the outstanding balance of the debenture and accrued interest thereon, and for a ~~consultant for consulting services.~~full release from all claims filed by Rockmore against the Company. These securities were issued to an accredited investor in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person.

In March ~~2010, we~~2011, the Company issued ~~197,490~~3,461,539 shares of common stock to a consultant ~~for consulting services.~~in full payment of outstanding fees payable in the amount of $28,199 performed during the three months ended March 31, 2011. These securities were issued to an accredited investor in a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person.

During the three months ended March 31, ~~2010, we issued~~2011, Rozetta-Cell made loans to us for a total of ~~4,425,166 shares of common stock to warrant holders upon the exercise of outstanding warrants for total cash proceeds of $234,534.~~$71,451. The loans are interest free and payable on demand. These securities were issued to ~~a limited number of~~an accredited ~~investors~~investor in a private placement ~~transactions~~transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) of the Securities Act directly by us without engaging in any advertising or general solicitation of any kind and without payment of underwriting discounts or commissions to any person.

~~Item 3. Defaults Upon Senior Securities.~~

In August 2009, we issued a convertible promissory note and a warrant to acquire shares of common stock to an accredited investor for consideration of $25,000. The note is for a principal amount of $25,000, is convertible into 2,500,000 shares of common stock, has an interest rate of 8% and was due February 26, 2010. We failed to repay this note on the due date. As a result, the note went into default and is accruing interest at the default interest rate of 8% per year.

In September 2009, we issued a convertible promissory note and a warrant to acquire shares of common stock to an accredited investor for consideration of $25,000. The note is for a principal amount of $25,000, is convertible into 2,500,000 shares of common stock, has an interest rate of 8% and was due March 3, 2010. We failed to repay this note on the due date. As a result, the note went into default and is accruing interest at the default interest rate of 8% per year.

Item 6. Exhibits.

The following exhibits are included herein:

Exhibit No.		Exhibit

31.1	Certification of Chief Executive Officer of the registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

31.2	Certification of Chief Financial Officer of the registrant required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

32.1	Certification of Chief Executive Officer and Chief Financial Officer of the registrant required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended

2634

SIGNATURES

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

	POWER3 MEDICAL PRODUCTS, INC.


Date: May ~~17, 2010~~16, 2011	~~/s/~~ /s/ Helen R. Park
	Helen R. Park
	Chief Executive Officer

EXHIBIT INDEX

Exhibit		Exhibit Description

31.1	Certification of Chief Executive Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

31.2	Certification of Chief Financial Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended

32.1	Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended

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

Asset	March 31, 2010			December 31, 2009

Computers and Related Devices	$	15,884		$	15,884
Less: Accumulated Depreciation		(15,884	)		(15,201	)
Total		-0-			683

Lab Equipment		92,380			92,380
Less: Accumulated Depreciation		(92,380	)		(92,380	)
Total		-0-			-0-

Total Property and Equipment, Net	$	-0-		$	683

Asset	March 31, 2011			December 31, 2010

Computers and Related Devices	$	18,209		$	18,209
Less: Accumulated Depreciation		(16,197	)		(16,081	)
Total		2,012			2,128

Lab Equipment		92,380			92,380
Less: Accumulated Depreciation		(92,380	)		(92,380	)
Total		-0-			-0-

Total Property and Equipment, Net	$	2,012		$	2,128

Liability	March 31, 2011		December 31, 2010
Accrued Interest	$	384,507	$	382,759
Accrued Payroll Taxes		23,574		23,574
Accrued Compensation and Salaries		411,331		380,081
Other Accrued Expenses and Liabilities		459		1,811
Total	$	819,871	$	788,225

	March 31, 2011		December 31, 2010

Common Stock Warrants	$	169,328	$	513,028
Convertible Promissory Notes and Debentures		459,843		947,444
Total	$	629,171	$	1,460,472

	~~3400 Research Forest Drive, Suite B2-3~~26022 Budde Road The Woodlands, Texas ~~77381~~77380
	(Address of Principal Executive Offices)

	(281) ~~466-1600~~298-7944
	(~~Issuer's~~Issuer’s Telephone Number, including Area Code)

	Deferred Compensation Expense			Treasury Stock			Stock Held in Escrow			Common Stock Payable			Total

Balances as of Beginning of Development Stage -- May 18, 2004	$	-		$	-		$	-		$	-		$	-

Issued shares for compensation		(25,451,500	)		-			-			-			(25,451,500	)
Issued shares for services		(535,000	)		-			-			-			(535,000	)
Stock option expense		(626,100	)		-			-			-			(626,100	)
Stock based compensation		8,311,012			-			-			-			8,311,012

Balance at December 31, 2004		(18,301,588	)		-			-			-			(18,301,588	)

Amortize deferred compensation expense		13,222,517			-			-			-			13,222,517

Balance at December 31, 2005		(5,079,071	)		-			-			-			(5,079,071	)

Adoption of FAS 123R		475,324			-			-			-			475,324
Amortize deferred compensation expense		4,603,747			-			-			-			4,603,747

Balance at December 31, 2006		-			-			-			-			-


Balance at December 31, 2007		-			-			-			-			-

Stock held in escrow		-			-			(20,000	)		-			(20,000	)
Common stock payable		-			-			-			123,286			123,286

Balance at December 31, 2008		-			-			(20,000	)		123,286			103,286

Common stock issued for conversion of debt		-			7,056			-			(90,000	)		(82,944	)
Common stock payable		-			-			-			116,000			116,000
Common stock issued for services		-			-			-			(14,286	)		(14,286	)
Return of common stock held in escrow		-			(16,000	)		16,000			-			-
Release of common stock held in escrow		-			-			4,000			-			4,000
Common stock rescinded for debt		-			(7,056	)		-			-			(7,056	)

Balance at December 31, 2009		-			(16,000	)		-			135,000			119,000


Balance at December 31, 2010	$	-		$	(16,000	)	$	-		$	135,000		$	119,000


Balance at March 31, 2011 (unaudited)	$	-		$	(16,000	)	$	-		$	135,000		$	119,000

	Dividend Yield			Expected Volatility			Risk-Free Interest Rate			Remaining Contractual Life (Years)
Common Stock Warrants		0	%		111.9	%		1.09	%		2.06
Convertible Promissory Notes and Debentures		0	%		114.0	%		2.24	%		5.00

				Weighted-
				Average
				Exercise
	Shares			Price

Outstanding, December 31, 2009		117,037,446		$	0.05

Granted		-0-		$	—
Exercised		(4,425,166	)	$	0.05
Expired/Canceled		-0-		$	—

Outstanding, March 31, 2010		112,612,280		$	0.05

Exercisable, December 31, 2009		117,037,446		$	0.05
Exercisable, March 31, 2010		112,612,280		$	0.05

	March 31, 2011		December 31, 2010

Notes Payable	$	-0-	$	-0-

Notes Payable – Related Party		225,933		154,482

Notes Payable – in Default		501,000		501,000
Less: Unamortized Discount		-0-		-0-
Total		501,000		501,000

Notes Payable – in Default – Related Party		80,000		80,000

Total Notes Payable, Net	$	806,933	$	735,482

	March 31, 2010		December 31, 2009

Convertible Debentures	$	50,000	$	50,000
Less: Unamortized Discount		-0-		(21,621	)
Total		50,000		28,379

Convertible Debentures – in Default		351,381		351,255

Convertible Debentures – Related Party		30,000		30,000

Total Convertible Debentures, Net of Unamortized Discount	$	431,381	$	409,634

	Level 1		Level 2		Level 3
Derivative liabilities – March 31, 2011		-0-		-0-	$	629,171
Derivative liabilities – December 31, 2010		-0-		-0-	$	1,460,472

	Derivative Liabilities
Balance, December 31, 2009	$	14,456,424
Purchases, sales, issuances and settlements (net)		(12,995,952	)
Balance, December 31, 2010		1,460,472
Purchases, sales, issuances and settlements (net)		(831,301	)
Balance, December 31, 2010	$	629,171