Attached files
file | filename |
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EX-31.2 - POWER 3 MEDICAL PRODUCTS INC | v194107_ex31-2.htm |
EX-32.1 - POWER 3 MEDICAL PRODUCTS INC | v194107_ex32-1.htm |
EX-31.1 - POWER 3 MEDICAL PRODUCTS INC | v194107_ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended: June 30,
2010
or
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF
1934
|
For the
transition period from ___________ to ______________
Commission
File No. 000-24921
POWER3
MEDICAL PRODUCTS, INC.
|
(Exact
name of registrant as specified in its
charter)
|
New
York
|
65-0565144
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer
Identification
No.)
|
26022
Budde Road
The
Woodlands, Texas 77380
|
(Address
of Principal Executive
Offices)
|
(281)
298-7944
|
(Issuer's
Telephone Number, including
Area
Code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1394 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes x No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
(Do
not check if a smaller reporting company)
|
Smaller reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act).
Yes ¨ No x
APPLICABLE
ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY
PROCEEDINGS DURING THE
PRECEDING
FIVE YEARS
Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes ¨ No ¨
APPLICABLE
ONLY TO CORPORATE ISSUERS
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: There were 467,797,313
shares of the issuer’s common stock, $0.001 par value per share, issued and
outstanding on August 13, 2010.
TABLE
OF CONTENTS
Page
|
||
PART
I – FINANCIAL INFORMATION
|
||
|
||
Item
1.
|
Financial
Statements
|
1
|
Balance
Sheets at June 30, 2010 (unaudited) and December 31, 2009
|
1
|
|
Statements
of Operations for the three and six months ended June 30, 2010 and 2009
(unaudited) and the period beginning May 18, 2004 (date of entering
development stage) through June 30, 2010 (unaudited)
|
2
|
|
Statements
of Stockholders’ Deficit for all years subsequent to May 18, 2004 (date of
entering development stage) and the six months ended June 30, 2010
(unaudited)
|
3
|
|
Statements
of Stockholders’ Deficit – Other Equity Items for all years subsequent to
May 18, 2004 (date of entering development stage) and the six months ended
June 30, 2010 (unaudited)
|
4
|
|
Statements
of Cash Flows for the six months ended June 30, 2010 and 2009 (unaudited)
and the period beginning May 18, 2004 (date of entering development stage)
through June 30, 2010 (unaudited)
|
5
|
|
Notes
to Financial Statements (unaudited)
|
6
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
|
Item
4T.
|
Controls
and Procedures
|
27
|
PART
II – OTHER INFORMATION
|
||
|
||
Item
1.
|
Legal
Proceedings
|
27
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
29
|
Item
6.
|
Exhibits
|
30
|
i
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements.
Power3
Medical Products, Inc.
(A
Development Stage Entity)
Balance
Sheets
June 30,
|
||||||||
2010
|
December 31,
|
|||||||
(Unaudited)
|
2009
|
|||||||
Assets
|
||||||||
Cash
and equivalents
|
$ | 2,541 | $ | - | ||||
Total
current assets
|
2,541 | - | ||||||
Property
and equipment, net of accumulated depreciation of $108,264 and
$107,581 at June 30, 2010 and December 31, 2009,
respectively
|
- | 683 | ||||||
Deposits
|
11,332 | 5,000 | ||||||
Other
assets
|
100 | 100 | ||||||
Total
assets
|
$ | 13,973 | $ | 5,783 | ||||
Liabilities
and stockholders' deficit
|
||||||||
Accounts
payable
|
$ | 1,101,580 | $ | 999,631 | ||||
Accounts
payable – related party
|
303,118 | 96,507 | ||||||
Notes
payable – in default
|
451,000 | 451,000 | ||||||
Notes
payable – related party
|
15,000 | 15,000 | ||||||
Convertible
debentures – in default
|
351,255 | 351,255 | ||||||
Convertible
debentures, net of unamortized discount of $-0- and $21,621 at June
30, 2010 and December 31, 2009, respectively
|
50,000 | 28,379 | ||||||
Convertible
debentures – related party
|
30,000 | 30,000 | ||||||
Derivative
liabilities
|
3,876,069 | 14,456,424 | ||||||
Other
current liabilities
|
759,402 | 593,891 | ||||||
Total
current liabilities
|
6,937,424 | 17,022,087 | ||||||
Total
liabilities
|
6,937,424 | 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 June 30, 2010 and December 31,
2009, respectively
|
1,500 | 1,500 | ||||||
Common
Stock – $0.001 par value: 600,000,000 shares authorized; 467,797,313
and 434,167,000 shares issued and outstanding as of June 30, 2010 and
December 31, 2009, respectively
|
467,797 | 434,167 | ||||||
Additional
paid-in capital
|
72,744,226 | 71,984,083 | ||||||
Treasury
stock
|
(16,000 | ) | (16,000 | ) | ||||
Common
stock payable
|
135,000 | 135,000 | ||||||
Deficit
accumulated during development stage
|
(68,574,474 | ) | (77,873,554 | ) | ||||
Deficit
accumulated before entering development stage
|
(11,681,500 | ) | (11,681,500 | ) | ||||
Total
stockholders' deficit
|
(6,923,451 | ) | (17,016,304 | ) | ||||
Total
liabilities and stockholders' deficit
|
$ | 13,973 | $ | 5,783 |
The
accompanying notes are an integral part of these financial
statements
1
Power3
Medical Products, Inc.
(A
Development Stage Entity)
Statements
of Operations (Unaudited)
Period From
|
||||||||||||||||||||
May 18, 2004
|
||||||||||||||||||||
For the Three Months Ended
|
For the Six Months Ended
|
Through
|
||||||||||||||||||
June 30,
|
June 30,
|
June 30,
|
||||||||||||||||||
2010
|
2009
|
2010
|
2009
|
2010
|
||||||||||||||||
Net
revenue
|
$ | - | $ | 35,711 | $ | - | $ | 168,477 | $ | 542,249 | ||||||||||
- | ||||||||||||||||||||
Operating
expenses:
|
- | |||||||||||||||||||
Employee
compensation and benefits
|
36,789 | 258,737 | 71,707 | 276,294 | 31,489,286 | |||||||||||||||
Professional
and consulting fees
|
679,562 | 544,518 | 986,514 | 625,335 | 17,215,283 | |||||||||||||||
Impairment
of goodwill
|
- | - | - | - | 13,371,776 | |||||||||||||||
Other
selling, general and administrative expenses
|
- | 47,102 | 162,848 | 150,534 | 2,349,169 | |||||||||||||||
- | ||||||||||||||||||||
Total
operating expenses
|
716,351 | 850,357 | 1,221,069 | 1,052,163 | 64,425,514 | |||||||||||||||
- | ||||||||||||||||||||
Loss
from operations
|
(716,351 | ) | (814,646 | ) | (1,221,069 | ) | (883,686 | ) | (63,883,265 | ) | ||||||||||
Other
income (expense):
|
||||||||||||||||||||
Derivative
gain (loss)
|
(123,340 | ) | 589,693 | 10,580,355 | (156,651 | ) | 4,557,407 | |||||||||||||
Gain
on legal settlement
|
- | - | - | - | 36,764 | |||||||||||||||
Interest
income
|
- | - | - | - | 7,867 | |||||||||||||||
Gain
(loss) on settlement of debt
|
- | (124,295 | ) | - | (1,008,029 | ) | 1,582,872 | |||||||||||||
Interest
expense
|
(23,528 | ) | (137,739 | ) | (60,206 | ) | (314,835 | ) | (5,739,500 | ) | ||||||||||
Mandatory
prepayment penalty
|
- | - | - | - | (420,000 | ) | ||||||||||||||
Other
income/(expense)
|
- | - | - | - | (194,886 | ) | ||||||||||||||
Total
other income (expense)
|
(146,868 | ) | 327,659 | 10,520,149 | (1,479,515 | ) | (169,476 | ) | ||||||||||||
Net
income (loss)
|
(863,219 | ) | (486,987 | ) | 9,299,080 | (2,363,201 | ) | (64,052,741 | ) | |||||||||||
Deemed
dividend
|
- | - | - | (34,103 | ) | (1,140,760 | ) | |||||||||||||
Net
income (loss) attributable to common stockholders
|
$ | (863,219 | ) | $ | (486,987 | ) | $ | 9,299,080 | $ | (2,397,304 | ) | $ | (65,193,501 | ) | ||||||
Net
income (loss) per share - basic
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | 0.02 | $ | (0.01 | ) | |||||||||
Net
income (loss) per share - diluted
|
$ | (0.00 | ) | $ | (0.00 | ) | $ | 0.02 | $ | (0.01 | ) | |||||||||
Weighted
average number of shares outstanding - basic
|
442,685,225 | 335,461,585 | 440,432,559 | 267,016,937 | ||||||||||||||||
Weighted
average number of shares outstanding - diluted
|
442,685,225 | 335,461,585 | 459,652,702 | 267,016,937 |
The
accompanying notes are an integral part of these financial
statements
2
Power3
Medical Products, Inc.
(A
Development Stage Entity)
Statement
of Stockholders' Deficit (Unaudited)
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
|
9,133,204 | 9,133 | - | - | 410,106 | - | - | 419,239 | ||||||||||||||||||||||||
Vesting
of common stock issued for services
|
- | - | - | - | 140,000 | - | - | 140,000 | ||||||||||||||||||||||||
Common
stock rescinded or canceled
|
(12,302,249 | ) | (12,302 | ) | - | - | 12,302 | - | - | - | ||||||||||||||||||||||
Net
income
|
- | - | - | - | - | - | 9,299,080 | 9,299,080 | ||||||||||||||||||||||||
Balance
at June 30, 2010
|
467,797,313 | $ | 467,797 | $ | 1,500,000 | $ | 1,500 | $ | 72,744,226 | $ | 119,000 | $ | (80,255,974 | ) | $ | (6,923,451 | ) |
(1) A
more detailed description of the items comprising "Other Equity Items" is set
forth herein following this Statement of Stockholders' Deficit.
The
accompanying notes are an integral part of these financial
statements
3
Power3
Medical Products, Inc.
(A
Development Stage Entity)
Statements
of Stockholders Deficit — Other Equity Items (Unaudited)
Deferred
Compensation
Expense
|
Treasury
Stock
|
Stock
Held in
Escrow
|
Common
Stock
Payable
|
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 June 30, 2010
|
$ | - | $ | (16,000 | ) | $ | - | $ | 135,000 | $ | 119,000 |
The
accompanying notes are an integral part of these financial
statements
4
Power3
Medical Products, Inc.
(A
Development Stage Entity)
Statements
of Cash Flows
Period From
|
||||||||||||
May 18, 2004
|
||||||||||||
For the Six Months Ended
|
Through
|
|||||||||||
June 30,
|
June 30,
|
|||||||||||
2010
|
2009
|
2010
|
||||||||||
(unaudited)
|
||||||||||||
Cash
flows from operating activities
|
||||||||||||
Net
income (loss)
|
$ | 9,299,080 | $ | (2,363,201 | ) | $ | (64,052,741 | ) | ||||
Adjustments
to reconcile net income (loss) to net cash used in operating
activities:
|
||||||||||||
(Gain)
loss on conversion of financial instruments
|
- | 1,008,029 | (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 | 209,104 | 4,005,561 | |||||||||
Change
in derivative liability, net of bifurcation
|
(10,580,355 | ) | 156,651 | (3,403,506 | ) | |||||||
Stock
issued for compensation and services
|
461,032 | 603,761 | 38,626,049 | |||||||||
Debt
issued for compensation and services
|
- | - | 1,028,927 | |||||||||
Stock
issued for settlement of lawsuit
|
- | - | 30,875 | |||||||||
Depreciation
expense
|
683 | 10,211 | 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
|
- | (18,939 | ) | 186,084 | ||||||||
Deposits
and other assets
|
(6,332 | ) | (149 | ) | 17,265 | |||||||
Accounts
payable and other liabilities
|
572,152 | 338,348 | 3,952,826 | |||||||||
Net
cash used in operating activities
|
(231,993 | ) | (56,185 | ) | (7,505,191 | ) | ||||||
Cash
flows from investing activities
|
||||||||||||
Increase
in property and equipment
|
- | (52,500 | ) | (142,508 | ) | |||||||
Increase
in other assets
|
- | - | (179,786 | ) | ||||||||
Net
cash used in investing activities
|
- | (52,500 | ) | (322,294 | ) | |||||||
Cash
flows from financing activities
|
||||||||||||
Proceeds
from sale of common stock
|
- | 35,000 | 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 | |||||||||
Stock
rescinded for debt
|
- | (8,256 | ) | - | ||||||||
Proceeds
from issuance of convertible debt, warrants, and rights net of issuance
cost
|
- | 64,666 | 1,200,709 | |||||||||
Net
cash provided by financing activities
|
234,534 | 119,666 | 7,827,430 | |||||||||
Net
increase (decrease) in cash and equivalents
|
2,541 | 10,981 | (55 | ) | ||||||||
Cash
and equivalents, beginning of period
|
- | 8,331 | 10,927 | |||||||||
Cash
and equivalents, end of period
|
$ | 2,541 | $ | 19,312 | $ | 10,872 | ||||||
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 | - | |||||||||
Warrants
exercised for subscriptions receivable
|
- | 4,166 | - | |||||||||
Stock
issued for common stock payable
|
- | 22,286 | - | |||||||||
Exchange
of debt – related party
|
- | - | 214,075 | |||||||||
Exchange
of convertible notes for stock
|
- | - | 2,525,070 | |||||||||
Stock
issued for settlement of payables
|
98,207 | - | 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
|
- | 244,417 | 276,558 | |||||||||
Return
of stock held in escrow
|
- | 16,000 | 16,800 | |||||||||
Cashless
exercise of warrants
|
32,374 | - | 32,507 | |||||||||
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
5
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
1. Description of Business
Power3
Medical Products, Inc. (the “Company”) was incorporated in the State of Florida
as “Sheffield Acres, Inc.” on May 15, 1992, and merged into a New York
corporation named “Surgical Safety Products, Inc.” in 1994. On September 12,
2003, Surgical Safety Products, Inc. amended its Certificate of Incorporation to
change its name to “Power3 Medical Products, Inc.” The Company became
a development stage company on May 18, 2004, when it completed the acquisition
of certain intellectual property assets from Advanced Bio/Chem, Inc. and began
focusing on research and development relating to those assets. The
Company currently focuses on the development of its intellectual properties by
focusing on disease diagnosis, protein and biomarker identification and early
detection indicators in the areas of cancers, neurodegenerative and
neuromuscular diseases, as well as other scientific areas of interest associated
with protein biomarkers.
The
Company has developed a portfolio of products including BC-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 biotechnology companies,
academic and research institutions, and other organizations that have the
ability to market and sell the Company’s products in return for licensing fees,
royalties and milestone payments.
Note
2. Basis of Presentation and Going Concern
Basis of
Presentation
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and in conformity with the instructions to Form 10-Q and Article 8-03 of
Regulation S-X and the related rules and regulations of the Securities and
Exchange Commission (the “SEC”). Accordingly, they do not include all
of the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, the disclosures included in these financial
statements are adequate to make the information presented not
misleading.
6
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
The
unaudited financial statements included in this document have been prepared on
the same basis as the annual financial statements and in management’s opinion,
reflect all adjustments, including normal recurring adjustments, necessary to
present fairly the Company’s financial position, results of operations and cash
flows for the interim periods presented. The unaudited financial statements
should be read in conjunction with the audited financial statements and the
notes thereto for the year ended December 31, 2009 included in the Company’s
Annual Report on Form 10-K. The results of operations for the three-
and six- month periods ended June 30, 2010 are not necessarily indicative of the
results that the Company will have for any subsequent quarter or full fiscal
year.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. Certain amounts in the financial statements for 2009
have been reclassified to conform to the 2010 presentation. These
reclassifications did not result in any change to the previously reported total
assets, net loss or stockholders’ deficit.
As of
June 30, 2010, the Company’s significant accounting policies and estimates, and
applicable recent accounting policies, which are detailed in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2009, have not
changed materially.
Going
Concern
The
Company’s financial statements have been prepared using accounting principles
generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business. The Company has historically incurred
significant losses, which raises substantial doubt about the Company’s ability
to continue as a going concern. The accompanying financial statements
do not include any adjustments relating to the recoverability and classification
of asset carrying amounts or the amount and classification of liabilities that
might result from the outcome of this uncertainty.
7
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
3. Net Income (Loss) Per Share
Basic
income (loss) per share is based on the weighted average number of shares of the
Company’s common stock outstanding during the applicable period, and is
calculated by dividing the reported net income (loss) for the applicable period
by the weighted average number of shares of common stock outstanding during the
applicable period. The Company calculates diluted income (loss)
per share by dividing the reported net income (loss) for the applicable period
by the weighted average number of shares of common stock outstanding during the
applicable period as adjusted to give effect to the exercise of all potentially
dilutive warrants outstanding at the end of the period.
A total
of 40,438,732 shares of common stock underlying warrants that were
outstanding on June 30, 2010 have been excluded from the computation of diluted
earnings per share for the six-month period ended June 30, 2010 because the
exercise price was greater than the average market price of the Company’s common
stock during this period. A total of 54,085,347 shares of
common stock underlying warrants that were outstanding on June 30, 2010 have
been included in the computation of diluted earnings per share for the six-month
period ended June 30, 2010 because the exercise price was less than the average
market price of the Company’s common stock during the six-month period ended
June 30, 2010. Application of the treasury stock method resulted in
dilution of 19,220,148 shares of common stock for the three- and six-month
periods ended June 30, 2010, but had no effect on net income per
share.
All of
the 122,827,446 shares of common stock underlying warrants that were outstanding
on June 30, 2009, have been excluded from the computation of diluted earnings
per share for the three- and six-month periods ended June 30, 2009 because they
are anti-dilutive. As a result, basic loss per share was equal to
diluted loss per share for the three- and six- month periods ended June 30,
2009.
8
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
4. Property and Equipment
Property
and equipment consisted of the following at June 30, 2010 and December 31,
2009:
Asset
|
June 30,
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 |
Note
5. Other Current Liabilities
Other
current liabilities consisted of the following at June 30, 2010 and December 31,
2009:
Liability
|
June 30,
2010
|
December 31,
2009
|
||||||
Accrued
interest and interest payable
|
$ | 362,689 | $ | 312,252 | ||||
Accrued
payroll taxes
|
17,416 | 21,464 | ||||||
Accrued
compensation and salaries payable
|
373,585 | 258,364 | ||||||
Other
accrued expenses and liabilities
|
5,712 | 1,811 | ||||||
Total
|
$ | 759,402 | $ | 593,891 |
9
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
6. Derivative Liabilities
The
Company’s derivative liabilities were $3,876,069 and $14,456,424 at June 30,
2010 and December 31, 2009, respectively. The Company recognized a loss of
$123,340 and a gain of $10,580,355 for derivative liabilities for the
three- and six- month periods ended June 30, 2010, respectively, compared to a
gain of $589,693 and a loss of $156,651 for derivative liabilities for the
three- and six- month periods ended June 30, 2009, respectively. The
derivative gain recognized during the six-month period ended June 30, 2010
was due primarily to a decrease of the Company’s stock price during
2010.
The
components of derivative financial instruments on the Company’s balance sheet at
June 30, 2010 and December 31, 2009 are as follows:
June 30, 2010
|
December 31,
2009
|
|||||||
Common
stock warrants
|
$ |
2,355,541
|
$ | 10,267,167 | ||||
Embedded
conversion features – convertible promissory notes and
debentures
|
1,520,528
|
4,189,257 | ||||||
Total
|
$ |
3,876,069
|
$ | 14,456,424 |
During the
three months ended June 30, 2010, the Company changed the method by which it
valued the conversion features in its convertible notes by switching from the
binomial lattice valuation model to the Black-Scholes pricing model. As a
result, the conversion features in the Company’s convertible notes were valued
under the binomial lattice valuation model at December 31, 2009, and were valued
under the Black-Scholes pricing model at June 30, 2010. This change has been
deemed by the Company to be a change in accounting estimate.
Note
7. Commitments and Contingencies
Litigation
In
September 2008, the Company entered into an Arbitration Agreement with Steven
Rash in connection with his agreement to resign as the Company’s Chief Executive
Officer. The parties agreed to arbitrate claims for wages and other
compensation due, breach of contracts or covenants, and benefits. The
Company agreed to arbitrate Mr. Rash’s claims for wages of $36,031 and its
claims for embezzlement, fraud and breach of contract by Mr. Rash. As of
June 30, 2010, arbitration had not been initiated by either party.
In March
2009, McLennon Law Corporation filed a law suit against the Company in the
Superior Court of the State of California in and for the County of San Francisco
for breach of contract for approximately $117,000 of accrued but unpaid attorney
fees. As of June 30, 2010, the case was pending.
10
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
7. Commitments and Contingencies (Continued)
In
September 2009, one of the Company’s former employees attempted to convert a
$30,000 convertible promissory note plus interest into shares of the Company’s
common stock. The Company is disputing the amount, if any, that is
due to the former employee under the note. As of June 30, 2010, the
note had not been converted. In December 2009, the former employee
filed a law suit against the Company seeking damages and specific
performance. As of June 30, 2010, the Company had engaged counsel and
was preparing a response to the complaint.
In
February 2010, Transgenomic, Inc. (“Transgenomic”) filed a lawsuit against the
Company in the United States District Court for the District of Nebraska.
The lawsuit contained claims for fraud, breach of contract, libel and slander,
and sought a declaration of rights under the Collaboration and Exclusive License
Agreement, dated January 23, 2009, between the parties. In April 2010, the
Company filed a partial motion to dismiss Transgenomic’s fraud claim. In
June 2010, the Company filed a lawsuit against Transgenomic in the District
Court of Montgomery County, Texas, 359th Judicial District. The
lawsuit contained claims for trade secret misappropriation, breach of contract,
misappropriation, conversion, unjust enrichment, quantum meruit and promissory
estoppel as well as a request for injunctive relief. As of June 30,
2010, both cases were pending.
In March
2010, Rockmore Investment Master Fund LTD (“Rockmore”) filed a lawsuit against
the Company in the Supreme Court for the State of New York. The
lawsuit contained claims for breach of contract and specific performance related
to a convertible debenture and common stock warrant previously issued by the
Company to Rockmore. As of June 30, 2010, the Company had engaged
counsel and was preparing a response to the complaint.
In April
2010, the Company filed a lawsuit against Richard Kraniak and Roger Kazanowski
(“Kraniak and Kazanowski”) in the United States District Court for the Southern
District of Texas, Houston Division. The lawsuit contained claims for
violations of the Securities Act of 1933, as amended (the “Securities Act”), and
the Securities and Exchange Act of 1934, as amended (the “Exchange
Act”). In May 2010, Kraniak and Kazanowski filed a motion to dismiss
the lawsuit. In June 2010, the Company filed a response to Kraniak
and Kazanowski’s motion to dismiss as well as a first amended complaint against
Kraniak and Kazanowski. As of June 30, 2010, the case was
pending.
11
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
7. Commitments and Contingencies (Continued)
In April
2010, Neogenomics, Inc. (“Neogenomics”) filed a lawsuit and motion for summary
judgment against the Company in the Supreme Court of the State of New
York. The lawsuit contained claims of breach of contract and specific
performance related to a convertible debenture previously issued by the Company
to Neogenomics. In May 2010, the Company filed a response to the
motion for summary judgment. As of June 30, 2010, the case was
pending.
In April
2010, Lucas Associates, Inc. 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
them a finder’s fee in connection with the hiring of John Ginzler as the
Company’s Chief Financial Officer in 2009. In June 2010, the Company
filed a general denial to the claims alleged in the complaint. As of
June 30, 2010, the case was pending.
In April
2010, John Ginzler filed a lawsuit against the Company in the District Court of
Montgomery County, Texas, 359th Judicial District. The lawsuit
contained claims for breach of contract related to an employment agreement
entered into between him and the Company. In June 2010, the Company
filed a general denial to the claims alleged in the complaint. As of
June 30, 2010, the case was pending.
In May
2010, the Company filed a lawsuit against Able Income Fund LLC (“Able Income
Fund”) in the United States District Court for the Southern District of Texas,
Houston Division. The lawsuit contained claims for violations of the
Securities Act and the Exchange Act. As of June 30, 2010, the case
was pending.
12
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
7. Commitments and Contingencies (Continued)
Employment and Consulting
Agreements
On June
1, 2009, the Company entered into an Amended and Restated Consulting Agreement
with Bronco Technology, Inc. Under the terms of the agreement, Ms.
Park agreed to continue to serve as the Company’s Interim Chief Executive
Officer until May 31, 2011. In consideration for Ms. Park’s
services, the Company agreed to pay Bronco Technology, Inc. $8,334 per month,
subject to annual review by the Company’s board of directors or compensation
committee of the board of directors, if any. The Company also agreed
to pay Bronco Technology a cash commission payment of an amount equal to one
percent (1.0%), but not to exceed $5,000 per month, of the royalties received by
the Company from the sale of certain of its products through license agreements
signed during the term of the agreement.
Effective
May 17, 2009, the Company entered into an Amended and Restated Employment
Agreement with Dr. Ira L. Goldknopf to continue serving as the Company’s
President and Chief Scientific Officer. The agreement is for a three-year
term. The Company agreed to pay Dr. Goldknopf an annual base salary
of $100,000 through May 31, 2009, and an annual base salary of $125,000 for the
remainder of the term, subject to annual review by the Company’s board of
directors or compensation committee of the board of directors, if
any. The Company also agreed to pay Mr. Goldknopf a cash bonus of
$1,000 for each publication authored or co-authored by Dr. Goldknopf and
published in a scientific or professional journal that provides value to the
Company.
Note
8. Common Stock and Preferred Stock
The
Company’s authorized capital consisted of 600,000,000 shares of common stock,
$0.001 par value per share, at June 30, 2010 and December 31, 2009,
respectively, and 50,000,000 shares of preferred stock, $0.001 par value per
share, at June 30, 2010 and December 31, 2009, respectively. There
were 467,797,313 and 434,167,000 shares of common stock outstanding at June 30,
2010 and December 31, 2009, respectively, and 1,500,000 shares of preferred
stock outstanding at June 30, 2010 and December 31, 2009,
respectively.
In
January 2010, the Company issued 409,906 shares of common stock to a consultant
for consulting services. The shares were valued at the closing price
of the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $65,175, all of which was recognized as
expense during the six months ended June 30, 2010.
13
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
8. Common Stock and Preferred Stock (Continued)
In
January and February 2010, the Company issued a total of 4,425,166 shares of
common stock to accredited investors upon the exercise of outstanding warrants
for aggregate gross proceeds of $234,534.
In March
2010, the Company issued 500,000 shares of common stock to a consultant for
consulting services. The shares were valued at the closing price of
the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $23,750, all of which was recognized as
expense during the six months ended June 30, 2010.
In March
2010, the Company issued 197,490 shares of common stock to a consultant for
consulting services. The shares were valued at the closing price of
the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $9,282, all of which was recognized as expense
during the six months ended June 30, 2010.
In April
2010, the Company issued 400,000 shares of common stock to a consultant for
consulting services. The shares were valued at the closing price of
the Company’s common stock on the date the consultant agreed to receive the
shares for total consideration of $16,000, all of which was recognized as
expense during the three months ended June 30, 2010.
In May
2010, the Company issued a total of 32,374,192 shares of common stock to
accredited investors upon the exercise of outstanding warrants. The
warrants were exercised in accordance with cashless exercise provisions
contained in the warrants. As a result, the Company received no
proceeds from the exercise of the warrants.
In May 2010, the Company issued 7,625,808 shares of common stock
to consultants for consulting services. The shares were valued at the closing
price of the Company’s common stock on the date the consultants agreed to
receive the shares for total consideration of $305,032, all of which was
recognized as expense during the three months ended June 30, 2010.
During
the six months ended June 30, 2010, the Company rescinded and canceled a total
of 12,302,249 shares of common stock that had been issued under restricted stock
awards that had terminated in accordance with the terms of the
awards.
Note
9. Stock Options and Warrants
The Company did not issue any stock
options or warrants during the three- and six- month periods ended June 30,
2010, and no stock options were outstanding at June 30, 2010 and December 31,
2009. Warrants exercisable into a total of 94,524,079
and 131,323,437 shares of the Company’s common stock were outstanding on
June 30, 2010 and December 31, 2009, respectively. The weighted
average exercise price of the warrants outstanding on June 30, 2010 and December
31, 2009 was $0.05. The Company estimates the fair value of its
warrants on the date of grant by using the Black-Scholes pricing model in
accordance with the provisions of ASC 718. Under the Black-Scholes
pricing model, the Company used the following weighted-average assumptions to
determine the fair value of the warrants issued: a dividend yield of zero
percent, an expected volatility of 241%, a risk-free interest rate of 1.14% and
a remaining contractual life of 3.5 years.
14
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note 9. Stock Options and
Warrants (Continued)
During
the six months ended June 30, 2010, the Company issued a total
of 36,799,358 common stock to warrant holders upon the exercise of
outstanding warrants for total cash proceeds of $234,534. The average
exercise price of the warrants exercised was $0.005 per
share.
15
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
10. Promissory Notes and Debentures
The
carrying values of the Company’s notes payable, net of unamortized discounts,
amounted to $466,000 at June 30, 2010 and December 31, 2009, respectively, as
follows.
June 30,
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 |
The
carrying values of the Company’s convertible debentures, net of unamortized
discounts, amounted to $431,381 and $409,634 at June 30, 2010 and December 31,
2009, respectively, as follows.
June 30,
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
|
351,255 | 351,255 | ||||||
Convertible
Debentures – Related Party
|
30,000 | 30,000 | ||||||
Total
Convertible Debentures, Net of Unamortized Discount
|
$ | 431,255 | $ | 409,634 |
16
POWER3
MEDICAL PRODUCTS, INC.
(A
Development Stage Entity)
Notes to
Financial Statements (Unaudited)
June 30,
2010
Note
11. Acquisition of StemTroniX
In
May 2010, the Company elected to terminate the Agreement and Plan of Merger (the
"Merger Agreement") by and among the Company, Power3 Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of the Company, and StemTroniX,
Inc., a Texas corporation. The Company did not incur any penalties in
connection with its decision to terminate the Merger Agreement.
Other
than as set forth below, there have been no additional significant subsequent
events through the date these financial statements were issued.
In July
2010, the Company filed a non-suit to dismiss the case that we filed against
Transgenomic in Texas without prejudice. The Company intends to
re-file the claims against Transgenomic in the United States District Court for
the District of Nebraska as counterclaims accompanying its response to the
claims filed by Transgenomic.
In July
2010, Kraniak and Kazanowski filed counterclaims against the Company in the
United States District Court for the Southern District of Texas, Houston
Division. The counterclaims contained claims for breach of contract,
misrepresentation, civil conspiracy and defamation. The Company filed
an answer to the counterclaims denying each of the alleged claims.
In July
2010, Able Income Fund filed a lawsuit against the Company in the Supreme Court
of the State of New York. The lawsuit contained claims for breach of
contract and specific performance related to two convertible debentures
previously issued by the Company to Able Income Fund. The Company has
engaged counsel and is currently preparing a response to the
complaint.
17
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This
report contains “forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E
of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). All statements other than statements of historical facts
included or incorporated by reference in this report, including, without
limitation, statements regarding our future financial position, business
strategy, budgets, projected revenue and costs, and plans and objectives of
management for future operations, are forward-looking statements. In
addition, forward-looking statements generally can be identified by the use of
forward-looking terminology such as “may,” “will,” “expects,” “intends,”
“plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative
thereof or any variation thereon or similar terminology or
expressions.
These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from results proposed in such
statements. Although we believe that the expectations reflected in
such forward-looking statements are reasonable, we can give no assurance that
such expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from our expectations
include, but are not limited to:
|
·
|
our
ability to fund future growth and implement our business
strategy;
|
|
·
|
our
dependence on a limited number of business partners for substantially all
of our revenue;
|
|
·
|
projections
of our future revenue, results of operations and financial
condition;
|
|
·
|
anticipated
deployment, capabilities and uses of our products and our product
development activities and product
innovations;
|
|
·
|
the
importance of proteomics as a major focus of biology
research;
|
|
·
|
competition
and consolidation in the markets in which we
compete;
|
|
·
|
existing
and future collaborations and
partnerships;
|
|
·
|
the
utility of biomarker discoveries;
|
|
·
|
our
belief that biomarker discoveries may have diagnostic and/or therapeutic
utility;
|
|
·
|
our
ability to comply with applicable government
regulations;
|
|
·
|
our
ability to expand and protect our intellectual property
portfolio;
|
|
·
|
the
condition of the securities and capital
markets;
|
|
·
|
general
economic and business conditions, either nationally or internationally or
in the jurisdictions in which we are doing
business;
|
and
statements of assumption underlying any of the foregoing, as well as any other
factors set forth herein under “Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
below and “Item
1A. Risk Factors” of our Annual Report on Form 10-K for our
fiscal year ended December 31, 2009. All subsequent written and oral
forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by the foregoing. Except as
required by law, we assume no duty to update or revise our forward-looking
statements.
18
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this report contain forward-looking statements
that involve risks and uncertainties. All forward-looking statements
included in this report are based on information available to us on the date
hereof, and, except as required by law, we assume no obligation to update any
such forward-looking statements. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of a number of factors, including those set forth under “Item 1A. Risk Factors” of
our Annual Report on Form 10-K for our fiscal year ended December 31, 2009 and
elsewhere in this report. The following should be read in conjunction
with our financial statements beginning on page 1 of this report.
Overview
We are a
leading bio-technology company focused on the development and marketing of novel
diagnostic products through the analysis of proteins. Our business is
focused on the development of novel diagnostic tests in the fields of cancer and
neurodegenerative diseases such as amytrophic lateral sclerosis (commonly known
as ALS or Lou Gehrig’s disease), Alzheimer’s disease and Parkinson’s
disease. We also address clinical questions related to early disease
detection, treatment response, monitoring of disease progression, prognosis and
others through collaborations with leading academic and research
institutions. We apply proprietary methodologies to discover and identify
protein biomarkers associated with diseases. We also use advanced protein
separation methods to identify and resolve variants of specific biomarkers for
developing a procedure to measure a property or concentration of an assay and
commercializing novel diagnostic tests. By discovery and development of
protein-based disease biomarkers, we have developed tools for diagnosis,
prognosis, early detection and identification of new target drugs in cancer and
neurodegenerative diseases.
We
have developed a portfolio of products including BC-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.
Strategy
We are
currently developing proteomic and related biomarker tests that will assist
providers and payers in determining the most appropriate therapeutic
intervention for a particular patient. These tests are developed based on our
know-how and expertise, in partnership with thought leaders and leading
healthcare institutions, and intellectual property that we have developed on our
own, licensed from others, or acquired from other parties. Our tests are
available to patients by physician’s prescription to providers located primarily
in the United States and may be performed in our CLIA-certified laboratory or
partnered with other test providers.
19
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. We also intend to develop additional diagnostic products
utilizing the proteomic research and results that we have achieved and for which
we have filed patent applications with the United States Patent and Trademark
Office. By utilizing the intellectual property that we have in our
possession, building on the intellectual property portfolio through additional
clinical trials, and acquiring complementary intellectual property from other
bio-technology companies, we will have the ability to successfully create,
market and sell a diverse diagnostic product offering based on our proteomic
research.
Our goal
during 2010 is to enter into collaboration and licensing agreements with other
leading bio-technology companies, academic and research institutions, like the
Baylor College of Medicine, who have the resources and expertise to engage in
successful commercialization campaigns of our products. Through these
agreements, we will generate revenue through a combination of licensing fees,
royalties and milestone payments that we receive from our collaboration and
licensing partners.
2010
Outlook
We expect sales of our BC-SeraPro™ and
NuroPro®
diagnostic products to increase during 2010 as we complete Phase II clinical
studies on these products. We also expect to develop several
additional diagnostic products during 2010. 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, will provide us with the assets and operating results necessary to
grow at an exponential rate for the foreseeable future.
Critical
Accounting Policies
For
information regarding our critical accounting policies, please refer to the
discussion provided in our Annual Report on Form 10-K for our fiscal year ended
December 31, 2009 under the caption “Item 6. Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Policies” and our Notes to Financial Statements
included therein.
20
Recent
Accounting Pronouncements
For
information regarding recent accounting pronouncements applicable to our
business, please refer to the discussion provided in our Annual Report on Form
10-K for our fiscal year ended December 31, 2009 under the caption “Item 6. Management’s
Discussion and Analysis of Financial Condition and Results of Operations –
Recent Accounting Pronouncements” and our Notes to Financial Statements
included therein.
Comparison
of the Three-Month Periods Ended June 30, 2010 and 2009
Net
Revenue
Net revenue consists primarily of
licensing fees, royalties and milestone payments that we receive from our
licensing partners. We generated revenue of $35,711 for the three
months ended June 30, 2009. We did not generate any revenue for the
three months ended June 30, 2010. The decrease in revenue resulted
primarily from our decision to terminate the Collaboration and Exclusive License
Agreement with Transgenomic, Inc. in January 2010. We expect
licensing fees, royalties and milestone payments generated from our
BC-SeraPro™ and
NuroPro®
diagnostic products to increase during 2010 as we complete Phase II clinical
studies on these products. As a result, we expect revenue to increase
as we enter into additional collaboration and licensing agreements with other
bio-technology companies, academic and research institutions and governmental
agencies.
Operating
Expenses
Operating expenses consist primarily of
employee compensation and benefits, professional and consulting fees, and other
selling, general and administrative expenses.
Employee Compensation and
Benefits. Employee compensation and benefits consists of all
salaries and other cash compensation, equity-based compensation, employee
benefits and the related payroll taxes. Employee compensation expense
decreased $221,948 to $36,789 for the three months ended June 30, 2010 from
$258,737 for the three months ended June 30, 2009. The decrease of
$221,948 was due primarily to a decrease of $219,754 for salary and equity-based
compensation expenses associated with a decrease in the number of individuals
who we employed during the three months ended June 30, 2010. We
expect employee compensation expense to increase over the next 12 months as we
continue to retain additional executive management personnel, lab technicians
and other employees in connection with the growth of our business.
Professional
Fees. Professional fees consist of fees paid to our
independent accountants, lawyers, laboratory and technology consultants and
other professionals and consultants. Professional fees increased
$135,044 to $679,562 for the three months ended June 30, 2010 from $544,518
for the three months ended June 30, 2009. The increase of
$135,044 was due primarily to an increase of $110,618 for legal
fees. 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.
21
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 decreased $47,102 to $-0- for the three months ended
June 30, 2010 from $47,102 for the three months ended June 30,
2009. The decrease of $47,102 resulted primarily from a decrease of
$28,575 for support fees and decreases in other miscellaneous
selling, general and administrative expenses. We expect other
general and administrative expenses to increase over the next 12 months as we
continue to incur expenses for clinical validation studies, lab supplies,
selling and marketing expenses, rent, computer hardware and systems, and other
miscellaneous items associated with the general operation and growth of our
business.
Interest
Expense
Interest expense consists of the
interest and discount amortization costs that we incur on the debt obligations
that we have. Interest and amortization expense decreased $114,211 to
$23,528 for the three months ended June 30, 2010 from $137,739 for the three
months ended June 30, 2009. The decrease of $114,211 was due
primarily to the retirement during 2009 of many of the debt obligations that
were outstanding during the three months ended June 30, 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
from changes in the fair value of the derivative instruments contained in the
convertible promissory notes and associated stock warrants that were outstanding
at June 30, 2010 and 2009, respectively. During the three months
ended June 30, 2010, we changed the method by which we valued the conversion
features in our convertible notes by switching from the binomial lattice
valuation model to the Black-Scholes pricing model. We recognized a
derivative loss of $123,340 for the three months ended June 30, 2010
compared to a derivative gain of $589,693 for the three months ended June 30,
2009. The difference of $713,033 was due primarily to a larger
decrease in the trading price of our common stock between April 1, 2009 and June
30, 2009 than the decrease in the trading price of our common stock between
April 1, 2010 and June 30, 2010. While future derivative gain / loss
is largely dependent upon the trading price of our common stock, we expect
future derivative gains and losses to be smaller in amount as our convertible
promissory notes are retired or converted into shares of common stock, and as
the associated stock warrants are exercised or expire by their
terms.
22
Gain / Loss on Settlement of
Debt
Gain / loss on settlement of debt
consists of the gains and losses that we have recognized in connection with the
retirement of outstanding debt and payment of outstanding invoices and results
when we issue shares of common stock having an aggregate value less than (in the
case of gains) or greater than (in the case of losses) the outstanding principal
amount of the note and accrued interest or the applicable invoice. We
recognized a loss on the settlement of debt of $124,295 for the three months
ended June 30, 2009. We did not recognize any gain or loss on the
settlement of debt for the three months ended June 30, 2010. The
difference of $124,295 was due primarily to our decision to pay off a
significant amount of our outstanding debt obligations and accrued interest, and
numerous outstanding invoices, during 2009 by issuing shares of our common stock
having an aggregate value that was greater than the outstanding principal amount
of the applicable note and accrued interest or the applicable
invoice. While we may continue to incur losses on the settlement of
debt in the future as we continue to pay off outstanding debt and invoices with
shares of our common stock, we expect any such losses to decrease as the amount
of outstanding debt continues to decrease.
Net Income /
Loss
We
generated a net loss of $863,219 for the three months ended June 30, 2010
compared to a net loss of $486,987 for the three months ended June 30,
2009. The increase of $376,232 was due primarily to a difference of
$713,033 for derivative loss recognized during 2010 compared to 2009, and
an increase of $135,044 for professional fees This was partially offset by
a decrease of $221,948 for employee compensation and benefits, a difference of
$124,295 resulting from losses from the extinguishment of debt recognized during
2009, and $114,211 for interest expense. We expect to generate net
losses during the remainder of 2010 as we continue to build our
business. However, we expect these losses to decrease in the future
as we generate additional revenue through collaboration and licensing partners
and as we continue to retire our outstanding debt obligations.
Comparison
of the Six-Month Periods Ended June 30, 2010 and 2009
Net
Revenue
We generated revenue of $168,477 for
the six months ended June 30, 2009. We did not generate any revenue
for the six months ended June 30, 2010. The decrease in revenue
resulted primarily from our decision to terminate the Collaboration and
Exclusive License Agreement with Transgenomic, Inc. in January
2010.
Operating
Expenses
Operating expenses consist primarily of
employee compensation and benefits, professional and consulting fees, and other
selling, general and administrative expenses.
23
Employee Compensation and
Benefits. Employee compensation expense decreased $204,587 to
$71,707 for the six months ended June 30, 2010 from $276,294 for the six months
ended June 30, 2009. The decrease of $204,587 was due primarily to a
decrease of approximately $200,000 for salary and equity-based compensation
expenses associated with a decrease in the number of individuals who we employed
during the six months ended June 30, 2010.
Professional
Fees. Professional fees increased $361,179 to $986,514 for the
six months ended June 30, 2010 from $625,335 for the six months ended June 30,
2009. The increase of $361,179 was due primarily to an increase
of $559,239 for the amount of expense recognized in connection with
equity-based compensation paid to service providers and consultants for various
services, partially offset by decreases in other miscellaneous
professional fees.
Other Selling, General and
Administrative Expenses. Other general and administrative
expenses increased $12,314 to $162,848 for the six months ended June
30, 2010 from $150,534 for the six months ended June 30,
2009. The increase of $12,314 resulted primarily from an
increase of $15,351 for lab services, partially offset by a decrease in other
miscellaneous selling, general and administrative expenses.
Interest
Expense
Interest and amortization expense
decreased $254,629 to $60,206 for the six months ended June 30, 2010 from
$314,835 for the six months ended June 30, 2009. The decrease of
$254,629 was due primarily to the retirement during 2009 of many of the debt
obligations that were outstanding during the six months ended June 30,
2009.
Derivative Gain /
Loss
We
recognized a derivative gain of $10,580,355 for the six months ended June 30,
2010 compared to a derivative loss of $156,651 for the six months ended June 30,
2009. The difference of $10,737,006 was due primarily to the decrease
in the trading price of our common stock between January 1, 2010 and June 30,
2010 compared to the increase in the trading price of our common stock between
January 1, 2009 and June 30, 2009.
Gain / Loss on Settlement of
Debt
We recognized a loss on the settlement
of debt of $1,008,029 for the six months ended June 30, 2009. We did
not recognize any gain or loss on the settlement of debt for the six months
ended June 30, 2010. The difference of $1,008,029 was due primarily
to our decision to pay off a significant amount of our outstanding debt
obligations and accrued interest, and numerous outstanding invoices, during 2009
by issuing shares of our common stock having an aggregate value that was greater
than the outstanding principal amount of the applicable note and accrued
interest or the applicable invoice.
24
Net Income /
Loss
We
generated net income of $9,299,080 for the six months ended June 30, 2010
compared to a net loss of $2,397,304 for the six months ended June 30,
2009. The difference of $11,696,384 was due primarily to a difference
of $10,737,006 resulting from the derivative gain recognized during 2010
compared to the derivative loss recognized during 2009, a difference of
$1,008,029 resulting from losses from the extinguishment of debt recognized
during 2009, and decreases of $254,629 for interest expense and $204,587 for
employee compensation and benefits. This was partially offset by a
decrease of $168,477 for net revenue.
Liquidity
and Capital Resources
Since our
inception, we have funded our operations primarily through private sales of
equity securities and the use of short- and long-term debt.
Net cash
used by operating activities was $231,993 for the six months ended June 30, 2010
compared to $56,185 for the six months ended June 30, 2009. The
$175,808 increase in cash used by operating activities was due primarily to a
difference of $10,737,006 for changes in the amount of our derivative liability,
and decreases of $1,008,029 for loss on settlement of debt, $142,729 for stock
issued for compensation and services, and $187,357 for amortization of debt
discounts and deferred finance costs. This was partially offset by a
difference of $11,696,384 between the net income generated in 2010 and the net
loss incurred during 2009 and an increase of $233,804 in accounts payable and
other liabilities.
Net cash
used by investing activities was $52,500 for the six months ended June 30,
2009. We did not have any cash flows from investing activities during
the six months ended June 30, 2010. The $52,500 difference was due to
purchases of property and equipment during 2009.
Net cash
provided by financing activities was $234,534 for the six months ended June 30,
2010 compared to $119,666 for the six months ended June 30, 2009. The
$114,868 increase in cash provided by financing activities was due primarily to
an increase of $234,534 for proceeds from the exercise of warrants, partially
offset by decreases of $64,666 for proceeds from the issuance of convertible
debt, $35,000 for proceeds from the sale of common stock and $20,000 for
proceeds from the issuance of debt.
Our
primary sources of capital over the past 12 months are set forth
below.
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.
25
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 and ending June 30, 2010, we issued a total
of 56,214,675 shares of common stock to warrant holders upon the exercise of
outstanding warrants at exercise prices ranging between $0.001 and $0.25 per
share for total cash proceeds of $513,366.
To date, our capital needs have been
met primarily through the issuance of convertible promissory notes and
debentures, sales of equity securities and proceeds received upon the exercise
of warrants held by our security holders. We do not currently
maintain a line of credit or term loan with any commercial bank or other
financial institution. We have used the proceeds from the exercise of
warrants and our private offerings of securities to pay virtually all of the
costs and expenses we have incurred. These costs and expenses were
comprised of operating expenses, which consisted of the employee compensation
expenses, professional fees and other general and administrative expenses
discussed above.
We
believe that our current cash resources will not be sufficient to sustain our
operations for the next 12 months. We will need to obtain additional
cash resources within the next 12 months to enable us to pay our ongoing costs
and expenses as they are incurred and finance the growth of our
business. We intend to obtain these funds through internally
generated cash flows from operating activities, proceeds from the issuance of
equity securities and proceeds from the exercise of outstanding
warrants. The issuance of additional equity would result in dilution
to our existing shareholders. We have not made arrangements to obtain
additional financing and we can provide no assurance that additional financing
will be available in an amount or on terms acceptable to us, if at
all. If we are unable to obtain additional funds when they are needed
or if such funds cannot be obtained on terms favorable to us, we may be unable
to execute upon our business plan or pay our costs and expenses as they are
incurred, which could have a material, adverse effect on our business, financial
condition and results of operations.
Off-Balance
Sheet Arrangements
As of June 30, 2010, we did not have
any relationships with unconsolidated entities or financial partners, such as
entities often referred to as structured finance or special purpose entities,
that had been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. As
such, we are not materially exposed to any financing, liquidity, market or
credit risk that could arise if we had engaged in such
relationships.
26
Item
4T. Controls and Procedures.
As of June 30, 2010, we carried out
the evaluation of the effectiveness of our disclosure controls and procedures
required by Rule 13a-15(e) under the Exchange Act under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of March 31,
2010, our disclosure controls and procedures were effective to provide
reasonable assurance that information we are required to disclose in reports
that we file or submit under the Exchange Act is: (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and (ii) accumulated and communicated to
our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure.
There has
been no change in our internal control over financial reporting identified in
connection with this evaluation that occurred during our fiscal quarter ended
June 30, 2010 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings.
In
September 2008, we entered into an Arbitration Agreement with Steven Rash in
connection with his agreement to resign as the Company’s Chief Executive
Officer. The parties agreed to arbitrate claims for wages and other
compensation due, breach of contracts or covenants, and benefits. We
agreed to arbitrate Mr. Rash’s claims for wages of $36,031 and our claims for
embezzlement, fraud and breach of contract by Mr. Rash. Arbitration had
not been initiated by either party.
In March
2009, McLennon Law Corporation (“McLennon”) filed a law suit against us in the
Superior Court of the State of California in and for the County of San Francisco
for breach of contract for approximately $117,000 of accrued but unpaid attorney
fees plus interest. In July 2010, a judgment was entered against us for
the full amount of unpaid attorney fees and interest and the law suit was
terminated.
In
September 2009, one of our former employees attempted to convert a $30,000
convertible promissory note plus interest into shares of our common
stock. We are disputing the amount, if any, that is due to the former
employee under the note. As of June 30, 2010, the note had not been
converted. In December 2009, the former employee filed a law suit
against us in the District Court of Montgomery County, Texas, 9th Judicial
District seeking damages and specific performance. We have engaged
counsel and are preparing a response to the complaint.
27
In
February 2010, Transgenomic, Inc. (“Transgenomic”) filed a lawsuit against us in
the United States District Court for the District of Nebraska. The lawsuit
contains claims for fraud, breach of contract, libel and slander, and seeks a
declaration of rights under the Collaboration and Exclusive License Agreement,
dated January 23, 2009, between the parties. In April 2010, we filed a
partial motion to dismiss Transgenomic’s fraud claim. In June 2010, we
filed a lawsuit against Transgenomic in the District Court of Montgomery County,
Texas, 359th Judicial District. The lawsuit contains claims for trade
secret misappropriation, breach of contract, misappropriation, conversion,
unjust enrichment, quantum meruit and promissory estoppel as well as a request
for injunctive relief. In July 2010, we filed a non-suit to dismiss
the case without prejudice. We intend to re-file the claims against
Transgenomic in the United States District Court for the District of Nebraska as
counterclaims accompanying our response to the claims filed by
Transgenomic.
In March
2010, Rockmore Investment Master Fund LTD (“Rockmore”) filed a lawsuit against
us in the Supreme Court for the State of New York. The lawsuit
contains claims for breach of contract and specific performance related to a
convertible debenture and common stock warrant that we previously issued to
Rockmore. We have engaged counsel and are preparing a response to the
complaint.
In April
2010, we filed a lawsuit against Richard Kraniak and Roger Kazanowski (“Kraniak
and Kaznowski”) in the United States District Court for the Southern District of
Texas, Houston Division. The lawsuit contains claims for violations
of the Securities Act of 1933, as amended (the “Securities Act”), and the
Securities and Exchange Act of 1934, as amended (the “Exchange
Act”). In May 2010, Kraniak and Kazanowski filed a motion to dismiss
the lawsuit. In June 2010, we filed a response to Kraniak and
Kazanowski’s motion to dismiss as well as a first amended complaint against
Kraniak and Kazanowski. In July 2010, Kraniak and Kazanowski filed
counterclaims against the Company in the United States District Court for the
Southern District of Texas, Houston Division. The counterclaims
contain claims for breach of contract, misrepresentation, civil conspiracy and
defamation. We filed an answer to the counterclaims denying each of
the alleged claims.
In April
2010, Neogenomics, Inc. (“Neogenomics”) filed a lawsuit and motion for summary
judgment against us in the Supreme Court of the State of New
York. The lawsuit contains claims for breach of contract and specific
performance related to a convertible debenture that we previously issued to
Neogenomics. In May 2010, we filed a response to Neogenomic’s motion
for summary judgment.
In April
2010, Lucas Associates, Inc. filed a lawsuit against us in the District Court of
Montgomery County, Texas. The lawsuit contains claims for breach of
contract, quantum meruit and fraud related to allegations that we failed to pay
them a finder’s fee in connection with the hiring of John Ginzler as the
Company’s Chief Financial Officer in 2009. In June 2010, we filed a
general denial to the claims alleged in the complaint.
In April
2010, John Ginzler filed a lawsuit against us in the District Court of
Montgomery County, Texas, 359th Judicial District. The lawsuit
contains claims for breach of contract related to an employment agreement
entered into between him and the Company. In June 2010, the Company
filed a general denial to the claims alleged in the complaint.
28
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. In July 2010, Able Income Fund
filed a lawsuit against us in the Supreme Court of the State of New
York. The lawsuit contains claims for breach of contract and specific
performance related to two convertible debentures and common stock warrants that
we previously issued to Able Income Fund. We have engaged counsel and
are currently preparing a response to the complaint.
Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds.
During
the three months ended June 30, 2010, 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 shares of common stock to a consultant for
consulting services. These securities were issued to an accredited
investor in a private placement transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act directly by us without engaging in any advertising or general solicitation
of any kind and without payment of underwriting discounts or commissions to any
person.
In March
2010, we issued 500,000 shares of common stock to a consultant for consulting
services. These securities were issued to an accredited investor in a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act directly by us
without engaging in any advertising or general solicitation of any kind and
without payment of underwriting discounts or commissions to any
person.
In March
2010, we issued 197,490 shares of common stock to a consultant for consulting
services. These securities were issued to an accredited investor in a
private placement transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act directly by us
without engaging in any advertising or general solicitation of any kind and
without payment of underwriting discounts or commissions to any
person.
In April
2010, we issued 400,000 shares of common stock to a consultant for
consulting services. These securities were issued to an accredited
investor in a private placement transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act directly by us without engaging in any advertising or general solicitation
of any kind and without payment of underwriting discounts or commissions to any
person.
In May
2010, we issued 7,625,808 shares of common stock to consultants for consulting
services. These securities were issued to accredited investors in private
placement transactions exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act directly by us
without engaging in any advertising or general solicitation of any kind and
without payment of underwriting discounts or commissions to any
person.
During
the six months ended June 30, 2010, we issued a total of 36,799,358 shares
of common stock to warrant holders upon the exercise of outstanding warrants for
total cash proceeds of $234,534. These securities were issued to a
limited number of accredited investors in private placement transactions exempt
from the registration requirements of the Securities Act pursuant to Section
4(2) of the Securities Act directly by us without engaging in any advertising or
general solicitation of any kind and without payment of underwriting discounts
or commissions to any person.
29
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
|
30
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: August
17, 2010
|
/s/ Helen R.
Park
|
Helen
R. Park
|
|
Chief
Executive Officer
|
31
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
|
32