**U.S.
      Securities and Exchange Commission**


**Washington,
      D.C. 20549**








**Form 10-QSB**




(Mark
      One)





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





For
                the quarterly period ended March 31,
                2007





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





For
                the transition period from _______________ to
                ________________





Commission
                file no. 0-24921





**Power3
      Medical Products, Inc.**


(Exact
      name of small business issuer as specified in its charter)





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





**3400
      Research Forest Drive, Suite B2-3**


**Woodlands,
      Texas 77381**


(Address
      of principal executive offices)





**(281)
      466-1600**


(Issuer’s
      telephone number)





Check
      whether the issuer (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
      such shorter period that the registrant was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days.


Yes
o    
No
x





As
      of
      April 30, 2007 there were 76,975,509 shares of voting common stock of the
      registrant issued and outstanding.





Indicate
      by check mark whether the registrant is a shell company (as defined in rule
      12b-2 of the Exchange Act)?


Yes
o    
No
x





Transitional
      Small Business Disclosure Format (check one):


Yes
o    
No
x








-1-





**INDEX**




Explanatory
                Note
            3PART
                I. FINANCIAL INFORMATION
            4Condensed
                Balance Sheet (unaudited)
            4Condensed
                Statements of Operations (unaudited)
            6Condensed
                Statement of Cash Flows (unaudited)
            7Notes
                to Condensed Financial Statements (unaudited)
            9Item
                1. Organization, Principal Activities and Basis of
                Presentation
            9Item
                2. Management's Discussion and Analysis or Plan of
                Operation
            23Item
                3. Controls and Procedures
            32Part
                II. OTHER INFORMATION
            33Item
                1. Legal Proceedings
            33Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            34Item
                3. Defaults upon Senior Securities
            34Item
                4. Submission of Matters to a Vote of Security Holders
            34Item
                5. Other Information
            35Item
                6. Exhibits
            35SIGNATURES
            37





-2-





**Explanatory
      Note**





This
      quarterly report on Form 10-QSB for the quarter ended March 31, 2007, has not
      been reviewed by the Company’s independent registered public accountants.





The
      financial statements and accompanying Notes to the Financial Statements have
      not
      been reviewed by the Company’s independent registered public accountants due to
      a delay in the completion of the audit of the Company’s financial statements for
      the year ended December 31, 2006. This delay is primarily due to a recent change
      in the Company’s independent registered public accounting firm, as reported in a
      Form 8-K filed by the Company with the Securities and Exchange Commission on
      March 14, 2007.





There
      are
      no disputes or differences of opinion that the Company is aware of, between
      the
      Company and its independent registered public accounting firm, for the quarter
      ended March 31, 2007.





-3-





**I.
      FINANCIAL INFORMATION**


**Item 1.
      Financial Statements**





**POWER3
      MEDICAL PRODUCTS, INC.** ****


**(** **A
      Development Stage Enterprise)**


**CONDENSED
      BALANCE SHEET AS OF March 31, 2007**


**(unaudited)**




**ASSETS**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            217,808All
                Other Current Assets
            
            
            123,335Total
                Current Assets
            
            
            341,143FIXED
                ASSETSFurniture,
                Fixtures and Equipment
            
            
            9,485(Net
                of accumulated depreciation of $92,204)Intellectual
                Property
            
            
            179,786Total
                Fixed Assets
            
            
            189,271OTHER
                ASSETSGoodwill
            
            
            11,583,431Deferred
                Finance Costs
            
            
            233,817Deposits
            
            
            5,350Stock
                held in Escrow
            
            
            120,000Total
                Other Assets
            
            
            11,942,598**TOTAL
                ASSETS**
            
            $
            12,473,012**LIABILITIES
                AND STOCKHOLDER'S EQUITY**CURRENT
                LIABILITIESAccounts
                Payable
            
            $
            917,724Notes
                Payable
            
            
            672,527Notes
                Payable to Related Parties
            
            
            1,511,708Convertible
                Debentures-in default
            
            
            394,996Other
                Current Liabilities
            
            
            1,364,022Derivative
                Liabilities
            
            
            5,391,023**TOTAL
                LIABILITIES**
            
            $
            10,252,000**STOCKHOLDER'S
                EQUITY**Common
                Stock-$0.001 par value:150,000,000 shares authorized;
            
            
            76,97076,970,955
                shares issued and outstandingAdditional
                Paid-In Capital
            
            
            62,402,938Deferred
                Compensation Expense
            
            
            (2,986,053
            )Deficit
                accumulated before entering development stage
            
            
            (11,681,500
            )Deficit
                accumulated during development stage
            
            
            (45,591,343
            )Total
                Stockholder’s Equity
            
            
            2,221,012**TOTAL
                LIABILITIES AND STOCKHOLDERS EQUITY**
            
            **$**
            12,473,012




See
      notes
      to the condensed financial statements.





-4-




**POWER3
        MEDICAL PRODUCTS, INC.**
 **(A
        Development Stage Enterprise)**
 **CONDENSED
        BALANCE SHEET**
 **AS
        OF DECEMBER 31, 2006**
 **(unaudited)**





**ASSETS****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            40,602Accounts
                receivablePrepaid
                expenses and other current assets
            
            
            34,111Total
                current assets
            
            
            74,713**OTHER
                ASSETS**Goodwill
            
            
            11,583,431Deferred
                finance costs
            
            
            253,336Intangible
                assets
            
            
            179,786Furniture,
                fixtures and equipment, net
            
            
            16,374Deposits
            
            
            5,900**TOTAL
                ASSETS**
            
            $
            12,113,540**LIABILITIES
                AND STOCKHOLDER'S EQUITY****CURRENT
                LIABILITIES**Accounts
                payable and accrued liabilities
            
            $
            878,811Notes
                payable—in default
            
            
            902,000Convertible
                debentures—in default
            
            
            310,496Other
                current liabilities
            
            
            2,739,168Derivative
                liabilities
            
            
            1,999,904Total
                current liabilities
            
            $
            6,830,379**STOCKHOLDERS’
                EQUITY**Common
                Stock-$0.001 par value:150,000,000 shares authorized;71,370,955
                shares issued and outstanding
            
            
            71,370Additional
                paid-in capital
            
            
            59,723,638Deferred
                compensation
            
            
            (1,207,440
            )Loss
                accumulated before entering development stage
            
            
            (11,681,500
            )Loss
                accumulated during the development stage
            
            
            (41,622,907
            )Total
                stockholders’ equity
            
            
            5,283,161**TOTAL
                LIABILITIES AND STOCKHOLDERS’ EQUITY**
            
            $
            12,113,540





-5-
 
  **POWER3
          MEDICAL PRODUCTS, INC****.**


**(A
        Development Stage Enterprise)**
 **STATEMENTS
        OF OPERATIONS**
 **(unaudited)**





**For
                the three month period ended March 31, 2007**
            
            **For
                the three month period ended March 31, 2006**
            
            **Development
                Stage from**
              **May
                18, 2004 to**
              **March
                31, 2007****REVENUES**:Sales
            
            $
            121,724
            
            
            
            
            
            421,724Other
                revenue
            
            
            
            
            
            
            
            
            4,000Total
                revenue
            
            $
            121,724
            
            
            
            
            
            425,724**COST
                OF GOODS SOLD:**Production
                costsTotal
                cost of goods sold
            
            $**GROSS
                PROFIT**
            
            **$**
            121,724
            
            
            
            
            
            425,724**OPERATING
                EXPENSES**:
            
            $Stock
                based compensation
            
            
            186,387
            
            
            3,084,855
            
            
            24,952,710Employee
                compensation and benefits
            
            
            264,826
            
            
            451,788
            
            
            3,605,950Professional
                and consulting fees
            
            
            204,445
            
            
            187,924
            
            
            8,692,983Occupancy
                and equipment
            
            
            32,972
            
            
            39,345
            
            
            289,597Travel
                and entertainment
            
            
            17,810
            
            
            15,391
            
            
            246,307Other
                selling, general and administrative expenses
            
            
            49,072
            
            
            28,684
            
            
            402,035Total
                operating expenses
            
            
            755,512
            
            
            3,807,987
            
            
            38,189,582**LOSS
                FROM OPERATIONS**
            
            **$**
            (633,788
            )
            
            (3,807,987
            )
            
            (37,763,858
            )**OTHER
                INCOME AND (EXPENSE)**:
            
            $Derivative
                income (expense)
            
            
            (2,879,169
            )
            
            (520,154
            )
            
            776,897Interest
                income
            
            
            1,020
            
            
            
            
            
            3,286Other
                income (expense)
            
            
            
            
            
            
            
            
            (3,029,442
            )Interest
                (expense)
            
            
            (456,498
            )
            
            (577,607
            )
            
            (2,197,251
            )Total
                other income(expense)
            
            $
            (3,334,648
            )
            
            (1,097,761
            )
            
            (4,446,510
            )**NET
                INCOME (LOSS)**
            
            
            (3,968,436
            )
            
            (4,905,748
            )
            
            (42,210,368
            )**NET
                LOSS PER SHARE**
            
            
            (.05
            )
            
            (.07
            )
            
            (.67
            )Weighted
                average number of shares outstanding
            
            
            73,014,288
            
            
            65,298,967
            
            
            62,983,480





-6-





**POWER
      3 MEDICAL PRODUCTS, INC**


**(A
      Development Stage** **Enterprise** **)**


**CONDENSED
      STATEMENTS OF CASH FLOWS**


**(unaudited)**





DevelopmentFor
                the Three
            
            For
                the Three
            
            Stage
                ResultsMonths
                Ended
            
            Months
                Ended
            
            May
                18, 2004 -March
                31, 2007
            
            March
                31, 2006
            
            March
                31, 2007OPERATING
                ACTIVITIES:Net
                Loss
            
            $
            (3,968,436
            )
            
            (4,905,748
            )
            
            (42,210,368
            )Adjustment
                to reconcile net loss to net cashused
                in operating activities:Stock
                based services and compensation
            
            
            186,387
            
            
            3,442,507
            
            
            32,639,456Stock
                issued to retire preferred stock and debt
            
            
            
            
            
            
            
            
            4,236Derivative
                (income) expense
            
            
            2,879,169
            
            
            520,154
            
            
            (776,897
            )Depreciation
                and amortization
            
            
            6,888
            
            
            6,820
            
            
            92,204Amortization
                of debt discount and finance costs
            
            
            104,085
            
            
            212,440
            
            
            240,474Other
            
            
            (89,224
            )
            
            
            
            
            7,455,897Decrease(increase)
                in deposits
            
            
            550
            
            
            
            
            
            (5,350
            )Decrease(increase)
                in prepaids
            
            
            
            
            
            (15,057
            )
            
            (750,067
            )Increase
                (decrease) in Deferred finance costs
            
            
            19,519
            
            
            
            
            
            272,855Increase(decrease)
                in accounts payable and accrued liabilities and other
            
            
            318,268
            
            
            23,482
            
            
            (3,691,910
            )Net
                cash used in Operating Activities
            
            $
            (542,794
            )
            
            (715,402
            )
            
            (6,729,470
            )INVESTING
                ACTIVITIESCapital
                expenditures, net
            
            $
            
            
            
            
            
            
            (27,161
            )Increase
                (decrease) in other assets
            
            
            120,000
            
            
            
            
            
            299,786Net
                cash used in Investing Activities
            
            $
            120,000
            
            
            
            
            
            (272,625
            )FINANCING
                ACTIVITIESProceeds
                from CD, warrants and investment rights
            
            $
            
            
            
            
            
            
            1,197,041Proceeds
                from borrowings under notes payable
            
            
            600,000
            
            
            429,400
            
            
            3,523,808Notes
                Payable to Related parties
            
            
            
            
            
            
            
            
            1,393,346Proceeds
                from sale of common stock, net
            
            
            
            
            
            248,929
            
            
            906,746Adjustments
                related to derivatives
            
            
            
            
            
            198,865
            
            
            198,865Net
                cash provided by financing activities
            
            $
            600,000
            
            
            877,194
            
            
            7,219,806Net
                increase (decrease) in cash and cash equivalents
            
            $
            177,206
            
            
            161,792
            
            
            217,711Cash
                and cash equivalents, beginning of period
            
            $
            40,602
            
            
            1,399
            
            
            97Cash
                and cash equivalents, end of period
            
            $
            217,808
            
            
            163,191
            
            
            217,808





-7-





**POWER3
        MEDICAL PRODUCTS, INC.**
 **(A
        Development Stage Enterprise)**
 **STATEMENT
        OF CASH FLOWS (cont.)**
 **(unaudited)**




For
                the Three months endedMarch 31, 2007
            
            For
                the Three months ended March 31, 2006
            
            Cumulative
                during Development Stage
              May
                18, 2004 to March 31, 2007Cash
                paid for:Interest
            
            
            
            
            
            
            
            $
            59,840Income
                taxesNon-cash
                transactions:Exchange
                of convertible preferred stock for common stock
            
            
            
            
            
            
            
            $
            3,380,975Conversion
                of notes payable to amounts due to stockholders
            
            $
            83,362
            
            
            
            
            $
            1,264,765Issuance
                of common stock to retire Notes Payable
            
            $
            190,000
            
            
            
            
            $
            190,000Issuance
                of common stock to retire Convertible Debenture
            
            $
            480,000
            
            
            
            
            $
            480,000Common
                stock issued for services (at market, date of agreement or
                contract):For
                consulting contracts and services
            
            $
            7,400
            
            
            
            
            $
            10,792,089For
                asset acquisition (15,000,000 shares)
            
            
            
            
            
            
            
            $
            13,500,000For
                compensation contracts and to employees
            
            
            
            
            
            
            
            $
            25,066,500Issuance
                of warrants in connection with services
            
            $
            1,540,000
            
            $
            90,000
            
            $
            1,605,000Issuance
                of warrants in connection with notes payable
            
            $
            425,000
            
            
            
            
            $
            1,140,000Retirement
                of common stock
            
            
            
            
            
            
            
            $
            882,000





See
      notes
      to the condensed financial statements.


-8-


**POWER
      3 MEDICAL PRODUCTS, INC**


**(A
      Development Stage Enterprise)**





**NOTES
      TO CONDENSED FINANCIAL STATEMENTS**


**(unaudited)**




***Note
      1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF
      PRESENTATION***





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





Power3
      Medical Products, Inc. is in the development stage since it is focused on
      commercializing the intellectual properties acquired in its transaction with
      Advanced BioChem in May, 2004. Its focus is in the early detection, monitoring
      and targeting of diseases through the analysis of proteins, 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.





***Note
      2.*** **** ***SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES***




The
      Company’s financial statements provide for (i) the classification of warrants as
      liabilities, at fair value, (ii) the classification of embedded conversion
      and
      other features embedded in the convertible debentures and investment rights
      as
      liabilities at fair value and (iii) the amortization of discounts that resulted
      in the host instruments using the effective interest method. This accounting
      treatment is required because, under current accounting standards, financial
      instruments, such as warrants and embedded conversion features that are indexed
      to a Company’s common stock, are classified as liabilities when either (a) the
      holder possesses rights to net-cash settlement or (b) physical or net-share
      settlement is not within the control of the Company. In such instances, net-cash
      settlement is assumed for financial accounting and reporting, even when the
      terms of the underlying contracts do not provide for net-cash settlement. Such
      financial instruments are initially recorded at fair value and subsequently
      adjusted to fair value at the close of each reporting period. This accounting
      will be utilized in the accounting for these instruments until the Company
      reacquires the ability to share settle the instruments or physically settles
      the
      instruments through other means.





Financial
      Instruments and Concentrations of Credit Risk





The
      Company’s financial instruments consist of cash and cash equivalents, accounts
      receivable, accounts payable, accrued expenses, notes payable, derivative
      financial instruments, other current liabilities, and convertible debentures.
      Management believes the carrying values of cash and cash equivalents, accounts
      receivable, accounts payable, accrued expenses, notes payable, and other current
      liabilities approximate their fair values due to their short-term nature.





The
      Company generally does not use derivative financial instruments to hedge
      exposures to cash-flow risks or market-risks that may affect the fair values
      of
      its financial instruments. However, certain other financial instruments, such
      as
      warrants and embedded conversion features that are indexed to the Company’s
      common stock, are classified as liabilities when either (a) the holder possesses
      rights to net-cash settlement or (b) physical or net-share settlement is not
      within the control of the Company. In such instances, net-cash settlement is
      assumed for financial accounting and reporting, even when the terms of the
      underlying contracts do not provide for net-cash settlement. Such financial
      instruments are initially recorded at fair value and subsequently adjusted
      to
      fair value at the close of each reporting period.





-9-


The
      caption Derivative Financial Instruments consists of (i) the fair values
      associated with derivative features embedded in the Convertible Debentures
      and
      (ii) the fair values of the detachable warrants and additional investment rights
      that were issued in connection with the debenture financing arrangements, as
      well as certain promissory notes that have warrants associated with the notes.
      (See Note 8. Financing Arrangements)





The
      Company occasionally maintains cash and cash equivalents balances in excess
      of
      federally insured limits. The Company has not experienced any losses in such
      accounts.





Use
      of
      Estimates





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      certain estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements. The reported amounts of revenues and expenses during
      the reporting period may be affected by the estimates and assumptions management
      is required to make. Estimates that are critical to the accompanying financial
      statements include assessing the impact of contingencies and the amortization
      periods for the debt issuance costs and debt discount on the convertible
      debentures (see Note 7) as well as estimating depreciation and amortization
      periods of tangible and intangible assets, and long-lived impairments, among
      others. The markets for the Company’s products are characterized by intense
      competition, evolving standards and price competition, all of which could impact
      the future realizability of the Company’s assets. Estimates and assumptions are
      reviewed periodically and the effects of revisions are reflected in the
      financial statements in the period they are determined to be necessary.





The
      company uses in house evaluation techniques to estimate the fair value of the
      new warrants issued at the end of the quarter ended March 31, 2007, and to
      account for the impact of these warrants on the account entitled Derivative
      Liability (Other).





Furniture,
      Fixtures and Lab Equipment





Furniture,
      fixtures and lab equipment are stated at cost. Major additions are capitalized,
      while minor additions and maintenance and repairs, which do not extend the
      useful life of an asset, are expensed as incurred. Depreciation and amortization
      are provided using the straight-line method over the assets’ estimated useful
      lives. At March 31, 2007, certain lab equipment having a net book value of
      approximately $57,000 serves as security for certain liabilities.





Debt
      Discounts and Deferred Finance Costs





Debt
      discounts and deferred finance costs are being amortized over the maximum term
      of the convertible debentures of three years using the effective interest
      method.





Long-Lived
      Assets





Statement
      of Financial Accounting Standards (SFAS) 142 “Accounting for Intangible Assets”
provides that goodwill is not subject to periodic amortization, but is evaluated
      at least annually for impairments. The goodwill acquired by the Company at
      the
      time of the May 18, 2004 transaction with Advanced BioChem was evaluated at
      December 31, 2006. As of December 31, 2006, Goodwill was determined to be
      impaired because the fair value of the reporting unit, based on the market
      capitalization of the Company, did not exceed the carrying value of the
      reporting unit, based on assets minus liabilities, at year end 2006.





-10-


Net
      Loss Per Share





Net
      loss
      per share is computed in accordance with SFAS No. 128 "Earnings per Share”
(“SFAS No. 128”) and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the
      provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed
      by
      dividing the net loss available to common stockholders for the period by the
      weighted average number of common shares outstanding during the period. Diluted
      net loss per share is computed by dividing the net loss, adjusted for using
      the
“if-converted method” for convertible securities, for the period by the weighted
      average number of common and common equivalent shares (using the
“treasury-stock” method) outstanding during the period. In periods in which
      common stock equivalents would be anti-dilutive, such shares are ignored in
      the
      loss per share calculations because they would have an anti-dilutive
      effect.





Stock
      - Based Compensation





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





Income
      Taxes





The
      Company computes income taxes using the asset and liability method in accordance
      with Financial Accounting Standards Statement No. 109 “Accounting for Income
      Taxes” (“SFAS 109”). Under SFAS 109, deferred taxes are recognized for the tax
      consequences of temporary differences by applying enacted statutory rates
      applicable to future years to differences between the financial statement
      carrying amounts and the tax basis of existing assets and liabilities. Also,
      the
      effect on deferred taxes of a change in tax rates is recognized in income in
      the
      period that included the enactment date. There were no significant temporary
      differences at March 31, 2007.





Research
      and Development





Research
      and development costs amounted to $19,904 for the quarter ended March 31, 2007.





Cash
      Equivalents





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





Advertising
      Costs





Advertising
      costs are expensed as incurred. No advertising expenses were incurred during
      the
      quarter ended March 31, 2007.





***Note
      3.*** **** ***GOING
      CONCERN*** ****





The
      Company's financial statements are presented on a going concern basis, which
      contemplates the realization of assets and satisfaction of liabilities in the
      normal course of business. The Company is in the development stage and has
      primarily been involved in research and development and capital raising
      activities. As such the Company has incurred significant losses from operations
      during 2005, 2006 and through the end of the quarter ending March 31, 2007.





-11-


As
      a
      result, the Company has an immediate need for capital to continue its
      operations, and it will need to raise significant additional funds to implement
      its business plan. This cash will have to come from equity sales and/or
      borrowings and management has projected that the Company will need significant
      additional capital for development and other ongoing operational activities
      before it will produce sufficient anticipated revenue to support its operations.
      The actual amount of funds that the Company will need will be determined by
      many
      factors, some of which are beyond the Company’s control. These factors
      include:





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


§
            The
                progress and results of research and product
                development;


§
            The
                costs and timing of obtaining new patent
                rights;


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


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





***Note
      4. LOSS PER SHARE***





At
      December 31, 2006, common stock options were excluded from the fully diluted
      loss per share calculations because the effects would be anti-dilutive:





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





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





·
            580,000
                warrants which were issued to members of the Company’s Scientific Advisory
                Board and various other consultants in 2004 (including 100,000 to
                the
                agent that placed the convertible debentures discussed above). The
                warrants, which expire three to five years from the dates of the
                respective grants and were issued at no cost to such personnel, may
                be
                converted to a like number of shares of the Company’s common stock at any
                time prior to their expiration(s). As a result, during the period
                May 18,
                2004 (date of acquisition) to December 31, 2005, the Company recorded
                $284,447 of stock based compensation as a result of the issuance
                of these
                warrants.





·
            2,000,000
                warrants were issued in November and December of 2005 to Trinity
                Finance
                Investments associated with two Notes, 1,000,000 warrants each, for
                invested funds. The warrants which expire in 7-8 years may be converted
                to
                a like number of shares at any time prior to their expiration date.
                As a
                result the Company recorded $6,429 of stock-based compensation as
                a result
                of the issuance of these warrants.





·
            During
                the quarter ending September 30, 2006, the Company issued 5,949,998
                warrants toindividuals
                who had provided bridge loans to the company by purchasing convertible
                notes.





·
            During
                the quarter ending March 31, 2007, the Company issued 9,166,664 warrants
                toindividuals
                who had provided financing to the Company through the purchase of
                convertibleNotes
                Payable. In addition, on February 28, 2007, the Company granted 6,000,000
                warrants to Noble International Investments in exchange for services
                provided under a consulting
                agreement.





During
      the first quarter of 2007, $324,091 was amortized to stock option expense for
      warrants.





-12-


**** ***Note
      5*** **.** ***INCOME
      TAXES***





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





Based
      on
      the Company’s 2005 tax return, the Company has net operating loss carryforwards
      for income tax purposes of approximately $13,611,561 arising primarily from
      stock based expenses that are considered to be permanent differences. These
      net
      operating loss carryforwards expire at various times through the period ended
      December 31, 2022 however because the Company has experienced changes in control
      and has incurred significant operating losses, utilization of the income tax
      loss carryforwards are not assured. As a result, the non-current deferred income
      tax asset arising from these net operating loss carryforwards is not recorded
      in
      the accompanying balance sheet because the Company established a valuation
      allowance to fully reserve such assets as their realization did not meet the
      required asset recognition standard established by SFAS 109.





***Note
      6*** **.** ***RELATED
      PARTY TRANSACTIONS***





During
      the year ended December 31, 2006, holders of several notes payable from the
      Company began selling shares which had been personally pledged to them by
      officers of the company, as consideration for said notes and the note holders
      used the proceeds received from selling these personally pledged shares against
      the interest and notes payable due on notes they held. As of March 31, 2007,
      in
      order to recognize this reduction in outstanding balances due to the holders
      of
      these notes payable, the Company has converted $687,524 from various notes
      payable to Due to Officer(R), Steve Rash, representing the total amount of
      proceeds received from the sales of his pledged shares through March 31, 2007;
      and $789,184 to Due to Officer (G) representing the total amount of proceeds
      received through March 31, 2007, by note holders from selling common shares
      pledged by Dr. Ira Goldknopf.





***Note
      7.*** **** ***OTHER
      COMMITMENTS AND CONTINGENCIES***





Operating
      Lease for Office and Laboratory Space





In
      August
      2004, the Company entered into an office and laboratory space lease which
      expires on August 31, 2009, has an initial term of sixty-three months, and
      requires base monthly minimum lease payments ranging from approximately $6,000
      to $9,600 (plus utilities and operating expenses) over the lease term. The
      lease
      contains a provision which allows the Company to extend the lease for two
      additional terms of sixty months. Rent expense, for the office lease, was
      $24,837 for the quarter ended March 31, 2007.





Other
      Leases





In
      June,
      2004, the Company entered into a new lease for a telephone system which expires
      in June, 2009, has an initial term of 60 months and requires base monthly
      minimum lease payments in the amount of $184.51 per month over the lease term.
      The Company paid $554 on this lease during the quarter ended March 31, 2007





In
      October, 2004, the Company entered into a new lease for computers which expires
      in September, 2006, has an initial term of 24 months and requires base monthly
      minimum lease payments in the amount of $344 per month over the lease term.
      The
      Company paid $1,032 on this lease during the quarter ended March 31, 2007.





Future
      lease commitments are as follows:





2007
            
            $
            106,4202008
            
            $
            114,8002009
            
            $
            39,434





-13-


Other
      Contingencies





An
      equipment vendor filed a complaint against Advanced BioChem (which related
      to
      equipment acquired by Power3 in the May 18, 2004 transaction) in April of 2002
      in a California court alleging breach of contract and seeking damages. Advanced
      BioChem reached a settlement agreement in April of 2003 under which Advanced
      BioChem agreed to pay the vendor $40,000 in installments through August of
      2003.
      At December 31, 2003, Advanced BioChem had a balance remaining of $20,000.
      In
      April 2005 the equipment vendor filed a lawsuit against Advanced BioChem and
      certain former officers of Advanced BioChem, and against Power3, in order to
      enforce its claim for the remaining balance which is past due and may be assumed
      by the Company as part of the settlement of the dispute with Advanced BioChem
      as
      to liabilities assumed in the May 18, 2004 transaction. The Company has filed
      an
      answer, disputing all allegations in the complaint and expects to settle this
      suit in upcoming mediation. As such, no effect has been given to any loss that
      might result from the outcome of this litigation in the accompanying financial
      statements.





In
      June,
      2005, Charles Caudle et al filed a lawsuit in Harris County, TX against Advanced
      BioChem, Power3 and the officers and directors of both companies. Power3 has
      filed an answer denying all claims in the lawsuit. The Company believes that
      the
      Plaintiff’s claims are without merit, however the Company cannot be assured it
      will prevail or if the outcome of the action will adversely affect the Company’s
      financial position or operations. The Company disputes the allegations in the
      complaint and the matter has been scheduled for mediation. No effect has been
      given to any loss that might result from the outcome of this litigation in
      the
      accompanying financial statements.





In
      September, 2005, Focus Partners LLC filed suit against David Zazoff and Power3
      alleging that Power3 breached its agreement with Focus Partners in that it
      failed to issue stock to the Plaintiff according to the terms of their
      agreement, that the stock in question was issued to Zazoff and that Zazoff
      later
      sold the stock in question for $480,000. The Company intends to vigorously
      defend this matter and prosecute its claims and cross-claims. Negotiations
      between the parties are ongoing, however no resolution has been achieved so
      far.
      No effect has been given to any loss that might result from the outcome of
      this
      litigation in the accompanying financial statements.





The
      Company is involved in several other debt collection lawsuits totaling less
      than
      $15,000, plus court costs and interest. Since none of these matters has come
      to
      court, or is expected to within a short amount of time, the Company cannot
      be
      certain how any of these four matters will be resolved. Although the Company
      disputes certain of the claims in these matters, the original debt amounts
      are
      recorded in accounts payable on the balance sheet of the
      Company.





***Note
      8. FINANCING ARRANGEMENTS*** **:**





**Securities
      Purchase Agreement—Convertible Debentures**




The
      Company entered into a Securities Purchase Agreement, dated October 28, 2004
      (the “Agreement”) with certain accredited investors (the “Purchasers”). Pursuant
      to the Agreement, the Purchasers agreed to purchase convertible debentures
      due
      three (3) years from the date of issuance in the aggregate principal amount
      of
      $3,000,000. The Agreement also provides for the issuance to the Purchasers,
      at
      no additional cost to the purchasers, warrants to purchase shares of the
      Company's common stock and additional investment rights to purchase additional
      convertible debentures. In connection with the Agreement, the Company also
      entered into a Registration Rights Agreement with the Purchasers that requires
      the Company to (i) file a registration statement with the SEC registering the
      resale of the shares of common stock issuable upon conversion of the debentures
      and the exercise of the warrants, (ii) achieve effectiveness within a stated
      period and (iii) maintain effectiveness of the registration statement. Failure
      to meet these requirements will require the Company to incur liquidating damages
      amounting to 2.0% for each month.





-14-


On
      October 28, 2004, the Company issued the Purchasers the first $1,000,000 in
      aggregate principal amount of such debentures at the initial closing under
      the
      Agreement. Effective January 26, 2005, the Company issued and sold, to a
      sub-group of the original investors, a second tranche of $400,000 aggregate
      principal amount of debentures. Subject to the conditions set forth in the
      Agreement, all purchasers are required to purchase the remaining $1,600,000
      in
      aggregate principal amount of such debentures at the final closing, which is
      to
      occur on or before the fifth trading day after the effective date of the
      registration statement. The Company is currently in default under the Agreement
      and the previously issued debentures and related registration rights agreement,
      and therefore the conditions of the Agreement will not be satisfied or otherwise
      met on a timely basis. Consequently, there are no assurances that the Purchasers
      will purchase all or any portion of the remaining $1,600,000 aggregate principal
      amount of debentures. The $1,000,000 aggregate principal amount of debentures
      issued in the initial closing and the $400,000 aggregate principal amount of
      debentures issued on January 19, 2005 are due and payable in accordance with
      their original terms in full three years after the date of issuance and do
      not
      bear interest. The debentures which may be issued at the final closing will
      be
      due and payable in full three (3) years after the date of their issuance, and
      will also not bear interest. At any time from the closing date until the
      maturity date of the debentures, the Purchasers have the right to convert the
      debentures, in whole or in part, into common stock of the Company at the then
      effective conversion price, which varies relative to the Company’s trading stock
      price, as follows: $0.90 per share, provided however if the lesser of (i) 75%
      of
      the average of the 5 consecutive Closing Prices immediately prior to the
      Effective Date, as defined in the Securities Purchase Agreement, and (ii) the
      Closing Price on the Effective Date (the lesser of (i) and (ii) being referred
      to as the “Effective Date Price”) is less than the Conversion Price, the
      Conversion Price shall be reduced to equal the Effective Date
      Price.





The
      debentures also afford the Purchasers anti-dilution protection should, at any
      time while the debentures are outstanding, the Company offer, sell or grant
      any
      option to purchase or offer, sell or grant any right to reprice its securities,
      or otherwise dispose of or issue any common stock or common stock equivalents,
      entitle any person to acquire shares of common stock at an effective price
      per
      share less than the then effective Conversion Price, as calculated by the
      formula described above; then, in such instance, the Conversion Price for the
      convertible debenture shares shall be reduced to the lower price. In case of
      any
      such adjustment in the effective Conversion Price for the convertible debenture
      shares, this could significantly dilute existing investors.





Under
      the
      Agreement, the Purchasers also received warrants to purchase an aggregate of
      up
      to 2,500,000 shares of common stock and additional investment rights to purchase
      up to an additional $2,500,000 principal amount of convertible debentures.
      The
      warrants are exercisable at a price of $1.44 per share, subject to adjustment,
      including under anti-dilution protection similar to that described
      above .





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





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





The
      convertible debentures contain consequences in case of default. Events of
      default which could subject the Company to penalties and liabilities as
      specified in the Agreement include:





-15-


·
            Any
                default in the payment of the principal amount of the debentures
                or the
                liquidated damages;





·
            Any
                untrue or incorrect representation or warranty in the Transaction
                document
                or any other report, financial statement or certificate made to
                Holder(s);





·
            Any
                case or action of bankruptcy or insolvency commenced by the Company,
                against the Company or adjudicated by a court against the Company
                for the
                benefit of creditors;





·
            Any
                default in its obligations under a mortgage or debt in excess of
                $150,000;





·
            Any
                cease in the eligibility of the Company’s stock to be quoted on a Trading
                Market;





·
            Any
                Change in Control or sale or disposal of 33% or more of the assets
                of the
                Company;





·
            Any
                lapse in the effectiveness of the Registration Statement covering
                the
                shares related to the debenture conversion option, the warrants or
                the
                additional investment rights as described and transacted in the Securities
                Purchase Agreement and accompanying
                documents;





·
            Any
                failure to deliver certificates within the specified time;
                and





·
            Any
                failure, by the Company, to pay in full the amount of cash due pursuant
                to
                a Buy-In or failure to pay any amounts owed on account on account
                of an
                Event of Default within 10 days of the date
                due.





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





Other
      provisions included in the Securities Purchase Agreement include the
      following:





·
            The
                debenture may be exchanged for an equal aggregate principal amount
                of
                debentures in different authorized
                denominations;





·
            The
                debenture is convertible into common stock, at the option of the
                Holder,
                at any time after the effective date of the debenture, any time after
                an
                event of default and from time to time subject to limitations on
                conversion specified in the
                Agreement;





·
            Conversions
                can be made in smaller increments and from time to time. If smaller
                amounts of the debentures are converted, the Holder will not be required
                to physically surrender the
                debentures;





·
            The
                Company has one business day after receipt of conversion notice to
                object
                to any such request to convert;





·
            The
                Holder shall not have the right to convert any portion of his debenture
                if
                such conversion would enable him to own in excess of 4.99% of the
                outstanding common stock of the
                Company;





-16-


·
            No
                later than 3 trading days after any conversion date, the Company
                will
                deliver a certificate representing the converted shares, free of
                any
                legends and trading restrictions for the number of shares
                converted;





·
            If
                the Company fails to deliver said certificates, liquidated damages
                of
                $1,000 per day will be paid;





·
            The
                Company will reserve and keep available authorized and unissued registered
                shares available to be issued upon
                conversion;





·
            Holder
                will not be responsible for any transfer taxes relative to issuance
                of
                shares;





·
            If
                the Company pays a stock dividend or other distribution on its shares,
                or
                splits or subdivides its shares or issue by reclassification or any
                such
                change in its common shares outstanding, then the number of shares
                available to Holder shall be adjusted
                proportionally;





·
            If
                the Company shall offer, sell, grant any option or otherwise distribute
                shares to holders of common stock, the number of shares available
                to
                Holder shall be adjusted
                proportionally;





·
            If
                the Company is involved in any merger or acquisition, the conversion
                price
                of the stock shall be adjusted to reflect the effects of such previous
                adjustment;





·
            During
                the term of the debentures, the Company is not permitted to do certain
                things unless approved by the holders of 2/3 majority of the debentures
                such as create any indebtedness senior to the Company’s debenture
                obligations, amend its certificate of incorporation or buy back any
                amount
                of its common stock;





·
            If
                the Company offers, sells or grants stock at an effective per share
                price
                less than the then Conversion Price, then the Conversion Price shall
                be
                reduced to equal the effective conversion, exchange or purchase price
                for
                such common stock or common stock
                equivalents;





·
            If
                the Company offers, sells or grants securities that have a price
                less than
                the otherwise calculated Conversion Price, then the current exercise
                price
                of the warrants is thereby adjusted to be the lower of the offered
                or sold
                price or the otherwise calculated Conversion
                Price;





·
            If
                there is an Event of Default, all amounts become due in the form
                of a
                Mandatory Prepayment Amount (discussed as follows), with maximum
                interest
                and penalty payments; and





·
            Miscellaneous
                other provisions such as notice in writing, governing law, waiver
                and
                severability.





As
      mentioned above, the Company is in default under the provisions of the
      Agreement, Registration Rights Agreement and previously issued debentures.
      The
      events of default principally relate to the Company’s inability to have its
      registration statement declared effective within the time period required by
      the
      agreements. Although the Company intends to seek waivers or forbearance
      agreements from the holders of its debentures, there is no assurance that the
      Company will receive such concessions. As such, the indebtedness has been
      classified as a current liability in the accompanying balance sheet. If the
      Company is unable to obtain such concessions, the aggregate amount payable
      under
      the outstanding debentures due to the acceleration thereof by reason of the
      default is equal to the “Mandatory Prepayment Amount” as specified in the
      debentures. The Mandatory Prepayment Amount equals the sum of (i) the greater
      of: (a) 130% of the principal amount of the debentures to be prepaid, or (b)
      the
      principal amount of the debentures to be prepaid, divided by the conversion
      price on (x) the date the payment is demanded or otherwise due, or
      (y) the date the payment is paid in full, whichever is less, multiplied by
      the closing price of the Company’s common stock on (x) the date the payment
      is demanded or otherwise due, or (y) the date the payment is paid in full,
      whichever is greater, and (ii) all other amounts, costs, expenses and
      liquidated damages due in respect of the debentures.





-17-


The
      Company is in default on the Convertible Debentures with regard to the deadline
      for having the registration statement be effective, the withdrawal of the
      Company’s stock from trading on the OTCBB and several other default clauses.
      Besides the provisions for the Mandatory Prepayment provisions which become
      effective if the Company is in default on these debentures and the liquidated
      damages resulting from the registration statement not being effective, as
      discussed immediately above, the Company is also subject to partial liquidated
      damages for not being able to deliver share certificates, if such were demanded
      in a conversion action by a debenture holder. These partial liquidated damages
      amount to $10 per trading day, for each $1,000 of principal amount being
      converted, increasing to $20 per trading day after 5 trading days from when
      such
      damages begin to accrue, until the share certificates are delivered by the
      Company.





The
      Company has received notice from one of the Purchasers informing the Company
      that it is in default under the debentures and demanding payment of the
      Mandatory Prepayment Amount, together with the liquidated damages, to which
      it
      is entitled pursuant to the agreement. The Company has filed an SB-2 to register
      the shares of stock associated with the convertible debenture agreements and
      is
      endeavoring to have it declared effective as soon as practicable. The Company
      is
      in discussion with its debenture holders regarding a resolution of this
      matter.





In
      connection with such financing, the Company issued, a warrant to purchase
      100,000 shares of common stock at an exercise price of $3.00 to its placement
      agent, Westor Online and Kogan and Associates. If any investor exercises their
      additional investment rights and purchases additional debentures, the placement
      agent will be entitled to receive additional warrants to purchase up to a number
      of shares of common stock equal to ten percent (10%) of the exercise price
      paid
      upon exercise of the additional investment rights divided by ninety percent
      (90%) of the market price as of the initial closing. The Company accounted
      for
      the warrants as deferred financing costs and is amortizing the fair values
      thereof through periodic charges to interest expense using the effective
      method.





Convertible
      Debentures, Warrants and Additional Investment Rights :





The
      carrying values of the Company’s convertible debentures amounted to $75,279, at
      December 31, 2005, and $310,496 at December 31, 2006. The fair values of the
      liabilities associated with the convertible debenture issue in October, 2004
      and
      January, 2005, were $1,252,633 as of March 31, 2007, and the fair values of
      the
      Company’s other derivative liabilities were $4,138,390 as of March 31, 2007. The
      convertible debentures face value was $1,000,000 and $1,400,000, as of December
      31, 2004 and 2005, consisting of non-interest bearing convertible debentures
      funded in two traunches: $1,000,000 on October 28, 2007 and $400,000 due on
      January 26, 2008. The convertible debentures arose from the aforementioned
      financing, where the proceeds were allocated among the components of the
      financing arrangement, as follows:





**Traunch
                1**
            
            **Traunch
                2****Instrument:**
            
            **October
                28, 2004**
            
            **January
                26, 2005**
            
            **Total**Convertible
                debentures (1)
            
            $
            --
            
            $
            --
            
            $
            --Common
                stock warrants (2)
            
            
            3,070,750
            
            
            135,000
            
            
            3,205,750Embedded
                conversion feature
            
            
            882,556
            
            
            266,592
            
            
            1,149,148Additional
                investment rights
            
            
            606,867
            
            
            225,415
            
            
            832,282Derivative
                loss
            
            
            (3,560,173
            )
            
            (227,006
            )
            
            (3,787,179
            )Total
                gross proceeds (3)
            
            $
            1,000,000
            
            $
            400,000
            
            $
            1,400,000





(1)
            The
                discount to the face value of the convertible debentures that resulted
                from the allocation is being amortized through periodic charges to
                interest expense using the effective method. Amortization of the
                discount
                amounted to $14,251 and $61,028 during the years ended December 31,
                2004
                and 2005, respectively.





-18-


(2)
            The
                Company issued additional warrants to purchase 333,333 shares of
                common
                stock in connection with Traunche 2, which was not contemplated in
                the
                initial financing agreement. Current accounting standards require
                that
                these warrants be allocated between the debt (and recorded as deferred
                financing costs) and the derivative instruments (and allocated directly
                to
                derivative expense). Since the initial allocation of proceeds did
                not
                result in any initial value allocated to the debt, the fair value
                of these
                warrants was charged to derivative expense, as reflected in the
                table.





(3)
            Direct
                financing costs associated with the offerings amounted to $140,959
                and
                $62,000 for Traunche 1 and Traunche 2, respectively. These deferred
                financing costs are being amortized through periodic charges to interest
                expense using the effective method. Amortization of the deferred
                financing
                costs amounted to $10,061 for the quarter ended March 31, 2007.





Derivative
      financial instruments arising from the financing are initially recorded and
      continuously carried at fair values. The following tabular presentation reflects
      the fair values of the components of derivative financial instruments on the
      Company’s balance sheet at December 31, 2005 and 2006:





**(Assets)
                Liabilities:**
            
            **2005**
            
            **2006**Common
                stock warrants
            
            $
            57,250
            
            $
            38,947Embedded
                conversion feature
            
            
            632,000
            
            
            553,785Additional
                investment rights
            
            
            537,778
            
            
            481,636Other
                derivative instruments (1)
            
            
            229,124
            
            
            397,602$
            1,454,936
            
            $
            1,471,970





(1)
            The
                fair values of certain other derivative financial instruments (warrants
                and convertible preferred stock) that existed at the time of the
                initial
                Debenture Financing were reclassed from stockholders’ equity to
                liabilities when, in connection with the Debenture Financing, the
                Company
                no longer controlled its ability to share-settle these instruments.
                These
                derivative financial instruments had a fair value of $5,835,443 on
                October
                28, 2004, when the Company no longer controlled its ability to
                share-settle the instruments. Prior to December 31, 2004, the Company
                settled the preferred stock with the issuance of common stock. As
                a
                result, the derivative liability associated with the preferred stock
                was
                adjusted to fair value immediately before the settlement and reclassed
                to
                common equity. The remaining instruments will be reclassified to
                stockholders’ equity when the Company reacquires the ability to
                share-settle the instruments.





The
      following tabular presentation reflects the number of common shares into which
      the aforementioned derivative financial instruments are indexed at December
      31,
      2005 and 2006:





**Shares
                of common stock**
            
            **2005**
            
            **2006**Common
                stock warrants from debentures
            
            
            2,833,333
            
            
            2,833,333Embedded
                conversion feature (1)
            
            
            18,666,666
            
            
            18,918,919Additional
                investment rights (1)
            
            
            15,555,555
            
            
            15,555,555Other
                derivative instruments (2)
            
            
            3,480,000
            
            
            12,899,99640,535,556
            
            
            50,207,803





The
      terms
      of the embedded conversion features in the debentures and additional investment
      rights provide for variable conversion rates that are indexed to the Company’s
      trading common stock price. As a result, the number of indexed shares is subject
      to continuous fluctuation.





During
      November and December 2005, the Company issued the Trinity notes payable that
      had detachable warrants for the purchase of 2,000,000 shares of common stock.
      These and other warrants issued by the Company constitute the incremental
      increase in other derivative instruments. Because share settlement of these
      warrants is not within the control of the Company, the warrants were classified
      as derivative financial instruments at their initial fair value. See Trinity
      Notes Payable, below.





-19-


Derivative
      Gain for the years ended December 31, 2005 and 2006 associated with adjustments
      recorded to reflect the aforementioned derivatives at fair value (in addition
      to
      the initial allocation, above) amounted to $2,019,884 and $65,834, respectively.
      These gains were primarily a result of the market price of the Company’s common
      stock declining during these periods.





Fair
      value considerations for derivative financial instruments :





Freestanding
      derivative financial instruments, consisting of warrants that arose from the
      debenture financing, are valued using the Black-Scholes-Merton valuation
      methodology because that model embodies all of the relevant assumptions that
      address the features underlying these instruments. Significant assumptions
      included in this model are as follows:


**Traunch
                1**
            **Traunch
                2****Instrument**
            **Warrants**
            **Warrants**Exercise
                prices
            $1.44
            $1.44Initial
                term (years)
            5.0
            5.0Volatility
            81.25%
            81.25%Interest
                rate
            8.25%
            8.25%





Embedded
      derivative financial instruments, arising from the debentures and the additional
      investment rights, consist of multiple individual features that were embedded
      in
      the convertible debentures. The Company evaluated all significant features
      of
      the hybrid instruments and, where required under current accounting standards,
      bifurcated features for separate report classification. These features were,
      as
      attributable to each convertible debenture and additional investment right,
      aggregated into one compound derivative financial instrument for financial
      reporting purposes. The compound embedded derivative instruments are valued
      using the Flexible Monte Carlo methodology because that model embodies certain
      relevant assumptions (including, but not limited to, interest rate risk, credit
      risk, and conversion/redemption privileges) that are necessary to value these
      complex derivatives.





Assumptions
      included exercise estimates/behaviors and the following other significant
      estimates:


**Traunch
                1**
            **Traunch
                2****Instrument**
            **Features**
            **Features**Conversion
                prices
            $0.06—$0.90
            $0.06—$1.08Remaining
                terms (years)
            .6—3.5
            .8—3.5Equivalent
                volatility
            78.17%--81.53%
            78.17%--81.53%Equivalent
                interest-risk adjusted rate
            5.18%--8.25%
            5.20%--8.25%Equivalent
                credit-risk adjusted yield rate
            23.1%--45.7%
            12.8%--14.2%





Equivalent
      amounts reflect the net results of multiple modeling simulations that the Monte
      Carlo Simulation methodology applies to underlying assumptions.





Other
      derivative financial instruments consist of warrants and Series A Preferred
      stock that were issued prior to and subsequent to the debenture financing and
      were reclassified from stockholders’ equity or initially accounted as
      liabilities, at fair values, since share-settlement was not within the Company’s
      control after the debenture financing. The other warrants are valued using
      the
      Black-Scholes-Merton valuation methodology because that model embodies all
      of
      the relevant assumptions that address the features underlying those instruments.
      The preferred stock was determined by management to contain simple, non-complex
      conversion features and was, therefore, also valued using Black-Scholes-Merton
      methodology. Significant assumptions included in this model are as
      follows:


-20-


**Instrument**
            **Other
                Warrants**
            **Preferred
                Stock(1)**Exercise
                prices (1)
            $0.06--$3.00
            $1.00Initial
                term (years)
            3.0—8.0
            5.0Volatility
            81.25%
            84.90%Interest
                rate
            8.25%
            3.34%





(1)
            As
                previously discussed, the preferred stock was converted to common
                stock
                before the close of the 2004 year
                end.





Trinity
      Notes Payable





During
      November and December 2005, the Company issued $300,000 face value, 11% notes
      payable and detachable warrants to purchase 2,000,000 shares of common stock
      to
      Trinity Financing Investments Corporation. Principal due on the notes was
      payable in the amount of $150,000 in March and $150,000 in April, 2006, along
      with accompanying interest. The first $150,000 note has been redeemed and is
      no
      longer outstanding because the note holder sold common shares of Power3, pledged
      by officers of the company, in satisfaction of both the interest and the note
      payable itself. Although the Company has been informed that sufficient pledged
      shares have been sold to extinguish the outstanding debt for the second $150,000
      note payable, the Company has no paperwork or documentation to support that
      claim. Therefore, the second $150,000 note remains outstanding and payable
      as of
      March 31, 2007. The warrants associated with these two notes have eight-year
      terms and strike prices of $0.25 for 1,000,000 shares and $0.14 for 1,000,000
      shares.





The
      proceeds from the Trinity financing were allocated first to the warrants, based
      upon their fair values, with the balance of $103,100 allocated to the notes.
      The
      allocation of proceeds to the fair value of the warrants was performed because,
      as discussed in the previous section, share settlement is not within
      management’s control. Such amount was initially classified as a derivative
      liability. The resulting note discount is being amortized through periodic
      charges to interest expense using the effective method. Amortization of note
      discount amounted to $32,773 during the period from issuance of the notes to
      December 31, 2005 and $175,127 for the year ended December 31, 2006.





Other
      Notes Payable





During
      the last half of 2006 and the first quarter of 2007, the Company issued
      convertible Notes Payable to various investors. The principal amounts of the
      individual notes varied from $12,000 to $200,000 and total $1,157,000. These
      Notes Payable are convertible at $.06 per share and the term of the notes are
      for a period of 1 year. The fair value of the derivative liability associated
      with these Notes Payable, as of March 31, 2007, is carried at
      $1,300,836.





Other
      Warrants





In
      addition, the purchasers of the Notes Payable mentioned above, received warrants
      to purchase additional common shares of the Company’s stock, generally at an
      exercise price of $.08 per share. The warrants are valid for a period of 3
      years. The total number of warrants issued to these Note Payable purchasers
      is
      18,283,327.





Further,
      in late February, the Company issued 6,000,000 warrants to a consultant, for
      services rendered. These warrants are exercisable at $.08 per share and are
      valid for 5 years.





The
      fair
      value of the derivative liability associated with all outstanding warrants
      issued by the Company, as of March 31, 2007, is $2,899,071.





-21-





***Note
      9. OTHER SIGNIFICANT EQUITY TRANSACTIONS***





In
      early
      January, 2007, the Company agreed to issue 100,000 shares of common stock to
      a
      consultant for services provided.





In
      February, 2007, a note holder chose to convert his $60,000 convertible Note
      Payable into common shares and he was issued 1,000,000 shares of common stock.
      The note holder retained the warrants he had received previously when he entered
      into the Note Payable, during 2006.





In
      late
      February, 2007, the Company reached a settlement with Quinn Capital, a previous
      claimant in a law suit. As part of this settlement, the Company agreed to issue
      500,000 shares to Quinn Capital.





In
      February, 2007, the Company reached an agreement with a convertible debenture
      holder to allow the holder to convert his debenture to common stock. The
      debenture holder received 3,000,000 shares of stock directly and another
      1,000,000 shares was put in the name of the debenture holder, but held in escrow
      with Power3’s SEC counsel, to insure that sales of the common stock received in
      the conversion, would allow the debenture holder to receive a minimum agreed
      upon amount, as per the settlement. If the debenture holder does not receive
      the
      agreed upon amount, at time of sale of the first 3,000,000 shares, the remaining
      1,000,000 shares will be released, as required, by the escrow agent, to the
      debenture holder.





During
      the quarter ending March 31, 2007, the Company issued 9,166,665 warrants to
      individuals, in conjunction with the issuance of convertible Notes Payable,
      in
      order to raise working capital for operations. The notes are convertible into
      9,166,665 shares of common stock, at an exercise price of $.06 per share, at
      the
      option of the note holder.





In
      mid
      March, 2007, the Company entered into a consulting agreement with Noble
      International Investments and as a part of and condition to the agreement,
      Noble
      was granted warrants for the purchase of 6,000,000 shares of common stock of
      the
      Company, exercisable at $.08 per share for a period of five years.





In
      early
      April, 2007, the Company signed an agreement to form a Joint Venture with and
      issue a convertible debenture to Neogenomics, Inc., a Florida-based research
      and
      bioscience company. As part of this agreement, Neogenomics receives a First
      Option to purchase voting, convertible preferred stock that is convertible
      into
      such number of shares of common stock of the Company equal to a maximum of
      20%
      of the Company’s voting Common Stock, after taking into consideration all
      outstanding First Option Preferred Stock on an as-converted basis. This First
      Option is irrevocable to the fullest extent permitted by law, and must be
      exercised before November 16, 2007 or 10 business days after a set of conditions
      have been satisfied, as specified in pages 3 and 4 of the agreement. In
      addition, Neogenomics received a Second Option to purchase voting convertible
      preferred stock that is convertible into such number of shares of common stock
      as is necessary to increase its ownership of the voting Common Stock of the
      Company, on an as-converted basis, up to 60% of the Company’s voting Common
      Stock, after taking into consideration all outstanding First Option Preferred
      Stock and Second Option Preferred Stock. Such Second Option will only be
      exercisable following exercise of the First Option, discussed previously, and
      will expire 12 months after the First Option Expiration Date as specified in
      paragraph 6 of the agreement.





Stock
      Option Plans





The
      Company has various stock option and warrant plans outstanding. Options granted
      under the 1998 stock option plans are exercisable only after the respective
      vesting period, which is determined by the Company's stock option committee.
      Options expire seven years from the date of grant. Under the 1999 stock option
      plan, options granted to employees vest ratably over three years as determined
      by the Company's stock option committee for options granted to officers,
      directors, and consultants. Options expire ten years from the date of grant.
      A
      total of 6,360 options remained in effect for warrants granted in 2000. The
      fair
      value of these warrants was estimated at the date of grant using a Black-Scholes
      option pricing model with the following assumptions for warrants granted in
      2000: risk-free interest rate of 6.03%;dividend yield of 0%; volatility factor
      of the expected market price of the Company’s common stock of $.34; and a
      weighted-average expected life of the options of 2.7 years.





-22-


In
      March
      2003, the Company’s board of directors approved a 2003 Stock Compensation Plan. On
      September 25, 2003, the Company filed a Post-Effective Amendment No. 1, to
      it’s
      previously filed Form S-8 Registration Statement for the 2003 Stock Compensation
      Plan, to deregister the 2003 Stock Compensation Plan as well as the 8,000,000
      shares of Power3’s common stock previously registered in the previous S-8 filed
      and the warrants that had been previously issued were cancelled by mutual
      consent.





In
      January 2004, the Company’s Board of Directors approved the 2004 Directors,
      Officers and Consultants Stock Option, Stock Warrant, and Stock Award Plan
      (the
      2004 Plan). Pursuant to the 2004 Plan, initially 10,000,000 shares of common
      stock, warrants, options, preferred stock or any combination thereof may be
      optioned. After the grant of any option, warrant or share of preferred stock,
      the number of shares that may be optioned under the 2004 Plan will be increased.
      The number of shares of such increase shall be an amount such that immediately
      following such increase, the total number of shares issuable under this plan
      and
      reserved for issuance upon exercise of options, warrants, or conversion of
      shares of preferred stock will equal 15% of the total number of issued and
      outstanding shares of the Company’s common stock. The Company has issued
      approximately 53,697,700 shares of common stock and 26,833,327 warrants under
      the 2004 Plan. Based upon the automatic increase provisions above, the number
      of
      shares available for issue under the Plan is 11,546,393, based upon 15% of
      the
      outstanding shares as of March 31, 2007.





Pro
      forma
      information regarding net income and earnings per share is required by SFAS
      123,
      and has been determined as if the Company had accounted for all of its options
      and warrants (the “Warrants”) under the fair value method of that Statement. The
      fair value for the Warrants was estimated at the date of grant using a
      Black-Scholes option pricing model with the following assumptions for Warrants
      granted in 2000: risk-free interest rate of 6.03%; dividend yield of 0%;
      volatility factor of the expected market price of the Company's common stock
      of
      .34; and a weighted-average expected life of the options of 2.7 years. The
      following assumptions were used for Warrants granted in 2004: Risk-free interest
      rate of 5.0%; dividend yield of 0%; volatility factor of the expected market
      price of the Company's common stock of 1.86 and a weighted-average expected
      life
      of the options of -0- years (as all were immediately vested). The following
      assumptions were used for Warrants granted in 2005: Risk-free interest rate
      of
      5.5%; dividend yield of 0%, volatility factor of the expected market price
      of
      the Company’s common stock of 1.86 and a weighted-average expected life of the
      2005 options for 7 years. The Black-Scholes option valuation model was developed
      for use in estimating the fair value of traded Warrants that have no vesting
      restrictions and are fully transferable. In addition, option valuation models
      require the input of highly subjective assumptions including the expected stock
      price volatility. Because the Company's warrants have characteristics
      significantly different from those of traded warrants, and because changes
      in
      the subjective input assumptions can materially affect the fair value estimate,
      in management's opinion, the existing models do not necessarily provide a
      reliable single measure of the fair value of its stock options.





***Item
      2**.**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION***





Forward
      Looking Statements





This
      report contains certain forward-looking statements of the intentions, hopes,
      beliefs, expectations, strategies, and predictions of the Company or its
      management with respect to future activities or other future events or
      conditions within the meaning of Section 27A of the Securities Act of 1933,
      as
      amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
      These statements are usually identified by the use of words such as “believes,”
“will,” “anticipates,” “estimates,” “expects,” “projects,” “plans,” “intends,”
“should,” “could,” or similar expressions. These statements are based on certain
      assumptions and analyses made by the Company in light of its experience and
      its
      perception of historical trends, current conditions, expected future
      developments and other factors it believes are appropriate. Investors are
      cautioned that all forward-looking statements involve risks and uncertainties,
      including, without limitation:





-23-


·
            The
                Company’s history of operating
                losses;





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





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





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





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





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





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





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





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





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





Overview





Power3
      Medical Products, Inc. is a late stage development company engaged in the
      discovery, development, and commercialization of protein biomarkers. The Company
      has made significant progress in establishing the effectiveness of its patent
      pending biomarkers in blood serum based tests for the early detection and
      diagnosis of breast cancer, neurodegenerative diseases and drug resistance.
      Power3’s revenue model, based on the licensing of its technology to diagnostic
      and pharmaceutical companies, results in royalty and milestone payments over
      the
      life of the agreements. Power3 has been successful in signing important license
      agreements. The Company has an IP portfolio of 534 differentially expressed
      biomarkers.





As
      the
      company has transitioned from research and proof of concept activities to
      commercialization, the Company’s revenue stream has begun with the receipt of
      its fifth milestone payment from delivery of blood samples to a strategic
      partner who is generating and testing antibodies to Power3’s biomarkers. No
      revenue has yet been generated from the sale of its products or service. The
      company is dependent on debt and equity capital for the funding of its current
      and future operations.





-24-


*Scientific
      Developments*





The
      members of the Company’s scientific team have developed a method for the
      differential diagnosis of neurodegenerative diseases based on identification
      and
      changes in the concentrations of protein biomarkers in blood serum. Dr.
      Stan
      Appel, now Chair of Neurology and Co-Director of Methodist Neurological
      Institute in Houston, assisted Power3 in their development efforts by supplying
      well-diagnosed serum samples. Under
      the trade name of NuroProTM, the Company is continuing development of a suite of
      four tests to differentiate individuals with no known neurological disorders
      from those with Alzheimer’s disease, Parkinson’s disease, ALS, and other
      disorders that have similar clinical symptoms as these diseases. The Company
      is
      also continuing to develop its early breast cancer detection test, in
      collaboration with Dr. Alan Hollingsworth, breast cancer surgical oncologist
      and
      recognized authority in women at high risk for breast cancer. This test is
      also
      based on the identification and changes in concentration of protein biomarkers
      in blood serum.





*Product
      Candidates*





The
      Company plans to target the protein-based diagnostic and drug targeting markets
      utilizing the Company’s portfolio of proprietary biomarker disease footprints.
      The Company has completed clinical validation studies involving over 1,273
      patient samples from neurodegenerative disease, breast cancer and drug
      resistance and is utilizing biostatistics to monitor appropriate biomarkers
      for
      diagnostic sensitivity, specificity, positive predictive value, and negative
      predictive value. Power3 has an extensive database, consisting of more than
      2,000 patient samples, which has been utilized to identify 534 protein
      biomarkers. Power3’s database represents the platform for Power3's
      patent-pending proteomic testing and biomarker discovery methods. The database
      offers a broad spectrum of patient samples for our proteomic research which
      includes human cells, serum, plasma, bone marrow, tissue, biopsies, and breast
      ductal fluid, backed by strong clinical documentation. This 'living' database
      is
      the foundation for our identification of our protein biomarkers.





By
      testing patient body fluids and tissues, such as blood serum and bone marrow,
      the Company has discovered unique snapshots of protein patterns in diseases
      including:





·
            cancers
                such as breast, leukemia, bladder, stomach, and
                esophageal





·
            neurodegenerative
                diseases such as Alzheimer’s, ALS, Parkinson’s disease and other
                neurological like diseases





·
            drug
                resistance to chemotherapeutics





The
      Company’s discovery platform uses both proprietary methodologies owned by or
      licensed to the Company and accepted technologies to pinpoint precisely the
      specific protein biomarker molecules that undergo specific changes in
      concentration in disease samples. The process requires a great deal of
      proteomics experience and expertise to perform and interpret these results.
      The
      Company’s biomarker discovery platform delivers more useful clinical discoveries
      than competing technologies; exhibiting reproducible and reliable identification
      and providing high levels of sensitivity and specificity to meet pressing
      medical needs.





**License
      and Sponsored Research**





Effective
      June 28, 2004, Power3 entered into an exclusive license agreement with the
      Baylor College of Medicine which grants the Company an exclusive, worldwide,
      sublicensable license for serum proteomics methods under certain patent rights
      for all biomarkers for both diagnostic and therapeutic use in neurodegenerative
      disease. Under the terms of the agreement, Power3 paid Baylor an initial license
      fee and it has the obligation to pay future royalties and additional licensing
      fees upon the achievement of certain milestones. The Company is obligated under
      the license agreement to indemnify Baylor, its faculty members, scientists,
      researchers, employees, officers, trustees and agents against claims arising
      from the design, process, manufacture or use of any of the patent rights or
      licensed products that are developed through the use of the license from Baylor.
      Subject to customary termination provisions, the term of the agreement is
      established on a country-by-country basis and expires on the date of expiration
      of the last patent rights to expire in that country or the tenth anniversary
      of
      the first commercial sale of licensed products in countries where no patents
      exist in such country. After such expiration the Company will have a perpetual
      paid in full license in such country.





-25-


On
      August
      31, 2004, the Company entered into a research agreement with Baylor College
      of
      Medicine for the purpose of discovering biomarkers in serum and plasma that
      are
      of particular utility in the diagnosis and drug targeting for metabolic syndrome
      and associated disorders including diabetes, cardiovascular disease,
      hypertension and stroke. Under the terms of the agreement, Baylor College of
      Medicine has provided the Company with sample materials for use in diagnosis
      in
      drug targeting metabolic syndrome and associated diseases including diabetes,
      cardiovascular disease, hypertension and stroke. To date Power3 has identified
      12 potential protein biomarkers from analyzing the samples. With respect to
      any
      inventions developed pursuant to the agreement, the party who develops such
      invention will retain sole and exclusive rights to such invention. The other
      party will have the right to an exclusive license for the invention, which
      has
      been developed. Inventions developed jointly by the parties will be jointly
      owned. Power3 does not have any obligations for the payment of fees or royalties
      pursuant to this agreement. The agreement has a term ending June 30, 2007 and
      may be renewed for successive one-year periods.





On
      May
      24, 2005, the Company entered into a Collaboration Agreement with BioSite Inc.
      The Agreement provides that the Company and BioSite will engage in a
      collaborative research program in which BioSite will attempt to develop
      antibodies and diagnostic assays for selected target biomolecules proposed
      by
      the Company. The Company and BioSite will then assess the diagnostic and
      therapeutic potential of these antibodies and diagnostic assays for breast
      cancer and neurological diseases. If the antibodies and diagnostic assays are
      found to have diagnostic and/or therapeutic potential, BioSite will develop
      and
      commercialize BioSite products for the detection and/or treatment of breast
      cancer and/or neurological diseases. BioSite has made the second milestone
      payment to the Company. Royalties will also be paid to the Company on the sale
      of any BioSite products containing antibodies to any selected target biomolecule
      claimed in a patent application or an issued patent.





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





On
      December 28, 2005, the Company submitted 6 breast cancer blood serum biomarkers
      to BioSite, for consideration under the agreement. The development of antibodies
      was begun by BioSite in the quarter ending March, 2006 and the Company payments
      totaling 421,724.00 for blood serum samples, provided in association with the
      BioSite Licensing/Collaboration Agreement.





On
      October 13, 2005, Power3 executed a Research Agreement with Pfizer, Inc. to
      further evaluate the Company’s NuroProTM test capabilities and to test blind and
      unblinded samples, provided by Pfizer, under controlled conditions. The Company
      has completed the analysis of the samples and has presented the results to
      Pfizer.





On
      May
      16, 2006, Power3 entered into a Materials Transfer and Confidential Disclosure
      Agreement with Innogenetics N.V., a Belgium-based international
      biopharmaceutical company. The current proposal is an assessment of the utility
      of the Company’s NuroProTM to differentiate control subjects from subjects with
      Alzheimer’s disease. The assessment has begun. Power3 received an initial
      shipment of samples from Innogenetics N.V. in October 2006.





-26-


On
      April
      4, 2007 Power3 Medical Products, Inc. announced that it has entered into a
      collaboration agreement with NeoGenomics, Inc. (NASDAQ: NGNM - News) of Fort
      Myers, Florida, to form a joint venture Contract Research Organization (CRO).
      Under the terms of the agreement, Power3 and NeoGenomics will jointly own the
      CRO, whose mission will be commercialization of Power3's portfolio of
      Intellectual Property, centering on the 534 biomarkers it has discovered from
      a
      broad range of diseases, centering on the blood-based tests for breast cancer,
      ALS, Alzheimer's and Parkinson's Diseases. The CRO will work to further develop
      diagnostic tests and other services.




**Breast
      Cancer Screening Test**





An
      important factor in surviving cancer is early detection and treatment. According
      to the American Cancer Society Surveillance Research, when breast cancer is
      confined to the breast, the five-year survival rate is close to 100%. Breast
      cancer is the second leading cause of cancer deaths in women, with over $7
      billion spent on breast cancer diagnosis annually. Due to the limitations of
      the
      current diagnostic techniques of mammograms and self-examination, diagnosis
      of
      cancer is often missed or inconclusive.





The
      Company has decided to focus development efforts for its early-detection tests
      for breast cancer on blood serum. The Company has successfully used blood serum
      as the platform for its NuroProTM neurodegenerative tests and believes that blood
      serum as a single platform is the best medium for the development and
      commercialization of proteomics diagnostic tests.





Power3
      conducted its own biomarker discovery program using blood serum samples
      collected from clinical validation sites, in collaboration with Dr. Alan
      Hollingsworth at the Mercy Woman’s Center. Beginning November 2004, Power3 has
      now analyzed 664 blood serum samples from breast cancer patients, benign
      patients and normal individuals.





Through
      the application of Power3’s proteomic discovery platform covered by pending
      patent applications and trade secrets, the Company identified 12 proteins in
      blood serum which indicate early detection and stages of breast cancer. This
      has
      led to what the Company believes to be one of the first tests of its type that
      may detect breast cancer earlier than current technology allows. In addition,
      the Company has identified 10 additional promising blood serum biomarker
      proteins for breast cancer. These discoveries establish the basis of a very
      sensitive, non-invasive, early detection breast cancer-screening blood serum
      test.





The
      blood
      serum biomarkers and tests for early-detection of breast cancer discovered
      by
      comparing blood serum samples, distinguish between women with breast cancer,
      women with benign breast disease, and normal women with high sensitivity and
      specificity. The Company believes that there are many advantages to a simple
      blood test over other samples taken from patients, not the least of which is
      the
      ready acceptance by patients to having blood drawn.





**Neurodegenerative
      Screening Test**





Early
      detection of neurodegenerative disease generally results in better patient
      outcomes. Three diseases of particular interest are Alzheimer’s disease,
      Parkinson’s disease and ALS. The Alzheimer’s Association reports that
      Alzheimer’s disease is the most common form of dementia affecting over 4 million
      Americans. One in ten people age 65 and over have Alzheimer’s disease, while in
      rarer cases; younger people can contract the disease (early onset).





The
      American Parkinson’s Disease Association reports that more than 1.5 million
      people in the U.S. have Parkinson’s disease, affecting about 1 in 100 Americans
      over the age of 60. There is also a rarer early onset Parkinson’s disease. The
      ALS Association reports that an average of approximately 30,000 Americans are
      afflicted with ALS, with 5,000 new cases diagnosed annually with a prognosis
      of
      death likely within 3-5 years.





-27-


The
      members of the Company’s scientific team have developed a method for the
      differential diagnosis of neurodegenerative diseases utilizing blood serum,
      to
      which neurologist, Dr. Stan Appel, now Chair of Neurology and Co-Director of
      Methodist Neurological Institute in Houston, assisted in supplying
      well-diagnosed serum samples. With this test, which involves monitoring patients
      blood serum for disease specific changes in the concentrations of select groups
      of the Company’s 47 neurodegenerative disease proteins, the Company has
      identified specific sets of unique protein biomarkers that appear to distinguish
      between normal individuals, patients with Alzheimer’s disease, Parkinson’s
      disease, Amyotrophic Lateral Sclerosis (ALS, Lou Gehrig’s disease), and patients
      with other neurological disorders having similar symptoms.





The
      Company’s Alzheimer’s disease blood serum biomarkers appear to enable
      discernment of whether a dementia patient has Alzheimer’s disease, or one of a
      number of other dementia related diseases that are not Alzheimer’s, such as Lewy
      body dementia, Frontotemporal dementia, Stroke-related dementias, etc. Also,
      the
      company appears to have discovered a novel stepwise use of a group of 5 blood
      serum biomarkers that detects the presence of Alzheimer’s disease in early
      stages, possibly even before the appearance of symptoms.





In
      a
      similar fashion, Power3’s blood serum biomarkers for Parkinson’s disease appear
      to distinguish Parkinson’s disease from other, similar presenting movement
      disorders.





The
      Company is continuing its ongoing clinical validation program in collaboration
      with the Methodist Neurological Institute. The initial phase was completed
      in
      July 2004 and the latest phase was completed in March, 2006. The Company’s
      database continues to increase with unique samples classified either as normal
      or being clinically diagnosed with ALS, Alzheimer’s, Parkinson’s, and other
      related neurological disorders. The number of differentially expressed
      biomarkers in Neurodegenerative diseases is 47, of which 43 protein biomarkers
      have been identified. The ability to differentiate diseases from each other
      and
      from normal and disease controls has also benefited from the Company’s
      multivariant biostatistical analysis of the larger database and the expanded
      set
      of biomarkers. Currently, selected panels of biomarkers are being employed
      in
      development of the NuroProTM blood serum-based tests for four disease diagnostics
      including neurological diseases of motor control such as Parkinson’s disease,
      ALS and their like disorders; ALS specific tests for ALS vs. ALS-like disorders;
      Alzheimer’s disease specific tests; and Parkinson’s disease-specific tests.
      Pre-IDE applications for the first two have been filed with the U.S. Food and
      Drug Administration. In addition, four US Utility patent applications were
      filed
      on these tests, conversions of the Company’s pre-existing provisional patent
      applications.





**Drug
      Resistance to Chemotherapeutic Agents**





By
      the
      time a patient’s development of resistance to chemotherapeutic agents is
      detected, it is often too late to revise treatment or otherwise save the
      patient. In 2002, the Company completed an initial “proof of concept,” which
      addresses drug resistance to a major chemotherapy agent. Determining that a
      cancer patient is sensitive or detecting a development of resistance during
      the
      early stages of treatment may eliminate toxic effects from the treatment drugs,
      and the need for trial-and-error treatment regimens. In 2005, additional
      biomarker discoveries were completed for this indication and a provisional
      patent application was filed on these new discoveries. These findings may
      ultimately provide the pharmaceutical industry with the technology to screen
      patients, on a molecular level, prior to clinical trials and design new drugs
      to
      overcome resistance. No new development activity in the area of drug resistance
      research took place in the quarter ending March 31, 2007. The Company
      anticipates increased activity in the drug resistance arena during
      2007.





**Intellectual
      Property**





During
      the quarter ending September 30, 2006, Power3 filed four utility patent
      applications with the United States Patent and Trademark Office, entitled “Assay
      for Neuromuscular Diseases”, “Assay for ALS and ALS-Like Disorders”, “Assay for
      Differentiating Alzheimer’s Disease and Alzheimer’s-Like Disorders” “Assay for
      Diagnosis and Therapeutics Employing Similarities and Differences in Blood
      Serum
      Concentrations of 3 Forms of Complement C3c and Related Protein Biomarkers
      in
      Amyotrophic Lateral Sclerosis and Parkinson’s Disease” These were conversions of
      previous provisional applications. The number of pending patent applications
      as
      of quarter ending March 31, 2007, is 17.





-28-





**Results
      of Operations**





*Three
      Months Ended March 31, 2007 as Compared to Three Months Ended March 31, 2006*





Revenues
      for the three months ending March 31, 2007 were $121,724 compared to $-0- for
      the same period in 2006. This revenue resulted from the material transfer/sale
      of previously gathered blood serum samples, rather than from the commercial
      production of goods or services. Due to the Company’s focus on disease
      diagnosis, protein and biomarker identification, and research on drug resistance
      in the areas of cancer, neurodegenerative and neuromuscular diseases, it is
      unknown whether or not the Company will receive any revenues from sales of
      its
      products or services in the immediate future.





Total
      operating expenses were $755,512 during the three months ended March 31, 2007
      as
      compared to $3,807,987 for the same three months ending March 31, 2006. The
      decrease in operating expenses was primarily attributable to a significant
      decrease in amortization of stock-based compensation as expense. This reduction
      was not due to any personnel losses, but rather to the end of the accounting
      amortization period for the stock-based compensation, previously issued by
      the
      Company in 2004. Other income and (expenses) amounted to ($3,334,647) for the
      quarter ended March 31, 2007 as compared to other expenses of ($1,097,761)
      during the quarter ended March 31, 2006. The difference in 2007 and 2006 here
      is
      the additional $2,359,015 of derivative expense incurred in 2007 due to the
      stock price doubling during the quarter ending March 31, 2007.





Interest
      expense thus far during the three months in 2007 has amounted to $456,498 as
      compared to $577,607 during the same three month period of 2006.





The
      above
      matters result in our Net Loss being $3,968,436 thus far in 2007, resulting
      primarily from the $2,879,169 loss due to the change in our derivative liability
      which resulted when our common stock went from $.074 to $.15 during the quarter.





*Liquidity
      and Capital Resources*





The
      Company has financed its operations since the date of the Advanced BioChem
      transaction primarily through the net proceeds generated from the sale of common
      stock, the issuance of convertible debentures and the issuance of notes payable
      as bridge loans. From the date of the Advanced BioChem transaction through
      March
      31, 2007, the Company has raised approximately $3,892,978 in debt capital.
      As
      described in “Recent Financing” below, the Company may sell an additional
      $1,600,000 in aggregate principal amount of convertible debentures following
      the
      effectiveness of the Registration Statement on Form SB-2 filed by the
      Company for the resale of certain shares of the Company’s stock by the
      purchasers of the Company’s convertible debentures. The Company is in default
      under the terms of the Securities Purchase Agreement, the previously issued
      debentures and related registration rights agreement. As such, there can be
      no
      assurance that the existing investors will purchase all or any portion of the
      additional $1,600,000 aggregate principal amount of debentures. If additional
      debentures are issued and sold by the Company, the Company will use a portion
      of
      the proceeds from the sale and issuance of such debentures to pay the interest
      due and principal balances owing under the promissory notes incurred in 2005,
      2006 and 2007, the Officer Advances and other notes payable owed by the
      Company.





The
      Company’s liquidity and capital needs relate primarily to working capital,
      development and other general corporate requirements. The Company has not
      received any cash from operations, other than from the sale of blood serum
      samples previously gathered. The Company  has
      an
      immediate need for capital to continue its current operations, and in addition,
      is seeking additional capital from research grants, collaboration agreements,
      and other strategic alliances.





-29-


In
      the
      event the sale and issuance of the $1,600,000 aggregate principal amount of
      debentures occurs and the investors exercise their warrants and additional
      investment rights, the Company anticipates it will have adequate cash to meet
      its funding requirements through the second quarter of 2007. The foregoing
      projections are based upon the Company’s existing obligations. If the Company’s
      obligations are increased, the Company will require additional funding sooner
      than is currently anticipated.





Net
      cash
      used in operating activities amounted to ($542,794) for the three months ended
      March 31, 2007, compared to ($715,402) for the three months ended March 31,
      2006. The change in net cash used in operating activities during 2007 was
      primarily due to a smaller loss from operations and an increase in accounts
      payable and accrued liabilities, as compared to the same three months of 2006.





Net
      cash
      provided by financing activities was $600,000 for the three months ended March
      31, 2007, as compared to $877,194 for the three months ended March 31, 2006.





As
      of
      March 31, 2007, the Company’s principal source of liquidity was approximately
      $217,808 in cash.





*Recent
      Financing*





During
      the quarter ended March 31, 2007, the Company issued seven convertible Notes
      Payable, raising


a
      total
      of $600,000 in additional working capital. These notes are convertible at $.06
      per share, at the note holder’s option, and the lenders also received warrants
      to purchase common stock as additional incentive to enter into each Note
      Payable.





*Plan
      of Operation and Cash Requirements*





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





Absent
      a
      source of revenues, the Company will require funding in order to carry out
      its
      business plan until such time as it is able to generate sustained revenues.
      The
      Company’s current cash requirements are approximately $250,000 per month and the
      Company anticipates that it will require approximately $3,000,000 for the twelve
      months ended March 31, 2008, to continue its development activities, undertake
      and perform clinical validation studies, continue its marketing efforts and
      maintain its administrative infrastructure, as follows:





Estimated
        Expenditures Required
 During
        Next Twelve Months


General
                and Administrative
            
            $
            2,450,000Patent
                filings and intellectual property
            
            $
            100,000Capital
                Expenditures and research agreements
            
            $
            450,000Total
            
            $
            3,000,000





-30-





The
      foregoing is based upon the Company’s current estimated cash requirements. The
      Company has no significant capital expenditure requirements and does not plan
      to
      increase its monthly expenditure rate absent an increase in revenues or
      additional funding.





As
      noted
      previously, the Company entered into a securities purchase agreement and an
      amendment to the securities purchase agreement pursuant to which certain
      investors agreed to purchase, subject to the satisfaction of certain conditions,
      convertible debentures in the aggregate principal amount of $3,000,000. Assuming
      the completion of the remaining closing and sale and issuance of the remaining
      $1,600,000 in aggregate principal amount of the convertible debentures, the
      Company estimates that, after repayment of the bridge loans immediately
      following the sale and issuance of such debentures, the Company will still
      require additional cash to allow it to meet its current funding requirements
      through the middle of 2007. In the event the sale and issuance of such
      debentures occurs and the investors exercise their warrants and additional
      investment rights, the Company anticipates it will have adequate cash to meet
      its current funding requirements through the end of the quarter ended June
      30,
      2007.





The
      Company will continue to require additional debt or equity financing for its
      operations, which may not be readily available. The Company’s ability to
      continue as a going concern is subject to its ability to generate a profit
      or
      obtain necessary funding from outside sources.





*Off-Balance
      Sheet Arrangements*





At
      March
      31, 2007, the only off balance sheet agreements in place for the Company were
      a
      lease in effect for its office space, leases in effect for computer equipment,
      leases in effect for lab equipment and employment agreements entered with its
      three principal officers.





However,
      in early April, 2007, the Company signed an agreement to form a Joint Venture
      with and issue a convertible debenture to Neogenomics, Inc., a Florida-based
      research and bioscience company. As part of this agreement, Neogenomics receives
      a First Option to purchase voting, convertible preferred stock that is
      convertible into such number of shares of common stock of the Company equal
      to a
      maximum of 20% of the Company’s voting Common Stock, after taking into
      consideration all outstanding First Option Preferred Stock on an as-converted
      basis. This First Option is irrevocable to the fullest extent permitted by
      law,
      and must be exercised before November 16, 2007 or 10 business days after a
      set
      of conditions have been satisfied, as specified in pages 3 and 4 of the
      agreement. In addition, Neogenomics received a Second Option to purchase voting
      convertible preferred stock that is convertible into such number of shares
      of
      common stock as is necessary to increase its ownership of the voting Common
      Stock of the Company, on an as-converted basis, up to 60% of the Company’s
      voting Common Stock, after taking into consideration all outstanding First
      Option Preferred Stock and Second Option Preferred Stock. Such Second Option
      will only be exercisable following exercise of the First Option, discussed
      previously, and will expire 12 months after the First Option Expiration Date
      as
      specified in paragraph 6 of the agreement





*Critical
      Accounting Policies*





The
      Company accounts for equity instruments issued to employees for services based
      on the intrinsic value of the equity instruments issued. Equity instruments
      issued to non-employees that are fully vested and non-forfeitable are measured
      at fair value at the issuance date and expensed in the period over which the
      benefit is expected to be received.





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





-31-


In
      December 2004, the Financial Accounting Standards Board issued Statement Number
      123 (“FAS 123 (R)”), Share-Based Payments. FAS 123 (R)
      requires all entities to recognize compensation expense in an amount equal
      to
      the fair value of share-based payments such as stock options granted to
      employees. The Company will be required to apply FAS 123 (R) on a
      modified prospective method. Under this method, the Company will be required
      to
      record compensation expense (as previous awards continue to vest) for the
      unvested portion of previously granted awards that remain outstanding at the
      date of adoption. In addition, the Company may elect to adopt
      FAS 123 (R) by restating previously issued financial statements,
      basing the amounts on the expense previously calculated and reported in the
      pro
      forma disclosures that had been required by FAS 123, FAS 123 (R)
      is effective for the first reporting period beginning after June 15, 2005.





*Item
      3.****CONTROLS
      AND PROCEDURES*





*Disclosure
      Controls and Procedures*




Under
      the
      supervision and with the participation of the Company’s management, including
      its Chief Executive Officer and Chief Financial Officer, the Company conducted
      an evaluation of its disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation and
      for
      the reasons set forth below, the Chief Executive Officer and Chief Financial
      Officer concluded that the Company’s disclosure controls and procedures were
      ineffective as of December 31, 2006.




As
      reported in the Company’s previous Quarterly Reports on Form 10-QSB, the Company
      identified certain deficiencies which caused management to conclude that the
      Company’s disclosure controls continue to be ineffective as of March 31, 2007.
      The Company has undertaken steps and implemented actions as disclosed in its
      previous Form 10-QSB’s in an effort to resolve these deficiencies. While the
      actions identified in the previously filed Form 10-QSB’s and the actions
      identified below have addressed many of these deficiencies, the Company
      continued to have deficiencies with respect to its disclosure controls and
      procedures at March 31, 2007, including the following:




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




Management
      is committed to a sound disclosure control and internal control environment
      and
      is continuing its efforts to improve the Company’s infrastructure, personnel,
      processes and controls to help ensure that the Company is able to produce
      accurate financial statements on a timely basis.





In
      addition, during the past year, Power3 faced staffing issues relative to its
      cash flow situation. The Company has retained outside consultants, on an interim
      basis, to provide accounting and legal expertise directed toward improving
      its
      reporting and control procedures. The Company has implemented additional
      controls over its daily operations and has drafted various Internal Controls
      memoranda.





Limitations
      on Effectiveness of Controls





Internal
      control over financial reporting cannot provide absolute assurance of achieving
      financial reporting objectives because of its inherent limitations. Internal
      control over financial reporting is a process that involves human diligence
      and
      compliance and is subject to lapses in judgment and breakdowns resulting from
      human failures. Internal control over financial reporting also can be
      circumvented by collusion or improper management override. Because of such
      limitations, there is a risk that material misstatements may not be prevented
      or
      detected on a timely basis by internal control over financial reporting.
      However, these inherent limitations are known features of the financial
      reporting process. Therefore, it is possible to design into the process,
      safeguards to reduce, though not eliminate, this risk.




-32-


*Changes
      in Internal Control Over Financial Reporting*




During
      2005, the Company changed its auditing firm and implemented additional internal
      controls over documents and accounting that were designed to improve its
      reporting. Further, in March, 2007, the Company changed its auditing firm once
      more and improved its control procedures, in order to improve its
      reporting.





Other
      than the changes described above, there were no changes in the Company’s
      internal control over financial reporting that occurred during the Company’s
      fiscal quarter ended March 31, 2007 that have materially affected, or are
      reasonably likely to materially affect, the Company’s internal controls over
      financial reporting.




**PART
      II. OTHER INFORMATION**




***Legal
      Proceedings***





In
      November 2004, Chapman Spira & Carson, LLC (“Chapman Spira”), an
      investment banking firm, filed a lawsuit in the Supreme Court of the State
      of
      New York for the County of New York against Advanced BioChem (the Predecessor),
      Power3 and Steven Rash. The suit alleged that Advanced BioChem and Power3 were
      liable to Chapman Spira for damages allegedly resulting from the breach of
      a
      letter agreement between Chapman Spira and Advanced BioChem relating to the
      performance of strategic and investment banking services. Chapman Spira was
      seeking damages in the amount of $1,522,000 plus interest. On March 1, 2007,
      the
      Company received notice from its attorney in this matter, that the action
      described above has been discontinued without prejudice and without costs to
      any
      party.





An
      equipment vendor filed a complaint, regarding equipment which the Company
      acquired in its May 18, 2004 transaction with Advanced BioChem, now known as
      Industrial Enterprises of America, and against Advanced BioChem in April of
      2002
      in a California court alleging breach of contract and seeking damages. Advanced
      BioChem reached a settlement agreement in April of 2003 under which Advanced
      BioChem would pay the vendor $40,000 in installments through August, 2003.
      At
      December 31, 2003, Advanced BioChem had a balance remaining of $20,000. In
      April, 2005, the equipment vendor filed a lawsuit against Advanced BioChem,
      certain former officers of Advanced BioChem and against Power3 in order to
      enforce its claim for the remaining balance which is past due and may have
      been
      assumed by the Company as part of the settlement of the dispute with Advanced
      BioChem. Settlement negotiations are ongoing; however no resolution has been
      achieved thus far.





In
      June,
      2005, Charles Caudle et al filed a lawsuit in Harris County, Texas, against
      Advanced BioChem, Power3 and the officers and directors of both companies.
      The
      suit alleges that Advanced BioChem, Power3 and the officers and directors of
      Power3, are liable to Charles Caudle et al for damages resulting from funds
      loaned to Advanced BioChem and which were subsequently converted into common
      stock of Advanced BioChem. It is unclear as to the specific dollar amount of
      the
      claim. The Company, and its officers and directors, has filed an answer denying
      all claims in the lawsuit. The Company believes that Charles Caudle et al’s
      claims are without merit with regard to Power3; however the Company cannot
      be
      assured it will prevail or if the outcome of the action will adversely affect
      the Company’s financial position or results of operations. Settlement
      negotiations between the parties are ongoing; however no resolution has been
      achieved thus far.





-33-


On
      May 19, 2005, Quinn Capital Consulting, Inc. filed suit against Power3
      and Steven B. Rash claiming breach of contract regarding payment for services
      claimed to be provided to Power3, with payment to have been made by issue of
      500,000 shares to Quinn Capital, which Power3 later cancelled or otherwise
      converted. In February, 2007, the Company and Quinn Capital reached a settlement
      agreement in this matter and the Company will issue 500,000 shares to Quinn
      Capital and pay $75,000, over time, as settlement of any and all claims in
      this
      matter.





On
      September 12, 2005, Focus Partners LLC filed suit against David Zazoff and
      Power3 alleging that Power3 breached its agreement with Focus Partners in that
      it failed to issue stock to the Plaintiff according to the terms of their
      agreement, that the stock in question was issued to Zazoff and that Zazoff
      later
      sold the stock in question for $480,000. Settlement discussions between the
      Power3 and Focus Partners are ongoing; however no resolution has been achieved
      thus far.








On
      February 15, 2006, Bowne of Dallas LP filed suit against Power3 to collect
      a
      debt for services in the amount of $17,315.03. On November 30, 2006, Bowne
      obtained a judgement against the Company and obtained a Writ of Garnishment
      against the Company’s bank account J.P. Morgan Chase Bank. On Thursday, March
      22, 2007, Chase Bank froze a bank account of Power3 in compliance with the
      notice of garnishment it had received, in the amount of $25,624.23. The Company
      has discontinued use of that particular bank account.





On
      October 28, 2005, Power3 received notice of a Petition to Enforce Foreign
      Judgment citation filed against the Company by KForce regarding an employment
      fee adjudicated in December, 2003 in the state of Florida against the Company,
      in the amount of $15,872.77, together with $4,735.02 in interest. Power3 does
      not agree with the Foreign Judgment and is attempting to resolve the issue
      prior
      to enforcement. No resolution has been achieved on this issue at this time;
      however the Company is endeavoring to resolve the petition. This debt is not
      recorded in accounts payable by the Company because it is the Company’s position
      that the judgment should never have been entered against Power3, but rather
      against a different corporate entity, not related to Power3 in any way, at
      this
      time.




**Item
      2. Unregistered Sale of Equity Securities and use of
      Proceeds**





During
      the quarter ended March 31, 2007, the Company issued 100,000 shares of S-8
      common stock for services under its 2004 Stock Compensation Plan and 5,500,000
      shares of restricted common stock.





**Item
      3. Defaults Upon Senior Securities**





The
      Company is in default under the provisions of its October, 2004 Securities
      Purchase Agreement, and accompanying registration rights agreement and
      debentures. The default stems from the Company’s inability to obtain
      effectiveness of the registration statement on Form SB-2, as amended (File
      No.
      333-122227) filed pursuant to the registration rights agreement.





Although
      the Company intends to seek waivers or forbearance agreements from the holders
      of its debentures, there is no assurance that the Company will receive such
      concessions. If the Company is unable to obtain such concessions, the aggregate
      amount payable under the outstanding debentures due to the acceleration thereof
      by reason of the default is equal to the “Mandatory Prepayment Amount” as
      specified in the debentures. The Mandatory Prepayment Amount equals the sum
      of
      (i) the greater of: (a) 130% of the principal amount of the debentures
      to be prepaid, or (b) the principal amount of the debentures to be prepaid,
      divided by the conversion price on (x) the date the payment is demanded or
      otherwise due, or (y) the date the payment is paid in full, whichever is
      less, multiplied by the closing price of the Company’s common stock on
      (x) the date the payment is demanded or otherwise due, or (y) the date
      the payment is paid in full, whichever is greater, and (ii) all other
      amounts, costs, expenses and liquidated damages due in respect of the
      debentures.





-34-





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





No
      matters were submitted to the security holders for a vote during the quarter
      ended March 31, 2007.





**Item
      5. Other Information**





None.





**Item
      6. Exhibits**





**EXHIBIT
                NO.**
            **DESCRIPTION**10.1
            Securities
                Purchase Agreement dated October 28, 2004 among the Company and each
                purchaser identified therein (incorporated by reference to Exhibit
                10.1 to
                the Company’s Form 8-K filed on November 3, 2004).10.2
            Amendment
                to Securities Purchase Agreement dated January 19, 2005, between
                the
                Company and each purchaser identified therein (incorporated by reference
                to Exhibit 10.8 of the Company’s Registration Statement on Form SB-2 (File
                No. 122227)).10.3
            Power3’s
                Registration Statement (incorporated by reference to the SB-2 (File
                No.
                122227) as filed on January 21, 2005).10.4
            Promissory
                Note dated November 3, 2005 between Power3 and Trinity financing
                in the
                amount of $150,000 (incorporated by reference to Exhibit 10.1 to
                the
                Company’s Form 8K filed on November 8, 2005).10.5
            Promissory
                Note executed on December 12, 2005 between Power3 and Trinity Financing
                (incorporated by reference to Exhibit 10.1 to the Company’s Form 8K filed
                December 12, 2005).10.6*
            Promissory
                Note, dated June 1, 2006, executed by Power3 and John Fife in the
                amount
                of $266,000.10.7*
            Stock
                Pledge Agreement for Fife Promissory Note, dated June 1,
                2006.10.8
            Amended
                and Restated Employment Agreement for Steven B. Rash (incorporated
                by
                reference to Exhibit 10.1 to the Company’s Form 8-K filed January 5,
                2005).10.9
            Amended
                and Restated Employment Agreement for Ira L. Goldknopf, PhD (incorporated
                by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 5,
                2005)10.10
            Employment
                Agreement with John Burton dated September 15, 2005 (incorporated
                by
                reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 21,
                2005).10.11
            Exclusive
                License Agreement dated effective June 28, 2005, by and between Power3
                and
                Baylor College of Medicine (incorporated by reference to Exhibit
                10.1 to
                the Company’s Form 10-QSB for the quarter ended September 30,
                2004).10.12
            Patent
                and Technology License Agreement dated September 1, 2003 by and between
                The University of Texas System, on behalf of The University of Texas
                M.D.
                Anderson Cancer Center and Advanced BioChem (incorporated by reference
                to
                Exhibit 10.3 to the Company’s Form 10-QSB for the quarter ended September
                30, 2004).10.13
            Collaborative
                Research Agreement dated March 21, 2005, by and between New Horizons
                Diagnostics and Power3 (incorporated by reference to Exhibit 10.1
                to the
                Company’s Form 8-K filed on March 28, 2005).10.14
            Collaborative
                Research and Licensing Agreement dated May 17, 2005, by and between
                BioSite Incorporated and Power3 (incorporated by reference to Exhibit
                10.13 to the Company’s Form 10-KSB filed on September 9,
                2005).10.15
            Agreement
                between Power3 and Glocap executed on January 5, 2006(incorporated
                by reference to Exhibit 10.22 to the Company’s Form 10-QSB for the quarter
                ended March 31, 2006).





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10.16
            Promissory
                Note dated March 2, 2006 between Power3 and Dr. Ira Goldknopf in
                the
                amount of $89,400 (incorporated by reference to Exhibit 10.19 to
                the
                Company’s Form 10-QSB for the quarter ended March 31,
                2006).10.17
            Promissory
                Note dated March 1, 2006 between Power3 and Steven B. Rash in the
                amount
                of $50,000 (incorporated by reference to Exhibit 10.18 to the Company’s
                Form 10-QSB for the quarter ended March 31, 2006).10.18
            Promissory
                Note, dated March 28, 2006, executed by Power3 and John Fife in the
                amount
                of $400,000 (incorporated by reference to Exhibit 10.20 to the Company’s
                Form 10-QSB for the quarter ended March 31, 2006).10.19
            Stock
                Pledge Agreement for Fife Promissory Note, dated March 28, 2006
                (incorporated by reference to Exhibit 10.21 to the Company’s Form 10-QSB
                for the quarter ended March 31, 2006).10.20*
            Promissory
                Note, dated January 16, 2007, executed by Power3 and Rich Kraniak
                in the
                amount of $50,00010.21*
            Promissory
                Note, dated September 14, 2006, executed by Power3 and Majic Arts
&
                Entertainment, in the amount of $49,999.9810.22*
            Promissory
                Note, dated February 8, 2007, executed by Power3 and Paul Chosid,
                in the
                amount of $200,000.0010.23*
            Promissory
                Note, dated August 8, 2006, executed by Power3 and Rich Kraniak,
                in the
                amount of $100,000.0010.24*
            Promissory
                Note, dated February 8, 2007, executed by Power3 and Stephen Wood,
                in the
                amount of $120,000.0010.25*
            Promissory
                Note, dated October 27, 2006, executed by Power3 and Roger Kazanowski,
                in
                the amount of $150,000.0010.26*
            Promissory
                Note, dated February 27, 2007, executed by Power3 and Bruce Seyburn,
                in
                the amount of $100,000.0010.27*
            Promissory
                Note, dated October 27, 2006, executed by Power3 and Rich Kraniak,
                in the
                amount of $100,000.0010.28*
            Promissory
                Note, dated October 27, 2006, executed by Power3 and Steve Scott,
                in the
                amount of $25,000.0010.29*
            Promissory
                Note, dated October 31, 2006, executed by Power3 and Andrew Dahl,
                in the
                amount of $12,000.0010.30*
            Promissory
                Note, dated November 30, 2006, executed by Power3 and Jeffrey Hyde,
                in the
                amount of $10,000.0010.31*
            Promissory
                Note, dated October 31, 2006, executed by Power3 and Mike and Janet
                Lee,
                in the amount of $60,000.0010.32*
            Warrant
                Agreement with Mike and Janet Lee, dated October 30, 2006, for warrants
                to
                purchase 1,000,000 shares of common stock10.33*
            Warrant
                Agreement with Andrew Dahl, dated October 31, 2006, for warrants
                to
                purchase 200,000 shares of common stock10.34*
            Warrant
                Agreement with Rich Kraniak, dated August 27, 2006, for warrants
                to
                purchase 333,333 shares of common stock10.35*
            Warrant
                Agreement with Steve Scott, dated October 27, 2006, for warrants
                to
                purchase 416,666 shares of common stock10.36*
            Warrant
                Agreement with Roger Kazanowski, dated October 27, 2006, for warrants
                to
                purchase 2,500,000 shares of common stock10.37*
            Warrant
                Agreement with Rich Kraniak, dated October 27, 2006, for warrants
                to
                purchase 1,666,666 shares of common stock10.38*
            Warrant
                Agreement with Majic Arts & Entertainment, dated September 14, 2006,
                for warrants to purchase 833,333 shares of common stock10.39*
            Warrant
                Agreement with Rich Kraniak, dated January 16, 2007, for warrants
                to
                purchase 833,333 shares of common stock10.40*
            Warrant
                Agreement with Paul Chosid, dated February 8, 2007, for warrants
                to
                purchase 3,333,333 shares of common stock10.41*
            Warrant
                Agreement with Stephen Wood, dated February 8, 2007, for warrants
                to
                purchase 2,000,000 shares of common stock10.42*
            Warrant
                Agreement with Bruce Seyburn, dated February 27, 2007, for warrants
                to
                purchase 833,333 shares of common stock10.43*
            Consulting
                Agreement signed with Noble Investments, dated March 1,
                200710.44
            Agreement
                signed with Neogenomics (incorporated by reference to Exhibit 10.1
                in the
                Form 8-K filed by the Company on April 3,
                2007.





-36-





31.1*
            Certification31.2*
            Certification32.1**
            Certification
                Pursuant to Section 90632.2**
            Certification
                Pursuant to Section 906





*Filed
        with this report.
 **Furnished
        with this report.




(1)
            Filed
                with this report





**SIGNATURES**





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





Signature
            Title
            Date/s/
                Steven B.
                Rash
            Chairman
                and
            May
                21, 2007Steven
                B. Rash
            Chief
                Executive Officer/s/
                John P.
                Burton
            Chief
                Financial Officer
            May
                21, 2007John
                P. Burton




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