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


**Washington,
      D.C. 20549**




**Form 10-Q**




ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934




For
      the
      quarterly period ended March 31, 2008




 ̈ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934




For
      the
      transition period from _______________ to ________________




**COMMISSION
      FILE NO. 000-24921**




**Power3
      Medical Products, Inc.**


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





**New****York**
            **0-24921**
            **65-0565144**(State or other jurisdiction of
              incorporation or organization)
            (Commission File Number)
            (I.R.S. Employer
              Identification No.)**3400****Research Forest Drive, Suite B2-3**
              **Woodlands, Texas**
              (Address of principal executive offices)
            **77381**
              (Zip Code)





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





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





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


**Common
      stock, $.001 par value**


(Title
      of
      class)




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




Indicate
                by check mark whether the registrant is a large accelerated filer,
                an
                accelerated filer, a non-accelerated filer., or a smaller reporting
                company.Large accelerated filer
            o
            
            
            Accelerated filer
            oNon-accelerated filer
            o
            
            
            Smaller reporting company
            x





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




The
      number of shares outstanding of the registrant’s common stock, par value $.001
      per share, as of May 15, 2008, was 121,879,178 shares **.**




The
      number of shares outstanding of the registrant’s preferred Series B stock, par
      value $.01 per share, as of May 15, 2008, was 3,000,000 shares **.**












**TABLE
      OF CONTENTS**


**PART I**ITEM 1.
              Financial Statements
              2Balance Sheets (unaudited)
              2Statements of Operations (unaudited)
              3Statement of Stockholders’ Deficit (unaudited)
              4Statements of Cash Flows (unaudited)
              7Notes to Financial Statements (unaudited)
              9ITEM 2.
              Management’s Discussion and Analysis of Financial Condition and Results of Operations
              17ITEM 3.
              Quantitative and Qualitative Disclosures About Market Risk
              26ITEM 4.
              Controls and Procedures
              26**PART II**ITEM 1.
              Legal Proceedings
              28ITEM 1A
              Risk Factors
              28ITEM 2.
              Unregistered Sales of Equity Securities and Use of Proceeds
              28ITEM 3.
              Defaults Upon Senior Securities
              29ITEM 4.
              Submission of Matters to a Vote of Security Holders
              29ITEM 5.
              Other Information
              29ITEM 6.
              Exhibits
              29


1


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**BALANCE
      SHEETS**


**AS
      OF MARCH 31, 2008 AND DECEMBER 31, 2007**


**(unaudited)**





**March 31, 2008**
            
            **December 31,**
              **2007****ASSETS**CURRENT
                ASSETSCash
                and Cash Equivalents
            
            $
            13,725
            
            $
            125,679Other
                Current Assets
            
            
            20,454
            
            
            23,247TOTAL
                CURRENT ASSETS
            
            
            34,179
            
            
            148,926OTHER
                ASSETSDeferred
                Finance Costs, net of amortization of $200,020 and $176,952 at March,
                31,
                2008 and December 31, 2007, respectively
            
            
            104,129
            
            
            127,197Furniture,
                Fixtures and Equipment, net of accumulated depreciation of $99,506
                and
                $98,960 at March, 31, 2008 and December 31, 2007, respectively
            
            
            8,051
            
            
            5,799Deposits
            
            
            21,598
            
            
            21,598**TOTAL
                ASSETS**
            
            $
            167,957
            
            $
            303,520**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**CURRENT
                LIABILITIESAccounts
                Payable
            
            $
            973,008
            
            $
            969,387Notes
                Payable – in default
            
            
            451,000
            
            
            451,000Notes
                Payable
            
            
            50,000
            
            
            50,000Notes
                Payable to Related Parties
            
            
            1,934,816
            
            
            1,934,816Convertible
                Debentures-in default, net of amortization of $1,194,733 and $1,178,865
                at
                March, 31, 2008 and December 31, 2007, respectively
            
            
            629,322
            
            
            645,190Other
                Current Liabilities
            
            
            1,203,619
            
            
            1,242,936Derivative
                Liabilities
            
            
            1,625,689
            
            
            3,794,305**TOTAL
                LIABILITIES**
            
            
            6,867,454
            
            
            9,087,634**STOCKHOLDERS’
                DEFICIT**Preferred
                Stock - $0.01 par value; 50,000,000 shares authorized; none issued
                or
                outstanding
            
            
            —
            
            
            —Common
                Stock-$0.001 par value; 150,000,000 shares authorized; 120,054,178
                and
                108,352,636 shares issued and outstanding as of March, 31, 2008 and
                December 31, 2007, respectively
            
            
            120,055
            
            
            108,353Additional
                Paid-In Capital
            
            
            61,054,908
            
            
            60,191,104Deficit
                Accumulated Before Entering Development Stage
            
            
            (11,681,500
            )
            
            (11,681,500
            )Deficit
                Accumulated During Development Stage
            
            
            (56,192,960
            )
            
            (57,402,071
            )TOTAL
                STOCKHOLDERS’ DEFICIT
            
            
            (6,699,497
            )
            
            (8,784,114
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS’ DEFICIT**
            
            $
            167,957
            
            $
            303,520





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


2


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**STATEMENTS
      OF OPERATIONS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


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


**(unaudited)**





**2008**
            
            **2007**
              **Restated**
            
            **Period from**
              **May 18, 2004**
              **through March**
              **31, 2008****REVENUES**:Sales
            
            $
            —
            
            $
            121,724
            
            $
            426,224TOTAL
                REVENUE
            
            
            —
            
            
            121,724
            
            
            426,224**OPERATING
                EXPENSES**:Employee
                compensation and benefits
            
            
            283,921
            
            
            264,826
            
            
            30,291,911Professional
                and consulting fees
            
            
            85,698
            
            
            92,445
            
            
            9,426,525Impairment
                of goodwill
            
            
            —
            
            
            —
            
            
            13,371,776Impairment
                of intangible assets
            
            
            —
            
            
            —
            
            
            179,788Occupancy
                and equipment
            
            
            44,496
            
            
            22,543
            
            
            576,900Travel
                and entertainment
            
            
            56,456
            
            
            17,810
            
            
            398,948Write
                off lease
            
            
            —
            
            
            —
            
            
            34,243Other
                selling, general andadministrative
                expenses
            
            
            107,173
            
            
            34,664
            
            
            568,791TOTAL
                OPERATING EXPENSES
            
            
            577,744
            
            
            432,288
            
            
            54,848,882**LOSS
                FROM OPERATIONS**
            
            
            (577,744
            )
            
            (310,564
            )
            
            (54,422,658
            )**OTHER
                INCOME AND (EXPENSE)**:Derivative
                gain (loss)
            
            
            2,168,616
            
            
            (6,372,367
            )
            
            4,776,479Gain
                on legal settlement
            
            
            17,875
            
            
            —
            
            
            36,764Interest
                income
            
            
            1,051
            
            
            1,020
            
            
            8,342Mandatory
                prepayment penalty
            
            
            —
            
            
            —
            
            
            (420,000
            )Other
                income (expense)
            
            
            —
            
            
            —
            
            
            (196,176
            )Gain
                (loss) on conversion of financialinstruments
            
            
            —
            
            
            137,041
            
            
            1,544,574Interest
                expense
            
            
            (388,616
            )
            
            (180,935
            )
            
            (4,109,606
            )TOTAL
                OTHER INCOME (EXPENSE)
            
            
            1,798,926
            
            
            (6,415,241
            )
            
            1,640,377**NET
                GAIN (LOSS)**
            
            $
            1,221,182
            
            $
            (6,725,805
            )
            $
            (52,782,281
            )Deemed
                dividend
            
            $
            (12,071
            )
            $
            —
            
            $
            (29,706
            )**NET
                GAIN (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS**
            
            $
            1,209,111
            
            $
            (6,725,805
            )
            $
            (52,811,987
            )**NET
                GAIN (LOSS) PER SHARE, BASIC**
            
            $
            0.01
            
            $
            (0.09
            )**NET
                GAIN PER SHARE, FULLY DILUTED (122,023,763 AS OF MARCH 31, 2008)**See
                Note 1.
            
            $
            0.01
            
            $
            —Weighted
                average number of sharesoutstanding
            
            
            115,458,242
            
            
            73,118,117





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


3


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**STATEMENT
      OF STOCKHOLDERS' DEFICIT**


**FROM
      INCEPTION TO MARCH 31, 2008**





**Common Stock**
            
            **Preferred Stock**
            
            **Additional**
              **Paid In**
              **Capital**
            
            **Deferred**
              **Compensation**
              **Expense**
            
            **Retained**
              **Earnings**
            
            **Equity****Shares**
            
            **Par Value**
            **Shares**
            
            **Par Value****Balances
                as of beginning of development stage May 17,
                2004**
            
            
            **14,407,630**
            
            **$**
            **14,407**
            
            
            **3,870,000**
            
            **$**
            **3,870**
            
            **$**
            **14,225,974**
            
            **$**
            **—**
            
            **$**
            **(11,681,500**
            **)**
            **$**
            **2,382,751**Issued
                shares on May 18, 2004 for compensation
            
            
            27,805,000
            
            
            27,805
            
            
            
            
            
            
            
            
            24,996,695
            
            
            (25,024,500
            )Issued
                shares on May 18, 2004 for services
            
            
            4,550,000
            
            
            4,550
            
            
            
            
            
            
            
            
            4,090,450
            
            
            
            
            
            
            
            
            4,095,000Issued
                shares on May 18, 2004 for acquisition of equipment
            
            
            15,000,000
            
            
            15,000
            
            
            
            
            
            
            
            
            13,485,000
            
            
            
            
            
            
            
            
            13,500,000Issued
                shares on June 1, 2004 for services
            
            
            125,000
            
            
            125
            
            
            
            
            
            
            
            
            249,875
            
            
            (250,000
            )Issued
                shares on June 11, 2004 for services
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            211,900
            
            
            
            
            
            
            
            
            212,000Stock
                option expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            626,100
            
            
            (626,100
            )Issued
                shares on July 1, 2004 for compensation
            
            
            140,000
            
            
            140
            
            
            
            
            
            
            
            
            426,860
            
            
            (427,000
            )Issued
                shares on July 23, 2004 for services
            
            
            125,000
            
            
            125
            
            
            
            
            
            
            
            
            284,875
            
            
            (285,000
            )Issued
                shares on November 10, 2004 for cash
            
            
            242,167
            
            
            242
            
            
            
            
            
            
            
            
            314,575
            
            
            
            
            
            
            
            
            314,817Issued
                shares on November 10, 2004 for services
            
            
            10,000
            
            
            10
            
            
            
            
            
            
            
            
            12,990
            
            
            
            
            
            
            
            
            13,000Cancelled
                shares November 15, 2004 per cancellation of
                agreement
            
            
            (160,000
            )
            
            (160
            )
            
            
            
            
            
            
            
            (71,840
            )
            
            
            
            
            
            
            
            (72,000
            )Issued
                shares on November 17, 2004 to convert Series A preferred shares
                to common shares
            
            
            1,031,316
            
            
            1,031
            
            
            (1,331,280
            )
            
            (1,330
            )
            
            1,391,246
            
            
            
            
            
            (1,392,277
            )
            
            (1,330
            )Issued
                shares on November 23, 2004 to convert Series A preferred shares
                to common shares
            
            
            1,969,008
            
            
            1,970
            
            
            (2,538,720
            )
            
            (2,540
            )
            
            1,986,728
            
            
            
            
            
            (1,988,698
            )
            
            (2,540
            )Stock
                based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,311,012
            
            
            
            
            
            8,311,012Net
                reclassification of derivative liabilities
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,347,077
            )
            
            
            
            
            
            
            
            (3,347,077
            )Net
                loss (from May 18, 2004 to December 31, 2004)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (15,236,339
            )
            
            (15,056,339
            )**Balances,
                December 31, 2004**
            
            
            **65,345,121**
            
            **$**
            **65,345**
            
            
            **—**
            
            **$**
            **—**
            
            **$**
            **58,884,351**
            
            **$**
            **(18,301,588**
            **)**
            **$**
            **(30,298,814**
            **)**
            **$**
            **10,349,294**Cancelled
                shares from July 1, 2004 (returned from employee)
            
            
            (140,000
            )
            
            (140
            )
            
            
            
            
            
            
            
            (426,860
            )
            
            
            
            
            
            
            
            (427,000
            )Issued
                shares on September 14, 2005 for compensation
            
            
            140,000
            
            
            140
            
            
            
            
            
            
            
            
            41,860
            
            
            
            
            
            
            
            
            42,000Issued
                shares on October 31, 2005 for services
            
            
            300,000
            
            
            300
            
            
            
            
            
            
            
            
            65,700
            
            
            
            
            
            
            
            
            66,000Issued
                shares on November 11, 2005 for services
            
            
            250,000
            
            
            250
            
            
            
            
            
            
            
            
            44,750
            
            
            
            
            
            
            
            
            45,000Issued
                shares on December 6, 2005 for services
            
            
            300,000
            
            
            300
            
            
            
            
            
            
            
            
            44,700
            
            
            
            
            
            
            
            
            45,000Cancelled
                shares on December 31, 2005 (returned from employee)
            
            
            (975,000
            )
            
            (975
            )
            
            
            
            
            
            
            
            (876,500
            )
            
            
            
            
            
            
            
            (877,475
            )Cancelled
                shares on December 31, 2005 (returned from employee)
            
            
            (5,000
            )
            
            (5
            )
            
            
            
            
            
            
            
            (4,495
            )
            
            
            
            
            
            
            
            (4,500
            )Amortize
                deferred comp expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            13,222,517
            
            
            
            
            
            13,222,517Net
                loss for year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (27,134,865
            )
            
            (27,134,865
            )**Balances,
                December 31, 2005 (restated)**
            
            
            **65,215,121**
            
            **$**
            **65,215**
            
            
            **—**
            
            **$**
            **—**
            
            **$**
            **57,773,506**
            
            **$**
            **(5,079,071**
            **)**
            **$**
            **(57,433,679**
            **)**
            **$**
            **(4,674,029**
            **)**


4


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**STATEMENT
      OF STOCKHOLDERS' DEFICIT (CONTINUED)**


**FROM
      INCEPTION TO MARCH 31, 2008**





**Common Stock**
            
            **Preferred Stock**
            
            **Additional**
              **Paid In**
              **Capital**
            
            **Deferred**
              **Compensation**
              **Expense**
            
            **Retained**
              **Earnings**
            
            **Equity****Shares**
            
            **Par Value**
            **Shares**
            
            **Par Value****Balances,
                December 31, 2005 (restated)**
            
            
            **65,215,121**
            
            **$**
            **65,215**
            
            
            **—**
            
            **$**
            **—**
            
            **$**
            **57,773,506**
            
            **$**
            **(5,079,071**
            **)**
            **$**
            **(57,433,679**
            **)**
            **$**
            **(4,674,029**
            **)**Issued
                shares on January 6, 2006 for services
            
            
            50,000
            
            
            50
            
            
            
            
            
            
            
            
            5700
            
            
            
            
            
            
            
            
            5,750Issued
                shares on January 6, 2006 for cash
            
            
            500000
            
            
            500
            
            
            
            
            
            
            
            
            57000
            
            
            
            
            
            
            
            
            57,500Issued
                shares on January 13, 2006 for services
            
            
            220,000
            
            
            220
            
            
            
            
            
            
            
            
            28,380
            
            
            
            
            
            
            
            
            28,600Issued
                shares on January 27, 2006 for compensation
            
            
            451,677
            
            
            452
            
            
            
            
            
            
            
            
            49,233
            
            
            
            
            
            
            
            
            49,685Issued
                shares on February 3, 2006 for compensation
            
            
            413,234
            
            
            413
            
            
            
            
            
            
            
            
            40,910
            
            
            
            
            
            
            
            
            41,323Issued
                shares on February 3, 2006 for cash
            
            
            1,114,286
            
            
            1,114
            
            
            
            
            
            
            
            
            81,386
            
            
            
            
            
            
            
            
            82,500Issued
                shares on February 3, 2006 for services
            
            
            297,843
            
            
            297
            
            
            
            
            
            
            
            
            29,488
            
            
            
            
            
            
            
            
            29,785Issued
                shares on February 14, 2006 for compensation
            
            
            201,539
            
            
            202
            
            
            
            
            
            
            
            
            38,091
            
            
            
            
            
            
            
            
            38,293Issued
                shares on February  22, 2006 for services
            
            
            150,000
            
            
            150
            
            
            
            
            
            
            
            
            34,350
            
            
            
            
            
            
            
            
            34,500Issued
                shares on March 8, 2006 for cash
            
            
            400,000
            
            
            400
            
            
            
            
            
            
            
            
            39,600
            
            
            
            
            
            
            
            
            40,000Issued
                shares on March 9, 2006 for cash
            
            
            400,000
            
            
            400
            
            
            
            
            
            
            
            
            39,600
            
            
            
            
            
            
            
            
            40,000Issued
                shares on March 23, 2006 for services
            
            
            300,000
            
            
            300
            
            
            
            
            
            
            
            
            80,700
            
            
            
            
            
            
            
            
            81,000Issued
                shares on March 24, 2006 for compensation
            
            
            186,648
            
            
            187
            
            
            
            
            
            
            
            
            48,529
            
            
            
            
            
            
            
            
            48,716Issued
                shares on May 9, 2006 for services
            
            
            60,000
            
            
            60
            
            
            
            
            
            
            
            
            9,240
            
            
            
            
            
            
            
            
            9,300Issued
                shares on May 25, 2006 for services
            
            
            172,147
            
            
            172
            
            
            
            
            
            
            
            
            22,207
            
            
            
            
            
            
            
            
            22,379Issued
                shares on June 8, 2006 for cash
            
            
            38,460
            
            
            38
            
            
            
            
            
            
            
            
            4,962
            
            
            
            
            
            
            
            
            5,000Issued
                shares on June 16, 2006 for services
            
            
            300,000
            
            
            300
            
            
            
            
            
            
            
            
            32,700
            
            
            
            
            
            
            
            
            33,000Issued
                shares on September 15, 2006 for services
            
            
            400,000
            
            
            400
            
            
            
            
            
            
            
            
            39,600
            
            
            
            
            
            
            
            
            40,000Issued
                shares on October 31, 2006 for services
            
            
            500,000
            
            
            500
            
            
            
            
            
            
            
            
            29,500
            
            
            
            
            
            
            
            
            30,000Adoption
                of 123R
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (475,324
            )
            
            475,324Amortize
                deferred comp expense
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,603,747
            
            
            
            
            
            4,603,747Net
                loss for year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,415,969
            )
            
            (6,415,969
            )**Balances,
                December 31, 2006**
            
            
            **71,370,955**
            **$**
            
            **71,370**
            
            
            **—**
            
            **$**
            **—**
            
            **$**
            **58,009,358**
            
            **$**
            **—**
            
            **$**
            **(63,849,648**
            **)**
            **$**
            **(5,768,920**
            **)**


5


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**


**STATEMENT
      OF STOCKHOLDERS' DEFICIT (CONTINUED)**


**FROM
      INCEPTION TO MARCH 31, 2008**




**Common Stock**
            
            **Preferred Stock**
            
            **Additional**
              **Paid In**
              **Capital**
            
            **Deferred**
              **Compensation**
              **Expense**
            
            **Retained**
              **Earnings**
            
            **Equity****Shares**
            
            **Par Value**
            **Shares**
            
            **Par Value****Balances,
                December 31, 2006**
            
            
            **71,370,955**
            
            **$**
            **71,370**
            
            
            **—**
            
            **$**
            **—**
            
            **$**
            **58,009,358**
            
            **$**
            **—**
            
            **$**
            **(63,849,648**
            **)**
            **$**
            **(5,768,920**
            **)**Issued
                shares on January 2, 2007 for services
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            7,900
            
            
            
            
            
            
            
            
            8,000Issued
                shares on January 23, 2007 for conversion
            
            
            1,000,000
            
            
            1,000
            
            
            
            
            
            
            
            
            59,000
            
            
            
            
            
            
            
            
            60,000Issued
                shares on January 30, 2007 for services
            
            
            500,000
            
            
            500
            
            
            
            
            
            
            
            
            42,000
            
            
            
            
            
            
            
            
            42,500Issued
                shares on March 14, 2007 for conversion
            
            
            3,000,000
            
            
            3,000
            
            
            
            
            
            
            
            
            157,000
            
            
            
            
            
            
            
            
            160,000Issued
                shares on April 13, 2007 for services
            
            
            160,000
            
            
            160
            
            
            
            
            
            
            
            
            35,040
            
            
            
            
            
            
            
            
            35,200Issued
                shares on April 13, 2007 for services
            
            
            300,000
            
            
            300
            
            
            
            
            
            
            
            
            65,700
            
            
            
            
            
            
            
            
            66,000Issued
                shares on April 30, 2007 for conversion
            
            
            713,708
            
            
            714
            
            
            
            
            
            
            
            
            (119,866
            )
            
            
            
            
            
            
            
            (119,152
            )Issued
                shares on May 11, 2007 for conversion
            
            
            157,895
            
            
            158
            
            
            
            
            
            
            
            
            (53,974
            )
            
            
            
            
            
            
            
            (53,816
            )Issued
                shares on May 16, 2007 for warrants exercised
            
            
            833,333
            
            
            834
            
            
            
            
            
            
            
            
            65,834
            
            
            
            
            
            
            
            
            66,668Issued
                shares on May 16, 2007 for conversion
            
            
            833,333
            
            
            833
            
            
            
            
            
            
            
            
            49,167
            
            
            
            
            
            
            
            
            50,000Issued
                shares on May 16, 2007 for conversion
            
            
            713,708
            
            
            714
            
            
            
            
            
            
            
            
            (119,894
            )
            
            
            
            
            
            
            
            (119,180
            )Issued
                shares on May 16, 2007 for conversion
            
            
            4,127,000
            
            
            4,127
            
            
            
            
            
            
            
            
            243,332
            
            
            
            
            
            
            
            
            247,459Issued
                shares on May 16, 2007 for conversion
            
            
            359,595
            
            
            360
            
            
            
            
            
            
            
            
            (111,235
            )
            
            
            
            
            
            
            
            (110,875
            )Issued
                shares on May 16, 2007 for conversion
            
            
            178,427
            
            
            178
            
            
            
            
            
            
            
            
            (29,973
            )
            
            
            
            
            
            
            
            (29,795
            )Issued
                shares on May 17, 2007 for conversion
            
            
            11,970
            
            
            12
            
            
            
            
            
            
            
            
            (1,531
            )
            
            
            
            
            
            
            
            (1,519
            )Issued
                shares on May 17, 2007 for conversion
            
            
            71,370
            
            
            71
            
            
            
            
            
            
            
            
            (9,130
            )
            
            
            
            
            
            
            
            (9,059
            )Issued
                shares on June 1, 2007 for conversion
            
            
            200,000
            
            
            200
            
            
            
            
            
            
            
            
            11,800
            
            
            
            
            
            
            
            
            12,000Issued
                shares on June 7, 2007 for conversion
            
            
            5,900,231
            
            
            5,900
            
            
            
            
            
            
            
            
            346,662
            
            
            
            
            
            
            
            
            352,562Issued
                shares on June 13, 2007 for services
            
            
            400,000
            
            
            400
            
            
            
            
            
            
            
            
            79,600
            
            
            
            
            
            
            
            
            80,000Issued
                shares on June 13, 2007 for cash
            
            
            1,750,000
            
            
            1,750
            
            
            
            
            
            
            
            
            298,250
            
            
            
            
            
            
            
            
            300,000Issued
                shares on June 13, 2007 for cash
            
            
            1,500,000
            
            
            1,500
            
            
            
            
            
            
            
            
            348,500
            
            
            
            
            
            
            
            
            350,000Placement
                agent fees
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (58,500
            )
            
            
            
            
            
            
            
            (58,500
            )Stock
                received
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            100
            
            
            
            
            
            
            
            
            100Unreturned
                shares
            
            
            5,000
            
            
            5
            
            
            
            
            
            
            
            
            4,495
            
            
            
            
            
            
            
            
            4,500Issued
                shares on August 3, 2007 for conversion
            
            
            3,793,301
            
            
            3,793
            
            
            
            
            
            
            
            
            115,202
            
            
            
            
            
            
            
            
            118,995Issued
                shares on August 23, 2007 for conversion
            
            
            174,035
            
            
            174
            
            
            
            
            
            
            
            
            10,212
            
            
            
            
            
            
            
            
            10,386Issued
                shares on August 23, 2007 for conversion
            
            
            588,235
            
            
            588
            
            
            
            
            
            
            
            
            22,451
            
            
            
            
            
            
            
            
            23,039Issued
                shares on September 7, 2007 for warrants exercised
            
            
            3,999,999
            
            
            4,000
            
            
            
            
            
            
            
            
            236,000
            
            
            
            
            
            
            
            
            240,000Issued
                shares on October 31, 2007 for warrants exercised
            
            
            437,500
            
            
            438
            
            
            
            
            
            
            
            
            34,562
            
            
            
            
            
            
            
            
            35,000Issued
                shares on November 9, 2007 for conversion
            
            
            442,416
            
            
            442
            
            
            
            
            
            
            
            
            37,189
            
            
            
            
            
            
            
            
            37,631Issued
                shares on November 15, 2007 for cash
            
            
            700,000
            
            
            700
            
            
            
            
            
            
            
            
            55,300
            
            
            
            
            
            
            
            
            56,000Issued
                shares on November 19, 2007 for cash
            
            
            250,000
            
            
            250
            
            
            
            
            
            
            
            
            19,750
            
            
            
            
            
            
            
            
            20,000Issued
                shares on November 20, 2007 for cash
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            7,900
            
            
            
            
            
            
            
            
            8,000Issued
                shares on November 20, 2007 for cash
            
            
            62,500
            
            
            63
            
            
            
            
            
            
            
            
            4,937
            
            
            
            
            
            
            
            
            5,000Issued
                shares on November 20, 2007 for cash
            
            
            15,000
            
            
            15
            
            
            
            
            
            
            
            
            1,185
            
            
            
            
            
            
            
            
            1,200Issued
                shares on November 26, 2007 for cash
            
            
            12,500
            
            
            13
            
            
            
            
            
            
            
            
            987
            
            
            
            
            
            
            
            
            1,000Issued
                shares on November 27, 2007 for cash
            
            
            12,500
            
            
            13
            
            
            
            
            
            
            
            
            987
            
            
            
            
            
            
            
            
            1,000Issued
                shares on November 27,2007
                for cash
            
            
            12,500
            
            
            13
            
            
            
            
            
            
            
            
            987
            
            
            
            
            
            
            
            
            1,000Issued
                shares on November 27,2007
                for cash
            
            
            6,250
            
            
            6
            
            
            
            
            
            
            
            
            494
            
            
            
            
            
            
            
            
            500Issued
                shares on November 27,2007
                for cash
            
            
            37,500
            
            
            38
            
            
            
            
            
            
            
            
            2,962
            
            
            
            
            
            
            
            
            3,000Issued
                shares on November 27,2007
                for cash
            
            
            300,000
            
            
            300
            
            
            
            
            
            
            
            
            23,700
            
            
            
            
            
            
            
            
            24,000Issued
                shares on November 27,2007
                for cash
            
            
            300,000
            
            
            300
            
            
            
            
            
            
            
            
            23,700
            
            
            
            
            
            
            
            
            24,000Issued
                shares on November 27,2007
                for cash
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            7,900
            
            
            
            
            
            
            
            
            8,000Issued
                shares on November 30, 2007 for cash
            
            
            200,000
            
            
            200
            
            
            
            
            
            
            
            
            15,800
            
            
            
            
            
            
            
            
            16,000Issued
                shares on November 30, 2007 for cash
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            7,900
            
            
            
            
            
            
            
            
            8,000Issued
                shares on November 30, 2007 for cash
            
            
            300,000
            
            
            300
            
            
            
            
            
            
            
            
            23,700
            
            
            
            
            
            
            
            
            24,000Issued
                shares on December 5, 2007 for cash
            
            
            150,000
            
            
            150
            
            
            
            
            
            
            
            
            11,850
            
            
            
            
            
            
            
            
            12,000Issued
                shares on December 5, 2007 for cash
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            7,900
            
            
            
            
            
            
            
            
            8,000Issued
                shares on December 5, 2007 for cash
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            7,900
            
            
            
            
            
            
            
            
            8,000Issued
                shares on December 5, 2007 for cash
            
            
            250,000
            
            
            250
            
            
            
            
            
            
            
            
            19,750
            
            
            
            
            
            
            
            
            20,000Issued
                shares on December 5, 2007 for cash
            
            
            3,750
            
            
            4
            
            
            
            
            
            
            
            
            296
            
            
            
            
            
            
            
            
            300Issued
                shares on December 6, 2007 for services
            
            
            350,000
            
            
            350
            
            
            
            
            
            
            
            
            52,150
            
            
            
            
            
            
            
            
            52,500Issued
                shares on December 14, 2007 for cash
            
            
            6,250
            
            
            6
            
            
            
            
            
            
            
            
            494
            
            
            
            
            
            
            
            
            500Issued
                shares on December 14, 2007 for cash
            
            
            3,750
            
            
            4
            
            
            
            
            
            
            
            
            296
            
            
            
            
            
            
            
            
            300Issued
                shares on December 14, 2007 for cash
            
            
            28,750
            
            
            29
            
            
            
            
            
            
            
            
            2,271
            
            
            
            
            
            
            
            
            2,300Issued
                shares on December 14, 2007 for cash
            
            
            4,375
            
            
            4
            
            
            
            
            
            
            
            
            346
            
            
            
            
            
            
            
            
            350Issued
                shares on December 18, 2007 for cash
            
            
            6,250
            
            
            6
            
            
            
            
            
            
            
            
            494
            
            
            
            
            
            
            
            
            500Issued
                shares on December 18, 2007 for cash
            
            
            6,250
            
            
            6
            
            
            
            
            
            
            
            
            494
            
            
            
            
            
            
            
            
            500Issued
                shares on December 18, 2007 for cash
            
            
            6,250
            
            
            6
            
            
            
            
            
            
            
            
            494
            
            
            
            
            
            
            
            
            500Issued
                shares on December 18, 2007 for cash
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            7,900
            
            
            
            
            
            
            
            
            8,000Issued
                shares on December 31, 2007 for cash
            
            
            1,000,000
            
            
            1,000
            
            
            
            
            
            
            
            
            79,000
            
            
            
            
            
            
            
            
            80,000Issued
                shares on December 31, 2007 for cash
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            7,900
            
            
            
            
            
            
            
            
            8,000Deemed
                dividend
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            17,635
            
            
            
            
            
            (17,635
            )Net
                loss for year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (5,216,288
            )
            
            (5,216,288
            )**Balances,
                December 31, 2007**
            
            
            **108,352,636**
            
            **$**
            **108,353**
            
            
            **—**
            
            **$**
            **—**
            
            **$**
            **60,191,104**
            
            **$**
            **—**
            
            **$**
            **(69,083,571**
            **)**
            **$**
            **(8,784,114**
            **)**Issued
                shares on January 7, 2008 for services
            
            
            2,000
            
            
            2
            
            
            
            
            
            
            
            
            248
            
            
            
            
            
            
            
            
            250Issued
                shares on January 15, 2008 for cash
            
            
            231,250
            
            
            231
            
            
            
            
            
            
            
            
            18,269
            
            
            
            
            
            
            
            
            18,500Issued
                shares on January 23, 2008 for cash
            
            
            105,000
            
            
            105
            
            
            
            
            
            
            
            
            8,295
            
            
            
            
            
            
            
            
            8,400Issued
                shares on January 25, 2008 for cash
            
            
            287,500
            
            
            288
            
            
            
            
            
            
            
            
            22,712
            
            
            
            
            
            
            
            
            23,000Issued
                shares on January 28, 2008 for cash
            
            
            2,255,125
            
            
            2,255
            
            
            
            
            
            
            
            
            178,155
            
            
            
            
            
            
            
            
            180,410Issued
                shares on January 29, 2008 for cash
            
            
            886,250
            
            
            886
            
            
            
            
            
            
            
            
            70,014
            
            
            
            
            
            
            
            
            70,900Issued
                shares on February 5, 2008 for cash
            
            
            1,000,000
            
            
            1,000
            
            
            
            
            
            
            
            
            99,000
            
            
            
            
            
            
            
            
            100,000Issued
                shares on February 7, 2008 for cash
            
            
            37,500
            
            
            38
            
            
            
            
            
            
            
            
            2,962
            
            
            
            
            
            
            
            
            3,000Issued
                shares on February 8, 2008 for cash
            
            
            200,000
            
            
            200
            
            
            
            
            
            
            
            
            19,800
            
            
            
            
            
            
            
            
            20,000Issued
                shares on February 8, 2008 for conversion
            
            
            5,706,667
            
            
            5,707
            
            
            
            
            
            
            
            
            336,693
            
            
            
            
            
            
            
            
            342,400Issued
                shares on February 12, 2008 for cash
            
            
            415,250
            
            
            415
            
            
            
            
            
            
            
            
            40,285
            
            
            
            
            
            
            
            
            40,700Issued
                shares on February 13, 2008 for cash
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            9,900
            
            
            
            
            
            
            
            
            10,000Issued
                shares on February 15, 2008 for cash
            
            
            50,000
            
            
            50
            
            
            
            
            
            
            
            
            4,950
            
            
            
            
            
            
            
            
            5,000Issued
                shares on March 17, 2008 for cash
            
            
            100,000
            
            
            100
            
            
            
            
            
            
            
            
            9,900
            
            
            
            
            
            
            
            
            10,000Issued
                shares on March 25, 2008 for lawsuit settlement
            
            
            325,000
            
            
            325
            
            
            
            
            
            
            
            
            30,550
            
            
            
            
            
            
            
            
            30,875Deemed
                dividend
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            12,071
            
            
            
            
            
            (12,071
            )Net
                gain for year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,221,182
            
            
            1,221,182**Balances,
                March 31, 2008**
            
            
            **120,054,178**
            
            **$**
            **120,055**
            
            
            **—**
            
            **$**
            **—**
            
            **$**
            **61,054,908**
            
            **$**
            **—**
            
            **$**
            **(67,874,460**
            **)**
            **$**
            **(6,699,497**
            **)**




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


6


**POWER3
      MEDICAL PRODUCTS, INC.**


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


**STATEMENTS
      OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


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


**(unaudited)**





**March 31, 2008**
            
            **March 31, 2007**
              **Restated**
            
            **Period from**
              **May 18, 2004 through**
              **March 31, 2008**Operating
                activities:Net
                gain (loss)
            
            $
            1,221,182
            
            $
            (6,725,805
            )
            $
            (52,782,281
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Gain
                on conversion of financial instruments
            
            
            —
            
            
            (137,041
            )
            
            (1,544,574
            )Gain
                on legal settlement
            
            
            (17,875
            )
            
            —
            
            
            (17,875
            )Impairment
                of goodwill
            
            
            —
            
            
            —
            
            
            13,371,776Impairment
                of intangible assets
            
            
            —
            
            
            —
            
            
            179,788Loss
                on previously capitalized lease
            
            
            —
            
            
            —
            
            
            34,243Amortization
                of debt discounts and deferred finance costs
            
            
            327,200
            
            
            192,065
            
            
            2,853,942Change
                in derivative liability, net of bifurcation
            
            
            (2,168,616
            )
            
            6,372,367
            
            
            (3,622,578
            )Stock
                based compensation
            
            
            250
            
            
            55,000
            
            
            32,656,295Stock
                issued for settlement of lawsuit
            
            
            30,875
            
            
            —
            
            
            30,875Depreciation
                expense
            
            
            548
            
            
            6,888
            
            
            99,508Other
                non cash items
            
            
            —
            
            
            —
            
            
            (34,933
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            —
            
            
            (89,224
            )
            
            —Prepaid
                expenses and other current assets
            
            
            2,793
            
            
            550
            
            
            172,730Accounts
                payable and other liabilities
            
            
            4,577
            
            
            10,043
            
            
            2,601,510Net
                cash used in operating activities
            
            
            (599,066
            )
            
            (315,157
            )
            
            (5,983,699
            )Investing
                Activities:Capital
                expenditures, net
            
            
            (2,798
            )
            
            —
            
            
            (141,800
            )Increase
                in other assets
            
            
            —
            
            
            —
            
            
            (179,786
            )Net
                cash used in investing activities
            
            
            (2,798
            )
            
            —
            
            
            (321,586
            )Financing
                Activities:Proceeds
                from borrowings under notes payable, net
            
            
            —
            
            
            409,000
            
            
            3,028,430Proceeds
                from sale of common stock
            
            
            489,910
            
            
            —
            
            
            2,106,677Principal
                payments on long term debt
            
            
            —
            
            
            —
            
            
            (32,478
            )Borrowing
                on debt related party
            
            
            —
            
            
            94,862
            
            
            30,376Principal
                payments on notes payable related party
            
            
            —
            
            
            (11,500
            )
            
            (17,300
            )Proceeds
                from CD, warrants and rights net of issuance cost
            
            
            —
            
            
            —
            
            
            1,200,709Net
                cash provided by financing activities
            
            
            489,910
            
            
            492,362
            
            
            6,316,414Net
                change in cash and cash equivalents
            
            
            (111,954
            )
            
            177,205
            
            
            11,129Cash
                and cash equivalents, beginning of period
            
            
            125,679
            
            
            40,602
            
            
            2,596Cash
                and cash equivalents, end of period
            
            $
            13,725
            
            $
            217,807
            
            $
            13,725




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


7


**POWER3
      MEDICAL PRODUCTS, INC.**


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


**STATEMENTS
      OF CASH FLOWS**


**FOR
      THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007**


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


**(unaudited)**





**2008**
            
            **2007**
              **Restated**
            
            **Period from**
              **May 18, 2004**
              **through**
              **March 31, 2008**Supplemental
                disclosures of cash flow informationCash
                paid for:Interest
            
            $
            —
            
            $
            —
            
            $
            59,840Income
                taxes
            
            $
            —
            
            $
            —
            
            $
            —Non-cash
                transactions:Restatement
                of notes payable to notes payable related parties
            
            
            —
            
            
            1,201,346
            
            
            1,393,346Exchange
                of convertible notes for stock
            
            
            342,400
            
            
            357,041
            
            
            1,902,204Stock
                Issued for Settlement of Payables
            
            
            —
            
            
            —
            
            
            6,697Deemed
                dividend
            
            
            12,071
            
            
            —
            
            
            29,706Exchange
                of convertible preferred stock forcommon
                stock 3,000,324 shares
            
            
            —
            
            
            —
            
            
            3,380,975Stock
                held in escrow
            
            
            120,000
            
            
            —
            
            
            120,000





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


8


**POWER3
      MEDICAL PRODUCTS, INC.**


**(A
      Development Stage Enterprise)**




**NOTES
      TO FINANCIAL STATEMENTS** ****




***NOTE
      1. BASIS OF PRESENTATION*** ****




The
      accompanying unaudited interim financial statements of Power3 Medical Products,
      Inc. (“Power3”or the “Company”) at March 31, 2008, have been prepared without
      audit, pursuant to the rules and regulations of the Securities and Exchange
      Commission. Certain information and footnote disclosures normally included
      in
      financial statements prepared in conformity with generally accepted accounting
      principles have been omitted or condensed pursuant to such rules and
      regulations. These statements should be read in conjunction with Power3’s
      Form 10-KSB for the year ended December 31, 2007. In management’s
      opinion, these interim financial statements reflect all adjustments (consisting
      of normal and recurring adjustments) necessary for a fair presentation of the
      financial position, results of operations and cash flows for the interim periods
      are not necessarily indicative of the results which can be expected for the
      entire year.




**Restatements**





Restatements
      of previously reported financial results for the three month period ended March
      31, 2007, were made. See Note 7.




**Earnings
      Per Share**




Basic
      and
      diluted earnings per share calculations are calculated on the basis of the
      weighted average number of common shares outstanding during the year. The per
      share amounts include the dilutive effect of common stock equivalents in years
      with net income.




Earnings
      per share for the period ended March 31, 2008 is computed as follows:




Income
              (Numerator)
            
            Shares
              (Denominator)
            
            Per-
              Share
              AmountNet
                Income
            
            $
            1,221,182Basic
                EPSIncome
                available to common stockholders
            
            $
            1,209,111
            
            
            115,458,242
            
            $
            .01Effective
                Dilutive EPS *Income
                available to common stockholders
            
            $
            1,209,111
            
            
            122,023,763
            
            $
            .01




*As
      of
      March 31, 2008, Power3 has 115,458,242 weighted average shares outstanding.
      The
      Company uses the treasury stock method to determine whether any outstanding
      options or warrants are to be included in the diluted earnings per share
      calculation.  As of March 31, 2008, Power3 had 29,570,328 shares issuable
      on warrants exercisable as follows:




Exercise
              Price
            
            Number Of
              Shares
              Issuable
            
            Proceeds$
            .06
            
            
            2,333,333
            
            $
            140,000$
            .08
            
            
            12,845,829
            
            
            1,027,666$
            .09
            
            
            833,333
            
            
            75,000$
            .10
            
            
            13,557,833
            
            
            1,355,78429,570,328
            
            $
            2,598,450




9




Using
      an
      average share price for the quarter ended March 31, 2008 of $0.113, the warrants
      result in a net additional possible dilution of 6,565,521 shares.  This
      results in 122,023,763 shares used in the above calculation. An additional
      3,896,266 warrants have been earned, but are not “in the money” and are
      therefore not included in this calculation, due to their anti-dilutive effect.




***NOTE
      2. GOING CONCERN***




As
      shown
      in the accompanying financial statements, Power3 has an accumulated deficit
      of
      $67,874,460 as of March 31, 2008 and negative operating cash flows since
      inception of approximately $6,000,000. These conditions create an uncertainty
      as
      to Power3's ability to continue as a going concern.




Management
      is trying to raise additional capital through various funding arrangements.
      The
      financial statements do not include any adjustment that might be necessary
      if
      Power3 is unable to continue as a going concern.




***NOTE
      3. FINANCING ARRANGEMENTS***




**Securities
      Purchase Agreement—Convertible Debentures**




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




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




Under
      the
      Agreements, the Purchasers also received warrants to purchase an aggregate
      of up
      to 2,500,000 and 333,333 shares of common stock for tranche one and two,
      respectively, and additional investment rights to purchase up to an additional
      $2,500,000 of convertible debentures. The warrants are exercisable at a price
      of
      $0.08 per share, subject to adjustment, including anti-dilution
      protection . The
      additional investment rights are exercisable at a price equal to the principal
      amount of the debentures to be purchased, for (1) a period of nine months
      following the effective date of the registration statement to be filed pursuant
      to the Registration Rights Agreement, or (2) a period of 18 months from the
      date
      of issuance of the additional investment rights, whichever is shorter. The
      rights debentures will have the same terms as the debentures described above,
      except that the conversion price will be equal to $1.08.




10




The
      Company is in default under the provisions of the Agreement, Registration Rights
      Agreement and previously issued debentures. The aggregate amount payable upon
      an
      acceleration by reason of an event of default is equal to the greater of 130%
      of
      the principal amount of the debentures to be prepaid or the principal amount
      of
      the debentures to be prepaid, divided by the conversion price on the date
      specified in the debenture, multiplied by the closing price on the date set
      forth in the debenture.




Of
      the
      $1,400,000 Convertible Debentures mentioned above the Company has settled
      $884,990 during the three months ended March 31, 2008 and the year ended
      December 31, 2007, resulting in a balance of $515,010 at March 31, 2008.




On
      April 3, 2007, the Company entered into a joint venture agreement with
      NeoGenomics to form a Contract Research Organization (CRO) and collaborate
      on
      research work in the future. Currently, Power3 and NeoGenomics are in discussion
      to revise the expired Letter of Intent between the respective
      organizations.




Power3
      has converted several notes and plans to continue doing so. In some instances,
      Power3 has offered terms of conversion lower than the original agreement
      including raising the strike price of warrants attached to these instruments.
      As
      a result of this additional consideration, upon conversion the Company recorded
      a $137,041 gain on the conversion of notes during the three months ended March
      31, 2007. The change in the conversion terms represented greater than 10% of
      the
      principal value of the notes and as a result extinguishment accounting has
      been
      applied consistent with EITF 96-19.




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




**Deemed
      Dividend**




As
      part
      of Power3’s attempt to induce warrant holders to exercise their warrants, the
      strike price of certain warrants was reduced resulting in a deemed dividend
      of
      $12,071, consistent with EITF 98-5. The deemed dividend was valued using the
      Black-Scholes model immediately before  and
      after
      the inducement consistent with paragraph 51 of SFAS 123R.




**Convertible
      Debentures, Warrants and Additional Investment Rights:**




The
      carrying values of the Company’s convertible debentures amounted to $629,322 and
      $645,190, at March 31, 2008 and December 31, 2007, as follows.


**Convertible Debentures:**
              
              **As of**
                **March 31,**
                **2008**
              
              **As of**
                **December 31. 2007**Securities
                  Purchase Agreement Holders
              
              $
              515,010
              
              $
              515,010Discount
              
              
              —
              
              
              (86,844
              )Note
                  3:Chosid
              
              
              —
              
              
              200,000Wood
              
              
              —
              
              
              120,000Seyburn
              
              
              100,000
              
              
              100,000Discount
                  on Note 3
              
              
              —
              
              
              (210,417
              )Note
                  4:NeoGenomics
              
              
              200,000
              
              
              200,000Discount
                  on Note 4
              
              
              (185,688
              )
              
              (192,559
              )**Totals**
              
              $
              629,322
              
              $
              645,190




11




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





**Derivative Liabilities:**
            
            **March 31,**
              **2008**
            
            **December 31,**
              **2007**Common
                stock warrants
            
            $
            884,312
            
            $
            1,563,183Embedded
                conversion feature
            
            
            338,719
            
            
            1,205,719Additional
                investment rights
            
            
            250,352
            
            
            642,792Other
                derivative instruments
            
            
            152,306
            
            
            382,611$
            1,625,689
            
            $
            3,794,305





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




**Other
      Notes, Preferred Stock and Warrants:**




During
      November and December 2005, the Company issued $300,000 (2 tranches of
      $150,000) face value, 11% notes and detachable warrants to purchase 2,000,000
      shares of common stock to Trinity Financing Investments Corporation. The
      warrants have eight-year terms and strike prices of $0.25 for 1,000,000 shares
      and $0.14 for 1,000,000 shares. The note was paid in full as of the year ended
      December 31, 2007.




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




**Notes
      Payable in Default and to Related Parties**




During
      the three months ended March 31, 2008 the Company did not
      borrow or make payments on notes payable.




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




The
      total
      Notes Payable to related parties, as of the period ended March 31, 2008 and
      the
      year ended December 31, 2007 is $1,934,816 as follows:




**As of**
              **March 31,**
              **2008**
            
            **As of**
              **December 31.**
              **2007****Notes
                payable in default:**Cordillera
                I
            
            $
            251,000
            
            $
            251,000Cordillera
                II
            
            $
            200,000
            
            $
            200,000**Totals**
            
            $
            451,000
            
            $
            451,000**Notes
                payable:**Kazanowski
            
            $
            50,000
            
            $
            50,000$
            50,000
            
            $
            50,000**Notes
                payable - related parties:**Rash
            
            $
            924,456
            
            $
            924,456Goldknopf
            
            $
            975,360
            
            $
            975,360Rosinski
            
            $
            35,000
            
            $
            35,000**Totals**
            
            $
            1,934,816
            
            $
            1,934,816


12




***NOTE
      4. OTHER SIGNIFICANT EQUITY TRANSACTIONS***




**Deemed
      distribution:**


****


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




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





**Deemed
      dividend:**




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




**Sales
      of common stock during the three month period ended March 31,
      2008:**




On
      January 15, 2008, 231,250 shares of common stock were issued for cash to private
      investors in the amount of $18,500. ****




On
      January 23, 2008, 105,000 shares of common stock were issued for cash to private
      investors in the amount of $8,400. ****




On
      January 25, 2008, 287,500 shares of common stock were issued for cash to private
      investors in the amount of $23,000. ****




On
      January 28, 2008, 2,255,125 shares of common stock were issued for cash to
      private investors in the amount of $180,410.




On
      January 29, 2008, 886,250 shares of common stock were issued for cash to private
      investors in the amount of $70,900.




On
      February 5, 2008, 1,000,000 shares of common stock were issued for cash to
      private investors in the amount of $100,000.




On
      February 7, 2008, 37,500 shares of common stock were issued for cash to private
      investors in the amount of $3,000.




13




On
      February 8, 2008, 200,000 shares of common stock were issued for cash to private
      investors in the amount of $20,000.




On
      February 12, 2008, 415,250 shares of common stock were issued for cash to
      private investors in the amount of $40,700.




On
      February 13, 2008, 100,000 shares of common stock were issued for cash to
      private investors in the amount of $10,000.




On
      February 15, 2008, 50,000 shares of common stock were issued for cash to private
      investors in the amount of $5,000.




On
      March
      17, 2008, 100,000 shares of common stock were issued for cash to private
      investors in the amount of $10,000.




**Shares
      issued for services during the three month period ended March 31,
      2008:**




On
      January 7, 2008, a total of 2,000 shares of common stock were issued to four
      employees in recognition of receiving the 3 rd Annual
      Chairman’s Circle of Excellence Award. These shares were valued at $250 based
      upon the closing price of our common stock at the grant date.




**Shares
      issued in settlement of legal proceedings during the three month period ended
      March 31, 2008:**




On
      March
      25, 2008, 325,000 shares of common stock were issued in settlement of a dispute
      with a former employee as mentioned above. The shares were valued at $30,875
      based upon the closing price of our common stock at the grant date. ****




**Shares
      issued for conversion of debt during the three month period ended March 31,
      2008:**




On
      February 8, 2008, 5,706,667 shares of common stock were issued for conversion
      of
      debt in the amount of $342,400. The shares were valued at the conversion price
      per convertible note agreement.




**Shares
      issued for exercise of warrants during the three month period ended March 31,
      2008:**




None.




***NOTE
      5. COMMITMENTS AND CONTINGENCES***




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




On
      March
      12, 2008, all matters involving an ex-employee, of certain trade secrets,
      defamation and wrongful interference with Power3's contractual relations with
      other parties, and a pendent wage claim for severance pay, were resolved. In
      settlement of this lawsuit, 325,000 shares were issued on March 26, 2008 and
      payments totaling $35,000 will be made to the ex-employee. As of March 31,
      2008
      the accrued salaries payable is $25,000 and the Company has issued 325,000
      shares of stock. The shares were valued at $30,875 based upon the closing price
      of our common stock at the grant date.




14




***NOTE
      6. SUBSEQUENT EVENTS***




On
      April
      3, 2008, 1,250,000 shares of common stock were issued for cash to private
      investors in the amount of $100,000.




On
      April
      14, 2008, 300,000 shares of common stock were issued for cash to private
      investors in the amount of $30,000.




On
      April
      17, 2008, 100,000 shares of common stock were issued for cash to private
      investors in the amount of $10,000.




On
      April
      22, 2008, 75,000 shares of common stock were issued for cash to private
      investors in the amount of $7,500.




On
      April
      23, 2008, 3,000,000 shares of preferred Series B stock were issued to officers
      of the Company pursuant to employment agreements.




On
      April
      24, 2008, 100,000 shares of common stock were issued for cash to private
      investors in the amount of $10,000.




***NOTE
      7. RESTATEMENT***




The
      Company has identified certain accounting errors related to derivative
      liabilities which resulted in changes to derivative loss, interest expense
      and
      loss on conversion of financial instruments among other errors. The Company
      has
      also identified that in the quarter ended March 31, 2007, the Company had not
      taken into account the impairment of erroneously accounted for deferred
      compensation expense, and reported incorrect balances in several accounts due
      to
      prior period adjustments that were not taken into account at the time of the
      filing of the quarter ended March 31, 2007.





The
      Company’s March 31, 2007 10-QSB was filed prior to the completion of the 2006
      year end audit. During the 2006 year end audit several errors were found and
      as
      a result several adjustments were made. This restatement takes into account
      all
      changes made during the December 31, 2006 audit.





The
      effect on the statement of operations for the three months ended March 31,
      2007
      as a result of the adjustments was an increase in net loss of $ 2,757,370
      and an $0.04 increase in the net loss per share.





The
      effect on the balance sheet was a decrease of $11,617,735 in total net
      assets.





In
      all
      other material respects, the financial statements are unchanged.





Following
      is a summary of the unaudited restatement adjustments:




15




As
      of
      March 31, 2007


SUMMARY
      BALANCE SHEET


(unaudited)


**As**
                **Reported**
                **(unaudited)**
              
              **Adjustment**
              
              
              **As**
                **Restated**
                **(unaudited)****ASSETS**CURRENT
                  ASSETSCash
                  and Cash Equivalents
              
              $
              217,808
              
              $
              —
              
              
              $
              217,808Accounts
                  Receivable
              
              
              123,335
              
              
              (34,111
              )
              (a)
              
              89,224TOTAL
                  CURRENT ASSETS
              
              
              341,143
              
              
              (34,111
              )
              
              
              307,032OTHER
                  ASSETSDeferred
                  Finance Costs, net of amortization
              
              
              233,817
              
              
              (195
              )
              (b)
              
              233,622Intellectual
                  Property
              
              
              179,786
              
              
              2
              
              
              
              179,788Goodwill
              
              
              11,583,431
              
              
              (11,583,431
              )
              (c)
              
              —Stock
                  Held In Escrow
              
              
              120,000
              
              
              —
              
              
              
              120,000Furniture,
                  Fixtures and Equipment, net of accumulated depreciation
              
              
              9,485
              
              
              —
              
              
              
              9,485Deposits
              
              
              5,350
              
              
              —
              
              
              
              5,350**TOTAL
                  ASSETS**
              
              $
              12,473,012
              
              $
              (11,617,735
              )
              
              $
              855,277**LIABILITIES
                  AND STOCKHOLDERS’ DEFICIT**CURRENT
                  LIABILITIESAccounts
                  Payable
              
              $
              917,724
              
              $
              30,157
              
              (d)
              $
              947,881Notes
                  Payable – in default, net of amortization
              
              
              672,527
              
              
              (160,705
              )
              (e)
              
              511,822Notes
                  Payable to Related Parties
              
              
              1,511,708
              
              
              —
              
              
              
              1,511,708Liquidated
                  Damages on Convertible Debt
              
              
              21,000
              
              
              3,000
              
              (b)
              
              24,000Convertible
                  Debentures-in default, net of amortization
              
              
              394,996
              
              
              27,750
              
              (b)
              
              422,746Other
                  Current Liabilities
              
              
              1,343,022
              
              
              (317,671
              )
              (f)
              
              1,025,351Derivative
                  Liabilities
              
              
              5,391,023
              
              
              3,120,471
              
              (b)
              
              8,511,494**TOTAL
                  LIABILITIES**
              
              
              10,252,000
              
              
              2,703,002
              
              
              
              12,955,002**STOCKHOLDERS’
                  DEFICIT**Preferred
                  Stock
              
              
              —
              
              
              —
              
              
              
              —Common
                  Stock
              
              
              76,970
              
              
              5
              
              (g)
              
              76,975Additional
                  Paid-In Capital
              
              
              62,402,938
              
              
              (4,004,185
              )
              (g)
              
              58,398,753Deferred
                  Compensation Expense
              
              
              (2,986,053
              )
              
              2,986,053
              
              (h)
              
              —Deficit
                  Accumulated Before Entering Development Stage
              
              
              (11,681,500
              )
              
              —
              
              
              
              (11,681,500
              )Deficit
                  Accumulated During Development Stage
              
              
              (45,591,343
              )
              
              (13,302,610
              )
              (i)
              
              (58,893,953
              )TOTAL
                  STOCKHOLDERS’ DEFICIT
              
              
              2,221,012
              
              
              (14,320,737
              )
              
              
              (12,099,725
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS’****DEFICIT**
              
              $
              12,473,012
              
              $
              (11,617,735
              )
              
              $
              855,277





(a)
            To
                adjust accounts receivable to actual based upon previous
                errors.(b)
            To
                adjust to correct accounts associated with derivatives.(c)
            To
                adjust for goodwill impaired at year end December 31, 2006 but not
                reflected in quarter ended March 31, 2007.(d)
            To
                adjust accounts payable to actual based upon previous
                errors.(e)
            To
                adjust notes payable to actual based on errors in
                amortization.(f)
            To
                adjust to correct accounts associated with derivative and to correct
                accrued interest.(g)
            To
                adjust to correct accounts associated with derivative liability and
                to
                correct stock for services.(h)
            To
                adjust to correct for error in deferred compensation
                expense.(i)
            To
                adjust accumulated deficit largely due to impairment of goodwill
                having
                not been reflected in quarter ended March 31,
                2007.




16




For
      the
      three months ended March 31, 2007





SUMMARY
      STATEMENT OF OPERATIONS


**As Reported**
              
              **Adjustments**
              
              
              **As Restated****REVENUES**:Sales
              
              $
              121,724
              
              $
              —
              
              
              $
              121,724TOTAL
                  REVENUE
              
              
              121,724
              
              
              —
              
              
              
              121,724**OPERATING
                  EXPENSES**:Stock
                  based compensation
              
              
              186,387
              
              
              (186,387
              )
              (a)
              
              —Employee
                  compensation and benefits
              
              
              264,826
              
              
              —
              
              
              
              264,826Professional
                  and consulting fees
              
              
              204,445
              
              
              (112,000
              )
              (b)
              
              92,445Occupancy
                  and equipment
              
              
              32,972
              
              
              (10,429
              )
              (c)
              
              22,543Travel
                  and entertainment
              
              
              17,810
              
              
              —
              
              
              
              17,810Other
                  selling, general andadministrative
                  expenses
              
              
              49,072
              
              
              (14,408
              )
              (d)
              
              34,664TOTAL
                  OPERATING EXPENSES
              
              
              755,512
              
              
              (323,224
              )
              
              
              432,288**LOSS
                  FROM OPERATIONS**
              
              
              (633,788
              )
              
              323,224
              
              
              
              (310,564
              )**OTHER
                  INCOME AND (EXPENSE)**:Derivative
                  gain(loss)
              
              
              (2,879,169
              )
              
              (3,493,198
              )
              (e)
              
              (6,372,367
              )Interest
                  income
              
              
              1,020
              
              
              —
              
              
              
              1,020Gain(loss)
                  on conversion of financialinstruments
              
              
              —
              
              
              137,041
              
              (e)
              
              137,041Interest
                  expense
              
              
              (456,498
              )
              
              275,563
              
              (f)
              
              (180,935
              )TOTAL
                  OTHER INCOME (EXPENSE)
              
              
              (3,334,647
              )
              
              (3,080,564
              )
              
              
              (6,415,241
              )**NET
                  LOSS**
              
              $
              (3,968,435
              )
              $
              (2,757,370
              )
              
              $
              (6,725,805
              )**NET
                  LOSS PER SHARE****BASIC
                  AND DILUTED**
              
              $
              (0.05
              )
              $
              (0.04
              )
              
              $
              (0.09
              )Weighted
                  average number of sharesoutstanding
              
              
              73,014,288
              
              
              103,829
              
              
              
              73,118,117





(a)
            To
                adjust stock based compensation recorded in error.(b)
            To
                adjust to correct balance due to prior year
                adjustments.(c)
            To
                correct account balance due to error in not accruing
                rent.(d)
            To
                adjust accounts to correct balances.(e)
            To
                adjust to correct accounts associated with derivatives.(f)
            To
                adjust to correct accounts associated with derivatives and to correct
                accrued interest.




**Item
      2. Management’s Discussion and Analysis**




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




The
      Company transitioned to the development stage, from previously being an
      operating company, as of the Company’s asset purchase transaction with Advanced
      BioChem on May 18, 2004. As a development stage company, Power3 is
      primarily engaged in commercializing its intellectual properties in the area
      of
      diagnosis and treatment of breast cancer, ALS, Alzheimer’s disease and
      Parkinson’s disease.




**Series B
      Preferred Stock**




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




17




**SCIENTIFIC
      DEVELOPMENTS**




**CLIA
      Certification**




On
      April
      2008, Power3 received its CLIA (Clinical Laboratory Improvement Amendment)
      compliance recertification following a CLIA regulatory inspection.Power3 earned
      its CLIA recertification to offer high complexity tests after meeting standards
      for knowledge, training, expertise, quality control, quality assurance, and
      testing proficiency. With CLIA recertification, Power3 is able to continue
      offering its blood serum based tests, BC-SeraPro TM and
      NuroPro ® .
      Receipt
      of Power3’s CLIA recertification of compliance is a major milestone. This
      achievement reflects Power3’s desire to offer the highest quality proteomic
      tests in our continuing mission to commercialize our proteomic discoveries
      and
      serve the medical and scientific communities.




Power3’s
      scientific team is currently headed by its CLIA Laboratory Director and Director
      of Biochemistry, Dr. Essam A. Sheta and its Director of Proteomics, Dr. Ira
      L.
      Goldknopf. Drs. Sheta and Goldknopf are pioneers in the science of proteomics,
      protein biochemistry and cancer cell signaling and have made significant
      biochemical and proteomic discoveries. The scientific team at Power3 has
      leveraged these significant insights and has made progress in the discovery
      of
      unique disease protein footprints by the use of biomarkers in breast cancer,
      neurodegenerative diseases, and drug resistance to chemotherapeutic
      agents.




**PRODUCT
      CANDIDATES**





The
      Company plans to target the protein-based diagnostic and drug targeting markets
      utilizing the Company’s portfolio of proprietary disease biomarkers. In the area
      of neurodegenerative diseases and breast cancer, the Company has completed
      research and clinical validation studies involving over 2,000 patient samples
      and is utilizing biostatistical analysis to monitor appropriate panels of
      biomarkers for diagnostic sensitivity, specificity, positive predictive value,
      and negative predictive value. By testing patient body fluids and tissues,
      such
      as serum, nipple aspirate fluid, and bone marrow aspirate, the Company has
      discovered unique snapshots of protein patterns in over 2,000 patient samples
      that cover a broad range of diseases including:





o
            Cancers
                such as breast, leukemia, bladder, stomach, and esophageal;
                and




o
            Neurodegenerative
                diseases such as Alzheimer’s, ALS, and Parkinson’s
                disease.




The
      Company’s discovery platform uses proprietary methodologies, trade secrets, and
      accepted proteomic technologies that are optimized and validated for
      reproducible discovery and analysis of disease specific biomarkers in clinical
      patient samples. Following sample preparation, a 2D Gel Electrophoresis system
      is used for the separation of proteins. The gels are stained, digitally scanned
      and the digital images are analyzed with unprecedented reproducibility and
      sensitivity for quantitative differences of the protein biomarkers in the
      disease vs. control samples. The significance of these differences is evaluated
      using advanced biostatistical analysis to generate statistical models for the
      disease and control sample groups. This statistical model is then applied to
      new
      samples and used to predict their diagnosis. Biomarkers of interest are removed
      from the gel matrix and analyzed by fingerprinting on a liquid chromatograph
      -
      tandem mass spectrometer. This information is then cross-referenced on a
      worldwide database to identify the protein of origin. This process requires
      a
      great deal of proteomics experience and expertise to make the correct accurate
      identification. In addition, all of the procedures used in Power3’s diagnostic
      tests are scalable. The Company’s proteomics platform delivers significant
      discoveries exhibiting validated, reproducible, and reliable biomarkers over
      a
      broad quantitative range and linearity for use in diagnostic proteomic
      assays.




The
      Company has successfully identified more than 543 protein biomarkers that are
      differentially expressed in response to disease by employing its proprietary
      technologies gained from over 60 years of combined experience in protein
      biochemistry.




Power3
      has transitioned from a company focused on research and development to one
      that
      is demonstrating “proof of concept” of its technology as it enters the
      commercialization stage for its technology, products and services. The Company
      is engaged in the process of developing a portfolio of products including
      BC-SeraPro TM ,
      a
      proteomic blood serum test for early diagnosis of breast cancer,
      NuroPro ® ,
      a
      proteomic blood serum test for detection of neurodegenerative diseases including
      Alzheimer’s, Parkinson’s and ALS diseases.




18




**DEVELOPMENT
      OF BC-SeraPro** **TM** **,
      A PROTEOMIC BREAST CANCER SCREENING TEST**




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




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




This
      test
      was developed and its performance characteristics determined by the Power3
      Medical Products laboratories.  It has not been cleared or approved by the
      U.S. Food and Drug Administration.  The FDA has determined that such
      clearance or approval is not necessary.  This test is performed solely at
      the Power3 Medical Products’ laboratory and is used for clinical purposes. 
It should not be regarded as investigational or for research.  Power3’s
      laboratory is certified under the Clinical Laboratory Improvement Amendment
      of
      1988 (“CLIA”) as qualified to perform high complexity clinical
      testing.





Because
      early breast cancer is asymptomatic, the only way to detect it is through
      screening. Mammography is currently the widely accepted method for breast cancer
      screening. However, most women who have an abnormal mammogram do not have
      cancer.




Mammography
      often leads to identification of a “probably benign” lesion or an uninformative
      mammography. Clinicians may be reluctant to refer such a patient for a biopsy;
      they may also be reluctant to do nothing. Often such patients are referred
      for
      frequent repeat mammography examinations.




The
      availability of an accurate and minimally-invasive test would avoid such
      repeated mammogram exams, with their attendant discomfort, inconvenience, x-ray
      exposure, and emotional stress. In such cases, BC-SeraPro TM , in a
      60 patient blinded study, demonstrated an 80% sensitivity and 87% specificity
      in
      the study results, could exclude malignancy at higher accuracy than mammography.
      As well, BC-SeraPro TM is
      unlikely to not identify cancer in those women who have it.




BC-SeraPro TM is then
      an ideal diagnostic test to evaluate breast cancer abnormalities found by
      mammogram or breast examination. The test would distinguish women who should
      have a biopsy from those who can safely avoid one. BC-SeraPro TM could
      detect the disease at a point when treatment is more effective, less expensive,
      or both.




During
      the quarter ending March 31, 2008, Power3 continued its blood serum breast
      cancer biomarker discovery program using blood serum samples collected from
      clinical validation sites, in collaboration with Dr. Alan Hollingsworth at
      the
      Mercy Woman’s Center in Oklahoma City, OK and Dr. Leroy Leeds at Obstetrics
& Gynecological Associates, PA in Houston, TX. The Company believes that
      there are many advantages to a simple blood test over other types of breast
      cancer diagnostics, such as mammography, not the least of which is the ready
      acceptance by patients to having blood drawn. To date, in the latest clinical
      research/validation study involving Mercy Woman’sCenter and Obstetrics &
Gynecological Associates, 97 patient samples have been received and analyzed.
      The results continue to meet the Company’s expectations. During the quarter,
      discussions were initiated to commence BC-SeraProTM clinical validation studies
      in several Middle Eastern countries and in Greece, which may begin in the
      2 nd or
      3 rd Quarter
      of 2008.





Power3
      has completed the development program for BC-SeraPro TM and is
      moving forward with a strategy of providing a test that is utilitarian,
      accurate, and inexpensive. Detection of a patient's protein biomarker profile
      can now be employed to detect abnormal and pathological states reflected in
      the
      serum proteome. Application of this test will have a future impact on how breast
      disease will be diagnosed, monitored, and managed and is intended to be used
      in
      conjunction with mammography, breast MRI and other diagnostic tools used in
      the
      detection of breast cancer.




19




**How
      BC-SeraPro** **TM** **Works**




BC-SeraPro TM is a
      blood serum test designed to diagnose breast cancer in individuals. The test
      is
      based on proteomic technology in which a blood serum sample drawn from a patient
      will monitor the concentration of each protein biomarker residing in a panel
      of
      blood serum protein biomarkers to determine if a patient has breast cancer.
      The
      biomarkers in the panel have been selected for their ability to discriminate
      breast cancer patients from non-cancerous patients. Power3’s statistical model
      evaluates the quantitative information of the protein biomarkers and
      automatically assigns a probability score. The probability score indicates
      to
      the physician that the patient “has cancer” or is “cancer-free.” The score
      reflects how strongly the patient sample fits the biostatistical model and
      if
      the patient should be recommended for further follow-up by the
      clinician.




Blood
      serum collection is a routine procedure performed by a clinician. A small sample
      of blood is drawn from a vein. When a blood sample is collected and stored
      in a
      tube without anticoagulant, it forms a clot after 30-60 minutes. The liquid
      portion remaining is the blood serum. This serum sample is then frozen and
      transported to the Power3 Medical CLIA certified laboratory, utilizing
      pre-approved carriers/delivery services, where sample preparation and analysis
      begins.




**DEVELOPMENT
      OF NuroPro** **®** **,
      A PROTEOMIC NEURODEGENERATIVE DIAGNOSTIC SCREENING TEST**





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





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





**How
      NuroPro** **®** **Works**




The
      NuroPro **®** test has
      the potential to become the first diagnostic test available for the detection
      of
      neurodegenerative diseases.




NuroPro ® is a
      series of three separate and distinct blood serum tests designed to diagnose
      Alzheimer’s, Parkinson’s or Lou Gehrig’s disease (ALS) in individuals. The test
      is based on proteomic technology, in which a blood serum sample is drawn from
      a
      patient, and monitors the concentration of selected biomarkers residing in
      a
      panel of blood serum protein biomarkers that determines if a patient has a
      neurodegenerative disease, such as Alzheimer’s, Parkinson’s or Lou Gehrig’s
      disease (ALS). The biomarkers in the panel have been selected for their ability
      to discriminate diseased from non-diseased patients. Power3’s statistical model
      evaluates the quantitative information of the protein biomarkers and
      automatically assigns a probability score. The probability score indicates
      to
      the physician that the patient has a neurological disease or is disease-free.
      The score reflects how strongly the patient sample fits the biostatistical
      model
      and if the patient should be recommended for further follow-up by the
      clinician.




20




Blood
      serum collection is a routine procedure performed by a clinician. A small sample
      of blood is drawn from a vein. When a blood sample is collected and stored
      in a
      tube without anticoagulant, it forms a clot after 30-60 minutes. The liquid
      portion remaining is the blood serum. This serum sample is then frozen and
      transported to the Power3 Medical CLIA certified laboratory, utilizing
      pre-approved carriers/delivery services, where sample preparation and analysis
      begins. ****




**NEURODEGENERATIVE
      RESEARCH/CLINICAL VALIDATION STUDIES**




**University
      of Thessaly School of Medicine / Dr. Katerina Markopoulou**




On
      November 11, 2006, University of Thessaly School of Medicine in Larissa, Greece
      signed a research agreement with Power3 focusing on the proteomic discovery
      of
      biomarkers for Parkinson’s disease. The collaboration will also extend to cover
      other neurodegenerative diseases including Alzheimer’s disease and ALS
      (Amyotrophic Lateral Sclerosis - Lou Gehrig's disease). According to the
      agreement, The University of Thessaly will provide Power3 with clinically
      confirmed samples of neurodegenerative disease, including age and gender matched
      controls. The Principal Investigator is Katerina Markopoulou, MD PhD with the
      Department of Neurology.




Power3
      will use its existing proprietary and patent-pending technologies to analyze
      the
      samples, seeking new protein biomarkers for the early detection of
      neurodegenerative diseases to add to its portfolio. The initial shipments of
      Parkinson’s disease and control subject samples were received in May and October
      2007 and to date, 52 Parkinson’s disease patient samples, as well as age and
      gender matched control samples have been received and analyzed and have shown
      greater than expected sensitivity and specificity. The blood serum samples
      that
      were collected from the patients in Greece utilized Power3’s rigid sample
      collection protocols and were shipped to the Company’s CLIA certified laboratory
      in Houston, Texas, where the analysis was performed. The consistency in the
      sample results from both the US and Greece, points to how robust this test
      is in
      diverse populations. The better than expected Parkinson's test results and
      the
      numerous validation studies that are underway for Alzheimer's disease, ALS,
      and
      similar neurological disorders, confirm Power3’s commitment to bringing these
      tests to market in 2008.





The
      collaboration will also extend to cover other neurodegenerative diseases
      including Alzheimer's disease and ALS (Amyotrophic Lateral Sclerosis - Lou
      Gehrig's disease).




Discriminant
      analysis was used to analyze protein quantities. ****** Discriminant
      analysis identifies sets of linearly independent functions that will
      successfully classify individuals into a well-defined collection of groups
      (i.e.
      disease groups). The statistical model assumes a multivariate normal
      distribution for the set of biomarkers identified from each disease group.
      The
      outcome of the discriminant analysis is a collection of linear functions that
      maximize the ability to separate individuals into diseased and non-diseased
      groups.




In
      general, if there are *m* biomarkers, there will be a maximum of ( *m–* 1, *g–* 1)
      discriminant functions, where *g* is the
      number of disease groups. The discriminant functions themselves are linearly
      independent. Thus, *m* –
1
      discriminant functions provide incremental and non-redundant discriminant
      ability.




Also
      used
      within discriminant analysis was stepwise discriminant analysis, which evaluates
      the performance of a discriminant criterion by estimating error rates
      (probabilities of misclassification) in the classification of future
      observations. These error-rate estimates include error-count estimates and
      posterior probability error-rate estimates.




Given
      a
      classification variable and several quantitative variables, a stepwise
      discriminant analysis is performed to select a subset of the quantitative
      variables for use in discriminating among the classes. The set of variables
      that
      make up each class is assumed to be multivariate normal with a common covariance
      matrix.




**Marwan
      N. Sabbagh / Cleo Roberts Center of Clinical Research at the Sun Health Research
      Institute**




On
      October 12, 2007, Power3 appointed Dr. Marwan N. Sabbagh to the Company's
      Scientific Advisory Board. Dr. Sabbagh, a national leader in
      neurodegenerative disease, is collaborating with Power3 in a 300 patient
      validation study of blood serum samples using Power3's NuroPro ®  diagnostic screening test.




21




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




In
      February 2008, the Company commenced a 300 patient clinical validation study
      of
      its NuroPro ®  diagnostic
      test for Alzheimer’s disease, Parkinson’s disease. Power3 has received 62
      samples from the clinical validation study and the samples and the Company
      anticipates completion of this clinical validation study in August
      2008.




The
      clinical validation study will be a blinded study of Power3’s
      NuroPro ®  diagnostic test, which is a blood test for the detection of Alzheimer’s and
      Parkinson’s disease, with Dr. Marwan Sabbagh as the Principle Investigator at
      the Cleo Roberts Center of Clinical Research at the Sun Health Research
      Institute. The study includes one hundred Alzheimer’s disease patients, one
      hundred Parkinson’s disease patients and one hundred controls.




The
      Parkinson’s disease patients from Dr. Marwan Sabbagh that are included in the
      clinical validation study will augment the Parkinson’s disease validation study
      presently ongoing with the Research Institute of Thessaly in Greece led by
      Katerina Markopoulou, the Principal Investigator.




**Publications**





Power3
      has published the discovery of protein biomarkers for esophageal malignancies
      in
      the *International
      Journal of Cancer.* The
      article, titled “Alterations in Barrett’s-related adenocarcinomas: A proteomic
      approach,” was co-authored by Dr. Essam A. Sheta, Director of Biochemistry, and
      Dr. Ira L. Goldknopf, Director of Proteomics at Power3. Dr. Sheta and Dr.
      Goldknopf worked in collaboration with Dr. Wael El-Rifai, MD, PhD, Professor
      of
      Surgery, Medicine and Cancer Biology and Director of Surgical Oncology Research
      at Vanderbilt University Medical Center, Nashville, TN.





Esophageal
      malignancies are the sixth leading cause of cancer death in the world and
      represent about 1% of the cancers diagnosed in the United States. Dr. El-Rifai
      said that “Through the use of Power3’s leading edge proteomic discovery
      platform, twenty-three biomarkers were identified that have not been described
      before in this lethal malignancy. We confirmed the differential expression
      of
      six of these novel protein biomarkers in a large panel of primary tumors using
      Western blot, immunohistochemical, and quantitative real time PCR techniques.”





Power3
      discovered differential expression of these protein biomarkers in esophageal
      biopsies of normal, pre-cancerous, and cancerous areas from the same patients,
      using our quantitative 2D gel electrophoresis platform. Power3’s findings
      identify a previously unknown potential oncogenic signaling mechanism in
      Barrett’s tumors, and represent a new area that can be developed. This finding
      is further validation of our proteomic process as we continue to build our
      reputation as leaders in novel proteomic platforms and while we move ahead
      in
      commercialization of our blood based early detection proteomic tests for breast
      cancer, Parkinson’s disease, and Alzheimer’s disease.





Power3’s
      director of proteomics, Dr. Ira Goldknopf, has published an invited editorial
      in
      the February 2008 issue of *Expert
      Review of Proteomics.* Power3
      is
      a leading proteomics company specializing in the development and
      commercialization of diagnostic tests for the early detection of breast cancer
      and neurodegenerative diseases.




The
      editorial, entitled “Blood Based Proteomics for Personalized Medicine, Examples
      From Neurodegenerative Disease,” outlines how “proteins in the blood serum can
      tell us what disease pathways and mechanisms...are active in patients.” In his
      editorial, Dr. Goldknopf cited research completed at Power3 and published in
      peer reviewed journals. The results demonstrate, “broad and deep implications
      which liberate a new paradigm to unlock the power of personalized medicine,
      to
      monitor proteins in the blood of live patients for diagnosis, differential
      diagnosis, patient monitoring, selection of treatment options, and for new
      drug
      target discovery.”




22




Power3
      is
      gratified that the editors of *Expert
      Review of Proteomics* invited
      Dr. Goldknopf to share his insights and to describe Power3’s groundbreaking work
      in the study of Alzheimer’s, Parkinson’s, and Lou Gehrig’s diseases. We are
      proud the biotechnology community has recognized and acknowledged Power3’s
      efforts and advancements in disease diagnosis through blood-based testing.
      This
      recognition of our company is further validation of Power3’s leadership position
      in advancing the science of proteomics for development of molecular diagnostics
      and targeted therapeutics for neurodegenerative diseases and breast
      cancer.




**Intellectual
      Property**




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




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




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




o
            Similar
                neurodegenerative diseases: Alzheimer’s disease vs. Lou Gehrig’s disease
                (ALS) vs. Parkinson’s disease; Alzheimer’s disease vs. non-Alzheimer’s
                dementias vs. Parkinson’s disease;




o
            Sporadic
                vs. familial neurodegenerative diseases: sporadic vs. familial Lou
                Gehrig’s disease (ALS)o
            Early
                vs. more advanced neurodegenerative
                diseases




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




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




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




23




The
      number of pending patent applications as of the quarter ended March 31, 2008,
      is
      10 as follows:




**Qty**
            
            
            **Type
                of Patent**1
            
            
            Breast
                Cancer8
            
            
            Neurodegenerative1
            
            
            Drug
                Resistance




**Liquidity
      and Capital Resources**




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.




Net
      cash
      used in operating activities amounted to $599,066 for the three months ended
      March 31, 2008, compared to $315,157 for the three months ended March 31, 2007.
      The change in net cash used in operating activities during 2008 was primarily
      due to changes in the fair value of derivative liabilities, a net gain at the
      three months ended March 31, 2008 compared to a net loss at the three months
      ended March 31, 2007.




Net
      cash
      provided by financing activities was $489,910 for the three months ended March
      31, 2008, as compared to $492,362 for the three months ended March 31, 2007.
      Cash provided by financing activities during the three months ended March 31,
      2008 was realized through the sale of stock whereas for the three months ended
      March 31, 2007, cash provided by financing activities was due to proceeds from
      borrowings under notes payable.




As
      of
      March 31, 2008, the Company’s principal source of liquidity was $13,725 in cash.




Other
      current assets at March 31, 2008 amounted to $20,454 as compared to $23,247
      at
      December 31, 2007. The decrease is a result of reduction of
      inventory.




**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, distribution 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 when revenue-generating agreements will result in continuous revenue
      streams.




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 $180,000 per month and the
      Company anticipates that it will require approximately $2,150,000 for the twelve
      months ended December 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
            
            $
            1,800,000Patent
                filings and intellectual property
            
            
            100,000Capital
                expenditures and research agreements
            
            
            250,000Total
            
            $
            2,150,000





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.




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.




24




**Deemed
      Dividend**





On
      March
      25, 2007, to alleviate the current cash shortfall due to overall U.S. market
      conditions, the Company reduced the exercise price of warrants to acquire
      833,333 shares of the Company’s common stock held by a warrant holder from $0.20
      to $0.09.





As
      a
      result of the above reduction in warrant exercise price, the Company recorded
      a
      non-cash deemed dividend of $12,071.





The
      amount of the deemed dividend was estimated to be equal to the incremental
      fair
      value conveyed to the debt holders via the reduction of the exercise price
      of
      the warrants determined as provided in paragraph 51 of SFAS 123R utilizing
      the
      Black−Scholes valuation model.




**Off-Balance
      Sheet Arrangements**




At
      March
      31, 2008, the only off balance sheet agreements in place for the Company were
      a
      lease in effect for its office space, leases in effect for phone equipment,
      leases in effect for lab equipment and employment agreements entered with its
      three principal officers




Accounting
      for Derivative Instruments





Statement
      of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative
      Instruments and Hedging Activities,” as amended, requires all derivatives to be
      recorded on the balance sheet at fair value. These derivatives, including
      embedded derivatives in Power3's structured borrowings, are separately valued
      and accounted for on Power3's balance sheet. Fair values for exchange traded
      securities and derivatives are based on quoted market prices. Where market
      prices are not readily available, fair values are determined using market based
      pricing models incorporating readily observable market data and requiring
      judgment and estimates.




Lattice
      Valuation Model





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





Black−Scholes
      Valuation Model





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




25




**Item** **3.** **Quantitative
      and Qualitative Disclosures About Market Risk**




None.




**Item** **4.** **Controls
      and Procedures**




**Evaluation
      of Disclosure Controls and Procedures**




The
      Company’s Chief Executive Officer and Chief Accounting Officer have
      evaluated the effectiveness of the Company’s disclosure controls and procedures
      (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
      the
      end of the period covered by this report on Form 10-KSB. Based upon such
      evaluation, the Chief Executive Officer and Chief Accounting Officer have
      concluded that, as of the end of such period, the Company’s disclosure controls
      and procedures were not effective as required under Rules 13a-15(e) and
      15d-15(e) under the Exchange Act. This conclusion is based upon the number
      and
      magnitude of the year end and quarterly adjusting entries .




**Management’s
      Report on Internal Control Over Financial Reporting**




Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
      Act) of the Company. Internal control over financial reporting is a process
      designed to provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external purposes
      in
      accordance with accounting principles generally accepted in the United States
      of
      America.




The
      Company’s internal control over financial reporting includes those policies and
      procedures that (i) pertain to the maintenance of records that, in
      reasonable detail, accurately and fairly reflect the transactions and
      dispositions of the assets of the company; (ii) provide reasonable
      assurance that transactions are recorded as necessary to permit preparation
      of
      financial statements in accordance with accounting principles generally accepted
      in the United States of America, and that receipts and expenditures of the
      Company are being made only in accordance with authorizations of management
      and
      directors of the Company; and (iii) provide reasonable assurance regarding
      prevention or timely detection of unauthorized acquisition, use or disposition
      of the Company’s assets that could have a material effect on the financial
      statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




Management,
      under the supervision of the Company’s Chief Executive Officer and Chief
      Accounting Officer, conducted an evaluation of the effectiveness of internal
      control over financial reporting. Based on this evaluation, management concluded
      that the Company’s internal control over financial reporting was not effective
      as of March 31, 2008. For the three months ended March 31, 2008 deficiencies
      related to transactions involving equity issuances and derivatives were
      identified. Following a review of the deficiencies, management determined that
      we had incorrectly accounted for equity issuances and derivative valuations
      during such period. As a result, management concluded that our disclosure
      controls and procedures were not effective. Management concluded that the
      following three deficiencies were identified in our control
      process:




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




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




·
            There
                is deficiency in segregation of duties due to the small size of the
                Company.




26




This
      quarterly report does not include an attestation report of the Company’s
      registered public accounting firm regarding internal control over financial
      reporting. Management’s report was not subject to attestation by our registered
      public accounting firm pursuant to temporary rules of the SEC that permit us
      to
      provide only management’s report in this quarterly report on Form 10-Q.




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




There
      have been no significant changes in internal controls, or in factors that could
      significantly affect internal controls, subsequent to the date the Chief
      Executive Officer and Chief Accounting Officer completed their
      evaluation.




**Changes
      in Internal Control Over Financial Reporting**




No
      change
      in the Company’s internal control over financial reporting occurred during the
      three months ended March 31, 2008, that materially affected, or is reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.




**Cautionary
      Statement Regarding 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’s management in light of its
      experience and its perception of historical trends, current conditions, expected
      future developments and other factors believed appropriate. Readers are
      cautioned that these forward-looking statements are only predictions and that
      the Company’s business is subject to significant risks and uncertainties,
      including, without limitation:




The
      Company’s history of operating losses;




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




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




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




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




Development
      by competitors of new or competitive products or services;




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




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




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




27




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





**PART
      II**




**Item
      1** **.** **Legal
      Proceedings**




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




On
      March
      12, 2008,
      all
      matters involving the dispute over the taking, by an ex-employee, of
      certain trade secrets, defamation and wrongful interference with Power3's
      contractual relations with other parties, and a pendent wage claim for severance
      pay, were resolved. The Company has agreed to pay the ex-employee $35,000 and
      issue to the ex-employee 325,000 shares of the Company’s common stock with
      restrictions.




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




On
      August
      13, 2007, Gryphon Master Fund LP and GSFF Master Fund, LP filed a lawsuit
      against the Company claiming a breach of a Securities Purchase Agreement,
      Convertible Debentures, and Registration Rights Agreement. The plaintiffs
      claimed the Company failed to timely obtain an effective registration statement
      for the shares issued to the plaintiffs and refused to recognize anti-dilution
      rights of the plaintiffs. The Company denies the material allegations of the
      complaint and asserts numerous affirmative defenses. Power3 has entered into
      settlement negotiations as of April 20, 2008.




**Item
      1A. Risk Factors**




None.




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




During
      the three months ended March 31, 2008, the Company did not issue any
      unregistered shares of common stock.




28




**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. The
      registration statement was withdrawn on June 20, 2007. As of the three
      months ended March 31, 2008, the Company has settled with a number of its
      Convertible Debenture Holders as previously mentioned above.




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




No
      matters were submitted to the security holders for a vote during the three
      months ended March 31, 2008.




**Item** **5.** **Other
      Information**




None.




**Item
      6. Exhibits**


**Exhibit No.**
              
              **INDEX**31.1*
              
              Certification
                  of Power3 Medical Products, Inc. Chief Executive Officer, Steven
                  B. Rash,
                  pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.31.2*
              
              Certification
                  of Power3 Medical Products, Inc. Chief Accounting Officer, Marion
                  J.
                  McCormick, pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.32.1*
              
              Certification
                  of Power3 Medical Products, Inc. Chief Executive Officer, Steven
                  B. Rash,
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.32.2*
              
              Certification
                  of Power3 Medical Products, Inc. Chief Accounting Officer, Marion
                  J.
                  McCormick, pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.


**SIGNATURES**




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


**Signature**
              
              **Title**
              
              **Date**/s/
                    Steven B. Rash
              
              Chairman
                  and
              
              May
                  15, 2008Steven
                  B. Rash
              
              Chief
                  Executive Officer/s/
                    Marion J. McCormick
              
              Chief
                  Accounting Officer
              
              May
                  15, 2008Marion
                  J. McCormick


29