**U.S.
              SECURITIES AND EXCHANGE COMMISSION**
 **WASHINGTON,
              D.C. 20549**
  **FORM
              10-KSB**
 **x ANNUAL
              REPORT
              PURSUANT TO SECTION 13 OR 15(D) OF THE**
 **SECURITIES
              EXCHANGE ACT OF 1934**
  **For
              the fiscal year ended December 31, 2006**
  **o TRANSITION
              REPORT
              UNDER SECTION 13 OR 15(D) OF THE**
 **SECURITIES
              EXCHANGE ACT OF 1934**
  **For
              the transition period from _______________ to
              ________________**
  **COMMISSION
              FILE NO. 0-24921**
 **POWER3
              MEDICAL PRODUCTS, INC.**
 (Name
              of
              small business issuer in its charter)
  **New
                        York**
                    **65-0565144**(State
                        or other jurisdiction of
                      incorporation
                        or organization)
                    (I.R.S.
                        Employer Identification No.)**3400
                        Research Forest Drive, Suite B2-3**
                      **The
                        Woodlands, Texas**
                    **77381**(Address
                        of principal executive offices)
                    (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)
  Check
              whether the issuer: (1) filed all reports required to be filed by Section
              13 or
              15(d) of the Exchange Act during the past 12 months (or for such shorter
              period
              that the registrant was required to file such reports), and (2)has
              been subject
              to such filing requirements for the past 90 days. Yes x No o
  Check
              if
              there is no disclosure of delinquent filers in response to Item 405
              of
              Regulation S-B contained in this form, and no disclosure will be contained,
              to
              the best of registrant’s knowledge, in definitive proxy or information
              statements incorporated by reference in Part III of this Form 10-KSB
              or any
              amendment to this Form 10-KSB. o
  Indicate
              by check mark whether the registrant is a shell company (as defined
              in Rule
              12b-2 of the Exchange Act). Yes o No x
  Revenues
              for the issuer’s fiscal year ended December 31, 2006 were $300,000. The
              aggregate market value of the voting and non-voting common equity held
              by
              non-affiliates of the registrant, computed by reference to the closing
              price of
              such stock on the Pink Sheets market administered by the National Association
              of
              Securities Dealers (“Nasdaq”) on December 31, 2006 was $4,847,485. For purposes
              of this calculation, affiliates include directors, executive officers
              and
              current employees.
  The
              number of shares outstanding of the registrant’s common stock, par value .001
              per share, as of June 30, 2007, was 94,181,525  shares **.**
  **Documents
              incorporated by reference** :
              None.
  
  **TABLE
              OF CONTENTS**
 **PART
                          I**ITEM
                          1. DESCRIPTION OF BUSINESS.
                      3ITEM
                          2. DESCRIPTION OF PROPERTY
                      29ITEM
                          3. LEGAL PROCEEDINGS
                      29ITEM
                          4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                      31**PART
                          II**ITEM
                          5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
                          MATTERS
                      31ITEM
                          6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
                          OPERATION
                      32ITEM
                          7. FINANCIAL STATEMENTS
                      40NOTE
                          1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF
                          PRESENTATION
                      49NOTE
                          2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                      50NOTE
                          3. GOING CONCERN
                      54NOTE
                          4. EQUIPMENT
                      54NOTE
                          5. OTHER CURRENT LIABILITIES
                      54NOTE
                          6. INCOME TAXES
                      54NOTE
                          7. RELATED PARTY TRANSACTIONS
                      55NOTE
                          8. OTHER COMMITMENTS AND CONTINGENCIES
                      55NOTE
                          9. FINANCING ARRANGEMENTS
                      58NOTE
                          10. OTHER SIGNIFICANT EQUITY TRANSACTIONS
                      63NOTE
                          11. SUBSEQUENT EVENTS
                      64NOTE
                          12. RESTATEMENT OF 2005 FINANCIAL STATEMENT
                      66ITEM
                          8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                          AND
                          FINANCIAL DISCLOSURE
                      68ITEM
                          8A. CONTROLS AND PROCEDURES
                      69**PART
                          III**ITEM
                          9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
                      70ITEM
                          10. EXECUTIVE COMPENSATION
                      73ITEM
                          11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT,
                          STOCKHOLDER MATTERS
                      76ITEM
                          12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
                          DIRECTOR
                          INDEPENDENCE
                      78ITEM
                          13. EXHIBITS
                      79ITEM
                          14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
                      83
  1
 
 **FORWARD-LOOKING
              STATEMENT**
  This
              Report contains certain forward-looking statements of the intentions,
              hopes,
              beliefs, expectations, strategies, and predictions of Power3 Medical
              Products,
              Inc. (“Power3” or 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.
  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.
  2
  **PART
              I**
  *Except
              for historical information, the matters set forth in this report include
              forward-looking statements that are subject to risks and uncertainties
              that
              could cause actual results to differ materially from those set forth
              herein.
              Power3 Medical Products, Inc. refers you to cautionary information
              and risk
              factors contained elsewhere herein and in other documents filed with
              the
              Securities and Exchange Commission (“SEC”) from time to time.*
  **Item
              1. Description of Business**
  **Overview
              and Corporate History**
  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.
  **Business
              of Issuer**
  As
              of the
              Company’s acquisition of assets from Advanced BioChem on May 18, 2004, the
              Company’s overall business strategy has changed. The Company’s current business
              directive is to engage in the early detection, monitoring, and targeting
              of
              diseases through the analysis of proteins. Power3’s development stage business
              objective is to commercialize its intellectual properties by focusing
              on disease
              diagnosis, protein and biomarkers identification, and drug resistance
              in the
              areas of cancers, neurodegenerative and neuromuscular diseases. Coincident
              with
              the acquisition of assets from Advanced BioChem, the Company changed
              its
              management team and established a Scientific Advisory Board to assist
              in the
              research and development of its products. The members of this Scientific
              Advisory Board are recognized leaders in their chosen fields and the
              Company is
              working with them to find effective therapeutics and novel predictive
              medicine
              for important human diseases.
  The
              Company’s business strategy, which is dependent upon obtaining sufficient
              additional financing, is to enhance the commercialization of its existing
              diagnostic products and to aggressively pursue appropriate product
              and company
              strategic partnerships.
  As
              a
              result of the acquisition of assets and certain liabilities of Advanced
              BioChem,
              Power3 has transitioned into an advanced proteomics company that applies
              existing proprietary methodologies to discover and identify protein
              biomarkers
              associated with diseases. By discovery and development of protein-based
              disease
              biomarkers, the Company has begun the development of tools for diagnosis,
              prognosis, early detection and identification of new targets for drugs
              in
              cancer, and neurodegenerative and neuromuscular diseases such as amyotrophic
              lateral sclerosis (commonly known as ALS or Lou Gehrig’s disease), Alzheimer’s
              disease, and Parkinson’s disease.
  3
  Power3’s
              scientific team is currently
              headed by its Director of Biochemistry, Dr. Essam A. Sheta. Dr. Sheta
              is a
              pioneer in the science of protein chemistry and cancer cell signaling
              and in so
              doing made significant biochemical discoveries. The team has leveraged
              these
              significant insights and has
              made progress in the discovery of unique disease protein footprints
              of
              biomarkers in breast cancer, neurodegenerative disease, and drug resistance
              to
              chemotherapeutic agents.
  Proteomics
              is the global study and analysis of proteins. Through proteomics, scientists
              can
              more accurately understand the functioning of a healthy body and are
              assisted in
              the identification of the proteins associated with specific diseases.
              Proteins
              that change in the course of disease are the building blocks for new
              screening
              and diagnostic tests which the Company is developing to provide earlier
              disease
              detection, enhanced treatment and monitoring assistance.
  **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 clinical validation studies
              involving over 2000 patient samples and is utilizing biostatistics
              to monitor
              appropriate 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 2000
              samples that
              cover broad range of diseases including:
  cancers
              such as breast, leukemia, bladder, stomach, and esophageal; and
  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 of disease specific biomarkers in clinical patient
              samples. Following sample preparation, a 2D Gel system is used for
              the
              separation of proteins. The gels are stained, imaged and analyzed with
              unprecedented reproducibility and sensitivity for quantitative differences
              in
              the diseased vs. normal samples. The significance of these differences
              is
              evaluated using biostatistics to determine significance relative to
              the status
              of the health of the individual. The proteins 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 are scaleable. The
              Company’s
              biomarker discovery platform delivers significant discoveries exhibiting
              validated, reproducible, and reliable identification and quantification;
              and
              displaying broad dynamic range and linearity of assays.
  The
              Company has successfully identified more
              than
              534 proteins, protein fragments and isoforms that are differentially expressed
              in
              response to disease by employing proprietary technologies gained from
              over 50
              years of combined experience in protein biochemistry .
  Power3
              is
              transitioning from a company focused only 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-SeraProTM biomarkers and blood serum tests (for early detection of breast
              cancer); NuroPro® biomarkers and blood serum tests (for neurodegenerative
              diseases including Alzheimer’s, Parkinson’s and ALS diseases) and biomarkers,
              tests and drug targets for drug resistance to chemotherapeutics.
  4
  **License
              and Sponsored Research**
  Advanced
              BioChem entered into a license agreement with the Board of Regents
              of The
              University of Texas System, an agency of the State of Texas, on behalf
              of The
              University of Texas M.D. Anderson Cancer Center in September 2003,
              which Power3 acquired
              in its transaction with Advanced BioChem. The license agreement gives
              the
              Company an exclusive, worldwide, royalty-bearing license to certain
              patent
              rights and technology rights for proteomic methods of diagnosis and
              monitoring
              of breast cancer using nipple aspirate fluids. The license agreement
              also gives
              the Company a non-exclusive, worldwide, royalty-bearing license to
              certain
              patent rights and technology rights for methods of identifying specific
              nipple
              aspirate fluid proteins for diagnosis and monitoring of breast cancer.
              The
              Company is permitted to grant sublicenses under the license agreement
              except for
              the identification of biological markers. The Company is obligated
              to pay to
              M.D. Anderson an initial license fee, and a subsequent license fee,
              both of
              which have been paid. The Company is also obligated to pay annual license
              maintenance fees, royalties and additional milestone payments upon
              the
              occurrence of certain designated events. The license agreement imposes
              upon the
              Company an obligation to indemnify the Board of Regents, The University
              of Texas
              System, M.D. Anderson, the regents, officers, employees, students,
              and agents
              against claims arising on account of any injury or death, or damage
              to property
              caused by the exercise of the rights granted under the license agreement
              to the
              Company, its officers and affiliates. The term of the license agreement
              is based
              on the date of expiration of the last patent rights to expire or, in
              the case of
              licensed technology rights, for a term of fifteen (15) years. However,
              in
              addition to customary termination provisions, M.D. Anderson has the
              right to
              terminate the license in any country if the Company fails, within ninety
              (90)
              days after receiving written notification from M.D. Anderson, to provide
              satisfactory evidence that it has commercialized or is attempting to
              commercialize the licensed invention in such country.
  During
              2006, the Company elected not to pursue nipple aspirate testing for
              commercialization in favor of blood serum testing and as a result of
              this
              decision, the Company has elected not to renew the agreement with MD
              Anderson.
              The blood serum biomarkers and tests discovered directly using blood
              serum is
              covered under intellectual property solely owned by the Company. The
              early
              detection blood serum test for Breast Cancer will be marketed under
              the name
              BC-SeraProTM.
  Effective
              June 28, 2004, Power3 entered into an exclusive license agreement with
              the
              Baylor College of Medicine which grants to the Company an exclusive,
              worldwide,
              sublicensable license for serum proteomics methods under certain patent
              rights
              for all biomarkers for both diagnostic and therapeutic use in neurodegenerative
              disease. Under the terms of the agreement, Power3 paid Baylor an initial
              license
              fee and it has the obligation to pay future royalties and additional
              licensing
              fees upon the achievement of certain milestones. The Company is obligated
              under
              the license agreement to indemnify Baylor, its faculty members, scientists,
              researchers, employees, officers, trustees and agents against claims
              arising
              from the design, process, manufacture or use of any of the patent rights
              or
              licensed products that are developed through the use of the license
              from Baylor.
              Subject to customary termination provisions, the term of the agreement
              is
              established on a country-by-country basis and expires on the date of
              expiration
              of the last patent rights to expire in that country or the tenth anniversary
              of
              the first commercial sale of licensed products in countries where no
              patents
              exist in such country. After such expiration the Company will have
              a perpetual
              paid in full license in such country.
  5
  On
              August
              1, 2004, Power3 entered into an exclusive license agreement with M.D.
              Anderson
              which grants the Company an exclusive, worldwide, sublicensable license
              to
              patents and technologies for early detection screening tests, identified
              protein
              biomarkers and drug targets for cancer patient’s resistance to drug therapy. The
              licensed technology was developed through joint collaboration between
              the
              Company’s scientific team and M.D. Anderson. Under the terms of the agreement,
              the Company paid M.D. Anderson an initial license fee and the Company
              has the
              obligation to pay further royalties and additional licensing fees upon
              the
              achievement of certain milestones. The license agreement imposes upon
              the
              Company an obligation to indemnify the Board of Regents, The University
              of Texas
              System, M.D. Anderson, the regents, officers, employees, students,
              and agents
              against claims arising on account of any injury or death or damage
              to property
              caused by the exercise of the rights granted under the license agreement
              to the
              Company, its officers and affiliates. The term of the license agreement
              is based
              on the date of expiration of the last patent rights to expire or, in
              the case of
              licensed technology rights, for a term of fifteen (15) years. However,
              in
              addition to customary termination provisions, M.D. Anderson has the
              right to
              terminate the license in any country if the Company fails, within ninety
              (90)
              days after receiving written notification from M.D. Anderson, to provide
              satisfactory evidence that it has commercialized or is attempting to
              commercialize the licensed invention in such country.
  On
              August
              31, 2004 the Company entered into a research agreement with Baylor
              College of
              Medicine for the purpose of discovering biomarkers in serum and plasma
              that are
              of particular utility in the diagnosis and drug targeting for metabolic
              syndrome
              and associated disorders including diabetes, cardiovascular disease,
              hypertension and stroke. Under the terms of the agreement, Baylor College
              of
              Medicine will provide the Company sample materials for use in diagnosis
              in drug
              targeting metabolic syndrome and associated diseases including diabetes,
              cardiovascular disease, hypertension and stroke. With respect to any
              inventions
              developed pursuant to the agreement, the party who develops such invention
              will
              retain sole and exclusive rights to such invention. The other party
              will have
              the right to an exclusive license for the invention, which has been
              developed.
              Inventions developed jointly by the parties will be jointly owned.
              Power3 does
              not have any obligations for the payment of fees or royalties pursuant
              to this
              agreement. The agreement has a term ending June 30, 2007 and may be
              renewed for
              successive one-year periods. Since
              the Company is actively involved in numerous Neurodegenerative research
              agreements with other organizations, it is uncertain, at the time,
              if the
              Company will renew the Research Agreement with Baylor College of
              Medicine.
  On
              May
              24, 2005, the Company entered into a Collaboration Agreement with BioSite
              Incorporated. The Agreement provides that Power3 and Biosite will engage
              in a
              collaborative research program in which Biosite will attempt to develop
              antibodies and diagnostic assays for selected target biomolecules proposed
              by
              the Company. Power3 and Biosite will then assess the diagnostic and
              therapeutic
              potential of these antibodies and diagnostic assays for breast cancer.
              If the
              antibodies and diagnostic assays are found to have diagnostic and/or
              therapeutic
              potential, Biosite will develop and commercialize Biosite Products
              for the
              detection and/or treatment of breast cancer. Biosite will make milestone
              payments to the Company, as well as pay royalties on the sale of any
              Biosite
              Products containing antibodies to any selected target biomolecule claimed
              in a
              patent application or an issued patent.
  More
              specifically, the Agreement provides that Power3  shall
              propose target biomolecules for the collaborative research program;
              Biosite and
              the Company shall mutually select certain target biomolecules for immunization
              ("Program Target"); and Biosite shall use commercially reasonable efforts
              to
              develop monoclonal and omniclonal antibodies to the selected target
              biomolecules
              that meet the specification set out by the parties ("Program Antibodies").
              Upon
              Biosite's written request subsequent to the delivery of Program Antibodies
              to
              the Company, the Company will provide Biosite with blood-based clinical
              samples
              useful in the assessment of the Program Antibodies.
  6
  Biosite
              will use commercially reasonable efforts to generate an ELISA-based
              assay for
              each Program Target for which Biosite has generated Program Antibodies.
              If
              Biosite successfully develops an ELISA-based assay for any such Program
              Target,
              Biosite shall analyze each of the clinical samples provided by Power3
              with such
              assay and shall provide the resulting data to Power3.
  Under
              the
              terms of the Agreement, Power3 grants to Biosite a worldwide, royalty-bearing
              license under the Power3 patent rights for the target biomolecules
              and Power3
              know-how rights to develop, make, have made, use, offer for sale, sell
              and
              import Biosite Products for use in the detection, prognosis, diagnosis
              or
              monitoring of any breast cancer-related disease. This license is exclusive
              with
              the right to grant sublicenses for the assay of less than or equal
              to 100
              patient samples per hour. This license is semi-exclusive, with the
              right for
              each party to grant one sublicense, for the assay of 100 or more patient
              samples
              per hour.
  Under
              the
              terms of the Agreement, Power3 grants to Biosite a non-exclusive, worldwide,
              royalty-bearing license under the Power3 patent rights for the target
              biomolecules and Power3 know-how rights to develop, make, have made,
              use, offer
              for sale, sell and import Biosite Products for use in the detection,
              prognosis,
              diagnosis or monitoring of any neurological-related disease. This license
              includes the right for Biosite to grant one sublicense for each Program
              Target,
              provided that the grant of such sublicense will replace Biosite's own
              rights
              under the license.
  In
              consideration for the collection and transfer of samples, Biosite shall
              pay
              specified fees to Power3 based on a minimum number of samples delivered
              to
              Biosite and per unit fees for samples delivered in excess of the minimum.
  Biosite
              shall pay the Company milestone payments based on certain specified
              events as
              follows:
  •
upon
              the earlier of (a) the First Commercial Sale by Biosite of a Biosite
              Product, or
              the effective date of the first written agreement between Biosite and
              a Third
              Party sublicensee for a sublicense,
  •
upon
              demonstration, as determined in Biosite's sole and reasonable discretion,
              that a
              panel of antibodies (including one or more antibodies to a Program
              Target) is
              suitable for development of a commercial product,
  •
upon
              the first submission by Biosite of the first 510(k) (premarket notification)
              or
              PMA (pre-market approval application) to the FDA for the first Biosite
              Product;
              and
  •
upon
              the first FDA approval of the first 510k or PMA submitted by Biosite
              for the
              first Biosite Product.
  Commencing
              at the end of the first full calendar year following the date of First
              Commercial Sale for the first Biosite product, and at the end of each
              subsequent
              calendar year during the term of this Agreement, Biosite shall pay
              the Company
              specified annual minimum royalties. During the applicable Royalty Term
              for a
              Biosite Product, on a country-by-country basis, Biosite shall pay the
              Company
              royalties, with respect to each Biosite Product equal to a specified
              percentage
              of Net Sales of each Biosite product in that country. In addition to
              the
              specified royalty payments, to the extent that Biosite reaches certain
              specified
              sales targets, then Biosite shall be obligated to make additional payment
              to the
              Company. The Agreement expires upon the expiration of the last to expire
              applicable Power3 patent right. The agreement may be terminated for
              cause, by
              either party or upon written notice by either party following the twenty
              four
              month anniversary date of the Agreement, or by Biosite if it is unable
              to
              develop and deliver Program antibodies to the to the Program Targets.
  7
  On
              October 13, 2005, Power3 executed a Research Agreement with Pfizer,
              Inc. to
              further evaluate the Company’s NuroPro® test capabilities and to test blind and
              unblinded samples, provided by Pfizer, under controlled conditions.
              The Company
              completed the analysis of the samples and presented the results to
              Pfizer. The
              Agreement terminated on October 13, 2006. The Company does not expect
              to renew
              the Research Agreement as it has numerous other Research Agreements
              in place and
              is in discussions to enter additional Research Agreements with other
              organizations.
  On
              December 28, 2005, the Company submitted 6 breast cancer blood serum
              biomarkers
              to Biosite, for consideration under the agreement. The development
              of antibodies
              was begun by Biosite for the first of this series. During
              2006, payments totaling $300,000 have been received from Biosite to
              the Company
              for blood serum samples to be used, by Biosite, in the development
              and testing
              of antibodies. .
  However,
              effective June 26, 2007, Biosite was acquired by Inverness Medial Innovations,
              Inc. and it is uncertain as to whether or not Biosite will continue
              with its
              program to develop antibodies based on our protein biomarkers. If they
              discontinue this research effort, it would significantly reduce our
              projected
              cash flows and therefore, we have considered this factor in our analysis
              of
              goodwill impairment. Regardless of whether or not Biosite continues
              its research
              initiative with the Company, the Company is under no obligation to
              return the
              $300,000 mentioned in the previous paragraph.
  On
              May
              16, 2006, Power3 entered into a Materials Transfer and Confidential
              Disclosure
              Agreement with Innogenetics N.V., a Belgium-based international
              biopharmaceutical company. The current proposal is an assessment of
              the utility
              of the Company’s NuroPro® to differentiate control subjects from subjects with
              Alzheimer’s disease. Power3 received the shipment of samples from Innogenetics
              N.V. in October 2006 and completed the assessment of the blood serum
              samples in
              January 2007 and reported the results to Innogenetics, N.V. and is
              awaiting the
              final report from Innogenetics N.V.
  On
              April
              3, 2007, the Company entered into a joint venture agreement with NeoGenomics
              to
              form a contract research organization and collaborate on research work
              in the
              future. In addition, NeoGenomics agreed to purchase a convertible debenture
              for
              $200,000 and acquired options to purchase common stock of the Company
              during
              2007.
 
 **Breast
              Cancer Screening Test (BC-SeraProTM)**
  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
              is close to
              100%. Due to the limitations of the current diagnostic techniques of
              mammograms
              and self-examination, diagnosis of cancer is often missed or inconclusive.
              The
              limitations or absence of current diagnostic tests highlight the need
              for a test
              that can detect the presence of breast cancer much earlier. The Company’s has
              analyzed fluids from the breast called nipple aspirates fluid (NAF).
              Initial
              success yielded the identification of groups of breast cancer proteins
              in the
              aspirates. The procedure utilizes a breast pump to obtain a drop of
              fluid from
              the nipple. The aspirate is analyzed to identify specific breast cancer
              protein
              footprints. Concurrently, Power3 conducted its own biomarker discovery
              program
              using blood serum samples collected from the same clinical validation
              sites, in
              collaboration with Dr. Alan Hollingsworth at the Mercy Woman’s Center.
  The
              Company believes that there are many advantages to a simple blood test
              over
              other samples taken from patients, not the least of which is the ready
              acceptance by patients to having blood drawn. This, along with numerous
              complaints from patients about the discomfort of the procedure, as
              well as the
              low success rate in getting nipple aspirate samples (less than 50%),
              has led the
              Company to decide that nipple aspirate testing is not commercially
              viable.
  8
  Since
              the
              Company has elected to not pursue nipple aspirate testing for commercialization,
              the license agreement with MD Anderson has not been renewed by the
              Company . The
              blood serum biomarkers and tests, discovered directly using blood serum,
              are
              covered under intellectual property solely owned by the Company. The
              early
              detection blood serum test for Breast Cancer will be marketed under
              the name
              BC-SeraProTM.
  The
              Company’s proteomic discovery platform covered by pending patent applications
              and trade secrets was able to identify a panel of 12 blood serum based
              biomarkers and most recently identified an additional 10 biomarkers.
              These
              proteins have the potential to serve as an early detection tool to
              identify
              breast cancer long before it becomes detectable by conventional screening
              methods, greatly improving an individual’s chance for survival. Preliminary
              testing results demonstrated that the diagnostic tool is able to correctly
              identify individuals who are cancer-free or have benign disease from
              patients
              that have cancer with great sensitivity and specificity. These discoveries
              establish the basis of a very sensitive, non-invasive, early detection
              breast
              caner screening test. Therefore, Power3 has
              decided to focus development efforts for its
              early-detection tests for breast cancer on blood serum. The Company
              has
              successfully used blood serum as the platform for its NuroPro® neurodegenerative tests and believes that blood serum as a single platform
              is
              the best medium for the development and commercialization of proteomics
              diagnostic tests.
  **Neurodegenerative
              Screening Test (NuroPro®)**
  Early
              detection of neurodegenerative disease generally results in better
              patient
              outcomes. Three diseases of particular interest are Alzheimer’s disease,
              Parkinson’s disease and ALS. The Alzheimer’s Association reports that
              Alzheimer’s disease is the most common form of dementia affecting over 5.1
              million Americans, of which 4.9 millions 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 .
  The
              members of the Company’s scientific team have developed a method for the
              differential diagnosis of neurodegenerative diseases utilizing blood
              serum,
              which was co-developed with neurologist, Dr. Stan Appel, now Chair
              of Neurology
              and Co-Director of Methodist Neurological Institute in Houston. With
              this test,
              which involves monitoring the concentration of 50 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.
  The
              Company is continuing its ongoing clinical validation program in collaboration
              with the Methodist Neurological Institute. The initial phase was completed
              in
              July 2004 and the latest phase was completed in March, 2006. During
              this time
              period, the Company’s database has increased from 183 to over 650 unique samples
              classified either as normal or being clinically diagnosed with ALS,
              Alzheimer’s,
              Parkinson’s, and other related neurological disorders. During this time, the
              number of differentially expressed proteins used in the discriminant
              analysis
              has increased from 9 to 50. The ability to differentiate diseases from
              each
              other and from normal and disease controls has improved using the proprietary
              PD3TM process, including PolyiterativeTM biostatistical analysis on the larger
              database and the expanded set of biomarkers. Currently, select panels
              of
              biomarkers are being employed in 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 their 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 have been filed with the U.S. Food and Drug Administration (FDA).
  9
  On
              June
              2006, The American Institute of Biological Science (AIBS) has elected
              Power3’s
              Director of Biochemistry, Dr. Essam Sheta to be on its review panel
              for grant
              proposals related to Parkinson’s disease. The AIBS has been tasked by the U.S.
              Army Medical Research and Materiel Command (USAMRMC) Neurotoxin Exposure
              and
              Treatment Research Program (NETRP) to convene a peer review panel to
              review
              novel and innovative research proposals related to Parkinson’s disease. The
              USAMRMC is soliciting research proposals for studies on the pathophysiology,
              surrogate markers, mechanisms and treatment of Parkinson's disease
              and
              Parkinson's-related neurodegenerative conditions to include initiating
              causes,
              interaction of environmental and genetic risk factors, epigenetic modifying
              factors, with emphasis on exposure factors encountered in military
              operations
              which may be neurotoxic or lead to neurodegenerative conditions
  In
              July
              2006, Power3 announced a biomarker breakthrough based on applied extensive
              analytical and statistical analysis which resulted in the selection
              of five
              distinctive biomarkers from its portfolio of 47 previously identified
              protein
              biomarkers for neurodegenerative diseases. These and other selected
              biomarkers
              show great promise and represent a major step forward as a tool for
              the
              diagnosis of Alzheimer's disease.
  On
              September 6, 2006, Power3 announced the discovery of 11 biomarkers
              which
              demonstrate the ability to identify Parkinson’s disease in its early stages
              through blood serum-based testing, as well as differentiate between
              Parkinson’s
              and Parkinson’s-like diseases.
  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. 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 shipment of Parkinson’s disease samples were received in May 2007 and
              are being analyzed in the Company’s CLIA certified laboratory
  Dr.
              Ira
              Goldknopf, Director
              of Proteomics of Power3, gave two
              presentations at Experimental Biology 2006, the annual meeting of the
              Federation
              of American Societies at the Moscone Center in San Francisco in March,
              which was
              attended by more than 12,000 independent scientists. The first Power3
              presentation - “Blood Serum Biomarkers for Differential Diagnosis of Parkinson’s
              Disease” - included a report by Dr. Goldknopf and a “poster” presentation. Dr.
              Goldknopf presented and discussed Power3’s findings of specific blood serum
              protein biomarkers and tests to differentially diagnose Parkinson’s disease from
              normal controls and other neurological and neurodegenerative disorders.
              In
              addition, Dr. Goldknopf covered the findings of Parkinson’s and ALS specific
              nerve cell degeneration mechanisms which can be followed in blood serum,
              for
              potential drug targets and drug treatment response monitoring. The
              second
              presentation, “Biomarkers for Diagnosis and Targeting of Resistance and
              Sensitivity to Imatinib Mesylate in Chronic Myelogenous Leukemia,” included a
              poster presentation covering bone marrow aspirate protein biomarkers
              to predict
              sensitivity or resistance to Gleevec in Leukemia, including a mechanism
              of
              resistance and drug targets measured in bone marrow. Also on April
              27-28, 2006
              in San Francisco, Dr. Goldknopf presented Power3’s findings in blood-based
              testing for breast cancer at the OncoProteomics World Congress, and
              was asked to
              serve as the scientific advisor for the conference in 2007. Dr. Goldknopf
              presented the Company’s findings on Breast Cancer at the Cancer Proteomics World
              Congress, and on Alzheimer’s disease at the Molecular Diagnostics World
              Congress, held in Philadelphia on April 26-27, 2007.  He
              has
              reviewed the Molecular Diagnostics World Congress for the Journal *Expert
              Review of Molecular Diagnostics* ,
              which
              will be published late in 2007 in the UK.
  10
  Power3
              was also awarded one of the “Largest Bioscience Companies” designations and was
              featured in the Houston Business Journal for 2006.
  **Drug
              Resistance to Chemotherapeutic Agents**
  Drug
              resistance is of particular concern for the use of chemotherapy in
              treating
              cancer and particularly for chronic myelogenous leukemia. By the time
              a
              patient’s development of resistance to chemotherapeutic agents is
              detected ,
              it is
              often too late to revise treatment or otherwise save the patient. In
              2002, the
              Company completed an initial “proof of concept,” which addresses drug resistance
              to a major chemotherapy agent. Determining that a cancer patient is
              sensitive or
              detecting a development of resistance during the early stages of treatment
              may
              eliminate toxic effects from the treatment drugs, and the need for
              trial-and-error treatment regimens. In 2006, the Company discovered
              a new
              biomarker for drug resistance that is related to a drug specific target.
              These
              findings may ultimately provide the pharmaceutical industry with the
              technology
              to screen patients, on a molecular level, prior to clinical trials
              and design
              new drugs to overcome resistance.
  **Intellectual
              Property**
  During
              the year-ending December 31, 2006, Power3 filed four utility patent
              applications
              with the United States Patent and Trademark Office , entitled
              “Assay for Neuromuscular Diseases”, “Assay for ALS and ALS-Like Disorders”,
“Assay for Differentiating Alzheimer’s Disease and Alzheimer’s-Like Disorders”
“Assay for Diagnosis and Therapeutics Employing Similarities and Differences
              in
              Blood Serum Concentrations of 3 Forms of Complement C3c and Related
              Protein
              Biomarkers in Amyotrophic Lateral Sclerosis and Parkinson’s Disease” These were
              conversions of previous provisional applications. The number of pending
              patent
              applications as of December 31, 2006 is 17. The costs of filing these
              four
              patent applications were included as salaries and filing fees and no
              outside,
              legal patent costs were incurred.
  In
              May
              2006, Power3 filed a utility application for patent with the U.S. Patent
              and
              Trademark Office. The patent was initially filed on a provisional basis
              in May
              2005, the application is for Power3's first generic, blood-based diagnostic
              test
              for neuromuscular disorders, including ALS - Amyotropic Lateral Sclerosis,
              known
              as "Lou Gehrig's Disease," and Parkinson's disease.
 
 On
              December 12, 2006, Power3 announced the filing of an application with
              the U.S.
              Patent and Trademark Office for discoveries and a process used for
              early
              detection and diagnosis of breast cancer. The patent filing is entitled
              "Twelve
              (12) Protein Biomarkers for Diagnosis and Early Detection of Breast
              Cancer,"
              which relates to biomarkers in blood serum that can be used in diagnosis,
              determination of disease severity, and monitoring of therapeutic response
              of
              patients with breast cancer. The invention shows how these 12 protein
              biomarkers
              in human blood can be employed to diagnose and differentiate between
              patients
              with breast cancer, benign breast disease or abnormalities, and "normal
              controls. The patent application is a collaborative effort between
              the Power3
              scientific team and Dr. Alan Hollingsworth, a nationally-known breast
              cancer
              surgical oncologist at Mercy Woman's Center in Oklahoma City, and a
              member of
              Power3's Scientific Advisory Board.
  11
 
 As
              of
              December 31, 2006, the Company chose not to pursue an Office Action
              on the
              patent application for biomarker 7616, “A
              2’-5’
Obligoadenylate Synthetase Like Protein as a Biomarker for Neurodegenerative
              Disease” as
              it is
              protected under another patent application.  The
              number of pending patent applications is 17.
 
 **Competition**
  The
              industry in which the Company operates is intensely competitive, and
              subject to
              significant change with respect to technology for diagnosis and treatment
              of
              disease. Existing or future biotechnology, biomedical, pharmaceutical
              and other
              companies, government entities and universities may create developments
              that
              accomplish similar functions to the Company’s technologies in ways that are less
              expensive, receive faster regulatory approval or receive greater market
              acceptance than the Company’s potential products. The Company expects that
              competition in the biomarker discovery field will be based primarily
              on each
              product’s efficacy, stability, timing of entry of the product into the market,
              cost, and acceptance by health care providers and health care
              payers.
  The
              Company’s competitors have, in general, been in existence for considerably
              longer than the Company has, and may have greater capital resources
              and access
              to capital; greater internal resources for activities in research and
              development, clinical testing and trials, production and distribution;
              and
              existing collaborative relationships with third parties.
  The
              existing market for biomarker discovery platforms and processes for
              Alzheimer’s
              disease alone has been estimated to be in excess of $4 billion in the
              U.S. based
              on a study prepared by Frost & Sullivan. There are several other companies
              engaged in the research of proteomics and its application to biomarker
              discovery
              capabilities. Some of these companies include:
  Celera
              Genomics, which is engaged in proteomics, bioinformatics and genomics
              to
              identify and develop drug targets and discover and develop new
              therapeutics;
  Ciphergen
              Biosystems, which is active in biomarker discovery assay development
              and
              characterization;
  Europroteome,
              which applies proteomics to human epithelial cancers to identify cancer
              specific
              protein expression patterns for clinical applications;
  Matritech,
              which is a developer of proteomics-based diagnostic products for the
              early
              detection of cancer;
  Myriad
              Genetics, which is focused on the development of therapeutic and diagnostic
              products using genomic and proteomic technologies; and
  WITA
              Proteomics, which focuses on the potential role of proteins from specific
              cellular sources under particular conditions and analysis of the presence
              of
              modified proteins and the strategic use of this information for drug
              development
              and diagnostic use.
  Sources
              and Availability of Raw Materials and Names of Principal Suppliers
  The
              Company is, as previously discussed in this section, in the developmental
              stage
              and has not commenced commercial production of products for sale. Therefore
              the
              Company does not acquire, purchase, nor use any significant quantities
              of raw
              materials whatsoever and consequently has no principal suppliers.
  12
  Dependence
              on One or on a Few Major Customers
  The
              Company is still in the developmental stage and has not commenced producing
              or
              marketing any products to customers at this stage. The Company has
              experienced
              its first small set of revenue; however this was generated from sales
              of blood
              serum samples, rather than sales of any products or services produced
              by the
              Company. The Company does have a limited set of institutions and laboratories
              that it is currently involved with doing testing and development work,
              however
              these associations could change and the Company is not limited as to
              which
              institutions, hospitals or laboratories it works with in the future.
              The
              Company’s revenue during 2006 was solely from one customer, Biosite; changes
              in
              our relationship with this Company could have a material impact on
              our financial
              statements.
  **Research
              and Development**
  The
              Company believes that research and development is an important factor
              in its
              future growth and operates a state of the art proteomics laboratory.
              The Company
              has restricted the initiation of new research activities during 2006
              because of
              funding limitations and has focused its efforts on commercializing
              its current
              inventory of test products.
  **Patents,
              Copyrights and Trademarks**
  The
              Company is continuing to pursue patent protection for its proprietary
              technologies with the U.S. Patent and Trademark Office and in foreign
              jurisdictions. The Company plans to prosecute, assert and defend any
              patent
              rights it may obtain, whenever appropriate. However, securing patent
              protection
              does not necessarily assure the Company of competitive success.
  The
              Company received notification from the U.S. Patent and Trademark Office
              that it
              has been awarded a registered trademark for use of the name NuroPro,
              for the
              series of early detection neurodegenerative blood serum tests currently
              under
              development.
  In
              addition, the Company applied on April 25, 2007 for a trademark utilizing
              the
              name BC-SeraPro, for its early detection Breast Cancer blood serum
              test
              currently under development. The Company is presently in the approval
              process
              from the U.S. Patents and Trademark Office for award of the BC-SeraPro
              trademark.
  With
              respect to the Company’s biomarker discovery process, antibody detection system
              and breast cancer biomarkers, the Company have two provisional patents
              pending
              and four utility patents pending. The Company’s work in breast cancer no longer
              depends on certain technologies that it has licensed from M.D. Anderson
              Cancer
              Center, as those licenses are for nipple aspirate technology that the
              Company
              has determined to be not commercially viable. The Company’s blood serum
              biomarkers and tests are solely owned by the Company.
  In
              cooperation with Baylor College of Medicine, the Company has discovered
              47
              biomarkers for neurodegenerative diseases such as ALS, Alzheimer’s disease, and
              Parkinson’s disease. The Company has received an exclusive license for the
              rights in this technology and is responsible for the filing, prosecution
              and
              maintenance of all patent applications covering this licensed technology.
              To
              date, the Company has seven provisional patent applications pending
              for the
              neurodegenerative biomarkers and assays using these biomarkers and
              has also
              converted four of those provisional patents into utility
              applications.
  13
  In
              cooperation with the Leukemia Group at MD Anderson Cancer Center, the
              Company
              has joint ownership of one utility patent pending and one PCT international
              application in the area of drug resistance to chemotherapy in chronic
              myelogenous leukemia. The Company has also recently discovered a new
              biomarker
              for drug resistance in leukemia that exerts its effect on the drug
              target, which
              has been filed as a provisional patent application. The Company also
              has joint
              inventorship of a provisional patent application for biomarkers in
              gastrointestinal cancer with the University of Virginia.
  The
              Company also attempts to protect its proprietary products, processes
              and other
              information by relying on trade secret laws and nondisclosure and
              confidentiality agreements with its employees, consultants and certain
              other
              persons who have access to such products, processes and information.
              The
              agreements affirm that all inventions conceived by employees are the
              exclusive
              property of the company. Nevertheless, there can be no assurance that
              these
              agreements will afford significant protection against or adequate compensation
              for misappropriation or unauthorized disclosure of the Company’s trade
              secrets.
  **Scientific
              Publications and Presentations**
  In
              February, 2006, the Company published two peer reviewed scientific
              articles.
              Establishing the scientific basis of their NuroPro® neurodegenerative disease biomarkers and tests is an invited review
              entitled “2D
              gel blood serum biomarkers reveal differential clinical proteomics
              of the
              neurodegenerative diseases” by Essam A. Sheta, Stanley H. Appel and Ira L.
              Goldknopf, *Expert
              Review of Proteomics* 3, 45-62
              (2006). And the second scientific article “Complement C3c and related protein
              biomarkers in amyotrophic lateral sclerosis and Parkinson’s disease”, by Ira L.
              Goldknopf, et al. *Biochemical
              and Biophysical Research Communications* 342,
              1034-1039 (2006), details a breakthrough discovery of differences in
              a key
              protein that drives neurodegeneration between Parkinson’s disease and
              ALS.
  The
              Company believes its growing IP portfolio, industry papers and presentations
              demonstrate the value of its visionary approach to medically-useful
              product
              development and anticipates further acceptance by the scientific and
              business
              communities as it transitions its technologies into commercially-viable
              products .
  **Governmental
              Regulation**
  The
              Company received its CLIA (Clinical Laboratory Improvement Amendments)
              certification on March 23, 2007, which permits the Company to begin
              offering
              CLIA-compliant high complexity medical testing services. The Company
              earned its
              two-year license to offer high complexity tests after meeting standards
              for
              knowledge, training and experience, reagents and materials preparation,
              characteristics of operational steps, calibration, quality control
              and
              proficiency testing materials, test systems troubleshooting and equipment
              maintenance, and interpretation and judgment.
  With
              the
              CLIA certification in place, the Company has begun to fulfill its mission
              of
              commercialization of the Company’s proteomic discoveries to serve the medical
              and scientific communities. Furthermore, the Company can now offer
              blood-based
              testing services to physicians, hospitals and clinics, with the analysis
              of
              samples performed by the Company in its state-of-the-art centralized
              laboratory.
              CLIA was passed by the U.S. Congress in 1988 to establish quality standards
              for
              all laboratory testing, and to ensure accuracy, reliability and timeliness
              of
              patient test results regardless of where the test was performed.
  The
              Food
              and Drug Administration establishes guidelines for clinical trials
              which are
              conducted in order to obtain FDA approval. Clinical trials are required
              to find
              effective treatments to improve health. All clinical trials are based
              on a
              protocol which is a study plan that describes the type of people who
              may
              participate in the trial, the schedule of tests and procedures, and
              the length
              of the study.
  14
  Clinical
              trials in the United States must be approved and monitored by an Institutional
              Review Board (IRB) to make sure the risks of the trial are as low as
              possible
              and are worth any potential benefits. All institutions that conduct
              or support
              biomedical research are required by federal regulation to have an IRB
              that
              initially approves and periodically reviews the research.
  Upon
              successful completion of a clinical trial validation study, an application
              based
              on the results of the clinical trial is submitted for FDA approval.
              Upon receipt
              of FDA approval, the diagnostic screening test would be ready for
              commercialization.
  In
              the
              United States, clearance or approval to commercially distribute new
              medical
              devices or products is received from the FDA through clearance of a
              510(k)
              premarket notification, or 510(k), approval of a premarket approval
              application,
              or PMA. It may take from three to nine months from submission to obtain
              510(k)
              clearance, but may take longer or clearance may not be obtained at
              all. The FDA
              may determine that additional information is needed before approval
              to
              distribute the product is given.
  For
              any
              products that are cleared through the 510(k) premarket notification
              process,
              modifications or enhancements that could significantly affect safety
              or
              constitute a major change in the intended use of the product will require
              new
              510(k) submissions.
  A
              PMA
              application must be filed if a proposed product is not substantially
              equivalent
              to a medical product first marketed prior to May 1976, or if otherwise
              required
              by the FDA. The PMA approval process can be expensive, uncertain and
              lengthy,
              and a number of products for which other companies have sought FDA
              approval of a
              PMA application have never been approved for marketing. It generally
              takes from
              six to eighteen months from submission to obtain PMA approval, but
              it may take
              longer or the submission may not be approved at all.
  On
              May 5,
              2005 the Company submitted a pre-IDE application to the FDA on its
              blood test
              for neurodegenerative diseases of motor control, including Parkinson’s disease,
              ALS and their like disorders in order to obtain the Agency's guidance
              regarding:
              the appropriate regulatory pathway to pursue; the proper approach to
              refine
              and/or define its data and statistical analyses; and the study design
              for the
              Company's pending neurodegenerative disease diagnostic blood tests.
              A submission
              made under the pre-IDE process is not an official IDE application as
              described
              in 21 CFR Part 812. The Pre-IDE process is designed to help companies
              obtain
              early, informal input on aspects of a future IDE application and offers
              assistance in establishing the parameters for official IDE applications
              when
              unique diagnostic tests involving innovative technologies are being
              pursued. The
              Company met with the Food and Drug Administration on June 1, 2005 regarding
              its
              Pre-IDE submission for the first in a series of its NuroPro® Blood Tests for the
              early detection and differentiation of neuromuscular diseases, such
              as ALS and
              Parkinson’s disease.
 
 In
              the
              meeting with the FDA, guidance was offered regarding requirements for
              study
              design, patient risk assessment and intended use. In addition, the
              FDA concurred
              with how the Company had approached the biostatistics analysis utilized
              to
              interpret the test results. Based on the FDA’s advice in preliminary
              discussions, Power3 presented optimized results with an increase in
              specificity
              to more than 92% and an increase in Positive Predicted Value to more
              than 96%.
 
 Now,
              the
              Company is proceeding to make preparations for FDA applicable multiple
              site
              clinical studies for the NuroPro® suite of blood serum tests. On August 17,
              2005, the Company submitted its second Pre-IDE application on its ALS
              specific
              blood test for distinguishing ALS from normal and disease controls.
  15
 
 The
              Company is also subject to the regulatory approval and compliance requirements
              for each foreign country to which it exports products. In the European
              Union, a
              single regulatory approval process has been created, and approval is
              represented
              by the CE Mark.
  Both
              before and after a product is commercialized, the Company has ongoing
              responsibilities under the regulations of the FDA and other agencies.
              The
              Company’s manufacturing facilities and those of its contract manufacturers
              are,
              or can be, subject to periodic regulatory inspections by the FDA and
              other
              federal and state regulatory agencies, as well as civil penalties,
              recall or
              seizure of products, total or partial suspension of production, failure
              of the
              government to grant premarket clearance approval for products, withdrawal
              of
              marketing clearances or approvals, and criminal prosecution. The FDA
              has the
              authority to request recall, repair, replacement or refund of the cost
              of any
              product, which the Company manufactures or distributes. The FDA also
              administers
              certain controls over the export of medical devices from the United
              States. The
              Company is also subject to routine inspection and must file periodic
              reports
              after the product is approved by the FDA for compliance with quality
              system
              requirements, or QSR, and medical device reporting requirements in
              the United
              States and other applicable regulations worldwide. Changes in existing
              requirements or adoption of new laws or requirements could have a material
              adverse effect on the Company’s business, financial condition and results of
              operation. The Company will incur significant costs to comply with
              laws and
              regulations.
  The
              Company is also subject to numerous federal, state and local laws relating
              to
              such matters as safe working conditions, manufacturing practices, environmental
              protection, fire hazard control and disposal of hazardous or potentially
              hazardous substances. The Company may incur significant costs to comply
              with
              laws and regulations, or such laws or regulations in the future may
              have a
              material adverse effect upon its business, financial condition and
              results of
              operations.
  **Sales
              and Marketing**
  The
              Company currently has no sales or marketing employees, and no immediate
              plans to
              hire any personnel devoted to this area. The Company will make decisions
              about
              sales and marketing at a later date, when its products transition from
              the
              clinical validation stage to commercialization and market
              introduction.
  **Manufacturing**
  The
              Company does not currently have manufacturing capabilities, but it
              is exploring
              opportunities to produce and manufacture the Company’s diagnostic tests through
              collaborative agreements and strategic alliances. Exploitation of these
              opportunities will depend on the availability of further capital, qualified
              personnel, sufficient production resources and the Company’s ability to
              establish these relationships with other parties who have existing
              manufacturing
              and distribution capabilities. The Company does not currently have
              plans to
              manufacture any products in the near future and will make decisions
              about
              manufacturing at a later date, when its product portfolio is further
              along in
              the development stage.
  **Costs
              and Effects of Compliance with Environmental Laws (Federal, State or
              Local)**
  The
              Company, as discussed earlier in this section, does not manufacture
              any
              products, nor does it purchase, store or ship any products. Consequently
              the
              Company does not have any compliance issues with regard to environmental
              laws as
              they relate to commercial operations.
  The
              Company does store and handle certain organic wastes and human tissue
              samples in
              its laboratory operations. The cost of complying with environmental
              laws which
              govern our research and development laboratory operations, during the
              period
              ending December 31, 2006, was approximately $175,
              primarily consisting of costs associated with disposal of waste
              materials.
  16
  **Employees
              and Consultants**
  At
              December 31, 2006, the Company had thirteen (13) full-time employees.
              None of
              the Company’s employees are represented by collective bargaining agreements, and
              the Company considers its employee relations to be good. The Company
              utilizes
              part-time consultants as well as contract research organizations and
              other
              outside specialty firms for various services such as clinical trial
              support,
              manufacturing and regulatory approval advice.
  **Divestiture
              of Subsidiaries**
  Prior
              to
              May 17, 2004, the Company had one direct subsidiary, Tenthgate, Inc.
              (“Tenthgate”), a Nevada corporation formerly known as Power3 Medical, Inc. Prior
              to this date, Tenthgate was accounted for, by Power3, as a wholly-owned
              subsidiary, operating as a “development stage company”, under the cost method.
              Prior to the acquisition of substantially all the assets and certain
              liabilities
              from Advanced BioChem, now known as Industrial Enterprises of America,
              Power3
              agreed to distribute the shares of its subsidiary, Tenthgate, to its
              shareholders of record, as of May 17, 2004. To fulfill this obligation,
              the
              shares of Tenthgate were transferred to a trustee for distribution
              to the
              previous shareholders of Power3 on May 17, 2004, before the Advanced
              BioChem
              transaction and the takeover by present management. Tenthgate was spun
              off
              because the previous owners and management of Power3, in place prior
              to May 17,
              2004, desired to continue to own and eventually operate this inactive
              subsidiary, and to pursue the prior operations of Power3. Apparently
              the current
              management of Tenthgate has decided to abandon that product, because
              their SEC
              filings state that they are a “development stage company.” Since May 17, 2004,
              Tenthgate has been deconsolidated from Power3. Tenthgate has been independently
              operating since May 17, 2004 and Power3 did not own or control the
              operations or
              activities of Tenthgate in any manner whatsoever, after May 17, 2004.
  **Risk
              Factors**
  In
              addition to the other information contained in this report, the following
              risks
              may affect us. If any of these risks occurs, our business, financial
              condition
              or operating results could be adversely affected.
  **We
              have a history of operating losses, and we may not achieve or maintain
              profitability in the future.**
  We
              have
              experienced a net loss of $6,415,969 **** for
              calendar year 2006 .
              We
              expect these losses to continue and it is uncertain when, if ever,
              we will
              become profitable. These losses have resulted primarily from non-cash,
              stock-based compensation costs incurred as stock issued for compensation,
              research and development activities, and general and administrative
              costs
              associated with operations. Stock issued for compensation and for consulting
              fees has been valued at market price on the effective date of the agreement,
              per
              SEC requirement. We expect to incur increasing operating losses in
              the future as
              a result of expenses associated with research and product development
              as well as
              general and administrative costs and we have estimated that we will
              require
              approximately $3,300,000 to carry out our business plan through the
              period
              ending December 31, 2007. Even if we do achieve profitability, we may
              not be
              able to sustain or increase profitability on a quarterly or annual
              basis.
  17
  **We
              will need significant additional capital in the future and, if additional
              capital is not available, we may have to curtail or cease
              operations.**
  We
              have
              an immediate need for capital to continue our operations, and we will
              need to
              raise significant additional funds to implement our business plan.
              Our current
              plans indicate we will need significant additional capital for research
              and
              development before we have any anticipated revenue generating products.
              The
              actual amount of funds that we will need will be determined by many
              factors,
              some of which are beyond our control, and we may need funds sooner
              than
              currently anticipated. These factors include:
  the
              extent to which we enter into licensing arrangements, collaborations
              or joint
              ventures;
  our
              progress with research and product development;
  the
              costs
              and timing of obtaining new patent rights;
  the
              extent to which we acquire or license other technologies; and
  regulatory
              changes and competition and technological developments in the
              market.
  Our
              continued operations will therefore depend upon our ability to raise
              additional
              funds through additional equity or debt financing. We may seek additional
              funding through private sales of our securities, public sales of our
              securities,
              strategic alliances or by licensing all or a portion of our technology.
              Any such
              funding may significantly dilute existing shareholders or may limit
              our rights
              to our technology. Moreover, the increase in the number of shares available
              in
              the public marketplace may reduce the market price for our common stock
              and,
              consequently, the price investors may receive at the time of sale.
              When we
              require additional funds, general market conditions or the then-current
              market
              price of our common stock may not support capital raising transactions
              such as
              additional public or private offerings of our common stock. If we are
              unable to
              obtain additional funds on a timely basis or on terms favorable to
              the Company,
              we may be required to scale back our development of new products, sell
              or
              license some or all of our technology or assets, or curtail or cease
              operations.
  **We
              may not be successful in developing or commercializing our products,
              which would
              harm the Company and force the Company to curtail or cease
              operations.**
  We
              have
              only recently commenced our business operations and our technologies
              are still
              in the early stages of development. The products we are currently developing
              may
              not be successfully developed or commercialized on a timely basis,
              or at all. If
              we are unable, for technological or other reasons, to complete the
              development,
              introduction or scale-up of manufacturing of these products or other
              potential
              products, or if our products do not achieve a significant level of
              market
              acceptance, we would be forced to curtail or cease operations. Even
              if we
              develop our products for commercial use and obtain all necessary regulatory
              approvals, we may not be able to develop products that:
  are
              accepted by, and marketed successfully to, the marketplace;
  are
              safe
              and effective;
  are
              protected from competition by others;
  do
              not
              infringe the intellectual property rights of others;
  are
              developed prior to the successful marketing of similar products by
              competitors;
              or
  can
              be
              manufactured in sufficient quantities or at a reasonable cost.
  18
  **Many
              of our research and development programs rely on technology licensed
              from third
              parties, and termination of any of those licenses would result in loss
              of
              significant rights to develop and market our products, which would
              impair out
              business.**
  We
              have
              rights to technology through license agreements with third parties.
              Our licenses
              generally may be terminated by the other party if we fail to perform
              our
              obligations. If terminated, we would lose the right to develop the
              licensed
              products, which would significantly harm our business. The license
              agreements
              include payments contingent upon achieving specified milestones toward
              commercialization of the licensed products. Currently we do not have
              any
              specific value associated with these license agreements because each
              of the
              agreements is in such an early stage of research and development that
              no value
              is yet supportable and further, we are not yet ready to commercialize
              the
              products covered within the license agreements.
  **Some
              of our research and development programs may rely on technology licensed
              from
              third parties, and termination of any of those licenses would not result
              in the
              loss of significant rights to develop and market our products, which
              would not
              impair our business expectations and projections.**
  We
              have
              rights to technology through license agreements with third parties.
              We rely upon
              an exclusive license agreement from Baylor College of Medicine for
              identification and use of certain biomarkers for neurodegenerative
              diseases. Our
              licenses generally may be terminated by the other party if the Company
              fails to
              perform its obligations, including milestone obligations to conduct
              a research
              and development program and develop the licensed products for commercialization.
              If terminated, we would lose the right to develop the licensed products,
              which
              could significantly reduce our business expectations. The license agreements
              include payments contingent upon achieving specified milestones toward
              commercialization of the licensed products. If disputes arise over
              the
              definition of these requirements or whether we have satisfied the requirements
              in a timely manner, or if any other obligations in the license agreement
              are
              disputed by the other party, the other party could terminate the agreement
              and
              we could lose our rights to develop the licensed technology. Currently
              we do not
              have any specific value associated with these license agreements because
              each of
              the agreements is in the early stages of research and development and
              we are not
              ready to commercialize any of the license agreements yet.
  **If
              we are unable to form and maintain the collaborative relationships
              that our
              business strategy requires, our ability to develop products and revenue
              will
              suffer.**
  We
              must
              form research collaborations and licensing arrangements with several
              partners to
              operate our business successfully. To succeed, we will have to further
              develop
              our existing relationships and establish additional collaborations.
              We cannot be
              sure that we will be able to establish any additional research collaborations
              or
              licensing arrangements necessary to develop and commercialize products
              using our
              technology or that we can do so on terms favorable to the Company.
              If our
              collaborations are not successful or we are not able to manage multiple
              collaborations successfully, our programs may suffer.
  Collaborative
              agreements generally pose the following risks:
  ·
                    collaborators
                        may not pursue further development and commercialization
                        of products
                        resulting from collaborations or may elect not to continue
                        or renew
                        research and development programs;
  ·
                    collaborators
                        may delay clinical trials, under fund a clinical trial program,
                        stop a
                        clinical trial or abandon a product, repeat or conduct new
                        clinical trials
                        or require a new formulation of a product for clinical
                        testing;
  19
  ·
                    collaborators
                        could independently develop, or develop with third parties,
                        products that
                        could compete with our future
                        products;
  ·
                    the
                        terms of our agreements with our current or future collaborators
                        may not
                        be favorable to the Company;
  ·
                    a
                        collaborator with marketing and distribution rights to one
                        or more
                        products may not commit enough resources to the marketing
                        and distribution
                        of our products, limiting our potential revenues from the
                        commercialization of a product;
  ·
                    disputes
                        may arise delaying or terminating the research, development
                        or
                        commercialization of our products, or result in significant
                        litigation or
                        arbitration; and
  ·
                    collaborations
                        may be terminated and, if terminated, we would experience
                        increased
                        capital requirements if we elected to pursue further development
                        of the
                        product.
  In
              addition, business combinations or alliances among large pharmaceutical
              companies could result in a reduced number of potential future collaborators.
              If
              business combinations involving our collaborators were to occur, the
              effect
              could be to diminish, terminate or cause delays in one or more of our
              product
              development programs.
  **Our
              products are subject to United States, European Union and international
              medical
              regulations and controls, which impose substantial financial costs
              on the
              Company and which can prevent or delay the introduction of new products.
              As a
              result, we may not obtain required approvals for the commercialization
              of our
              products.**
  Our
              ability to sell our products is subject to various federal, state and
              international rules and regulations. In the United States, we are subject
              to
              inspection and market surveillance by the Food and Drug Administration,
              or FDA,
              to determine compliance with regulatory requirements. The regulatory
              process is
              costly, lengthy and uncertain.
  Our
              future performance depends on, among other matters, estimates as to
              when and at
              what cost we will receive regulatory approval for our new products.
              Regulatory
              approval can be a lengthy, expensive and uncertain process, making
              the timing
              and cost of obtaining approvals difficult to predict.
  In
              the
              United States, clearance or approval to commercially distribute new
              medical
              devices or products is received from the FDA through clearance of a
              510(k)
              premarket notification, or 510(k), approval of a premarket approval
              application
              or PMA. The process to obtain 510(k) clearance is lengthy and there
              is no
              assurance clearance will be obtained.
  For
              any
              products that are cleared through the 510(k) premarket notification
              process,
              modifications or enhancements that could significantly affect safety
              or
              constitute a major change in the intended use of the product will require
              new
              510(k) submissions.
  A
              PMA
              application must be filed if proposed products are not substantially
              equivalent
              to a medical product first marketed prior to May 1976, or if otherwise
              required
              by the FDA. The PMA approval process can be expensive, uncertain and
              lengthy,
              and a number of products for which other companies have sought FDA
              approval of a
              PMA application have never been approved for marketing.
  20
  We
              are
              also subject to the regulatory approval and compliance requirements
              for each
              foreign country to which we export our products. In the European Union,
              a single
              regulatory approval process has been created, and approval is represented
              by the
              CE Mark.
  Both
              before and after products are commercialized, we have ongoing responsibilities
              under the regulations of the FDA and other agencies. Our manufacturing
              facilities and those of our contract manufacturers are, or can be,
              subject to
              periodic regulatory inspections by the FDA and other federal and state
              regulatory agencies. The FDA has the authority to request recall, repair,
              replace or refund of the cost of any product manufactured or distributed
              by the
              Company. The FDA also administers certain controls over the export
              of medical
              devices from the United States. We are also subject to routine inspection
              and
              must file periodic reports after the product is approved by the FDA
              for
              compliance with quality system requirements, or QSR, and medical device
              reporting requirements in the United States and other applicable regulations
              worldwide. Changes in existing requirements or adoption of new laws
              or
              requirements could have a material adverse effect on our business,
              financial
              condition and results of operation. We will incur significant costs
              to comply
              with laws and regulations.
  Regulatory
              agencies have made, and continue to make, changes in their approval
              and
              compliance requirements and process. We cannot predict what, how or
              when these
              changes will occur or what effect the changes will have on the regulation
              of our
              products. Any new legislation may impose additional costs or lengthen
              review
              times of our products. We may not be able to obtain necessary worldwide
              regulatory approvals or clearances for our products on a timely basis,
              if at
              all. Delays in receipts of or failure to receive such approvals or
              clearances,
              the loss of previously received approvals or clearances, or failure
              to comply
              with existing or future regulatory requirements would have a material
              adverse
              effect on our business, financial condition and results of
              operations.
  **Because
              many of our competitors have substantially greater capital resources
              and more
              experience in research and development, manufacturing and marketing
              than we do,
              we may not succeed in developing our proposed products and bringing
              them to
              market in a cost-effective, timely manner.**
  We
              expect
              to compete with a broad range of organizations that are engaged in
              the
              development and production of products, services and strategies relating
              to the
              diagnosis, prognosis, early detection and development of new drugs
              in cancer,
              neurodegenerative and neuromuscular diseases. They include:
  ·
                    biotechnology,
                        biomedical, pharmaceutical and other
                        companies;
  ·
                    academic
                        and scientific institutions;
  ·
                    governmental
                        agencies; and
  ·
                    public
                        and private research organizations.
  We
              are an
              early stage development company engaged primarily in new product development.
              Early in its existence, Power3 was a development stage company, striving
              to
              develop products for sale to the surgical industry. After this stage,
              Power3
              entered the operating company stage selling the products they had developed
              to
              hospitals and medical care providers, up until May 17, 2004. At the
              time of the
              May 18, 2004 asset purchase transaction, Power3 changed its business
              model and
              entered back into the development stage to commercialize its intellectual
              properties acquired in the transaction. We have not yet completed the
              development of our first product and have no significant revenue from
              selling
              products or services we have commercially produced. Since the change
              of our
              focus, we may have difficulty competing with larger, established biomedical
              and
              pharmaceutical companies and organizations. These companies and organizations
              have much greater financial, technical, research, marketing, sales,
              distribution, service and other resources than the Company. Moreover,
              they may
              offer broader product lines, services and have greater name recognition
              than we
              do, and may offer discounts as a competitive tactic.
  21
  In
              addition, several early stage companies are currently developing products
              that
              may compete with our potential products. We anticipate strong competition
              from
              several companies that include:
  ·
                    Medarex,
                        which is a biopharmaceutical company focused on the development
                        of
                        antibody-based therapeutics to treat life threatening and
                        debilitating
                        diseases including cancer and infectious
                        diseases;
  ·
                    Matritech,
                        which is a developer of proteomics-based diagnostic products
                        for the early
                        detection of cancer;
  ·
                    Ciphergen
                        Biosystems, which is active in biomarker discovery assay
                        development and
                        characterization;
  ·
                    Lexicon
                        Genetics, which is using gene knockout technology for a number
                        of
                        therapeutic areas which include neurological disorders and
                        cancer;
                        and
  ·
                    Cyberonics,
                        which designs, develops, manufactures and markets medical
                        devices for the
                        treatment of Alzheimer’s disease and other chronic
                        disorders.
  **Our
              competitive position depends on protection of our intellectual
              property.**
  Our
              success will depend on our ability to obtain and protect patents on
              our
              technology and to protect our trade secrets. The patents we currently
              license,
              and any future patents we may obtain or license, may not afford meaningful
              protection for our technology and products. Others may challenge our
              patents
              and, as a result, our patents could be narrowed, invalidated or unenforceable.
              In addition, our current and future patent applications may not result
              in the
              issuance of patents in the United States or foreign countries. Competitors
              may
              develop products similar to ours that conflict with our patent applications
              and
              any patents we ultimately receive. In order to protect or enforce our
              patent
              rights, we may initiate interference proceedings, oppositions, or patent
              litigation against third parties, such as infringement suits. These
              lawsuits
              could be expensive, take significant time and divert management’s attention from
              other business concerns. The patent position of biotechnology firms
              generally is
              highly uncertain, involves complex legal and factual questions, and
              has recently
              been the subject of much litigation. No consistent policy has emerged
              from the
              U.S. Patent and Trademark Office or the courts regarding the breadth
              of claims
              allowed or the degree of protection afforded under biotechnology patents.
              In
              addition, there is a substantial backlog of biotechnology patent applications
              at
              the U.S. Patent and Trademark Office, and the approval or rejection
              of patent
              applications may take several years.
  We
              also
              rely upon trade secrets, proprietary know-how and continuing technological
              innovation to remain competitive. Third parties may independently develop
              such
              know-how or otherwise obtain access to our technology. While our employees,
              consultants and corporate partners with access to proprietary information
              generally will be required to enter into confidentiality agreements,
              we cannot
              guarantee that these agreements will provide the Company with adequate
              protection against improper use or disclosure of confidential information.
              In
              addition, in some situations, these agreements may conflict with, or
              be subject
              to, the rights of third parties with whom our employees, consultants
              or advisors
              have prior employment or consulting relationships. Further, others
              may gain
              access to our trade secrets or independently develop substantially
              equivalent
              proprietary information and techniques.
  22
  **Our
              products could infringe on the intellectual property rights of
              others.**
  Third
              parties may challenge the patents that have been issued or licensed
              to the
              Company. We may have to pay substantial damages, possibly including
              treble
              damages; for past infringement if it is ultimately determined that
              our products
              infringe a third party’s patents. Further, we may be prohibited from selling our
              products before we obtain a license, which, if available at all, may
              require the
              Company to pay substantial royalties. Even if infringement claims against
              the
              Company are without merit, defending a lawsuit takes significant time,
              may be
              expensive and could divert management attention from other business
              concerns.
  **We
              depend on our key scientific and management personnel to develop our
              products
              and pursue collaborations.**
  Our
              performance is substantially dependent on the performance of our current
              senior
              management, board of directors and key scientific and technical personnel
              and
              advisers. The loss of the services of any member of our senior management,
              board
              of directors, scientific or technical staff or scientific advisory
              board may
              significantly delay or prevent the achievement of product development
              and other
              business objectives and could have a material adverse effect on our
              business,
              operating results and financial condition.
  Recruiting
              and retaining qualified scientific personnel to perform research and
              development
              work are critical to our success. There is intense competition for
              qualified
              scientists and managerial personnel from numerous pharmaceutical, biomedical
              and
              biotechnology companies, as well as from academic and government organizations,
              research institutions and other entities. In addition, we may face
              particular
              difficulties because there are a limited number of scientists specializing
              in
              proteomics and its use for the discovery of diseases, the principal
              focus of our
              company. We expect to rely on consultants and advisors, including our
              scientific
              and clinical advisors, to assist the Company in formulating our research
              and
              development strategy. Any of those consultants or advisors could be
              employed by
              other employers, or be self-employed, and might have commitments to,
              or
              consulting or advisory contracts with, other entities that may limit
              their
              availability to the Company. Such other employment, consulting or advisory
              relationships could place our trade secrets at risk, even if we require
              non-disclosure agreements.
  **Our
              lack of operating experience may cause the Company difficulty in managing
              our
              growth.**
  We
              have
              no experience in manufacturing or procuring products in commercial
              quantities,
              conducting other later-stage phases of the regulatory approval process
              or
              selling our products, and we have only limited experience in negotiating,
              establishing and maintaining strategic relationships. We have no experience
              with
              respect to the launch of a commercial product. Our ability to manage
              our growth,
              if any, will require the Company to improve and expand our management
              and our
              operational and financial systems and controls. If our management is
              unable to
              manage growth effectively, our business and financial condition would
              be
              materially harmed. In addition, if rapid growth occurs, it may strain
              our
              operational, managerial and financial resources.
  **We
              have no commercial production capability and we may encounter production
              problems or delays, which could result in lower revenue.**
  To
              date,
              we have not produced any product in commercial quantities. Customers
              for any
              potential products and regulatory agencies will require that we comply
              with
              current good manufacturing practices prescribed by the FDA that we
              may not be
              able to meet. We have established and are in the process of establishing
              agreements with contract manufacturers to supply sufficient quantities
              of our
              products to conduct clinical trials as well as for the manufacture,
              packaging,
              labeling and distribution of finished products if our potential products
              are
              approved for commercialization. If such arrangements are terminated
              and if we
              are unable to manufacture or contract for a sufficient supply of our
              potential
              products on acceptable terms, our clinical testing schedule may be
              delayed,
              resulting in the delay of submission of products for regulatory approval
              and
              initiation of new development programs. If we determine to manufacture
              products
              ourselves, we may not be able to maintain acceptable quality standards
              if we
              ramp up production. To achieve anticipated customer demand levels,
              we will need
              to scale-up our production capability and maintain adequate levels
              of inventory.
              We may not be able to produce sufficient quantities to meet market
              demand. If we
              cannot achieve the required level and quality of production, we may
              need to
              outsource production or rely on licensing and other arrangements with
              third
              parties. This reliance could reduce our gross margins and expose the
              Company to
              the risks inherent in relying on others. We may not be able to successfully
              outsource our production or enter into licensing or other arrangements
              under
              acceptable terms with these third parties, which could adversely affect
              our
              business.
  23
  **We
              have no marketing or sales staff, and if we are unable to develop sales
              and
              marketing capability, we may not be successful in commercializing our
              products.**
  We
              currently have no sales, marketing or distribution capability. As a
              result, we
              will depend on collaborations or agreements with third parties that
              have
              established distribution systems and direct sales forces. To the extent
              that we
              enter into co-promotion or other licensing arrangements, our revenues
              will
              depend upon the efforts of third parties, over which we may have little
              or no
              control.
  If
              we are
              unable to reach and maintain agreement with one or more pharmaceutical,
              biomedical or biotechnology companies or other potential collaborators
              under
              acceptable terms, we may be required to market our products directly.
              We may
              elect to establish our own specialized sales force and marketing organization
              to
              market our products. If we are unable to develop a marketing and sales
              force
              with technical expertise and with supporting distribution capability,
              we may not
              be able to successfully commercialize our products.
  **Our
              business is subject to technological obsolescence.**
  Proteomics,
              biotechnology and related pharmaceutical technology have undergone
              and are
              subject to rapid and significant change. We expect that the technologies
              associated with proteomics, biotechnology research and development
              will continue
              to develop rapidly. Our future will depend in large part on our ability
              to
              maintain a competitive position with respect to these technologies.
              Any
              processes, discovery platforms or products that we develop may become
              obsolete
              before we recover any expenses incurred in connection with developing
              these
              products.
  **We
              face intense competition in the proteomics, biotechnology and pharmaceutical
              industries.**
  The
              proteomics, biotechnology and pharmaceutical industries are intensely
              competitive. We have numerous competitors in the United States and
              elsewhere.
              Our competitors include major multinational pharmaceutical, biomedical
              and
              biotechnology companies, specialized firms and universities and other
              research
              institutions. Many of these competitors have greater financial and
              other
              resources, larger research and development staffs and more effective
              marketing
              and manufacturing organizations, than we do. In addition, academic
              and
              government institutions have become increasingly aware of the commercial
              value
              of their research findings. These institutions are now more likely
              to enter into
              exclusive licensing agreements with commercial enterprises, including
              our
              competitors, to market commercial products. Smaller companies may also
              prove to
              be significant competitors, particularly through collaborative arrangements
              with
              large pharmaceutical and established biotechnology companies. Many
              of these
              competitors have significant products that have been approved or are
              in
              development and operate large, well-funded research and development
              programs.
  24
  Our
              competitors may succeed in developing or licensing technologies and
              products
              that are more effective or less costly than any we are developing.
              Our
              competitors may succeed in obtaining FDA or other regulatory approvals
              for
              product candidates before we do. Products resulting from our research
              and
              development efforts, if approved for sale, may not compete successfully
              with our
              competitors’ existing products or products under development.
  **We
              face potential difficulties in obtaining product liability and related
              insurance. If we are subject to product liability claims and have not
              obtained
              adequate insurance to protect against these claims, our financial condition
              would suffer.**
  We
              do not
              have product liability or other professional liability insurance. In
              the future,
              we may, in the ordinary course of business, be subject to substantial
              claims by,
              and liability to, persons alleging injury from the use of our products.
              If we
              are successful in having products approved by the FDA, the sale of
              such products
              would expose the Company to additional potential product liability
              and other
              claims resulting from their use. This liability may result from claims
              made
              directly by consumers or by others selling such products. We do not
              currently
              have any product liability or professional liability insurance, and
              it is
              possible that we will not be able to obtain or maintain such insurance
              on
              acceptable terms or that any insurance obtained will provide adequate
              coverage
              against potential liabilities. Our inability to obtain sufficient insurance
              coverage at an acceptable cost or otherwise to protect against potential
              product
              liability claims could prevent or limit the commercialization of any
              products we
              develop. A successful product liability claim in excess of any insurance
              coverage we may procure could exceed our net worth. While we desire
              to reduce
              our risk by obtaining indemnity undertakings with respect to such claims
              from
              licensees and distributors of our products, we may not be able to obtain
              such
              undertakings and, even if we do, they may not be sufficient to limit
              our
              exposure to claims.
  **If
              we are subject to claims relating to improper handling, storage or
              disposal of
              the hazardous materials we use in our business, our financial condition
              would
              suffer.**
  Our
              research and development processes involve the controlled storage,
              use and
              disposal of hazardous materials including biological hazardous materials
              of
              which we have contracts in place for proper disposal. We are subject
              to federal,
              state and local regulations governing the use, manufacture, storage,
              handling
              and disposal of materials and waste products. Although we believe that
              our
              safety procedures for handling and disposing of these hazardous materials
              comply
              with the standards prescribed by law and regulation, the risk of accidental
              contamination or injury from hazardous materials cannot be completely
              eliminated. In the event of an accident, we could be held liable for
              any damages
              that result. We currently do not have insurance which covers any such
              accident
              and may not be able to maintain insurance on acceptable terms, or at
              all. We
              could be required to incur significant costs to comply with current
              or future
              environmental laws and regulations.
  **Health
              care cost containment initiatives may limit our returns.**
  Our
              ability to commercialize our products successfully will be affected
              by the
              ongoing efforts of governmental and third-party payers to contain or
              reduce the
              cost of health care. Governmental and other third-party payers increasingly
              are
              attempting to contain health care costs by:
  ·
                    challenging
                        the prices charged for health care products and
                        services;
  25
  ·
                    limiting
                        both coverage and the amount of reimbursement for new therapeutic
                        products;
  ·
                    denying
                        or limiting coverage for products that are approved by the
                        FDA but are
                        considered experimental or investigational by third-party
                        payors;
                        and
  ·
                    refusing
                        in some cases to provide coverage when an approved product
                        is used for
                        disease indications in a way that has not received FDA marketing
                        approval.
  In
              addition, the trend toward managed health care in the United States,
              the growth
              of organizations such as health maintenance organizations, and legislative
              proposals to reform healthcare and government insurance programs could
              significantly influence the purchase of healthcare services and products,
              resulting in lower prices and reducing demand for our products.
  Even
              if
              we succeed in bringing any products to the market, they may not be
              considered
              cost-effective and third-party reimbursement might not be available
              or
              sufficient. If adequate third-party coverage is not available, we may
              not be
              able to maintain price levels sufficient to realize an appropriate
              return on our
              investment in research and product development. In addition, legislation
              and
              regulations affecting the pricing of diagnostic services and testing
              may change
              in ways adverse to the Company before or after any of our proposed
              products are
              approved for marketing. While we cannot predict whether any such legislative
              or
              regulatory changes will be adopted, the adoption of such changes could
              make it
              difficult or impossible to sell our products.
  **Stock
              prices for biomedical and biotechnology companies are
              volatile.**
  The
              market price for securities of biomedical and biotechnology companies
              historically have been highly volatile, and the market from time to
              time has
              experienced significant price and volume fluctuations that are unrelated
              to the
              operating performance of such companies. Fluctuations in the trading
              price or
              liquidity of our common stock may adversely affect our ability to raise
              capital
              through future equity financings.
  Factors
              that may have a significant impact on the market price and marketability
              of our
              common stock include:
  ·
                    announcements
                        of technological innovations or new commercial therapeutic
                        products by the
                        Company, our collaborative partners or our present or potential
                        competitors;
  ·
                    announcements
                        by the Company or others of results of validation studies
                        and clinical
                        trials;
  ·
                    developments
                        or disputes concerning patent or other proprietary
                        rights;
  ·
                    adverse
                        legislation, including changes in governmental regulation
                        and the status
                        of our regulatory approvals or
                        applications;
  ·
                    changes
                        in health care policies and practices;
                        and
  ·
                    economic
                        and other external factors, including general market
                        conditions.
  In
              the
              past, following periods of volatility in the market price of a company’s
              securities, securities class action litigation has often been instituted.
              If a
              securities class action suit is filed against the Company, we would
              incur
              substantial legal fees and our management’s attention and resources would be
              diverted from operating our business in order to respond to the
              litigation.
  26
  **The
              resale in the open market of the shares we have issued, or shares issuable
              upon
              conversion or exercise of securities we have issued, in exempt transactions
              might adversely affect our stock price.**
  As
              of
              December 31 ,
              2006,
              71,370,955 shares
              of our common stock were outstanding. In 2006, the Company filed an
              SB-2 to
              register all the shares associated with the convertible debentures issued in
              October, 2004 and January, 2005. However, since December 31, 2006,
              the Company
              has decided to pull its Form SB-2, and filed paperwork with the appropriate
              agencies in mid June, 2007, to rescind this SB-2. In addition, the
              Company is in
              the process of settlement with the convertible debenture holders and
              expects to
              settle all outstanding claims under these debentures, other than the
              warrants,
              by the end of calendar 2007. Once these conversions are completed,
              there will be
              a substantial number of shares which could come on the market over
              the next 2
              years. The sale of a substantial number of shares of our common stock
              by the
              investors, or the anticipation of such sales, could make it more difficult
              for
              the Company to sell equity or equity-related securities in the future
              at a time
              and at a price that we might otherwise wish to effect sales. In addition
              to
              these shares, approximately 15,000,000 shares of common stock issued
              to Advanced
              BioChem in our acquisition of substantially all of its assets may become
              available for resale. Sales of shares pursuant to other exercisable
              options and
              warrants we have issued could also lead to subsequent sales of the
              shares in the
              public market. These sales could depress the market price of our stock
              by
              creating an excess in supply of shares for sale. Availability of these
              shares
              for sale in the public market could also impair our ability to raise
              capital by
              selling equity securities.
  **Our
              stock is thinly traded, which could lead to price volatility and difficulty
              liquidating your investment.**
  The
              trading volume of our stock has been low, which can cause the trading
              price of
              our stock to change substantially in response to relatively small orders.
              During
              the year ended December 31, 2006, the average daily trading volume
              of our stock
              was approximately 237,250 shares and the shares traded as low as $0.05
              and
              as high as $0.42 per share. Both
              volume and price could also be subject to wide fluctuations in response
              to
              various factors, many of which are beyond our control, including:
  ·
                    actual
                        or anticipated variations in quarterly and annual operating
                        results;
  ·
                    announcements
                        of technological innovations by the Company or our
                        competitors;
  ·
                    developments
                        or disputes concerning patent or proprietary rights;
                        and
  ·
                    general
                        market perception of biotechnology and pharmaceutical
                        companies.
  **Because
              our stock currently trades below $5.00 per share, and is traded on
              the Pink
              Sheets, our stock is considered by the SEC a “penny stock,” which can adversely
              affect its liquidity.**
  Our
              common stock does not currently qualify for listing on the Nasdaq Stock
              Market
              or the OTCBB. If the trading price of our common stock remains less
              than $5.00
              per share, our common stock is considered a “penny stock,” and trading in our
              common stock is subject to the requirements of Rule 15g-9 under the
              Securities
              Exchange Act of 1934. Under this rule, brokers or dealers who recommend
              low-priced securities to persons other than established customers and
              accredited
              investors must satisfy special sales practice requirements. The broker
              or dealer
              must make an individualized written suitability determination for the
              purchaser
              and receive the purchaser’s written consent prior to the
              transaction.
  SEC
              regulations also require additional disclosure in connection with any
              trades
              involving a penny stock, including the delivery, prior to any penny
              stock
              transaction, of a disclosure schedule explaining the penny stock market
              and its
              associated risks. These requirements could severely limit the liquidity
              of such
              securities in the secondary market because few brokers or dealers are
              likely to
              undertake these compliance activities. In addition to the applicability
              of the
              penny stock rules, another risk associated with trading in penny stocks
              may be
              high price fluctuations. Purchasers of stock may be subject to substantial
              dilution.
  27
  As
              stated
              in “Market Information”, during 2005, upon the Company’s failure to timely file
              its Form 10-KSB for year ended December 31, 2004, the OTCBB appended
              the symbol
“E” to the Company’s trading symbol and notified the Company of its jeopardy of
              having its securities no longer quoted on the OTCBB, pending the Company’s
              filing of its Form 10-KSB for 2004. On June 14, 2005, the Company was
              notified
              of the OTCBB’s action to not allow the Company’s securities to be quoted on the
              OTCBB, as of June 16, 2005, pending the filing of the Company’s Form 10-KSB for
              2004. The 10-KSB for 2004 was filed in September, 2005, however the
              OTCBB has
              not allowed the Company’s stock to return to the Bulletin Board due to the
              non-completion of the Form SB-2 which was filed by the Company in late
              2005. The
              Company has been informed that trading in the Company’s stock will not be
              allowed on the OTC Bulletin Board until the SB-2, previously filed,
              is declared
              effective. The Company has now rescinded the SB-2, as of mid-June,
              2007, in an
              effort to get put back on the Bulletin Board. However, at time of this
              filing,
              the Company’s common shares are only available for trading through the Pink
              Sheets.
  **If
              the ownership of our common stock continues to be highly concentrated,
              it may
              prevent you from influencing significant corporate decisions and may
              result in
              conflicts of interest that could cause our stock price to
              decline.**
  As
              of
              December 31, 2006, our executive officers, directors and their affiliates
              beneficially own or control approximately 8.5% of the outstanding shares
              of our
              common stock (after giving effect to the exercise of all options and
              warrants
              held by them which are exercisable within sixty days of such date).
              Additionally, based upon our stock records, Industrial Enterprises
              of America,
              previously known as Advanced BioChem, is the record owner of approximately 18.5% of the
              outstanding shares of our common stock as of **** December
              31, 2006. Accordingly, our current executive officers, directors and
              their
              affiliates, as well as Advanced BioChem, will have substantial control
              over the
              outcome of corporate actions requiring shareholder approval, including
              the
              election of directors, any merger, consolidation or sale of all or
              substantially
              all of our assets or any other significant corporate transactions.
              These
              shareholders may also delay or prevent a change of control of the Company,
              even
              if such a change of control would benefit our other shareholders. The
              significant concentration of stock ownership may adversely affect the
              trading
              price of our common stock due to investors’ perception that conflicts of
              interest may exist or arise.
  **The
              terms of our convertible debentures have materially modified the rights
              of
              common shareholders, and if we issued preferred stock, any holders
              of such
              preferred stock might be able to delay or prevent a change of control
              of the
              company.**
  We
              are
              authorized to issue up to 50,000,000 shares of preferred stock in one
              or more
              series. Our board of directors will be able to determine the terms
              of preferred
              stock without further action by our shareholders. If we issue preferred
              stock,
              it could affect your rights or reduce the value of your common stock.
              In
              particular, specific rights granted to future holders of preferred
              stock could
              be used to restrict our ability to merge with or sell our assets to
              a third
              party. These terms may include voting rights, preferences as to dividends
              and
              liquidation, conversion and redemption rights, and sinking fund
              provisions.
  Under
              the
              terms of our convertible debentures, we are prohibited from taking
              certain
              actions without the approval of the holders of a two-thirds majority
              of the
              then-outstanding principal amount of the debentures. Specifically,
              we have
              agreed not to, so long as any portion of the debentures are outstanding,
              (1)
              amend its certificate of incorporation, bylaws or other charter documents
              so as
              to adversely affect any rights of the holders of the debentures (with
              exception
              for the Series B preferred stock to be issued by the Company), or (2)
              repurchase
              more than a de minimis number of shares of its common stock or other
              equity
              securities other than as to the shares of common stock issuable upon
              conversion
              of the debentures described above.
  28
  **We
              are contractually obligated to issue shares of a Series B preferred
              stock to our
              two directors and principal officers. The Series B preferred stock
              will have
              special voting rights such that the holders of the Series B preferred
              stock will
              hold a majority of the voting rights of the company.**
  We
              previously entered into employment agreements with two of our directors
              and
              executive officers in whom we agreed to issue 1,500,000 shares of Series
              B
              preferred stock to each officer. The shares were intended to be issued
              following
              the Advanced BioChem transaction; however, we did not file the certificate
              of
              amendment necessary to designate powers and relative rights of the
              Series B
              preferred stock. As a result of certain restrictions agreed to by the
              Company in
              connection with the sale of our convertible debentures, we are not
              permitted to
              issue common shares or common share equivalents such as the Series
              B preferred
              stock until 90 days after the effective date of the registration statement.
              After such restrictions lapse, we intend to designate and issue the
              Series B
              preferred stock. It is contemplated that the Series B preferred stock
              will have
              special voting rights such that the holders of the Series B preferred
              stock will
              hold a majority of the voting rights of the company. Upon issuance
              of the Series
              B preferred stock, our current executive officers and directors may
              restrict our
              ability to merge with, or sell our assets to, a third party.
  **We
              do not anticipate paying dividends on our common stock.**
  We
              do not
              plan to pay dividends on our common stock for the foreseeable future.
              We
              currently intend to retain future earnings, if any, to finance operations,
              capital expenditures and the expansion of our business.
  **Item
              2. Description of Property**
  The
              Company does not own any real estate. The Company conducts its operations
              from
              leased premises of approximately 7,200 square feet in The Woodlands,
              Texas.
  At
              this
              facility the Company maintains its executive offices and conducts development
              and product prototyping activities. The Company expects this space
              will be
              adequate for its needs for the remainder of the lease term.
  **Item
              3. Legal Proceedings**
  In
              November 2004, Chapman Spira & Carson, LLC (“Chapman Spira”), an
              investment banking firm, filed a lawsuit in the Supreme Court of the
              State of
              New York for the County of New York against Advanced BioChem (the Predecessor),
              Power3 and Steven Rash. The suit alleges that Advanced BioChem and
              Power3 are
              liable to Chapman Spira for damages allegedly are resulting from the
              breach of a
              letter agreement between Chapman Spira and Advanced BioChem relating
              to the
              performance of strategic and investment banking services. Chapman Spira
              is
              seeking damages in the amount of $1,522,000 plus interest. The Company
              has filed
              an answer in the lawsuit. On March 1, 2007, the Company received notice
              from its
              attorney that the action described above has been discontinued without
              prejudice
              and without costs to any party.
  29
 
 An
              equipment vendor filed a complaint, regarding equipment which the Company
              acquired in its May 18, 2004 transaction with Advanced BioChem, now
              known as
              Industrial Enterprises of America, and against Advanced BioChem in
              April of 2002
              in a California court alleging breach of contract and seeking damages.
              Advanced
              BioChem reached a settlement agreement in April of 2003 under which
              Advanced
              BioChem would pay the vendor $40,000 in installments through August,
              2003. At
              December 31, 2003, Advanced BioChem had a balance remaining of $20,000.
              In
              April, 2005, the equipment vendor filed a lawsuit against Advanced
              BioChem,
              certain former officers of Advanced BioChem and against Power3 in order
              to
              enforce its claim for the remaining balance which is past due and may
              have been
              assumed by the Company as part of the settlement of the dispute with
              Advanced
              BioChem. Settlement negotiations are ongoing; however no resolution
              has been
              achieved thus far.
  In
              June,
              2005, Charles Caudle et al filed a lawsuit in Harris County, Texas,
              against
              Advanced BioChem, Power3 and the officers and directors of both companies.
              The
              suit alleges that Advanced BioChem, Power3 and the officers and directors
              of
              Power3, are liable to Charles Caudle et al for damages resulting from
              funds
              loaned to Advanced BioChem and which were subsequently converted into
              common
              stock of Advanced BioChem. It is unclear as to the specific dollar
              amount of the
              claim. The Company, and its officers and directors, has filed an answer
              denying
              all claims in the lawsuit. The Company believes that Charles Caudle’s claims are
              without merit with regard to Power3; however the Company cannot be
              assured it
              will prevail or if the outcome of the action will adversely affect
              the Company’s
              financial position or results of operations. Settlement negotiations
              between
              Advanced BioChem and Charles Caudle et al are ongoing and are expected
              to be
              concluded in July, 2007. The Company does not expect to incur any loss
              whatsoever from this action.
  On
              May 19, 2005, Quinn Capital Consulting, Inc. filed suit against Power3
              and Steven B. Rash claiming breach of contract regarding payment for
              services
              claimed to be provided to Power3, with payment to have been made by
              issue of
              500,000 shares to Quinn Capital, which Power3 later cancelled or otherwise
              converted. This financial obligation is recorded in the obligations
              of the
              Company as of December 31, 2006. In February, 2007, the Company and
              Quinn
              Capital reached a settlement agreement in this matter and the Company
              will issue
              500,000 common shares to Quinn Capital and pay $75,000, over time,
              as settlement
              of any and all claims in this matter .
 
 On
              September 12, 2005, Focus Partners LLC filed suit against David Zazoff
              and
              Power3 alleging that Power3 breached its agreement with Focus Partners
              in that
              it failed to issue stock to the Plaintiff according to the terms of
              their
              agreement, that the stock in question was issued to Zazoff and that
              Zazoff later
              sold the stock in question for $480,000. Settlement discussions between
              the
              Power3 and Focus Partners are ongoing; however no resolution has been
              achieved
              thus far. The Company has moved for summary judgment dismissing the
              complaint on
              the grounds that the agreement that forms the basis of this action
              was
              superseded by a subsequent agreement entered into between the parties,
              thereby
              obviating any obligation of Power3 to tender shares pursuant to the
              prior
              agreement. The Company believes that the Plaintiff’s claims are without merit
              and the Company will continue to vigorously defend this action.
 
 On
              February 15, 2006, Bowne of Dallas LP filed suit against Power3 to
              collect a
              debt for services in the amount of $17,315. The debt is recorded in
              accounts
              payable by Power3 as of December 31, 2006. In February, 2007, this
              debt, along
              with an additional $8,000 in fees, was settled and the obligation was
              removed
              from the accounts payable of the Company.
 
 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.
  30
  **Item
              4. Submission of Matters to a Vote of Security Holders**
  There
              were no matters submitted to the vote of the security holders during
              2006.
  **PART
              II**
  **Item
              5. Market for Common Equity and Related Stockholder Matters and Small
              Business
              Issuer Purchases of Equity Securities.**
  **Market
              Information**
  During
              2004, the Company’s common stock was traded on the OTC Bulletin Board under the
              symbol “PWRM.” As of June, 2005, as reported previously, the Company’s common
              stock has been quoted on the Pink Sheets. The high and low bid information
              for
              each quarter for the years ending December 31, 2006 and 2005, as reported
              by
              National Quotation Bureau, Inc., are as follows:
  **Quarter**
                    
                    **Pre
                        or Post Split Price(1)**
                    
                    **High
                        Bid**
                    
                    **Low
                        Bid**First
                        Quarter 2007
                    
                    Post-Split
                    
                    $0.22
                    
                    $0.06Second
                        Quarter 2007
                    
                    Post-Split
                    
                    $0.29
                    
                    $0.13Third
                        Quarter 2007 (2)
                    
                    Post-Split
                    
                    $0.19
                    
                    $0.15First
                        Quarter 2006
                    
                    Post-Split
                    
                    $0.42
                    
                    $0.10Second
                        Quarter 2006
                    
                    Post-Split
                    
                    $0.33
                    
                    $0.14Third
                        Quarter 2006
                    
                    Post-Split
                    
                    $0.16
                    
                    $0.09Fourth
                        Quarter 2006
                    
                    Post-Split
                    
                    $0.13
                    
                    $0.05First
                        Quarter 2005
                    
                    Post-Split
                    
                    $0.89
                    
                    $0.48Second
                        Quarter 2005
                    
                    Post-Split
                    
                    $0.69
                    
                    $0.14Third
                        Quarter 2005
                    
                    Post-Split
                    
                    $0.85
                    
                    $0.14Fourth
                        Quarter 2005
                    
                    Post-Split
                    
                    $0.26
                    
                    $0.10(1)On
                        September 24, 2003, the Company effected a 1-for-50 reverse
                        stock split of
                        its common stock.(2)
                        Prices listed through July 5, 2007
  The
              quotations above reflect inter-dealer prices, without adjustment for
              retail
              mark-up, markdown or commissions and may not reflect actual
              transactions.
  31
  During
              2005, upon the Company’s failure to timely file its Form 10-KSB, the OTCBB
              appended the symbol “E” to the Company’s trading symbol and notified the Company
              of its jeopardy of having its securities no longer quoted on the OTCBB,
              pending
              the Company’s filing of its Form 10-KSB for 2004. On June 14, 2005 the Company
              was notified of the OTCBB’s action to not allow the Company’s securities to be
              quoted on the OTCBB, as of June 16, 2005, pending the filing of the
              Company’s
              Form 10-KSB for 2004. Accordingly, the Company’s securities are no longer
              eligible for quotation on the OTCBB, as of June 16, 2005, all quotations
              of the
              Company’s securities are deleted from the OTCBB and the Company’s common stock
              is currently traded on the Pink Sheets under the symbol PWRM.PK.
  **Holders**
  As
              of December
              31, 2006, there were 1,113 shareholders  of
              record
              of the Company’s common stock.
  **Dividends**
  The
              Company has not paid or declared any dividends on its common stock
              for the last
              two fiscal years and does not anticipate paying cash dividends in the
              foreseeable future. There are no limitations on the ability of the
              Company to
              declare dividends; except those set forth in §
510
              of
              the New
              York Business
              Corporation Laws which
              prohibits dividends if the Company is insolvent or would be made insolvent
              by
              the declaration of a dividend and all dividends must be made out of
              surplus
              only.
  **Item
              6. Management’s Discussion and Analysis or Plan of
              Operation**
  **Overview**
  The
              Company is an early stage development company engaged in the early
              detection,
              monitoring, and targeting of diseases through the analysis of proteins.
              As
              previously stated, the Company’s previous operating assets were abandoned and
              spun off to a trustee for the shareholders of record as of May 17,
              2004, prior
              to the date of the asset purchase transaction on May 18, 2004. Coincident
              with
              the acquisition, the Company significantly changed its business activity
              from
              being an operating company and returned to being a development stage
              company
              with its focus on commercializing the intellectual properties it acquired
              in the
              asset purchase transaction. The Company’s business objective is to focus on
              disease diagnosis, protein and biomarkers identification, and drug
              resistance in
              the areas of cancers, neurodegenerative and neuromuscular diseases.
              The Company
              has established a scientific advisory board to assist in the research
              and
              development of its products. The members of the scientific advisory
              board are
              recognized leaders in their chosen fields, and the Company is working
              with them
              in the development of effective early diagnosis and drug targets for
              early
              treatment of cancers, neurodegenerative and neuromuscular diseases.
  The
              Company has had significant losses during 2005 and 2006. The Company
              anticipates
              that it will continue to incur substantial operating losses in future
              years as
              it progresses in its research and development activities as well as
              the
              commercializing of its technologies. The Company has an immediate need
              for
              capital to continue its current operations. At December 31, 2006, the
              Company
              had an accumulated Stockholder’s deficit of $5,768,920. The following discussion
              should be read in conjunction with the Company’s audited financial statements as
              of December 31, 2006 and for the years ended December 31, 2006 and
              2005,
              including the notes to those financial statements. The following discussion
              contains forward-looking statements that reflect the Company’s plans, estimates
              and beliefs. Actual results could differ materially from those discussed
              in the
              forward-looking statements. See “Item 1. Description of Business - Risk Factors”
for additional discussion of these factors and risks.
  32
  **Results
              of Operations**
  *Year
              Ended December 31, 2006 as Compared to Year Ended December 31,
              2005*
  Revenues
              from operations for the year ended December 31, 2006 were $300,000
              compared to
              $-0- revenues for the year ended December 31, 2005. The Company has
              not incurred
              any Cost of Goods Sold for the years ended December 31, 2006 or December
              31,
              2005.
  Operating
              expenses were $6,905,153 for 2006 as compared to Operating Expenses
              for 2005 as
              $27,765,820 a decrease of $20,860,667. The decrease in operating expenses
              was
              primarily due to a significant reduction in professional and consulting
              fees in
              2006, compared to 2005, impairment of goodwill in 2005 and a reduction
              in
              stock-based compensation during 2006 due to amortizing only the remaining
              portions of the stock compensation issued in 2004.
  Employee
              compensation and benefits were $6,041,029 in 2006 compared to $13,199,790
              in
              2005 primarily as a result of significant vesting of stock awards in
              2005.
  Occupancy
              and equipment expenses were $134,593 in 2006. This resulted primarily
              from the
              Company’s office lease and utilities during 2006, as well as repairs, telephones
              and utilities in 2006.
  Derivative
              gain amounted to $1,194,129 during the year ended December 31, 2006.
              This is a
              substantially lower gain than during 2005 which amounted to $1,556,342.
              For both
              years, the stock price decline created the biggest majority of the
              gain. During
              2006, this was offset by the creation of a number of new Notes Payable,
              which
              were convertible to common stock at a fixed exercise price and which
              included
              warrants. The creation of these notes, with embedded derivatives, and
              the
              creation of a large number of new warrants, offset the gain that would
              otherwise
              have been recognized, during 2006. The Company generally does not use
              derivative
              financial instruments to hedge exposures to cash-flow risks or market-risks
              that
              may affect the fair values of its financial instruments. However, certain
              other
              financial instruments, such as warrants and embedded conversion features
              that
              are indexed to our common stock, are classified as liabilities when
              either (a)
              the holder possesses rights to net-cash settlement or (b) physical
              or net-share
              settlement is not within our control. In such instances, net-cash settlement
              is
              assumed for financial accounting and reporting, even when the terms
              of the
              underlying contracts do not provide for net-cash settlement. Such financial
              instruments are initially recorded at fair value and subsequently adjusted
              to
              fair value at the close of each reporting period. The Company has recorded
              fair
              value adjustments to our derivative financial instruments, which will
              result in
              charges or credits to our income, until we require the ability to settle
              these
              instruments with our common stock.
  Interest
              expense amounted to $1,008,866 and $505,647 for the years ended December
              31,
              2006 and 2005 respectively. Interest expense increased in 2006 due
              to (i)
              increases in our borrowings from new bridge loans and (ii) amortizations
              associated with our discounted debt and deferred financing costs.
 
 The
              above
              matters result in net loss decreasing from $27,134,865 in 2005 to a
              loss of
              $6,415,969 in 2006. The significantly larger net loss in 2005 was primarily
              due
              to impairment of goodwill and stock compensation expense during
              2005.
  **Liquidity
              and Capital Resources**
  Our
              financial statements are presented on a going concern basis, which
              contemplates
              the realization of assets and satisfaction of liabilities in the normal
              course
              of business. We are in the development stage and have primarily been
              involved in
              research and development and capital raising activities; as such we
              have
              incurred significant losses from operations during both 2005 and 2006.
  33
 
 We
              have
              an immediate need for capital to continue our operations, and we will
              need to
              raise significant additional funds to implement our business plan.
              This cash
              will have to come from equity sales and/or borrowings as management
              has
              projected that we will need significant additional capital for development
              and
              other ongoing operational activities before we will have any anticipated
              revenue
              generating products. The actual amount of funds that we will need will
              be
              determined by many factors, some of which are beyond our control. These
              factors
              include:
 
 §
                    The
                        extent to which we enter into licensing arrangements, collaborations
                        or
                        joint ventures;
 §
                    The
                        progress and results of research and product
                        development;
 §
                    The
                        costs and timing of obtaining new patent
                        rights;
 §
                    The
                        extent to which we require or license other technologies;
                        and
 §
                    Regulatory
                        changes and competition and technological developments in
                        the
                        market.
 
 Net
              cash
              used by operating activities was $1,156,147 for the year ended December
              31,
              2006, compared to $1,218,258 for the year ended December 31, 2005.
              Net cash used
              in investing activities during 2006 was -0- as compared to $89,246
              in 2005. Net
              cash provided by financing activities approximated $1,195,350 for the
              year ended
              December 31, 2006, as compared to $1,150,602 for the year ended December
              31,
              2005. The increase in net cash provided by financing activities is
              primarily due
              to new Notes Payable issued by the Company during 2006. In addition,
              cash
              proceeds from the sales of stock increased from -0- for the year ended
              December
              31, 2005 to $225,000 for the year ended December 31, 2006.
  As
              of
              December 31, 2006, the Company’s principal source of liquidity was approximately
              $40,602 in cash. As of the date of filing this report, the Company
              has
              approximately $300,000 on hand to pay operating expenses. We also have
              no
              confirmed source of funds for the next twelve months, although we expect
              that
              after filing this report and an amended SB-2 registration statement,
              additional
              debt and equity capital will become available to the Company.
  Pursuant
              to the financing described below, if the Company were to be successful
              in
              closing the final tranche of the convertible debenture issue, the Company
              would
              receive an additional $1,600,000 upon the sale and issuance of the
              final
              aggregate principal amount of debentures at the final closing of the
              private
              placement, which is to occur on or before the fifth trading day after
              the
              effective date of the registration statement filed by the Company for
              the resale
              of securities by the investors. In addition, the Company has received
              several
              bridge loans and officer advances during 2005 and 2006. It is expected
              that a
              portion of the proceeds received by the Company from the issuance and
              sale of
              the $1,600,000 aggregate principal amount of debentures would be used
              to repay
              certain bridge loans received during 2005 and 2006. As previously described,
              the
              Company has thus far, been unable to complete the funding of the convertible
              debentures, described below in “Recent Financing” due to its failure to obtain
              effectiveness of its SB-2 to register the shares associated with the
              debentures,
              the warrants and additional investment rights covered in the securities
              purchase
              agreements.
  **Convertible
              Debenture Financing**
  The
              Company entered into a securities purchase agreement, dated as of October
              28,
              2004, with certain investors. Pursuant to the securities purchase agreement,
              the
              investors agreed to purchase from the Company convertible debentures
              due three
              (3) years from the date of issuance in the aggregate principal amount
              of
              $3,000,000. Effective January 26, 2005, the Company entered into an
              amendment to
              the securities purchase agreement with a sub-group of the original
              investors.
              This sub-group invested a 2 nd tranche
              of monies, as part of their original commitment. The securities purchase
              agreement, as amended, also provides for the issuance to the investors
              of
              warrants to purchase shares of the Company’s common stock and additional
              investment rights to purchase additional convertible debentures. In
              connection
              with the securities purchase agreement, the Company entered into a
              registration
              rights agreement which requires the Company to file a registration
              statement
              registering on behalf of the investors the resale of the shares of
              common stock
              issuable upon conversion of the debentures and the exercise of the
              warrants. The
              Company will also file a registration statement registering on behalf
              of the
              investors the resale of shares of common stock issued upon exercise
              of the
              additional investment rights previously issued by the Company.
  34
  Effective
              October 28, 2004, the Company issued and sold to the investors the
              first
              $1,000,000 in aggregate principal amount of such debentures at the
              initial
              closing under the securities purchase agreement. Pursuant to the securities
              purchase agreement, as amended, effective January 26, 2005 the Company
              issued
              and sold, as a 2 nd tranche
              of investment, to certain investors $400,000 aggregate principal amount
              of
              convertible debentures. Subject to the Company’s satisfaction of the conditions
              set forth in the securities purchase agreement (which includes the
              effectiveness
              of the registration statement) the investors 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. However, since the filed
              registration statement has not been declared effective, no such final
              investment
              has been required, nor funded by the convertible debenture holders.
  The
              $1,000,000 aggregate principal amount of debentures issued on October
              28, 2004
              and the $400,000 aggregate principal amount of debentures issued January
              26,
              2005 are due and payable in full three (3) years after issuance and
              do not bear
              interest. The $1,600,000 aggregate principal amount of debentures issuable
              at
              the final closing will be due and payable in full three (3) years after
              the date
              of their issuance, and will not bear interest. The aggregate cash purchase
              price
              for the debentures will be $3,000,000, which is equal to the full face
              amount of
              the debentures. At any time from the closing date until the maturity
              date of the
              debentures, the purchasers have the right to convert the debentures,
              in whole or
              in part, into common stock at the then effective conversion price. The
              conversion price for the previously issued $1,400,000 aggregate principal
              amount
              of debentures is $0.90 per share, provided however if the lessor of
              (i) 75% of
              the average of the 5 consecutive Closing Prices immediately prior to
              the
              Effective Date, as defined in the Purchase Agreement, and (ii) the
              Closing Price
              on the Effective Date (the lessor of (i) and (ii) being referred to
              as the
“Effective Date Price”) is less than the Conversion Price, the Conversion Price
              shall be reduced to equal the Effective Date Price, the now designated
              Effective
              Date Price . The
              remaining 3 rd tranche,
              when and if made, of $1,600,000 aggregate principal amount of debentures
              issuable at the final closing will have a conversion price equal to
              the above.
              The debentures contain covenants that will limit the Company’s ability to, among
              other things: incur or guarantee additional indebtedness; incur or
              create liens;
              amend the Company’s certificate of incorporation, bylaws or other charter
              documents so as to adversely affect any rights of the holders of the
              debentures;
              and repay or repurchase more than a de minimis number of shares of
              common stock
              other than as permitted in the debentures and other documents executed
              with the
              purchasers.
  If
              the
              Company, at any time while the debentures are outstanding, shall offer,
              sell or
              grant any option to purchase or offer, sell or grant any right to reprice
              its
              securities, or otherwise dispose of or issue any common stock or common
              stock
              equivalents, entitle any person to acquire shares of common stock at
              an
              effective price per share less than the then effective Conversion Price,
              as
              calculated by the formula described above, then the Conversion Price
              for the
              convertible debenture shares shall be reduced to equal any such new
              effective
              Conversion Price, as defined in the Agreement, regardless of whether
              or not such
              common stock or common stock equivalents are issued to convertible
              debenture
              holders. In case of any such adjustment in the effective Conversion
              Price for
              the convertible debenture shares, this could significantly dilute existing
              investors.
  35
  The
              debentures include default provisions and an event of default includes,
              among
              other things, a change of control of the Company, the sale of all or
              substantially all of the Company’s assets, the failure to have the registration
              statement declared effective on or before the 180th day after the initial
              closing date, and the lapse of the effectiveness of the registration
              statement
              for more than 30 consecutive trading days during any 12-month period
              (with
              certain exceptions), the Company’s failure to timely deliver certificates to
              holders upon conversion and a default by the Company in any obligations
              under
              any indebtedness of at least $150,000 which results in such indebtedness
              being
              accelerated. Upon the occurrence of an event of default, each debenture
              may
              become immediately due and payable, either automatically or by declaration
              of
              the holder of such debenture. The aggregate amount payable upon an
              acceleration
              by reason of an event of default shall be equal to the greater of 130%
              of the
              principal amount of the debentures to be prepaid or the principal amount
              of the
              debentures to be prepaid, divided by the conversion price on the date
              specified
              in the debenture, multiplied by the closing price on the date set forth
              in the
              debenture. Specific provisions exist in the Securities Purchase Agreement
              which
              subject the Company to liabilities for liquidated damages if the registration
              statement covering the shares does not become effective within 180
              days after
              the October 28, 2004 purchase, which they did not, or if the registration
              statement does not remain effective. In addition, if the Company is
              not able to
              deliver said share certificates, upon conversion, the Company becomes
              subject to
              partial liquidated damages, as specified in the Notes to the Financial
              Statements section of this report, based on the number of days required
              to
              deliver said shares.
  Because
              the Company’s investors could be significantly diluted in their ownership
              position, the Company is further bound, by the Securities Purchase
              Agreement
              covering the debentures and the warrants, to not offer, sell or grant
              shares to
              other persons or companies at prices below the effective conversion
              prices
              available to the convertible debenture holders in the Agreements. In
              such case,
              the specific details of the conversion price formulas can be found
              in the Notes
              to the Financial Statements in this report or in the actual Securities
              Purchase
              Agreement documents as previously filed in publicly-filed reports.
  Concurrent
              with the issuance of the initial $1,000,000 aggregate principal amount
              of
              debentures dated October 28, 2004, the purchasers also received warrants
              to
              purchase an aggregate of up to 2,500,000 shares of common stock and
              additional
              investment rights to purchase up to an additional $2,500,000 principal
              amount of
              convertible debentures. On January 26, 2005, an amendment to the Securities
              Purchase Agreement was executed with four of the original purchasers
              of the
              initial $1,000,000 debenture purchase. Pursuant to the terms of the
              amendment,
              concurrent with the issuance of the $400,000 aggregate principal amount
              of
              convertible debentures, the Company issued additional warrants to purchase
              an
              aggregate of up to 333,333 shares of its common stock, but no additional
              investment rights. The warrants are exercisable at a price of $1.44
              per share
              (subject to adjustment), for a period of five (5) years from October
              28, 2004.
              If the Company, at any time the warrants are outstanding, pays a stock
              dividend
              or other distribution on its shares; subdivides outstanding shares
              into a larger
              number of shares; combines outstanding shares into a smaller number
              of shares;
              or issues by reclassification any shares of capital stock of the Company,
              then
              the Exercise Price of the warrants shall be adjusted by a formula based
              on the
              number of common shares then outstanding, and the number of shares
              issuable upon
              exercise of the warrants shall be proportionately adjusted. In addition,
              if the
              Company shall offer, sell, grant any option to purchase or reprice
              its
              securities, or otherwise dispose of or issue any common stock, at an
              effective
              price per share less than the then existing Exercise Price of the warrants,
              then
              the Exercise Price shall be reduced to equal this lower Base Share
              Price, as
              defined in the Securities Purchase Agreement for the warrants.
  The
              additional investment rights are exercisable at a price equal to the
              principal
              amount of the debentures for a period until the earlier of (1) nine
              months
              following the effective date of the registration statement, or (2)
              April 28,
              2006, whichever comes first. The debentures to be purchased upon the
              exercise of
              the additional investment rights will have the same terms as the debentures
              described above, except that the conversion price will be equal to
              $1.08,
              subject to adjustment according to the terms of the Agreement.
  36
  Each
              selling shareholder has contractually agreed to restrict its ability
              to convert
              the debentures, exercise the warrants and additional investment rights
              and
              receive shares of the Company’s common stock such that the number of shares of
              common stock held by them and their affiliates after such conversion
              or exercise
              does not exceed 4.99% of the number of shares of the Company’s common stock
              outstanding immediately after giving effect to such conversion or
              exercise.
  Additional
              terms and specifics of the Convertible Debenture agreements, including
              Events of
              Default and the consequences thereof, are detailed in the Notes to
              the Financial
              Statements.
  Accounting
              for Derivative Instruments
 
 Statement
              of Financial Accounting Standard (“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 the Power 3's structured borrowings, are separately
              valued and accounted for on the Power 3'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.
 
 Plan
              of Operations and Cash Requirements
  The
              Company currently does not have significant operating revenues from
              product
              sales or the performance of services and it continues to experience
              net
              operating losses. The Company is actively pursuing third party licensing
              agreements, collaboration agreements and similar business arrangements
              in order
              to establish a revenue base utilizing its capabilities in disease diagnosis
              based on protein and biomarker identification, and drug resistance
              in the areas
              of cancers, neurodegenerative and neuromuscular diseases. The Company
              has
              undertaken clinical validation studies to demonstrate the diagnostic
              capabilities of its technologies. However, there can be no assurances
              that
              revenue generating agreements will be in place in the next twelve
              months.
  Absent
              a
              source of revenues, the Company will require funding in order to carry
              out its
              business plan until such time as it is able to generate sustained revenues.
              The
              Company’s current cash requirements are approximately $275,000 per month and
              the
              Company anticipates that it will require approximately $3,350,000 for
              the twelve
              months ended March 31, 2008 to continue its development activities,
              undertake
              and perform clinical validation studies, continue its marketing efforts
              and
              maintain its administrative infrastructure, broken down as follows:
  37
  **Expenditures
                        Required During Next Twelve Months**General
                        and Administrative
                    
                    $
                    2,550,000Capital
                        Expenditures
                    
                    $
                    110,000Patent
                        filings and intellectual property
                    
                    $
                    200,000Clinical
                        Validation Studies
                    
                    $
                    340,000Testing
                        for Research Agreements
                    
                    $
                    150,000Total
                    
                    $
                    3,350,000
  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. Management believes that even
              though the
              Company currently has limited cash resources and liquidity, assuming
              exercise of
              the warrants and additional investment rights, the net funds available
              from the
              final closing under the Securities Purchase Agreement financing, after
              repayment
              of the bridge loans, **** will
              allow the Company to continue operations for approximately six months
              from the
              date of receiving the final funding tranche. In the event the final
              closing and
              sale of 1,600,000 in aggregate principal amount of debentures occurs
              but the
              warrants and additional investment rights are not exercised, the Company
              anticipates that it will need to raise additional capital prior to
              June, 2007 to
              meet its operating costs. The Company’s actual results may differ materially
              from these estimates, and no assurance can be given that additional
              funding will
              not be required sooner than anticipated or that such additional funding
              will be
              available when needed or on terms acceptable to the Company. Insufficient
              funding will require the Company to curtail or terminate operations.
  **Off-Balance
              Sheet Arrangements**
  At
              December 31, 2006, with the exception of the lease for its operating
              facility,
              and employment agreements entered with its three principal officers,
              the Company
              did not have any significant off balance sheet commitments.
  **Critical
              Accounting Policies**
  Stock-Based
              Compensation
  Effective
              January 1, 2006, Power3 began recording compensation expense associated
              with
              stock options and other forms of equity compensation is accordance
              with
              Statement of Financial Accounting Standards (“SFAS”) No.123R, Share−Based
              Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. Prior
              to
              January 1, 2006, Power3 had accounted for stock options according to
              the
              provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees,
              and
              related interpretations, and therefore no related compensation expense
              was
              recorded for awards granted with no intrinsic value. Power3 adopted
              the modified
              prospective transition method provided for under SFAS No.123R, and,
              consequently, has not retroactively adjusted results from prior
              periods.
  38
  Power3’s
              stock-based compensation expense consists primarily of amortized costs
              for stock
              issued to consultants, to employees and for warrants, covered by the
              2004 Stock
              Compensation Plan. Total stock-based compensation expense for 2004
              amounted to
              $8,215,241, compared to $12,111,542 in 2005, and $5,096,078, in 2006.
              The
              variance is primarily due to the varying quarterly amortization of
              stock issued
              to employees, which was concluded during 2006. Most of the stock was
              originally
              issued on or about May 18, 2004, and was being amortized over 24 months.
              As no
              more stock-based compensation has been issued, the last of the stock-based
              compensation was fully amortized to deferred compensation expense during
              2006.
  Accounting
              for Derivative Instruments
 
 Statement
              of Financial Accounting Standard (“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 the Power3's structured borrowings, are separately
              valued and accounted for on the 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 would 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
              used 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.
  39
  **7.
              Financial Statements.**
 
  **POWER3
              MEDICAL PRODUCTS, INC.**
 **(A
              development stage company)**
 **FINANCIAL
              STATEMENTS**
 **AS
              OF DECEMBER 31, 2006 AND 2005**
 **FOR
              THE YEARS ENDED DECEMBER 31, 2006 AND 2005**
 PageReport
                          of Independent Registered Public Accounting Firm
                      41Balance
                          Sheet as of December 31, 2006 and 2005 (as restated)
                      42Statements
                          of Operation for the years ended December 31, 2006 and
                          2005 (as
                          restated)
                      43Statements
                          of Stockholders’ Deficit for all periods since Company entered development
                          stage
                      44Statements
                          of Cash Flows for the years ended December 31, 2006 and
                          2005 (as
                          restated)
                      47Notes
                          to Financial Statements
                      49
  40
  ITEM
              7.
              FINANCIAL STATEMENTS
 
 **Report
              of Independent Registered Public Accounting Firm**
 To
              the
              Board of Directors
 Power
              3
              Medical Products, Inc
 (A
              development stage company)
 The
              Woodlands, Texas
 
 We
              have
              audited the accompanying balance sheets of Power 3 Medical Products,
              Inc (the
“Company”) as of December 31, 2006
              and
              2005 and the related statements of operations, shareholders’ deficit, and cash
              flows for the years then ended. These financial statements are the
              responsibility of the Company’s management. Our responsibility is to express an
              opinion on these financial statements based on our audits.
 
 We
              conducted our audits in accordance with standards of the Public Company
              Accounting Oversight Board (United States). Those standards require
              that we plan
              and perform the audits to obtain reasonable assurance about whether
              the
              financial statements are free of material misstatement. An audit includes
              examining, on a test basis, evidence supporting the amounts and disclosures
              in
              the financial statements. An audit also includes assessing the accounting
              principles used and significant estimates made by management, as well
              as
              evaluating the overall financial statement presentation. We believe
              that our
              audits provide a reasonable basis for our opinion.
 
 In
              our
              opinion, the financial statements referred to above present fairly,
              in all
              material respects, the financial position of the Company, as of December
              31,
              2006 and 2005 and the results of its operations and its cash flows
              for the years
              then ended in conformity with accounting principles generally accepted
              in the
              United States of America.
 
 The
              accompanying financial statements have been prepared assuming that
              the Company
              will continue as a going concern. As discussed in Note 3 to the financial
              statements, the Company has suffered recurring losses from operations,
              has
              negative cash flow from operations, and has an accumulated deficit,
              which raises
              substantial doubt about its ability to continue as a going concern.
              Management’s
              plans regarding these matters also are described in Note 3. The financial
              statements do not include any adjustments that might result from the
              outcome of
              this uncertainty.
 
 As
              discussed in Note 16 to the financial statements, errors resulting
              in an
              understatement of expenses, an overstatement of total assets, and an
              understatement of liabilities were discovered by management in 2006.
              Accordingly, adjustments have been made as of December 31, 2005, to
              correct
              these errors.
 
 The
              financial statements for the period May 15, 1992 (inception) through
              December
              31, 2004, were audited by other auditors whose reports expressed unqualified
              opinions on those statements. The financial statements for the period
              May 15,
              1992 (inception) through December 31, 2004, include a total equity
              of
              $10,349,293. Our opinion on the statements of operations, stockholder’s equity
              (deficit) and cash flows for the period May 15, 1992 (inception) through
              December 31, 2004, insofar as it relates to amounts for prior periods
              through
              December 31, 2004, is based solely on the report of other auditors.
 
 /s/
              Malone & Bailey, PC
 Malone
              & Bailey, PC
 www.malone−bailey.com
 Houston,
              Texas
 July
              9,
              2007
  41
  **POWER3
                        MEDICAL PRODUCTS, INC.****(A
                        Development Stage Enterprise)****BALANCE
                        SHEETS****AS
                        OF DECEMBER 31, 2006 AND 2005****2006**
                    
                    **2005****ASSETS**
                    
                    
                    
                    (as
                        restated)**CURRENT
                        ASSETS**Cash
                        and cash equivalents
                    
                    $
                    40,602
                    
                    $
                    1,399Prepaid
                        expenses and other current assets
                    
                    
                    
                    
                    
                    6,846Total
                        current assets
                    
                    
                    40,602
                    
                    
                    8,245**OTHER
                        ASSETS**Deferred
                        finance costs, net
                    
                    
                    253,336
                    
                    
                    290,027Patents
                    
                    
                    179,786
                    
                    
                    179,786Furniture,
                        fixtures and equipment, net
                    
                    
                    16,374
                    
                    
                    70,751Deposits
                    
                    
                    5,900
                    
                    
                    900**TOTAL
                        ASSETS**
                    
                    $
                    495,998
                    
                    $
                    549,709**LIABILITIES
                        AND STOCKHOLDER'S DEFICIT****CURRENT
                        LIABILITIES**Accounts
                        payable
                    
                    $
                    899,177
                    
                    $
                    983,231Notes
                        payable—in default, net of amortization
                    
                    
                    777,822
                    
                    
                    1,093,739Notes
                        payable-related parties
                    
                    
                    1,428,346
                    
                    
                    192,000Convertible
                        debentures—in default
                    
                    
                    360,417
                    
                    
                    75,279Other
                        current liabilities
                    
                    
                    1,517,808
                    
                    
                    961,011Derivative
                        liabilities
                    
                    
                    1,281,348
                    
                    
                    1,918,478Total
                        current liabilities
                    
                    
                    6,264,918
                    
                    
                    5,223,738**STOCKHOLDERS’
                        DEFICIT**Preferred
                        Stock - $0.001 par value 50,000,000 shares ofpreferred
                        stock authorized 0 shares issued and outstanding.
                    
                    
                    -
                    
                    
                    -Common
                        Stock-$0.001 par value:150,000,000 shares authorized;71,370,955
                        and 65,215,121 shares issued and outstandingrespectively.
                    
                    
                    71,370
                    
                    
                    65,215Additional
                        paid-in capital
                    
                    
                    58,009,358
                    
                    
                    57,773,506Deferred
                        compensation
                    
                    
                    -
                    
                    
                    (5,079,071
                    )Loss
                        accumulated before entering development stage
                    
                    
                    (11,681,500
                    )
                    
                    (11,681,500
                    )Loss
                        accumulated during the development stage
                    
                    
                    (52,168,148
                    )
                    
                    (45,752,179
                    )Total
                        stockholders’ deficit
                    
                    
                    (5,768,920
                    )
                    
                    (4,674,029
                    )**TOTAL
                        LIABILITIES AND STOCKHOLDERS’ DEFICIT**
                    
                    $
                    495,998
                    
                    $
                    549,709
 
 See
              accompanying notes to the financial statements.
  42
 
 **POWER3
                        MEDICAL PRODUCTS, INC.****(A
                        Development Stage Enterprise)****STATEMENTS
                        OF OPERATIONS****YEARS
                        ENDED DECEMBER 31, 2006 AND 2005**
                      **and
                        period from May 18, 2004 (inception) through December 31,
                        2006****2006**
                    
                    **2005**
                    
                    **Period
                        from**
                      **May
                        18, 2004**
                      **December
                        31, 2006****REVENUES**:
                    
                    
                    
                    
                    
                    (as
                        restated)Sales
                    
                    $
                    300,000
                    
                    $
                    -
                    
                    $
                    304,000Other
                        revenueTotal
                        revenue
                    
                    $
                    300,000
                    
                    $
                    -
                    
                    $
                    304,000**OPERATING
                        EXPENSES**:Employee
                        compensation and benefits
                    
                    
                    6,041,029
                    
                    
                    13,199,790
                    
                    
                    28,332,495Professional
                        and consulting fees
                    
                    
                    562,764
                    
                    
                    590,132
                    
                    
                    8,617,576Impairment
                        of Goodwill
                    
                    
                    
                    
                    
                    13,371,776
                    
                    
                    13,371,776Occupancy
                        and equipment
                    
                    
                    134,593
                    
                    
                    173,133
                    
                    
                    390,324Travel
                        and entertainment
                    
                    
                    72,872
                    
                    
                    89,490
                    
                    
                    228,497Write
                        off lease
                    
                    
                    34,243
                    
                    
                    
                    
                    
                    34,243Other
                        selling, general and administrative expenses
                    
                    
                    59,652
                    
                    
                    341,499
                    
                    
                    287,923Total
                        operating expenses
                    
                    $
                    6,905,153
                    
                    $
                    27,765,820
                    
                    $
                    51,262,834**LOSS
                        FROM OPERATIONS**
                    
                    $
                    (6,605,153
                    )
                    $
                    (27,765,820
                    )
                    $
                    (50,958,834
                    )**OTHER
                        INCOME AND (EXPENSE)**:Derivative
                        gain
                    
                    $
                    1,194,129
                    
                    $
                    1,556,342
                    
                    
                    4,320,819Interest
                        income
                    
                    
                    792
                    
                    
                    260
                    
                    
                    2,266Mandatory
                        prepayment penalty
                    
                    
                    
                    
                    
                    (420,000
                    )
                    
                    (420,000
                    )Other
                        income(expense)
                    
                    
                    3,129
                    
                    
                    
                    
                    
                    (196,176
                    )Interest
                        expense
                    
                    
                    (1,008,866
                    )
                    
                    (505,647
                    )
                    
                    (1,535,250
                    )Total
                        other income(expense)
                    
                    
                    189,184
                    
                    
                    630,955
                    
                    
                    2,171,659**NET
                        LOSS**
                    
                    $
                    (6,415,969
                    )
                    $
                    (27,134,865
                    )
                    $
                    (48,787,175
                    )**NET
                        LOSS PER SHARE BASIC AND DILLUTED**
                    
                    $
                    (0.09
                    )
                    $
                    (0.41
                    )
                    
                    (0.70
                    )Weighted
                        average number of shares outstanding
                    
                    
                    71,207,912
                    
                    
                    65,428,847
                    
                    
                    69,831,648
 
 See
              accompanying notes to the financial statements.
  43
  **POWER3
                        MEDICAL PRODUCTS, INC.****(
                        A Development Stage Enterprise)****STATEMENT
                        OF STOCKHOLDERS' EQUITY (DEFICIT)****Years
                        Ended December 31, 2006 and 2005****and
                        2004 from inception**
  **Additional**
                    
                    
                    **Deferred****Common
                        Stock**
                    
                    
                    **Preferred**
                    
                    
                    **Stock**
                    
                    
                    **Paid
                        In**
                    
                    
                    **Compensation**
                    
                    
                    **Retained****Shares**
                    
                    
                    **Par
                        Value**
                    
                    
                    **Shares**
                    
                    
                    **Par
                        Value**
                    
                    
                    **Capital**
                    
                    
                    **Expense**
                    
                    
                    **Earnings**
                    
                    
                    **Equity****Beginning
                        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
                    )Issues
                        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
  44
  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
                    )
                    
                    2,540Stock
                        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)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (15,056,339
                    )
                    
                    (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 7/01/04 (returned from employee)
                    
                    
                    (140,000
                    )
                    
                    (140
                    )
                    
                    
                    
                    
                    
                    
                    
                    (426,860
                    )
                    
                    
                    
                    
                    
                    
                    
                    (427,000
                    )Issued
                        Shares on 9/14/05 for compensation
                    
                    
                    140,000
                    
                    
                    140
                    
                    
                    
                    
                    
                    
                    
                    
                    41,860
                    
                    
                    
                    
                    
                    
                    
                    
                    42,000Issued
                        Shares on 10/31/05 for services
                    
                    
                    300,000
                    
                    
                    300
                    
                    
                    
                    
                    
                    
                    
                    
                    65,700
                    
                    
                    
                    
                    
                    
                    
                    
                    66,000Issued
                        Shares on 11/11/05 for services
                    
                    
                    250,000
                    
                    
                    250
                    
                    
                    
                    
                    
                    
                    
                    
                    44,750
                    
                    
                    
                    
                    
                    
                    
                    
                    45,000Issued
                        Shares on 12/06/05 for services
                    
                    
                    300,000
                    
                    
                    300
                    
                    
                    
                    
                    
                    
                    
                    
                    44,700
                    
                    
                    
                    
                    
                    
                    
                    
                    45,000Cancelled
                        Shares on 12/31/05 (returned from employee)
                    
                    
                    (975,000
                    )
                    
                    (975
                    )
                    
                    
                    
                    
                    
                    
                    
                    (876,500
                    )
                    
                    
                    
                    
                    
                    
                    
                    (877,475
                    )Cancelled
                        Shares on 12/31/05 (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
                    )Issued
                        Shares on 1/06/06 for services
                    
                    
                    50,000
                    
                    
                    50
                    
                    
                    
                    
                    
                    
                    
                    
                    5700
                    
                    
                    
                    
                    
                    
                    
                    
                    5,750Issued
                        Shares on 1/06/06 for cash
                    
                    
                    500000
                    
                    
                    500
                    
                    
                    
                    
                    
                    
                    
                    
                    57000
                    
                    
                    
                    
                    
                    
                    
                    
                    57,500Issued
                        Shares on 1/13/06 for services
                    
                    
                    220,000
                    
                    
                    220
                    
                    
                    
                    
                    
                    
                    
                    
                    28,380
                    
                    
                    
                    
                    
                    
                    
                    
                    28,600Issued
                        Shares on 1/27/06 for compensation
                    
                    
                    451,677
                    
                    
                    452
                    
                    
                    
                    
                    
                    
                    
                    
                    49,233
                    
                    
                    
                    
                    
                    
                    
                    
                    49,685Issued
                        Shares on 2/03/06 for compensation
                    
                    
                    413,234
                    
                    
                    413
                    
                    
                    
                    
                    
                    
                    
                    
                    40,910
                    
                    
                    
                    
                    
                    
                    
                    
                    41,323
  45
  Issued
                        Shares on 2/03/06 for cash
                    
                    
                    1,114,286
                    
                    
                    1,114
                    
                    
                    
                    
                    
                    
                    
                    
                    81,386
                    
                    
                    
                    
                    
                    
                    
                    
                    82,500Issued
                        Shares on 2/03/06 for services
                    
                    
                    297,843
                    
                    
                    297
                    
                    
                    
                    
                    
                    
                    
                    
                    29,488
                    
                    
                    
                    
                    
                    
                    
                    
                    29,785Issued
                        Shares on 2/14/06 for compensation
                    
                    
                    201,539
                    
                    
                    202
                    
                    
                    
                    
                    
                    
                    
                    
                    38,091
                    
                    
                    
                    
                    
                    
                    
                    
                    38,293Issued
                        Shares on 2/22/06 for services
                    
                    
                    150,000
                    
                    
                    150
                    
                    
                    
                    
                    
                    
                    
                    
                    34,350
                    
                    
                    
                    
                    
                    
                    
                    
                    34,500Issued
                        Shares on 3/08/06 for cash
                    
                    
                    400,000
                    
                    
                    400
                    
                    
                    
                    
                    
                    
                    
                    
                    39,600
                    
                    
                    
                    
                    
                    
                    
                    
                    40,000Issued
                        Shares on 3/09/06 for cash
                    
                    
                    400,000
                    
                    
                    400
                    
                    
                    
                    
                    
                    
                    
                    
                    39,600
                    
                    
                    
                    
                    
                    
                    
                    
                    40,000Issued
                        Shares on 3/23/06 for services
                    
                    
                    300,000
                    
                    
                    300
                    
                    
                    
                    
                    
                    
                    
                    
                    80,700
                    
                    
                    
                    
                    
                    
                    
                    
                    81,000Issued
                        Shares on 3/24/06 for compensation
                    
                    
                    186,648
                    
                    
                    187
                    
                    
                    
                    
                    
                    
                    
                    
                    48,529
                    
                    
                    
                    
                    
                    
                    
                    
                    48,716Issued
                        Shares on 5/09/06 for services
                    
                    
                    60,000
                    
                    
                    60
                    
                    
                    
                    
                    
                    
                    
                    
                    9,240
                    
                    
                    
                    
                    
                    
                    
                    
                    9,300Issued
                        Shares on 5/25/06 for services
                    
                    
                    172,147
                    
                    
                    172
                    
                    
                    
                    
                    
                    
                    
                    
                    22,207
                    
                    
                    
                    
                    
                    
                    
                    
                    22,379Issued
                        Shares on 6/08/06 for cash
                    
                    
                    38,460
                    
                    
                    38
                    
                    
                    
                    
                    
                    
                    
                    
                    4,962
                    
                    
                    
                    
                    
                    
                    
                    
                    5,000Issued
                        Shares on 6/16/06 for services
                    
                    
                    300,000
                    
                    
                    300
                    
                    
                    
                    
                    
                    
                    
                    
                    32,700
                    
                    
                    
                    
                    
                    
                    
                    
                    33,000Issued
                        Shares on 9/15/06 for services
                    
                    
                    400,000
                    
                    
                    400
                    
                    
                    
                    
                    
                    
                    
                    
                    39,600
                    
                    
                    
                    
                    
                    
                    
                    
                    40,000Issue
                        Shares on 10/31/06 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**
                    **)**
  46
 
 **POWER3
                        MEDICAL PRODUCTS, INC.****(A
                        Development Stage Enterprise)****STATEMENTS
                        OF CASH FLOWS****YEARS
                        ENDED DECEMBER 31, 2006 AND 2005**
                      **and
                        the period from May 18, 2004 (inception) through December
                        31,
                        2006**
  **2006**
                      
                      **2005**
                      
                      **May
                          18, 2004 to December 31, 2006**(as
                          restated)Operating
                          activities:Net
                          loss
                      
                      $
                      (6,415,969
                      )
                      $
                      (27,134,865
                      )
                      $
                      (48,787,175
                      )Adjustments
                          to reconcile net loss to net cash used inoperating
                          activities:Impairment
                          of Goodwill
                      
                      
                      -
                      
                      
                      13,371,776
                      
                      
                      13,371,776Loss
                          on previously capitalized lease
                      
                      
                      34,243
                      
                      
                      -
                      
                      
                      34,243Amortization
                          of deferred finance cost and debt discounts
                      
                      
                      271,908
                      
                      
                      125,818
                      
                      
                      414,454Change
                          in derivative liability, net of bifurcation
                      
                      
                      (637,129
                      )
                      
                      (959,442
                      )
                      
                      (3,166,919
                      )Stock
                          based compensation
                      
                      
                      5,096,078
                      
                      
                      12,111,542
                      
                      
                      32,367,345Depreciation expense
                      
                      
                      20,134
                      
                      
                      20,159
                      
                      
                      85,316Other
                          non cash items
                      
                      
                      
                      
                      
                      
                      
                      
                      (34,933
                      )Changes
                          in operating assets and liabilities:Accounts
                          Receivable
                      
                      
                      -
                      
                      
                      2,350
                      
                      
                      -Prepaid
                          expenses and other current assets
                      
                      
                      1,844
                      
                      
                      (2,492
                      )
                      
                      208,782Accounts
                          Payable and other liabilities
                      
                      
                      472,743
                      
                      
                      1,246,896
                      
                      
                      2,206,026Net
                          cash used in operating activities
                      
                      
                      (1,156,147
                      )
                      
                      (1,218,258
                      
                      
                      (3,301,085
                      )Investing
                          Activities:Capital
                          expenditures, net
                      
                      
                      -
                      
                      
                      (5,883
                      )
                      
                      (135,933
                      )Increase
                          in other assets.
                      
                      
                      -
                      
                      
                      (83,363
                      )
                      
                      (179,786
                      )Net
                          cash used in investing activities
                      
                      
                      -
                      
                      
                      (89,246
                      )
                      
                      (315,719
                      )Financing
                          Activities:Proceeds
                          from borrowings under notes payable, net
                      
                      
                      970,350
                      
                      
                      1,183,080
                      
                      
                      2,153,430Proceeds
                          from sale of common stock
                      
                      
                      225,000
                      
                      
                      -
                      
                      
                      674,817Principal
                          payments on long term debt
                      
                      
                      -
                      
                      
                      (32,478
                      )
                      
                      (32,478
                      )Proceeds
                          from CD, warrants and rights net of issuance cost
                      
                      
                      -
                      
                      
                      -
                      
                      
                      859,041Net
                          cash provided by financing activities
                      
                      
                      1,195,350
                      
                      
                      1,150,602
                      
                      
                      3,654,810Net
                          change in cash and cash equivalents
                      
                      
                      39,203
                      
                      
                      (156,902
                      )
                      
                      38,006Cash
                          and cash equivalents, beginning of period
                      
                      
                      1,399
                      
                      
                      158,301
                      
                      
                      2,596Cash
                          and cash equivalents, end of period
                      
                      $
                      40,602
                      
                      $
                      1,399
                      
                      $
                      40,602
 47
  **POWER3
                        MEDICAL PRODUCTS, INC.****(A
                        Development Stage Enterprise)****STATEMENT
                        OF CASH FLOWS****YEARS
                        ENDED DECEMBER 31, 2006 AND 2005**
                      **and
                        the period from May 18, 2004 (inception) through December
                        31,
                        2006**
 
 **2006**
                    
                    **2005**
                    
                    **Period
                        from May 18, 2004 to December 31, 2006**(as
                        restated)Cash
                        paid for:Interest
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    59,840Income
                        taxes
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Non-cash
                        transactions:Restatement
                        of notes payable to N/P to related parties
                    
                    $
                    1,201,346
                    
                    $
                    192,000
                    
                    $
                    1,393.346Stock
                        Issued for Settlement of Payables
                    
                    
                    
                    
                    
                    6,697
                    
                    
                    6,697Exchange
                        of convertible preferred stock for common stock 3,000,324
                        shares
                    
                    
                    
                    
                    
                    
                    
                    
                    3,380,975
 
 See
              accompanying notes to the financial statements.
  48
 
 **POWER3
              MEDICAL PRODUCTS, INC**
 **(A
              Development Stage Enterprise)**
 **NOTES
              TO FINANCIAL STATEMENTS**
 
 ***Note
              1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF
              PRESENTATION***
 
 Power3
              Medical Products, Inc. (the “Company” or “Power3”) was incorporated in the State
              of Florida on May 15, 1992 and merged into a New York Corporation in
              1994, under
              the name Sheffield Acres, Inc. Power3 and its wholly owned subsidiaries,
              C5
              Health, Inc. (C5), which was officially dissolved in the State of Delaware
              and
              the State of Florida effective December 31, 2003 and Power3 Medical,
              Inc., a
              Nevada Corporation ,
              now
              known as Tenthgate, Inc., were engaged in product development, sales,
              distribution and services for the healthcare industry. On September
              12, 2003,
              Surgical Safety Products, Inc. amended its Certificate of Incorporation
              to (a)
              declare a 1:50 reverse split of its common stock; (b) increase its
              authorized
              capital to 150,000,000 shares of common stock and 50,000,000 shares
              of preferred
              stock; and (c) change its name to Power3 Medical Products, Inc. All
              references
              to the number of shares in the accompanying financial statements and
              notes
              thereto have been adjusted to reflect the stock split as if it occurred
              on
              January 1, 2004.
  Prior
              to
              May 17, 2004, the Company had one direct subsidiary, Tenthgate, Inc.
              (“Tenthgate”), a Nevada corporation formerly known as Power3 Medical, Inc. Prior
              to this date, Tenthgate was accounted for, by Power3, as a wholly-owned
              subsidiary, operating as a “development stage company”, under the cost method.
              As part of the transaction which involved the acquisition of substantially
              all
              the assets and certain liabilities from Advanced BioChem, now known
              as
              Industrial Enterprises of America, it was agreed that Power3 would
              distribute
              the shares of its subsidiary, Tenthgate, to its then existing shareholders
              . To
              fulfill this obligation, the shares of Tenthgate were transferred to
              a trustee
              for distribution to the shareholders of Power3 as of May 17, 2004.
              Tenthgate was
              spun off because the management of Power3, in place prior to May 17,
              2004,
              desired to continue to own and eventually operate this subsidiary.
              At the time
              of the spin-off, Tenthgate was granted the rights to market a product
              line that
              had previously been marketed by Power3, but which the company had decided
              to
              abandon. Tenthgate had not been an operating company, and their management
              has
              apparently abandoned any plans to market the product as evidenced by
              their SEC
              filings, specifically their amended 10-QSB filed for the quarterly
              period ending
              January 31, 2005, wherein they specifically state that they are a “development
              stage company.” The prior operations of the company, which are reflected in the
              Company’s previous financial statements ,
              prior
              to May 18, 2004, i.e. occurring prior to reentering the development
              stage, were
              the operations the Company had decided to abandon and which were transferred
              to
              the prior shareholders under the control of prior management. Any activities
              since May 17, 2004, are not consolidated with Power3 because Power3
              does not now
              own or control the operations or activities of Tenthgate, nor are their
              activities associated with Power3 in any manner whatsoever.
  In
              2003,
              Power3 was an operating company, marketing devices to aid surgical
              procedures.
              Prior to May 18, 2004, the products had received only minor market
              acceptance
              and sales had slowed to the point that Power3 was searching for other
              products
              and markets to increase its presence in the healthcare industry. In
              early 2004,
              Power3 became aware of a biotech company that appeared to have a set
              of assets
              and intellectual properties that it required to more effectively pursue
              its
              business model. That company, named Advanced BioChem, doing business
              as ProteEx,
              provided contract-for-fee lab services analyzing protein biomarkers.
              At the
              conclusion of negotiations with Advanced BioChem, Power3 entered into
              an Asset
              Purchase Agreement dated May 18, 2004, whereby it purchased substantially
              all
              the assets and intellectual properties of Advanced BioChem, and assumed
              certain
              liabilities, as scheduled in the agreement, from Advanced BioChem.
              After the
              transaction, certain employees from Advanced BioChem became employees
              of Power3
              and were later issued employment agreements by Power3. As consideration
              in the
              Asset Purchase Agreement, Power3 issued 15,000,000 shares of common
              stock to
              Advanced BioChem.
  49
  Power3
              Medical Products, Inc. did not continue the business activity of Advanced
              BioChem and never conducted any contract-for-fee lab service work.
              Subsequent to
              the asset purchase, the business model of Power3 was significantly
              changed, the
              Company entered into the development stage and began to commercialize
              the
              intellectual property it acquired in the transaction, with its focus
              in the
              early detection, monitoring and targeting of diseases through the analysis
              of
              proteins. Power3’s new developmental stage objective, and activity, is to
              develop its intellectual properties by focusing on disease diagnosis,
              protein
              and biomarker identification and early detection indicators in the
              areas of
              cancers, neurodegenerative and neuromuscular diseases, as well as other
              scientific areas of interest associated with protein biomarkers.
  Coincident
              with the asset purchase transaction on May 18, 2004, the previous management
              of
              Power3 resigned and left the employ of the Company. Immediately thereafter,
              two
              employees of Advanced BioChem were granted employment agreements by
              Power3.
              These two employees were Steven B. Rash as President and CEO and Dr.
              Ira
              Goldknopf as Chief Scientific Officer.
 
 ***Note
              2.*** **** ***SUMMARY
              OF SIGNIFICANT ACCOUNTING POLICIES***
 
 Fair
              Value of Financial Instruments
 
 SFAS
              107, *"Disclosures
              About Fair Value of Financial Instruments,"* requires
              disclosure of fair value information about financial instruments when
              it is
              practicable to estimate that value. The carrying amount of Power3’s cash,
              accounts payables, and accrued expenses approximates their estimated
              fair values
              due to the short term maturities of those financial instruments. The
              fair value
              of related party transactions is not determinable due to their related
              party
              nature.
 
 Credit
              Risk
 
 Power3
              does not require collateral from its customers with respect to accounts
              receivable but performs periodic credit evaluations of such customer's
              financial
              conditions. Power3 determines any required allowance by considering
              a number of
              factors including lengths of time accounts receivable are past due
              and Power3's
              previous loss history. Power3 provides reserves for accounts receivable
              when
              they become uncollectible, and payments subsequently received on such
              receivables are credited to the allowance for doubtful accounts.
 
 Power3’s
              cash may exceed FDIC protection levels at different points throughout
              the year;
              management believes the risk associated with this possible exposure
              is minimal.
              Power3 was within FDIC protection limits at December 31, 2006 and 2005,
              respectively.
 
 Use
              of
              Estimates
 
 The
              preparation of financial statements in conformity with accounting principles
              generally accepted in the United States requires management to make
              estimates
              and assumptions that affect the reported amounts of assets, liabilities,
              revenues and expenses, as well as certain financial statement disclosures.
              While
              management believes that the estimates and assumptions used in the
              preparation
              of the financial statements are appropriate, actual results could differ
              from
              these estimates.
 
 Furniture,
              Fixtures and Lab Equipment
 
 Furniture,
              fixtures and lab equipment are stated at cost. Major additions are
              capitalized,
              while minor additions and maintenance and repairs, which do not extend
              the
              useful life of an asset, are expensed as incurred. Depreciation and
              amortization
              are accounted for using the straight-line method over the assets’ estimated
              useful lives. At December 31, 2006, certain lab equipment having a
              net book
              value of approximately $16,374 serves as security for certain liabilities.
  50
 
 The
              Company has not sold or traded in any equipment thus far, however it
              did incur a
              loss of approximately $34,000 to terminate a lease on a piece of equipment
              acquired in its May 18, 2004 transaction with Advanced BioChem which
              was
              erroneously capitalized.
 
 Debt
              Discounts and Deferred Finance Costs
 
 Debt
              discounts and deferred finance costs are being amortized through periodic
              charges to interest expense over the maximum term of the related financial
              instrument using the effective interest method. Total amortization
              of debt
              discounts and deferred financing costs amounted to $271,908 and $125,818
              during
              the years ended December 31, 2006 and 2005, respectively.
 
 Patents
 
 Cost
              incurred for patent applications are capitalized and will be expensed
              over the
              life of the patent upon approval of the patent. If patent applications
              are
              unsuccessful, cost associated with these patents is expensed immediately.
 
 Long-Lived
              Assets
 
 Statement
              of Financial Accounting Standards (SFAS) 144, "Accounting for the Impairment
              or
              Disposal of Long-Lived Assets” requires that long-lived assets, including
              certain identifiable intangibles, be reviewed for impairment whenever
              events or
              changes in circumstances indicate that the carrying value of the assets
              in
              question may not be recoverable. Management believes that the remaining
              balances
              of the Company’s long-lived assets are recoverable.
 
 Statement
              of Financial Accounting Standards (SFAS) 142 “Accounting for Intangible Assets”
provides that goodwill is not subject to periodic amortization, but
              is evaluated
              at least annually for impairments. The goodwill acquired by the Company
              at the
              time of the May 18, 2004 transaction was evaluated as of December 31,
              2005. It
              was determined that due to the lack of cash flows projected for the
              Company over
              the 5 years beginning in January 1, 2006, along with the lack of existing
              customers and lack of any orders or expected revenues, that the Company’s 5 year
              discounted cash flows needed to be determined. This analysis resulted
              in
              management’s decision to impair the goodwill completely, as of December 31,
              2005, the goodwill of the Company had been impaired and the Company’s goodwill
              was therefore eliminated from the Balance Sheet of the Company as of
              December
              31, 2005 resulting in goodwill impairment losses of $13,371,776 during
              the year
              ended December 31, 2005.
 
 Accounting
              for Derivative Instruments
 
 Statement
              of Financial Accounting Standard (“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 the Power3's structured borrowings, are separately
              valued and accounted for on the 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.
  51
 
 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 would 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
              used the Black−Scholes pricing model to determine the fair values of its
              warrants. The model uses market sourced inputs such as interest rates,
              stock
              prices, and option volatilities, the selection of which requires management's
              judgment, and which may impact net income or loss. In particular, Power3
              uses
              volatility rates based upon the closing stock price of Power3’s common stock.
              Power3 uses a risk free interest rate which is the U. S.Treasury bill
              rate for a
              security with a maturity that approximates the estimated expected life
              of the
              derivative or security.
 
 Net
              Loss Per Share
 
 Basic
              and
              diluted net loss per share calculations are calculated on the basis
              of the
              weighted average number of common shares outstanding during the year.
              The per
              share amounts include the dilutive effect of common stock equivalents
              in years
              with net income. Power3 had losses in 2006 and 2005. Basic and diluted
              loss per
              share is the same as the effect of our potential common stock equivalents
              would
              be anti dilutive.
 
 Reclassification
 
 Certain
              amounts in the financial statements of the prior year have been reclassified
              to
              conform to the presentation of the current year for comparative
              purposes.
 
 Stock
              Based Compensation
 
 Effective
              January 1, 2006, Power3 began recording compensation expense associated
              with
              stock options and
              other
              forms of equity compensation are accordance with Statement of Financial
              Accounting Standards (“SFAS”) No.123R, *Share−Based
              Payment* ,
              as
              interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January
              1, 2006,
              Power3 had accounted for stock options according to the provisions
              of APB
              Opinion No. 25, *Accounting
              for Stock Issued to Employees* ,
              and
              related interpretations, and therefore no related compensation expense
              was
              recorded for awards granted with no intrinsic value. Power3 adopted
              the modified
              prospective transition method provided for under SFAS No.123R, and,
              consequently, has not retroactively adjusted results from prior
              periods.
 
 Stock
              issued to employees is recorded at the fair value of the shares granted
              based
              upon the closing market price of Power3’s stock at the measurement date and
              recognized as compensation expenses over the applicable requisite service
              period. Warrants granted to non-employees are recorded at the estimated
              fair
              value of the options granted using the Black Scholes pricing model
              and
              recognized as general and administrative expense over the applicable
              requisite
              service period.
  52
 
 As
              of
              December 31, 2006, the Company has not granted options to employees.
              All stock
              compensation has been in the form of restricted stock and as a result,
              the
              adoption of SFAS No. 123R would not have changed our previously reported
              2005
              financial statements.
 
 Income
              Taxes
 
 Power3
              utilizes the asset and liability method in accounting for income taxes.
              Under
              this method, deferred tax assets and liabilities are recognized for
              operating
              loss and tax credit carry forwards and for the future tax consequences
              attributable to differences between the financial statement carrying
              amounts of
              existing assets and liabilities and their respective tax bases. Deferred
              tax
              assets and liabilities are measured using enacted tax rates expected
              to apply to
              taxable income in the year in which those temporary differences are
              expected to
              be recovered or settled. The effect on deferred tax assets and liabilities
              of a
              change in tax rates is recognized in the results of operations in the
              period
              that includes the enactment date. A valuation allowance is recorded
              to reduce
              the carrying amounts of deferred tax assets unless it is more likely
              than not
              that the value of such assets will be realized.
 
 Research
              and Development
 
 Research
              and development costs, which approximated $40,867 and $501,245 for
              the years
              ended December 31, 2006 and 2005, respectively, are expensed as incurred.
 
 Cash
              Equivalents
 
 For
              purposes of the statements of cash flows, Power3 considers all highly
              liquid
              debt instruments purchased with an original maturity of 90 days or
              less to be
              cash equivalents.
 
 Revenue
              Recognition
 
 Power3’s
              revenue recognition policy is consistent with the criteria set forth
              in Staff
              Accounting Bulletin 104-Revenue Recognition in Financial Statements
              (SAB 104)
              for determining when revenue is realized or realizable and earned.
              In accordance
              with the requirements of SAB 104 the Company recognizes revenue when
              (1)
              persuasive evidence of an arrangement exists; (2) delivery has occurred;
              (3) the
              seller’s price is fixed or determinable; and (4) collectibility is reasonably
              assured.
 
 Recently
              Issued Accounting Pronouncements
 
 Power3
              does not expect the adoption of recently issued accounting pronouncements
              to
              have a significant impact on its results of operations, financial position
              or
              cash flow.
 
 Restatements
 
 The
              2005
              financial results have been restated. See note 12 for details.
 
 Impairment
              of Goodwill
 
 During
              the audit of the financial statements and activities of the year ended
              December
              31, 2005, management determined that the Company did not have sufficient
              projected 5 year discounted cash flows to justify the existence of
              goodwill on
              its balance sheet as of December 31, 2005. Therefore, the goodwill
              of the
              Company as of December 31, 2005, was impaired completely as of that
              date, and
              was removed from the balance sheet of the Company as of December 31,
              2005.
  53
 
 ***Note
              3.*** **** ***GOING
              CONCERN*** ****
 
 As
              shown
              in the accompanying financial statements, Power3 incurred net losses
              chargeable
              to common shareholders of $6,415,969 and $27,134,865 in fiscal 2006
              and 2005,
              respectively, and has an accumulated deficit of $5,768,920 as of December
              31,
              2006. 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 did not include
              any
              adjustment that might be necessary if Power 3 is unable to continue
              as a going
              concern.
 
 ***Note
              4. EQUIPMENT***
 
 Equipment
              consisted of the following at December 31, 2006:
 Description
                      
                      Life
                      
                      2006
                      
                      2005Computers
                          & Related Devices
                      
                      
                      5
                          years
                      
                      $
                      11,294
                      
                      $
                      9,893Less:
                          Accumulated Depreciation
                      
                      
                      
                      
                      $
                      (6,248
                      )
                      
                      ($4,293
                      )$
                      5,046
                      
                      $
                      5,600Lab
                          Equipment
                      
                      
                      5
                          years
                      
                      $
                      90,396
                      
                      $
                      126,040Less:
                          Accumulated Depreciation
                      
                      
                      
                      
                      
                      ($79,068
                      )
                      $
                      (60,889
                      )$
                      11,328
                      
                      $
                      65,151
  ***Note
              5. OTHER CURRENT LIABILITIES***
 
 Other
              liabilities and accrued expenses consisted of the following at December
              31, 2006
              and 2005:
 
 2006
                    
                    2005Accrued
                        rent
                    
                    $
                    60,054
                    
                    $
                    44,054Accrued
                        interest
                    
                    
                    733,274
                    
                    
                    256,667Liquidated
                        damages
                    
                    
                    24,000
                    
                    
                    -Prepayment
                        penalty
                    
                    
                    420,000
                    
                    
                    420,000Accrued
                        payroll taxes
                    
                    
                    58,408
                    
                    
                    11,524Accrued
                        litigation payable
                    
                    
                    111,999
                    
                    
                    -Salaries
                        payable
                    
                    
                    110,073
                    
                    
                    228,766$
                    1,517,808
                    
                    $
                    961,011
 
 ***Note
              6*** **.** ***INCOME
              TAXES***
 
 During
              2006 and 2005, Power3 incurred net losses and, therefore, had no tax
              liability.
              The net deferred tax asset generated by the loss carry forward has
              been fully
              reserved. The cumulative net operating loss carry forward is approximately
              $14,165,749 and $12,957,858 at December 31, 2006 and 2005, respectively
              and will
              expire in the years 2019 through 2026.
  54
 
 At
              December 31, 2006 the deferred tax assets consisted of the
              following:
  Net Operating loss
                    
                    $
                    4,828,000Less:
                      Valuation allowance
                    
                    
                    ($4,828,000
                    )Net
                      Deferred tax asset
                    
                    $
                    -
  ***Note
              7*** **.** ***RELATED
              PARTY TRANSACTIONS***
 
 In
              order
              to obtain bridge loan financing for the Company, Steven B. Rash, Chief
              Executive
              Officer of Power3, and Dr. Ira Goldknopf, Director of Proteomics of
              Power3, have
              both pledged a number of Power3 common shares they owned personally,
              as
              collateral for the bridge loans obtained. In certain instances, these
              bridge
              loan providers have sold pledged shares they were holding as collateral
              for the
              notes to pay back the notes payable. The amounts obtained from the
              sale of
              pledged shares have been reported to the Company by the lenders. As
              of December
              31, 2006, the Company owed Steven B. Rash notes payable, for the amounts
              of his
              pledged shares that have been sold, in the amount of $608,342. As of
              December
              31, 2006, the Company owed Dr. Ira Goldknopf notes payable, for the
              amounts of
              his pledged shares that have been sold, in the amount of $785,004.
 
 During
              2006, the following notes were issued to Steven B Rash: $5,800 on October
              27,
              2006, maturing on October 26, 2007, at 6% interest; $11,500 on September
              5 ,
              2006, maturing on September 5, 2007, at 6% interest; $315,010 on September
              30,
              2006, maturing on March 30, 2007, at 6% interest; $40,515 on January
              20, 2006,
              maturing on June 19, 2006, at 6% interest;$50,000 on March 1, 2006,
              maturing on
              June 1, 2006, at 6% interest; and $94,341 on December 31, 2006, maturing
              on June
              30, 2007, at 6% interest.
 
 During
              2006, the following notes were issued to Dr. Ira Goldknopf: $18,135
              on September
              30, 2006, maturing on March 30, 2007, at 6%; $5,387 on September 30,
              2006,
              maturing on March 30, 2007, at 6%; $304,734 on
 September
              30, 2006, maturing on June 30, 2007; $89,400 on March 2, 2006, maturing
              on June
              2, 2006, at 6% interest; $40,000 on December 31, 2006, maturing on
              December 31,
              2007, at 6% interest; $80,000 on December 31, 2006, maturing on March
              5, 2007,
              at 6% interest; $39,231 on December 31, 2006 ,
              maturing on March 6, 2007 at 6% interest; and $106,117 on December
              31, 2006,
              maturing on December 31, 2007, at 6% interest.
 
 During
              2005, Michael Rosinski, a previous employee of the Company, loaned
              the Company
              $35,000 at 6% interest. This note is still due and is in default.
 
 ***Note
              8.*** **** ***OTHER
              COMMITMENTS AND CONTINGENCIES***
 
 Operating
              Lease for Office and Laboratory Space
 
 In
              August
              2004, the Company entered into a new lease which expires on August
              31, 2009, has
              an initial term of sixty-three months, and requires base monthly minimum
              lease
              payments ranging from approximately $6,000 to $8,600 (not including
              utilities
              and operating expenses) over the lease term. The lease contains a provision
              which allows the Company to extend the lease for two additional terms
              of sixty
              months. Rent expense (for the office lease) approximated $78,653 during
              the year
              ended December 31, 2006 and $68,944 during the year ended December
              31, 2005. The
              company has accounted for these leases on a straight-line basis over
              the life of
              the lease.
 
 In
              June,
              2004, the Company entered into a new lease for a telephone system which
              expires
              in June, 2009, has an initial term of 60 months and required base monthly
              minimum lease payments in the amount of $185 per month over the lease
              term. The
              Company paid $2,039 and $2,269 on this lease during the year ended
              December 31,
              2006 and 2005, respectively.
  55
 
 In
              October, 2004, the Company entered into a new lease for computers which
              expired
              in September, 2006, has an initial term of 24 months and requires base
              monthly
              minimum lease payments in the amount of $344 per month over the lease
              term. The
              Company paid $3,109 and $4,136 on this lease during the year ended
              December 31,
              2006 and 2005, respectively.
 
 Future
              lease commitments are as follows:
 
 2007
                    $106,420
 2008
                    $114,800
 2009
                    $76,648
 2010
                    Existing
                        leases no longer in effect
 
 We
              previously entered into employment agreements with two of our directors
              and
              executive officers in whom we agreed to issue 1,500,000 shares of Series
              B
              preferred stock to each officer. The shares were intended to be issued
              following
              the Advanced BioChem transaction; however, we did not file the certificate
              of
              amendment necessary to designate powers and relative rights of the
              Series B
              preferred stock. As a result of certain restrictions agreed to by the
              Company in
              connection with the sale of our convertible debentures, we are not
              permitted to
              issue common shares or common share equivalents such as the Series
              B preferred
              stock until 90 days after the effective date of the registration statement.
              After such restrictions lapse, we intend to designate and issue the
              Series B
              preferred stock. It is contemplated that the Series B preferred stock
              will have
              special voting rights such that the holders of the Series B preferred
              stock will
              hold a majority of the voting rights of the company. Upon issuance
              of the Series
              B preferred stock, our current executive officers and directors may
              restrict our
              ability to merge with, or sell our assets to, a third party.
  Other
              Common Stock Grants
 
 During
              2004, the Company granted 1,445,000 shares of its common stock to various
              other
              employees. Because all of the shares were granted at no cost to the
              employees,
              and because the shares generally vest over a period of two years, the
              total
              value of the grants, to all employees, was recorded as $25,451,500
              of deferred
              compensation expense upon the date of the grant (which amount was determined
              based on the total number of shares granted times the trading values
              of the
              shares on the dates the stock grants were made). This amount has been
              completely
              amortized to stock based compensation expense over the vesting period.
 
 The
              Company has agreed to issue a total of 3,000,000 shares of Series B
              Preferred
              Stock to two of its officers. However, for various reasons, including
              certain
              restrictions required by the indebtedness (which preclude the shares
              from being
              issued for at least 90 days after the effective date of the registration
              statement that has been filed to cover the resale of the shares of
              common stock
              that will be issued upon the conversion or exercise of the securities
              issued by
              the Company for such indebtedness), the shares have not yet been issued.
              The
              Company intends to issue such shares of the Series B Preferred Stock
              at such
              time as it is permitted however there can be no assurance as to when
              or if this
              will take place...
 
 Legal
              Proceedings
 
 In
              November 2004, Chapman Spira & Carson, LLC (“Chapman Spira”), an
              investment banking firm, filed a lawsuit in the Supreme Court of the
              State of
              New York for the County of New York against Advanced BioChem (the Predecessor),
              Power3 and Steven Rash. The suit alleges that Advanced BioChem and
              Power3 are
              liable to Chapman Spira for damages allegedly are resulting from the
              breach of a
              letter agreement between Chapman Spira and Advanced BioChem relating
              to the
              performance of strategic and investment banking services. Chapman Spira
              is
              seeking damages in the amount of $1,522,000 plus interest. The Company
              has filed
              an answer in the lawsuit. Settlement negotiations are ongoing between
              the
              parties and their attorneys, and it is the Company understands that
              a settlement
              has been reached, however no final paperwork has been received as of
              the date of
              this report. On March 1, 2007, the Company received notice from its
              attorney
              that the action described above has been discontinued without prejudice
              and
              without costs to any party.
  56
 
 An
              equipment vendor filed a complaint, regarding equipment which the Company
              acquired in its May 18, 2004 transaction with Advanced BioChem, now
              known as
              Industrial Enterprises of America, and against Advanced BioChem in
              April of 2002
              in a California court alleging breach of contract and seeking damages.
              Advanced
              BioChem reached a settlement agreement in April of 2003 under which
              Advanced
              BioChem would pay the vendor $40,000 in installments through August,
              2003. At
              December 31, 2003, Advanced BioChem had a balance remaining of $20,000.
              In
              April, 2005, the equipment vendor filed a lawsuit against Advanced
              BioChem,
              certain former officers of Advanced BioChem and against Power3 in order
              to
              enforce its claim for the remaining balance which is past due and may
              have been
              assumed by the Company as part of the settlement of the dispute with
              Advanced
              BioChem. Settlement negotiations are ongoing; however no resolution
              has been
              achieved thus far.
  In
              June,
              2005, Charles Caudle et al filed a lawsuit in Harris County, Texas,
              against
              Advanced BioChem, Power3 and the officers and directors of both companies.
              The
              suit alleges that Advanced BioChem, Power3 and the officers and directors
              of
              Power3, are liable to Charles Caudle et al for damages resulting from
              funds
              loaned to Advanced BioChem and which were subsequently converted into
              common
              stock of Advanced BioChem. It is unclear as to the specific dollar
              amount of the
              claim. The Company, and its officers and directors, has filed an answer
              denying
              all claims in the lawsuit. The Company believes that Charles Caudle’s claims are
              without merit with regard to Power3; however the Company cannot be
              assured it
              will prevail or if the outcome of the action will adversely affect
              the Company’s
              financial position or results of operations. Settlement negotiations
              between
              Advanced BioChem and Charles Caudle et. al. are ongoing and are expected
              to be
              concluded in July, 2007. The Company does not expect to incur any loss
              whatsoever from this action.
  On
              May 19, 2005, Quinn Capital Consulting, Inc. filed suit against Power3
              and Steven B. Rash claiming breach of contract regarding payment for
              services
              claimed to be provided to Power3, with payment to have been made by
              issue of
              500,000 shares to Quinn Capital, which Power3 later cancelled or otherwise
              converted. This financial obligation is recorded in the books of the
              Company as
              due and payable to Quinn Capital as of December 31, 2006. In February,
              2007, the
              Company and Quinn Capital reached a settlement agreement in this matter
              and the
              Company will issue 500,000 shares to Quinn Capital and pay $75,000,
              over time,
              as settlement of any and all claims in this matter .
 
 On
              September 12, 2005, Focus Partners LLC filed suit against David Zazoff
              and
              Power3 alleging that Power3 breached its agreement with Focus Partners
              in that
              it failed to issue stock to the Plaintiff according to the terms of
              their
              agreement, that the stock in question was issued to Zazoff and that
              Zazoff later
              sold the stock in question for $480,000. Settlement discussions between
              the
              Power3 and Focus Partners are ongoing; however no resolution has been
              achieved
              thus far. The Company has moved for summary judgment dismissing the
              complaint on
              the grounds that the agreement that forms the basis of this action
              was
              superseded by a subsequent agreement entered into between the parties,
              thereby
              obviating any obligation of Power3 to tender shares pursuant to the
              prior
              agreement. The Company believes that the Plaintiff’s claims are without merit
              and the Company will continue to vigorously defend this action.
 
 On
              February 15, 2006, Bowne of Dallas LP filed suit against Power3 to
              collect a
              debt for services in the amount of $17,315. The debt is recorded in
              accounts
              payable by Power3. In February, 2007, this debt, along with an approximately
              $8,000 in additional fees, was settled and the obligation was removed
              from the
              accounts payable of the Company.
  57
 
 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.
  ***Note
              9. FINANCING ARRANGEMENTS*** **:**
  **Securities
              Purchase Agreement—Convertible Debentures**
 
 The
              Company entered into a Securities Purchase Agreement, dated October
              28, 2004
              (the “Agreement”) with certain accredited investors (the “Purchasers”). Pursuant
              to the Agreement, the Purchasers agreed to purchase convertible debentures
              due
              three (3) years from the date of issuance in the aggregate principal
              amount of
              $3,000,000. The Agreement also provides warrants to purchase shares
              of the
              Company's common stock and additional investment rights to purchase
              additional
              convertible debentures. In connection with the Agreement, the Company
              also
              entered into a Registration Rights Agreement with the Purchasers that
              requires
              the Company to (i) file a registration statement with the SEC registering
              the
              resale of the shares of common stock issuable upon conversion of the
              debentures
              and the exercise of the warrants, (ii) achieve effectiveness within
              a stated
              period and (iii) maintain effectiveness of the registration statement.
              Failure
              to meet these requirements will require the Company to incur liquidating
              damages
              amounting to 2.0% for each month.
 
 On
              October 28, 2004, the Company issued the Purchasers the first $1,000,000
              in
              aggregate principal amount of such debentures at the initial closing
              under the
              Agreement. Effective January 26, 2005, the Company issued and sold,
              to a
              sub-group of the original investors, a second tranche of $400,000 aggregate
              principal amount of debentures. Subject to the conditions set forth
              in the
              Agreement, all purchasers are required to purchase the remaining $1,600,000
              in
              aggregate principal amount of such debentures at the final closing,
              which is to
              occur on or before the fifth trading day after the effective date of
              the
              registration statement. The Company is currently in default under the
              Agreement
              and the previously issued debentures and related registration rights
              agreement,
              and therefore the conditions of the Agreement will not be satisfied
              or otherwise
              met on a timely basis. Consequently, there are no assurances that the
              Purchasers
              will purchase all or any portion of the remaining $1,600,000 aggregate
              principal
              amount of debentures. The $1,000,000 aggregate principal amount of
              debentures
              issued in the initial closing and the $400,000 aggregate principal
              amount of
              debentures issued on January 19, 2005 are due and payable in accordance
              with
              their original terms in full three years after the date of issuance
              and 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 traunche 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
              $1.44 per share, subject to adjustment, including under 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.
  58
  As
              mentioned above, 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. As a result of
              this
              default Power3 recorded $420,000 during the 12 month period ended December
              31,
              2005 in penalties as described above.
  The
              Company has received notice from one of the Purchasers informing the
              Company
              that it is in default under the debentures and demanding payment of
              the
              Mandatory Prepayment Amount, together with the liquidated damages,
              to which it
              is entitled pursuant to the agreement. The Company is in discussions
              with its
              debenture holders regarding a resolution of this matter, and approximately
              37%
              of the debenture holders have converted their debentures to common
              shares since
              January 1, 2007. The Company has accrued $24,000 as of December 31,
              2006 for the
              estimated settlement of these liquidated damages.
  In
              connection with such financing, the Company issued warrants to purchase
              100,000
              shares of common stock at an exercise price of $3.00 to its placement
              agent. If
              any investor exercises their additional investment rights and purchases
              additional debentures, the placement agent will be entitled to receive
              additional warrants to purchase up to a number of shares of common
              stock equal
              to ten percent (10%) of the exercise price paid upon exercise of the
              additional
              investment rights divided by ninety percent (90%) of the market price
              as of the
              initial closing. The Company accounted for the warrants as deferred
              financing
              costs and is amortizing the fair values thereof through periodic charges
              to
              interest expense using the effective method over the life of the original
              debentures.
 
 Between
              August and December 2006, the Company issued convertible short term
              promissory
              notes with a total face value of $557,000. The convertible promissory
              notes have
              a 7% interest rate and include detachable warrants to purchase a total
              9,283,330
              shares of common stock to various investors. Principal and interest
              on the notes
              are payable one year after the origination of the note, and each note
              has a
              fixed conversion price of $0.06. The warrants have three-year terms
              and strike
              prices of $0.08. In the event of a default, the notes will bear an
              interest rate
              of 10%.
 
 As
              a
              result of the above notes, Power3 has determined that the conversion
              feature of
              the secured convertible debentures and the warrants issued with the
              secured
              convertible debentures are embedded derivative instruments pursuant
              to SFAS No.
              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, noncash income or expense at each balance sheet date.
              The Company
              estimates fair value of warrants using the Black-Scholes option pricing
              model
              and the conversion feature of their notes using the binomial lattice
              model. The
              estimates inherent within these models directly affect the reported
              amounts of
              the derivative instrument liabilities.
 
 Convertible
              Debentures, Warrants and Additional Investment Rights :
 
 The
              carrying values of the Company’s convertible debentures amounted to $360,417 and
              $75,279, at December 31, 2006 and 2005, respectively.
  59
 
 The
              following tabular presentation reflects the components of derivative
              financial
              instruments on the Company’s balance sheet at December 31, 2005 and
              2006:
 
 **Liabilities:**
                    
                    **2005**
                    
                    **2006**Common
                        stock warrants
                    
                    $
                    777,635
                    
                    $
                    875,783Embedded
                        conversion feature
                    
                    
                    614,853
                    
                    
                    186,480Additional
                        investment rights
                    
                    
                    525,990
                    
                    
                    183,056Other
                        derivative instruments
                    
                    
                    
                    
                    
                    36,029$
                    1,918,478
                    
                    $
                    1,281,348
 
 The
              fair
              values of certain other derivative financial instruments (warrants)
              that existed
              at the time of the initial Debenture Financing were reclassed from
              stockholders’
equity to liabilities when, in connection with the Debenture Financing,
              the
              Company no longer controlled its ability to share-settle these instruments.
 
 Fair
              Value Considerations for Derivative Financial Instruments :
 
 Warrants
              valued using the Black-Scholes-Merton valuation methodology (“BSM”) included the
              following significant assumptions:
 
 **Debenture**
                    **Note**
                    **Preferred
                        Stock**
                    **Other****Instrument**
                    **Warrants**
                    **Warrants**
                    
                    **Warrants**Exercise
                        prices
                    $1.44
                    $0.08
                    $1.00
                    $0.08-$3.00Initial
                        term (years)
                    5.0
                    5.0
                    5.0
                    1.0-8.00Dividend
                        yield
                    0%
                    0%
                    0%
                    0%Volatility
                    209%
                    209%
                    125%
                    209%Risk-free
                        rate
                    4.37%-5.13%
                    4.38%-5.08%
                    3.34%
                    3%-5.13%
 
 As
              of
              December 31, 2006, there were 11,666,663 warrants outstanding that
              were
              considered Other Warrants, not related to the convertible debentures
              and these
              other warrants were valued using Black-Scholes-Merton methodology.
              The weighted
              average exercise price of the other 11,666,663 common stock warrants
              is $0.16.
 
 The
              compound embedded derivative instruments are valued using the binomial
              lattice
              model methodology because that model embodies certain relevant assumptions
              (including, but not limited to, interest rate risk, credit risk, and
              conversion/redemption privileges) that are necessary to value these
              complex
              derivatives.
 
 Assumptions
              included exercise estimates/behaviors and the following other significant
              estimates:
 
 **Traunch
                        1**
                    **Traunch
                        2****Instrument**
                    **Features**
                    **Features**Conversion
                        prices
                    $0.11—$0.90
                    $0.11—$1.08Remaining
                        terms (years)
                    .6—4.5
                    .8—4.5Equivalent
                        volatility
                    78.17%--81.25%
                    78.17%--81.25%Equivalent
                        interest-risk adjusted rate
                    5.00%--5.43%
                    5.00%--5.24%Equivalent
                        credit-risk adjusted yield rate
                    23.1%--45.7%
                    12.8%--14.2%
 
 60
  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
              proceeds from the Trinity financing were allocated first to the warrants,
              based
              upon their fair values, with the balance of $103,100 allocated to the
              notes. The
              allocation of proceeds to the fair value to the warrants was performed
              because,
              as discussed in the previous section, share settlement is not within
              management’s control. Such amount was initially classified as a derivative
              liability. The resulting note discount is being amortized through periodic
              charges to interest expense using the effective method over the life
              of the
              notes. Amortization of note discount amounted to $12,819 during the
              period from
              issuance of the notes to December 31, 2005 and $68,499 during the year
              ended
              December 31, 2006. The Company did not make its required debt service
              payments
              in March and April 2006. The first Trinity note was paid off during
              2006
              completely; however the second Trinity note is in default and is still
              outstanding and payable. As a result of this default, the Company is
              required to
              accrue interest on this note at a composite rate of 21%. The remaining
              unamortized discount was $94,678 at December 31, 2006.
 
 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 as liabilities, at fair values,
              since share-settlement was not within the Company’s control after the debenture
              financing.
 
 Convertible
              Debentures Payout Disclosure
 
 The
              Company has certain convertible debentures, issued in 2004 and 2005,
              maturing in
              2007 and 2008, three years from date of issue. In addition, the Company
              has
              issued a number of 1 year convertible notes that will mature in 2007
              and 2008.
              The amounts due under the convertible debentures are as follows:
 Convertible
                          debentures due in 2007
                      
                      $
                      1,100,283Convertible
                          debentures due in 2008
                      
                      
                      400,000Total
                          convertible debentures due
                      
                      
                      1,500,283Unamortized
                          discount based on issue date fair value
                      
                      $
                      (1,139,866
                      )Carrying
                          value of convertible debenture
                      
                      $
                      360,417
 
 Notes
              Payable in Default and to Related Parties
 
 During
              2005, the Company received bridge loans in the principal amounts of
              $251,000,
              $200,000, $150,000, $150,000 and $446,500 from entities outside the
              Company.
              These loans were used for working capital purposes during 2005.
 
 In
              addition, during 2005, certain holders of bridge loans began selling
              personally-owned shares they had received as collateral for their loans
              to the
              Company, from Steve Rash and Ira Goldknopf. The results of these sales
              were that
              the Company became indebted to Steven B. Rash, CEO of Power3, in the
              amount
              $55,000 during 2005 and to Ira Goldknopf, Director of Proteomics of
              the Company,
              in the amount of $102,000. In addition, an officer of the Company at
              the time
              also loaned the Company $35,000 as a short-term bridge loan. These
              loans,
              together, totaled $192,000 from related parties during the year ended
              December
              31, 2005.
  61
 
 During
              January and February, 2006, the Company received an aggregate of $89,400
              from a
              consulting firm in the form of short-term bridge loans. The loans were
              collateralized by pledged stock. The pledged stock was pledged by officers
              of
              the Company and later sold by the consulting firm to pay back the short-term
              bridge loans.
 
 On
              March
              28, 2006, the Company received a bridge loan in the amount of $400,000,
              which,
              after discounts and fees, amounted to a net amount of $300,000. This
              bridge loan
              was payable on the sooner of June 28, 2006 or the fifth day following
              the
              effective date of the Company’s proposed registration statement on Form SB-2.
              The note was secured by a Stock Pledge Agreement wherein Steven B.
              Rash,
              Chairman and CEO of the Company and Dr. Ira Goldknopf, Director of
              Proteomics of
              the Company, pledged personally-owned shares of the Company’s stock. This note
              was paid off during 2006 by sale of pledged shares by the note holder
              and is no
              longer due and payable to the lender.
 
 On
              June
              1, 2006, the Company received a bridge loan in the amount of $266,000,
              which,
              after discounts and fees, amounted to a net amount of $200,000. This
              bridge loan
              was payable on the sooner of August 12, 2006, or the fifth day following
              the
              effective date of the Company’s proposed registration statement on Form SB-2.
              The note was secured by a Stock Pledge Agreement wherein Steven B.
              Rash,
              Chairman and CEO of the Company, and Dr. Ira Goldknopf, Director of
              Proteomics
              of the Company, pledged personally-owned shares of the Company’s stock. This
              note was in default as of December 31, 2006. However, in February,
              2007, this
              note was paid off by sale of pledged shares and a transfer of the remaining
              principal balance to a new note holder.
 
 During
              2006, the payoff of Company notes payable from the sale of personally
              pledged
              shares, resulted in the Company entering into Notes Payable with Steven
              B. Rash,
              Chairman and CEO of the Company and Dr. Ira Goldknopf, Director of
              Proteomics of
              the Company, in the amount of $517,166 and $522,949 respectively. At
              the end of
              the year 2006, the total Notes Payable due Mr. Rash for all such transactions
              were $608,342 and the total Notes Payable due Dr. Goldknopf for such
              transactions were $785,004 .
              These
              notes, along with the note payable to Mike Rosinski in the amount of
              $35,000,
              brings the total Notes Payable to related parties, as of December 31,
              2006, to
              $1,428,346, as follows:
  Schedule
                          of Notes:**2006**
                      
                      **2005**Notes
                          payable in default:Cordillera
                          I
                      
                      $
                      251,000
                      
                      $
                      251,000Cordillera
                          II
                      
                      $
                      200,000
                      
                      $
                      200,000Trinity
                          I
                      
                      
                      
                      
                      $
                      150,000Trinity
                          II
                      
                      $
                      155,500
                      
                      $
                      150,000Discount
                          on Trinity Notes
                      
                      
                      ($
                          94,678
                      )Nutmeg
                      
                      
                      
                      
                      
                      ($262,992
                      )Fife
                      
                      
                      
                      
                      $
                      446,500Fife
                      
                      $
                      266,000Donson
                      
                      
                      
                      
                      $
                      159,231Totals
                      
                      $
                      777,822
                      
                      $
                      1,093,739Notes
                          payable - related parties:Rash
                      
                      $
                      55,000
                      
                      $
                      55,000Goldknopf
                      
                      $
                      102,000
                      
                      $
                      102,000Rosinski
                      
                      $
                      35,000
                      
                      $
                      35,000Rash
                      
                      $
                      553,342Goldknopf
                      
                      $
                      683,004Totals
                      
                      $
                      1,428,346
                      
                      $
                      192,000
 
 62
  ***Note
              10.*** ***OTHER
              SIGNIFICANT EQUITY TRANSACTIONS***
  Sales
              of common stock during 2006
  *
                    On January 6, 2006, 500,000 shares of common
                      stock were
                      sold to a private investor to raise $57,500.  ·
                    On
                        February 3, 2006, 1,114,286 shares of common stock were sold
                        to private
                        investors to raise $40,000.
  ·
                    On
                        March 8, 2006, 800,000 shares of common stock were sold to
                        private
                        investors to raise $40,000.
  ·
                    On
                        June 8, 2006, 38,460 shares of common stock were sold to
                        a private
                        investor to raise $5,000.
  The
              Company did not sell any common stock for cash during 2005.
  Stock
              Issued during 2006 under the 2004 Stock Compensation Plan
  During
              2006, 2,449,990 shares of common stock of the Company were issued to
              attorneys
              and consultants as compensation for services rendered. The estimated fair value
              of these shares was recorded as general and administrative expense
              of $314,314
              based upon the closing price of Power 3’s stock at the measurement
              date.
  During
              2005, 140,000 shares of common stock were returned from a former employee
              and
              those shares were re-issued to a new employee. In addition, 850,000
              shares were
              issued, under the 2004 Stock Compensation Plan, to attorneys for legal
              services.
  Stock
              Compensation Plans
  In
              January 2004, the Company’s Board of Directors approved the 2004 Directors,
              Officers and Consultants Stock Option, Stock Warrant, and Stock Award
              Plan (the
              2004 Plan). Pursuant to the 2004 Plan, initially 10,000,000 shares
              of common
              stock, warrants, options, preferred stock or any combination thereof
              may be
              optioned. After the grant of any option, warrant or share of preferred
              stock,
              the number of shares that may be optioned under the 2004 Plan will
              be increased.
              The number of shares of such increase shall be an amount such that
              immediately
              following such increase, the total number of shares issuable under
              this plan and
              reserved for issuance upon exercise of options, warrants, or conversion
              of
              shares of preferred stock will equal 15% of the total number of issued
              and
              outstanding shares of the Company’s common stock. The Company has issued
              41,876,456 shares of common stock and 580,000 warrants under the 2004
              Plan.
              Based upon the automatic increase provisions above, the total number
              of shares
              still available for issue under the Plan is 10,705,643, based upon
              the provision
              in the plan that allows the Company to issue 15% of the outstanding
              shares of
              the Company.
 
 Since
              the
              inception of this plan only common stock grants have been issued.
 
 Warrants:
 
 Warrants
              have been issued to various investors and others in connection with
              financing
              arrangements and for services. A summary table of the warrants outstanding
              is as
              follows:
  63
 
 2006
                    
                    2005Weighted
                    
                    
                    
                    WeightedAverage
                    
                    
                    
                    AverageExercise
                    
                    
                    
                    ExerciseWarrants
                    
                    Price
                    
                    Warrants
                    
                    PriceOutstanding
                        at beginning of year
                    
                    
                    5,383,333
                    
                    $
                    .95
                    
                    
                    3,050,000
                    
                    $
                    1.46Cancelled
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Granted
                    
                    
                    9,116,663
                    
                    
                    .08
                    
                    
                    2,333,333
                    
                    $
                    0.32Exercised
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Outstanding
                        at end of year
                    
                    
                    14,499,996
                    
                    $
                    .40
                    
                    
                    5,383,333
                    
                    $
                    0.97Exercisable
                        at the end of the year
                    
                    
                    14,499,996
                    
                    $
                    .40
                    
                    
                    5,383,333
                    
                    $
                    0.97
 
 The
              following table summarizes information about the Company’s Warrants outstanding
              at December 31, 2006:
 Weighted
                          AverageNumber
                      
                      Remaining
                          Contractual
                      
                      WeightedAverageExercise
                          Price
                      
                      Outstanding
                      
                      Life
                          (in years)
                      
                      Exercise
                          Price$
                      .08
                      
                      
                      9,116,663
                      
                      
                      1.0
                      
                      $
                      .08$
                      .14
                      
                      
                      1,000,000
                      
                      
                      7.0
                      
                      $
                      .14$
                      .25
                      
                      
                      1,000,000
                      
                      
                      6.0
                      
                      $
                      .25$
                      .98
                      
                      
                      300,000
                      
                      
                      1.0
                      
                      $
                      .98$
                      1.00
                      
                      
                      100,000
                      
                      
                      Ind
                      
                      $
                      1.00$
                      1.08
                      
                      
                      333,333
                      
                      
                      1.0
                      
                      $
                      1.08$
                      1.43
                      
                      
                      50,000
                      
                      
                      Ind
                      
                      $
                      1.43$
                      1.44
                      
                      
                      2,500,000
                      
                      
                      .80
                      
                      $
                      1.44$
                      3.00
                      
                      
                      100,000
                      
                      
                      1.9
                      
                      $
                      3.0014,499,996
                      
                      
                      1.74
                      
                      $
                      .40
 
 ***Note
              11. SUBSEQUENT EVENTS***
 
 Events
              that have occurred since December 31, 2006 are:
 
 On
              January 2, 2007, the Company issued 100,000 shares of common stock,
              in exchange
              for services rendered by a consultant.
  64
 
 On
              January 30, 2007, as settlement of a lawsuit, the Company issued 500,000
              shares
              of common stock,
 in
              settlement of a lawsuit, and also became obligated to pay $75,000 in
              cash in
              full and total settlement of a consulting fee obligation.
 
 On
              January 16, 2007, the Company issued a Note Payable for $50,000, convertible
              at
              the note holder’s option until January 16, 2008, at $.06 per share. The note
              matures in one year on January 16, 2008, and carries interest at rate
              of 7% per
              annum.
 
 On
              January 30, 2007, the Company issued a Note Payable for $75,000, convertible
              at
              the note holder’s option until January 30, 2008, at $.06 per share. The note
              matures in one year on January 30, 2008, and carries interest at a
              rate of 7%
              per annum.
 
 On
              February 8, 2007, the Company issued two Notes Payable, each for $121,366,
              to
              two private investors, in exchange for the investors paying off an
              existing Note
              Payable on the Company’s balance sheet.
 The
              Notes
              Payable received by the investors mature in one year, carry interest
              at a rate
              of 7% per annum.
 
 On
              February 8, 2007, the Company issued a Note Payable for $200,000, convertible
              at
              the note holder’s option until February 8, 2008, at $.06 per share. The note
              matures in one year on February 8, 2008 and carries interest at a rate
              of 7% per
              annum.
 
 On
              February 8, 2007, the Company issued a Note Payable for $120,000, convertible
              at
              the note holder’s option until February 8, 2008, at $.06 per share. The note
              matures in one year on February 8, 2008 and carries interest at a rate
              of 7% per
              annum.
 
 On
              February 13, 2007, the Company issued a Note Payable for $10,000, convertible
              at
              the note holder’s option until February 13, 2008, at $.06 per share. The note
              matures in one year on February 13, 2008, and carries interest at a
              rate of 7%
              per annum.
 
 On
              February 23, 2007, the Company agreed to convert a Note Payable for
              $60,000 into
              1,000,000 shares of common stock.
 
 On
              March
              14, 2007, the Company settled the outstanding convertible debenture
              with
              Crescent International with the issue of 3,000,000 shares of common
              stock to
              Crescent and 1,000,000 shares held in escrow for Crescent International.
              On June
              25, 2007, 1,000,000 shares of common stock of the Company, previously
              placed in
              escrow, regarding the settlement with Crescent, were released from
              escrow.
 
 On
              April
              13, 2007, the Company settled two outstanding invoices for services
              with the
              issue of 460,000 shares of common stock under the 2004 Stock Compensation
              Plan,
              issue of stock for services.
 
 On
              April
              30, 2007, the Company settled the outstanding convertible debenture
              with
              Cityplatz Ltd with the issue of 713,708 shares of common stock.
 
 On
              May
              11, 2007, the Company settled the outstanding convertible debenture
              with Richard
              Molinsky with the issue of 157,895 shares of common stock.
 
 On
              May
              16, 2007, the Company converted numerous outstanding Notes Payable
              with Roger
              Kazanowski with the issue of 4,127,000 shares of common stock.
 
 On
              May
              16, 2007, the Company settled the outstanding convertible debenture
              with Otape
              Investments with the issue of 713,708 shares of common stock.
  65
 
 On
              May
              16, 2007, the Company settled one half of the outstanding convertible
              debenture,
              originally issued to Omicron and now owned by Portside, with the issue
              of
              359,595 shares of common stock.
 
 On
              May
              16, 2007, the Company settled the outstanding convertible debenture
              with Sage
              Capital, with the issue of 178,427 shares of common stock.
 
 On
              May
              16, 2007, the Company converted an outstanding Note Payable with Majic
              Arts
& Entertainment with the issue of 833,333 shares of common stock. On
              that
              same date, Majic Arts & Entertainment exercised a warrant they had received
              at the time of the issue of the Note Payable and the Company received
              $50,000
              cash  in
              exchange for the issuance of an additional 833,333 shares of common
              stock.
 
 On
              May
              22, 2007, the Company settled the outstanding convertible debenture
              with Bach
              Farms, with the issue of 11,970 shares of common stock.
 
 On
              May
              22, 2007, the Company settled the outstanding convertible debenture
              with Mohawk
              Funding, with the issue of 71,370 shares of common stock.
 
 On
              June
              1, 2007, the Company converted an outstanding Note Payable with Andrew
              Dahl with
              the issue of 200,000 shares of common stock.
 
 On
              June
              4, 2007, the Company converted numerous outstanding Notes Payable with
              Richard
              Kraniak with the issue of 5,900,231 shares of common stock.
 
 On
              June
              13, 2007, the Company sold 3,250,000 shares of common stock to two
              private
              investors.
 
 On
              June
              13, 2007, the Company agreed to issue 400,000 shares of common stock
              to
              two
 consultants
              who will provide services over the next year.
 
 On
              June
              25, 2007, (1,000,000) shares of common stock of the Company, previously
              placed
              in escrow,
 regarding
              the convertible debenture settlement with Crescent, were released from
              escrow
              and have been subsequently cancelled as the terms and conditions of
              the
              settlement have been satisfied.
 
 ***Note
              12. RESTATEMENT***
 
 The
              Company restated its annual financial statements from amounts previously
              reported as of and for the year ended December 31, 2005. The restatement
              was
              necessary after a re-examination of the goodwill existing as of December
              31,
              2005 and whether or not it should be impaired, a replacement of the
              previous
              method used for calculating fair values for derivatives from Monte
              Carlo
              simulation to binomial lattice model, and an adjustment to the previously
              reported deferred compensation expense for 2005. Following is a summary
              of the
              restatement adjustments as of December 31, 2005:
  66
 
 As
                        Previously Reported
                    
                    Adjustment
                    
                    
                    
                    As
                        RestatedCurrent
                        AssetsCash
                        and Cash Equivalents
                    
                    $
                    1,399
                    
                    
                    
                    
                    
                    
                    
                    $
                    1,399Accounts
                        ReceivablePrepaid
                        Expenses/Other Assets
                    
                    $
                    21,092
                    
                    
                    ($14,248
                    )
                    
                    (a)
                    
                    $
                    6,846Total
                        Current Assets
                    
                    $
                    22,491
                    
                    
                    ($14,248
                    )
                    
                    
                    
                    $
                    8,245Other
                        AssetsDeferred
                        Finance Costs
                    
                    $
                    290,027
                    
                    
                    
                    
                    
                    
                    
                    $
                    290,027Intangible
                        Assets
                    
                    $
                    179,786
                    
                    
                    
                    
                    
                    
                    
                    $
                    179,786Goodwill
                    
                    $
                    13,371,776
                    
                    
                    ($13,371,776
                    )
                    
                    (b)Furniture,
                        Fixtures and Equipment (net)
                    
                    $
                    70,751
                    
                    
                    
                    
                    
                    
                    
                    $
                    70,751Deposits
                    
                    $
                    25,900
                    
                    
                    ($25,000
                    )
                    
                    (c)
                    
                    $
                    900Total
                        Assets
                    
                    $
                    13,960,730
                    
                    
                    ($13,411,021
                    )
                    
                    
                    
                    $
                    549,709Liabilities
                        & Stockholder's DeficitCurrent
                        LiabilitiesAccounts
                        Payable & Accrued Liabilities
                    
                    $
                    1,003,331
                    
                    
                    ($20,100
                    )
                    
                    (d)
                    
                    $
                    983,231Notes
                        Payable - in default
                    
                    $
                    1,285,739
                    
                    
                    ($192,000
                    )
                    
                    (e)
                    
                    $
                    1,093,739Notes
                        Payable - related parties
                    
                    
                    
                    
                    $
                    192,000
                    
                    
                    (f)
                    
                    $
                    192,000Convertible
                        debentures - in default
                    
                    $
                    75,279
                    
                    
                    
                    
                    
                    
                    
                    $
                    75,279Other
                        current liabilities
                    
                    $
                    916,857
                    
                    $
                    44,154
                    
                    
                    (g)
                    
                    $
                    961,011Derivative
                        liabilities
                    
                    $
                    1,454,936
                    
                    $
                    487,596
                    
                    
                    (h)
                    
                    $
                    1,918,478Total
                        Current Liabilities
                    
                    $
                    4,736,142
                    
                    
                    
                    
                    
                    
                    
                    $
                    5,223,738Stockholder's
                        DeficitCommon
                        Stock
                    
                    $
                    65,215
                    
                    
                    
                    
                    
                    
                    
                    $
                    65,215Additional
                        Paid In Capital
                    
                    $
                    57,773,506
                    
                    
                    
                    
                    
                    
                    
                    $
                    57,773,506Deferred
                        Compensation
                    
                    
                    ($4,802,621
                    )
                    
                    ($274,450
                    )
                    
                    (i)
                    
                    
                    ($5,079,071
                    )Loss
                        accumulated before enteringdevelopment
                        stage
                    
                    
                    ($11,681,500
                    )
                    
                    
                    
                    
                    
                    
                    
                    ($11,681,500
                    )Loss
                        accumulated during thedevelopment
                        stage
                    
                    
                    ($32,130,011
                    )
                    
                    ($13,898,618
                    )
                    
                    
                    
                    
                    ($45,752,179
                    )Total
                        Stockholder's Deficit
                    
                    $
                    9,224,589
                    
                    
                    
                    
                    
                    
                    
                    
                    ($4,674,029
                    )
  (a)
                        Write off of unreimbursed advances to CEO and CFO that were
                        previously
                        recorded as payroll advance.(b)
                        Impairment of goodwill based upon testing required by FAS
                        142, not
                        previously recorded(c
                        ) To correct the balance sheet for deposit never actually
                        made, but
                        previously recorded(d)
                        Correction to account for escalating rent payments on a straight
                        line
                        basis(e)
                        To correctly report balances of Notes Payable - in default
                        as of
                        12/31/05(f)
                        To correctly disclose the related party nature of these
                        notes(g)
                        To adjust for additional current liabilities found as of
                        12/31/05(h)
                        Changes to the derivative liability based upon changing from
                        monte carlo
                        to lattice model(i)
                        Additional deferred compensation expense as of
                        12/31/05.
 
 The
              effect of the restatements on Net Loss for the year ended December
              31, 2005 was
              an additional Net Loss in t he
              amount
              of $13,622,169, bringing the restated Net Loss to ($27,134,865). This
              additional
              Net Loss was comprised of impairment of goodwill of $13,371,776, a
              smaller
              derivative gain than had previously been reported and other adjustments,
              as
              listed below:
  67
 
 As
                        Reported
                    
                    Adjustment
                    
                    As
                        RestatedOperating
                        ExpensesEmployee
                        Compensation & Benefits
                    
                    $
                    $13,461,993
                    
                    
                    ($262,203
                    )
                    $
                    13,199,790Professional
                        and Consulting Fees
                    
                    $
                    593,632
                    
                    
                    ($3,500
                    )
                    $
                    590,132Occupancy
                        and Equipment
                    
                    $
                    130,401
                    
                    $
                    42,732
                    
                    $
                    173,133Impairment
                        of Goodwill
                    
                    
                    
                    
                    
                    ($13,371,776
                    )
                    
                    ($13,371,776
                    )Travel
                        and Entertainment
                    
                    $
                    89,490
                    
                    
                    
                    
                    $
                    89,490Other
                        selling, general andadministrative
                        expenses
                    
                    $
                    751,677
                    
                    
                    ($410,178
                    )
                    $
                    341,499Total
                        operating expenses
                    
                    $
                    ($15,027,193
                    )
                    
                    ($14,004,925
                    )
                    
                    ($27,765,820
                    )Other
                        Income and ExpenseDerivative
                        Gain
                    
                    $
                    $2,019,884
                    
                    
                    ($463,542
                    )
                    $
                    1,556,342Interest
                        Income
                    
                    
                    
                    
                    $
                    260
                    
                    $
                    260Other
                        income (expense)
                    
                    $
                    260
                    
                    
                    ($419,740
                    )
                    
                    ($420,000
                    )Interest
                        expense
                    
                    
                    ($505,647
                    )
                    
                    
                    
                    
                    ($505,647
                    )Total
                        other income (expense)
                    
                    $
                    $1,514,497
                    
                    
                    ($883,022
                    )
                    $
                    630,955Net
                        Loss
                    
                    $
                    ($13,512,696
                    )
                    
                    ($13,622,169
                    )
                    
                    ($27,134,865
                    )
  Basic
              earnings (loss) attributable to common shareholders per share for the
              year ended
              December 31, 2005 went from ($0.21) to ($0.41) for the cumulative effect
              of the
              adjustments.
 
 **Item
              8. Changes In and Disagreements with Accountants on Accounting and
              Financial
              Disclosure**
  On
              March
              8, 2007, the Company dismissed John A. Braden & Company, P.C. as the
              Company’s independent registered public accounting firm. On that same date,
              the
              Company engaged Malone & Bailey, PC as its new independent registered public
              accounting firm for its fiscal year ending December 31, 2006 and 2005.
              The
              Company's decision to engage Malone & Bailey, PC was approved by its Board
              of Directors.
 
 John
              A.
              Braden & Company, P.C. was engaged in July, 2005. The audit reports of John
              A. Braden & Company, P.C. on the Company’s financial statements for each of
              the two most recent fiscal years did not contain any adverse opinion
              or
              disclaimer of opinion and were not qualified or modified as to uncertainty,
              audit scope or accounting principles, except that John A. Braden & Company,
              P.C.’s opinions included an explanatory paragraph regarding the existence
              of
              substantial doubt about the Company’s ability to continue as a going concern.
 
 During
              the Company's most recent fiscal year and the subsequent interim period
              through
              the date of dismissal, there were no reportable events as the term
              is described
              in Item 304(a)(1)(iv) of Regulation S-B.
 
 During
              the Company's two most recent fiscal years and the subsequent interim
              period
              through the date of dismissal, there were no disagreements with John
              A. Braden
& Company, P.C. on any matters of accounting principles or practices,
              financial statement disclosure or auditing scope or procedure, which,
              if not
              resolved to the satisfaction of John A. Braden & Company, P.C. would have
              caused it to make reference to the subject matter of the disagreements
              in
              connection with its reports on these financial statements for those
              periods.
 
 The
              Company did not consult with Malone & Bailey, PC regarding the application
              of accounting principles to a specific transaction, either completed
              or
              proposed, or the type of audit opinion that might be rendered on the
              Company's
              financial statements, and no written or oral advice was provided by
              Malone &
Bailey, PC that was a factor considered by the Company in reaching
              a decision as
              to the accounting, auditing or financial reporting issues.
  68
 
 **Item
              8A. Controls and Procedures.**
  *Disclosure
              Controls and Procedures*
  Under
              the
              supervision and with the participation of the Company’s management, including
              its Chief Executive Officer and Chief Financial Officer, the Company
              conducted
              an evaluation of its disclosure controls and procedures (as defined
              in Rules
              13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation
              and for
              the reasons set forth below, the Chief Executive Officer and Chief
              Financial
              Officer concluded that the Company’s disclosure controls and procedures were not
              effective as of December 31, 2006, the end of the period covered by
              this annual
              report.
  As
              reported in previous filings the Company continued to have deficiencies
              with
              respect to its disclosure controls and procedures at December 31, 2006
              including
              the following:
  Although
              the Company has hired accounting personnel as reported in its previous
              Form
              10-QSB, the Company’s limited financing and available capital have restricted the Company’s
              ability to fully implement its procedures for the improvement of its
              internal
              control over financial reporting and to engage outside professionals
              and
              advisors to the extent the Company has desired to support the Company’s
              accounting personnel in the preparation and/or audit of financial statements
              and
              reports to be filed with the SEC.
  The
              Company continues to believe that the deficiencies are attributable
              to many
              factors including issues relating to the quality of the Company’s disclosure
              controls and procedures at the time of the Advanced BioChem transaction
              and the
              transition following the transaction. Management is committed to a
              sound
              disclosure control and internal control environment and is continuing
              its
              efforts to improve the Company’s infrastructure, personnel, processes and
              controls to help ensure that the Company is able to produce accurate
              financial
              statements on a timely basis.
  In
              addition, during the past year, Power3 faced staffing issues relative
              to its
              cash flow situation. The Company has retained outside consultants,
              on an interim
              basis, to provide accounting and legal expertise directed toward improving
              its
              reporting and control procedures. The Company has implemented additional
              controls over its daily operations and has drafted various Internal
              Controls
              memoranda.
  *Limitations
              on Effectiveness of Controls*
  Internal
              control over financial reporting cannot provide absolute assurance
              of achieving
              financial reporting objectives because of its inherent limitations.
              Internal
              control over financial reporting is a process that involves human diligence
              and
              compliance and is subject to lapses in judgment and breakdowns resulting
              from
              human failures. Internal control over financial reporting also can
              be
              circumvented by collusion or improper management override. Because
              of such
              limitations, there is a risk that material misstatements may not be
              prevented or
              detected on a timely basis by internal control over financial reporting.
              However, these inherent limitations are known features of the financial
              reporting process. Therefore, it is possible to design into the process,
              safeguards to reduce, though not eliminate, this risk.
  *Changes
              in Internal Control Over Financial Reporting*
  As
              previously disclosed in the Company’s Quarterly Report on Form 10-QSB for the
              quarterly period ending September 30, 2004, the Company implemented
              several
              actions during the third quarter of 2004 in an effort to improve its
              internal
              control over financial reporting. During the fourth quarter of 2004,
              the Company
              continued the implementation of more rigorous policies with respect
              to its
              disclosure and financial reporting review process including improvements
              of its
              infrastructure and processes to improve its internal control over financial
              reporting. The Company also is continuing its implementation of procedures
              to
              improve its review and processing of non-accounting documentation and
              contracts.
  69
  Other
              than the changes described above, there were no changes in the Company’s
              internal control over financial reporting that occurred during the
              Company’s
              fiscal quarter ended December 31, 2006 that have materially affected,
              or are
              reasonably likely to materially affect, the Company’s internal controls over
              financial reporting.
  **PART
              III**
  **Item
              9. Directors, Executive Officers, Promoters, Control Persons and Corporate
              Governance; Compliance with Section 16(a) of the Exchange
              Act.**
  **Directors,
              Executive Officers, Promoters and Control Persons**
  Set
              forth
              below is certain information concerning each of the Company’s directors,
              executive officers and significant employees. All directors of the
              Company hold
              office until the next annual meeting of shareholders or until their
              successors
              have been elected and qualified. The officers of the Company are appointed
              by
              the board of directors and hold office until their death, resignation
              or removal
              from office. The Company’s directors, executive officers, significant employees,
              and their ages, positions held and duration as such is as follows:
  Name
                    
                    Position
                        Held
                      with
                        the Company
                    
                    Age
                    
                    Date
                        First Elected
                      or
                        AppointedSteven
                        B. Rash
                    
                    Chief
                        Executive Officer and Director
                    
                    59
                    
                    May
                        18, 2004Ira
                        L. Goldknopf
                    
                    Director
                        of Proteomics and Director
                    
                    61
                    
                    May
                        18, 2004John
                        P. Burton
                    
                    Chief
                        Financial Officer
                    
                    61
                    
                    September
                        1, 2005
  Certain
              additional information concerning the individuals named above is set
              forth
              below. This information is based on information furnished by each director,
              executive officer and significant employee.
  Steven
              B.
              Rash joined the Company in May 2004 as Chairman of the Board of Directors
              and
              Chief Executive Officer. Mr. Rash as  Chairman
              of the Board of Directors and Chief Executive Officer of Advanced BioChem,
              Inc.
              from September 2003 to May 2004. Prior to that time he was an independent
              consultant from February 2003 until September 2003. In April 2001,
              Mr. Rash was
              employed as a consultant to Global Water Technologies, Inc. and was
              hired as
              President and interim CFO of the company in January 2002 and retained
              that
              position until February 2003. From April 2000 until April 2001, he
              was an
              independent consultant. From June 1995 until March 2000, Mr. Rash was
              employed
              as President and CEO of American BioMed, Inc., a publicly traded medical
              device
              company. Mr. Rash has a B.S. in Business Administration from the University
              of
              Delaware and an M.B.A. from Southern Illinois University.
  Ira
              L.
              Goldknopf, Ph.D. joined the Company in May 2004 as Chief Scientific
              Officer and
              Director. From August 2000 until May 2004, Dr. Goldknopf was Chief
              Scientific
              Officer of Advanced BioChem, which he co-founded in 2000. From August
              1997 until
              August 2000, Dr. Goldknopf was a biotechnology consultant. Dr. Goldknopf
              has a
              B.A. in Chemistry from Hunter College and a Ph.D. in Biochemistry from
              Kansas
              State University. Dr. Goldknopf spent ten years on the faculty of Baylor
              College
              of Medicine and is the author of over 70 publications and a principal
              inventor
              of the Company’s intellectual property. Dr. Goldknopf also serves on the
              Company’s Scientific Advisory Board.
  70
  On
              June
              3, 2005, John P. Burton was named Chief Accounting Officer and Controller
              of the
              Company. On September 15, 2005, the Company executed an Employment
              Agreement
              with Mr. Burton, effective September 1, 2005. The Employment Agreement
              named Mr.
              Burton as Chief Financial Officer of the Company and granted Mr. Burton
              140,000
              shares of restricted common stock. Prior to joining the Company, Mr.
              Burton was
              employed at Affiniscape, Inc. where he served as Chief Financial Officer
              from
              December, 2003 until August, 2004. From December, 1999 to March, 2003,
              he was
              employed at Bob Johnson & Associates, Inc. as Controller. Mr. Burton has a
              BBA and MBA from The University of Texas at Austin.
  There
              are
              no family relationships among any of the directors or executive officers
              of the
              Company. Except as disclosed below with respect to the amended and
              restated
              employment agreements of Messrs. Rash, Goldknopf, no arrangement or
              understanding exists between any director or executive officer and
              any other
              person pursuant to which any director or executive officer was elected
              to serve.
  Mr.
              Rash
              has many years of experience in corporate reorganizations, finance
              and new
              business development. Mr. Rash was hired by American BioMed, Inc. in
              June 1995
              to assist in the reorganization and turnaround of the company. Mr.
              Rash remained
              with American BioMed until March 2000 as president and CEO during which
              time the
              company was restructured. In July 2000, approximately four (4) months
              after Mr.
              Rash’s departure, American BioMed filed for Chapter 7 bankruptcy proceedings.
              Mr. Rash was initially retained as a consultant in April 2001 to assist
              Global
              Water Technologies, Inc. and its Chairman/CEO in formulating a turnaround
              strategy for the company. Mr. Rash was subsequently employed as president
              and
              interim CFO in January 2002. Global Water was declared in default of
              its bank
              loan in January 2003 and sold its operating division in February 2003.
              Mr. Rash
              resigned in February 2003 and, in May 2003; Global Water filed for
              Chapter 11
              bankruptcy proceedings.
  Except
              as
              described above with respect to Mr. Rash, none of the Company’s directors,
              executive officers, promoters or control persons has been involved
              in any of the
              following events during the past five years:
  ·
                    any
                        bankruptcy petition filed by or against any business of which
                        such person
                        was a general partner or executive officer either at the
                        time of the
                        bankruptcy or within two years prior to that
                        time;
  ·
                    any
                        conviction in a criminal proceeding or being subject to a
                        pending criminal
                        proceeding (excluding traffic violations and other minor
                        offenses);
  ·
                    being
                        subject to any order, judgment or decree, not subsequently
                        reversed,
                        suspended or vacated, of any court of competent jurisdiction,
                        permanently
                        or temporarily enjoining, barring, suspending or otherwise
                        limiting his
                        involvement in any type of business, securities or banking
                        activities;
                        or
  ·
                    being
                        found by a court of competent jurisdiction (in a civil action),
                        the SEC or
                        the Commodity Futures Trading Commission to have violated
                        a federal or
                        state securities or commodities law, and the judgment has
                        not been
                        reversed, suspended or vacated.
  The
              board
              of directors has not established an audit committee or any committee
              performing
              similar functions. Consequently, the Company does not have an audit
              committee
              financial expert as defined in Item 401(3) of Regulation S-B. Management
              believes that in light of the Company’s current size and its status as a company
              with no operations, the establishment of an audit committee and the
              retention of
              an audit committee financial expert is not necessary at this time and
              is
              cost-prohibitive. The Company also does not have a standing nominating
              committee
              of its board of directors or any committee performing a similar
              function.
  71
  **Scientific
              Advisory Board**
  The
              Company’s Scientific Advisory Board provides assistance in the research and
              development of the Company’s products. Unlike members of the Company’s Board of
              Directors, members of the Scientific Advisory Board, other than Dr.
              Goldknopf,
              are not involved in the management or operations of the Company. The
              members of
              the Scientific Advisory Board are as follows:
  Dr.
              Stanley H. Appel, M. D. is Professor and Chair of Neurology at the
              Methodist
              Hospital Neurological Institute, Professor of Neurology at Baylor College
              of
              Medicine, Director of the Vicki Appel MDA/ALS Clinic, and past-Director
              of the
              Alzheimer’s disease Research Center at Baylor College of Medicine in Houston,
              Texas. He also serves as the Director of the Jerry Lewis Neuromuscular
              Research
              Center. Dr. Appel is a leading authority on degenerative neurological
              diseases,
              such as Parkinson’s, Alzheimer’s and ALS. Specifically, Dr. Appel focuses on the
              importance of neurotrophic factors and immune mechanisms, including
              the role of
              inflammatory cytokines in these diseases. He has served as an Advisory
              Board
              member of the Alzheimer’s disease and Related Disorders Association and as a
              Council member of the American Society of Neurochemistry.
  Dr.
              Zouhair Atassi, Ph. D. is the current Robert A. Welch Chair of Chemistry
              and the
              Professor of Biochemistry and Molecular Biology at Baylor College of
              Medicine,
              Houston, Texas. After completing his Ph.D. in Chemistry, University
              of
              Birmingham, England, Dr. Atassi started his career in 1960 as Postdoctoral
              Research Fellow in Chemistry at the University of Birmingham. Dr. Atassi
              was the
              2003 President of the Institute of Immunobiology and he is the current
              Editor-in-Chief for The Protein Journal, Protein Reviews and Critical
              Reviews in
              Immunology. Dr. Atassi has published 14 books and several volumes in
              Immunochemistry of Proteins and Immunobiology of Proteins and Peptides.
              He has
              given more than 150 lectures in national and international conferences
              and more
              than 180 invited seminars in U.S. and foreign universities and research
              institutions. In addition Dr. Atassi has more than several hundred
              scientific
              publications and has been awarded five United States patents between
              1996 and
              2000.
  Dr.
              Ira
              L. Goldknopf, Ph. D. began his scientific career over 30 years ago,
              pioneering
              the field that is now known as Proteomics. More than a decade before
              the start
              of the Human Genome Project, Dr. Goldknopf made the earliest proteomic
              discovery
              at Baylor College of Medicine with Harris Busch, the isolation, identification,
              and sequencing of a new protein from a two-dimensional gel, Protein
              A24. During
              the course of these investigations, he discovered that protein A24
              was the first
              known conjugate of two very important proteins, Histone H2A, a part
              of the
              subunit structure that packages DNA in the cell nucleus, and Ubiquitin.
              Through
              the work of Dr. Goldknopf and many others (over 9,000 publications
              in the
              ensuing years) - including Drs. Avram Hershko, Aaron Ciechanover, and
              Alex
              Varshavsky, who shared the 2000 Lasker Award for their achievements
              - the
              Ubiquitin Conjugation System is now known to play a major role in the
              management
              of the inventories of proteins in the cell, cell proliferation, programmed
              cell
              death, and most, if not all, major regulatory functions in health and
              disease at
              the cellular level.
  Dr.
              Thomas E. Watts, M. D. received his M.D. in 1975 from Baylor College
              of
              Medicine. Dr. Watts is board certified, from American Board of Family
              Practice
              since 1972 and practiced medicine at Blue Earth Medical Center in Minnesota
              from
              1975 to 1996 and is now practicing at the Kelsey-Seybold Clinic, The
              Woodlands,Texas. As a physician with more than 30 years of practice
              experience,
              Dr. Watts provides the Company with insights from the perspective of
              the end
              user of the Company’s products.
  Dr.
              Alan
              B. Hollingsworth, M. D. received his M.D. with Distinction from the
              University
              of Oklahoma College of Medicine in 1975 where he served as First Vice-President
              of Alpha Omega Alpha Honor Medical Society. In addition to his general
              surgery
              residency at the University of Oklahoma, he completed a one-year fellowship
              in
              surgical pathology at U.C.L.A. In the 1980s, he joined the first wave
              of
              surgeons who chose to limit their practices to breast cancer. He was
              the
              Founding Medical Director of the University of Oklahoma Institute for
              Breast
              Health in 1993 where he held the G. Rainey Williams Chair of Surgical
              Breast
              Oncology. Currently, he serves as Medical Director of Mercy Women’s Center
              (Mercy Health Center, Oklahoma City) and Medical Director, Breast MRI
              of
              Oklahoma. His interest in breast cancer risk assessment led to the
              publication
              of the first lay book on the subject, The Truth About Breast Cancer
              Risk
              Assessment, and he served as lead author for the multi-institutional
              consensus
              paper published in the American Journal of Surgery by the national
              breast cancer
              risk assessment working group.
  72
  **Section
              16(a) Beneficial Ownership Reporting Compliance**
  Section
              16(a) of the Exchange Act requires the Company’s directors, executive officers,
              and the persons who beneficially own more than ten percent (10%) of
              the
              Company’s common stock to file reports of ownership and changes in ownership
              with the SEC. Copies of all filed reports are required to be furnished
              to the
              Company. Based solely on the reports received by the Company and on
              representations of the reporting persons, the Company determined that
              there were
              a number of transactions that were not timely reported. With respect
              to its
              current directors, executive officers, and persons beneficially owning
              more than
              ten percent (10%) of the Company’s common stock, the Company undertook to file
              forms throughout the year. The Company has implemented new procedures
              to ensure
              improved compliance with the reporting requirements on an on-going
              basis. To the
              Company’s knowledge, based solely on its review of the reports received and
              on
              representations of the reporting persons, the Company believes that
              these
              persons have complied with all applicable filing requirements during
              the fiscal
              year ended December 31, 2004, except: (i) Mr. Rash did not timely file
              a Form 3
              which was subsequently filed with the SEC; (ii) Dr. Goldknopf did not
              timely
              file a Form 3 which was subsequently filed with the SEC; (iii) Mr.
              Rosinski did
              not timely file a Form 3 and Form 4, each of which was subsequently
              filed with
              the SEC; (iv) Advanced BioChem, Inc. did not timely file a Form 3 which
              was
              subsequently filed with the SEC; (v) Mr. Behzadi, a former executive
              officer of
              the Company, did not timely file a Form 3 which was subsequently filed
              with the
              SEC; and (vi) Mr. Novak, a former executive officer and director of
              the Company,
              reported several transactions on five Form 5s rather than on Form 4
              after he was
              no longer an executive officer or director of the Company and has not
              corrected
              such filings.
  **Code
              of Ethics**
  The
              Company has adopted a code of ethics applicable to its principal executive
              officer and principal financial officer, a copy of which is filed with
              this
              Annual Report.
  **Item
              1** **0.
              Executive Compensation**
  The
              following table sets forth information concerning the compensation
              for services
              in all capacities rendered to us for the three fiscal years ended December
              31,
              2006, of our Chief Executive Officer and our other executive officers:
  73
  **Summary
                        Compensation Table****Long
                        Term Compensation****Annual
                        Compensation****(1)**
                    
                    **Awards****Name
                        and Principal Position**
                    
                    **Year**
                    
                    **Salary**
                      **($)**
                    
                    **Bonus**
                      **($)**
                    
                    **Restricted**
                      **Stock**
                      **Award(s)****(2)******
                      **($)**
                    
                    **Securities
                        Underlying Options/SARs**
                      **(#)**
                    
                    **All
                        Other Compe-nsation**
                      **($)**
                    
                    **Total**
                      **($)**Steven
                        B. Rash, Chairman of the Board / Chief Executive Officer
                    
                    
                    2006
                    
                    
                    282,301
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    (3)(5
                    )
                    
                    282,3012005
                    
                    
                    248,426
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    248,4262004
                    
                    
                    190,623
                    
                    
                    0
                    
                    
                    11,925,000
                      (4
                    )
                    
                    0
                    
                    
                    0
                    
                    
                    12,115,623Dr.
                        Ira L. Goldknopf, Director of Proteomics (6)
                    
                    
                    2006
                    
                    
                    98,207
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    98,2072005
                    
                    
                    78,948
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    78,9482004
                    
                    
                    96,214
                    
                    
                    
                    
                    
                    11,925,000(7
                    )
                    
                    0
                    
                    
                    0
                    
                    
                    12,021,214John
                        P. Burton, Chief Financial Officer
                    
                    
                    2006
                    
                    
                    112,936
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    112,9362005
                    
                    
                    57,138
                    
                    
                    0
                    
                    
                    42,000
                    
                    
                    0
                    
                    
                    0
                    
                    
                    99,138
 
 (1)
                      Other
                          annual compensation provided to the named executive officers
                          did not
                          exceed the applicable disclosure
                          requirements.
 (2)
                      At
                          December 31, 2004 the aggregate number and value of all
                          restricted shares
                          held by each of the named executive officers was as follows:
                          Mr. Rash -
                          13,250,000 restricted shares, $11,925,000 value and Mr.
                          Goldknopf -
                          13,250,000 restricted shares, $11,925,000 value. The values
                          are based on
                          the closing price of $0.90 of the Company’s common stock on May 18, 2004.
                          Although the Company does not expect to pay dividends on
                          its common stock,
                          any dividends which may be paid on its common stock will
                          not be paid on
                          the restricted stock unless and until such time as the
                          restricted stock
                          becomes nonforfeitable.
 (3)
                      Mr.
                          Rash joined the Company in May 2004 with the completion
                          of the acquisition
                          of assets from Advanced BioChem. Mr. Rash was the Chairman
                          of the Board
                          and Chief Executive Officer of Advanced BioChem. Mr. Rash
                          has entered into
                          an employment agreement with the Company which is described
                          below.
 (4)
                      Pursuant
                          to Mr. Rash’s employment agreement, he was awarded 13,250,000 shares
                          of
                          restricted common stock. The value is based upon a closing
                          price of $0.90
                          of the Company’s common stock on May 18, 2004. All of the shares are
                          restricted stock and vested on May 18, 2006. In addition,
                          Mr. Rash is
                          entitled to receive 1,500,000 shares of restricted Series
                          B preferred
                          stock to be designated by the
                          Company.
 (5)
                      In
                          2003, Mr. Rash was granted by Advanced BioChem pursuant
                          to his employment
                          agreement 825,000 shares of Advanced BioChem’s common stock and the option
                          to purchase 200,000 shares of common stock at $0.80 per
                          share. At the time
                          the 825,000 shares were granted, the fair market value
                          of such stock was
                          $0.80 per share for a total of $660,000. Mr. Rash continues
                          to hold such
                          shares. Advanced BioChem was to enter into an option agreement
                          with Mr.
                          Rash; however, no such option agreement has been executed
                          nor is it
                          expected since Mr. Rash is no longer an officer of Advanced
                          BioChem.
 (6)
                      Dr.
                          Goldknopf joined the Company in May 2004 with the completion
                          of the
                          acquisition of the assets of Advanced BioChem. Dr. Goldknopf
                          was the Chief
                          Scientific Officer of Advanced BioChem. Dr. Goldknopf has
                          entered into an
                          employment agreement with the Company as described
                          below.
 (7)
                      Pursuant
                          to Dr. Goldknopf’s employment agreement, he was awarded 13,250,000 shares
                          of restricted common stock. The value is based upon a closing
                          price of
                          $0.90 of the Company’s common stock on May 18, 2004. All of the shares are
                          restricted stock and vested on May 18, 2006. In addition,
                          Dr. Goldknopf is
                          entitled to receive 1,500,000 shares of restricted Series
                          B preferred
                          stock to be designated by the
                          Company.
  74
  **Director
              Compensation**
  Mr.
              Rash
              and Dr. Goldknopf are the Company’s directors at this time. Except for the
              compensation to which each is entitled pursuant to the terms of their
              respective
              employment agreements, neither Mr. Rash nor Dr. Goldknopf receive any
              further
              compensation for service as directors. The Company has no formal plan
              for
              compensating outside directors at this time. However, at such time
              as the
              Company has outside directors, the Company expects to compensate its
              outside
              directors and to reimburse them for reasonable travel and other out-of-pocket
              expenses incurred in connection with the attendance at meetings.
  **Option
              Grants in Last Fiscal Year**
  No
              options were granted to the above named officers in 2005 or 2006.
  **Employment
              Agreements**
  The
              Company has entered into an amended and restated employment agreement
              with Mr.
              Rash. The employment agreement is effective as of May 18, 2004 and
              has an
              initial term of five years, subject to each party’s termination rights. The
              agreement provides for a base salary of $250,000 per year and the opportunity
              to
              receive cash bonuses based on performance upon the discretion of the
              Company’s
              board of directors. The agreement also includes participation in employee
              benefit plans offered by the Company to its employees, as well as a
              grant of
              13,250,000 shares of restricted common stock and 1,500,000 shares of
              restricted
              Series B preferred stock. The agreement contains a covenant not to
              compete with
              the Company during the period of employment and for a period of two
              years
              following the termination or expiration of his employment. The employment
              agreement also contains a non-disclosure and non-use of proprietary
              information
              clause and a non-interference clause covering the period of employment
              and for a
              period of five (5) years thereafter. Either party may terminate Mr.
              Rash’s
              employment under the contract, either with or without cause upon giving
              the
              other party at least thirty days notice. If the Company terminates
              Mr. Rash’s
              employment at any time during the initial term without cause, Mr. Rash
              will be
              entitled to receive compensation provided under the agreement for the
              remaining
              initial term of employment. In addition, in the event of a change in
              control as
              defined in the agreement, the Company may waive, in whole or in part,
              any and
              all remaining restrictions on the restricted shares of common stock
              and Series B
              preferred stock granted to Mr. Rash.
  The
              Company has entered into an amended and restated employment agreement
              with Dr.
              Goldknopf. The employment agreement is effective as of May 18, 2004
              and has an
              initial term of five years, subject to each party’s termination rights. The
              agreement provides for a base salary of $125,000 per year through December
              18,
              2004 and $100,000 per year thereafter, with an opportunity to receive
              cash
              bonuses based on performance upon the discretion of the Company’s board of
              directors. The agreement also includes participation in employee benefit
              plans
              offered by the Company to its employees, as well as a grant of 13,250,000
              shares
              of restricted common stock and 1,500,000 shares of restricted Series
              B preferred
              stock. The agreement contains a covenant not to compete with the Company
              during
              the period of employment and for a period of two years following the
              termination
              or expiration of his employment. The employment agreement also contains
              a
              non-disclosure and non-use of proprietary information clause and a
              non-interference clause covering the period of employment and for a
              period of
              five (5) years thereafter. Either party may terminate Dr. Goldknopf’s employment
              under the contract, either with or without cause upon giving the other
              party at
              least thirty days notice. If the Company terminates Dr. Goldknopf’s employment
              at any time during the initial term without cause, Dr. Goldknopf will
              be
              entitled to receive compensation provided under the agreement for the
              remaining
              initial term of employment. In addition, in the event of a change in
              control as
              defined in the agreement, the Company may waive, in whole or in part,
              any and
              all remaining restrictions on the restricted shares of common stock
              and Series B
              preferred stock granted to Dr. Goldknopf.
  75
  The
              Company entered into an employment agreement with Mr. Burton. The employment
              agreement is effective as of September 1, 2005 and has an initial term
              of three
              years, subject to each party’s termination rights. The agreement provides for a
              base salary of $100,000 per year and the opportunity to receive cash
              bonuses
              based on performance upon the discretion of the Company’s board of directors.
              The agreement also includes participation in employee benefit plans
              offered by
              the Company to its employees, as well as a grant of 140,000 shares
              of restricted
              common stock. The agreement contains a covenant not to compete with
              the Company
              during the period of employment and for a period of two (2) years following
              the
              termination or expiration of his employment. The employment agreement
              also
              contains a non-disclosure and non-use of proprietary information clause
              and a
              non-interference clause covering the period of employment and for a
              period of
              five (5) years thereafter. Either party may terminate Mr. Burton’s employment
              under the contract, either with or without cause upon giving the other
              party at
              least thirty days notice. If the Company terminates Mr. Burton’s employment at
              any time during the initial term without cause, Mr. Burton will be
              entitled to
              receive compensation provided under the agreement for the remaining
              initial term
              of employment. In addition, in the event of a change in control as
              defined in
              the agreement, the Company will waive, in whole or in part, any and
              all
              remaining restrictions on the restricted shares of common stock granted
              to Mr.
              Burton.
  **Item
              11 Security Ownership of Certain Beneficial Owners and
              Management** **and Related Stockholder’s Matters**
  **SECURITY
              OWNERSHIP OF CERTAIN**
 **BENEFICIAL
              OWNERS AND MANAGEMENT**
  The
              following table sets forth information as of December 31, 2006, the
              most recent
              practicable date, regarding beneficial ownership of the Company’s common stock
              by the following persons: (i) each person who is known to the Company
              to
              beneficially own more than 5% of the outstanding shares of common stock;
              (ii)
              each of the Company’s directors; (iii) each of the Company’s executive officers
              named in the executive compensation table; and (iv) all of the Company’s
              directors and executive officers as a group. The data shown in the
              table
              immediately below is based on the stock transfer agent report as of
              December 31,
              2006. To the Company’s knowledge, there has been no change to any of the amounts
              reported in the table below, as of the date of filing this report.
  Unless
              otherwise indicated below, to the Company’s knowledge, all persons listed below
              have sole voting and investment power with respect to their shares
              of common
              stock, except to the extent authority is shared by spouses under applicable
              law.
              Beneficial ownership is determined in accordance with the rules of
              the SEC based
              on factors including voting and investment power with respect to shares,
              subject
              to applicable community property laws. Shares of common stock subject
              to options
              or warrants exercisable within 60 days of December 31, 2006, are deemed
              outstanding for the purpose of computing the percentage ownership of
              the person
              holding such options or warrants, but are not deemed outstanding for
              computing
              the percentage ownership of any other person.
  76
  **Name
                        of Beneficial Owner**
                    
                    **Number
                        of Shares of Common Stock**
                    
                    **Percent
                        of Class**Industrial
                        Enterprises of America, Inc.
                      (formerly
                        known as Advanced BioChem, Inc.)
                      711
                        3RDAvenue, Suite 1505
                      New
                        York, NY 10017
                    
                    13,232,840
                    
                    18.54%Steven
                        B. Rash
                      3400
                        Research Forest Dr., Suite B2-3
                      The
                        Woodlands, Texas 77381
                    
                    5,000,000
                    
                    7.00%Trinity
                        Financing Investments
                      300
                        East 55thSt
                        Apt 14D
                      New
                        York, NY 10022
                    
                    4,347,000
                    
                    6.09%Ira
                        L. Goldknopf
                      3400
                        Research Forest Dr., Suite B2-3
                      The
                        Woodlands, Texas 77381
                    
                    724,403
                    
                    1.01%John
                        P. Burton
                      3400
                        Research Forest Dr., Suite B2-3
                      The
                        Woodlands, Texas 77381
                    
                    140,000
                    
                    *All
                        current directors and executive officers as a group (3
                        persons)
                    
                    5,864,403
                    
                    8.22%*Indicates
                        less than one percent.
  **Changes
              of Control**
  In
              addition to the shares of the Company’s common stock beneficially owned by Mr.
              Rash and Dr. Goldknopf described above, the Company has entered into
              amended and
              restated employment agreements with Mr. Rash and Dr. Goldknopf which
              require the
              Company to issue 1,500,000 shares of restricted Series B preferred
              stock to each
              of Mr. Rash and Dr. Goldknopf. The Company has not filed the certificate
              of
              amendment designating the Series B preferred stock and its powers,
              designations
              and relative rights and has not issued the shares of the Series B preferred
              stock. As a result of certain restrictions agreed upon with the investors
              in
              connection with the Company’s recent financing, the Company may not issue the
              Series B preferred stock until 90 days after the effective date of
              the
              registration statement filed by the Company on behalf of the investors.
              After
              such restrictions lapse, the Company intends to file the certificate
              of
              amendment and issue the Series B preferred stock.
  The
              terms
              of the Series B preferred stock agreed upon by the Company provide
              that while
              the shares of Series B preferred stock are held by Mr. Rash and Dr.
              Goldknopf,
              they will have the right to vote that number of votes equal to the
              number of
              outstanding shares of the Company’s common stock plus one additional vote such
              that they will hold a majority of the voting rights of the Company.
              In the event
              of the death or termination of employment of either Mr. Rash or Dr.
              Goldknopf,
              the remaining holder of the Series B preferred stock will continue
              to hold such
              voting rights. The issuance of such shares of Series B preferred stock
              will
              result in a change of control of the Company.
  77
  **Employee
              Stock Option Plans**
  **Securities
              Authorized for Issuance Under Equity Compensation
              Plans**
  **Number
                        of securities to be issued upon exercise of outstanding options,
                        warrants
                        and rights**
                    
                    **Weighted-average
                        exercise price of outstanding options, warrants and
                        rights**
                    
                    **Number
                        of securities remaining available for future issuance under
                        equity
                        compensation plans (excluding securities reflected in column)**Equity
                        compensation plans approved by security holders
                    
                    0
                    
                    0
                    
                    0Equity
                        compensation plans enacted by management and approved by
                        the Board of
                        Directors, but not submitted for a vote or approved by all
                        holders of the
                        Company’s securities
                    
                    450,000
                    
                    $1.03
                    
                    10,255,643Total
                    
                    450,000
                    
                    $1.03
                    
                    10,255,643
 
  The
              10,255,643 securities that remain available for future issuance under
              equity
              compensation plans arise from the Company’s 2004 Directors, Officers and
              Consultants Stock Option, Stock Warrant, and Stock Award Plan (“2004 Plan”). The
              Company has issued 38,926,466 shares of common stock under the 2004
              Plan. The
              2004 Plan initially authorized the issuance of 10,000,000 shares of
              the
              Company’s common stock pursuant to the Plan; however, the number of shares
              available under the 2004 Plan shall increase so that immediately following
              any
              grant of securities under the 2004 Plan, the total number of shares
              issuable
              under the 2004 Plan and reserved for issuance upon exercise of options,
              warrants, or conversion of shares of preferred stock will equal 15%
              of the total
              number of the Company’s issued and outstanding shares of common
              stock.
  **Item
              12 Certain Relationships and Related Transactions** **.**
  On
              May
              18, 2004, the Company acquired a set of assets from Advanced BioChem
              and assumed
              certain of its liabilities in exchange for the issuance of 15,000,000
              shares of
              the Company’s common stock to Advanced BioChem. At the time of the acquisition,
              Mr. Rash owned approximately 3.92% of the common stock of Advanced
              BioChem, thus
              resulting in indirect beneficial ownership at the time of the transaction
              of
              approximately 588,000 shares of the Company’s common stock through Advanced
              BioChem. Additionally, Dr. Goldknopf held approximately 8.23% of the
              common
              stock of Advanced BioChem at the time of the transactions, thus resulting
              in his
              indirect beneficial ownership at the time of the transaction of approximately
              1,234,500 shares of the Company’s common stock through Advanced BioChem.
  78
  In
              March,
              2005, Mr. Rosinski loaned the Company $35,000. The loan, due to be
              repaid on or
              before April 30, 2005, is to be repaid with proceeds from later issue
              of
              permanent financing and is payable, with interest at rate of 6% per
              annum, The
              loan remains outstanding, is in default and is carried on the Balance
              Sheet.
 
 In
              order
              to obtain bridge loan financing for the Company, Steven B. Rash, Chief
              Executive
              Officer of Power3, and Dr. Ira Goldknopf, Director of Proteomics of
              Power3, have
              both pledged a number of shares of stock they owned personally, as
              collateral
              for the bridge loans obtained. In the case of three of these bridge
              loan
              providers, pledged shares have been sold to pay back the notes payable
              due to
              the lenders. The amounts obtained from the sale of pledged shares have
              been
              reported to the Company by the lenders. As of December 31, 2006, the
              Company
              owed Steven B. Rash notes payable, in the amounts of his pledged shares
              that
              have been sold, in the amount of $608,342. As of December 31, 2006,
              the Company
              owed Dr. Ira Goldknopf notes payable, in the amounts of his pledged
              shares that
              have been sold, in the amount of $785,004.
  **Item
              13 Exhibits**
  (a)
                    Exhibits
  **Exhibit
                        No.**
                    
                    **INDEX**2.1
                    
                    Asset
                        Purchase Agreement dated as of May 11, 2004 by and among
                        Power 3 Medical
                        Products, Inc., Advanced BioChem, Inc. d/b/a ProteEx, Steven
                        B. Rash and
                        Ira Goldknopf****(incorporated
                        by reference to Exhibit 2.1 to the Company’s Registration State on Form
                        SB-2 (File No**.**333-122227).3.1
                    
                    Certificate
                        of Incorporation (incorporated by reference to Exhibit 2.5
                        to the
                        Company’s Form 10-SB filed on September 28, 1998).3.2
                    
                    Certificate
                        of Merger (incorporated by reference to Exhibit 2.7 to the
                        Company’s Form
                        10-SB filed on September 28, 1998).3.3
                    
                    Certificate
                        of Amendment of the Certificate of Incorporation (incorporated
                        by
                        reference to Exhibit 2.9 to the Company’s Form 10-SB filed on September
                        28, 1998).3.4
                    
                    Certificate
                        of Amendment of the Certificate of Incorporation (incorporated
                        by
                        reference to Exhibit 3. (I).10 to the Company’s Form S-3 filed on March 2,
                        2000).3.5
                    
                    Certificate
                        of Amendment to the Certificate of Incorporation (incorporated
                        by
                        reference to Exhibit 3.1 to the Company’s Form 8-K filed on November 5,
                        2004).3.6
                    
                    Bylaws
                        (incorporated by reference to Exhibit 2.10 to the Company’s Form 10-SB
                        filed on September 28, 1998).4.1
                    
                    Form
                        of Convertible Debenture Due October 28, 2007 (incorporated
                        by reference
                        to Exhibit 4.1 to the Company’s Form 8-K filed on November 3,
                        2004).4.2
                    
                    Form
                        of Common Stock Purchase Warrant (incorporated by reference
                        to Exhibit 4.2
                        to the Company’s Form 8-K filed on November 3, 2004).4.3
                    
                    Form
                        of Additional Investment Right (incorporated by reference
                        to Exhibit 4.3
                        to the Company’s Form 8-K filed on November 3, 2004).10.1(3)
                    
                    Amended
                        and Restated Employment Agreement****for
                        Steven B. Rash (incorporated by reference to Exhibit 10.1
                        to the Company’s
                        Form 8-K filed January 5, 2005).10.2(3)
                    
                    Amended
                        and Restated Employment Agreement for Ira L. Goldknopf, Ph.D.
                        (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed
                        January 5, 2005).10.3(3)
                    
                    Employment
                        Agreement for John P. Burton (incorporated by reference to
                        Exhibit 10.1 to
                        the Company’s Form 8-K filed September 21,
                        2005).
  79
  **Exhibit
                        No.**
                    
                    **INDEX**
  10.4(4)
                    
                    Exclusive
                        License Agreement dated effective as of June 28, 2004 by
                        and between
                        Baylor College of Medicine and Power3 Medical Products, Inc.
                        (incorporated
                        by reference to Exhibit 10.1 to the Company’s Form 10-QSB/A for the
                        quarter ended September 30, 2004).10.5(1,4)
                    
                    Research
                        Agreement signed August 17, 2004 by and between Baylor College
                        of Medicine
                        and Power3 Medical Products, Inc.(incorporated by reference
                        to Exhibit
                        10.13 to the Company’s Form 10-KSB for the year ended December 31,
                        2005.)10.6(4)
                    
                    Patent
                        and Technology License Agreement dated August 1, 2004 by
                        and between The
                        Board of Regents of The University of Texas System, on behalf
                        of The
                        University of Texas M.D. Anderson Cancer Center, and Power3
                        Medical
                        Products, Inc. (incorporated by reference to Exhibit 10.2
                        to the Company’s
                        Form 10-QSB/A for the quarter ended September 30,
                        2004).10.7(4)
                    
                    Patent
                        and Technology License Agreement dated September 1, 2003
                        by and between
                        The Board of Regents of The University of Texas System, on
                        behalf of The
                        University of Texas M.D. Anderson Cancer Center, and Advanced
                        BioChem,
                        Inc. (d/b/a ProteEx) (incorporated by reference to Exhibit
                        10.3 to the
                        Company’s Form 10-QSB/A for the quarter ended September 30,
                        2004).10.8
                    
                    Securities
                        Purchase Agreement dated as of October 28, 2004, among the
                        Company and
                        each purchaser identified therein (incorporated by reference
                        to Exhibit
                        10.1 to the Company’s Form 8-K filed on November 3,
                        2004).10.9
                    
                    Amendment
                        to Securities Purchase Agreement dated January 19, 2005 among
                        the Company
                        and each purchaser identified therein (incorporated by reference
                        to
                        Exhibit 10.8 of the Company’s Registration Statement on FormSB2(File No.333-122227)).10.10
                    
                    Registration
                        Rights Agreement dated as of October 28, 2004, among the
                        Company and each
                        purchaser identified therein (incorporated by reference to
                        Exhibit 10.2 to
                        the Company’s Form 8-K filed on November 3, 2004).10.11(3)
                    
                    2004
                        Directors, Officers and Consultants Stock Option, Stock Warrant
                        and Stock
                        Award Plan (incorporated by reference to Exhibit 4.1 of the
                        Company’s
                        Registration Statement on Form S-8 filed January 20,
                        2004).10.12(3)
                    
                    Collaborative
                        Research Agreement, dated March 21, 2005, by and between
                        New Horizons
                        Diagnostics and Power3 (incorporated by reference to Exhibit
                        16.1 of the
                        Company’s Registration Statement on Form 10KSB filed September 9,
                        2005).10.13(3)
                    
                    Collaborative
                        Research and Licensing Agreement, dated May 17, 2005, by
                        and between
                        BioSite Incorporated and Power3 for collaborative research
                        and worldwide
                        licensing to BioSite Incorporated. (incorporated by reference
                        to Exhibit
                        16.1 of the Company’s Registration Statement on Form 10KSB filed September
                        9, 2005).10.14
                    
                    Research
                        Agreement, dated October 13, 2005, between Power3 and Pfizer,
                        Inc.
                        (incorporated by reference to Exhibit 10.1 to the Company’s Form 8K filed
                        October 19, 2005).10.15
                    
                    Promissory
                        Note executed by Power3 and Cordillera Fund LP in the amount
                        of $251,000,
                        dated April 5, 2005 (incorporated by reference to Exhibit
                        10.1 to the
                        Company’s Form 10QSB filed August 22, 2005).10.16
                    
                    Promissory
                        Note, dated May 31, 2005, executed by Power3 and Steven B.
                        Rash in the
                        amount of $55,000 (incorporated by reference to Exhibit 26.4
                        to the
                        Company’s Form SB2/A filed on October 6, 2005).10.17
                    
                    Promissory
                        Note, dated June 3, 2005, executed by Power3 and Dr. Ira
                        Goldknopf in the
                        amount of $50,000 (incorporated by reference to Exhibit 26.5
                        to the
                        Company’s Form SB2/A filed on October 6, 2005).10.18
                    
                    Promissory
                        Note, dated June 13, 2005, executed June 17, 2005 between
                        Power3 and John
                        Fife in the amount of $396,500 (incorporated by reference
                        to Exhibit 10.1
                        to the Company’s Form 8K filed on June 22,
                        2005).
  80
  **Exhibit
                        No.**
                    
                    **INDEX**
  10.19
                    
                    Promissory
                        Note (Amended version), dated August 29, 2005, executed by
                        Power3 and John
                        Fife in the amended amount of $446,500 (incorporated by reference
                        to
                        Exhibit 10.1 to the Company’s Form 8K filed on September 9,
                        2005).10.20
                    
                    Promissory
                        Note executed by Power3 and Cordillera Fund LP in the amount
                        of $200,000,
                        dated September 5, 2005 (incorporated by reference to Exhibit
                        10.3 to the
                        Company’s Form 8K filed on September 9, 2005).10.21
                    
                    Promissory
                        Note, dated October 17, 2005, between Power3 and Dr. Ira
                        Goldknopf in the
                        amount of $39,231 (incorporated by reference to Exhibit 10.2
                        to the
                        Company’s Form 8K filed October 19, 2005).10.22
                    
                    Promissory
                        Note, dated September 6, 2005, between Power3 and Dr. Ira
                        Goldknopf in the
                        amount of $80,000 (incorporated by reference to Exhibit 10.2
                        to the
                        Company’s Form 8K filed September 9, 2005).10.23(1)
                    
                    Promissory
                        Note, dated November 23, 2005, between Power3 and Dr. Ira
                        Goldknopf in the
                        amount of $52,000 (incorporated by reference to Exhibit 10.35
                        to the
                        Company’s Form 10-KSB for the year ended December 31,
                        2005.)10.24
                    
                    Promissory
                        Note executed on December 12, 2005 between Power3 and Trinity
                        Financing
                        (incorporated by reference to Exhibit 10.1 to the Company’s Form 8K filed
                        December 12, 2005)10.25
                    
                    Promissory
                        Note executed on August 7, 2006, between Power3 and Rich
                        Kraniak in the
                        amount of $20,00010.26
                    
                    Promissory
                        Note executed on August 7, 2006, between Power3 and Rich
                        Kraniak in the
                        amount of $100,000 (incorporated by reference to Exhibit
                        10.23 to the
                        Company’s Form 10-QSB for March 31, 2007)10.27
                    
                    Promissory
                        Note executed on October 27, 2006, between Power3 and Rich
                        Kraniak in the
                        amount of $100,000 (incorporated by reference to Exhibit
                        10.27 to the
                        Company’s Form 10-QSB for March 31, 2007)10.28
                    
                    Promissory
                        Note executed on October 27, 2006, between Power3 and Rich
                        Kraniak in the
                        amount of $30,00010.29
                    
                    Promissory
                        Note executed on October 27, 2006, between Power3 and Steven
                        B. Rash in
                        the amount of $5,80010.30
                    
                    Promissory
                        Note executed on September 30, 2006, between Power3 and Steven
                        B. Rash in
                        the amount of $315,01010.31
                    
                    Promissory
                        Note executed on January 20, 2006, between Power3 and Steven
                        B. Rash in
                        the amount of $40,51510.32
                    
                    Promissory
                        Note executed on May 31, 2005, between Power3 and Steven
                        B. Rash in the
                        amount of $55,000 (incorporated by reference to Exhibit 26.4
                        to the
                        Company’s Form SB-2/A as filed on October 6, 2005.)10.33
                    
                    Promissory
                        Note executed on March 1, 2006, between Power3 and Steven
                        B. Rash in the
                        amount of $50,000 (incorporated by reference to Exhibit 10.17
                        to the
                        Company’s Form 10-QSB for March 31, 2007)10.34
                    
                    Promissory
                        Note executed on December 31, 2006, between Power3 and Steven
                        B. Rash in
                        the amount of $ 94,34110.35
                    
                    Promissory
                        Note executed on September 30, 2006, between Power3 and Dr.
                        Ira Goldknopf
                        in the amount of $18,13510.36
                    
                    Promissory
                        Note executed on September 30, 2006, between Power3 and Dr.
                        Ira Goldknopf
                        in the amount of $5,38710.37
                    
                    Promissory
                        Note executed on September 30, 2006, between Power3 and Dr.
                        Ira Goldknopf
                        in the amount of $304,734
  81
  **Exhibit
                        No.**
                    
                    **INDEX**
  10.38
                    
                    Promissory
                        Note executed on March 2, 2006, between Power3 and Dr. Ira
                        Goldknopf in
                        the amount of $89,400 (incorporated by reference to Exhibit
                        10.19 to the
                        Company’s Form 10-QSB for March 31, 2006)10.39
                    
                    Promissory
                        Note executed on December 31, 2006, between Power3 and Dr.
                        Ira Goldknopf
                        in the amount of $106,11710.40
                    
                    Promissory
                        Note executed on September 6, 2005 between Power3 and Dr.
                        Ira Goldknopf in
                        the amount of $80,000 (incorporated by reference to Exhibit
                        10.2 to the
                        Company Form 8-K filed on September 9, 200510.41
                    
                    Promissory
                        Note executed on October 27, 2006, between Power3 and Roger
                        Kazanowski in
                        the amount of $150,000 (incorporated by reference to Exhibit
                        10.25 to the
                        Company’s Form 10-QSB for March 31, 2007)10.42
                    
                    Promissory
                        Note executed on October 31, 2006, between Power3 and Andrew
                        Dahl in the
                        amount of $12,000 (incorporated by reference to Exhibit 10.29
                        to the
                        Company’s Form 10-QSB for March 31, 2007)10.43
                    
                    Promissory
                        Note executed on October 27, 2006, between Power3 and Steve
                        Scott in the
                        amount of $25,000 (incorporated by reference to Exhibit 10.28
                        to the
                        Company’s Form 10-QSB for March 31, 2007)10.44
                    
                    Promissory
                        Note executed on November 30, 2006, between Power3 and Jeffrey
                        Hyde in the
                        amount of $10,000 (incorporated by reference to Exhibit 10.30
                        to the
                        Company’s Form 10-QSB for March 31, 2007)10.45
                    
                    Promissory
                        Note executed on September 14, 2006, between Power3 and Magic
                        Arts &
                        Entertainment in the amount of $50,000 (incorporated by reference
                        to
                        Exhibit 10.21 to the Company’s Form 10-QSB for March 31,
                        2007)10.46
                    
                    Promissory
                        Note, dated May 31, 2006, between Power3 and John Fife in
                        the amount of
                        $266,000 (incorporated by reference to Exhibit 10.6 to the
                        Company’s Form
                        10-QSB for June 30, 2006.)10.47
                    
                    Consulting
                        Agreement signed with Noble Investments, dated March 1, 2007
                        (incorporated
                        by reference to Exhibit 10.43 to the Company’s Form 10-QSB for March 31,
                        2007)10.48
                    
                    Joint
                        Venture Agreement signed with NeoGenomics (incorporated by
                        reference to
                        Exhibit 10.44 to the Company’s Form 10-QSB for March 31,
                        200714.1
                    
                    Code
                        of Ethics for Chief Executive Officer, Chief Financial Officer
                        and
                        Principal Accounting Officer (incorporated by reference to
                        Exhibit 14.1 to
                        the Company’s Form 10KSB filed September 9, 2005).31.1(2)
                    
                    Certification
                        of Power 3 Medical Products, Inc. Chief Executive Officer,
                        Steven B. Rash,
                        pursuant to Section 302 of the Sarbanes-Oxley Act of
                        2002.31.2(2)
                    
                    Certification
                        of Power 3 Medical Products, Inc. Chief Accounting Officer,
                        John P.
                        Burton, pursuant to Section 302 of the Sarbanes-Oxley Act
                        of
                        2002.32.1(2)
                    
                    Certification
                        of Power 3 Medical Products, Inc. Chief Executive Officer,
                        Steven B. Rash,
                        pursuant to Section 906 of the Sarbanes-Oxley Act of
                        2002.32.2(2)
                    
                    Certification
                        of Power 3 Medical Products, Inc. Chief Accounting Officer,
                        John P.
                        Burton, pursuant to Section 906 of the Sarbanes-Oxley Act
                        of
                        2002.
  
  (1)
                      Filed
                          herewith
 (2)
                        Furnished
                            herewith
 (3)
                          Management
                              contract or compensatory plan or
                              arrangement
 (4)
                            Confidential
                                treatment has been requested with respect to certain
                                portions of this
                                exhibit. Omitted portions have been filed separately
                                with the Securities
                                and Exchange
                                Commission.
 
 82
  **Item
              14 Principal Accountant Fees and Services** **.** ****
  The
              following table sets forth the aggregate amount of fees billed by the
              Company’s
              independent accountants for the year ended December 31, 2006 and the
              year ended
              December 31, 2005:
  **2006**
                    
                    **2005**Audit
                        Fees:
                    
                    $
                    113,614
                    
                    $
                    101,743Audit
                        Related Fees:
                    
                    
                    
                    
                    $
                    46,163Tax
                        Fees:
                    
                    $
                    6,519
                    
                    $
                    5,081All
                        Other Fees:
                    
                    
                    
                    
                    $
                    3,925Total
                        Fees:
                    
                    $
                    120,133
                    
                    $
                    156,912
  The
              Company does not have an Audit Committee of the Board of Directors.
              All
              activities of the Company’s independent accountants are reviewed and approved
              prior to the engagement by the Board of Directors, who considers whether
              such
              activities could affect the independence of such accountants.
  83
  **SIGNATURES**
  In
              accordance with Section 13 and 15(d) of the Exchange Act, the Registrant
              caused
              this report to be signed on its behalf by the undersigned, thereunto
              duly
              authorized.
  Date:July
                        18, 2007
                    **Power3
                        Medical Products, Inc.**
                      
                      By:/s/
                        Steven B. Rash
                      Name:Steven
                        B. Rash
                      Title:Chairman
                        and Chief Executive Officer
                      
                      (Principal
                        Executive Officer)
  Pursuant
              to the requirements of the Exchange Act, this report has been signed
              by the
              following persons in the capacities and on the dates indicated.
  **Signature**
                    
                    **Title**
                    
                    **Date**/s/
                        Steven B. Rash
                      
                      Steven
                        B. Rash
                    
                    Chairman
                        and Chief Executive Officer
                      (Principal
                        Executive Officer)
                    
                    July
                        18, 2007/s/
                        Ira L. Goldknopf
                      
                      Ira
                        L. Goldknopf, Ph.D.
                    
                    Director
                        of Proteomics and Director
                    
                    July
                        18, 2007/s/
                        John P. Burton
                      
                      John
                        P. Burton
                    
                    Chief
                        Financial Officer
                      (Principal
                        Financial and Accounting Officer)
                    
                    July
                        18, 2007
  84