EXPLANATORY NOTE

This Form 10-QSB/A is being filed to amend the Power3 Medical Products, Inc. (the “Company” or “Power3”) Quarterly Report on Form 10-QSB for the quarter ended March 31, 2005. The amendment arises out of management’s review and redetermination of the proper accounting treatment of its May 18, 2004 acquisition of a certain set of assets and the assumption of certain liabilities from Advanced BioChem in an Asset Purchase Agreement of that same date. Previously the acquisition was reported in the financial statements of the Company, as a recapitalization, in a reverse acquisition. After a thorough review of the facts of the transaction, management has determined that the purchase transaction is properly accounted for using purchase accounting between related parties.

After completing an interim revue in preparation for the issuance of the Form 10-QSB for the six month period ending June 30, 2005, the management and Board of Directors of Power3 concluded, on August 5^th, 2005, that the Company’s consolidated financial statements contained within the Company’s quarterly reports filed on Form 10-QSB and 10-QSB/A for the quarterly periods ended June 30, 2004, September 30, 2004 and March 31, 2005, should be restated, and that such previously filed financial statements should no longer be relied upon, as previously presented.

The restatement of the financial statements for the three month period ending March 31, 2004, as described in the 8-K/A filed for May 18, 2004, results in the presentation of Power3’s financial condition as of March 31, 2004, rather than the presentation of Advanced BioChem, as was required under the pervious accounting treatment. This restatement results in different beginning balances in the balance sheet for March 31, 2004. Other than the difference in the beginning balance, the restatement results in a recognition of the previously existing Retained Earnings deficit which had been eliminated under recapitalization in a reverse acquisition. Similarly, with regard to the asset purchase transaction, the stock based compensation expenses are restated to reflect the stock granted at the time of the transaction.

The restatement requires recognition, in the restated Statement of Operations, of the difference in the historical cost of the assets acquired in the asset purchase transaction minus the liabilities assumed in the transaction. In addition, the restatement results in a reclassification of the values reported within the Stockholder’s Deficit section of the Company’s balance sheet. However, the restatement does not materially change the Net Loss reported for the Company for the three month period ending March 31, 2005.

The management of Power3 has determined that the facts of the asset purchase transaction were misinterpreted resulting in a misapplication of GAAP. As a result of these corrections, management has recommended, and the Board of Directors has approved, the restatement of the asset purchase transaction which occurred on May 18, 2004 and for the financial statements for the three month period ending March 31, 2005.

Generally, no attempt has been made in this Form 10-QSB/A to modify or update other disclosures presented in the original report on Form 10-QSB except as required to restate the financial statements for the three month period ended March 31, 2005. This Form 10-QSB/A does not reflect events occurring after the filing of the original Form 10-QSB or modify or update those disclosures. Information not affected by the amendment is unchanged and reflects the disclosure made at the time of the original filing of the Form 10-QSB with the Securities and Exchange Commission on May 24, 2005. Other than specific additions to amend the Management Discussion & Analysis section related to the restated financial statements, only the financial statements and the accompanying notes to the financial statements have been amended as a result of the restatement.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

CONDENSED BALANCE SHEET AS OF MARCH 31, 2005

(unaudited)

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	38,377
Prepaid expenses and other current assets	6,701
Total current assets	45,078

LAB EQUIPMENT (net of accumulated depreciation of $60,588)	85,025
INTELLECTUAL PROPERTY	156,859

OTHER ASSETS:
Debt issuance costs - net	174,380

Deposits	25,900

TOTAL ASSETS	487,242

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable	827,868
Other Liabilities	169,213
Notes payable	125,000
Convertible debentures (net of unamortized discounts of $1,238,899)	161,112
Total liabilities	1,283,193

STOCKHOLDERS’ DEFICIT:

Common stock - $0.001 par value: 150,000,000 shares authorized; 65,345,121 shares issued and outstanding	65,345
Capital Stock Additional paid-in capital	63,631,428
Deferred Compensation	(14,692,150	)
Deficit accumulated before entering development stage	(11,681,500	)
Deficit accumulated during the development stage	(38,119,074	)

Total Stockholder’s Deficit	(795,951	)

TOTAL LIABILITIES & STOCKHOLDERS DEFICIT	487,242

SEE NOTES TO CONDENSED FINANCIAL STATEMENTS

POWER 3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise )

CONDENSED STATEMENTS OF OPERATIONS

(unaudited)

	For the Three Months Ended March 31, 2005		For the Three Months Ended March 31, 2004		Development Stage Results May 18, 2004 to March 31, 2005

REVENUES	—		11,490		4,000
Cost of Goods Sold	—		(5,173	)
Gross Profit	—		6,317		4,000

OPERATING EXPENSES:
Consulting Fees	—		2,130,000		7,180,003
Stock based compensation	3,609,438		225,000		11,824,679
Other operating expenses	786,980		131,557		2,202,689

Total operating expenses	4,396,418		2,486,557		21,207,371

LOSS FROM OPERATIONS	(4,396,418	)	(2,480,240	)	(21,203,371	)

INTEREST AND FINANCING EXPENSE	123,685		1,514		162,952

NET LOSS	(4,520,103	)	(2,481,754	)	(21,366,323	)

NET LOSS PER SHARE - Basic and diluted	(0.07	)	(0.36	)	(0.34	)

Weighted average number of shares Outstanding	65,345,121		6,976,163		63,468,549

SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

POWER 3 MEDICAL PRODUCTS, INC

(A Development Stage Enterprise)

CONDENSED STATEMENTS OF CASH FLOWS

(unaudited)

		For the Three Months Ended March 31, 2005		For the Three Months Ended March 31, 2004		Cumulative During Development Stage May 18, 2004 to March 31, 2005

Operating activities:

Net Loss		(4,520,103	)	(2,481,754	)	(21,366,323	)

Stock based compensation - issued common stock		3,609,438		2,130,000		19,100,454

Adjustments to reconcile net cash used in operations:
Depreciation		15,564				243,025
Expenses incurred in exchange for common stock
Increase in receivables				11,356		(2,350	)
Increase in accounts payable		85,128		(16,346	)	594,366
Increase in accrued liabilities		237,350		83,062		(427,443	)
Other adjustments				2,038		46,977

Net cash used in operations		(572,623	)	(271,644	)	(1,811,294	)

Investing activities:
Purchase of equipment		12,742				11,486
Advances to subsidiary				(7,137	)

Net cash used in investing activities		12,742		(7,137	)	11,486

Financing activities:

Sale of common stock						449,807
Other		439,476		278,340		1,385,781

Net cash from financing activities		439,476		278,340		1,835,588

Net Increase(Decrease) during period		(120,405	)	(441	)	35,780

Cash at beginning of period		158,782		547		2,597

Cash at end of period		38,377		105		38,377

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Interest Paid		105,856		1,514

Shares Issued (market price, date of effective agreement):
For consulting contracts	15,831,466 shares					10,218,102
For acquisition	15,000,000 shares					13,500,000
For compensation	27,945,000 shares					25,451,500
For conversion of Preferred shares to common shares	3,000,324 shares					3,380,975

SEE NOTES TO THE CONDENSED FINANCIAL STATEMENTS..

POWER3 MEDICAL PRODUCTS, INC

(A Development Stage Enterprise)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(unaudited)

1.ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION

Prior to January 1, 2004, Power3 Medical Products, Inc. and its subsidiaries (collectively “Power3” or “the Company”), formerly known as Surgical Safety Products, was primarily engaged in product development, sales, distribution and services for the healthcare industry. The Company was an operating company, marketing devices to aid surgical procedures. Prior to May 18, 2004, the product had received only limited 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 was introduced to Advanced BioChem, doing business as ProteEx, that provided contract-for-fee lab services. 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. As consideration in the Asset Purchase Agreement, Power3 issued 15,000,000 shares of common stock to Advanced BioChem.

Subsequent to the May 18, 2004 asset purchase transaction with Advanced BioChem, Power3 Medical Products, Inc. changed its business model and became a development stage company. Power3 began to commercialize the intellectual property acquired in the transaction, with its focus being in the early detection, monitoring and targeting of diseases through the analysis of proteins. Power3’s current developmental stage business 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.

After the asset purchase transaction in May, 2004, the previous management of Power3 resigned and left the Company. Subsequent to these resignations, two employees of Advanced BioChem were granted employment agreements and joined Power3. These two employees were Steven B. Rash as President and CEO and Dr. Ira Goldknopf as Chief Scientific Officer.

At December 31, 2004, the Company had one direct subsidiary, Tenthgate, Inc. (“Tenthgate”), a Nevada corporation formerly known as Power 3 Medical, Inc. Tenthgate is not active in Power3’s current line of business activity. Prior to the acquisition of substantially all the assets and certain liabilities from Advanced BioChem, it was contemplated that Power3 would distribute shares of its subsidiary to its shareholders of record, however the shares of Tenthgate were transferred to a trustee for distribution to the shareholders of Power3 on May 17, 2004, before the Advanced BioChem transaction. Previous management of Power3 and Tenthgate have been independently operating Tenthgate since the Advanced BioChem transaction. As a result, Power3 does not now control the operations or activities of Tenthgate. As a result, Tenthgate’s activities are no longer controlled by, nor are their activities associated with Power3 in any manner whatsoever. Power3 intends to divest itself of its subsidiary due to the differences in business activity between Tenthgate and Power3 operating under its current business model. Some of the principal reasons for the divestiture of Tenthgate and its subsidiary are that the disposition of Tenthgate will allow the Company’s management to focus exclusively on its business objectives and permit management of Tenthgate more flexibility in its operations and the disposition will allow the market to separately identify and evaluate each business. The Company is continuing its efforts to

complete the disposition of Tenthgate; however current management of Tenthgate has advised the Company that Tenthgate has issued a significant number of shares of its common stock purportedly reducing the Company’s ownership interest to less than 1%. The Company believes this stock issuance to be invalid, however the Company does not have access to the records of Tenthgate and is considering its alternatives with respect to these actions. The Company still desires to complete a divestiture of Tenthgate, but believes the operations are inconsistent with and not material to the current activities of the Company. As a result, the operations and assets of Tenthgate are not consolidated or otherwise presented herein.

During 2003, Power3 was an operating company marketing surgical products to the health care industry. At the time of the asset purchase transaction on May 18, 2004, with Advanced BioChem, Power3 transitioned into the development stage with its principal business activity being the commercialization of its intellectual properties in the area of diagnosis and treatment of breast cancer, ALS, Alzheimer’s disease and Parkinson’s disease. During this development stage, shares of common stock issued for other than cash have been assigned amounts equivalent to the fair value of the service or assets received in the exchange, as of the effective date of the agreement, per SEC requirement.

The consolidated balance sheets, statements of operations and statements of cash flow included herein are unaudited, but include, in the opinion of management, all the adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Results for interim periods are not necessarily indicative of results that may be expected for any future interim period or for a full year.

2.RESTATEMENT

On May 18, 2004, Power3 executed the Asset Purchase Agreement referred to above, to purchase substantially all the assets of Advanced BioChem and assume certain liabilities in exchange for the issuance of 15,000,000 shares of common stock of Power3. For financial statement purposes, the transaction was treated as a recapitalization of the equity structure of Power3 and therefore, the accumulated deficit of Power3 was eliminated and no stock-based expenses were recorded as a result of this transaction. As a result of this accounting treatment, the activities of Advanced BioChem and Power3 were combined in the financial statements previously shown for the period January 1, 2004 through May 17, 2004. For the period May 18, 2004 through June 30, 2004, Power3’s financial statements, issued in its Form 10-QSB for the six month period ended June 30, 2004 and Amendment No. 1 for the same period, show Advanced BioChem as the predecessor under the accounting treatment of recapitalization, in a reverse acquisition, as discussed herein. Further the Company subsequently issued financial statements showing Advanced BioChem as the predecessor in its Form 10-QSB’s filed for the nine months ended September 30, 2004.

Subsequent to the filing of Form 10-QSB for the quarter ended March 31, 2005, and during its interim revue and preparation for filing its 10-QSB for the six months ended June 30, 2005, management reviewed the transaction referenced above and determined that the May 18, 2004 transaction for the purchase of assets and the assumption of a certain set of liabilities, is properly accounted for as a purchase transaction between related parties. Advanced BioChem has continued to operate as a separate company with the only relationship to Power3 being that it is a significant shareholder in the Company. The initial impact of the restatement is to replace the results of Advanced BioChem’s balance sheet, statement of operations and cash flows with Power3’s results for the three month period ended March 31, 2004. This restatement results in a restated beginning balance as the balance sheet is now that of Power3, for March 31, 2004. This difference in beginning balance flows through the Company’s later financial statements, including its effects on the restated financial statements in this amended 10-QSB for the three month period ending March 31, 2005.

Other than the difference in beginning balance described above, this restatement of Power3’s balance sheet results in the Company’s retained earnings deficit, which had previously been eliminated under recapitalization, being restored, as well as recognition of the difference between the consideration given versus the consideration received in the asset purchase transaction, being restated with an offset to additional paid in capital. Similarly, with regard to the asset purchase transaction, the stock based compensation expenses are restated to reflect the stock granted at the time of the transaction to various shareholders. Finally, the restatement of the purchase transaction required a reclassification of certain items in the previously presented balance sheet for Power3. Power3 will be issuing its audited financial statements for the year ended December 31, 2004, contemporaneously with this amended 10-QSB and the audited ending balances for December 31, 2004 represent the beginning balances for the financial statements presented herein.

As a result of the restated accounting treatment, the Statement of Operations, for Power3 during the three months ended March 31, 2005, is not materially different with that previously presented in the 10-QSB for the same three month period.

The effect of the restatement on the previously presented Statements of Cash Flow is not materially different from that previously presented in the 10-QSB for the same three month period.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying financial statements include only the accounts of Power3. As stated above, the operations of Tenthgate have been excluded for consolidation and the assets have been expensed as abandoned, discontinued operations.

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instruction to Form 10-QSB and Item 310(b) of Regulation S-B. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.

The results of operations for the periods presented are not necessarily indicative of the results to be expected for a full year. For further information, refer to the financial statements of the Company for the years ended December 31, 2003 and 2002, including notes thereto included in the Company’s Form 10-KSB for the respective periods.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions management is required to make. Estimates that are critical to the accompanying financial statements include assessing the impact of contingencies (see above and Note 8) and the amortization periods for the debt issuance costs and debt discount on the convertible

debentures (see Note 8) as well as estimating depreciation and amortization periods of tangible and intangible assets, and long-lived impairments, among others. The markets for the Company’s products are characterized by intense competition, evolving standards and price competition, all of which could impact the future realizability of the Company’s assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the financial statements in the period they are determined to be necessary.

Financial Instruments and Concentrations of Credit Risk

Management believes the book value of the Company’s cash and cash equivalents, accounts payable and accrued liabilities approximates their fair values due to their short-term nature. Management has used certain valuation techniques to estimate the fair value of the convertible debentures, loans notes and stockholder receivables because of the lack of similar type arrangements in the marketplace and because of uncertainty surrounding the date the receivables will be recovered.

Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist primarily of cash and cash equivalents. We occasionally maintain cash and cash equivalents balances in excess of federally insured limits. We have not experienced any losses in such accounts.

Furniture, Fixtures and Lab Equipment

Furniture, fixtures and lab equipment are stated at cost. Major additions are capitalized, while minor additions and maintenance and repairs, which do not extend the useful life of an asset, are expensed as incurred. Depreciation and amortization are provided using the straight-line method over the assets’ estimated useful lives. At March 31, 2005, certain lab equipment having a net book value of approximately $39,500 serves as security for certain liabilities.

Debt Acquisition Costs

Debt acquisition costs are being amortized over the maximum term of the convertible debentures of three years using the straight line method.

Unamortized Discount

Unamortized discount resulting from the allocation of value to warrants and the beneficial conversion feature embedded in the convertible debentures (see Note 8) is being amortized to interest expense over the contractual lives of the debentures using the interest method.

Other Intangibles

Other intangibles consist primarily of patents which are recorded at cost and arise from legal and filing fees. Patents and other intangibles are being amortized over ten years on a straight-line basis.

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. The Company evaluated its long-lived assets at December 31, 2004 and determined that certain impairment losses were necessary. As a result, operations were charged for $60,589 during the period May 18, 2004 (date of acquisition) to March 31, 2005. Management believes that the remaining balances of the Company’s long-lived assets are recoverable.

Net Loss Per Share

Net loss per share is computed in accordance with SFAS No. 128 “Earnings per Share” (“SFAS No. 128”) and SEC Staff Accounting Bulletin No. 98 (“SAB 98”). Under the provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the number of common and common equivalent shares outstanding during the period. In periods in which they would be anti-dilutive, common equivalent shares are ignored in the loss per share calculations. As a result, basic and diluted net loss per share is identical for each of the periods in the accompanying financial statements.

Stock – Based Compensation

The Company accounts for equity instruments issued to employees for services based on the intrinsic value of the equity instruments issued and accounts for equity instruments issued to those other than employees based on the fair value of the consideration received or the fair value of the equity instruments, whichever is more reliably measurable. The Company has valued stock based compensation based on market prices of the stock as of the effective date of the agreement, per SEC requirements. Because there have been extreme fluctuations in the quoted market prices of the stock, this method has resulted in significant amounts, relative to the assets and liabilities, being recorded as compensation and paid in capital.

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

Income Taxes

The Company computes income taxes in accordance with Financial Accounting Standards Statement No. 109 “Accounting for Income Taxes” (“SFAS 109”). The Company also prepares its income taxes in accordance with this standard. Under SFAS 109, deferred taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. Also, the effect on deferred taxes of a change in tax rates is recognized in income in the period that included the enactment date. There were no significant temporary differences at March 31, 2005.

Research and Development

Research and development costs are expensed as incurred.

Cash Equivalents

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

Investments

The Company accounts for its interest in Power 3 Medical, Inc., a Nevada corporation, now known as Tenthgate, Inc., using the cost method.

Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. As such, they may not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for the three month period March 31, 2005 are not necessarily indicative of the results to be expected for the full year ended December 31, 2005.

(2) Going Concern

The Company’s financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company is in the development stage and has primarily been involved in research and development and capital raising activities; as such the Company has incurred significant losses from operations and has a significant stockholders’ deficit at March 31, 2005. As a result, the Company has an immediate need for capital to continue its operations, and it will need to raise significant additional funds to implement its business plan. This cash will have to come from equity sales and/or borrowings as management has projected that the Company will need significant additional capital for development and other ongoing operational activities before it will have any anticipated revenue generating products. The actual amount of funds that the Company will need will be determined by many factors, some of which are beyond the Company’s control. These factors include:

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

• The progress and results of research and product development;

• The costs and timing of obtaining new patent rights;

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

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

A current possibility available to management is to raise the remaining funds of $1,600,000 potentially available to the Company pursuant to the Securities Purchase Agreement dated October 28, 2004 (the “Agreement”). These funds will be immediately reduced by the payment of certain delinquent payables of approximately $251,000 of certain bridge financing received in April 2005, the $396,500 of bridge loan financing and the two Officer Advances that are to be repaid upon the receipt of the $1,600,000. The Company is in immediate need for capital to continue its operations and as such its 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 specified in the Agreement, that the net funds available from the final closing under such Agreement will allow the Company to continue operations through December 2005. 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 December 2005 to meet its operating costs. However, the Company is currently in default under the conditions set forth in the Agreement as well as the debentures and registration rights agreement and consequently, there is no assurance that the Company will be successful in completing the sale and issuance of the remaining $1,600,000 aggregate principal amount of debentures and/or the additional investments rights pursuant to

the Agreement. If the Company is unsuccessful in the closing of the sale and issuance of the $1,600,000 aggregate principal amount of debentures at the final closing, the Company will be required to obtain alternative financing, sell or license some of its technology, and/or to curtail or cease its operations. Any such funding may significantly further dilute existing shareholders or may limit the Company’s rights to its technology. Moreover, the increase in the number of shares available in the public marketplace may reduce the market price for the Company’s common stock, and consequently, the price investors may receive at the time of sale. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

(3) Loss Per Share

The following common equivalent shares have been excluded from the fully diluted loss per share calculations because the effects would be anti-dilutive;

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

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

• 580,000 shares of warrants which were issued to members of the Company’s Scientific Advisory Board and various other consultants in 2004 (including 100,000 to the agent that placed the convertible debentures discussed above). The warrants, which expire three to five years from the dates of the respective grants and were issued at no cost to such personnel, may be converted to a like number of shares of the Company’s common stock at any time prior to their expiration(s). As a result, during the period May 18, 2004 (date of acquisition) to December 31, 2004, the Company recorded $626,100 of stock based compensation as a result of the issuance of these warrants, which amounts represent the fair value of the warrants on the dates they were granted.

(4) Income Taxes

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

At March 31, 2005 the Company had net operating loss carryforwards for income tax purposes of approximately $9,551,000 arises primarily from stock based expenses that are considered to be permanent differences. These net operating loss carryforwards expire at various times through the period ended March 31, 2005 however because the Company has experienced changes in control and has incurred significant operating losses, utilization of the income tax loss carryforwards are not assured. As a result, the non-current deferred income tax asset arising from these net operating loss carryforwards is not recorded in the accompanying balance sheet because the Company established a valuation allowance to fully reserve such assets as their realization did not meet the required asset recognition standard established by SFAS 109.

(5) Related Party Transactions

During the three months ended March 31, 2005 the chief financial officer advanced $35,000 to the Company. The advance, which is due on demand and unsecured, bears interest at 6% per annum. At March 31, 2005, the balance of the advance is included in accounts payable and included in Other Liabilities in the accompanying condensed balance sheet.

(6) Notes Payable

Certain notes payable existing at March 31, 2005 bear interest at a fixed rate of 6% and were scheduled to mature on December 31, 2004. However, the Company has entered into agreements with the note holders to extend the maturity of the notes through June 30, 2005. In addition, the Company has the option to convert 75% of the notes into its common stock at a mutually agreeable conversion ratio.

(7) Other Commitments and Contingencies

Operating Lease

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 $9,600 (plus utilities and operating expenses) over the lease term. The lease contains a provision which allows the Company to extend the lease for two additional terms of sixty months.

Employment Agreements

The Company is obligated under amended and restated employment agreements with its Chief Executive Officer, Chief Scientific Officer and Chief Financial Officer. The significant terms of the agreements are as follows:

Chief Executive Officer – The amended and restated 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 board of directors. The agreement also includes participation in employee benefit plans offered to 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 Series B preferred shares have not yet been issued). Either party may terminate the Chief Executive Officer’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice. If the Company terminates the chief executive officer’s employment at any time during the initial term without cause, he 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 him.

Chief Scientific Officer – The amended and restated 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 current base salary of $125,000 through December 18, 2004 and $100,000 thereafter and the opportunity to receive cash bonuses based on performance upon the discretion of the board of directors. The agreement also includes participation in employee benefit plans offered to 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 Series B preferred shares have not yet been issued). Either party may terminate the chief scientific officer’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice. If the Company terminates the Chief Scientific Officer’s employment at any time during the initial term without cause, he 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 him.

Chief Financial Officer – The amended and restated employment agreement is effective as of July 2, 2004 and has an initial term of three years, subject to each party’s termination rights. The agreement provides for a base salary of $120,000 per year and the opportunity to receive cash bonuses based on performance upon the discretion of our board of directors. The agreement also includes participation in employee benefit plans offered by us to our employees, as well as a grant of 140,000 shares of restricted common stock. Either party may terminate the Chief Financial Officer’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice. If the Company terminates the chief financial officer’s employment at any time during the initial term without cause, he 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 granted to him.

On June 3, 2005, Mr. Michael Rosinski, Chief Financial Officer of Power3, resigned and terminated his employment at the Company as of that date. In accordance with his resignation, the employment agreement with Mr. Rosinski has terminated on June 5, 2005, and the stock grant of 140,000 shares of Restricted Stock to Mr. Rosinski is terminated. The stock shares covered in this agreement have been returned to the Company.

Other Common Stock Grants

In addition to the above common stock grants, the Company granted 1,305,000 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 Company recorded $25,024,500 of deferred compensation 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 is being amortized to stock based compensation expense over the vesting period.

As mentioned above, 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. The shares will be convertible into a like number of common shares as vesting occurs over a period which is expected to be two years.

Future required payments for base compensation under all of the employment agreements discussed above are approximately as follows:

Periods Ending December 31,	Amounts

2005 (nine months)	$	352,500
2006	470,000
2007	410,000
2008	350,000
2009	175,000

Total	$	1,757,500

Contingencies

An equipment vendor filed a complaint against Advanced BioChem (which related to equipment acquired by Power3 in the May 18, 2004 transaction) in April of 2002 in a California court alleging breach of contract and seeking damages. Advanced BioChem reached a settlement agreement in April of 2003 under which Advanced BioChem agreed to pay the vendor $40,000 in installments through August of 2003. At December 31, 2003, Advanced BioChem had a balance remaining of $20,000. In April 2005 the equipment vendor filed a lawsuit against Advanced BioChem and certain former officers of Advanced BioChem, and against Power3, in order to enforce its claim for the remaining balance which is past due and may be assumed by the Company as part of the settlement of the dispute with Advanced BioChem as to liabilities assumed in the May 18, 2004 transaction.

(8) Securities Purchase Agreement

Convertible Debentures

The Company entered into a Securities Purchase Agreement, dated October 28, 2004 (the “Agreement”) with certain accredited investors, and an Amendment to such Securities Purchase agreement on January 19, 2005 in which four investors accelerated the purchase of debentures in exchange for additional warrants. Pursuant to the Agreement, the purchasers 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. The Agreement also provides for the issuance to the purchasers, at no additional cost to the purchasers, warrants to purchase shares of the Company’s common stock and additional investment rights to purchase additional convertible debentures. In connection with the Agreement, the Company also entered into a registration rights agreement with the purchasers, which requires that the Company file a registration statement with the SEC registering on behalf of the purchasers 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 an additional registration statement for the resale of the shares issuable upon conversion of the debentures issuable upon exercise of the additional investment rights previously issued by the Company.

Effective October 28, 2004, the Company issued and sold to 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 certain investors $400,000 aggregate principal amount of debentures. Subject to the conditions set forth in the Agreement, as amended, the 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 investors 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 26, 2005 are due and payable in accordance with their original terms in full three years after the date of issuance and will not bear interest. The debentures which may be issued at the final closing will be due and payable in full three (3) years after the date of their issuance, and will 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 of the Company at the then effective conversion price. The conversion price for the previously issued $1,400,000 aggregate principal amount of debentures and the 1,600,000 aggregate principal amount of debentures issuable at the final closing is equal to the lesser of (1) $0.90, (2) the 75% average of the daily volume weighted average price of the common stock for the five (5) consecutive days preceding the effective date of the registration statement or (3) the daily volume

weighted average price of the common stock on the effective date of the registration statement. The conversion price shall be subject to adjustment under circumstances set forth in the debentures.

Under the Agreement, the Purchasers also received at the first closing 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. Pursuant to the Amendment to the agreement, concurrent with the Company’s issuance of the $400,000 aggregate principal amount of debentures on January 26, 2005, the Company issued additional warrants to purchase an aggregate of up to 333,333 shares of common stock. 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.

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 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).

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.

The debentures include customary 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.

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

liquidated damages since the registration statement was not declared effective on or before February 25, 2005. The amount of liquidated damages shall equal two percent (2%) of the aggregate purchase price paid by the holders for the debentures and shall be payable on each monthly anniversary of such date until the registration statement is declared effective.

The Company has received notice from one of the purchasers of the debentures 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.

Upon filing its Form 10-KSB for 2004, the Company intends to file an amendment to its previously filed registration statement and will endeavor to have it declared effective as soon as practicable. The Company is in discussion with its debenture holders regarding a resolution of this matter.

In connection with such financing, the Company became obligated to issue to its placement agent a warrant to purchase 100,000 shares of common stock at an exercise price of $3.00. 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.

In accordance with the provisions of Emerging Issues Task Force Issue 98-5 (“EITF 98-5”), discounts have been recorded for the entire face amount of the convertible debentures on the dates the debentures were sold (i.e. October 28, 2004 and January 25, 2005) of the first closing to allocate value to the embedded beneficial conversion feature and the 2,500,000 warrants.

Similarly, a discount for the entire face amount of the convertible debentures was recorded on the date of the first closing to allocate value to the embedded beneficial conversion feature and the 2,500,000 warrants.

Since there is no assurance that the Company will receive the remaining funds due at the time of the final closing and/or through the exercise of additional investment rights, no effect has been given to any value that may result from the issuance of securities in the accompanying financial statements.

(9) Other Significant Equity Transactions

(10) Stock Option Plans

The Company has various stock option and warrant plans outstanding. Options granted under the 1998 stock option plans are exercisable only after the respective vesting period, which is determined by the Company’s stock option committee. Options expire seven years from the date of grant. Under the 1999 stock option plan, options granted to employees vest ratably over three years; vesting is determined by the Company’s stock option committee for options granted to officers, directors, and consultants. Options expire ten years from the date of grant.

On March 31, 2003, the Company approved the 2003 Stock Compensation Plan, which provides for the granting of common stock, options and/or warrants to officers, directors and employees of the Company, as well as consultants and attorneys who provide services to the Company. Under this plan the Company is authorized to issue up to 8,000,000 shares of common stock, options or warrants. The options and warrants shall expire according to terms as determined by a committee on the date of grant, which will not exceed ten years from the date of grant, or five years in cases of a grantee who owns more than 10% of the total combined voting power of all classes of stock (10% Stockholder). The exercise period of any options or warrants granted will also be determined by this committee at the date of grant. The exercise price shall be determined by the committee at the time of grant except that in the case of incentive stock options, the exercise price shall not be less than 100% of the fair market value of the shares on the date of

grant, and in cases of a 10% Stockholder, for which the exercise price shall not be less than 110% of fair market value on the date of grant.

In addition to the above, 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.

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

All of the Company’s warrants were recorded at their fair values; accordingly stock based compensation actually recorded and stock based compensation that would be recorded using a fair value based method are identical.

A summary of the Company’s warrant activity and related information for the period January 1, 2004 to December 31, 2004 is as follows:

		Weighted
		Average
		Exercise
	Warrants	Price

Outstanding at January 1, 2004	6,360	$	12.50

Cancelled	—	$	—

Granted	3,080,000	$	1.44

Exercised	—	$	—

Outstanding at December 31, 2004	3,086,360	$	1.46

Exercisable at the end of the year	3,086,360	$	1.46

The following table summarizes information about the Company’s Warrants outstanding at December 31, 2004:

				Weighted
			Weighted Average	Average
		Number	Remaining Contractual	Exercise
Exercise Price		Outstanding	Life (in years)	Price
$	.98	300,000	2.4	$	.98
$	1.00	100,000	2.4	$	1.00
$	1.43	50,000	2.8	$	1.43
$	1.44	2,500,000	4.8	$	1.44
$	2.77	30,000	2.6	$	2.77
$	3.00	100,000	4.8	$	3.00
$	6.50	5,460	6.0	$	6.50
$	50.00	900	3.0	$	50.00

		3,086,360		$	1.46

(11) Recent Pronouncements

FIN 46 – Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN 46, (revised in December 2003 as FIN46R) “Consolidation of Variable Interest Entities,” which clarifies the application of Accounting Research Bulletin (“ARB”) 51, Consolidated Financial Statements, to certain entities (called variable interest entities) in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The disclosure requirements of this Interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements apply to all variable interest entities created after January 31, 2003. In addition, public companies must apply the consolidation requirements to variable interest entities that existed prior to February 1, 2003 and remain in existence as of the beginning of annual or interim periods beginning after June 15, 2003. The adoption of FIN 46R had no impact on the financial statements of the Company as the Company has no variable interests in variable interest entities.

SFAS 150 - Accounting for Certain ‘Financial Instruments with Characteristics of Both Liabilities and Equity

In May 2003, SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” was issued to establish new standards for how an entity classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an entity classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of these instruments were previously classified as equity. This statement was effective when issued for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for calendar year public companies for the third quarter of 2003. The adoption of SFAS 150 had no impact on the financial statements of the Company.

SFAS 132 - Employers’ Disclosures about Pensions and Other Postretirement Benefits

In December 2003, FASB Statement No. 132 (revised) was issued which prescribes the required employers’ disclosures about pension plans and other postretirement benefit plans; but it does not change the measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original Statement 132. It also requires additional disclosures about the

assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The Statement generally is effective for fiscal years ending after December 15, 2003. Since the Company does not have any types of pension plans or other postretirement benefits, the adoption of this Statement did not have an effect on the Company’s financial statements.

SFAS 123(R) ‘Share-Based Payments’

In December 2004, the Financial Accounting Standards Board issued Statement Number 123 (“FAS 123 (R)”), Share-Based Payments. FAS 123 (R) requires all entities to recognize compensation expense in an amount equal to the fair value of shared-based payments such as stock options granted to employees. The Company will be required to apply FAS 123 (R) on a modified prospective method. Under this method, the Company is required to record compensation expense (as previous awards continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. In addition, the Company may elect to adopt FAS 123 (R) by restating previously issued financial statements, basing the amounts on the expense previously calculated and reported in the pro forma disclosures that had been required by FAS 123. FAS 123 (R) is effective for the first reporting period beginning after June 15, 2005. The Company does not believe the impact of adopting this Statement will be material as there are no unvested options and warrants at December 31, 2004.

SFAS 153 - Exchanges of Non-monetary Assets an Amendment of APB Opinion No. 29

In December 2004, FASB Statement No. 153 was issued amending APB Opinion No. 29 to eliminate the exception allowing non-monetary exchanges of similar productive assets to be measured based on the carrying value of the assets exchanged as opposed to at their fair values. This exception was replaced with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this statement are effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement did not have a material impact on the Company’s financial statements.

FIN- 45 Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others

In November 2002, the FASB issued FASB Interpretation (“FIN”) 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applied prospectively to guarantees issued or modified after December 31, 2002. The adoption of these recognition provisions will result in recording liabilities associated with certain guarantees provided by us. The disclosure requirements of this Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. FIN 45 has no impact on the Company’s financial statements

(12) Subsequent Events

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (AS AMENDED)

Delay in Filing Annual Report on Form 10-KSB

As previously reported, the Company was unable to file its 2004 10-KSB within the extended filing deadline ending April 15, 2005 and has remained unable to make its filing of that report up to now. Under the previous accounting treatment of recapitalization, as in a reverse acquisition, the Company was required to display the financial statements of Advanced BioChem for the interim period of January 1, 2004 to May 17, 2004 and for the year ended December 31, 2003, as a predecessor entity. The predecessor auditors refused to give their consent to the use of Advanced BioChem’s audited financial statements and Power3 was not able to file its 2004 10-KSB within the filing deadline. The Company previously requested Advanced BioChem to engage new auditors to obtain a separate audit of their 2003 financial statements. In addition, the Company elected to pursue guidance from the SEC in an alternative effort to resolve the accounting matters as expeditiously as possible. However, due to other reasons, Power3 was not able to convince Advanced BioChem to secure a separate audit, nor was it able to obtain a resolution of its accounting matters from the SEC and its Form 10-KSB for 2004 remained unfiled.

After completing an interim review in preparation for the issuance of the Form 10-QSB for the six month period ended June 30, 2005, the management and Board of Directors of Power3 concluded, on August 5, 2005 that the Company’s consolidated financial statements contained within the Company’s Quarterly Reports filed on Form 10-QSB and 10-QSB/A for the quarterly periods ended June 30, 2004, September 30, 2004 and March 31, 2005, should be restated, and that such previously filed financial statements should no longer be relied upon, as previously presented. The Company intends to file amended consolidated financial statements for the aforementioned periods prior to, and contemporaneously with, the filing of its Form 10-KSB for year ended December 31, 2004.

While the impact of replacing the Advanced BioChem predecessor financials with Power3’s financials significantly affects the beginning balances, the restatement does not materially change the Power3 financial statements, other than to recognize the acquisition costs incurred in the May 18, 2004 transaction. The restatement requires a recognition, in the restated Statement of Operations for the period, of the difference in the historical cost of the assets acquired in the asset purchase transaction minus the liabilities assumed in the transaction and of the costs associated with the stock issued as consideration in the transaction. In addition, the restatement results in a restatement of the values reported within the Stockholder’s Equity section of the Company’s balance sheet. However, the restatement of the financial statements for 2004 is not expected to materially change the Net (Loss) reported for the Company for the three month period ending March 31, 2005, nor is it expected to materially change the Total Assets or Total Liabilities reported for the Company, other than as to the beginning balance restatement reported above.

The management of Power3, after considerable review, has determined that the facts of the asset purchase transaction were misinterpreted resulting in a misapplication of GAAP. As a result of these corrections, management has recommended, and the Board of Directors has approved, the restatement of the asset acquisition transaction which occurred on May 18, 2004 for the financial statements included in the Form 10-QSB’s as filed for the quarterly periods ended June 30, 2004, September 30, 2004 and March 31, 2005.

Dispute with Advanced BioChem

Advanced BioChem recently advised the Company, and publicly announced that it was reviewing the terms of the Company’s acquisition of the assets and assumption of certain liabilities of Advanced BioChem pursuant to the Asset Purchase Agreement. Advanced BioChem has asserted that the Company, together with Messrs. Rash and Goldknopf, are responsible for Advanced BioChem’s liabilities, with the exception of those specifically excluded. The amount of such liabilities is approximately $2,700,000. The terms of the Asset Purchase Agreement are not clear and are subject to different interpretations. The Company had confidential and non-binding discussions and negotiations with Advanced BioChem in an effort to resolve this disagreement. At this time, Advanced BioChem has ceased discussions with the Company indicating that it will take action to enforce any rights and remedies it may have with respect to the Power3 sale and the liabilities. Notwithstanding this, because the

Company had offered to assume certain liabilities in the amount of approximately $425,000 in an effort to resolve this disagreement and in accordance with Financial Accounting Standards Board Statement Number 5, “Accounting for Contingencies”, the Company had increased the purchase price by $425,000 (which amount represents the minimum amount of the range of additional liabilities that may ultimately be assumed upon resolution of the matter.)

Under interim review, subsequent to the filing of its Form 10-QSB for the six month period ended June 30, 2005, management has determined that it is no longer agreeable to assume the aforementioned $425,000 in Advanced BioChem’s liabilities and has restated the purchase price of the transaction back to its original amount and has removed the $425,000 in contingent liabilities from its balance sheet for March 31, 2005. On August 2, 2005, Advanced BioChem filed suit against Power3 claiming damages of at least $3,000,000 including the costs of litigation and of addressing the claims of the creditors of Advanced BioChem that remain unpaid. The Company remains contingently liable for the remaining liabilities of approximately $2,700,000. However, the purchase price and related financial statements have not been adjusted for these liabilities as the fair value of this contingency cannot be reasonably estimated at this time.

Results of Operation

Three Months Ended March 31, 2005 as Compared to Three Months Ended March 31, 2004

There were no revenues for the quarter ended March 31, 2005 compared to $11,490 in revenues for the quarter ended March 31, 2004. Due to the lack of revenue, there were no Gross Profits for the quarter ended March 31, 2005 compared to $6,317 for the quarter ended March 31, 2004.

Operating expenses were $4,396,418 for the quarter ended March 31, 2005, primarily due to stock-based compensation expense of $3,609,438. The stock based compensation results from the quarterly amortization of the non-cash stock compensation valued at market price on the effective date of the agreement. In addition, all other operating expenses for the quarter ended March 31, 2005 were $786,980 as compared to $131,557 for the quarter ended March 31, 2004, representing an increase of $655,423, primarily resulting from increased payroll and increased research and development costs, compared to the reduced operations ongoing at the Company during the 1^st quarter of 2004, prior to the May 18, 2004 acquisiton of a set of assets from Advanced BioChem.

Interest expense in the quarter ended March 31, 2005 was $123,685 as compared to $1,514 for the same period in 2004. The increase in interest expense is primarily attributable to the non-cash interest expense recorded to amortize the debt issue expense and the debt discount associated with the issuance of the convertible debentures.

Liquidity and Capital Resources

The Company’s liquidity and capital needs relate primarily to working capital, research and development costs and other general corporate requirements. The Company has not received any cash from operations and therefore is dependent upon debt and equity capital raised to operate the company during this developmental stage. This financing is discussed specifically in “Notes Payable” and “Convertible Debentures” section of this report.

Net cash used in operating activities approximated ($572,623) for the quarter ended March 31, 2005. A significant portion of this is represented in the negative Net Income reported for the period.

Net cash provided by investing activities was ($12,742), primarily consisting of payments, to vendors, on equipment obtained in the Advanced BioChem transaction.

Net cash provided by financing activities amounted to $439,476, mainly consisting of the sale of convertible debenture. During the period, the Company experienced a net cash decrease for the period of ($120,405.)

Recent 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 19, 2005, the Company entered into an amendment to the securities purchase agreement with each of the investors. 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 issuable upon conversion of the debentures issued upon exercise of the additional investment rights previously issued by the Company.

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 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, as amended, 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. The Company is currently in default under the Securities Purchase Agreement, the previously issued debentures and related registration rights agreement and therefore the conditions of the Securities Purchase Agreement will not be satisfied or otherwise met on a timely basis. Consequently, there are no assurances that the investors will purchase all or any portion of the remaining $1,600,000 aggregate principal amount of debentures. The securities purchase agreement provides that 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 accordance with their original terms in full three (3) years after issuance and do not bear interest. The $1,600,000 aggregate principal amount of debentures, or portion thereof, which may be issued at the final closing will be due and payable in full three (3) years after the date of their issuance, and will 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 but is subject to adjustment if either (1) 75% of the average of the daily volume weighted average price of the Company’s common stock for the five (5) consecutive trading days preceding the date that the registration statement is declared effective by the SEC or (2) the daily volume weighted average price of the common stock on such date is less than $0.90 per share. In such event, the conversion price will be adjusted down to equal the lower of (1) the 75% average of the daily volume weighted average price of the common stock for the five (5) consecutive days preceding the effective date of the registration statement or (2) the daily volume weighted average price of the common stock on the effective date of the registration statement. The $1,600,000 aggregate principal amount of debentures issuable at the final closing will have a conversion price equal to the lesser of (1) $0.90, (2) the 75% average of the daily volume weighted average price of the common stock for the five (5) consecutive days preceding the effective date of the registration statement of which this prospectus forms a part, or (3) the daily volume weighted average price of the common stock on the effective date of the registration statement. It is anticipated that the conversion price of the previously issued $1,400,000 aggregate principal amount of debentures, as well as the conversion price of any

remaining debentures issued by the Company, will be adjusted and reduced below the current adjustment price of $0.90.

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 minimus number of shares of common stock other than as permitted in the debentures and other documents executed with the purchasers.

The Mandatory Prepayment Amount equals the sum of (i) the greater of: (a) 130% of the principal amount of the debentures to be prepaid, or (b) the principal amount of the debentures to be prepaid, divided by the conversion price on (x) the date the payment is demanded or otherwise due, or (y) the date the payment is paid in full, whichever is less, multiplied by the closing price of the Company’s common stock on (x) the date the payment is demanded or otherwise due, or (y) the date the payment is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of the debentures. In addition to the foregoing, pursuant to the terms of the registration rights agreement, the Company is required to pay each holder of the debentures liquidated damages since the registration statement was not declared effective on or before February 25, 2005. The amount of liquidated damages shall equal two percent (2%) of the aggregate purchase price paid by the holders for the debentures and shall be payable on each monthly anniversary of such date until the registration statement is declared effective.

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. Pursuant to the terms of the amendment to the securities purchase agreement, 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. 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. 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, or (2) April 28, 2006.

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).

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.

In accordance with generally accepted accounting principles, the difference between the total cost of the debentures on October 28, 2004 (the date of the securities purchase agreement) and the total fair value of the common shares that will be received by the debenture holders at the time of conversion (which amount cannot be determined until the conversion price is established) will be reflected as a debt discount and amortized to stock based interest expense over the lesser of three years or the period of time the debentures are outstanding. With respect to the warrants, the difference between the fair value of the shares of the Company’s common stock on the date the respective warrants are issued and the amount determined by multiplying the exercise price of the warrants by the number of shares issuable under the warrants will also be reflected as a debt discount and amortized to interest expense over the lesser of five years or the period of time the warrants are outstanding. Similar treatment will be accorded to benefits accruing to the debenture holders as a result of any purchase of the additional investment rights discussed above.

Plan of Operations and Cash Requirements

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

Absent a source of revenues, the Company will require funding in order to carry out its business plan until such time as it is able to generate sustained revenues. The Company’s current cash requirements are approximately $250,000 per month and the Company anticipates that it will require approximately $3,500,000 for the twelve months ended March 31, 2006 to continue its development activities, undertake and perform clinical validation studies, continue its marketing efforts and maintain its administrative infrastructure, broken down as follows:

Estimated Expenditures Required
During Next Twelve Months

General and Administrative	$	2,550,000
Capital Expenditures	$	400,000
Patent filings and intellectual property	$	200,000
NAF clinical validation studies	$	350,000
Total	$	3,500,000

The foregoing is based upon the Company’s current estimated cash requirements. The resolution of the Company’s current dispute with Advanced BioChem regarding the liabilities assumed by the Company in the parties’ transaction may result in an increase in the Company’s liabilities and cash requirements. The Company has no significant capital expenditure requirements and does not plan to increase its monthly expenditure rate absent an increase in revenues or additional funding.

As noted in “Recent Financing” above, the Company entered into a securities purchase agreement and an amendment to the securities purchase agreement pursuant to which certain investors agreed to purchase, subject to the satisfaction of certain conditions, convertible debentures in the aggregate principal amount of $3,000,000.

The securities purchase agreement, as amended, also provides for the issuance of warrants to purchase shares of the Company’s common stock and additional investment rights to purchase additional convertible debentures. On the initial closing under the securities purchase agreement, which was effective as of October 28, 2004, the investors purchased the first $1,000,000 in aggregate principal amount of the convertible debentures of which the Company received approximately $860,000 after payment of fees and expenses. Pursuant to the securities purchase agreement, as amended, certain investors have purchased an additional $400,000 aggregate principal amount of convertible debentures on January 26, 2005. 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 convertible debentures on or before the fifth trading day after the effective date of the registration statement. The Company is currently in default under the Securities Purchase Agreement, the previously issued debentures and related registration rights agreement and therefore the conditions of the Securities Purchase Agreement will not be satisfied or otherwise met on a timely basis. Consequently, there are no assurances that the investors will purchase all or any portion of the remaining $1,600,000 aggregate principal amount of debentures.

Assuming the completion of the remaining closing and sale and issuance of the remaining $1,600,000 in aggregate principal amount of the convertible debentures, the Company estimates that, after repayment of the bridge note of $251,000 immediately following the sale and issuance of such debentures, the Company will have adequate cash to allow it to meet its current funding requirements through the third quarter of 2005. In the event the sale and issuance of such debentures occurs and the investors exercise their warrants and additional investment rights, the Company anticipates it will have adequate cash to meet its current funding requirements through the first quarter of 2007. The foregoing is based upon current estimated cash requirements and may be affected by the Company’s current dispute with Advanced BioChem regarding the liabilities assumed under the May 2004 transaction.

In addition to the convertible debentures, the Company also issued warrants to purchase up to 2,500,000 shares of common stock, with an exercise price equal to $1.44. The Company issued additional warrants to purchase up to 333,333 shares of common stock concurrent with its issuance of the $400,000 aggregate principal amount of debentures. Full exercise of the warrants would generate funds in excess of $4,000,000. The Company also issued additional investment rights, which give the investors the right to purchase up to an aggregate of $2,500,000 of convertible debentures with a conversion price of $1.08. However, the exercise of these warrants and additional investment rights is at the discretion of the purchasers and there are no assurances that the purchasers will exercise their rights under such securities.

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. If the Company is successful in completing the sale and issuance of the remaining $1,600,000 aggregate principal amount of debentures, of which no assurances can be given due to the Company’s default under the Securities Purchase Agreement and related documents, management believes that the net funds available, after repayment of the bridge note of $251,000 immediately following the sale and issuance of such debentures, will provide adequate cash to allow the Company to meet its funding requirements through the third quarter of 2005. 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 October 2005 to meet its operating costs. The foregoing projections are based upon current estimated cash requirements and may be affected by the Company’s current dispute with Advanced BioChem. In addition to the uncertainties resulting from the Company’s dispute with Advanced BioChem, 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 March 31, 2005, 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

In accordance with the Emerging Issues Task Force (EITF) Issue 98-5, the Company allocates the proceeds received from convertible instruments to the instrument, and to the intrinsic value, if any, of the imbedded conversion option. Under this approach, the proceeds received in the financing transaction are allocated to the convertible instrument and any detachable instruments on a fair value basis. The Issue 98-5 model is then applied to the amount allocated to convertible instrument and the intrinsic value of the embedded conversion option is then measured.

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

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

continue to vest) for the unvested portion of previously granted awards that remain outstanding at the date of adoption. In addition, the Company may elect to adopt FAS 123 (R) by restating previously issued financial statements, basing the amounts on the expense previously calculated and reported in the pro forma disclosures that had been required by FAS 123, FAS 123 (R) is effective for the first reporting period beginning after June 15, 2005. The Company has not yet determined the impact that FAS 123 (R) will have on its financial statements; however, it does not believe the impact of adopting this Statement will be material as there are no unvested options and warrants at December 31, 2004.

Item 3. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation and for the reasons set forth below, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of March 31, 2005, the end of the period covered by this report.

Management has identified certain deficiencies which have caused it to conclude that the Company’s disclosure controls are ineffective. Many of these deficiencies were previously reported in the Company’s Quarterly Report on Form 10-QSB for the quarterly period ended September 30, 2004. The Company has undertaken steps and implemented actions as disclosed in its previous Form 10-QSB in an effort to resolve these deficiencies. While the actions identified in the previously filed Form 10-QSB and the actions identified below have addressed many of these deficiencies, the Company continued to have deficiencies with respect to its disclosure controls and procedures at March 31, 2005 including the following:

• As the Company has previously reported, the Company has been unable to file its 2004 Annual Report on Form 10-KSB. As previously reported by the Company and discussed in “Item 3. Defaults Upon Senior Securities” above, the Company’s inability to timely file its 2004 Form 10-KSB was caused by its inability to include the audit report of Advanced BioChem’s previous auditor in the Company’s 2004 Form 10-KSB. The Company has also encountered deficiencies arising from a lack of supporting documentation and records relating to periods prior to the Advanced BioChem transaction and a lack of communication between the Company, its auditors and the previous auditors of Advanced BioChem. The lack of this supporting documentation and failure either to obtain the prior auditor’s consent or make alternative arrangements for the 2003 Advanced BioChem audit report have resulted in the Company’s inability to file its Annual Report on Form 10-KSB. 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 face unexpected issues relating to the integration of the Advanced BioChem transaction such as the dispute described in this quarterly report and such issues have caused the Company’s accounting personnel to devote significant and unanticipated time and attention to these matters.

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.

Changes in Internal Control Over Financial Reporting

During the first quarter of 2005, 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. Other than the changes described above, there were no changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. 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 resulting from the breach of a letter agreement between Chapman Spira and Advanced BioChem relating to the performance of strategic and investment banking services. The suit further alleges that Mr. Rash made false statements regarding the performance of services by Chapman Spira. Chapman Spira is seeking damages in the amount of $1,522,000 plus interest. The Company has filed an answer in the lawsuit. The Company believes that Chapman Spira’s claims are without merit; however, the Company does not know if it will ultimately prevail or if the outcome of the action will adversely affect the Company’s business, financial position or results of operations. Inquiries to resolve this matter have been undertaken by the attorneys representing each party in this matter, but no resolution has been achieved thus far.

An equipment vendor filed a complaint against the 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 of 2003. Advanced BioChem recorded a settlement cost of $40,000 in 2002 general and administrative expenses. 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 the Company in order to enforce its claim for the remaining balance which is past due and may be assumed by the Company as part of the settlement of the dispute with Advanced BioChem.

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

(a) Not applicable.

(b) Under the terms of the $400,000 aggregate principal amount of convertible debentures issued by the Company as of January 26, 2005, as well as the terms of the $1,000,000 aggregate principal amount of convertible debentures issued by the Company as of October 28, 2004, the Company is 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, the Company has agreed not to, and not to permit its subsidiary to, so long as any portion of the debentures are outstanding, (1) amend it certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the holders of the debentures, or (2) repurchase more than a de minimus 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.

(d) Not applicable.

Item 3. Defaults Upon Senior Securities

The Company is in default under the provisions of the Securities Purchase Agreement, registration rights agreement and previously issued debentures. The events of default principally relate to the Company’s inability to timely file its Annual Report on Form 10-KSB and the Company’s resulting inability to have the registration statement declared effective within the time period required by the agreements. As previously disclosed by the Company, the Company has been unable to file its 2004 Annual Report on Form 10-KSB due to its inability to include the audited financial statements of the Predecessor for fiscal year 2003. Fitts, Roberts & Co., P.C. (“Fitts, Roberts”) audited the financial statements of Advanced BioChem for the year ended December 31, 2003 and has previously issued its audit opinion in Advanced BioChem’s Annual Report on Form 10-KSB for 2003. Fitts, Roberts previously gave the Company its consent to the inclusion of Fitts, Roberts’ audit report in the Company’s previous filings. Fitts, Roberts has refused to give its consent to the inclusion, in the Company’s Annual Report on Form 10-KSB for 2004, of Fitts, Roberts’ audit report on the financial statements of Advanced BioChem for fiscal year 2003. The Company has requested guidance from the SEC concerning the accounting treatment of its transaction with Advanced BioChem, which may resolve this issue. Management of Power3 has now decided against obtaining an additional audit of Advanced BioChem as it has now properly recharacterized the purchase transaction with Advanced BioChem as purchase accounting and the financial statements of Advanced BioChem are no longer required as a predecessor. Power3 is taking steps immediately to file its Form 10-KSB for the year ended December 31, 2004 contemporaneously with this report.

Although the Company intends to seek waivers or forbearance agreements from the holders of its debentures, there is no assurance that the Company will receive such concessions. If the Company is unable to obtain such concessions, the aggregate amount payable under the outstanding debentures due to the acceleration thereof by reason of the default is equal to the “Mandatory Prepayment Amount” as specified in the debentures. The Mandatory Prepayment Amount equals the sum of (i) the greater of: (a) 130% of the principal amount of the debentures to be prepaid, or (b) the principal amount of the debentures to be prepaid, divided by the conversion price on (x) the date the payment is demanded or otherwise due, or (y) the date the payment is paid in full, whichever is less, multiplied by the closing price of the Company’s common stock on (x) the date the payment is demanded or otherwise due, or (y) the date the payment is paid in full, whichever is greater, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of the debentures. In addition to the foregoing, pursuant to the terms of the registration rights agreement, the Company is required to pay each holder of the debentures liquidated damages since the registration statement was not declared effective on or before February 25, 2005. The amount of liquidated damages shall equal two percent (2%) of the aggregate purchase price paid by the holders for the debentures and shall be payable on each monthly anniversary of such date until the registration statement is declared effective. The Company has received notice from one of the purchasers of the debentures 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.

Filing of the Company’s Form 10-KSB will be made as soon as the issues concerning the inclusion of the 2003 financial statements of Advanced BioChem have been resolved. Promptly thereafter, the Company intends to file an amendment to its previously filed registration statement and will endeavor to have it declared effective as soon as practicable. The Company is in discussion with its debenture holders regarding a resolution of this matter.

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

No matters were submitted to the security holders for a vote during the quarter ended March 31, 2004.

Item 5. Other Information

None

Item 6. Exhibits

31.1*		Certification
31.2*		Certification
32.1**		Certification Pursuant to Section 906
32.2**		Certification Pursuant to Section 906

*Filed with this report.

**Furnished with this report.

SIGNATURES

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

Power3 Medical Products, Inc. (Registrant)

Date: September 9, 2005	By:	/s/ Steven B. Rash
	Steven B. Rash
	Chairman and Chief 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	Chairman and
Steven B. Rash	Chief Executive Officer	September 9, 2005

/s/ John P. Burton	Chief Accounting Officer	September 9, 2005
John P. Burton

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

EXPLANATORY NOTE

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Condensed Balance Sheet (unaudited)

Condensed Statement of Operations (unaudited)

Condensed Statement of Cash Flows (unaudited)

Notes to Condensed Financial Statements (unaudited)

Item 2. Management’s Discussion and Analysis or Plan of Operation (As Amended)

SIGNATURES