Unassociated Document

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

o TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________

COMMISSION FILE NO. 0-24921

POWER3 MEDICAL PRODUCTS, INC.

(Name of small business issuer in its charter)

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

3400 Research Forest Drive, Suite B2-3 The Woodlands, Texas	77381
(Address of principal executive offices)	(Zip Code)

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

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

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

Common Stock, $.001 par value

(Title of class)

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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

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

Revenues for the issuer’s fiscal year ended December 31, 2006 were $300,000. The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the closing price of such stock on the Pink Sheets market administered by the National Association of Securities Dealers (“Nasdaq”) on December 31, 2006 was $4,847,485. For purposes of this calculation, affiliates include directors, executive officers and current employees.

The number of shares outstanding of the registrant’s common stock, par value .001 per share, as of June 30, 2007, was 94,181,525 shares.

Documents incorporated by reference: None.

TABLE OF CONTENTS

PART I

ITEM 1. DESCRIPTION OF BUSINESS.	3
ITEM 2. DESCRIPTION OF PROPERTY	29
ITEM 3. LEGAL PROCEEDINGS	29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	31

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	31
ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	32
ITEM 7. FINANCIAL STATEMENTS	40
NOTE 1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION	49
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	50
NOTE 3. GOING CONCERN	54
NOTE 4. EQUIPMENT	54
NOTE 5. OTHER CURRENT LIABILITIES	54
NOTE 6. INCOME TAXES	54
NOTE 7. RELATED PARTY TRANSACTIONS	55
NOTE 8. OTHER COMMITMENTS AND CONTINGENCIES	55
NOTE 9. FINANCING ARRANGEMENTS	58
NOTE 10. OTHER SIGNIFICANT EQUITY TRANSACTIONS	63
NOTE 11. SUBSEQUENT EVENTS	64
NOTE 12. RESTATEMENT OF 2005 FINANCIAL STATEMENT	66
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	68
ITEM 8A. CONTROLS AND PROCEDURES	69

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS	70
ITEM 10. EXECUTIVE COMPENSATION	73
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT, STOCKHOLDER MATTERS	76
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	78
ITEM 13. EXHIBITS	79
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES	83

FORWARD-LOOKING STATEMENT

This Report contains certain forward-looking statements of the intentions, hopes, beliefs, expectations, strategies, and predictions of Power3 Medical Products, Inc. (“Power3” or the “Company”) or its management with respect to future activities or other future events or conditions within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are usually identified by the use of words such as “believes,” “will,” “anticipates,” “estimates,” “expects,” “projects,” “plans,” “intends,” “should,” “could,” or similar expressions. These statements are based on certain assumptions and analyses made by the Company’s management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors believed appropriate. Readers are cautioned that these forward-looking statements are only predictions and that the Company’s business is subject to significant risks and uncertainties, including, without limitation:

The Company’s history of operating losses;

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

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

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

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

Development by competitors of new or competitive products or services;

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

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

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

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

PART I

Except for historical information, the matters set forth in this report include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth herein. Power3 Medical Products, Inc. refers you to cautionary information and risk factors contained elsewhere herein and in other documents filed with the Securities and Exchange Commission (“SEC”) from time to time.

Item 1. Description of Business

Overview and Corporate History

Power3 Medical Products, Inc. (the “Company” or “Power3 ”) was incorporated in the State of Florida on May 15, 1992 and merged into a New York Corporation in 1994, under the name of Sheffield Acres, Inc. Power3 and its wholly owned subsidiaries, C5 Health, Inc. (“C5”), which was officially dissolved in the State of Delaware and in the State of Florida effective December 31, 2003 and Power3 Medical, Inc., a Nevada Corporation, were engaged in sales, distribution and services for the healthcare industry. On September 12, 2003 Surgical Safety Products, Inc. amended its Certificate of Incorporation to (a) declare a 1:50 reverse split of its common stock; (b) increase its authorized capital to 150,000,000 shares of common stock and 50,000,000 shares of preferred stock; and (c) change its name to Power3 Medical Products, Inc.

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

Business of Issuer

As of the Company’s acquisition of assets from Advanced BioChem on May 18, 2004, the Company’s overall business strategy has changed. The Company’s current business directive is to engage in the early detection, monitoring, and targeting of diseases through the analysis of proteins. Power3’s development stage business objective is to commercialize its intellectual properties by focusing on disease diagnosis, protein and biomarkers identification, and drug resistance in the areas of cancers, neurodegenerative and neuromuscular diseases. Coincident with the acquisition of assets from Advanced BioChem, the Company changed its management team and established a Scientific Advisory Board to assist in the research and development of its products. The members of this Scientific Advisory Board are recognized leaders in their chosen fields and the Company is working with them to find effective therapeutics and novel predictive medicine for important human diseases.

The Company’s business strategy, which is dependent upon obtaining sufficient additional financing, is to enhance the commercialization of its existing diagnostic products and to aggressively pursue appropriate product and company strategic partnerships.

As a result of the acquisition of assets and certain liabilities of Advanced BioChem, Power3 has transitioned into an advanced proteomics company that applies existing proprietary methodologies to discover and identify protein biomarkers associated with diseases. By discovery and development of protein-based disease biomarkers, the Company has begun the development of tools for diagnosis, prognosis, early detection and identification of new targets for drugs in cancer, and neurodegenerative and neuromuscular diseases such as amyotrophic lateral sclerosis (commonly known as ALS or Lou Gehrig’s disease), Alzheimer’s disease, and Parkinson’s disease.

Power3’s scientific team is currently headed by its Director of Biochemistry, Dr. Essam A. Sheta. Dr. Sheta is a pioneer in the science of protein chemistry and cancer cell signaling and in so doing made significant biochemical discoveries. The team has leveraged these significant insights and has made progress in the discovery of unique disease protein footprints of biomarkers in breast cancer, neurodegenerative disease, and drug resistance to chemotherapeutic agents.

Proteomics is the global study and analysis of proteins. Through proteomics, scientists can more accurately understand the functioning of a healthy body and are assisted in the identification of the proteins associated with specific diseases. Proteins that change in the course of disease are the building blocks for new screening and diagnostic tests which the Company is developing to provide earlier disease detection, enhanced treatment and monitoring assistance.

Product Candidates

The Company plans to target the protein-based diagnostic and drug targeting markets utilizing the Company’s portfolio of proprietary disease biomarkers. In the area of neurodegenerative diseases and breast cancer, the Company has completed clinical validation studies involving over 2000 patient samples and is utilizing biostatistics to monitor appropriate biomarkers for diagnostic sensitivity, specificity, positive predictive value, and negative predictive value. By testing patient body fluids and tissues, such as serum, nipple aspirate fluid, and bone marrow aspirate, the Company has discovered unique snapshots of protein patterns in 2000 samples that cover broad range of diseases including:

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

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

The Company’s discovery platform uses proprietary methodologies, trade secrets, and accepted proteomic technologies that are optimized and validated for reproducible discovery of disease specific biomarkers in clinical patient samples. Following sample preparation, a 2D Gel system is used for the separation of proteins. The gels are stained, imaged and analyzed with unprecedented reproducibility and sensitivity for quantitative differences in the diseased vs. normal samples. The significance of these differences is evaluated using biostatistics to determine significance relative to the status of the health of the individual. The proteins of interest are removed from the gel matrix and analyzed by fingerprinting on a liquid chromatograph - tandem mass spectrometer. This information is then cross-referenced on a worldwide database to identify the protein of origin. This process requires a great deal of proteomics experience and expertise to make the correct accurate identification. In addition, all of the procedures are scaleable. The Company’s biomarker discovery platform delivers significant discoveries exhibiting validated, reproducible, and reliable identification and quantification; and displaying broad dynamic range and linearity of assays.

The Company has successfully identified more than 534 proteins, protein fragments and isoforms that are differentially expressed in response to disease by employing proprietary technologies gained from over 50 years of combined experience in protein biochemistry.

Power3 is transitioning from a company focused only on research and development to one that is demonstrating “proof of concept” of its technology as it enters the commercialization stage for its technology, products and services. The Company is engaged in the process of developing a portfolio of products including BC-SeraPro™ biomarkers and blood serum tests (for early detection of breast cancer); NuroPro® biomarkers and blood serum tests (for neurodegenerative diseases including Alzheimer’s, Parkinson’s and ALS diseases) and biomarkers, tests and drug targets for drug resistance to chemotherapeutics.

License and Sponsored Research

Advanced BioChem entered into a license agreement with the Board of Regents of The University of Texas System, an agency of the State of Texas, on behalf of The University of Texas M.D. Anderson Cancer Center in September 2003, which Power3 acquired in its transaction with Advanced BioChem. The license agreement gives the Company an exclusive, worldwide, royalty-bearing license to certain patent rights and technology rights for proteomic methods of diagnosis and monitoring of breast cancer using nipple aspirate fluids. The license agreement also gives the Company a non-exclusive, worldwide, royalty-bearing license to certain patent rights and technology rights for methods of identifying specific nipple aspirate fluid proteins for diagnosis and monitoring of breast cancer. The Company is permitted to grant sublicenses under the license agreement except for the identification of biological markers. The Company is obligated to pay to M.D. Anderson an initial license fee, and a subsequent license fee, both of which have been paid. The Company is also obligated to pay annual license maintenance fees, royalties and additional milestone payments upon the occurrence of certain designated events. The license agreement imposes upon the Company an obligation to indemnify the Board of Regents, The University of Texas System, M.D. Anderson, the regents, officers, employees, students, and agents against claims arising on account of any injury or death, or damage to property caused by the exercise of the rights granted under the license agreement to the Company, its officers and affiliates. The term of the license agreement is based on the date of expiration of the last patent rights to expire or, in the case of licensed technology rights, for a term of fifteen (15) years. However, in addition to customary termination provisions, M.D. Anderson has the right to terminate the license in any country if the Company fails, within ninety (90) days after receiving written notification from M.D. Anderson, to provide satisfactory evidence that it has commercialized or is attempting to commercialize the licensed invention in such country.

During 2006, the Company elected not to pursue nipple aspirate testing for commercialization in favor of blood serum testing and as a result of this decision, the Company has elected not to renew the agreement with MD Anderson. The blood serum biomarkers and tests discovered directly using blood serum is covered under intellectual property solely owned by the Company. The early detection blood serum test for Breast Cancer will be marketed under the name BC-SeraPro™.

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

On August 1, 2004, Power3 entered into an exclusive license agreement with M.D. Anderson which grants the Company an exclusive, worldwide, sublicensable license to patents and technologies for early detection screening tests, identified protein biomarkers and drug targets for cancer patient’s resistance to drug therapy. The licensed technology was developed through joint collaboration between the Company’s scientific team and M.D. Anderson. Under the terms of the agreement, the Company paid M.D. Anderson an initial license fee and the Company has the obligation to pay further royalties and additional licensing fees upon the achievement of certain milestones. The license agreement imposes upon the Company an obligation to indemnify the Board of Regents, The University of Texas System, M.D. Anderson, the regents, officers, employees, students, and agents against claims arising on account of any injury or death or damage to property caused by the exercise of the rights granted under the license agreement to the Company, its officers and affiliates. The term of the license agreement is based on the date of expiration of the last patent rights to expire or, in the case of licensed technology rights, for a term of fifteen (15) years. However, in addition to customary termination provisions, M.D. Anderson has the right to terminate the license in any country if the Company fails, within ninety (90) days after receiving written notification from M.D. Anderson, to provide satisfactory evidence that it has commercialized or is attempting to commercialize the licensed invention in such country.

On August 31, 2004 the Company entered into a research agreement with Baylor College of Medicine for the purpose of discovering biomarkers in serum and plasma that are of particular utility in the diagnosis and drug targeting for metabolic syndrome and associated disorders including diabetes, cardiovascular disease, hypertension and stroke. Under the terms of the agreement, Baylor College of Medicine will provide the Company sample materials for use in diagnosis in drug targeting metabolic syndrome and associated diseases including diabetes, cardiovascular disease, hypertension and stroke. With respect to any inventions developed pursuant to the agreement, the party who develops such invention will retain sole and exclusive rights to such invention. The other party will have the right to an exclusive license for the invention, which has been developed. Inventions developed jointly by the parties will be jointly owned. Power3 does not have any obligations for the payment of fees or royalties pursuant to this agreement. The agreement has a term ending June 30, 2007 and may be renewed for successive one-year periods. Since the Company is actively involved in numerous Neurodegenerative research agreements with other organizations, it is uncertain, at the time, if the Company will renew the Research Agreement with Baylor College of Medicine.

On May 24, 2005, the Company entered into a Collaboration Agreement with BioSite Incorporated. The Agreement provides that Power3 and Biosite will engage in a collaborative research program in which Biosite will attempt to develop antibodies and diagnostic assays for selected target biomolecules proposed by the Company. Power3 and Biosite will then assess the diagnostic and therapeutic potential of these antibodies and diagnostic assays for breast cancer. If the antibodies and diagnostic assays are found to have diagnostic and/or therapeutic potential, Biosite will develop and commercialize Biosite Products for the detection and/or treatment of breast cancer. Biosite will make milestone payments to the Company, as well as pay royalties on the sale of any Biosite Products containing antibodies to any selected target biomolecule claimed in a patent application or an issued patent.

More specifically, the Agreement provides that Power3 shall propose target biomolecules for the collaborative research program; Biosite and the Company shall mutually select certain target biomolecules for immunization ("Program Target"); and Biosite shall use commercially reasonable efforts to develop monoclonal and omniclonal antibodies to the selected target biomolecules that meet the specification set out by the parties ("Program Antibodies"). Upon Biosite's written request subsequent to the delivery of Program Antibodies to the Company, the Company will provide Biosite with blood-based clinical samples useful in the assessment of the Program Antibodies.

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

Under the terms of the Agreement, Power3 grants to Biosite a worldwide, royalty-bearing license under the Power3 patent rights for the target biomolecules and Power3 know-how rights to develop, make, have made, use, offer for sale, sell and import Biosite Products for use in the detection, prognosis, diagnosis or monitoring of any breast cancer-related disease. This license is exclusive with the right to grant sublicenses for the assay of less than or equal to 100 patient samples per hour. This license is semi-exclusive, with the right for each party to grant one sublicense, for the assay of 100 or more patient samples per hour.

Under the terms of the Agreement, Power3 grants to Biosite a non-exclusive, worldwide, royalty-bearing license under the Power3 patent rights for the target biomolecules and Power3 know-how rights to develop, make, have made, use, offer for sale, sell and import Biosite Products for use in the detection, prognosis, diagnosis or monitoring of any neurological-related disease. This license includes the right for Biosite to grant one sublicense for each Program Target, provided that the grant of such sublicense will replace Biosite's own rights under the license.

In consideration for the collection and transfer of samples, Biosite shall pay specified fees to Power3 based on a minimum number of samples delivered to Biosite and per unit fees for samples delivered in excess of the minimum.

Biosite shall pay the Company milestone payments based on certain specified events as follows:

• upon the earlier of (a) the First Commercial Sale by Biosite of a Biosite Product, or the effective date of the first written agreement between Biosite and a Third Party sublicensee for a sublicense,

• upon demonstration, as determined in Biosite's sole and reasonable discretion, that a panel of antibodies (including one or more antibodies to a Program Target) is suitable for development of a commercial product,

• upon the first submission by Biosite of the first 510(k) (premarket notification) or PMA (pre-market approval application) to the FDA for the first Biosite Product; and

• upon the first FDA approval of the first 510k or PMA submitted by Biosite for the first Biosite Product.

Commencing at the end of the first full calendar year following the date of First Commercial Sale for the first Biosite product, and at the end of each subsequent calendar year during the term of this Agreement, Biosite shall pay the Company specified annual minimum royalties. During the applicable Royalty Term for a Biosite Product, on a country-by-country basis, Biosite shall pay the Company royalties, with respect to each Biosite Product equal to a specified percentage of Net Sales of each Biosite product in that country. In addition to the specified royalty payments, to the extent that Biosite reaches certain specified sales targets, then Biosite shall be obligated to make additional payment to the Company. The Agreement expires upon the expiration of the last to expire applicable Power3 patent right. The agreement may be terminated for cause, by either party or upon written notice by either party following the twenty four month anniversary date of the Agreement, or by Biosite if it is unable to develop and deliver Program antibodies to the to the Program Targets.

On October 13, 2005, Power3 executed a Research Agreement with Pfizer, Inc. to further evaluate the Company’s NuroPro® test capabilities and to test blind and unblinded samples, provided by Pfizer, under controlled conditions. The Company completed the analysis of the samples and presented the results to Pfizer. The Agreement terminated on October 13, 2006. The Company does not expect to renew the Research Agreement as it has numerous other Research Agreements in place and is in discussions to enter additional Research Agreements with other organizations.

On December 28, 2005, the Company submitted 6 breast cancer blood serum biomarkers to Biosite, for consideration under the agreement. The development of antibodies was begun by Biosite for the first of this series. During 2006, payments totaling $300,000 have been received from Biosite to the Company for blood serum samples to be used, by Biosite, in the development and testing of antibodies. .

However, effective June 26, 2007, Biosite was acquired by Inverness Medial Innovations, Inc. and it is uncertain as to whether or not Biosite will continue with its program to develop antibodies based on our protein biomarkers. If they discontinue this research effort, it would significantly reduce our projected cash flows and therefore, we have considered this factor in our analysis of goodwill impairment. Regardless of whether or not Biosite continues its research initiative with the Company, the Company is under no obligation to return the $300,000 mentioned in the previous paragraph.

On May 16, 2006, Power3 entered into a Materials Transfer and Confidential Disclosure Agreement with Innogenetics N.V., a Belgium-based international biopharmaceutical company. The current proposal is an assessment of the utility of the Company’s NuroPro® to differentiate control subjects from subjects with Alzheimer’s disease. Power3 received the shipment of samples from Innogenetics N.V. in October 2006 and completed the assessment of the blood serum samples in January 2007 and reported the results to Innogenetics, N.V. and is awaiting the final report from Innogenetics N.V.

On April 3, 2007, the Company entered into a joint venture agreement with NeoGenomics to form a contract research organization and collaborate on research work in the future. In addition, NeoGenomics agreed to purchase a convertible debenture for $200,000 and acquired options to purchase common stock of the Company during 2007.

Breast Cancer Screening Test (BC-SeraPro™)

Breast cancer is the second leading cause of cancer deaths in women and results in 40,000 deaths annually, with over $7 billion spent on breast cancer diagnosis annually. An important factor in surviving cancer is early detection and treatment. According to the American Cancer Society Surveillance Research, when breast cancer is confined to the breast, the five-year survival rate is close to 100%. Due to the limitations of the current diagnostic techniques of mammograms and self-examination, diagnosis of cancer is often missed or inconclusive. The limitations or absence of current diagnostic tests highlight the need for a test that can detect the presence of breast cancer much earlier. The Company’s has analyzed fluids from the breast called nipple aspirates fluid (NAF). Initial success yielded the identification of groups of breast cancer proteins in the aspirates. The procedure utilizes a breast pump to obtain a drop of fluid from the nipple. The aspirate is analyzed to identify specific breast cancer protein footprints. Concurrently, Power3 conducted its own biomarker discovery program using blood serum samples collected from the same clinical validation sites, in collaboration with Dr. Alan Hollingsworth at the Mercy Woman’s Center.

The Company believes that there are many advantages to a simple blood test over other samples taken from patients, not the least of which is the ready acceptance by patients to having blood drawn. This, along with numerous complaints from patients about the discomfort of the procedure, as well as the low success rate in getting nipple aspirate samples (less than 50%), has led the Company to decide that nipple aspirate testing is not commercially viable.

Since the Company has elected to not pursue nipple aspirate testing for commercialization, the license agreement with MD Anderson has not been renewed by the Company. The blood serum biomarkers and tests, discovered directly using blood serum, are covered under intellectual property solely owned by the Company. The early detection blood serum test for Breast Cancer will be marketed under the name BC-SeraPro™.

The Company’s proteomic discovery platform covered by pending patent applications and trade secrets was able to identify a panel of 12 blood serum based biomarkers and most recently identified an additional 10 biomarkers. These proteins have the potential to serve as an early detection tool to identify breast cancer long before it becomes detectable by conventional screening methods, greatly improving an individual’s chance for survival. Preliminary testing results demonstrated that the diagnostic tool is able to correctly identify individuals who are cancer-free or have benign disease from patients that have cancer with great sensitivity and specificity. These discoveries establish the basis of a very sensitive, non-invasive, early detection breast caner screening test. Therefore, Power3 has decided to focus development efforts for its early-detection tests for breast cancer on blood serum. The Company has successfully used blood serum as the platform for its NuroPro® neurodegenerative tests and believes that blood serum as a single platform is the best medium for the development and commercialization of proteomics diagnostic tests.

Neurodegenerative Screening Test (NuroPro®)

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

The members of the Company’s scientific team have developed a method for the differential diagnosis of neurodegenerative diseases utilizing blood serum, which was co-developed with neurologist, Dr. Stan Appel, now Chair of Neurology and Co-Director of Methodist Neurological Institute in Houston. With this test, which involves monitoring the concentration of 50 differentially expressed proteins, the Company has identified groups of unique markers that appear to distinguish normal patients from those with motor neuron, cognitive, and other neurological disorders.

The Company is continuing its ongoing clinical validation program in collaboration with the Methodist Neurological Institute. The initial phase was completed in July 2004 and the latest phase was completed in March, 2006. During this time period, the Company’s database has increased from 183 to over 650 unique samples classified either as normal or being clinically diagnosed with ALS, Alzheimer’s, Parkinson’s, and other related neurological disorders. During this time, the number of differentially expressed proteins used in the discriminant analysis has increased from 9 to 50. The ability to differentiate diseases from each other and from normal and disease controls has improved using the proprietary PD3™ process, including Polyiterative™ biostatistical analysis on the larger database and the expanded set of biomarkers. Currently, select panels of biomarkers are being employed in development of the NuroPro® blood serum-based tests for four disease diagnostics including neurological diseases of motor control such as Parkinson’s disease, ALS and their like disorders; ALS specific tests for ALS vs. ALS-like disorders; Alzheimer’s disease specific tests; and a Parkinson’s disease-specific test. Pre-IDE applications for the first two have been filed with the U.S. Food and Drug Administration (FDA).

On June 2006, The American Institute of Biological Science (AIBS) has elected Power3’s Director of Biochemistry, Dr. Essam Sheta to be on its review panel for grant proposals related to Parkinson’s disease. The AIBS has been tasked by the U.S. Army Medical Research and Materiel Command (USAMRMC) Neurotoxin Exposure and Treatment Research Program (NETRP) to convene a peer review panel to review novel and innovative research proposals related to Parkinson’s disease. The USAMRMC is soliciting research proposals for studies on the pathophysiology, surrogate markers, mechanisms and treatment of Parkinson's disease and Parkinson's-related neurodegenerative conditions to include initiating causes, interaction of environmental and genetic risk factors, epigenetic modifying factors, with emphasis on exposure factors encountered in military operations which may be neurotoxic or lead to neurodegenerative conditions

In July 2006, Power3 announced a biomarker breakthrough based on applied extensive analytical and statistical analysis which resulted in the selection of five distinctive biomarkers from its portfolio of 47 previously identified protein biomarkers for neurodegenerative diseases. These and other selected biomarkers show great promise and represent a major step forward as a tool for the diagnosis of Alzheimer's disease.

On September 6, 2006, Power3 announced the discovery of 11 biomarkers which demonstrate the ability to identify Parkinson’s disease in its early stages through blood serum-based testing, as well as differentiate between Parkinson’s and Parkinson’s-like diseases.

On November 11, 2006, University of Thessaly School of Medicine in Larissa, Greece signed a research agreement with Power3 focusing on the proteomic discovery of biomarkers for Parkinson’s disease. The collaboration will also extend to cover other neurodegenerative diseases including Alzheimer’s disease, and ALS (Amyotrophic Lateral Sclerosis - Lou Gehrig's disease). According to the agreement, The University of Thessaly will provide Power3 with clinically confirmed samples of neurodegenerative disease, including age and gender matched controls. Power3 will use its existing proprietary and patent-pending technologies to analyze the samples, seeking new protein biomarkers for the early detection of neurodegenerative diseases to add to its portfolio. The initial shipment of Parkinson’s disease samples were received in May 2007 and are being analyzed in the Company’s CLIA certified laboratory

Dr. Ira Goldknopf, Director of Proteomics of Power3, gave two presentations at Experimental Biology 2006, the annual meeting of the Federation of American Societies at the Moscone Center in San Francisco in March, which was attended by more than 12,000 independent scientists. The first Power3 presentation - “Blood Serum Biomarkers for Differential Diagnosis of Parkinson’s Disease” - included a report by Dr. Goldknopf and a “poster” presentation. Dr. Goldknopf presented and discussed Power3’s findings of specific blood serum protein biomarkers and tests to differentially diagnose Parkinson’s disease from normal controls and other neurological and neurodegenerative disorders. In addition, Dr. Goldknopf covered the findings of Parkinson’s and ALS specific nerve cell degeneration mechanisms which can be followed in blood serum, for potential drug targets and drug treatment response monitoring. The second presentation, “Biomarkers for Diagnosis and Targeting of Resistance and Sensitivity to Imatinib Mesylate in Chronic Myelogenous Leukemia,” included a poster presentation covering bone marrow aspirate protein biomarkers to predict sensitivity or resistance to Gleevec in Leukemia, including a mechanism of resistance and drug targets measured in bone marrow. Also on April 27-28, 2006 in San Francisco, Dr. Goldknopf presented Power3’s findings in blood-based testing for breast cancer at the OncoProteomics World Congress, and was asked to serve as the scientific advisor for the conference in 2007. Dr. Goldknopf presented the Company’s findings on Breast Cancer at the Cancer Proteomics World Congress, and on Alzheimer’s disease at the Molecular Diagnostics World Congress, held in Philadelphia on April 26-27, 2007. He has reviewed the Molecular Diagnostics World Congress for the Journal Expert Review of Molecular Diagnostics, which will be published late in 2007 in the UK.

Power3 was also awarded one of the “Largest Bioscience Companies” designations and was featured in the Houston Business Journal for 2006.

Drug Resistance to Chemotherapeutic Agents

Drug resistance is of particular concern for the use of chemotherapy in treating cancer and particularly for chronic myelogenous leukemia. By the time a patient’s development of resistance to chemotherapeutic agents is detected, it is often too late to revise treatment or otherwise save the patient. In 2002, the Company completed an initial “proof of concept,” which addresses drug resistance to a major chemotherapy agent. Determining that a cancer patient is sensitive or detecting a development of resistance during the early stages of treatment may eliminate toxic effects from the treatment drugs, and the need for trial-and-error treatment regimens. In 2006, the Company discovered a new biomarker for drug resistance that is related to a drug specific target. These findings may ultimately provide the pharmaceutical industry with the technology to screen patients, on a molecular level, prior to clinical trials and design new drugs to overcome resistance.

Intellectual Property

During the year-ending December 31, 2006, Power3 filed four utility patent applications with the United States Patent and Trademark Office, entitled “Assay for Neuromuscular Diseases”, “Assay for ALS and ALS-Like Disorders”, “Assay for Differentiating Alzheimer’s Disease and Alzheimer’s-Like Disorders” “Assay for Diagnosis and Therapeutics Employing Similarities and Differences in Blood Serum Concentrations of 3 Forms of Complement C3c and Related Protein Biomarkers in Amyotrophic Lateral Sclerosis and Parkinson’s Disease” These were conversions of previous provisional applications. The number of pending patent applications as of December 31, 2006 is 17. The costs of filing these four patent applications were included as salaries and filing fees and no outside, legal patent costs were incurred.

In May 2006, Power3 filed a utility application for patent with the U.S. Patent and Trademark Office. The patent was initially filed on a provisional basis in May 2005, the application is for Power3's first generic, blood-based diagnostic test for neuromuscular disorders, including ALS - Amyotropic Lateral Sclerosis, known as "Lou Gehrig's Disease," and Parkinson's disease.

On December 12, 2006, Power3 announced the filing of an application with the U.S. Patent and Trademark Office for discoveries and a process used for early detection and diagnosis of breast cancer. The patent filing is entitled "Twelve (12) Protein Biomarkers for Diagnosis and Early Detection of Breast Cancer," which relates to biomarkers in blood serum that can be used in diagnosis, determination of disease severity, and monitoring of therapeutic response of patients with breast cancer. The invention shows how these 12 protein biomarkers in human blood can be employed to diagnose and differentiate between patients with breast cancer, benign breast disease or abnormalities, and "normal controls. The patent application is a collaborative effort between the Power3 scientific team and Dr. Alan Hollingsworth, a nationally-known breast cancer surgical oncologist at Mercy Woman's Center in Oklahoma City, and a member of Power3's Scientific Advisory Board.

As of December 31, 2006, the Company chose not to pursue an Office Action on the patent application for biomarker 7616, “A 2’-5’ Obligoadenylate Synthetase Like Protein as a Biomarker for Neurodegenerative Disease” as it is protected under another patent application. The number of pending patent applications is 17.

Competition

The industry in which the Company operates is intensely competitive, and subject to significant change with respect to technology for diagnosis and treatment of disease. Existing or future biotechnology, biomedical, pharmaceutical and other companies, government entities and universities may create developments that accomplish similar functions to the Company’s technologies in ways that are less expensive, receive faster regulatory approval or receive greater market acceptance than the Company’s potential products. The Company expects that competition in the biomarker discovery field will be based primarily on each product’s efficacy, stability, timing of entry of the product into the market, cost, and acceptance by health care providers and health care payers.

The Company’s competitors have, in general, been in existence for considerably longer than the Company has, and may have greater capital resources and access to capital; greater internal resources for activities in research and development, clinical testing and trials, production and distribution; and existing collaborative relationships with third parties.

The existing market for biomarker discovery platforms and processes for Alzheimer’s disease alone has been estimated to be in excess of $4 billion in the U.S. based on a study prepared by Frost & Sullivan. There are several other companies engaged in the research of proteomics and its application to biomarker discovery capabilities. Some of these companies include:

Celera Genomics, which is engaged in proteomics, bioinformatics and genomics to identify and develop drug targets and discover and develop new therapeutics;

Ciphergen Biosystems, which is active in biomarker discovery assay development and characterization;

Europroteome, which applies proteomics to human epithelial cancers to identify cancer specific protein expression patterns for clinical applications;

Matritech, which is a developer of proteomics-based diagnostic products for the early detection of cancer;

Myriad Genetics, which is focused on the development of therapeutic and diagnostic products using genomic and proteomic technologies; and

WITA Proteomics, which focuses on the potential role of proteins from specific cellular sources under particular conditions and analysis of the presence of modified proteins and the strategic use of this information for drug development and diagnostic use.

Sources and Availability of Raw Materials and Names of Principal Suppliers

The Company is, as previously discussed in this section, in the developmental stage and has not commenced commercial production of products for sale. Therefore the Company does not acquire, purchase, nor use any significant quantities of raw materials whatsoever and consequently has no principal suppliers.

Dependence on One or on a Few Major Customers

The Company is still in the developmental stage and has not commenced producing or marketing any products to customers at this stage. The Company has experienced its first small set of revenue; however this was generated from sales of blood serum samples, rather than sales of any products or services produced by the Company. The Company does have a limited set of institutions and laboratories that it is currently involved with doing testing and development work, however these associations could change and the Company is not limited as to which institutions, hospitals or laboratories it works with in the future. The Company’s revenue during 2006 was solely from one customer, Biosite; changes in our relationship with this Company could have a material impact on our financial statements.

Research and Development

The Company believes that research and development is an important factor in its future growth and operates a state of the art proteomics laboratory. The Company has restricted the initiation of new research activities during 2006 because of funding limitations and has focused its efforts on commercializing its current inventory of test products.

Patents, Copyrights and Trademarks

The Company is continuing to pursue patent protection for its proprietary technologies with the U.S. Patent and Trademark Office and in foreign jurisdictions. The Company plans to prosecute, assert and defend any patent rights it may obtain, whenever appropriate. However, securing patent protection does not necessarily assure the Company of competitive success.

The Company received notification from the U.S. Patent and Trademark Office that it has been awarded a registered trademark for use of the name NuroPro, for the series of early detection neurodegenerative blood serum tests currently under development.

In addition, the Company applied on April 25, 2007 for a trademark utilizing the name BC-SeraPro, for its early detection Breast Cancer blood serum test currently under development. The Company is presently in the approval process from the U.S. Patents and Trademark Office for award of the BC-SeraPro trademark.

With respect to the Company’s biomarker discovery process, antibody detection system and breast cancer biomarkers, the Company have two provisional patents pending and four utility patents pending. The Company’s work in breast cancer no longer depends on certain technologies that it has licensed from M.D. Anderson Cancer Center, as those licenses are for nipple aspirate technology that the Company has determined to be not commercially viable. The Company’s blood serum biomarkers and tests are solely owned by the Company.

In cooperation with Baylor College of Medicine, the Company has discovered 47 biomarkers for neurodegenerative diseases such as ALS, Alzheimer’s disease, and Parkinson’s disease. The Company has received an exclusive license for the rights in this technology and is responsible for the filing, prosecution and maintenance of all patent applications covering this licensed technology. To date, the Company has seven provisional patent applications pending for the neurodegenerative biomarkers and assays using these biomarkers and has also converted four of those provisional patents into utility applications.

In cooperation with the Leukemia Group at MD Anderson Cancer Center, the Company has joint ownership of one utility patent pending and one PCT international application in the area of drug resistance to chemotherapy in chronic myelogenous leukemia. The Company has also recently discovered a new biomarker for drug resistance in leukemia that exerts its effect on the drug target, which has been filed as a provisional patent application. The Company also has joint inventorship of a provisional patent application for biomarkers in gastrointestinal cancer with the University of Virginia.

The Company also attempts to protect its proprietary products, processes and other information by relying on trade secret laws and nondisclosure and confidentiality agreements with its employees, consultants and certain other persons who have access to such products, processes and information. The agreements affirm that all inventions conceived by employees are the exclusive property of the company. Nevertheless, there can be no assurance that these agreements will afford significant protection against or adequate compensation for misappropriation or unauthorized disclosure of the Company’s trade secrets.

Scientific Publications and Presentations

In February, 2006, the Company published two peer reviewed scientific articles. Establishing the scientific basis of their NuroPro® neurodegenerative disease biomarkers and tests is an invited review entitled “2D gel blood serum biomarkers reveal differential clinical proteomics of the neurodegenerative diseases” by Essam A. Sheta, Stanley H. Appel and Ira L. Goldknopf, Expert Review of Proteomics 3, 45-62 (2006). And the second scientific article “Complement C3c and related protein biomarkers in amyotrophic lateral sclerosis and Parkinson’s disease”, by Ira L. Goldknopf, et al. Biochemical and Biophysical Research Communications 342, 1034-1039 (2006), details a breakthrough discovery of differences in a key protein that drives neurodegeneration between Parkinson’s disease and ALS.

The Company believes its growing IP portfolio, industry papers and presentations demonstrate the value of its visionary approach to medically-useful product development and anticipates further acceptance by the scientific and business communities as it transitions its technologies into commercially-viable products.

Governmental Regulation

The Company received its CLIA (Clinical Laboratory Improvement Amendments) certification on March 23, 2007, which permits the Company to begin offering CLIA-compliant high complexity medical testing services. The Company earned its two-year license to offer high complexity tests after meeting standards for knowledge, training and experience, reagents and materials preparation, characteristics of operational steps, calibration, quality control and proficiency testing materials, test systems troubleshooting and equipment maintenance, and interpretation and judgment.

With the CLIA certification in place, the Company has begun to fulfill its mission of commercialization of the Company’s proteomic discoveries to serve the medical and scientific communities. Furthermore, the Company can now offer blood-based testing services to physicians, hospitals and clinics, with the analysis of samples performed by the Company in its state-of-the-art centralized laboratory. CLIA was passed by the U.S. Congress in 1988 to establish quality standards for all laboratory testing, and to ensure accuracy, reliability and timeliness of patient test results regardless of where the test was performed.

The Food and Drug Administration establishes guidelines for clinical trials which are conducted in order to obtain FDA approval. Clinical trials are required to find effective treatments to improve health. All clinical trials are based on a protocol which is a study plan that describes the type of people who may participate in the trial, the schedule of tests and procedures, and the length of the study.

Clinical trials in the United States must be approved and monitored by an Institutional Review Board (IRB) to make sure the risks of the trial are as low as possible and are worth any potential benefits. All institutions that conduct or support biomedical research are required by federal regulation to have an IRB that initially approves and periodically reviews the research.

Upon successful completion of a clinical trial validation study, an application based on the results of the clinical trial is submitted for FDA approval. Upon receipt of FDA approval, the diagnostic screening test would be ready for commercialization.

In the United States, clearance or approval to commercially distribute new medical devices or products is received from the FDA through clearance of a 510(k) premarket notification, or 510(k), approval of a premarket approval application, or PMA. It may take from three to nine months from submission to obtain 510(k) clearance, but may take longer or clearance may not be obtained at all. The FDA may determine that additional information is needed before approval to distribute the product is given.

For any products that are cleared through the 510(k) premarket notification process, modifications or enhancements that could significantly affect safety or constitute a major change in the intended use of the product will require new 510(k) submissions.

A PMA application must be filed if a proposed product is not substantially equivalent to a medical product first marketed prior to May 1976, or if otherwise required by the FDA. The PMA approval process can be expensive, uncertain and lengthy, and a number of products for which other companies have sought FDA approval of a PMA application have never been approved for marketing. It generally takes from six to eighteen months from submission to obtain PMA approval, but it may take longer or the submission may not be approved at all.

On May 5, 2005 the Company submitted a pre-IDE application to the FDA on its blood test for neurodegenerative diseases of motor control, including Parkinson’s disease, ALS and their like disorders in order to obtain the Agency's guidance regarding: the appropriate regulatory pathway to pursue; the proper approach to refine and/or define its data and statistical analyses; and the study design for the Company's pending neurodegenerative disease diagnostic blood tests. A submission made under the pre-IDE process is not an official IDE application as described in 21 CFR Part 812. The Pre-IDE process is designed to help companies obtain early, informal input on aspects of a future IDE application and offers assistance in establishing the parameters for official IDE applications when unique diagnostic tests involving innovative technologies are being pursued. The Company met with the Food and Drug Administration on June 1, 2005 regarding its Pre-IDE submission for the first in a series of its NuroPro® Blood Tests for the early detection and differentiation of neuromuscular diseases, such as ALS and Parkinson’s disease.

In the meeting with the FDA, guidance was offered regarding requirements for study design, patient risk assessment and intended use. In addition, the FDA concurred with how the Company had approached the biostatistics analysis utilized to interpret the test results. Based on the FDA’s advice in preliminary discussions, Power3 presented optimized results with an increase in specificity to more than 92% and an increase in Positive Predicted Value to more than 96%.

Now, the Company is proceeding to make preparations for FDA applicable multiple site clinical studies for the NuroPro® suite of blood serum tests. On August 17, 2005, the Company submitted its second Pre-IDE application on its ALS specific blood test for distinguishing ALS from normal and disease controls.

The Company is also subject to the regulatory approval and compliance requirements for each foreign country to which it exports products. In the European Union, a single regulatory approval process has been created, and approval is represented by the CE Mark.

Both before and after a product is commercialized, the Company has ongoing responsibilities under the regulations of the FDA and other agencies. The Company’s manufacturing facilities and those of its contract manufacturers are, or can be, subject to periodic regulatory inspections by the FDA and other federal and state regulatory agencies, as well as civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance approval for products, withdrawal of marketing clearances or approvals, and criminal prosecution. The FDA has the authority to request recall, repair, replacement or refund of the cost of any product, which the Company manufactures or distributes. The FDA also administers certain controls over the export of medical devices from the United States. The Company is also subject to routine inspection and must file periodic reports after the product is approved by the FDA for compliance with quality system requirements, or QSR, and medical device reporting requirements in the United States and other applicable regulations worldwide. Changes in existing requirements or adoption of new laws or requirements could have a material adverse effect on the Company’s business, financial condition and results of operation. The Company will incur significant costs to comply with laws and regulations.

The Company is also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. The Company may incur significant costs to comply with laws and regulations, or such laws or regulations in the future may have a material adverse effect upon its business, financial condition and results of operations.

Sales and Marketing

The Company currently has no sales or marketing employees, and no immediate plans to hire any personnel devoted to this area. The Company will make decisions about sales and marketing at a later date, when its products transition from the clinical validation stage to commercialization and market introduction.

Manufacturing

The Company does not currently have manufacturing capabilities, but it is exploring opportunities to produce and manufacture the Company’s diagnostic tests through collaborative agreements and strategic alliances. Exploitation of these opportunities will depend on the availability of further capital, qualified personnel, sufficient production resources and the Company’s ability to establish these relationships with other parties who have existing manufacturing and distribution capabilities. The Company does not currently have plans to manufacture any products in the near future and will make decisions about manufacturing at a later date, when its product portfolio is further along in the development stage.

Costs and Effects of Compliance with Environmental Laws (Federal, State or Local)

The Company, as discussed earlier in this section, does not manufacture any products, nor does it purchase, store or ship any products. Consequently the Company does not have any compliance issues with regard to environmental laws as they relate to commercial operations.

The Company does store and handle certain organic wastes and human tissue samples in its laboratory operations. The cost of complying with environmental laws which govern our research and development laboratory operations, during the period ending December 31, 2006, was approximately $175, primarily consisting of costs associated with disposal of waste materials.

Employees and Consultants

At December 31, 2006, the Company had thirteen (13) full-time employees. None of the Company’s employees are represented by collective bargaining agreements, and the Company considers its employee relations to be good. The Company utilizes part-time consultants as well as contract research organizations and other outside specialty firms for various services such as clinical trial support, manufacturing and regulatory approval advice.

Divestiture of Subsidiaries

Prior to May 17, 2004, the Company had one direct subsidiary, Tenthgate, Inc. (“Tenthgate”), a Nevada corporation formerly known as Power3 Medical, Inc. Prior to this date, Tenthgate was accounted for, by Power3, as a wholly-owned subsidiary, operating as a “development stage company”, under the cost method. Prior to the acquisition of substantially all the assets and certain liabilities from Advanced BioChem, now known as Industrial Enterprises of America, Power3 agreed to distribute the shares of its subsidiary, Tenthgate, to its shareholders of record, as of May 17, 2004. To fulfill this obligation, the shares of Tenthgate were transferred to a trustee for distribution to the previous shareholders of Power3 on May 17, 2004, before the Advanced BioChem transaction and the takeover by present management. Tenthgate was spun off because the previous owners and management of Power3, in place prior to May 17, 2004, desired to continue to own and eventually operate this inactive subsidiary, and to pursue the prior operations of Power3. Apparently the current management of Tenthgate has decided to abandon that product, because their SEC filings state that they are a “development stage company.” Since May 17, 2004, Tenthgate has been deconsolidated from Power3. Tenthgate has been independently operating since May 17, 2004 and Power3 did not own or control the operations or activities of Tenthgate in any manner whatsoever, after May 17, 2004.

Risk Factors

In addition to the other information contained in this report, the following risks may affect us. If any of these risks occurs, our business, financial condition or operating results could be adversely affected.

We have a history of operating losses, and we may not achieve or maintain profitability in the future.

We have experienced a net loss of $6,415,969 for calendar year 2006. We expect these losses to continue and it is uncertain when, if ever, we will become profitable. These losses have resulted primarily from non-cash, stock-based compensation costs incurred as stock issued for compensation, research and development activities, and general and administrative costs associated with operations. Stock issued for compensation and for consulting fees has been valued at market price on the effective date of the agreement, per SEC requirement. We expect to incur increasing operating losses in the future as a result of expenses associated with research and product development as well as general and administrative costs and we have estimated that we will require approximately $3,300,000 to carry out our business plan through the period ending December 31, 2007. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

We will need significant additional capital in the future and, if additional capital is not available, we may have to curtail or cease operations.

We have an immediate need for capital to continue our operations, and we will need to raise significant additional funds to implement our business plan. Our current plans indicate we will need significant additional capital for research and development before we have any anticipated revenue generating products. The actual amount of funds that we will need will be determined by many factors, some of which are beyond our control, and we may need funds sooner than currently anticipated. These factors include:

the extent to which we enter into licensing arrangements, collaborations or joint ventures;

our progress with research and product development;

the costs and timing of obtaining new patent rights;

the extent to which we acquire or license other technologies; and

regulatory changes and competition and technological developments in the market.

Our continued operations will therefore depend upon our ability to raise additional funds through additional equity or debt financing. We may seek additional funding through private sales of our securities, public sales of our securities, strategic alliances or by licensing all or a portion of our technology. Any such funding may significantly dilute existing shareholders or may limit our rights to our technology. Moreover, the increase in the number of shares available in the public marketplace may reduce the market price for our common stock and, consequently, the price investors may receive at the time of sale. When we require additional funds, general market conditions or the then-current market price of our common stock may not support capital raising transactions such as additional public or private offerings of our common stock. If we are unable to obtain additional funds on a timely basis or on terms favorable to the Company, we may be required to scale back our development of new products, sell or license some or all of our technology or assets, or curtail or cease operations.

We may not be successful in developing or commercializing our products, which would harm the Company and force the Company to curtail or cease operations.

We have only recently commenced our business operations and our technologies are still in the early stages of development. The products we are currently developing may not be successfully developed or commercialized on a timely basis, or at all. If we are unable, for technological or other reasons, to complete the development, introduction or scale-up of manufacturing of these products or other potential products, or if our products do not achieve a significant level of market acceptance, we would be forced to curtail or cease operations. Even if we develop our products for commercial use and obtain all necessary regulatory approvals, we may not be able to develop products that:

are accepted by, and marketed successfully to, the marketplace;

are safe and effective;

are protected from competition by others;

do not infringe the intellectual property rights of others;

are developed prior to the successful marketing of similar products by competitors; or

can be manufactured in sufficient quantities or at a reasonable cost.

Many of our research and development programs rely on technology licensed from third parties, and termination of any of those licenses would result in loss of significant rights to develop and market our products, which would impair out business.

We have rights to technology through license agreements with third parties. Our licenses generally may be terminated by the other party if we fail to perform our obligations. If terminated, we would lose the right to develop the licensed products, which would significantly harm our business. The license agreements include payments contingent upon achieving specified milestones toward commercialization of the licensed products. Currently we do not have any specific value associated with these license agreements because each of the agreements is in such an early stage of research and development that no value is yet supportable and further, we are not yet ready to commercialize the products covered within the license agreements.

Some of our research and development programs may rely on technology licensed from third parties, and termination of any of those licenses would not result in the loss of significant rights to develop and market our products, which would not impair our business expectations and projections.

We have rights to technology through license agreements with third parties. We rely upon an exclusive license agreement from Baylor College of Medicine for identification and use of certain biomarkers for neurodegenerative diseases. Our licenses generally may be terminated by the other party if the Company fails to perform its obligations, including milestone obligations to conduct a research and development program and develop the licensed products for commercialization. If terminated, we would lose the right to develop the licensed products, which could significantly reduce our business expectations. The license agreements include payments contingent upon achieving specified milestones toward commercialization of the licensed products. If disputes arise over the definition of these requirements or whether we have satisfied the requirements in a timely manner, or if any other obligations in the license agreement are disputed by the other party, the other party could terminate the agreement and we could lose our rights to develop the licensed technology. Currently we do not have any specific value associated with these license agreements because each of the agreements is in the early stages of research and development and we are not ready to commercialize any of the license agreements yet.

If we are unable to form and maintain the collaborative relationships that our business strategy requires, our ability to develop products and revenue will suffer.

We must form research collaborations and licensing arrangements with several partners to operate our business successfully. To succeed, we will have to further develop our existing relationships and establish additional collaborations. We cannot be sure that we will be able to establish any additional research collaborations or licensing arrangements necessary to develop and commercialize products using our technology or that we can do so on terms favorable to the Company. If our collaborations are not successful or we are not able to manage multiple collaborations successfully, our programs may suffer.

Collaborative agreements generally pose the following risks:

collaborators may not pursue further development and commercialization of products resulting from collaborations or may elect not to continue or renew research and development programs;

collaborators may delay clinical trials, under fund a clinical trial program, stop a clinical trial or abandon a product, repeat or conduct new clinical trials or require a new formulation of a product for clinical testing;

collaborators could independently develop, or develop with third parties, products that could compete with our future products;

the terms of our agreements with our current or future collaborators may not be favorable to the Company;

a collaborator with marketing and distribution rights to one or more products may not commit enough resources to the marketing and distribution of our products, limiting our potential revenues from the commercialization of a product;

disputes may arise delaying or terminating the research, development or commercialization of our products, or result in significant litigation or arbitration; and

collaborations may be terminated and, if terminated, we would experience increased capital requirements if we elected to pursue further development of the product.

In addition, business combinations or alliances among large pharmaceutical companies could result in a reduced number of potential future collaborators. If business combinations involving our collaborators were to occur, the effect could be to diminish, terminate or cause delays in one or more of our product development programs.

Our products are subject to United States, European Union and international medical regulations and controls, which impose substantial financial costs on the Company and which can prevent or delay the introduction of new products. As a result, we may not obtain required approvals for the commercialization of our products.

Our ability to sell our products is subject to various federal, state and international rules and regulations. In the United States, we are subject to inspection and market surveillance by the Food and Drug Administration, or FDA, to determine compliance with regulatory requirements. The regulatory process is costly, lengthy and uncertain.

Our future performance depends on, among other matters, estimates as to when and at what cost we will receive regulatory approval for our new products. Regulatory approval can be a lengthy, expensive and uncertain process, making the timing and cost of obtaining approvals difficult to predict.

In the United States, clearance or approval to commercially distribute new medical devices or products is received from the FDA through clearance of a 510(k) premarket notification, or 510(k), approval of a premarket approval application or PMA. The process to obtain 510(k) clearance is lengthy and there is no assurance clearance will be obtained.

A PMA application must be filed if proposed products are not substantially equivalent to a medical product first marketed prior to May 1976, or if otherwise required by the FDA. The PMA approval process can be expensive, uncertain and lengthy, and a number of products for which other companies have sought FDA approval of a PMA application have never been approved for marketing.

We are also subject to the regulatory approval and compliance requirements for each foreign country to which we export our products. In the European Union, a single regulatory approval process has been created, and approval is represented by the CE Mark.

Both before and after products are commercialized, we have ongoing responsibilities under the regulations of the FDA and other agencies. Our manufacturing facilities and those of our contract manufacturers are, or can be, subject to periodic regulatory inspections by the FDA and other federal and state regulatory agencies. The FDA has the authority to request recall, repair, replace or refund of the cost of any product manufactured or distributed by the Company. The FDA also administers certain controls over the export of medical devices from the United States. We are also subject to routine inspection and must file periodic reports after the product is approved by the FDA for compliance with quality system requirements, or QSR, and medical device reporting requirements in the United States and other applicable regulations worldwide. Changes in existing requirements or adoption of new laws or requirements could have a material adverse effect on our business, financial condition and results of operation. We will incur significant costs to comply with laws and regulations.

Regulatory agencies have made, and continue to make, changes in their approval and compliance requirements and process. We cannot predict what, how or when these changes will occur or what effect the changes will have on the regulation of our products. Any new legislation may impose additional costs or lengthen review times of our products. We may not be able to obtain necessary worldwide regulatory approvals or clearances for our products on a timely basis, if at all. Delays in receipts of or failure to receive such approvals or clearances, the loss of previously received approvals or clearances, or failure to comply with existing or future regulatory requirements would have a material adverse effect on our business, financial condition and results of operations.

Because many of our competitors have substantially greater capital resources and more experience in research and development, manufacturing and marketing than we do, we may not succeed in developing our proposed products and bringing them to market in a cost-effective, timely manner.

We expect to compete with a broad range of organizations that are engaged in the development and production of products, services and strategies relating to the diagnosis, prognosis, early detection and development of new drugs in cancer, neurodegenerative and neuromuscular diseases. They include:

biotechnology, biomedical, pharmaceutical and other companies;

academic and scientific institutions;

governmental agencies; and

public and private research organizations.

We are an early stage development company engaged primarily in new product development. Early in its existence, Power3 was a development stage company, striving to develop products for sale to the surgical industry. After this stage, Power3 entered the operating company stage selling the products they had developed to hospitals and medical care providers, up until May 17, 2004. At the time of the May 18, 2004 asset purchase transaction, Power3 changed its business model and entered back into the development stage to commercialize its intellectual properties acquired in the transaction. We have not yet completed the development of our first product and have no significant revenue from selling products or services we have commercially produced. Since the change of our focus, we may have difficulty competing with larger, established biomedical and pharmaceutical companies and organizations. These companies and organizations have much greater financial, technical, research, marketing, sales, distribution, service and other resources than the Company. Moreover, they may offer broader product lines, services and have greater name recognition than we do, and may offer discounts as a competitive tactic.

In addition, several early stage companies are currently developing products that may compete with our potential products. We anticipate strong competition from several companies that include:

Medarex, which is a biopharmaceutical company focused on the development of antibody-based therapeutics to treat life threatening and debilitating diseases including cancer and infectious diseases;

Matritech, which is a developer of proteomics-based diagnostic products for the early detection of cancer;

Ciphergen Biosystems, which is active in biomarker discovery assay development and characterization;

Lexicon Genetics, which is using gene knockout technology for a number of therapeutic areas which include neurological disorders and cancer; and

Cyberonics, which designs, develops, manufactures and markets medical devices for the treatment of Alzheimer’s disease and other chronic disorders.

Our competitive position depends on protection of our intellectual property.

Our success will depend on our ability to obtain and protect patents on our technology and to protect our trade secrets. The patents we currently license, and any future patents we may obtain or license, may not afford meaningful protection for our technology and products. Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or unenforceable. In addition, our current and future patent applications may not result in the issuance of patents in the United States or foreign countries. Competitors may develop products similar to ours that conflict with our patent applications and any patents we ultimately receive. In order to protect or enforce our patent rights, we may initiate interference proceedings, oppositions, or patent litigation against third parties, such as infringement suits. These lawsuits could be expensive, take significant time and divert management’s attention from other business concerns. The patent position of biotechnology firms generally is highly uncertain, involves complex legal and factual questions, and has recently been the subject of much litigation. No consistent policy has emerged from the U.S. Patent and Trademark Office or the courts regarding the breadth of claims allowed or the degree of protection afforded under biotechnology patents. In addition, there is a substantial backlog of biotechnology patent applications at the U.S. Patent and Trademark Office, and the approval or rejection of patent applications may take several years.

We also rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. Third parties may independently develop such know-how or otherwise obtain access to our technology. While our employees, consultants and corporate partners with access to proprietary information generally will be required to enter into confidentiality agreements, we cannot guarantee that these agreements will provide the Company with adequate protection against improper use or disclosure of confidential information. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisors have prior employment or consulting relationships. Further, others may gain access to our trade secrets or independently develop substantially equivalent proprietary information and techniques.

Our products could infringe on the intellectual property rights of others.

Third parties may challenge the patents that have been issued or licensed to the Company. We may have to pay substantial damages, possibly including treble damages; for past infringement if it is ultimately determined that our products infringe a third party’s patents. Further, we may be prohibited from selling our products before we obtain a license, which, if available at all, may require the Company to pay substantial royalties. Even if infringement claims against the Company are without merit, defending a lawsuit takes significant time, may be expensive and could divert management attention from other business concerns.

We depend on our key scientific and management personnel to develop our products and pursue collaborations.

Our performance is substantially dependent on the performance of our current senior management, board of directors and key scientific and technical personnel and advisers. The loss of the services of any member of our senior management, board of directors, scientific or technical staff or scientific advisory board may significantly delay or prevent the achievement of product development and other business objectives and could have a material adverse effect on our business, operating results and financial condition.

Recruiting and retaining qualified scientific personnel to perform research and development work are critical to our success. There is intense competition for qualified scientists and managerial personnel from numerous pharmaceutical, biomedical and biotechnology companies, as well as from academic and government organizations, research institutions and other entities. In addition, we may face particular difficulties because there are a limited number of scientists specializing in proteomics and its use for the discovery of diseases, the principal focus of our company. We expect to rely on consultants and advisors, including our scientific and clinical advisors, to assist the Company in formulating our research and development strategy. Any of those consultants or advisors could be employed by other employers, or be self-employed, and might have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to the Company. Such other employment, consulting or advisory relationships could place our trade secrets at risk, even if we require non-disclosure agreements.

Our lack of operating experience may cause the Company difficulty in managing our growth.

We have no experience in manufacturing or procuring products in commercial quantities, conducting other later-stage phases of the regulatory approval process or selling our products, and we have only limited experience in negotiating, establishing and maintaining strategic relationships. We have no experience with respect to the launch of a commercial product. Our ability to manage our growth, if any, will require the Company to improve and expand our management and our operational and financial systems and controls. If our management is unable to manage growth effectively, our business and financial condition would be materially harmed. In addition, if rapid growth occurs, it may strain our operational, managerial and financial resources.

We have no commercial production capability and we may encounter production problems or delays, which could result in lower revenue.

To date, we have not produced any product in commercial quantities. Customers for any potential products and regulatory agencies will require that we comply with current good manufacturing practices prescribed by the FDA that we may not be able to meet. We have established and are in the process of establishing agreements with contract manufacturers to supply sufficient quantities of our products to conduct clinical trials as well as for the manufacture, packaging, labeling and distribution of finished products if our potential products are approved for commercialization. If such arrangements are terminated and if we are unable to manufacture or contract for a sufficient supply of our potential products on acceptable terms, our clinical testing schedule may be delayed, resulting in the delay of submission of products for regulatory approval and initiation of new development programs. If we determine to manufacture products ourselves, we may not be able to maintain acceptable quality standards if we ramp up production. To achieve anticipated customer demand levels, we will need to scale-up our production capability and maintain adequate levels of inventory. We may not be able to produce sufficient quantities to meet market demand. If we cannot achieve the required level and quality of production, we may need to outsource production or rely on licensing and other arrangements with third parties. This reliance could reduce our gross margins and expose the Company to the risks inherent in relying on others. We may not be able to successfully outsource our production or enter into licensing or other arrangements under acceptable terms with these third parties, which could adversely affect our business.

We have no marketing or sales staff, and if we are unable to develop sales and marketing capability, we may not be successful in commercializing our products.

We currently have no sales, marketing or distribution capability. As a result, we will depend on collaborations or agreements with third parties that have established distribution systems and direct sales forces. To the extent that we enter into co-promotion or other licensing arrangements, our revenues will depend upon the efforts of third parties, over which we may have little or no control.

If we are unable to reach and maintain agreement with one or more pharmaceutical, biomedical or biotechnology companies or other potential collaborators under acceptable terms, we may be required to market our products directly. We may elect to establish our own specialized sales force and marketing organization to market our products. If we are unable to develop a marketing and sales force with technical expertise and with supporting distribution capability, we may not be able to successfully commercialize our products.

Our business is subject to technological obsolescence.

Proteomics, biotechnology and related pharmaceutical technology have undergone and are subject to rapid and significant change. We expect that the technologies associated with proteomics, biotechnology research and development will continue to develop rapidly. Our future will depend in large part on our ability to maintain a competitive position with respect to these technologies. Any processes, discovery platforms or products that we develop may become obsolete before we recover any expenses incurred in connection with developing these products.

We face intense competition in the proteomics, biotechnology and pharmaceutical industries.

The proteomics, biotechnology and pharmaceutical industries are intensely competitive. We have numerous competitors in the United States and elsewhere. Our competitors include major multinational pharmaceutical, biomedical and biotechnology companies, specialized firms and universities and other research institutions. Many of these competitors have greater financial and other resources, larger research and development staffs and more effective marketing and manufacturing organizations, than we do. In addition, academic and government institutions have become increasingly aware of the commercial value of their research findings. These institutions are now more likely to enter into exclusive licensing agreements with commercial enterprises, including our competitors, to market commercial products. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large pharmaceutical and established biotechnology companies. Many of these competitors have significant products that have been approved or are in development and operate large, well-funded research and development programs.

Our competitors may succeed in developing or licensing technologies and products that are more effective or less costly than any we are developing. Our competitors may succeed in obtaining FDA or other regulatory approvals for product candidates before we do. Products resulting from our research and development efforts, if approved for sale, may not compete successfully with our competitors’ existing products or products under development.

We face potential difficulties in obtaining product liability and related insurance. If we are subject to product liability claims and have not obtained adequate insurance to protect against these claims, our financial condition would suffer.

We do not have product liability or other professional liability insurance. In the future, we may, in the ordinary course of business, be subject to substantial claims by, and liability to, persons alleging injury from the use of our products. If we are successful in having products approved by the FDA, the sale of such products would expose the Company to additional potential product liability and other claims resulting from their use. This liability may result from claims made directly by consumers or by others selling such products. We do not currently have any product liability or professional liability insurance, and it is possible that we will not be able to obtain or maintain such insurance on acceptable terms or that any insurance obtained will provide adequate coverage against potential liabilities. Our inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect against potential product liability claims could prevent or limit the commercialization of any products we develop. A successful product liability claim in excess of any insurance coverage we may procure could exceed our net worth. While we desire to reduce our risk by obtaining indemnity undertakings with respect to such claims from licensees and distributors of our products, we may not be able to obtain such undertakings and, even if we do, they may not be sufficient to limit our exposure to claims.

If we are subject to claims relating to improper handling, storage or disposal of the hazardous materials we use in our business, our financial condition would suffer.

Our research and development processes involve the controlled storage, use and disposal of hazardous materials including biological hazardous materials of which we have contracts in place for proper disposal. We are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Although we believe that our safety procedures for handling and disposing of these hazardous materials comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result. We currently do not have insurance which covers any such accident and may not be able to maintain insurance on acceptable terms, or at all. We could be required to incur significant costs to comply with current or future environmental laws and regulations.

Health care cost containment initiatives may limit our returns.

Our ability to commercialize our products successfully will be affected by the ongoing efforts of governmental and third-party payers to contain or reduce the cost of health care. Governmental and other third-party payers increasingly are attempting to contain health care costs by:

challenging the prices charged for health care products and services;

limiting both coverage and the amount of reimbursement for new therapeutic products;

denying or limiting coverage for products that are approved by the FDA but are considered experimental or investigational by third-party payors; and

refusing in some cases to provide coverage when an approved product is used for disease indications in a way that has not received FDA marketing approval.

In addition, the trend toward managed health care in the United States, the growth of organizations such as health maintenance organizations, and legislative proposals to reform healthcare and government insurance programs could significantly influence the purchase of healthcare services and products, resulting in lower prices and reducing demand for our products.

Even if we succeed in bringing any products to the market, they may not be considered cost-effective and third-party reimbursement might not be available or sufficient. If adequate third-party coverage is not available, we may not be able to maintain price levels sufficient to realize an appropriate return on our investment in research and product development. In addition, legislation and regulations affecting the pricing of diagnostic services and testing may change in ways adverse to the Company before or after any of our proposed products are approved for marketing. While we cannot predict whether any such legislative or regulatory changes will be adopted, the adoption of such changes could make it difficult or impossible to sell our products.

Stock prices for biomedical and biotechnology companies are volatile.

The market price for securities of biomedical and biotechnology companies historically have been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. Fluctuations in the trading price or liquidity of our common stock may adversely affect our ability to raise capital through future equity financings.

Factors that may have a significant impact on the market price and marketability of our common stock include:

announcements of technological innovations or new commercial therapeutic products by the Company, our collaborative partners or our present or potential competitors;

announcements by the Company or others of results of validation studies and clinical trials;

developments or disputes concerning patent or other proprietary rights;

adverse legislation, including changes in governmental regulation and the status of our regulatory approvals or applications;

changes in health care policies and practices; and

economic and other external factors, including general market conditions.

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. If a securities class action suit is filed against the Company, we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business in order to respond to the litigation.

The resale in the open market of the shares we have issued, or shares issuable upon conversion or exercise of securities we have issued, in exempt transactions might adversely affect our stock price.

As of December 31, 2006, 71,370,955 shares of our common stock were outstanding. In 2006, the Company filed an SB-2 to register all the shares associated with the convertible debentures issued in October, 2004 and January, 2005. However, since December 31, 2006, the Company has decided to pull its Form SB-2, and filed paperwork with the appropriate agencies in mid June, 2007, to rescind this SB-2. In addition, the Company is in the process of settlement with the convertible debenture holders and expects to settle all outstanding claims under these debentures, other than the warrants, by the end of calendar 2007. Once these conversions are completed, there will be a substantial number of shares which could come on the market over the next 2 years. The sale of a substantial number of shares of our common stock by the investors, or the anticipation of such sales, could make it more difficult for the Company to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. In addition to these shares, approximately 15,000,000 shares of common stock issued to Advanced BioChem in our acquisition of substantially all of its assets may become available for resale. Sales of shares pursuant to other exercisable options and warrants we have issued could also lead to subsequent sales of the shares in the public market. These sales could depress the market price of our stock by creating an excess in supply of shares for sale. Availability of these shares for sale in the public market could also impair our ability to raise capital by selling equity securities.

Our stock is thinly traded, which could lead to price volatility and difficulty liquidating your investment.

The trading volume of our stock has been low, which can cause the trading price of our stock to change substantially in response to relatively small orders. During the year ended December 31, 2006, the average daily trading volume of our stock was approximately 237,250 shares and the shares traded as low as $0.05 and as high as $0.42 per share. Both volume and price could also be subject to wide fluctuations in response to various factors, many of which are beyond our control, including:

actual or anticipated variations in quarterly and annual operating results;

announcements of technological innovations by the Company or our competitors;

developments or disputes concerning patent or proprietary rights; and

general market perception of biotechnology and pharmaceutical companies.

Because our stock currently trades below $5.00 per share, and is traded on the Pink Sheets, our stock is considered by the SEC a “penny stock,” which can adversely affect its liquidity.

Our common stock does not currently qualify for listing on the Nasdaq Stock Market or the OTCBB. If the trading price of our common stock remains less than $5.00 per share, our common stock is considered a “penny stock,” and trading in our common stock is subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, brokers or dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements. The broker or dealer must make an individualized written suitability determination for the purchaser and receive the purchaser’s written consent prior to the transaction.

SEC regulations also require additional disclosure in connection with any trades involving a penny stock, including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and its associated risks. These requirements could severely limit the liquidity of such securities in the secondary market because few brokers or dealers are likely to undertake these compliance activities. In addition to the applicability of the penny stock rules, another risk associated with trading in penny stocks may be high price fluctuations. Purchasers of stock may be subject to substantial dilution.

As stated in “Market Information”, during 2005, upon the Company’s failure to timely file its Form 10-KSB for year ended December 31, 2004, the OTCBB appended the symbol “E” to the Company’s trading symbol and notified the Company of its jeopardy of having its securities no longer quoted on the OTCBB, pending the Company’s filing of its Form 10-KSB for 2004. On June 14, 2005, the Company was notified of the OTCBB’s action to not allow the Company’s securities to be quoted on the OTCBB, as of June 16, 2005, pending the filing of the Company’s Form 10-KSB for 2004. The 10-KSB for 2004 was filed in September, 2005, however the OTCBB has not allowed the Company’s stock to return to the Bulletin Board due to the non-completion of the Form SB-2 which was filed by the Company in late 2005. The Company has been informed that trading in the Company’s stock will not be allowed on the OTC Bulletin Board until the SB-2, previously filed, is declared effective. The Company has now rescinded the SB-2, as of mid-June, 2007, in an effort to get put back on the Bulletin Board. However, at time of this filing, the Company’s common shares are only available for trading through the Pink Sheets.

If the ownership of our common stock continues to be highly concentrated, it may prevent you from influencing significant corporate decisions and may result in conflicts of interest that could cause our stock price to decline.

As of December 31, 2006, our executive officers, directors and their affiliates beneficially own or control approximately 8.5% of the outstanding shares of our common stock (after giving effect to the exercise of all options and warrants held by them which are exercisable within sixty days of such date). Additionally, based upon our stock records, Industrial Enterprises of America, previously known as Advanced BioChem, is the record owner of approximately 18.5% of the outstanding shares of our common stock as of December 31, 2006. Accordingly, our current executive officers, directors and their affiliates, as well as Advanced BioChem, will have substantial control over the outcome of corporate actions requiring shareholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These shareholders may also delay or prevent a change of control of the Company, even if such a change of control would benefit our other shareholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

The terms of our convertible debentures have materially modified the rights of common shareholders, and if we issued preferred stock, any holders of such preferred stock might be able to delay or prevent a change of control of the company.

We are authorized to issue up to 50,000,000 shares of preferred stock in one or more series. Our board of directors will be able to determine the terms of preferred stock without further action by our shareholders. If we issue preferred stock, it could affect your rights or reduce the value of your common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with or sell our assets to a third party. These terms may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions.

Under the terms of our convertible debentures, we are prohibited from taking certain actions without the approval of the holders of a two-thirds majority of the then-outstanding principal amount of the debentures. Specifically, we have agreed not to, so long as any portion of the debentures are outstanding, (1) amend its certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the holders of the debentures (with exception for the Series B preferred stock to be issued by the Company), or (2) repurchase more than a de minimis number of shares of its common stock or other equity securities other than as to the shares of common stock issuable upon conversion of the debentures described above.

We are contractually obligated to issue shares of a Series B preferred stock to our two directors and principal officers. The Series B preferred stock will have special voting rights such that the holders of the Series B preferred stock will hold a majority of the voting rights of the company.

We previously entered into employment agreements with two of our directors and executive officers in whom we agreed to issue 1,500,000 shares of Series B preferred stock to each officer. The shares were intended to be issued following the Advanced BioChem transaction; however, we did not file the certificate of amendment necessary to designate powers and relative rights of the Series B preferred stock. As a result of certain restrictions agreed to by the Company in connection with the sale of our convertible debentures, we are not permitted to issue common shares or common share equivalents such as the Series B preferred stock until 90 days after the effective date of the registration statement. After such restrictions lapse, we intend to designate and issue the Series B preferred stock. It is contemplated that the Series B preferred stock will have special voting rights such that the holders of the Series B preferred stock will hold a majority of the voting rights of the company. Upon issuance of the Series B preferred stock, our current executive officers and directors may restrict our ability to merge with, or sell our assets to, a third party.

We do not anticipate paying dividends on our common stock.

We do not plan to pay dividends on our common stock for the foreseeable future. We currently intend to retain future earnings, if any, to finance operations, capital expenditures and the expansion of our business.

Item 2. Description of Property

The Company does not own any real estate. The Company conducts its operations from leased premises of approximately 7,200 square feet in The Woodlands, Texas.

At this facility the Company maintains its executive offices and conducts development and product prototyping activities. The Company expects this space will be adequate for its needs for the remainder of the lease term.

Item 3. Legal Proceedings

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

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

In June, 2005, Charles Caudle et al filed a lawsuit in Harris County, Texas, against Advanced BioChem, Power3 and the officers and directors of both companies. The suit alleges that Advanced BioChem, Power3 and the officers and directors of Power3, are liable to Charles Caudle et al for damages resulting from funds loaned to Advanced BioChem and which were subsequently converted into common stock of Advanced BioChem. It is unclear as to the specific dollar amount of the claim. The Company, and its officers and directors, has filed an answer denying all claims in the lawsuit. The Company believes that Charles Caudle’s claims are without merit with regard to Power3; however the Company cannot be assured it will prevail or if the outcome of the action will adversely affect the Company’s financial position or results of operations. Settlement negotiations between Advanced BioChem and Charles Caudle et al are ongoing and are expected to be concluded in July, 2007. The Company does not expect to incur any loss whatsoever from this action.

On May 19, 2005, Quinn Capital Consulting, Inc. filed suit against Power3 and Steven B. Rash claiming breach of contract regarding payment for services claimed to be provided to Power3, with payment to have been made by issue of 500,000 shares to Quinn Capital, which Power3 later cancelled or otherwise converted. This financial obligation is recorded in the obligations of the Company as of December 31, 2006. In February, 2007, the Company and Quinn Capital reached a settlement agreement in this matter and the Company will issue 500,000 common shares to Quinn Capital and pay $75,000, over time, as settlement of any and all claims in this matter.

On September 12, 2005, Focus Partners LLC filed suit against David Zazoff and Power3 alleging that Power3 breached its agreement with Focus Partners in that it failed to issue stock to the Plaintiff according to the terms of their agreement, that the stock in question was issued to Zazoff and that Zazoff later sold the stock in question for $480,000. Settlement discussions between the Power3 and Focus Partners are ongoing; however no resolution has been achieved thus far. The Company has moved for summary judgment dismissing the complaint on the grounds that the agreement that forms the basis of this action was superseded by a subsequent agreement entered into between the parties, thereby obviating any obligation of Power3 to tender shares pursuant to the prior agreement. The Company believes that the Plaintiff’s claims are without merit and the Company will continue to vigorously defend this action.

On February 15, 2006, Bowne of Dallas LP filed suit against Power3 to collect a debt for services in the amount of $17,315. The debt is recorded in accounts payable by Power3 as of December 31, 2006. In February, 2007, this debt, along with an additional $8,000 in fees, was settled and the obligation was removed from the accounts payable of the Company.

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

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

There were no matters submitted to the vote of the security holders during 2006.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.

Market Information

During 2004, the Company’s common stock was traded on the OTC Bulletin Board under the symbol “PWRM.” As of June, 2005, as reported previously, the Company’s common stock has been quoted on the Pink Sheets. The high and low bid information for each quarter for the years ending December 31, 2006 and 2005, as reported by National Quotation Bureau, Inc., are as follows:

Quarter	Pre or Post Split Price(1)	High Bid	Low Bid

First Quarter 2007	Post-Split	$0.22	$0.06
Second Quarter 2007	Post-Split	$0.29	$0.13
Third Quarter 2007 (2)	Post-Split	$0.19	$0.15

First Quarter 2006	Post-Split	$0.42	$0.10
Second Quarter 2006	Post-Split	$0.33	$0.14
Third Quarter 2006	Post-Split	$0.16	$0.09
Fourth Quarter 2006	Post-Split	$0.13	$0.05

First Quarter 2005	Post-Split	$0.89	$0.48
Second Quarter 2005	Post-Split	$0.69	$0.14
Third Quarter 2005	Post-Split	$0.85	$0.14
Fourth Quarter 2005	Post-Split	$0.26	$0.10

(1) On September 24, 2003, the Company effected a 1-for-50 reverse stock split of its common stock.
(2) Prices listed through July 5, 2007

The quotations above reflect inter-dealer prices, without adjustment for retail mark-up, markdown or commissions and may not reflect actual transactions.

During 2005, upon the Company’s failure to timely file its Form 10-KSB, the OTCBB appended the symbol “E” to the Company’s trading symbol and notified the Company of its jeopardy of having its securities no longer quoted on the OTCBB, pending the Company’s filing of its Form 10-KSB for 2004. On June 14, 2005 the Company was notified of the OTCBB’s action to not allow the Company’s securities to be quoted on the OTCBB, as of June 16, 2005, pending the filing of the Company’s Form 10-KSB for 2004. Accordingly, the Company’s securities are no longer eligible for quotation on the OTCBB, as of June 16, 2005, all quotations of the Company’s securities are deleted from the OTCBB and the Company’s common stock is currently traded on the Pink Sheets under the symbol PWRM.PK.

Holders

As of December 31, 2006, there were 1,113 shareholders of record of the Company’s common stock.

Dividends

The Company has not paid or declared any dividends on its common stock for the last two fiscal years and does not anticipate paying cash dividends in the foreseeable future. There are no limitations on the ability of the Company to declare dividends; except those set forth in § 510 of the New York Business Corporation Laws which prohibits dividends if the Company is insolvent or would be made insolvent by the declaration of a dividend and all dividends must be made out of surplus only.

Item 6. Management’s Discussion and Analysis or Plan of Operation

Overview

The Company is an early stage development company engaged in the early detection, monitoring, and targeting of diseases through the analysis of proteins. As previously stated, the Company’s previous operating assets were abandoned and spun off to a trustee for the shareholders of record as of May 17, 2004, prior to the date of the asset purchase transaction on May 18, 2004. Coincident with the acquisition, the Company significantly changed its business activity from being an operating company and returned to being a development stage company with its focus on commercializing the intellectual properties it acquired in the asset purchase transaction. The Company’s business objective is to focus on disease diagnosis, protein and biomarkers identification, and drug resistance in the areas of cancers, neurodegenerative and neuromuscular diseases. The Company has established a scientific advisory board to assist in the research and development of its products. The members of the scientific advisory board are recognized leaders in their chosen fields, and the Company is working with them in the development of effective early diagnosis and drug targets for early treatment of cancers, neurodegenerative and neuromuscular diseases.

The Company has had significant losses during 2005 and 2006. The Company anticipates that it will continue to incur substantial operating losses in future years as it progresses in its research and development activities as well as the commercializing of its technologies. The Company has an immediate need for capital to continue its current operations. At December 31, 2006, the Company had an accumulated Stockholder’s deficit of $5,768,920. The following discussion should be read in conjunction with the Company’s audited financial statements as of December 31, 2006 and for the years ended December 31, 2006 and 2005, including the notes to those financial statements. The following discussion contains forward-looking statements that reflect the Company’s plans, estimates and beliefs. Actual results could differ materially from those discussed in the forward-looking statements. See “Item 1. Description of Business - Risk Factors” for additional discussion of these factors and risks.

Results of Operations

Year Ended December 31, 2006 as Compared to Year Ended December 31, 2005

Revenues from operations for the year ended December 31, 2006 were $300,000 compared to $-0- revenues for the year ended December 31, 2005. The Company has not incurred any Cost of Goods Sold for the years ended December 31, 2006 or December 31, 2005.

Operating expenses were $6,905,153 for 2006 as compared to Operating Expenses for 2005 as $27,765,820 a decrease of $20,860,667. The decrease in operating expenses was primarily due to a significant reduction in professional and consulting fees in 2006, compared to 2005, impairment of goodwill in 2005 and a reduction in stock-based compensation during 2006 due to amortizing only the remaining portions of the stock compensation issued in 2004.

Employee compensation and benefits were $6,041,029 in 2006 compared to $13,199,790 in 2005 primarily as a result of significant vesting of stock awards in 2005.

Occupancy and equipment expenses were $134,593 in 2006. This resulted primarily from the Company’s office lease and utilities during 2006, as well as repairs, telephones and utilities in 2006.

Derivative gain amounted to $1,194,129 during the year ended December 31, 2006. This is a substantially lower gain than during 2005 which amounted to $1,556,342. For both years, the stock price decline created the biggest majority of the gain. During 2006, this was offset by the creation of a number of new Notes Payable, which were convertible to common stock at a fixed exercise price and which included warrants. The creation of these notes, with embedded derivatives, and the creation of a large number of new warrants, offset the gain that would otherwise have been recognized, during 2006. The Company generally does not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks that may affect the fair values of its financial instruments. However, certain other financial instruments, such as warrants and embedded conversion features that are indexed to our common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within our control. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. The Company has recorded fair value adjustments to our derivative financial instruments, which will result in charges or credits to our income, until we require the ability to settle these instruments with our common stock.

Interest expense amounted to $1,008,866 and $505,647 for the years ended December 31, 2006 and 2005 respectively. Interest expense increased in 2006 due to (i) increases in our borrowings from new bridge loans and (ii) amortizations associated with our discounted debt and deferred financing costs.

The above matters result in net loss decreasing from $27,134,865 in 2005 to a loss of $6,415,969 in 2006. The significantly larger net loss in 2005 was primarily due to impairment of goodwill and stock compensation expense during 2005.

Liquidity and Capital Resources

Our financial statements are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We are in the development stage and have primarily been involved in research and development and capital raising activities; as such we have incurred significant losses from operations during both 2005 and 2006.

We have an immediate need for capital to continue our operations, and we will need to raise significant additional funds to implement our business plan. This cash will have to come from equity sales and/or borrowings as management has projected that we will need significant additional capital for development and other ongoing operational activities before we will have any anticipated revenue generating products. The actual amount of funds that we will need will be determined by many factors, some of which are beyond our control. These factors include:

The extent to which we enter into licensing arrangements, collaborations or joint ventures;

The progress and results of research and product development;

The costs and timing of obtaining new patent rights;

The extent to which we require or license other technologies; and

Regulatory changes and competition and technological developments in the market.

Net cash used by operating activities was $1,156,147 for the year ended December 31, 2006, compared to $1,218,258 for the year ended December 31, 2005. Net cash used in investing activities during 2006 was -0- as compared to $89,246 in 2005. Net cash provided by financing activities approximated $1,195,350 for the year ended December 31, 2006, as compared to $1,150,602 for the year ended December 31, 2005. The increase in net cash provided by financing activities is primarily due to new Notes Payable issued by the Company during 2006. In addition, cash proceeds from the sales of stock increased from -0- for the year ended December 31, 2005 to $225,000 for the year ended December 31, 2006.

As of December 31, 2006, the Company’s principal source of liquidity was approximately $40,602 in cash. As of the date of filing this report, the Company has approximately $300,000 on hand to pay operating expenses. We also have no confirmed source of funds for the next twelve months, although we expect that after filing this report and an amended SB-2 registration statement, additional debt and equity capital will become available to the Company.

Pursuant to the financing described below, if the Company were to be successful in closing the final tranche of the convertible debenture issue, the Company would receive an additional $1,600,000 upon the sale and issuance of the final aggregate principal amount of debentures at the final closing of the private placement, which is to occur on or before the fifth trading day after the effective date of the registration statement filed by the Company for the resale of securities by the investors. In addition, the Company has received several bridge loans and officer advances during 2005 and 2006. It is expected that a portion of the proceeds received by the Company from the issuance and sale of the $1,600,000 aggregate principal amount of debentures would be used to repay certain bridge loans received during 2005 and 2006. As previously described, the Company has thus far, been unable to complete the funding of the convertible debentures, described below in “Recent Financing” due to its failure to obtain effectiveness of its SB-2 to register the shares associated with the debentures, the warrants and additional investment rights covered in the securities purchase agreements.

Convertible Debenture Financing

The Company entered into a securities purchase agreement, dated as of October 28, 2004, with certain investors. Pursuant to the securities purchase agreement, the investors agreed to purchase from the Company convertible debentures due three (3) years from the date of issuance in the aggregate principal amount of $3,000,000. Effective January 26, 2005, the Company entered into an amendment to the securities purchase agreement with a sub-group of the original investors. This sub-group invested a 2^nd tranche of monies, as part of their original commitment. The securities purchase agreement, as amended, also provides for the issuance to the investors of warrants to purchase shares of the Company’s common stock and additional investment rights to purchase additional convertible debentures. In connection with the securities purchase agreement, the Company entered into a registration rights agreement which requires the Company to file a registration statement registering on behalf of the investors the resale of the shares of common stock issuable upon conversion of the debentures and the exercise of the warrants. The Company will also file a registration statement registering on behalf of the investors the resale of shares of common stock issued upon exercise of the additional investment rights previously issued by the Company.

Effective October 28, 2004, the Company issued and sold to the investors the first $1,000,000 in aggregate principal amount of such debentures at the initial closing under the securities purchase agreement. Pursuant to the securities purchase agreement, as amended, effective January 26, 2005 the Company issued and sold, as a 2^nd tranche of investment, to certain investors $400,000 aggregate principal amount of convertible debentures. Subject to the Company’s satisfaction of the conditions set forth in the securities purchase agreement (which includes the effectiveness of the registration statement) the investors are required to purchase the remaining $1,600,000 in aggregate principal amount of such debentures at the final closing, which is to occur on or before the fifth trading day after the effective date of the registration statement. However, since the filed registration statement has not been declared effective, no such final investment has been required, nor funded by the convertible debenture holders.

The $1,000,000 aggregate principal amount of debentures issued on October 28, 2004 and the $400,000 aggregate principal amount of debentures issued January 26, 2005 are due and payable in full three (3) years after issuance and do not bear interest. The $1,600,000 aggregate principal amount of debentures issuable at the final closing will be due and payable in full three (3) years after the date of their issuance, and will not bear interest. The aggregate cash purchase price for the debentures will be $3,000,000, which is equal to the full face amount of the debentures. At any time from the closing date until the maturity date of the debentures, the purchasers have the right to convert the debentures, in whole or in part, into common stock at the then effective conversion price. The conversion price for the previously issued $1,400,000 aggregate principal amount of debentures is $0.90 per share, provided however if the lessor of (i) 75% of the average of the 5 consecutive Closing Prices immediately prior to the Effective Date, as defined in the Purchase Agreement, and (ii) the Closing Price on the Effective Date (the lessor of (i) and (ii) being referred to as the “Effective Date Price”) is less than the Conversion Price, the Conversion Price shall be reduced to equal the Effective Date Price, the now designated Effective Date Price. The remaining 3^rd tranche, when and if made, of $1,600,000 aggregate principal amount of debentures issuable at the final closing will have a conversion price equal to the above. The debentures contain covenants that will limit the Company’s ability to, among other things: incur or guarantee additional indebtedness; incur or create liens; amend the Company’s certificate of incorporation, bylaws or other charter documents so as to adversely affect any rights of the holders of the debentures; and repay or repurchase more than a de minimis number of shares of common stock other than as permitted in the debentures and other documents executed with the purchasers.

If the Company, at any time while the debentures are outstanding, shall offer, sell or grant any option to purchase or offer, sell or grant any right to reprice its securities, or otherwise dispose of or issue any common stock or common stock equivalents, entitle any person to acquire shares of common stock at an effective price per share less than the then effective Conversion Price, as calculated by the formula described above, then the Conversion Price for the convertible debenture shares shall be reduced to equal any such new effective Conversion Price, as defined in the Agreement, regardless of whether or not such common stock or common stock equivalents are issued to convertible debenture holders. In case of any such adjustment in the effective Conversion Price for the convertible debenture shares, this could significantly dilute existing investors.

The debentures include default provisions and an event of default includes, among other things, a change of control of the Company, the sale of all or substantially all of the Company’s assets, the failure to have the registration statement declared effective on or before the 180th day after the initial closing date, and the lapse of the effectiveness of the registration statement for more than 30 consecutive trading days during any 12-month period (with certain exceptions), the Company’s failure to timely deliver certificates to holders upon conversion and a default by the Company in any obligations under any indebtedness of at least $150,000 which results in such indebtedness being accelerated. Upon the occurrence of an event of default, each debenture may become immediately due and payable, either automatically or by declaration of the holder of such debenture. The aggregate amount payable upon an acceleration by reason of an event of default shall be equal to the greater of 130% of the principal amount of the debentures to be prepaid or the principal amount of the debentures to be prepaid, divided by the conversion price on the date specified in the debenture, multiplied by the closing price on the date set forth in the debenture. Specific provisions exist in the Securities Purchase Agreement which subject the Company to liabilities for liquidated damages if the registration statement covering the shares does not become effective within 180 days after the October 28, 2004 purchase, which they did not, or if the registration statement does not remain effective. In addition, if the Company is not able to deliver said share certificates, upon conversion, the Company becomes subject to partial liquidated damages, as specified in the Notes to the Financial Statements section of this report, based on the number of days required to deliver said shares.

Because the Company’s investors could be significantly diluted in their ownership position, the Company is further bound, by the Securities Purchase Agreement covering the debentures and the warrants, to not offer, sell or grant shares to other persons or companies at prices below the effective conversion prices available to the convertible debenture holders in the Agreements. In such case, the specific details of the conversion price formulas can be found in the Notes to the Financial Statements in this report or in the actual Securities Purchase Agreement documents as previously filed in publicly-filed reports.

Concurrent with the issuance of the initial $1,000,000 aggregate principal amount of debentures dated October 28, 2004, the purchasers also received warrants to purchase an aggregate of up to 2,500,000 shares of common stock and additional investment rights to purchase up to an additional $2,500,000 principal amount of convertible debentures. On January 26, 2005, an amendment to the Securities Purchase Agreement was executed with four of the original purchasers of the initial $1,000,000 debenture purchase. Pursuant to the terms of the amendment, concurrent with the issuance of the $400,000 aggregate principal amount of convertible debentures, the Company issued additional warrants to purchase an aggregate of up to 333,333 shares of its common stock, but no additional investment rights. The warrants are exercisable at a price of $1.44 per share (subject to adjustment), for a period of five (5) years from October 28, 2004. If the Company, at any time the warrants are outstanding, pays a stock dividend or other distribution on its shares; subdivides outstanding shares into a larger number of shares; combines outstanding shares into a smaller number of shares; or issues by reclassification any shares of capital stock of the Company, then the Exercise Price of the warrants shall be adjusted by a formula based on the number of common shares then outstanding, and the number of shares issuable upon exercise of the warrants shall be proportionately adjusted. In addition, if the Company shall offer, sell, grant any option to purchase or reprice its securities, or otherwise dispose of or issue any common stock, at an effective price per share less than the then existing Exercise Price of the warrants, then the Exercise Price shall be reduced to equal this lower Base Share Price, as defined in the Securities Purchase Agreement for the warrants.

The additional investment rights are exercisable at a price equal to the principal amount of the debentures for a period until the earlier of (1) nine months following the effective date of the registration statement, or (2) April 28, 2006, whichever comes first. The debentures to be purchased upon the exercise of the additional investment rights will have the same terms as the debentures described above, except that the conversion price will be equal to $1.08, subject to adjustment according to the terms of the Agreement.

Each selling shareholder has contractually agreed to restrict its ability to convert the debentures, exercise the warrants and additional investment rights and receive shares of the Company’s common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 4.99% of the number of shares of the Company’s common stock outstanding immediately after giving effect to such conversion or exercise.

Additional terms and specifics of the Convertible Debenture agreements, including Events of Default and the consequences thereof, are detailed in the Notes to the Financial Statements.

Accounting for Derivative Instruments

Statement of Financial Accounting Standard (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires all derivatives to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in the Power 3's structured borrowings, are separately valued and accounted for on the Power 3's balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

Plan of Operations and Cash Requirements

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

Absent a source of revenues, the Company will require funding in order to carry out its business plan until such time as it is able to generate sustained revenues. The Company’s current cash requirements are approximately $275,000 per month and the Company anticipates that it will require approximately $3,350,000 for the twelve months ended March 31, 2008 to continue its development activities, undertake and perform clinical validation studies, continue its marketing efforts and maintain its administrative infrastructure, broken down as follows:

Expenditures Required During Next Twelve Months

General and Administrative	$	2,550,000

Capital Expenditures	$	110,000

Patent filings and intellectual property	$	200,000

Clinical Validation Studies	$	340,000

Testing for Research Agreements	$	150,000

Total	$	3,350,000

The Company has no significant capital expenditure requirements and does not plan to increase its monthly expenditure rate absent an increase in revenues or additional funding.

The Company will continue to require additional debt or equity financing for its operations which may not be readily available. The Company’s ability to continue as a going concern is subject to its ability to generate a profit or obtain necessary funding from outside sources. Management believes that even though the Company currently has limited cash resources and liquidity, assuming exercise of the warrants and additional investment rights, the net funds available from the final closing under the Securities Purchase Agreement financing, after repayment of the bridge loans, will allow the Company to continue operations for approximately six months from the date of receiving the final funding tranche. In the event the final closing and sale of 1,600,000 in aggregate principal amount of debentures occurs but the warrants and additional investment rights are not exercised, the Company anticipates that it will need to raise additional capital prior to June, 2007 to meet its operating costs. The Company’s actual results may differ materially from these estimates, and no assurance can be given that additional funding will not be required sooner than anticipated or that such additional funding will be available when needed or on terms acceptable to the Company. Insufficient funding will require the Company to curtail or terminate operations.

Off-Balance Sheet Arrangements

At December 31, 2006, with the exception of the lease for its operating facility, and employment agreements entered with its three principal officers, the Company did not have any significant off balance sheet commitments.

Critical Accounting Policies

Stock-Based Compensation

Effective January 1, 2006, Power3 began recording compensation expense associated with stock options and other forms of equity compensation is accordance with Statement of Financial Accounting Standards (“SFAS”) No.123R, Share−Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, Power3 had accounted for stock options according to the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. Power3 adopted the modified prospective transition method provided for under SFAS No.123R, and, consequently, has not retroactively adjusted results from prior periods.

Power3’s stock-based compensation expense consists primarily of amortized costs for stock issued to consultants, to employees and for warrants, covered by the 2004 Stock Compensation Plan. Total stock-based compensation expense for 2004 amounted to $8,215,241, compared to $12,111,542 in 2005, and $5,096,078, in 2006. The variance is primarily due to the varying quarterly amortization of stock issued to employees, which was concluded during 2006. Most of the stock was originally issued on or about May 18, 2004, and was being amortized over 24 months. As no more stock-based compensation has been issued, the last of the stock-based compensation was fully amortized to deferred compensation expense during 2006.

Accounting for Derivative Instruments

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

Lattice Valuation Model

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

Black−Scholes Valuation Model

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

7. Financial Statements.

POWER3 MEDICAL PRODUCTS, INC.

(A development stage company)

FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2006 AND 2005

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

	Page

Report of Independent Registered Public Accounting Firm	41

Balance Sheet as of December 31, 2006 and 2005 (as restated)	42

Statements of Operation for the years ended December 31, 2006 and 2005 (as restated)	43

Statements of Stockholders’ Deficit for all periods since Company entered development stage	44

Statements of Cash Flows for the years ended December 31, 2006 and 2005 (as restated)	47

Notes to Financial Statements	49

ITEM 7. FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

To the Board of Directors

Power 3 Medical Products, Inc

(A development stage company)

The Woodlands, Texas

We have audited the accompanying balance sheets of Power 3 Medical Products, Inc (the “Company”) as of December 31, 2006 and 2005 and the related statements of operations, shareholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company, as of December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations, has negative cash flow from operations, and has an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 16 to the financial statements, errors resulting in an understatement of expenses, an overstatement of total assets, and an understatement of liabilities were discovered by management in 2006. Accordingly, adjustments have been made as of December 31, 2005, to correct these errors.

The financial statements for the period May 15, 1992 (inception) through December 31, 2004, were audited by other auditors whose reports expressed unqualified opinions on those statements. The financial statements for the period May 15, 1992 (inception) through December 31, 2004, include a total equity of $10,349,293. Our opinion on the statements of operations, stockholder’s equity (deficit) and cash flows for the period May 15, 1992 (inception) through December 31, 2004, insofar as it relates to amounts for prior periods through December 31, 2004, is based solely on the report of other auditors.

/s/ Malone & Bailey, PC

Malone & Bailey, PC

www.malone−bailey.com

Houston, Texas

July 9, 2007

POWER3 MEDICAL PRODUCTS, INC.
(A Development Stage Enterprise)
BALANCE SHEETS
AS OF DECEMBER 31, 2006 AND 2005

	2006			2005
ASSETS				(as restated)

CURRENT ASSETS
Cash and cash equivalents	$	40,602		$	1,399
Prepaid expenses and other current assets					6,846
Total current assets		40,602			8,245

OTHER ASSETS
Deferred finance costs, net		253,336			290,027
Patents		179,786			179,786
Furniture, fixtures and equipment, net		16,374			70,751
Deposits		5,900			900

TOTAL ASSETS	$	495,998		$	549,709

LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable	$	899,177		$	983,231
Notes payable—in default, net of amortization		777,822			1,093,739
Notes payable-related parties		1,428,346			192,000
Convertible debentures—in default		360,417			75,279
Other current liabilities		1,517,808			961,011
Derivative liabilities		1,281,348			1,918,478
Total current liabilities		6,264,918			5,223,738

STOCKHOLDERS’ DEFICIT
Preferred Stock - $0.001 par value 50,000,000 shares of preferred stock authorized 0 shares issued and outstanding.		-			-
Common Stock-$0.001 par value:150,000,000 shares authorized;
71,370,955 and 65,215,121 shares issued and outstanding respectively.		71,370			65,215
Additional paid-in capital		58,009,358			57,773,506
Deferred compensation		-			(5,079,071	)
Loss accumulated before entering development stage		(11,681,500	)		(11,681,500	)
Loss accumulated during the development stage		(52,168,148	)		(45,752,179	)
Total stockholders’ deficit		(5,768,920	)		(4,674,029	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	495,998		$	549,709

See accompanying notes to the financial statements.

POWER3 MEDICAL PRODUCTS, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2006 AND 2005 and period from May 18, 2004 (inception) through December 31, 2006


	2006			2005			Period from May 18, 2004 December 31, 2006
REVENUES:					(as restated)
Sales	$	300,000		$	-		$	304,000
Other revenue
Total revenue	$	300,000		$	-		$	304,000

OPERATING EXPENSES:
Employee compensation and benefits		6,041,029			13,199,790			28,332,495
Professional and consulting fees		562,764			590,132			8,617,576
Impairment of Goodwill					13,371,776			13,371,776
Occupancy and equipment		134,593			173,133			390,324
Travel and entertainment		72,872			89,490			228,497
Write off lease		34,243						34,243
Other selling, general and administrative expenses		59,652			341,499			287,923
Total operating expenses	$	6,905,153		$	27,765,820		$	51,262,834

LOSS FROM OPERATIONS	$	(6,605,153	)	$	(27,765,820	)	$	(50,958,834	)

OTHER INCOME AND (EXPENSE):
Derivative gain	$	1,194,129		$	1,556,342			4,320,819
Interest income		792			260			2,266
Mandatory prepayment penalty					(420,000	)		(420,000	)
Other income(expense)		3,129						(196,176	)
Interest expense		(1,008,866	)		(505,647	)		(1,535,250	)
Total other income(expense)		189,184			630,955			2,171,659

NET LOSS	$	(6,415,969	)	$	(27,134,865	)	$	(48,787,175	)

NET LOSS PER SHARE BASIC AND DILLUTED	$	(0.09	)	$	(0.41	)		(0.70	)

Weighted average number of shares outstanding		71,207,912			65,428,847			69,831,648

See accompanying notes to the financial statements.

POWER3 MEDICAL PRODUCTS, INC.
( A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 2006 and 2005 and 2004 from inception

											Additional			Deferred
	Common Stock				Preferred			Stock			Paid In			Compensation			Retained
	Shares			Par Value	Shares			Par Value			Capital			Expense			Earnings			Equity

Beginning Balances as of beginning of development stage May 17 , 2004	14,407,630		$	14,407	3,870,000		$	3,870		$	14,225,974		$	-		$	(11,681,500	)	$	2,382,751

Issued shares on May 18, 2004 for compensation	27,805,000			27,805							24,996,695			(25,024,500	)
Issued shares on May 18, 2004 for services	4,550,000			4,550							4,090,450									4,095,000
Issued shares on May 18, 2004 for acquisition of equipment	15,000,000			15,000							13,485,000									13,500,000
Issued shares on June 1, 2004 for services	125,000			125							249,875			(250,000	)
Issued shares on June 11, 2004 for services	100,000			100							211,900									212,000
Stock Option Expense											626,100			(626,100	)
Issued shares on July 1, 2004 for compensation	140,000			140							426,860			(427,000	)
Issues shares on July 23, 2004 for services	125,000			125							284,875			(285,000	)
Issued shares on November 10, 2004 for cash	242,167			242							314,575									314,817
Issued shares on November 10, 2004 for services	10,000			10							12,990									13,000
Cancelled shares November 15, 2004 per cancellation of agreement	(160,000	)		-160							(71,840	)								(72,000	)
Issued shares on November 17, 2004 to convert Series A Preferred Shares to common shares	1,031,316			1,031	(1,331,280	)		(1,330	)		1,391,246						(1,392,277	)		1,330

Issued shares on November 23, 2004 to convert Series A Preferred shares to common shares	1,969,008		1,970		(2,538,720	)	(2,540	)	1,986,728				(1,988,698	)	2,540
Stock based compensation											8,311,012				8,311,012
Net reclassification of derivative liabilities									(3,347,077	)					(3,347,077	)
Net Loss (from May 18, 2004 to December 31, 2004)													(15,056,339	)	(15,056,339	)

Balances, December 31, 2004	65,345,121		65,345		-		-		58,884,351		(18,301,588	)	(30,298,814	)	10,349,294

Cancelled Shares from 7/01/04 (returned from employee)	(140,000	)	(140	)					(426,860	)					(427,000	)
Issued Shares on 9/14/05 for compensation	140,000		140						41,860						42,000
Issued Shares on 10/31/05 for services	300,000		300						65,700						66,000
Issued Shares on 11/11/05 for services	250,000		250						44,750						45,000
Issued Shares on 12/06/05 for services	300,000		300						44,700						45,000
Cancelled Shares on 12/31/05 (returned from employee)	(975,000	)	(975	)					(876,500	)					(877,475	)
Cancelled Shares on 12/31/05 (returned from employee)	(5,000	)	(5	)					(4,495	)					(4,500	)
Amortize Deferred Comp Expense											13,222,517				13,222,517
Net Loss For Year													(27,134,865	)	(27,134,865	)

BALANCES, DECEMBER 31, 2005 (restated)	65,215,121		65,215		-		-		57,773,506		(5,079,071	)	(57,433,679)_		(4,674,029	)

Issued Shares on 1/06/06 for services	50,000		50						5700						5,750
Issued Shares on 1/06/06 for cash	500000		500						57000						57,500
Issued Shares on 1/13/06 for services	220,000		220						28,380						28,600
Issued Shares on 1/27/06 for compensation	451,677		452						49,233						49,685
Issued Shares on 2/03/06 for compensation	413,234		413						40,910						41,323

Issued Shares on 2/03/06 for cash	1,114,286		1,114				81,386							82,500
Issued Shares on 2/03/06 for services	297,843		297				29,488							29,785
Issued Shares on 2/14/06 for compensation	201,539		202				38,091							38,293
Issued Shares on 2/22/06 for services	150,000		150				34,350							34,500
Issued Shares on 3/08/06 for cash	400,000		400				39,600							40,000
Issued Shares on 3/09/06 for cash	400,000		400				39,600							40,000
Issued Shares on 3/23/06 for services	300,000		300				80,700							81,000
Issued Shares on 3/24/06 for compensation	186,648		187				48,529							48,716
Issued Shares on 5/09/06 for services	60,000		60				9,240							9,300
Issued Shares on 5/25/06 for services	172,147		172				22,207							22,379
Issued Shares on 6/08/06 for cash	38,460		38				4,962							5,000
Issued Shares on 6/16/06 for services	300,000		300				32,700							33,000
Issued Shares on 9/15/06 for services	400,000		400				39,600							40,000
Issue Shares on 10/31/06 for services	500,000		500				29,500							30,000
Adoption of 123R							(475,324	)	475,324
Amortize Deferred Comp Expense									4,603,747					4,603,747
Net Loss For Year											(6,415,969	)		(6,415,969	)

BALANCES, DECEMBER 31, 2006	71,370,955	$	71,370	-	-	$	58,009,358		-	$	(63,849,648	)	$	(5,768,920	)

POWER3 MEDICAL PRODUCTS, INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2006 AND 2005 and the period from May 18, 2004 (inception) through December 31, 2006

	2006			2005			May 18, 2004 to December 31, 2006
				(as restated)
Operating activities:
Net loss	$	(6,415,969	)	$	(27,134,865	)	$	(48,787,175	)
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of Goodwill		-			13,371,776			13,371,776
Loss on previously capitalized lease		34,243			-			34,243
Amortization of deferred finance cost and debt discounts		271,908			125,818			414,454
Change in derivative liability, net of bifurcation		(637,129	)		(959,442	)		(3,166,919	)
Stock based compensation		5,096,078			12,111,542			32,367,345
Depreciation expense		20,134			20,159			85,316
Other non cash items								(34,933	)
Changes in operating assets and liabilities:
Accounts Receivable		-			2,350			-
Prepaid expenses and other current assets		1,844			(2,492	)		208,782
Accounts Payable and other liabilities		472,743			1,246,896			2,206,026
Net cash used in operating activities		(1,156,147	)		(1,218,258			(3,301,085	)

Investing Activities:
Capital expenditures, net		-			(5,883	)		(135,933	)
Increase in other assets.		-			(83,363	)		(179,786	)
Net cash used in investing activities		-			(89,246	)		(315,719	)

Financing Activities:
Proceeds from borrowings under notes payable, net		970,350			1,183,080			2,153,430
Proceeds from sale of common stock		225,000			-			674,817
Principal payments on long term debt		-			(32,478	)		(32,478	)
Proceeds from CD, warrants and rights net of issuance cost		-			-			859,041
Net cash provided by financing activities		1,195,350			1,150,602			3,654,810

Net change in cash and cash equivalents		39,203			(156,902	)		38,006

Cash and cash equivalents, beginning of period		1,399			158,301			2,596
Cash and cash equivalents, end of period	$	40,602		$	1,399		$	40,602

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENT OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2006 AND 2005

and the period from May 18, 2004 (inception) through December 31, 2006

	2006		2005		Period from May 18, 2004 to December 31, 2006
			(as restated)
Cash paid for:
Interest	$	-	$	-	$	59,840
Income taxes		-		-		-

Non-cash transactions:
Restatement of notes payable to N/P to related parties	$	1,201,346	$	192,000	$	1,393.346
Stock Issued for Settlement of Payables				6,697		6,697
Exchange of convertible preferred stock for common stock 3,000,324 shares						3,380,975

See accompanying notes to the financial statements.

POWER3 MEDICAL PRODUCTS, INC

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

Note 1. ORGANIZATION, PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION

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

Prior to May 17, 2004, the Company had one direct subsidiary, Tenthgate, Inc. (“Tenthgate”), a Nevada corporation formerly known as Power3 Medical, Inc. Prior to this date, Tenthgate was accounted for, by Power3, as a wholly-owned subsidiary, operating as a “development stage company”, under the cost method. As part of the transaction which involved the acquisition of substantially all the assets and certain liabilities from Advanced BioChem, now known as Industrial Enterprises of America, it was agreed that Power3 would distribute the shares of its subsidiary, Tenthgate, to its then existing shareholders . To fulfill this obligation, the shares of Tenthgate were transferred to a trustee for distribution to the shareholders of Power3 as of May 17, 2004. Tenthgate was spun off because the management of Power3, in place prior to May 17, 2004, desired to continue to own and eventually operate this subsidiary. At the time of the spin-off, Tenthgate was granted the rights to market a product line that had previously been marketed by Power3, but which the company had decided to abandon. Tenthgate had not been an operating company, and their management has apparently abandoned any plans to market the product as evidenced by their SEC filings, specifically their amended 10-QSB filed for the quarterly period ending January 31, 2005, wherein they specifically state that they are a “development stage company.” The prior operations of the company, which are reflected in the Company’s previous financial statements, prior to May 18, 2004, i.e. occurring prior to reentering the development stage, were the operations the Company had decided to abandon and which were transferred to the prior shareholders under the control of prior management. Any activities since May 17, 2004, are not consolidated with Power3 because Power3 does not now own or control the operations or activities of Tenthgate, nor are their activities associated with Power3 in any manner whatsoever.

In 2003, Power3 was an operating company, marketing devices to aid surgical procedures. Prior to May 18, 2004, the products had received only minor market acceptance and sales had slowed to the point that Power3 was searching for other products and markets to increase its presence in the healthcare industry. In early 2004, Power3 became aware of a biotech company that appeared to have a set of assets and intellectual properties that it required to more effectively pursue its business model. That company, named Advanced BioChem, doing business as ProteEx, provided contract-for-fee lab services analyzing protein biomarkers. At the conclusion of negotiations with Advanced BioChem, Power3 entered into an Asset Purchase Agreement dated May 18, 2004, whereby it purchased substantially all the assets and intellectual properties of Advanced BioChem, and assumed certain liabilities, as scheduled in the agreement, from Advanced BioChem. After the transaction, certain employees from Advanced BioChem became employees of Power3 and were later issued employment agreements by Power3. As consideration in the Asset Purchase Agreement, Power3 issued 15,000,000 shares of common stock to Advanced BioChem.

Power3 Medical Products, Inc. did not continue the business activity of Advanced BioChem and never conducted any contract-for-fee lab service work. Subsequent to the asset purchase, the business model of Power3 was significantly changed, the Company entered into the development stage and began to commercialize the intellectual property it acquired in the transaction, with its focus in the early detection, monitoring and targeting of diseases through the analysis of proteins. Power3’s new developmental stage objective, and activity, is to develop its intellectual properties by focusing on disease diagnosis, protein and biomarker identification and early detection indicators in the areas of cancers, neurodegenerative and neuromuscular diseases, as well as other scientific areas of interest associated with protein biomarkers.

Coincident with the asset purchase transaction on May 18, 2004, the previous management of Power3 resigned and left the employ of the Company. Immediately thereafter, two employees of Advanced BioChem were granted employment agreements by Power3. These two employees were Steven B. Rash as President and CEO and Dr. Ira Goldknopf as Chief Scientific Officer.

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fair Value of Financial Instruments

SFAS 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amount of Power3’s cash, accounts payables, and accrued expenses approximates their estimated fair values due to the short term maturities of those financial instruments. The fair value of related party transactions is not determinable due to their related party nature.

Credit Risk

Power3 does not require collateral from its customers with respect to accounts receivable but performs periodic credit evaluations of such customer's financial conditions. Power3 determines any required allowance by considering a number of factors including lengths of time accounts receivable are past due and Power3's previous loss history. Power3 provides reserves for accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.

Power3’s cash may exceed FDIC protection levels at different points throughout the year; management believes the risk associated with this possible exposure is minimal. Power3 was within FDIC protection limits at December 31, 2006 and 2005, respectively.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.

Furniture, Fixtures and Lab Equipment

Furniture, fixtures and lab equipment are stated at cost. Major additions are capitalized, while minor additions and maintenance and repairs, which do not extend the useful life of an asset, are expensed as incurred. Depreciation and amortization are accounted for using the straight-line method over the assets’ estimated useful lives. At December 31, 2006, certain lab equipment having a net book value of approximately $16,374 serves as security for certain liabilities.

The Company has not sold or traded in any equipment thus far, however it did incur a loss of approximately $34,000 to terminate a lease on a piece of equipment acquired in its May 18, 2004 transaction with Advanced BioChem which was erroneously capitalized.

Debt Discounts and Deferred Finance Costs

Debt discounts and deferred finance costs are being amortized through periodic charges to interest expense over the maximum term of the related financial instrument using the effective interest method. Total amortization of debt discounts and deferred financing costs amounted to $271,908 and $125,818 during the years ended December 31, 2006 and 2005, respectively.

Patents

Cost incurred for patent applications are capitalized and will be expensed over the life of the patent upon approval of the patent. If patent applications are unsuccessful, cost associated with these patents is expensed immediately.

Long-Lived Assets

Statement of Financial Accounting Standards (SFAS) 144, "Accounting for the Impairment or Disposal of Long-Lived Assets” requires that long-lived assets, including certain identifiable intangibles, be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the assets in question may not be recoverable. Management believes that the remaining balances of the Company’s long-lived assets are recoverable.

Statement of Financial Accounting Standards (SFAS) 142 “Accounting for Intangible Assets” provides that goodwill is not subject to periodic amortization, but is evaluated at least annually for impairments. The goodwill acquired by the Company at the time of the May 18, 2004 transaction was evaluated as of December 31, 2005. It was determined that due to the lack of cash flows projected for the Company over the 5 years beginning in January 1, 2006, along with the lack of existing customers and lack of any orders or expected revenues, that the Company’s 5 year discounted cash flows needed to be determined. This analysis resulted in management’s decision to impair the goodwill completely, as of December 31, 2005, the goodwill of the Company had been impaired and the Company’s goodwill was therefore eliminated from the Balance Sheet of the Company as of December 31, 2005 resulting in goodwill impairment losses of $13,371,776 during the year ended December 31, 2005.

Accounting for Derivative Instruments

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

Lattice Valuation Model

Black−Scholes Valuation Model

Net Loss Per Share

Basic and diluted net loss per share calculations are calculated on the basis of the weighted average number of common shares outstanding during the year. The per share amounts include the dilutive effect of common stock equivalents in years with net income. Power3 had losses in 2006 and 2005. Basic and diluted loss per share is the same as the effect of our potential common stock equivalents would be anti dilutive.

Reclassification

Certain amounts in the financial statements of the prior year have been reclassified to conform to the presentation of the current year for comparative purposes.

Stock Based Compensation

Effective January 1, 2006, Power3 began recording compensation expense associated with stock options and other forms of equity compensation are accordance with Statement of Financial Accounting Standards (“SFAS”) No.123R, Share−Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, Power3 had accounted for stock options according to the provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. Power3 adopted the modified prospective transition method provided for under SFAS No.123R, and, consequently, has not retroactively adjusted results from prior periods.

Stock issued to employees is recorded at the fair value of the shares granted based upon the closing market price of Power3’s stock at the measurement date and recognized as compensation expenses over the applicable requisite service period. Warrants granted to non-employees are recorded at the estimated fair value of the options granted using the Black Scholes pricing model and recognized as general and administrative expense over the applicable requisite service period.

As of December 31, 2006, the Company has not granted options to employees. All stock compensation has been in the form of restricted stock and as a result, the adoption of SFAS No. 123R would not have changed our previously reported 2005 financial statements.

Income Taxes

Power3 utilizes the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry forwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that the value of such assets will be realized.

Research and Development

Research and development costs, which approximated $40,867 and $501,245 for the years ended December 31, 2006 and 2005, respectively, are expensed as incurred.

Cash Equivalents

For purposes of the statements of cash flows, Power3 considers all highly liquid debt instruments purchased with an original maturity of 90 days or less to be cash equivalents.

Revenue Recognition

Power3’s revenue recognition policy is consistent with the criteria set forth in Staff Accounting Bulletin 104-Revenue Recognition in Financial Statements (SAB 104) for determining when revenue is realized or realizable and earned. In accordance with the requirements of SAB 104 the Company recognizes revenue when (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the seller’s price is fixed or determinable; and (4) collectibility is reasonably assured.

Recently Issued Accounting Pronouncements

Power3 does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its results of operations, financial position or cash flow.

Restatements

The 2005 financial results have been restated. See note 12 for details.

Impairment of Goodwill

During the audit of the financial statements and activities of the year ended December 31, 2005, management determined that the Company did not have sufficient projected 5 year discounted cash flows to justify the existence of goodwill on its balance sheet as of December 31, 2005. Therefore, the goodwill of the Company as of December 31, 2005, was impaired completely as of that date, and was removed from the balance sheet of the Company as of December 31, 2005.

Note 3. GOING CONCERN

As shown in the accompanying financial statements, Power3 incurred net losses chargeable to common shareholders of $6,415,969 and $27,134,865 in fiscal 2006 and 2005, respectively, and has an accumulated deficit of $5,768,920 as of December 31, 2006. These conditions create an uncertainty as to Power3's ability to continue as a going concern. Management is trying to raise additional capital through various funding arrangements. The financial statements did not include any adjustment that might be necessary if Power 3 is unable to continue as a going concern.

Note 4. EQUIPMENT

Equipment consisted of the following at December 31, 2006:

Description	Life		2006			2005

Computers & Related Devices		5 years	$	11,294		$	9,893
Less: Accumulated Depreciation			$	(6,248	)		($4,293	)
			$	5,046		$	5,600
Lab Equipment		5 years	$	90,396		$	126,040
Less: Accumulated Depreciation				($79,068	)	$	(60,889	)
			$	11,328		$	65,151

Note 5. OTHER CURRENT LIABILITIES

Other liabilities and accrued expenses consisted of the following at December 31, 2006 and 2005:

	2006		2005

Accrued rent	$	60,054	$	44,054
Accrued interest		733,274		256,667
Liquidated damages		24,000		-
Prepayment penalty		420,000		420,000
Accrued payroll taxes		58,408		11,524
Accrued litigation payable		111,999		-
Salaries payable		110,073		228,766
	$	1,517,808	$	961,011

Note 6. INCOME TAXES

During 2006 and 2005, Power3 incurred net losses and, therefore, had no tax liability. The net deferred tax asset generated by the loss carry forward has been fully reserved. The cumulative net operating loss carry forward is approximately $14,165,749 and $12,957,858 at December 31, 2006 and 2005, respectively and will expire in the years 2019 through 2026.

At December 31, 2006 the deferred tax assets consisted of the following:

Net Operating loss	$	4,828,000
Less: Valuation allowance		($4,828,000	)
Net Deferred tax asset	$	-

Note 7. RELATED PARTY TRANSACTIONS

In order to obtain bridge loan financing for the Company, Steven B. Rash, Chief Executive Officer of Power3, and Dr. Ira Goldknopf, Director of Proteomics of Power3, have both pledged a number of Power3 common shares they owned personally, as collateral for the bridge loans obtained. In certain instances, these bridge loan providers have sold pledged shares they were holding as collateral for the notes to pay back the notes payable. The amounts obtained from the sale of pledged shares have been reported to the Company by the lenders. As of December 31, 2006, the Company owed Steven B. Rash notes payable, for the amounts of his pledged shares that have been sold, in the amount of $608,342. As of December 31, 2006, the Company owed Dr. Ira Goldknopf notes payable, for the amounts of his pledged shares that have been sold, in the amount of $785,004.

During 2006, the following notes were issued to Steven B Rash: $5,800 on October 27, 2006, maturing on October 26, 2007, at 6% interest; $11,500 on September 5 , 2006, maturing on September 5, 2007, at 6% interest; $315,010 on September 30, 2006, maturing on March 30, 2007, at 6% interest; $40,515 on January 20, 2006, maturing on June 19, 2006, at 6% interest;$50,000 on March 1, 2006, maturing on June 1, 2006, at 6% interest; and $94,341 on December 31, 2006, maturing on June 30, 2007, at 6% interest.

During 2006, the following notes were issued to Dr. Ira Goldknopf: $18,135 on September 30, 2006, maturing on March 30, 2007, at 6%; $5,387 on September 30, 2006, maturing on March 30, 2007, at 6%; $304,734 on

September 30, 2006, maturing on June 30, 2007; $89,400 on March 2, 2006, maturing on June 2, 2006, at 6% interest; $40,000 on December 31, 2006, maturing on December 31, 2007, at 6% interest; $80,000 on December 31, 2006, maturing on March 5, 2007, at 6% interest; $39,231 on December 31, 2006, maturing on March 6, 2007 at 6% interest; and $106,117 on December 31, 2006, maturing on December 31, 2007, at 6% interest.

During 2005, Michael Rosinski, a previous employee of the Company, loaned the Company $35,000 at 6% interest. This note is still due and is in default.

Note 8. OTHER COMMITMENTS AND CONTINGENCIES

Operating Lease for Office and Laboratory Space

In August 2004, the Company entered into a new lease which expires on August 31, 2009, has an initial term of sixty-three months, and requires base monthly minimum lease payments ranging from approximately $6,000 to $8,600 (not including utilities and operating expenses) over the lease term. The lease contains a provision which allows the Company to extend the lease for two additional terms of sixty months. Rent expense (for the office lease) approximated $78,653 during the year ended December 31, 2006 and $68,944 during the year ended December 31, 2005. The company has accounted for these leases on a straight-line basis over the life of the lease.

In June, 2004, the Company entered into a new lease for a telephone system which expires in June, 2009, has an initial term of 60 months and required base monthly minimum lease payments in the amount of $185 per month over the lease term. The Company paid $2,039 and $2,269 on this lease during the year ended December 31, 2006 and 2005, respectively.

In October, 2004, the Company entered into a new lease for computers which expired in September, 2006, has an initial term of 24 months and requires base monthly minimum lease payments in the amount of $344 per month over the lease term. The Company paid $3,109 and $4,136 on this lease during the year ended December 31, 2006 and 2005, respectively.

Future lease commitments are as follows:

2007

$106,420

2008

$114,800

2009

$76,648

2010

Existing leases no longer in effect

Other Common Stock Grants

During 2004, the Company granted 1,445,000 shares of its common stock to various other employees. Because all of the shares were granted at no cost to the employees, and because the shares generally vest over a period of two years, the total value of the grants, to all employees, was recorded as $25,451,500 of deferred compensation expense upon the date of the grant (which amount was determined based on the total number of shares granted times the trading values of the shares on the dates the stock grants were made). This amount has been completely amortized to stock based compensation expense over the vesting period.

The Company has agreed to issue a total of 3,000,000 shares of Series B Preferred Stock to two of its officers. However, for various reasons, including certain restrictions required by the indebtedness (which preclude the shares from being issued for at least 90 days after the effective date of the registration statement that has been filed to cover the resale of the shares of common stock that will be issued upon the conversion or exercise of the securities issued by the Company for such indebtedness), the shares have not yet been issued. The Company intends to issue such shares of the Series B Preferred Stock at such time as it is permitted however there can be no assurance as to when or if this will take place...

Legal Proceedings

In November 2004, Chapman Spira & Carson, LLC (“Chapman Spira”), an investment banking firm, filed a lawsuit in the Supreme Court of the State of New York for the County of New York against Advanced BioChem (the Predecessor), Power3 and Steven Rash. The suit alleges that Advanced BioChem and Power3 are liable to Chapman Spira for damages allegedly are resulting from the breach of a letter agreement between Chapman Spira and Advanced BioChem relating to the performance of strategic and investment banking services. Chapman Spira is seeking damages in the amount of $1,522,000 plus interest. The Company has filed an answer in the lawsuit. Settlement negotiations are ongoing between the parties and their attorneys, and it is the Company understands that a settlement has been reached, however no final paperwork has been received as of the date of this report. On March 1, 2007, the Company received notice from its attorney that the action described above has been discontinued without prejudice and without costs to any party.

In June, 2005, Charles Caudle et al filed a lawsuit in Harris County, Texas, against Advanced BioChem, Power3 and the officers and directors of both companies. The suit alleges that Advanced BioChem, Power3 and the officers and directors of Power3, are liable to Charles Caudle et al for damages resulting from funds loaned to Advanced BioChem and which were subsequently converted into common stock of Advanced BioChem. It is unclear as to the specific dollar amount of the claim. The Company, and its officers and directors, has filed an answer denying all claims in the lawsuit. The Company believes that Charles Caudle’s claims are without merit with regard to Power3; however the Company cannot be assured it will prevail or if the outcome of the action will adversely affect the Company’s financial position or results of operations. Settlement negotiations between Advanced BioChem and Charles Caudle et. al. are ongoing and are expected to be concluded in July, 2007. The Company does not expect to incur any loss whatsoever from this action.

On May 19, 2005, Quinn Capital Consulting, Inc. filed suit against Power3 and Steven B. Rash claiming breach of contract regarding payment for services claimed to be provided to Power3, with payment to have been made by issue of 500,000 shares to Quinn Capital, which Power3 later cancelled or otherwise converted. This financial obligation is recorded in the books of the Company as due and payable to Quinn Capital as of December 31, 2006. In February, 2007, the Company and Quinn Capital reached a settlement agreement in this matter and the Company will issue 500,000 shares to Quinn Capital and pay $75,000, over time, as settlement of any and all claims in this matter.

On February 15, 2006, Bowne of Dallas LP filed suit against Power3 to collect a debt for services in the amount of $17,315. The debt is recorded in accounts payable by Power3. In February, 2007, this debt, along with an approximately $8,000 in additional fees, was settled and the obligation was removed from the accounts payable of the Company.

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

Note 9. FINANCING ARRANGEMENTS:

Securities Purchase Agreement—Convertible Debentures

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

On October 28, 2004, the Company issued the Purchasers the first $1,000,000 in aggregate principal amount of such debentures at the initial closing under the Agreement. Effective January 26, 2005, the Company issued and sold, to a sub-group of the original investors, a second tranche of $400,000 aggregate principal amount of debentures. Subject to the conditions set forth in the Agreement, all purchasers are required to purchase the remaining $1,600,000 in aggregate principal amount of such debentures at the final closing, which is to occur on or before the fifth trading day after the effective date of the registration statement. The Company is currently in default under the Agreement and the previously issued debentures and related registration rights agreement, and therefore the conditions of the Agreement will not be satisfied or otherwise met on a timely basis. Consequently, there are no assurances that the Purchasers will purchase all or any portion of the remaining $1,600,000 aggregate principal amount of debentures. The $1,000,000 aggregate principal amount of debentures issued in the initial closing and the $400,000 aggregate principal amount of debentures issued on January 19, 2005 are due and payable in accordance with their original terms in full three years after the date of issuance and bear interest at a default rate of 18%. The debentures are convertible into shares of common stock at the following conversion price, which varies relative to the Company’s trading stock price, as follows: $0.90 per share, provided however if the lesser of (i) 75% of the average of the 5 consecutive Closing Prices immediately prior to the Effective Date, as defined in the Securities Purchase Agreement, and (ii) the Closing Price on the Effective Date (the lesser of (i) and (ii) being referred to as the “Effective Date Price”) is less than the Conversion Price, the Conversion Price shall be reduced to equal the Effective Date Price.

Under the Agreements, the Purchasers also received warrants to purchase an aggregate of up to 2,500,000 and 333,333 shares of common stock for traunche one and two, respectively, and additional investment rights to purchase up to an additional $2,500,000 of convertible debentures. The warrants are exercisable at a price of $1.44 per share, subject to adjustment, including under anti-dilution protection. The additional investment rights are exercisable at a price equal to the principal amount of the debentures to be purchased, for (1) a period of nine months following the effective date of the registration statement to be filed pursuant to the Registration Rights Agreement, or (2) a period of 18 months from the date of issuance of the additional investment rights, whichever is shorter. The rights debentures will have the same terms as the debentures described above, except that the conversion price will be equal to $1.08.

As mentioned above, the Company is in default under the provisions of the Agreement, Registration Rights Agreement and previously issued debentures. The aggregate amount payable upon an acceleration by reason of an event of default is equal to the greater of 130% of the principal amount of the debentures to be prepaid or the principal amount of the debentures to be prepaid, divided by the conversion price on the date specified in the debenture, multiplied by the closing price on the date set forth in the debenture. As a result of this default Power3 recorded $420,000 during the 12 month period ended December 31, 2005 in penalties as described above.

The Company has received notice from one of the Purchasers informing the Company that it is in default under the debentures and demanding payment of the Mandatory Prepayment Amount, together with the liquidated damages, to which it is entitled pursuant to the agreement. The Company is in discussions with its debenture holders regarding a resolution of this matter, and approximately 37% of the debenture holders have converted their debentures to common shares since January 1, 2007. The Company has accrued $24,000 as of December 31, 2006 for the estimated settlement of these liquidated damages.

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

Between August and December 2006, the Company issued convertible short term promissory notes with a total face value of $557,000. The convertible promissory notes have a 7% interest rate and include detachable warrants to purchase a total 9,283,330 shares of common stock to various investors. Principal and interest on the notes are payable one year after the origination of the note, and each note has a fixed conversion price of $0.06. The warrants have three-year terms and strike prices of $0.08. In the event of a default, the notes will bear an interest rate of 10%.

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

Convertible Debentures, Warrants and Additional Investment Rights:

The carrying values of the Company’s convertible debentures amounted to $360,417 and $75,279, at December 31, 2006 and 2005, respectively.

The following tabular presentation reflects the components of derivative financial instruments on the Company’s balance sheet at December 31, 2005 and 2006:

Liabilities:	2005		2006
Common stock warrants	$	777,635	$	875,783
Embedded conversion feature		614,853		186,480
Additional investment rights		525,990		183,056
Other derivative instruments				36,029
	$	1,918,478	$	1,281,348

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

Fair Value Considerations for Derivative Financial Instruments:

Warrants valued using the Black-Scholes-Merton valuation methodology (“BSM”) included the following significant assumptions:

	Debenture	Note	Preferred Stock	Other
Instrument	Warrants	Warrants		Warrants
Exercise prices	$1.44	$0.08	$1.00	$0.08-$3.00
Initial term (years)	5.0	5.0	5.0	1.0-8.00
Dividend yield	0%	0%	0%	0%
Volatility	209%	209%	125%	209%
Risk-free rate	4.37%-5.13%	4.38%-5.08%	3.34%	3%-5.13%

As of December 31, 2006, there were 11,666,663 warrants outstanding that were considered Other Warrants, not related to the convertible debentures and these other warrants were valued using Black-Scholes-Merton methodology. The weighted average exercise price of the other 11,666,663 common stock warrants is $0.16.

The compound embedded derivative instruments are valued using the binomial lattice model methodology because that model embodies certain relevant assumptions (including, but not limited to, interest rate risk, credit risk, and conversion/redemption privileges) that are necessary to value these complex derivatives.

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

	Traunch 1	Traunch 2
Instrument	Features	Features
Conversion prices	$0.11—$0.90	$0.11—$1.08
Remaining terms (years)	.6—4.5	.8—4.5
Equivalent volatility	78.17%--81.25%	78.17%--81.25%
Equivalent interest-risk adjusted rate	5.00%--5.43%	5.00%--5.24%
Equivalent credit-risk adjusted yield rate	23.1%--45.7%	12.8%--14.2%

Other Notes, Preferred Stock and Warrants:

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

The proceeds from the Trinity financing were allocated first to the warrants, based upon their fair values, with the balance of $103,100 allocated to the notes. The allocation of proceeds to the fair value to the warrants was performed because, as discussed in the previous section, share settlement is not within management’s control. Such amount was initially classified as a derivative liability. The resulting note discount is being amortized through periodic charges to interest expense using the effective method over the life of the notes. Amortization of note discount amounted to $12,819 during the period from issuance of the notes to December 31, 2005 and $68,499 during the year ended December 31, 2006. The Company did not make its required debt service payments in March and April 2006. The first Trinity note was paid off during 2006 completely; however the second Trinity note is in default and is still outstanding and payable. As a result of this default, the Company is required to accrue interest on this note at a composite rate of 21%. The remaining unamortized discount was $94,678 at December 31, 2006.

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

Convertible Debentures Payout Disclosure

The Company has certain convertible debentures, issued in 2004 and 2005, maturing in 2007 and 2008, three years from date of issue. In addition, the Company has issued a number of 1 year convertible notes that will mature in 2007 and 2008. The amounts due under the convertible debentures are as follows:

Convertible debentures due in 2007	$	1,100,283
Convertible debentures due in 2008		400,000
Total convertible debentures due		1,500,283
Unamortized discount based on issue date fair value	$	(1,139,866	)
Carrying value of convertible debenture	$	360,417

Notes Payable in Default and to Related Parties

During 2005, the Company received bridge loans in the principal amounts of $251,000, $200,000, $150,000, $150,000 and $446,500 from entities outside the Company. These loans were used for working capital purposes during 2005.

In addition, during 2005, certain holders of bridge loans began selling personally-owned shares they had received as collateral for their loans to the Company, from Steve Rash and Ira Goldknopf. The results of these sales were that the Company became indebted to Steven B. Rash, CEO of Power3, in the amount $55,000 during 2005 and to Ira Goldknopf, Director of Proteomics of the Company, in the amount of $102,000. In addition, an officer of the Company at the time also loaned the Company $35,000 as a short-term bridge loan. These loans, together, totaled $192,000 from related parties during the year ended December 31, 2005.

During January and February, 2006, the Company received an aggregate of $89,400 from a consulting firm in the form of short-term bridge loans. The loans were collateralized by pledged stock. The pledged stock was pledged by officers of the Company and later sold by the consulting firm to pay back the short-term bridge loans.

On March 28, 2006, the Company received a bridge loan in the amount of $400,000, which, after discounts and fees, amounted to a net amount of $300,000. This bridge loan was payable on the sooner of June 28, 2006 or the fifth day following the effective date of the Company’s proposed registration statement on Form SB-2. The note was secured by a Stock Pledge Agreement wherein Steven B. Rash, Chairman and CEO of the Company and Dr. Ira Goldknopf, Director of Proteomics of the Company, pledged personally-owned shares of the Company’s stock. This note was paid off during 2006 by sale of pledged shares by the note holder and is no longer due and payable to the lender.

On June 1, 2006, the Company received a bridge loan in the amount of $266,000, which, after discounts and fees, amounted to a net amount of $200,000. This bridge loan was payable on the sooner of August 12, 2006, or the fifth day following the effective date of the Company’s proposed registration statement on Form SB-2. The note was secured by a Stock Pledge Agreement wherein Steven B. Rash, Chairman and CEO of the Company, and Dr. Ira Goldknopf, Director of Proteomics of the Company, pledged personally-owned shares of the Company’s stock. This note was in default as of December 31, 2006. However, in February, 2007, this note was paid off by sale of pledged shares and a transfer of the remaining principal balance to a new note holder.

During 2006, the payoff of Company notes payable from the sale of personally pledged shares, resulted in the Company entering into Notes Payable with Steven B. Rash, Chairman and CEO of the Company and Dr. Ira Goldknopf, Director of Proteomics of the Company, in the amount of $517,166 and $522,949 respectively. At the end of the year 2006, the total Notes Payable due Mr. Rash for all such transactions were $608,342 and the total Notes Payable due Dr. Goldknopf for such transactions were $785,004. These notes, along with the note payable to Mike Rosinski in the amount of $35,000, brings the total Notes Payable to related parties, as of December 31, 2006, to $1,428,346, as follows:

Schedule of Notes:
	2006			2005
Notes payable in default:
Cordillera I	$	251,000		$	251,000
Cordillera II	$	200,000		$	200,000
Trinity I				$	150,000
Trinity II	$	155,500		$	150,000
Discount on Trinity Notes		($ 94,678	)
Nutmeg					($262,992	)
Fife				$	446,500
Fife	$	266,000
Donson				$	159,231
Totals	$	777,822		$	1,093,739

Notes payable - related parties:
Rash	$	55,000		$	55,000
Goldknopf	$	102,000		$	102,000
Rosinski	$	35,000		$	35,000
Rash	$	553,342
Goldknopf	$	683,004
Totals	$	1,428,346		$	192,000

Note 10. OTHER SIGNIFICANT EQUITY TRANSACTIONS

Sales of common stock during 2006

On January 6, 2006, 500,000 shares of common stock were sold to a private investor to raise $57,500.

On February 3, 2006, 1,114,286 shares of common stock were sold to private investors to raise $40,000.

On March 8, 2006, 800,000 shares of common stock were sold to private investors to raise $40,000.

On June 8, 2006, 38,460 shares of common stock were sold to a private investor to raise $5,000.

The Company did not sell any common stock for cash during 2005.

Stock Issued during 2006 under the 2004 Stock Compensation Plan

During 2006, 2,449,990 shares of common stock of the Company were issued to attorneys and consultants as compensation for services rendered. The estimated fair value of these shares was recorded as general and administrative expense of $314,314 based upon the closing price of Power 3’s stock at the measurement date.

During 2005, 140,000 shares of common stock were returned from a former employee and those shares were re-issued to a new employee. In addition, 850,000 shares were issued, under the 2004 Stock Compensation Plan, to attorneys for legal services.

Stock Compensation Plans

In January 2004, the Company’s Board of Directors approved the 2004 Directors, Officers and Consultants Stock Option, Stock Warrant, and Stock Award Plan (the 2004 Plan). Pursuant to the 2004 Plan, initially 10,000,000 shares of common stock, warrants, options, preferred stock or any combination thereof may be optioned. After the grant of any option, warrant or share of preferred stock, the number of shares that may be optioned under the 2004 Plan will be increased. The number of shares of such increase shall be an amount such that immediately following such increase, the total number of shares issuable under this plan and reserved for issuance upon exercise of options, warrants, or conversion of shares of preferred stock will equal 15% of the total number of issued and outstanding shares of the Company’s common stock. The Company has issued 41,876,456 shares of common stock and 580,000 warrants under the 2004 Plan. Based upon the automatic increase provisions above, the total number of shares still available for issue under the Plan is 10,705,643, based upon the provision in the plan that allows the Company to issue 15% of the outstanding shares of the Company.

Since the inception of this plan only common stock grants have been issued.

Warrants:

Warrants have been issued to various investors and others in connection with financing arrangements and for services. A summary table of the warrants outstanding is as follows:

	2006				2005
			Weighted				Weighted
			Average				Average
			Exercise				Exercise
	Warrants		Price		Warrants		Price

Outstanding at beginning of year		5,383,333	$	.95		3,050,000	$	1.46

Cancelled		-		-		-		-

Granted		9,116,663		.08		2,333,333	$	0.32

Exercised		-		-		-		-

Outstanding at end of year		14,499,996	$	.40		5,383,333	$	0.97

Exercisable at the end of the year		14,499,996	$	.40		5,383,333	$	0.97

The following table summarizes information about the Company’s Warrants outstanding at December 31, 2006:

				Weighted Average
		Number		Remaining Contractual		Weighted Average
	Exercise Price	Outstanding		Life (in years)		Exercise Price
$	.08		9,116,663		1.0	$	.08
$	.14		1,000,000		7.0	$	.14
$	.25		1,000,000		6.0	$	.25
$	.98		300,000		1.0	$	.98
$	1.00		100,000		Ind	$	1.00
$	1.08		333,333		1.0	$	1.08
$	1.43		50,000		Ind	$	1.43
$	1.44		2,500,000		.80	$	1.44
$	3.00		100,000		1.9	$	3.00

			14,499,996		1.74	$	.40

Note 11. SUBSEQUENT EVENTS

Events that have occurred since December 31, 2006 are:

On January 2, 2007, the Company issued 100,000 shares of common stock, in exchange for services rendered by a consultant.

On January 30, 2007, as settlement of a lawsuit, the Company issued 500,000 shares of common stock,

in settlement of a lawsuit, and also became obligated to pay $75,000 in cash in full and total settlement of a consulting fee obligation.

On January 16, 2007, the Company issued a Note Payable for $50,000, convertible at the note holder’s option until January 16, 2008, at $.06 per share. The note matures in one year on January 16, 2008, and carries interest at rate of 7% per annum.

On January 30, 2007, the Company issued a Note Payable for $75,000, convertible at the note holder’s option until January 30, 2008, at $.06 per share. The note matures in one year on January 30, 2008, and carries interest at a rate of 7% per annum.

On February 8, 2007, the Company issued two Notes Payable, each for $121,366, to two private investors, in exchange for the investors paying off an existing Note Payable on the Company’s balance sheet.

The Notes Payable received by the investors mature in one year, carry interest at a rate of 7% per annum.

On February 8, 2007, the Company issued a Note Payable for $200,000, convertible at the note holder’s option until February 8, 2008, at $.06 per share. The note matures in one year on February 8, 2008 and carries interest at a rate of 7% per annum.

On February 8, 2007, the Company issued a Note Payable for $120,000, convertible at the note holder’s option until February 8, 2008, at $.06 per share. The note matures in one year on February 8, 2008 and carries interest at a rate of 7% per annum.

On February 13, 2007, the Company issued a Note Payable for $10,000, convertible at the note holder’s option until February 13, 2008, at $.06 per share. The note matures in one year on February 13, 2008, and carries interest at a rate of 7% per annum.

On February 23, 2007, the Company agreed to convert a Note Payable for $60,000 into 1,000,000 shares of common stock.

On March 14, 2007, the Company settled the outstanding convertible debenture with Crescent International with the issue of 3,000,000 shares of common stock to Crescent and 1,000,000 shares held in escrow for Crescent International. On June 25, 2007, 1,000,000 shares of common stock of the Company, previously placed in escrow, regarding the settlement with Crescent, were released from escrow.

On April 13, 2007, the Company settled two outstanding invoices for services with the issue of 460,000 shares of common stock under the 2004 Stock Compensation Plan, issue of stock for services.

On April 30, 2007, the Company settled the outstanding convertible debenture with Cityplatz Ltd with the issue of 713,708 shares of common stock.

On May 11, 2007, the Company settled the outstanding convertible debenture with Richard Molinsky with the issue of 157,895 shares of common stock.

On May 16, 2007, the Company converted numerous outstanding Notes Payable with Roger Kazanowski with the issue of 4,127,000 shares of common stock.

On May 16, 2007, the Company settled the outstanding convertible debenture with Otape Investments with the issue of 713,708 shares of common stock.

On May 16, 2007, the Company settled one half of the outstanding convertible debenture, originally issued to Omicron and now owned by Portside, with the issue of 359,595 shares of common stock.

On May 16, 2007, the Company settled the outstanding convertible debenture with Sage Capital, with the issue of 178,427 shares of common stock.

On May 16, 2007, the Company converted an outstanding Note Payable with Majic Arts & Entertainment with the issue of 833,333 shares of common stock. On that same date, Majic Arts & Entertainment exercised a warrant they had received at the time of the issue of the Note Payable and the Company received $50,000 cash in exchange for the issuance of an additional 833,333 shares of common stock.

On May 22, 2007, the Company settled the outstanding convertible debenture with Bach Farms, with the issue of 11,970 shares of common stock.

On May 22, 2007, the Company settled the outstanding convertible debenture with Mohawk Funding, with the issue of 71,370 shares of common stock.

On June 1, 2007, the Company converted an outstanding Note Payable with Andrew Dahl with the issue of 200,000 shares of common stock.

On June 4, 2007, the Company converted numerous outstanding Notes Payable with Richard Kraniak with the issue of 5,900,231 shares of common stock.

On June 13, 2007, the Company sold 3,250,000 shares of common stock to two private investors.

On June 13, 2007, the Company agreed to issue 400,000 shares of common stock to two

consultants who will provide services over the next year.

On June 25, 2007, (1,000,000) shares of common stock of the Company, previously placed in escrow,

regarding the convertible debenture settlement with Crescent, were released from escrow and have been subsequently cancelled as the terms and conditions of the settlement have been satisfied.

Note 12. RESTATEMENT

The Company restated its annual financial statements from amounts previously reported as of and for the year ended December 31, 2005. The restatement was necessary after a re-examination of the goodwill existing as of December 31, 2005 and whether or not it should be impaired, a replacement of the previous method used for calculating fair values for derivatives from Monte Carlo simulation to binomial lattice model, and an adjustment to the previously reported deferred compensation expense for 2005. Following is a summary of the restatement adjustments as of December 31, 2005:

	As Previously Reported			Adjustment				As Restated
Current Assets
Cash and Cash Equivalents	$	1,399						$	1,399
Accounts Receivable
Prepaid Expenses/Other Assets	$	21,092			($14,248	)	(a)	$	6,846
Total Current Assets	$	22,491			($14,248	)		$	8,245

Other Assets
Deferred Finance Costs	$	290,027						$	290,027
Intangible Assets	$	179,786						$	179,786
Goodwill	$	13,371,776			($13,371,776	)	(b)
Furniture, Fixtures and Equipment (net)	$	70,751						$	70,751
Deposits	$	25,900			($25,000	)	(c)	$	900
Total Assets	$	13,960,730			($13,411,021	)		$	549,709

Liabilities & Stockholder's Deficit
Current Liabilities
Accounts Payable & Accrued Liabilities	$	1,003,331			($20,100	)	(d)	$	983,231
Notes Payable - in default	$	1,285,739			($192,000	)	(e)	$	1,093,739
Notes Payable - related parties				$	192,000		(f)	$	192,000
Convertible debentures - in default	$	75,279						$	75,279
Other current liabilities	$	916,857		$	44,154		(g)	$	961,011
Derivative liabilities	$	1,454,936		$	487,596		(h)	$	1,918,478
Total Current Liabilities	$	4,736,142						$	5,223,738

Stockholder's Deficit
Common Stock	$	65,215						$	65,215
Additional Paid In Capital	$	57,773,506						$	57,773,506
Deferred Compensation		($4,802,621	)		($274,450	)	(i)		($5,079,071	)
Loss accumulated before entering
development stage		($11,681,500	)						($11,681,500	)
Loss accumulated during the
development stage		($32,130,011	)		($13,898,618	)			($45,752,179	)
Total Stockholder's Deficit	$	9,224,589							($4,674,029	)

(a) Write off of unreimbursed advances to CEO and CFO that were previously recorded as payroll advance.
(b) Impairment of goodwill based upon testing required by FAS 142, not previously recorded
(c ) To correct the balance sheet for deposit never actually made, but previously recorded
(d) Correction to account for escalating rent payments on a straight line basis
(e) To correctly report balances of Notes Payable - in default as of 12/31/05
(f) To correctly disclose the related party nature of these notes
(g) To adjust for additional current liabilities found as of 12/31/05
(h) Changes to the derivative liability based upon changing from monte carlo to lattice model
(i) Additional deferred compensation expense as of 12/31/05.

The effect of the restatements on Net Loss for the year ended December 31, 2005 was an additional Net Loss in the amount of $13,622,169, bringing the restated Net Loss to ($27,134,865). This additional Net Loss was comprised of impairment of goodwill of $13,371,776, a smaller derivative gain than had previously been reported and other adjustments, as listed below:

	As Reported			Adjustment			As Restated
Operating Expenses
Employee Compensation & Benefits	$	$13,461,993			($262,203	)	$	13,199,790
Professional and Consulting Fees	$	593,632			($3,500	)	$	590,132
Occupancy and Equipment	$	130,401		$	42,732		$	173,133
Impairment of Goodwill					($13,371,776	)		($13,371,776	)
Travel and Entertainment	$	89,490					$	89,490
Other selling, general and
administrative expenses	$	751,677			($410,178	)	$	341,499
Total operating expenses	$	($15,027,193	)		($14,004,925	)		($27,765,820	)

Other Income and Expense
Derivative Gain	$	$2,019,884			($463,542	)	$	1,556,342
Interest Income				$	260		$	260
Other income (expense)	$	260			($419,740	)		($420,000	)
Interest expense		($505,647	)					($505,647	)
Total other income (expense)	$	$1,514,497			($883,022	)	$	630,955

Net Loss	$	($13,512,696	)		($13,622,169	)		($27,134,865	)

Basic earnings (loss) attributable to common shareholders per share for the year ended December 31, 2005 went from ($0.21) to ($0.41) for the cumulative effect of the adjustments.

Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

On March 8, 2007, the Company dismissed John A. Braden & Company, P.C. as the Company’s independent registered public accounting firm. On that same date, the Company engaged Malone & Bailey, PC as its new independent registered public accounting firm for its fiscal year ending December 31, 2006 and 2005. The Company's decision to engage Malone & Bailey, PC was approved by its Board of Directors.

John A. Braden & Company, P.C. was engaged in July, 2005. The audit reports of John A. Braden & Company, P.C. on the Company’s financial statements for each of the two most recent fiscal years did not contain any adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except that John A. Braden & Company, P.C.’s opinions included an explanatory paragraph regarding the existence of substantial doubt about the Company’s ability to continue as a going concern.

During the Company's most recent fiscal year and the subsequent interim period through the date of dismissal, there were no reportable events as the term is described in Item 304(a)(1)(iv) of Regulation S-B.

During the Company's two most recent fiscal years and the subsequent interim period through the date of dismissal, there were no disagreements with John A. Braden & Company, P.C. on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the satisfaction of John A. Braden & Company, P.C. would have caused it to make reference to the subject matter of the disagreements in connection with its reports on these financial statements for those periods.

The Company did not consult with Malone & Bailey, PC regarding the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, and no written or oral advice was provided by Malone & Bailey, PC that was a factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issues.

Item 8A. Controls and Procedures.

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation and for the reasons set forth below, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2006, the end of the period covered by this annual report.

As reported in previous filings the Company continued to have deficiencies with respect to its disclosure controls and procedures at December 31, 2006 including the following:

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

The Company continues to believe that the deficiencies are attributable to many factors including issues relating to the quality of the Company’s disclosure controls and procedures at the time of the Advanced BioChem transaction and the transition following the transaction. Management is committed to a sound disclosure control and internal control environment and is continuing its efforts to improve the Company’s infrastructure, personnel, processes and controls to help ensure that the Company is able to produce accurate financial statements on a timely basis.

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

Limitations on Effectiveness of Controls

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

Changes in Internal Control Over Financial Reporting

As previously disclosed in the Company’s Quarterly Report on Form 10-QSB for the quarterly period ending September 30, 2004, the Company implemented several actions during the third quarter of 2004 in an effort to improve its internal control over financial reporting. During the fourth quarter of 2004, the Company continued the implementation of more rigorous policies with respect to its disclosure and financial reporting review process including improvements of its infrastructure and processes to improve its internal control over financial reporting. The Company also is continuing its implementation of procedures to improve its review and processing of non-accounting documentation and contracts.

Other than the changes described above, there were no changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART III

Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act.

Directors, Executive Officers, Promoters and Control Persons

Set forth below is certain information concerning each of the Company’s directors, executive officers and significant employees. All directors of the Company hold office until the next annual meeting of shareholders or until their successors have been elected and qualified. The officers of the Company are appointed by the board of directors and hold office until their death, resignation or removal from office. The Company’s directors, executive officers, significant employees, and their ages, positions held and duration as such is as follows:

Name	Position Held with the Company	Age	Date First Elected or Appointed

Steven B. Rash	Chief Executive Officer and Director	59	May 18, 2004
Ira L. Goldknopf	Director of Proteomics and Director	61	May 18, 2004
John P. Burton	Chief Financial Officer	61	September 1, 2005

Certain additional information concerning the individuals named above is set forth below. This information is based on information furnished by each director, executive officer and significant employee.

Steven B. Rash joined the Company in May 2004 as Chairman of the Board of Directors and Chief Executive Officer. Mr. Rash as Chairman of the Board of Directors and Chief Executive Officer of Advanced BioChem, Inc. from September 2003 to May 2004. Prior to that time he was an independent consultant from February 2003 until September 2003. In April 2001, Mr. Rash was employed as a consultant to Global Water Technologies, Inc. and was hired as President and interim CFO of the company in January 2002 and retained that position until February 2003. From April 2000 until April 2001, he was an independent consultant. From June 1995 until March 2000, Mr. Rash was employed as President and CEO of American BioMed, Inc., a publicly traded medical device company. Mr. Rash has a B.S. in Business Administration from the University of Delaware and an M.B.A. from Southern Illinois University.

Ira L. Goldknopf, Ph.D. joined the Company in May 2004 as Chief Scientific Officer and Director. From August 2000 until May 2004, Dr. Goldknopf was Chief Scientific Officer of Advanced BioChem, which he co-founded in 2000. From August 1997 until August 2000, Dr. Goldknopf was a biotechnology consultant. Dr. Goldknopf has a B.A. in Chemistry from Hunter College and a Ph.D. in Biochemistry from Kansas State University. Dr. Goldknopf spent ten years on the faculty of Baylor College of Medicine and is the author of over 70 publications and a principal inventor of the Company’s intellectual property. Dr. Goldknopf also serves on the Company’s Scientific Advisory Board.

On June 3, 2005, John P. Burton was named Chief Accounting Officer and Controller of the Company. On September 15, 2005, the Company executed an Employment Agreement with Mr. Burton, effective September 1, 2005. The Employment Agreement named Mr. Burton as Chief Financial Officer of the Company and granted Mr. Burton 140,000 shares of restricted common stock. Prior to joining the Company, Mr. Burton was employed at Affiniscape, Inc. where he served as Chief Financial Officer from December, 2003 until August, 2004. From December, 1999 to March, 2003, he was employed at Bob Johnson & Associates, Inc. as Controller. Mr. Burton has a BBA and MBA from The University of Texas at Austin.

There are no family relationships among any of the directors or executive officers of the Company. Except as disclosed below with respect to the amended and restated employment agreements of Messrs. Rash, Goldknopf, no arrangement or understanding exists between any director or executive officer and any other person pursuant to which any director or executive officer was elected to serve.

Mr. Rash has many years of experience in corporate reorganizations, finance and new business development. Mr. Rash was hired by American BioMed, Inc. in June 1995 to assist in the reorganization and turnaround of the company. Mr. Rash remained with American BioMed until March 2000 as president and CEO during which time the company was restructured. In July 2000, approximately four (4) months after Mr. Rash’s departure, American BioMed filed for Chapter 7 bankruptcy proceedings. Mr. Rash was initially retained as a consultant in April 2001 to assist Global Water Technologies, Inc. and its Chairman/CEO in formulating a turnaround strategy for the company. Mr. Rash was subsequently employed as president and interim CFO in January 2002. Global Water was declared in default of its bank loan in January 2003 and sold its operating division in February 2003. Mr. Rash resigned in February 2003 and, in May 2003; Global Water filed for Chapter 11 bankruptcy proceedings.

Except as described above with respect to Mr. Rash, none of the Company’s directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:

any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

The board of directors has not established an audit committee or any committee performing similar functions. Consequently, the Company does not have an audit committee financial expert as defined in Item 401(3) of Regulation S-B. Management believes that in light of the Company’s current size and its status as a company with no operations, the establishment of an audit committee and the retention of an audit committee financial expert is not necessary at this time and is cost-prohibitive. The Company also does not have a standing nominating committee of its board of directors or any committee performing a similar function.

Scientific Advisory Board

The Company’s Scientific Advisory Board provides assistance in the research and development of the Company’s products. Unlike members of the Company’s Board of Directors, members of the Scientific Advisory Board, other than Dr. Goldknopf, are not involved in the management or operations of the Company. The members of the Scientific Advisory Board are as follows:

Dr. Stanley H. Appel, M. D. is Professor and Chair of Neurology at the Methodist Hospital Neurological Institute, Professor of Neurology at Baylor College of Medicine, Director of the Vicki Appel MDA/ALS Clinic, and past-Director of the Alzheimer’s disease Research Center at Baylor College of Medicine in Houston, Texas. He also serves as the Director of the Jerry Lewis Neuromuscular Research Center. Dr. Appel is a leading authority on degenerative neurological diseases, such as Parkinson’s, Alzheimer’s and ALS. Specifically, Dr. Appel focuses on the importance of neurotrophic factors and immune mechanisms, including the role of inflammatory cytokines in these diseases. He has served as an Advisory Board member of the Alzheimer’s disease and Related Disorders Association and as a Council member of the American Society of Neurochemistry.

Dr. Zouhair Atassi, Ph. D. is the current Robert A. Welch Chair of Chemistry and the Professor of Biochemistry and Molecular Biology at Baylor College of Medicine, Houston, Texas. After completing his Ph.D. in Chemistry, University of Birmingham, England, Dr. Atassi started his career in 1960 as Postdoctoral Research Fellow in Chemistry at the University of Birmingham. Dr. Atassi was the 2003 President of the Institute of Immunobiology and he is the current Editor-in-Chief for The Protein Journal, Protein Reviews and Critical Reviews in Immunology. Dr. Atassi has published 14 books and several volumes in Immunochemistry of Proteins and Immunobiology of Proteins and Peptides. He has given more than 150 lectures in national and international conferences and more than 180 invited seminars in U.S. and foreign universities and research institutions. In addition Dr. Atassi has more than several hundred scientific publications and has been awarded five United States patents between 1996 and 2000.

Dr. Ira L. Goldknopf, Ph. D. began his scientific career over 30 years ago, pioneering the field that is now known as Proteomics. More than a decade before the start of the Human Genome Project, Dr. Goldknopf made the earliest proteomic discovery at Baylor College of Medicine with Harris Busch, the isolation, identification, and sequencing of a new protein from a two-dimensional gel, Protein A24. During the course of these investigations, he discovered that protein A24 was the first known conjugate of two very important proteins, Histone H2A, a part of the subunit structure that packages DNA in the cell nucleus, and Ubiquitin. Through the work of Dr. Goldknopf and many others (over 9,000 publications in the ensuing years) - including Drs. Avram Hershko, Aaron Ciechanover, and Alex Varshavsky, who shared the 2000 Lasker Award for their achievements - the Ubiquitin Conjugation System is now known to play a major role in the management of the inventories of proteins in the cell, cell proliferation, programmed cell death, and most, if not all, major regulatory functions in health and disease at the cellular level.

Dr. Thomas E. Watts, M. D. received his M.D. in 1975 from Baylor College of Medicine. Dr. Watts is board certified, from American Board of Family Practice since 1972 and practiced medicine at Blue Earth Medical Center in Minnesota from 1975 to 1996 and is now practicing at the Kelsey-Seybold Clinic, The Woodlands,Texas. As a physician with more than 30 years of practice experience, Dr. Watts provides the Company with insights from the perspective of the end user of the Company’s products.

Dr. Alan B. Hollingsworth, M. D. received his M.D. with Distinction from the University of Oklahoma College of Medicine in 1975 where he served as First Vice-President of Alpha Omega Alpha Honor Medical Society. In addition to his general surgery residency at the University of Oklahoma, he completed a one-year fellowship in surgical pathology at U.C.L.A. In the 1980s, he joined the first wave of surgeons who chose to limit their practices to breast cancer. He was the Founding Medical Director of the University of Oklahoma Institute for Breast Health in 1993 where he held the G. Rainey Williams Chair of Surgical Breast Oncology. Currently, he serves as Medical Director of Mercy Women’s Center (Mercy Health Center, Oklahoma City) and Medical Director, Breast MRI of Oklahoma. His interest in breast cancer risk assessment led to the publication of the first lay book on the subject, The Truth About Breast Cancer Risk Assessment, and he served as lead author for the multi-institutional consensus paper published in the American Journal of Surgery by the national breast cancer risk assessment working group.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers, and the persons who beneficially own more than ten percent (10%) of the Company’s common stock to file reports of ownership and changes in ownership with the SEC. Copies of all filed reports are required to be furnished to the Company. Based solely on the reports received by the Company and on representations of the reporting persons, the Company determined that there were a number of transactions that were not timely reported. With respect to its current directors, executive officers, and persons beneficially owning more than ten percent (10%) of the Company’s common stock, the Company undertook to file forms throughout the year. The Company has implemented new procedures to ensure improved compliance with the reporting requirements on an on-going basis. To the Company’s knowledge, based solely on its review of the reports received and on representations of the reporting persons, the Company believes that these persons have complied with all applicable filing requirements during the fiscal year ended December 31, 2004, except: (i) Mr. Rash did not timely file a Form 3 which was subsequently filed with the SEC; (ii) Dr. Goldknopf did not timely file a Form 3 which was subsequently filed with the SEC; (iii) Mr. Rosinski did not timely file a Form 3 and Form 4, each of which was subsequently filed with the SEC; (iv) Advanced BioChem, Inc. did not timely file a Form 3 which was subsequently filed with the SEC; (v) Mr. Behzadi, a former executive officer of the Company, did not timely file a Form 3 which was subsequently filed with the SEC; and (vi) Mr. Novak, a former executive officer and director of the Company, reported several transactions on five Form 5s rather than on Form 4 after he was no longer an executive officer or director of the Company and has not corrected such filings.

Code of Ethics

The Company has adopted a code of ethics applicable to its principal executive officer and principal financial officer, a copy of which is filed with this Annual Report.

Item 10. Executive Compensation

The following table sets forth information concerning the compensation for services in all capacities rendered to us for the three fiscal years ended December 31, 2006, of our Chief Executive Officer and our other executive officers:

Summary Compensation Table

							Long Term Compensation
			Annual Compensation⁽¹⁾				Awards
Name and Principal Position	Year		Salary ($)		Bonus ($)		Restricted Stock Award(s)⁽²⁾ ($)			Securities Underlying Options/SARs (#)		All Other Compe-nsation ($)			Total ($)
Steven B. Rash, Chairman of the Board / Chief Executive Officer		2006		282,301		0		0			0		(3)(5	)		282,301
		2005		248,426		0		0			0		0			248,426
		2004		190,623		0		^{11,925,000 (4}	⁾		0		0			12,115,623

Dr. Ira L. Goldknopf, Director of Proteomics (6)		2006		98,207		0		0			0		0			98,207
		2005		78,948		0		0			0		0			78,948
		2004		96,214				11,925,000(7	)		0		0			12,021,214

John P. Burton, Chief Financial Officer		2006		112,936		0		0			0		0			112,936
		2005		57,138		0		42,000			0		0			99,138

(1)	Other annual compensation provided to the named executive officers did not exceed the applicable disclosure requirements.

(2)

At December 31, 2004 the aggregate number and value of all restricted shares held by each of the named executive officers was as follows: Mr. Rash - 13,250,000 restricted shares, $11,925,000 value and Mr. Goldknopf - 13,250,000 restricted shares, $11,925,000 value. The values are based on the closing price of $0.90 of the Company’s common stock on May 18, 2004. Although the Company does not expect to pay dividends on its common stock, any dividends which may be paid on its common stock will not be paid on the restricted stock unless and until such time as the restricted stock becomes nonforfeitable.

(3)	Mr. Rash joined the Company in May 2004 with the completion of the acquisition of assets from Advanced BioChem. Mr. Rash was the Chairman of the Board and Chief Executive Officer of Advanced BioChem. Mr. Rash has entered into an employment agreement with the Company which is described below.

(4)

Pursuant to Mr. Rash’s employment agreement, he was awarded 13,250,000 shares of restricted common stock. The value is based upon a closing price of $0.90 of the Company’s common stock on May 18, 2004. All of the shares are restricted stock and vested on May 18, 2006. In addition, Mr. Rash is entitled to receive 1,500,000 shares of restricted Series B preferred stock to be designated by the Company.

(5)

In 2003, Mr. Rash was granted by Advanced BioChem pursuant to his employment agreement 825,000 shares of Advanced BioChem’s common stock and the option to purchase 200,000 shares of common stock at $0.80 per share. At the time the 825,000 shares were granted, the fair market value of such stock was $0.80 per share for a total of $660,000. Mr. Rash continues to hold such shares. Advanced BioChem was to enter into an option agreement with Mr. Rash; however, no such option agreement has been executed nor is it expected since Mr. Rash is no longer an officer of Advanced BioChem.

(6)	Dr. Goldknopf joined the Company in May 2004 with the completion of the acquisition of the assets of Advanced BioChem. Dr. Goldknopf was the Chief Scientific Officer of Advanced BioChem. Dr. Goldknopf has entered into an employment agreement with the Company as described below.

(7)

Pursuant to Dr. Goldknopf’s employment agreement, he was awarded 13,250,000 shares of restricted common stock. The value is based upon a closing price of $0.90 of the Company’s common stock on May 18, 2004. All of the shares are restricted stock and vested on May 18, 2006. In addition, Dr. Goldknopf is entitled to receive 1,500,000 shares of restricted Series B preferred stock to be designated by the Company.

Director Compensation

Mr. Rash and Dr. Goldknopf are the Company’s directors at this time. Except for the compensation to which each is entitled pursuant to the terms of their respective employment agreements, neither Mr. Rash nor Dr. Goldknopf receive any further compensation for service as directors. The Company has no formal plan for compensating outside directors at this time. However, at such time as the Company has outside directors, the Company expects to compensate its outside directors and to reimburse them for reasonable travel and other out-of-pocket expenses incurred in connection with the attendance at meetings.

Option Grants in Last Fiscal Year

No options were granted to the above named officers in 2005 or 2006.

Employment Agreements

The Company has entered into an amended and restated employment agreement with Mr. Rash. The employment agreement is effective as of May 18, 2004 and has an initial term of five years, subject to each party’s termination rights. The agreement provides for a base salary of $250,000 per year and the opportunity to receive cash bonuses based on performance upon the discretion of the Company’s board of directors. The agreement also includes participation in employee benefit plans offered by the Company to its employees, as well as a grant of 13,250,000 shares of restricted common stock and 1,500,000 shares of restricted Series B preferred stock. The agreement contains a covenant not to compete with the Company during the period of employment and for a period of two years following the termination or expiration of his employment. The employment agreement also contains a non-disclosure and non-use of proprietary information clause and a non-interference clause covering the period of employment and for a period of five (5) years thereafter. Either party may terminate Mr. Rash’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice. If the Company terminates Mr. Rash’s employment at any time during the initial term without cause, Mr. Rash will be entitled to receive compensation provided under the agreement for the remaining initial term of employment. In addition, in the event of a change in control as defined in the agreement, the Company may waive, in whole or in part, any and all remaining restrictions on the restricted shares of common stock and Series B preferred stock granted to Mr. Rash.

The Company has entered into an amended and restated employment agreement with Dr. Goldknopf. The employment agreement is effective as of May 18, 2004 and has an initial term of five years, subject to each party’s termination rights. The agreement provides for a base salary of $125,000 per year through December 18, 2004 and $100,000 per year thereafter, with an opportunity to receive cash bonuses based on performance upon the discretion of the Company’s board of directors. The agreement also includes participation in employee benefit plans offered by the Company to its employees, as well as a grant of 13,250,000 shares of restricted common stock and 1,500,000 shares of restricted Series B preferred stock. The agreement contains a covenant not to compete with the Company during the period of employment and for a period of two years following the termination or expiration of his employment. The employment agreement also contains a non-disclosure and non-use of proprietary information clause and a non-interference clause covering the period of employment and for a period of five (5) years thereafter. Either party may terminate Dr. Goldknopf’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice. If the Company terminates Dr. Goldknopf’s employment at any time during the initial term without cause, Dr. Goldknopf will be entitled to receive compensation provided under the agreement for the remaining initial term of employment. In addition, in the event of a change in control as defined in the agreement, the Company may waive, in whole or in part, any and all remaining restrictions on the restricted shares of common stock and Series B preferred stock granted to Dr. Goldknopf.

The Company entered into an employment agreement with Mr. Burton. The employment agreement is effective as of September 1, 2005 and has an initial term of three years, subject to each party’s termination rights. The agreement provides for a base salary of $100,000 per year and the opportunity to receive cash bonuses based on performance upon the discretion of the Company’s board of directors. The agreement also includes participation in employee benefit plans offered by the Company to its employees, as well as a grant of 140,000 shares of restricted common stock. The agreement contains a covenant not to compete with the Company during the period of employment and for a period of two (2) years following the termination or expiration of his employment. The employment agreement also contains a non-disclosure and non-use of proprietary information clause and a non-interference clause covering the period of employment and for a period of five (5) years thereafter. Either party may terminate Mr. Burton’s employment under the contract, either with or without cause upon giving the other party at least thirty days notice. If the Company terminates Mr. Burton’s employment at any time during the initial term without cause, Mr. Burton will be entitled to receive compensation provided under the agreement for the remaining initial term of employment. In addition, in the event of a change in control as defined in the agreement, the Company will waive, in whole or in part, any and all remaining restrictions on the restricted shares of common stock granted to Mr. Burton.

Item 11 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder’s Matters

SECURITY OWNERSHIP OF CERTAIN

BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of December 31, 2006, the most recent practicable date, regarding beneficial ownership of the Company’s common stock by the following persons: (i) each person who is known to the Company to beneficially own more than 5% of the outstanding shares of common stock; (ii) each of the Company’s directors; (iii) each of the Company’s executive officers named in the executive compensation table; and (iv) all of the Company’s directors and executive officers as a group. The data shown in the table immediately below is based on the stock transfer agent report as of December 31, 2006. To the Company’s knowledge, there has been no change to any of the amounts reported in the table below, as of the date of filing this report.

Unless otherwise indicated below, to the Company’s knowledge, all persons listed below have sole voting and investment power with respect to their shares of common stock, except to the extent authority is shared by spouses under applicable law. Beneficial ownership is determined in accordance with the rules of the SEC based on factors including voting and investment power with respect to shares, subject to applicable community property laws. Shares of common stock subject to options or warrants exercisable within 60 days of December 31, 2006, are deemed outstanding for the purpose of computing the percentage ownership of the person holding such options or warrants, but are not deemed outstanding for computing the percentage ownership of any other person.

Name of Beneficial Owner	Number of Shares of Common Stock	Percent of Class
Industrial Enterprises of America, Inc. (formerly known as Advanced BioChem, Inc.) 711 3^RD Avenue, Suite 1505 New York, NY 10017	13,232,840	18.54%

Steven B. Rash 3400 Research Forest Dr., Suite B2-3 The Woodlands, Texas 77381	5,000,000	7.00%

Trinity Financing Investments 300 East 55^th St Apt 14D New York, NY 10022	4,347,000	6.09%

Ira L. Goldknopf 3400 Research Forest Dr., Suite B2-3 The Woodlands, Texas 77381	724,403	1.01%

John P. Burton 3400 Research Forest Dr., Suite B2-3 The Woodlands, Texas 77381	140,000	*

All current directors and executive officers as a group (3 persons)	5,864,403	8.22%

*Indicates less than one percent.

Changes of Control

In addition to the shares of the Company’s common stock beneficially owned by Mr. Rash and Dr. Goldknopf described above, the Company has entered into amended and restated employment agreements with Mr. Rash and Dr. Goldknopf which require the Company to issue 1,500,000 shares of restricted Series B preferred stock to each of Mr. Rash and Dr. Goldknopf. The Company has not filed the certificate of amendment designating the Series B preferred stock and its powers, designations and relative rights and has not issued the shares of the Series B preferred stock. As a result of certain restrictions agreed upon with the investors in connection with the Company’s recent financing, the Company may not issue the Series B preferred stock until 90 days after the effective date of the registration statement filed by the Company on behalf of the investors. After such restrictions lapse, the Company intends to file the certificate of amendment and issue the Series B preferred stock.

The terms of the Series B preferred stock agreed upon by the Company provide that while the shares of Series B preferred stock are held by Mr. Rash and Dr. Goldknopf, they will have the right to vote that number of votes equal to the number of outstanding shares of the Company’s common stock plus one additional vote such that they will hold a majority of the voting rights of the Company. In the event of the death or termination of employment of either Mr. Rash or Dr. Goldknopf, the remaining holder of the Series B preferred stock will continue to hold such voting rights. The issuance of such shares of Series B preferred stock will result in a change of control of the Company.

Employee Stock Option Plans

Securities Authorized for Issuance Under Equity Compensation Plans

	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column)

Equity compensation plans approved by security holders	0	0	0

Equity compensation plans enacted by management and approved by the Board of Directors, but not submitted for a vote or approved by all holders of the Company’s securities	450,000	$1.03	10,255,643

Total	450,000	$1.03	10,255,643

The 10,255,643 securities that remain available for future issuance under equity compensation plans arise from the Company’s 2004 Directors, Officers and Consultants Stock Option, Stock Warrant, and Stock Award Plan (“2004 Plan”). The Company has issued 38,926,466 shares of common stock under the 2004 Plan. The 2004 Plan initially authorized the issuance of 10,000,000 shares of the Company’s common stock pursuant to the Plan; however, the number of shares available under the 2004 Plan shall increase so that immediately following any grant of securities under the 2004 Plan, the total number of shares issuable under the 2004 Plan and reserved for issuance upon exercise of options, warrants, or conversion of shares of preferred stock will equal 15% of the total number of the Company’s issued and outstanding shares of common stock.

Item 12 Certain Relationships and Related Transactions.

On May 18, 2004, the Company acquired a set of assets from Advanced BioChem and assumed certain of its liabilities in exchange for the issuance of 15,000,000 shares of the Company’s common stock to Advanced BioChem. At the time of the acquisition, Mr. Rash owned approximately 3.92% of the common stock of Advanced BioChem, thus resulting in indirect beneficial ownership at the time of the transaction of approximately 588,000 shares of the Company’s common stock through Advanced BioChem. Additionally, Dr. Goldknopf held approximately 8.23% of the common stock of Advanced BioChem at the time of the transactions, thus resulting in his indirect beneficial ownership at the time of the transaction of approximately 1,234,500 shares of the Company’s common stock through Advanced BioChem.

In March, 2005, Mr. Rosinski loaned the Company $35,000. The loan, due to be repaid on or before April 30, 2005, is to be repaid with proceeds from later issue of permanent financing and is payable, with interest at rate of 6% per annum, The loan remains outstanding, is in default and is carried on the Balance Sheet.

In order to obtain bridge loan financing for the Company, Steven B. Rash, Chief Executive Officer of Power3, and Dr. Ira Goldknopf, Director of Proteomics of Power3, have both pledged a number of shares of stock they owned personally, as collateral for the bridge loans obtained. In the case of three of these bridge loan providers, pledged shares have been sold to pay back the notes payable due to the lenders. The amounts obtained from the sale of pledged shares have been reported to the Company by the lenders. As of December 31, 2006, the Company owed Steven B. Rash notes payable, in the amounts of his pledged shares that have been sold, in the amount of $608,342. As of December 31, 2006, the Company owed Dr. Ira Goldknopf notes payable, in the amounts of his pledged shares that have been sold, in the amount of $785,004.

Item 13 Exhibits

(a)

Exhibits

Exhibit No.		INDEX

2.1		Asset Purchase Agreement dated as of May 11, 2004 by and among Power 3 Medical Products, Inc., Advanced BioChem, Inc. d/b/a ProteEx, Steven B. Rash and Ira Goldknopf (incorporated by reference to Exhibit 2.1 to the Company’s Registration State on Form SB-2 (File No. 333-122227).

3.1		Certificate of Incorporation (incorporated by reference to Exhibit 2.5 to the Company’s Form 10-SB filed on September 28, 1998).

3.2		Certificate of Merger (incorporated by reference to Exhibit 2.7 to the Company’s Form 10-SB filed on September 28, 1998).

3.3		Certificate of Amendment of the Certificate of Incorporation (incorporated by reference to Exhibit 2.9 to the Company’s Form 10-SB filed on September 28, 1998).

3.4		Certificate of Amendment of the Certificate of Incorporation (incorporated by reference to Exhibit 3. (I).10 to the Company’s Form S-3 filed on March 2, 2000).

3.5		Certificate of Amendment to the Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on November 5, 2004).

3.6		Bylaws (incorporated by reference to Exhibit 2.10 to the Company’s Form 10-SB filed on September 28, 1998).

4.1		Form of Convertible Debenture Due October 28, 2007 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed on November 3, 2004).

4.2		Form of Common Stock Purchase Warrant (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed on November 3, 2004).

4.3		Form of Additional Investment Right (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K filed on November 3, 2004).

10.1⁽³⁾		Amended and Restated Employment Agreement for Steven B. Rash (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed January 5, 2005).

10.2⁽³⁾		Amended and Restated Employment Agreement for Ira L. Goldknopf, Ph.D. (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed January 5, 2005).

10.3⁽³⁾		Employment Agreement for John P. Burton (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed September 21, 2005).

Exhibit No.

INDEX

10.4⁽⁴⁾		Exclusive License Agreement dated effective as of June 28, 2004 by and between Baylor College of Medicine and Power3 Medical Products, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-QSB/A for the quarter ended September 30, 2004).

10.5^(1,4)		Research Agreement signed August 17, 2004 by and between Baylor College of Medicine and Power3 Medical Products, Inc.(incorporated by reference to Exhibit 10.13 to the Company’s Form 10-KSB for the year ended December 31, 2005.)

10.6⁽⁴⁾		Patent and Technology License Agreement dated August 1, 2004 by and between The Board of Regents of The University of Texas System, on behalf of The University of Texas M.D. Anderson Cancer Center, and Power3 Medical Products, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-QSB/A for the quarter ended September 30, 2004).

10.7⁽⁴⁾		Patent and Technology License Agreement dated September 1, 2003 by and between The Board of Regents of The University of Texas System, on behalf of The University of Texas M.D. Anderson Cancer Center, and Advanced BioChem, Inc. (d/b/a ProteEx) (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-QSB/A for the quarter ended September 30, 2004).

10.8		Securities Purchase Agreement dated as of October 28, 2004, among the Company and each purchaser identified therein (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on November 3, 2004).

10.9		Amendment to Securities Purchase Agreement dated January 19, 2005 among the Company and each purchaser identified therein (incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement on Form SB2 (File No.333-122227)).

10.10		Registration Rights Agreement dated as of October 28, 2004, among the Company and each purchaser identified therein (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on November 3, 2004).

10.11⁽³⁾		2004 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-8 filed January 20, 2004).

10.12(3)		Collaborative Research Agreement, dated March 21, 2005, by and between New Horizons Diagnostics and Power3 (incorporated by reference to Exhibit 16.1 of the Company’s Registration Statement on Form 10KSB filed September 9, 2005).

10.13(3)		Collaborative Research and Licensing Agreement, dated May 17, 2005, by and between BioSite Incorporated and Power3 for collaborative research and worldwide licensing to BioSite Incorporated. (incorporated by reference to Exhibit 16.1 of the Company’s Registration Statement on Form 10KSB filed September 9, 2005).

10.14		Research Agreement, dated October 13, 2005, between Power3 and Pfizer, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8K filed October 19, 2005).

10.15		Promissory Note executed by Power3 and Cordillera Fund LP in the amount of $251,000, dated April 5, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10QSB filed August 22, 2005).

10.16		Promissory Note, dated May 31, 2005, executed by Power3 and Steven B. Rash in the amount of $55,000 (incorporated by reference to Exhibit 26.4 to the Company’s Form SB2/A filed on October 6, 2005).

10.17		Promissory Note, dated June 3, 2005, executed by Power3 and Dr. Ira Goldknopf in the amount of $50,000 (incorporated by reference to Exhibit 26.5 to the Company’s Form SB2/A filed on October 6, 2005).

10.18		Promissory Note, dated June 13, 2005, executed June 17, 2005 between Power3 and John Fife in the amount of $396,500 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8K filed on June 22, 2005).

Exhibit No.

INDEX

10.19		Promissory Note (Amended version), dated August 29, 2005, executed by Power3 and John Fife in the amended amount of $446,500 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8K filed on September 9, 2005).

10.20		Promissory Note executed by Power3 and Cordillera Fund LP in the amount of $200,000, dated September 5, 2005 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8K filed on September 9, 2005).

10.21		Promissory Note, dated October 17, 2005, between Power3 and Dr. Ira Goldknopf in the amount of $39,231 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8K filed October 19, 2005).

10.22		Promissory Note, dated September 6, 2005, between Power3 and Dr. Ira Goldknopf in the amount of $80,000 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8K filed September 9, 2005).

10.23⁽¹⁾		Promissory Note, dated November 23, 2005, between Power3 and Dr. Ira Goldknopf in the amount of $52,000 (incorporated by reference to Exhibit 10.35 to the Company’s Form 10-KSB for the year ended December 31, 2005.)

10.24		Promissory Note executed on December 12, 2005 between Power3 and Trinity Financing (incorporated by reference to Exhibit 10.1 to the Company’s Form 8K filed December 12, 2005)

10.25		Promissory Note executed on August 7, 2006, between Power3 and Rich Kraniak in the amount of $20,000

10.26		Promissory Note executed on August 7, 2006, between Power3 and Rich Kraniak in the amount of $100,000 (incorporated by reference to Exhibit 10.23 to the Company’s Form 10-QSB for March 31, 2007)

10.27		Promissory Note executed on October 27, 2006, between Power3 and Rich Kraniak in the amount of $100,000 (incorporated by reference to Exhibit 10.27 to the Company’s Form 10-QSB for March 31, 2007)

10.28		Promissory Note executed on October 27, 2006, between Power3 and Rich Kraniak in the amount of $30,000

10.29		Promissory Note executed on October 27, 2006, between Power3 and Steven B. Rash in the amount of $5,800

10.30		Promissory Note executed on September 30, 2006, between Power3 and Steven B. Rash in the amount of $315,010

10.31		Promissory Note executed on January 20, 2006, between Power3 and Steven B. Rash in the amount of $40,515

10.32		Promissory Note executed on May 31, 2005, between Power3 and Steven B. Rash in the amount of $55,000 (incorporated by reference to Exhibit 26.4 to the Company’s Form SB-2/A as filed on October 6, 2005.)

10.33		Promissory Note executed on March 1, 2006, between Power3 and Steven B. Rash in the amount of $50,000 (incorporated by reference to Exhibit 10.17 to the Company’s Form 10-QSB for March 31, 2007)

10.34		Promissory Note executed on December 31, 2006, between Power3 and Steven B. Rash in the amount of $ 94,341

10.35		Promissory Note executed on September 30, 2006, between Power3 and Dr. Ira Goldknopf in the amount of $18,135

10.36		Promissory Note executed on September 30, 2006, between Power3 and Dr. Ira Goldknopf in the amount of $5,387

10.37		Promissory Note executed on September 30, 2006, between Power3 and Dr. Ira Goldknopf in the amount of $304,734

Exhibit No.

INDEX

10.38		Promissory Note executed on March 2, 2006, between Power3 and Dr. Ira Goldknopf in the amount of $89,400 (incorporated by reference to Exhibit 10.19 to the Company’s Form 10-QSB for March 31, 2006)

10.39		Promissory Note executed on December 31, 2006, between Power3 and Dr. Ira Goldknopf in the amount of $106,117

10.40		Promissory Note executed on September 6, 2005 between Power3 and Dr. Ira Goldknopf in the amount of $80,000 (incorporated by reference to Exhibit 10.2 to the Company Form 8-K filed on September 9, 2005

10.41		Promissory Note executed on October 27, 2006, between Power3 and Roger Kazanowski in the amount of $150,000 (incorporated by reference to Exhibit 10.25 to the Company’s Form 10-QSB for March 31, 2007)

10.42		Promissory Note executed on October 31, 2006, between Power3 and Andrew Dahl in the amount of $12,000 (incorporated by reference to Exhibit 10.29 to the Company’s Form 10-QSB for March 31, 2007)

10.43		Promissory Note executed on October 27, 2006, between Power3 and Steve Scott in the amount of $25,000 (incorporated by reference to Exhibit 10.28 to the Company’s Form 10-QSB for March 31, 2007)

10.44		Promissory Note executed on November 30, 2006, between Power3 and Jeffrey Hyde in the amount of $10,000 (incorporated by reference to Exhibit 10.30 to the Company’s Form 10-QSB for March 31, 2007)

10.45		Promissory Note executed on September 14, 2006, between Power3 and Magic Arts & Entertainment in the amount of $50,000 (incorporated by reference to Exhibit 10.21 to the Company’s Form 10-QSB for March 31, 2007)

10.46		Promissory Note, dated May 31, 2006, between Power3 and John Fife in the amount of $266,000 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10-QSB for June 30, 2006.)

10.47		Consulting Agreement signed with Noble Investments, dated March 1, 2007 (incorporated by reference to Exhibit 10.43 to the Company’s Form 10-QSB for March 31, 2007)

10.48		Joint Venture Agreement signed with NeoGenomics (incorporated by reference to Exhibit 10.44 to the Company’s Form 10-QSB for March 31, 2007

14.1		Code of Ethics for Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer (incorporated by reference to Exhibit 14.1 to the Company’s Form 10KSB filed September 9, 2005).

31.1⁽²⁾		Certification of Power 3 Medical Products, Inc. Chief Executive Officer, Steven B. Rash, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2⁽²⁾		Certification of Power 3 Medical Products, Inc. Chief Accounting Officer, John P. Burton, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1⁽²⁾		Certification of Power 3 Medical Products, Inc. Chief Executive Officer, Steven B. Rash, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2⁽²⁾		Certification of Power 3 Medical Products, Inc. Chief Accounting Officer, John P. Burton, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1)

Filed herewith

(2)

Furnished herewith

(3)

Management contract or compensatory plan or arrangement

(4)

Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

Item 14 Principal Accountant Fees and Services.

The following table sets forth the aggregate amount of fees billed by the Company’s independent accountants for the year ended December 31, 2006 and the year ended December 31, 2005:

	2006		2005
Audit Fees:	$	113,614	$	101,743
Audit Related Fees:			$	46,163
Tax Fees:	$	6,519	$	5,081
All Other Fees:			$	3,925

Total Fees:	$	120,133	$	156,912

The Company does not have an Audit Committee of the Board of Directors. All activities of the Company’s independent accountants are reviewed and approved prior to the engagement by the Board of Directors, who considers whether such activities could affect the independence of such accountants.

SIGNATURES

In accordance with Section 13 and 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: July 18, 2007

Power3 Medical Products, Inc.

By: /s/ Steven B. Rash

Name: Steven B. Rash

Title: Chairman and Chief Executive Officer

(Principal Executive Officer)

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

Signature	Title	Date

/s/ Steven B. Rash Steven B. Rash	Chairman and Chief Executive Officer (Principal Executive Officer)	July 18, 2007

/s/ Ira L. Goldknopf Ira L. Goldknopf, Ph.D.	Director of Proteomics and Director	July 18, 2007

/s/ John P. Burton John P. Burton	Chief Financial Officer (Principal Financial and Accounting Officer)	July 18, 2007