U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-QSB

(Mark One)

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

For the quarterly period ended June 30, 2007

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

For the transition period from _______________ to ________________

Commission file no. 0-24921

Power3 Medical Products, Inc.

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

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

3400 Research Forest Drive, Suite B2-3

Woodlands, Texas 77381

(Address of principal executive offices)

(281) 466-1600

(Issuer’s telephone number)

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

As of August 10, 2007 there were 97,979,580 shares of voting common stock of the registrant issued and outstanding.

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

Transitional Small Business Disclosure Format (check one): Yes o No x

INDEX

PART I. FINANCIAL INFORMATION		3

Notes to Condensed Financial Statements (unaudited)		11

	Note 1. Organization, Principal Activities and Basis of Presentation	11

	Note 2. Management’s Discussion and Analysis or Plan of Operation	11

	Note 3. Controls and Procedures	12

	Note 4. Financial Arrangements	13

	Note 5. Other Significant Equity Transactions	18

	Note 6. Other Management’s Discussion	18

	Note 7. Other Controls and Procedures	30

PART II. OTHER INFORMATION		33

	Item 1. Legal Proceedings	33

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34

	Item 3. Defaults upon Senior Securities	34

	Item 4. Submission of Matters to a Vote of Security Holders	35

	Item 5. Other Information	35

	Item 6. Exhibits	35

SIGNATURES		38

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I. FINANCIAL INFORMATION

POWER3 MEDICAL PRODUCTS, INC.
(A Development Stage Enterprise)
BALANCE SHEET
June 30, 2007 and December 31, 2006
(unaudited)

	June 30, 2007			December 31, 2006
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	647,387		$	40,602
All Other Current Assets		900			-
Total Current Assets		648,287			40,602
OTHER ASSETS
Furniture, Fixtures and Equipment, net		4,082			16,374
Intellectual Property		179,786			179,786
Deferred Finance Costs, net		113,569			253,336
Deposits		41,073			5,900
TOTAL ASSETS	$	986,797		$	495,998

LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts Payable	$	983,725		$	899,177
Notes Payable - in default, net of amortization		511,822			777,822
Notes Payable to Related Parties		1,754,440			1,428,346
Convertible Debentures-in default		1,053,455			360,417
Other Current Liabilities		1,653,880			1,517,808
Derivative Liabilities		5,577,455			1,281,348
TOTAL LIABILITIES	$	11,534,777		$	6,264,918

STOCKHOLDER'S DEFICIT
Preferred Stock - $0.01 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; 94,186,279 and 71,370,955 shares issued and outstanding.		94,181			71,370
Additional Paid-In Capital		60,095,424			58,009,358
Deficit accumulated before entering development stage		(11,681,500	)		(11,681,500	)
Deficit accumulated during development stage		(59,056,085	)		(52,168,148	)
Total Stockholder’s Deficit		(10,547,980	)		(5,768,920	)
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT	$	986,797		$	495,998

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

-3-

POWER3 MEDICAL PRODUCTS, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
(unaudited)

	For the three month period ended June 30						For the six month period ended June 30						Period from May 18, 2004 to June 30,
	2007			2006			2007			2006			2007
REVENUES:
Sales	$	-		$	100,000		$	121,724		$	100,000		$	425,724
Total revenue	$	-		$	100,000		$	121,724		$	100,000		$	425,724

OPERATING EXPENSES:
Employee compensation and benefits		135.350			1,937,637			586,563			5,474,280			28,919,058
Professional and consulting fees		177,339			168,949			381,784			356,872			8,999,360
Impairment of Goodwill		-			-			-			-			13,371,776
Occupancy and equipment		41,410			25,122			74,382			51,996			464,706
Travel and entertainment		42,935			21,508			60,745			35,898			289,242
Write off lease														34,243
Other selling, general and administrative expenses		40,651			35,086			89,723			77,242			377,646
Total operating expenses	$	437,685		$	2,188,302		$	1,193,197		$	5,996,288		$	52,456,031

LOSS FROM OPERATIONS	$	(437,685	)	$	(2,088,302	)	$	(1,071,473	)	$	(5,896,288	)	$	(52,030,307	)

OTHER INCOME AND (EXPENSE):
Derivative gain/(loss)	$	(321,666	)	$	375,311			(3,809,107	)		(144,843	)		511,712
Interest income		2,092			-			3,112			-			5,378
Mandatory prepayment penalty		-			-			-			-			(420,000	)
Other income(expense)		-			-			(531,062	)		-			(727,238	)
Loss on conversion of financial instruments		-			-			(397,871	)		-			(397,871	)
Interest expense		(511,567	)		(247,386	)		(1,081,536	)		(824,994	)		(2,616,786	)
Total other income(expense)		(831,141	)		127,925			(5,816,464	)		(969,837	)		(3,644,805	)

NET LOSS	$	(1,268,826	)	$	(1,960,377	)	$	(6,887,937	)	$	(6,866,125	)	$	(55,675,112	)

NET LOSS PER SHARE BASIC AND DILLUTED	$	(0.02	)	$	(0.03	)	$	(.09	)	$	(.10	)	$	(0.77	)

Weighted average number of shares outstanding		83,793,113			70,058,188			78,523,532			70,058,188			72,364,455

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

-4-

POWER3 MEDICAL PRODUCTS, INC.
( A Development Stage Enterprise)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
Through June 30, 2007 and Years Ended December 31, 2006 and 2005 and 2004 from inception

	Common Stock								Stock			Additional			Deferred
	Shares			Par Value		Preferred Shares			Par Value			Paid In Capital			Compensation Expense			Retained 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)																			(15,236,339	)		(15,056,339	)

-5-

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	)

-6-

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				[0]		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	)

-7-

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

Issue Shares on 1/2/07 for services	100,000		100				7,300				7,400
Issue Shares on 1/23/07 for conversion	1,000,000		1,000				59,000				60,000
Issue Shares on 1/30/07 for services	500,000		500				42,000				42,500
Issue Shares on 3/14/07 for conversion	3,000,000		3,000				247,000				250,000
Issue Shares on 4/13/07 for services	160,000		160				35,040				35,200
Issue Shares on 4/13/07 for services	300,000		300				65,700				66,000
Issue Shares on 4/30/07 for conversion	713,708		714				99,286				100,000
Issue Shares on 5/11/07 for conversion	157,895		158				29,842				30,000
Issued Shares on 5/16/07 for warrants exercised	833,334		833				66,666				67,499
Issue Shares on 5/16/07 for conversion	833,333		833				49,167				50,000
Issue Shares on 5/16/07 for conversion	713,708		714				49,286				50,000
Issue Shares on 5/16/07 for conversion	4,127,000		4,127				235,873				240,000
Issue Shares on 5/16/07 for conversion	359,595		360				49,640				50,000
Issue Shares on 5/16/07 for conversion	178,427		178				24,822				25,000
Issue Shares on 5/17/07 for conversion	11,970		12				1,665				1,677
Issue Shares on 5/17/07 for conversion	71,370		71				9,929				10,000
Issue Shares on 6/1/07 for conversion	200,000		200				11,800				12,000
Issue Shares on 6/7/07 for conversion	5,900,231		5,900				334,100				340,000
Issue Shares on 6/13/07 for services	400,000		400				79,600				80,000
Issued Shares on 6/13/07 for cash	1,750,000		1,750				268,250				270,000
Issued Shares on 6/13/07 for cash	1,500,000		1,500				320,000				321,500
Stock received from Subsidiary							100				100
Net Loss									(6,887,937	)	(6,887,937	)

BALANCES AS OF JUNE 30, 2007	94,181,526		94,180				60,095,424		(70,737,585	)	(10,547,981	)

-8-

POWER3 MEDICAL PRODUCTS, INC
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
(unaudited)

	For the six Months Ended June 30, 2007			For the six Months Ended June 30, 2006			Period from May 18, 2004 to June 30, 2007

Operating activities:
Net loss	$	(6,887,937	)	$	(6,866,125	)	$	(55,675,112	)
Adjustments to reconcile net loss to net cash used in Operating activities:
Loss on conversion of financial instruments		397,871						397,871
Impairment of Goodwill		-			-			13,371,776
Loss on previously capitalized lease		-			-			34,243
Amortization of deferred finance cost and debt discounts		851,039			(12,550	)		1,265,493
Change in derivative liability, net of bifurcation		4,296,107			(144,843	)		1,129,188
Stock issued for services and compensation		231,100			4,746,161			32,598,445
Depreciation expense		12,292			13,642			97,608
Other non cash items								(34,933	)
Changes in operating assets and liabilities:
Accounts Receivable		-			-			-
Prepaid expenses and other current assets		(36,073	)		-			172,709
Accounts Payable and other liabilities		220,620			1,575,775			2,426,646

Net cash used in operating activities		(914,981	)		(687,940	)		(4,216,066	)

Investing Activities:
Capital expenditures, net		-			(13,742	)		(135,933	)
Increase in other assets.		-			10,488			(179,786	)
Net cash used in investing activities		-			(3,254	)		(315,719	)

Financing Activities:
Proceeds from borrowings under notes payable		875,000			588,780			3,028,430
Proceeds from sale of common stock, net		591,500			253,929			1,266,317
Principal payments on long term debt		(11,500	)		-			(43,978	)
Proceeds from CD, warrants and rights net of issuance cost		66,766			-			925,807
Net cash provided by financing activities		1,521,766			842,709			5,176,576

Net change in cash and cash equivalents		606,785			151,515			644,791

Cash and cash equivalents, beginning of period		40,602			1,399			2,596

Cash and cash equivalents, end of period	$	647,387		$	152,914		$	647,387

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

-9-

POWER3 MEDICAL PRODUCTS, INC
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS (Continued)
(unaudited)

	For the six months ended June 30, 2007		For the six months ended June 30, 2006		Period from May 18, 2004 to June 30, 2007
	For the six months ended June 30, 2007		For the six months ended June 30, 2006
Cash paid for:					Period from May 18, 2004 to June 30, 2007
Interest		-		-	$	59,840
Income taxes		-		-		-

Non-cash transactions:
Exchange of convertible notes for stock	$	1,218,677			$	967,999
Restatement of notes payable to N/P related parties					$	1,393,346
Exchange of convertible preferred stock for common stock					$	3,380,975

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

-10-

POWER3 MEDICAL PRODUCTS, INC

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 1. BASIS OF PRESENTATION

The accompanying consolidated financial statements of Power3 Medical Products, Inc. at June 30, 2007 have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been omitted or condensed pursuant to such rules and regulations. These statements should be read in conjunction with Power3’s Form 10-KSB for the year ended December 31, 2006. In Management’s Opinion, these interim consolidated financial statements reflect all all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of the consolidated financial position and results of a fair presentation of the consolidated financial statements for the three months ended June 30, 2007 are not necessarily indicative of the results which can be expected for the entire year.

Going concern

As shown in the accompanying financial statements, Power3 incurred net losses chargeable to common shareholders of $6,887,937 and $6,866,125 for the six months ended June 30^th for 2007 and 2006, respectively, and has an accumulated deficit of $10,547,980 as of June 30, 2007. 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 Power3 is unable to continue as a going concern.

Note 2. 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.

The following notes were issued to Steven B. Rash during the six month period ended June 30, 2007: On January 2^nd, $90,682, maturing on July 2, 2007 at 6% and May 8^th, $206,556, maturing on November 8, 2007 at 6%.

The following note was paid to Steven B. Rash during the six month period ended June 30, 2007: On February 26^th, $11,500 note dated September 5, 2006.

The following notes were issued to Ira L. Goldknopf during the six month period ended June 30, 2007: On January 2^nd, $4,180, maturing on July 2, 2007 at 6% and May 8^th, $36,176, maturing on November 8, 2007 at 6%.

See note 4 for further discussion.

-11-

Note 3. COMMITMENTS AND CONTINGIENCES

Legal Proceedings

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. A settlement has been reached between Advanced BioChem and Charles Caudle et. al. Power3 and Chares Caudle et. al. have reached an agreement and The Company will not incur any loss whatsoever from this action.

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

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

On 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.

-12-

In 2007, a lawsuit was filed by Crestview Capital Master, LLC (“Crestview” or “Plaintiff”), Index No. 601862/07, in the Supreme Court of the State of New York, County of New York, seeking specific performance and money damages against Power3 Medical Products, Inc. (“Power3”, or the “Company”) The lawsuit arose from a dispute concerning the number of shares to be issued to Crestview by Power3 in connection with (i) a $150,000 principal amount convertible debenture and common stock purchase warrant issued to Crestview on October 28, 2004 and (ii) a $150,000 principal amount convertible debenture and common stock purchase warrant issued to Crestview on January 26, 2005 (collectively, the “Transaction Documents”). On July 31, 2007, Power3 entered into a Settlement Agreement and Release (the “Settlement Agreement”), with the Plaintiff. The terms of the Settlement Agreement require Power3 to issue an aggregate of 3,793,301 shares (the “Shares”) of the Company’s common stock in full satisfaction of the Transaction Documents. Upon the filing by Power3 of a Stipulation of Discontinuance letter signed by Crestview, the lawsuit shall be dismissed, it its entirety and with prejudice, and as a result of the Settlement Agreement, each of the parties is released by the other from all known and unknown claims. As a result of this settlement $531,062 has been recorded as additional expense based upon the fair value of the stock granted at the date settlement.

Note 4. 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.

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Under the Agreements, the Purchasers also received warrants to purchase an aggregate of up to 2,500,000 and 333,333 shares of common stock for tranche one and two, respectively, and additional investment rights to purchase up to an additional $2,500,000 of convertible debentures. The warrants are exercisable at a price of $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 June 30, 2007 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 2006 and June 2007, the Company issued convertible short term promissory notes with a total face value of $1,232,000. The convertible promissory notes have a 7% interest rate and include detachable warrants to purchase a total 11,249,996 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%.

On April 3, 2007, the Company entered into a joint venture agreement with NeoGenomics to form a Contract Research Organization (CRO) and collaborate on research work in the future. In addition, NeoGenomics agreed to purchase a convertible debenture for $200,000 and acquired options to purchase common stock of the Company during 2007. Under the terms of the Agreement, Power3 agrees to issue, and NeoGenomics agrees to purchase, a convertible debenture in the principal amount of $200,000. The convertible debenture will be convertible into common shares of the Company at $.20 per share; however the conversion price can be reset at any time and from time to time, in accordance with paragraphs 7 and 9 of the Agreement. The debenture shall accrue interest at 6% per annum, payable quarterly, and the principal amount of the debenture shall be due and payable two years after closing.

Further, in consideration of NeoGenomics, Inc.’s commitment to purchase the debenture and form the joint venture, Power3 grants NeoGenomics, Inc. an irrevocable option (the “Second Option”) to purchase, in one or a series of transactions, voting convertible preferred stock that is convertible into such number of shares of common shares of the Company as is necessary to increase NeoGenomics, Inc.’s ownership of the voting common stock of Power3, up to 60% of Power3’s voting common stock, after taking into consideration all outstanding First Option Preferred Stock and Second Option Preferred Stock, on an as-converted basis.

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As discussed above Power 3 has converted several notes and plans to continue doing so. In some instances Power 3 has offered terms of conversion greater than the original agreement including lowering the strike price of warrants attached to these instruments. As a result of this additional consideration, upon conversion the Company has recorded $397,871 of loss on the conversion of notes during the six month period ended June 30, 2007.

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 $1,053,455and $360,417, at June 30, 2007 and December 31, 2006, respectively.

The following tabular presentation reflects the components of derivative financial instruments on the Company’s balance sheet at June 30, 2007 and December 31, 2006:

Derivative Liabilities:	June 30, 2007		December 31, 2006
Common stock warrants	$	4,095,114	$	875,783
Embedded conversion feature		402,896		186,480
Additional investment rights		339,930		183,056
Other derivative instruments		739,515		36,029
	$	5,577,455	$	1,281,348

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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.

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 June 30, 2007.

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

Notes Payable in Default and to Related Parties

During 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.

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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 of June 30, 2007, the total notes Payable due Mr. Rash for all such transactions were $894,080 and the total Notes Payable due Dr. Goldknopf for such transactions were $825,360. 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 June 30, 2007, to $1,754,440 as follows:

SCHEDULE OF NOTES
	As of June 30, 2007			2006			2005
Notes payable in default:
Cordillera I	$	251,000		$	251,000		$	251,000
Cordillera II	$	200,000		$	200,000		$	200,000
Trinity I							$	150,000
Trinity II	$	155,500		$	155,500		$	150,000
Discount on Trinity Notes		($ 94,678	)		($ 94,678	)
Nutmeg								($262,992	)
Fife							$	446,500
Fife				$	266,000
Donson							$	159,231
Totals	$	511,822		$	777,822		$	1,093,739
Notes payable - related parties:
Rash	$	55,000		$	55,000		$	55,000
Goldknopf	$	102,000		$	102,000		$	102,000
Rosinski	$	35,000		$	35,000		$	35,000
Rash	$	553,342		$	553,342
Goldknopf	$	683,004		$	683,004
Rash	$	285,738
Goldknopf	$	40,356
Totals	$	1,754,440		$	1,428,346		$	192,000

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Note 5. OTHER SIGNIFICANT EQUITY TRANSACTIONS

Sales of common stock during the six month period ended June 30, 2007

On June 13, 2007, 1,750,000 shares of common stock were sold to private investors to raise $300,000 there were no warrants associated with this transaction.

On June 13, 2007, 1,500,000 shares of common stock were sold to private investors to raise $350,000 there were no warrants associated with this transaction.

On June 13, 2007, $58,500 was paid to placement agents in connection with the two sales above, these costs were deducted from the proceeds of this transaction and resulted in a reduction of additional paid in capital.

Shares issued for services during the six month period ended June 30, 2007

On January 1, 2007 100,000 shares were issued for services, the Company estimated the fair value of this transaction to be $7,400 based upon the closing stock price of the Company’s stock at the measurement date.

On January 30, 2007 500,000 shares were issued for services, the Company estimated the fair value of this transaction to be $42,500 based upon the closing stock price of the Company’s stock at the measurement date..

On April 13, 2007 460,000 shares were issued for services, the Company estimated the fair value of this transaction to be $101,200 based upon the closing stock price of the Company’s stock at the measurement date..

On June 13, 2007 400,000 shares were issued for services, the Company estimated the fair value of this transaction to be $80,000 based upon the closing stock price of the Company’s stock at the measurement date.

Shares issued for conversion of debt during the six month period ended June 30, 2007

17,267,237 shares of common stock were issued for the conversion of convertible notes as discussed in Note 4 above.

Note 6. OTHER MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Forward Looking Statements

This Report contains certain forward-looking statements of the intentions, hopes, beliefs, expectations, strategies, and predictions of 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;

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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.

Overview

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.

Scientific Developments

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.

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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.

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.

On March 31, 2007, Power3 received a certification to begin offering CLIA-compliant high complexity medical testing services. CLIA (Clinical Laboratory Improvement Amendments) 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. Power3 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 system troubleshooting and equipment maintenance, and interpretation and judgment. With the CLIA certification, Power3 can now offer blood-based testing services to physicians, hospitals and clinics, with analysis of samples performed by the company in its centralized laboratory.

Power3’s scientific team is currently headed by its CLIA Laboratory Director and 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.

On April 4, Power3 announced a collaboration agreement with NeoGenomics, Inc. (NGNM) of Fort Myers, Florida, to form a joint venture Contract Research Organization (CRO), whose mission will be commercialization of Power3's portfolio of Intellectual Property. The efforts will center on blood-based tests using the 534 biomarkers Power3 has discovered from a broad range of diseases including breast cancer, Alzheimer's, Parkinson's and ALS, and the further development of diagnostic tests and other services.

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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

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.

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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 biomolecules 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.

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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 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.

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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.

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.

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In addition, in consideration of NeoGenomics, Inc.’s commitment to purchase the debenture and form the joint venture, Power3 grants, to Neogenomics, Inc., an irrevocable option (the “First Option”) to purchase, in one or a series of transactions, voting convertible preferred stock that is convertible into such number of shares of common stock of Power3, after taking into account, all outstanding First Option Preferred Stock, on an as-converted basis.

Power3 concluded a 60 patient blinded validation study of its BC-SeraPro(TM) early detection blood serum breast cancer test in May, 2007. For the study, Power3 used its extensive patient serum sample bank to generate a statistical model that differentiates between breast cancer and control profiles. Sixty blinded patient samples were then tested against this statistical model. The samples were provided by Mercy Women's Center under the direction of Dr. Alan Hollingsworth, a member of the Company's Scientific Advisory Board. Twenty-two biomarkers were used to obtain the results from this study.

By applying decision tree analysis, a method used to model disease and control patient demographics at the level of individual biomarkers, Power3 reported results of 97% sensitivity and 93% specificity. In addition, the Company used Linear Discriminant Analysis, a more robust and flexible method that uses some or all biomarkers in a panel rather than individually, which achieved 80% sensitivity and 87% specificity. The results are a major step forward in commercializing the BC-SeraPro™ diagnostic for the early detection of breast cancer. Power3 is finalizing the development program and moving forward with a strategy of providing a test that is utilitarian, accurate, and inexpensive. Detection of a patient's protein biomarker profile can now be employed to detect abnormal and pathological states reflected in the serum proteome. Application of this test will have a future impact on how disease will be diagnosed, monitored, and managed.

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 59 differentially expressed proteins, the Company has identified groups of unique markers that appear to distinguish normal patients from those with motor neuron, cognitive, and other neurological disorders.

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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 have been analyzed in the Company’s CLIA certified laboratory. The results from this initial shipment will be announced later this year.

Dr. Ira L. Goldknopf, Power3’s director of proteomics, was an invited speaker at both the Cancer Proteomics World Congress and the Molecular Diagnostics World Congress, held jointly at the Hilton Philadelphia City Avenue in Philadelphia, April 26-27. A scientific advisor to both Congresses, Dr. Goldknopf presented "Twelve Protein Biomarkers in Blood Serum for Early Detection and Determination of Disease Severity of Patients with Breast Cancer" to the Cancer Proteomics World Congress. His presentation on "Forty Seven Protein Biomarkers in Blood Serum for Early Detection, Differential Diagnosis and Monitoring of Disease Severity of Patients with Neurodegenerative Diseases was delivered to the Molecular Diagnostics World Congress.

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Dr. Goldknopf also served on the "Genetic Markers and Predicting Alzheimer's Disease Risk panel. The invitation to Dr. Goldknopf to address these two major conferences on diseases of the central nervous system is further validation of Power3’s leadership position in advancing the science of proteomics for development of molecular diagnostics and targeted therapeutics for the Alzheimer's, Parkinson's, and Lou Gehrig's diseases. Dr. Goldknopf has reviewed the Molecular Diagnostics World Congress for the Journal Expert Review of Molecular Diagnostics, which was published in the August issue.

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

On July 2007, Chief Executive Officer, Steven Rash, participated in a Podcast sponsored by “Future Pharmaceuticals Magazine” alongside other biotechnology industry executives. The Podcast will be available for download on Power3 Medical’s website (www.power3medical.com) and on Future Pharmaceuticals website (www.futurepharmaus.com) in August 2007.

The Pod cast, titled “Drug Discovery & Development: Biomarker Discovery & Research Executive Panel Discussion,” was moderated by David Lester, New York Site Head, Pfizer Human Health Technologies, Global Clinical Technology, PGRD. During the Podcast, Mr. Rash and the other members of the panel discussed the importance of biomarkers and the role they play in the drug research and development process. Power3 Medical has identified 534 biomarkers that can be used for the early detection of breast cancer and neurodegenerative diseases. The Company is in the final stages of development and is preparing for the commercialization of the diagnostic tests for these diseases.

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

Investor Relations/Public Relations

On June 29, 2007, Power3 Medical Products, Inc. (the “Company”) entered into a service agreement with The Investor Relations Group (“IRG”) for services related to the Company’s communications program, for corporate promotional materials and for communications with media, investors and industry personnel.

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As Power3 transitions from a research and development organization to commercialization, the Company feels it is in the best interest of the Company and its shareholders to retain the services of The Investor Relations Group in order to fully communicate our message to the investing public. With such important milestones pending in the development of commercial applications for our proprietary technologies, the Company believes a strategic relationship with the right investor relations firm is pivotal in accomplishing the Company’s goals.

IRG will strive to increase investor and industry awareness of Power3 within the capital markets by introducing the Company and its management to pre-qualified fund managers, industry analysts and the media-at-large.

As compensation to IRG for services rendered, the Company shall pay to IRG a maintenance fee of $13,500.00 per month for a renewable term of 12 months, beginning July 1, 2007. Additionally, the Company agreed to issue to IRG personnel a total of 400,000 restricted shares of common stock.

Liquidity and Capital Resources

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

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

Net cash used in operating activities amounted to ($914,981) for the six months ended June 30 2007, compared to ($687,940) for the six months ended June 30, 2006. The change in net cash used in operating activities during 2007 was primarily due to higher overhead and legal and consulting fees, as compared to the same six months of 2006.

Net cash provided by financing activities was $1,521,766 for the six months ended June 30, 2007, as compared to $842,709 for the six months ended June 30, 2006.

As of June 30, the Company’s principal source of liquidity was approximately $647,387 in cash.

Recent Financing

During the quarter ended June 30, 2007, the Company issued common stock at $0.20 per share, raising a total of $650,000 in additional working capital.

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Plan of Operation and Cash Requirements

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

Absent a source of revenues, the Company will require funding in order to carry out its business plan until such time as it is able to generate sustained revenues. The Company’s current cash requirements are approximately $150,000 per month and the Company anticipates that it will require approximately $1,800,000 for the twelve months ended June 30, 2008, to continue its development activities, undertake and perform clinical validation studies, continue its marketing efforts and maintain its administrative infrastructure, as follows:

Estimated Expenditures Required During Next Twelve Months
General and Administrative	$	1,550,000
Patent filings and intellectual property	$	100,000
Capital Expenditures and research agreements	$	150,000
Total	$	1,800,000

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

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

Off-Balance Sheet Arrangements

At June 30, 2007, the only off balance sheet agreements in place for the Company were a lease in effect for its office space, leases in effect for computer equipment, leases in effect for lab equipment and employment agreements entered with its three principal officers.

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

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Critical Accounting Policies

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

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

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

Note 7. OTHER CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act). Based on this evaluation and for the reasons set forth below, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of June 30, 2007.

As reported in the Company’s previous Quarterly Reports on Form 10-QSB, the Company identified certain deficiencies which caused management to conclude that the Company’s disclosure controls continue to be ineffective as of June 30, 2007. The Company has undertaken steps and implemented actions as disclosed in its previous Form 10-QSB’s in an effort to resolve these deficiencies. While the actions identified in the previously filed Form 10-QSB’s and the actions identified below have addressed many of these deficiencies, the Company continued to have deficiencies with respect to its disclosure controls and procedures at June 30, 2007, including the following:

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

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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

On August 10, 2007, Malone & Bailey, P.C. was dismissed as the independent auditor for Power3 Medical Products, Inc. (the "Registrant").

Malone & Bailey, P.C. has served as the independent auditor of the Registrant's annual financial statements since the audit of the calendar year ended December 31, 2005 for the Registrant’s financial statements. From the date on which Malone & Bailey, P.C. was engaged until the date they were dismissed, there were no disagreements with Malone & Bailey, P.C. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Malone & Bailey, P.C., would have caused Malone & Bailey, P.C. to make reference to the subject matter of the disagreements in connection with any reports it would have issued, and there were no "reportable events" as that term is defined in Item 304(a) (1) (iv) of Regulation S-B.

The decision to dismiss Malone & Bailey, P.C. resulted primarily from the addition of our new Chief Accounting Officer who was a member of the engagement team of our most recent annual audit. Her employment could have been deemed to affect the independence of Malone & Bailey, P.C.

The Registrant has provided Malone & Bailey, P.C. with a copy of the foregoing disclosure, and has requested that Malone & Bailey, P.C. furnish Registrant with a letter addressed to the Securities and Exchange Commission stating whether or not it agrees with such disclosure.

On August 10, 2007, the Registrant executed an engagement letter with McElravy, Kinchen & Associates, P.C. ("MKA") to assume the role of its new certifying accountant. MKA has been asked to perform the quarterly review of Registrant for the quarter ended June 30, 2007.

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During the periods ended December 31, 2005 through 2006 and the subsequent interim period ended March 31, 2007, and through the date of the firm's engagement the Registrant did not consult with MKA with regard to:

(i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on Registrant's financial statements; or

(ii) any matter that was either the subject of a disagreement or a reportable event (as described in Item 304(a) (1) (iv) of Regulation S-B.

The engagement of the new principal auditor was recommended and approved by the Board of Directors of Registrant.

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 June 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Changes in Accounting Treatment

On June 26, 2007, Power3 Medical Product Inc.'s (the “Company”) management and Board of Directors concluded that the Company's financial statements contained within the Company's 10-KSB for the year ended December 31, 2005, should be restated, and that such previously filed financial statements should no longer be relied upon, as previously presented. The Company filed amended financial statements for the year ended December 31, 2005, within it's 10-KSB for the year ended December 31, 2006.

As of and for the year ended December 31, 2005, the restatements are related to:

Impairment of goodwill. Previously goodwill was not impaired but due to management’s analysis of goodwill and determination that the net present value of future cash flows did not support the carrying value of goodwill in accordance with SFAS 142, there should have been impairment of goodwill in the amount of $13,371,776.

2.	Incorrect accounting for stock warrants sold with our notes payable. Previously, the amounts were expensed but should have been accounted for as a discount on the notes payable.

3.	Recording of a payroll advances made to officers. Previously these were capitalized but should have been expensed.

4.	Recording of rent expense and accrued rent expense. Previously, amounts were expensed based on the amount paid but should have been expensed and accrued on a straight line basis due to the escalating rent payments within the leases.

5.	Recording of leasehold deposit. Previously the deposit amount was capitalized but the deposit was never made to the landlord by the company and was incorrectly capitalized.

6.	Reporting and classification of note payable balances. Previously, amounts in default at the time were not correctly reported or classified and amounts due to related parties were not correctly reported or classified.

7.	Unrecorded liabilities. These should have been accrued and expensed.

8.	Changes in derivative liabilities and derivative gains/losses. Errors in the original model cause the previously reported amounts to be incorrect.

9.	Deferred compensation. Previously deferred compensation was understated.

The Board of Directors discussed the matters disclosed in this filing with the Company's independent registered public accountants.

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Change in Control

On July 19, 2007, Mr. John P. Burton, Chief Financial Officer of Power3 Medical Products, Inc. (the “Company”) resigned and thereby terminated his employment at the Company as of July 18, 2007. Mr. Burton resigned to pursue personal interests and the Company will be restructuring the duties and responsibilities within the finance and accounting organization of the Company.

On July 23, 2007, Ms. Marion McCormick was named Chief Accounting Officer of Power3 Medical Products, Inc. and will assume her duties beginning August 13, 2007.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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.

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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 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

During the 2^nd Quarter ended June 30, 2007, Power3 Medical Products, Inc. (the "Company") entered into a Settlement Agreement and Release (the "Settlement Agreement and Release") with seven Convertible Debenture Holders. The Settlement Agreements are being entered into in connection with a $285,000 principal amount convertible debenture, common stock purchase warrant and investment rights agreement issued to the seven Convertible Debenture Holders in October 2004 and a second $50,000 principal amount convertible debenture, common stock purchase warrant and an investment rights agreement issued to a Convertible Debenture Holder in January, 2005. Pursuant to the Settlement Agreement, Power3 agreed to issue to the Convertible Debenture Holders a total of 2,206,673 shares of common stock in full satisfaction of the convertible debentures, investment rights, and all obligations arising thereto. Under the agreement, the Convertible Debenture Holders retain the warrants they were issued at the time of issue of the convertible debentures and the Company has agreed to reduce the exercise price on all warrants issued to the Convertible Debenture Holders to $0.19. The Convertible Debenture Holders accepted the exercise price reduction on the condition that all provisions relating to the cashless exercise of the warrants, in the original convertible debenture agreements are voided. A portion of the 2,599,688 loss on conversion of financial instruments is a result of this modification and settlement of the previous debt agreements.

Item 3. DEFAULTS UPON SENIOR SECURITIES

The Company is in default under the provisions of its October, 2004 Securities Purchase Agreement, and accompanying registration rights agreement and debentures. The default stems from the Company’s inability to obtain effectiveness of the registration statement on Form SB-2, as amended (File No. 333-122227) filed pursuant to the registration rights agreement. The registration statement was withdrawn on June 20, 2007. During the quarter ended June 30, 2007, the Company has settled with a number of its Convertible Debenture Holders as previously mentioned above.

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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to the security holders for a vote during the quarter ended July 30, 2007.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

EXHIBIT NO.		DESCRIPTION

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

10.2		Amendment to Securities Purchase Agreement dated January 19, 2005, between the Company and each purchaser identified therein (incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement on Form SB-2 (File No. 122227)).

10.3		Power3’s Registration Statement (incorporated by reference to the SB-2 (File No. 122227) as filed on January 21, 2005).

10.4		Promissory Note dated November 3, 2005 between Power3 and Trinity financing in the amount of $150,000 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8K filed on November 8, 2005).

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

10.6		Promissory Note, dated June 1, 2006, executed by Power3 and John Fife in the amount of $266,000 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10Qsb filed May 21, 2007).

10.7		Stock Pledge Agreement for Fife Promissory Note, dated June 1, 2006 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10Qsb filed May 21, 2007).

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

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

10.10		Employment Agreement with John Burton dated September 15, 2005 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on September 21, 2005).

10.11		Exclusive License Agreement dated effective June 28, 2005, by and between Power3 and Baylor College of Medicine (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-QSB for the quarter ended September 30, 2004).

10.12		Patent and Technology License Agreement dated September 1, 2003 by and between The University of Texas System, on behalf of The University of Texas M.D. Anderson Cancer Center and Advanced BioChem (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-QSB for the quarter ended September 30, 2004).

10.13		Collaborative Research Agreement dated March 21, 2005, by and between New Horizons Diagnostics and Power3 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on March 28, 2005).

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EXHIBIT NO.		DESCRIPTION

10.14		Collaborative Research and Licensing Agreement dated May 17, 2005, by and between BioSite Incorporated and Power3 (incorporated by reference to Exhibit 10.13 to the Company’s Form 10-KSB filed on September 9, 2005).

10.15		Agreement between Power3 and Glocap executed on January 5, 2006 (incorporated by reference to Exhibit 10.22 to the Company’s Form 10-QSB for the quarter ended March 31, 2006).

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

10.17		Promissory Note dated March 1, 2006 between Power3 and Steven B. Rash in the amount of $50,000 (incorporated by reference to Exhibit 10.18 to the Company’s Form 10-QSB for the quarter ended March 31, 2006).

10.18		Promissory Note, dated March 28, 2006, executed by Power3 and John Fife in the amount of $400,000 (incorporated by reference to Exhibit 10.20 to the Company’s Form 10-QSB for the quarter ended March 31, 2006).

10.19		Stock Pledge Agreement for Fife Promissory Note, dated March 28, 2006 (incorporated by reference to Exhibit 10.21 to the Company’s Form 10-QSB for the quarter ended March 31, 2006).

10.20		Promissory Note, dated January 16, 2007, executed by Power3 and Rich Kraniak in the amount of $50,000 (incorporated by reference to Exhibit 10.6 to the Company’s Form 10Qsb filed May 21, 2007).

10.21		Promissory Note, dated September 14, 2006, executed by Power3 and Magic Arts & Entertainment, in the amount of $49,999.98(incorporated by reference to Exhibit 10.21 to the Company’s Form 10Qsb filed May 21, 2007).

10.22		Promissory Note, dated February 8, 2007, executed by Power3 and Paul Chosid, in the amount of $200,000.00(incorporated by reference to Exhibit 10.22 to the Company’s Form 10Qsb filed May 21, 2007).

10.23		Promissory Note, dated August 8, 2006, executed by Power3 and Rich Kraniak, in the amount of $100,000.00(incorporated by reference to Exhibit 10.6 to the Company’s Form 10Qsb filed May 21, 2007).

10.24		Promissory Note, dated February 8, 2007, executed by Power3 and Stephen Wood, in the amount of $120,000.00(incorporated by reference to Exhibit 10.6 to the Company’s Form 10Qsb filed May 21, 2007).

10.25		Promissory Note, dated October 27, 2006, executed by Power3 and Roger Kazanowski, in the amount of $150,000.00(incorporated by reference to Exhibit 10.25 to the Company’s Form 10Qsb filed May 21, 2007).

10.26		Promissory Note, dated February 27, 2007, executed by Power3 and Bruce Seyburn, in the amount of $100,000.00(incorporated by reference to Exhibit 10.26 to the Company’s Form 10Qsb filed May 21, 2007).

10.27		Promissory Note, dated October 27, 2006, executed by Power3 and Rich Kraniak, in the amount of $100,000.00(incorporated by reference to Exhibit 10.27 to the Company’s Form 10Qsb filed May 21, 2007).

10.28		Promissory Note, dated October 27, 2006, executed by Power3 and Steve Scott, in the amount of $25,000.00(incorporated by reference to Exhibit 10.6 to the Company’s Form 10Qsb filed May 21, 2007).

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EXHIBIT NO.		DESCRIPTION

10.29		Promissory Note, dated October 31, 2006, executed by Power3 and Andrew Dahl, in the amount of $12,000.00(incorporated by reference to Exhibit 10.29 to the Company’s Form 10Qsb filed May 21, 2007).

10.30		Promissory Note, dated November 30, 2006, executed by Power3 and Jeffrey Hyde, in the amount of $10,000.00(incorporated by reference to Exhibit 10.30 to the Company’s Form 10Qsb filed May 21, 2007).

10.31		Promissory Note, dated October 31, 2006, executed by Power3 and Mike and Janet Lee, in the amount of $60,000.00(incorporated by reference to Exhibit 10.31 to the Company’s Form 10Qsb filed May 21, 2007).

10.32		Warrant Agreement with Mike and Janet Lee, dated October 30, 2006, for warrants to purchase 1,000,000 shares of common stock (incorporated by reference to Exhibit 10.32 to the Company’s Form 10Qsb filed May 21, 2007).

10.33		Warrant Agreement with Andrew Dahl, dated October 31, 2006, for warrants to purchase 200,000 shares of common stock (incorporated by reference to Exhibit 10.33 to the Company’s Form 10Qsb filed May 21, 2007).

10.34		Warrant Agreement with Rich Kraniak, dated August 27, 2006, for warrants to purchase 333,333 shares of common stock (incorporated by reference to Exhibit 10.34 to the Company’s Form 10Qsb filed May 21, 2007).

10.35		Warrant Agreement with Steve Scott, dated October 27, 2006, for warrants to purchase 416,666 shares of common stock (incorporated by reference to Exhibit 10.35 to the Company’s Form 10Qsb filed May 21, 2007).

10.36		Warrant Agreement with Roger Kazanowski, dated October 27, 2006, for warrants to purchase 2,500,000 shares of common stock (incorporated by reference to Exhibit 10.36 to the Company’s Form 10Qsb filed May 21, 2007).

10.37		Warrant Agreement with Rich Kraniak, dated October 27, 2006, for warrants to purchase 1,666,666 shares of common stock (incorporated by reference to Exhibit 10.37 to the Company’s Form 10Qsb filed May 21, 2007).

10.38		Warrant Agreement with Magic Arts & Entertainment, dated September 14, 2006, for warrants to purchase 833,333 shares of common stock (incorporated by reference to Exhibit 10.38 to the Company’s Form 10Qsb filed May 21, 2007).

10.39		Warrant Agreement with Rich Kraniak, dated January 16, 2007, for warrants to purchase 833,333 shares of common stock (incorporated by reference to Exhibit 10.39 to the Company’s Form 10Qsb filed May 21, 2007).

10.40		Warrant Agreement with Paul Chosid, dated February 8, 2007, for warrants to purchase 3,333,333 shares of common stock (incorporated by reference to Exhibit 10.40 to the Company’s Form 10Qsb filed May 21, 2007).

10.41		Warrant Agreement with Stephen Wood, dated February 8, 2007, for warrants to purchase 2,000,000 shares of common stock (incorporated by reference to Exhibit 10.41 to the Company’s Form 10Qsb filed May 21, 2007).

10.42		Warrant Agreement with Bruce Seyburn, dated February 27, 2007, for warrants to purchase 833,333 shares of common stock (incorporated by reference to Exhibit 10.42 to the Company’s Form 10Qsb filed May 21, 2007).

10.43		Consulting Agreement signed with Noble Investments, dated March 1, 2007 (incorporated by reference to Exhibit 10.43 to the Company’s Form 10Qsb filed May 21, 2007).

10.44		Agreement signed with Neogenomics (incorporated by reference to Exhibit 10.1 in the Form 8-K filed by the Company on April 3, 2007.

31.1*		Certification of Steven B. Rash, Chief Executive Officer

31.2*		Certification of Marion McCormick, Chief Accounting Officer

32.1*		Certification Pursuant to Section 906 of Steven B. Rash, Chief Executive Officer

32.2*		Certification Pursuant to Section 906 of Marion McCormick, Chief Accounting Officer
*Furnished with this report.

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SIGNATURES

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

Signature	Title	Date


/s/ Steven B. Rash	Chairman and Chief Executive Officer	August 14, 2007
Steven B. Rash


/s/ Marion McCormick	Chief Accounting Officer	August 14, 2007
Marion McCormick

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Date: August 14, 2007	By:	/s/ Steven B. Rash
		Steven B. Rash
		Title: Chairman and Chief Executive Officer


Date: August 14, 2007	By:	/s/ Marion McCormick
		Marion McCormick
		Title: Chief Accounting Officer