10-Q 1 v114627_10q.htm

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to ________________

COMMISSION FILE NO. 000-24921

Power3 Medical Products, Inc.

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

New York	0-24921	65-0565144
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

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

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

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

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

Common stock, $.001 par value

(Title of class)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer., or a smaller reporting company.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

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

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

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

TABLE OF CONTENTS

PART I

ITEM 1.	Financial Statements	2

	Balance Sheets (unaudited)	2

	Statements of Operations (unaudited)	3

	Statement of Stockholders’ Deficit (unaudited)	4

	Statements of Cash Flows (unaudited)	7

	Notes to Financial Statements (unaudited)	9

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	26

ITEM 4.	Controls and Procedures	26

PART II

ITEM 1.	Legal Proceedings	28

ITEM 1A	Risk Factors	28

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28

ITEM 3.	Defaults Upon Senior Securities	29

ITEM 4.	Submission of Matters to a Vote of Security Holders	29

ITEM 5.	Other Information	29

ITEM 6.	Exhibits	29

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

BALANCE SHEETS

AS OF MARCH 31, 2008 AND DECEMBER 31, 2007

(unaudited)

	March 31, 2008			December 31, 2007
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	13,725		$	125,679
Other Current Assets		20,454			23,247
TOTAL CURRENT ASSETS		34,179			148,926

OTHER ASSETS
Deferred Finance Costs, net of amortization of $200,020 and $176,952 at March, 31, 2008 and December 31, 2007, respectively		104,129			127,197
Furniture, Fixtures and Equipment, net of accumulated depreciation of $99,506 and $98,960 at March, 31, 2008 and December 31, 2007, respectively		8,051			5,799
Deposits		21,598			21,598
TOTAL ASSETS	$	167,957		$	303,520

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts Payable	$	973,008		$	969,387
Notes Payable – in default		451,000			451,000
Notes Payable		50,000			50,000
Notes Payable to Related Parties		1,934,816			1,934,816
Convertible Debentures-in default, net of amortization of $1,194,733 and $1,178,865 at March, 31, 2008 and December 31, 2007, respectively		629,322			645,190
Other Current Liabilities		1,203,619			1,242,936
Derivative Liabilities		1,625,689			3,794,305
TOTAL LIABILITIES		6,867,454			9,087,634

STOCKHOLDERS’ DEFICIT
Preferred Stock - $0.01 par value; 50,000,000 shares authorized; none issued or outstanding		—			—
Common Stock-$0.001 par value; 150,000,000 shares authorized; 120,054,178 and 108,352,636 shares issued and outstanding as of March, 31, 2008 and December 31, 2007, respectively		120,055			108,353
Additional Paid-In Capital		61,054,908			60,191,104
Deficit Accumulated Before Entering Development Stage		(11,681,500	)		(11,681,500	)
Deficit Accumulated During Development Stage		(56,192,960	)		(57,402,071	)
TOTAL STOCKHOLDERS’ DEFICIT		(6,699,497	)		(8,784,114	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	167,957		$	303,520

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

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

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

(unaudited)

	2008			2007 Restated			Period from May 18, 2004 through March 31, 2008
REVENUES:
Sales	$	—		$	121,724		$	426,224
TOTAL REVENUE		—			121,724			426,224

OPERATING EXPENSES:
Employee compensation and benefits		283,921			264,826			30,291,911
Professional and consulting fees		85,698			92,445			9,426,525
Impairment of goodwill		—			—			13,371,776
Impairment of intangible assets		—			—			179,788
Occupancy and equipment		44,496			22,543			576,900
Travel and entertainment		56,456			17,810			398,948
Write off lease		—			—			34,243
Other selling, general and administrative expenses		107,173			34,664			568,791
TOTAL OPERATING EXPENSES		577,744			432,288			54,848,882

LOSS FROM OPERATIONS		(577,744	)		(310,564	)		(54,422,658	)

OTHER INCOME AND (EXPENSE):
Derivative gain (loss)		2,168,616			(6,372,367	)		4,776,479
Gain on legal settlement		17,875			—			36,764
Interest income		1,051			1,020			8,342
Mandatory prepayment penalty		—			—			(420,000	)
Other income (expense)		—			—			(196,176	)
Gain (loss) on conversion of financial instruments		—			137,041			1,544,574
Interest expense		(388,616	)		(180,935	)		(4,109,606	)
TOTAL OTHER INCOME (EXPENSE)		1,798,926			(6,415,241	)		1,640,377

NET GAIN (LOSS)	$	1,221,182		$	(6,725,805	)	$	(52,782,281	)

Deemed dividend	$	(12,071	)	$	—		$	(29,706	)

NET GAIN (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS	$	1,209,111		$	(6,725,805	)	$	(52,811,987	)
NET GAIN (LOSS) PER SHARE, BASIC	$	0.01		$	(0.09	)

NET GAIN PER SHARE, FULLY DILUTED (122,023,763 AS OF MARCH 31, 2008) See Note 1.	$	0.01		$	—
Weighted average number of shares outstanding		115,458,242			73,118,117

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

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENT OF STOCKHOLDERS' DEFICIT

FROM INCEPTION TO MARCH 31, 2008

	Common Stock						Preferred Stock						Additional Paid In Capital			Deferred Compensation Expense			Retained Earnings			Equity
	Shares			Par Value			Shares			Par Value			Additional Paid In Capital			Deferred Compensation Expense			Retained Earnings			Equity
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	)
Issued shares on July 23, 2004 for services		125,000			125									284,875			(285,000	)
Issued shares on November 10, 2004 for cash		242,167			242									314,575									314,817
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	)
Balances, December 31, 2004		65,345,121		$	65,345			—		$	—		$	58,884,351		$	(18,301,588	)	$	(30,298,814	)	$	10,349,294
Cancelled shares from July 1, 2004 (returned from employee)		(140,000	)		(140	)								(426,860	)								(427,000	)
Issued shares on September 14, 2005 for compensation		140,000			140									41,860									42,000
Issued shares on October 31, 2005 for services		300,000			300									65,700									66,000
Issued shares on November 11, 2005 for services		250,000			250									44,750									45,000
Issued shares on December 6, 2005 for services		300,000			300									44,700									45,000
Cancelled shares on December 31, 2005 (returned from employee)		(975,000	)		(975	)								(876,500	)								(877,475	)
Cancelled shares on December 31, 2005 (returned from employee)		(5,000	)		(5	)								(4,495	)								(4,500	)
Amortize deferred comp expense																	13,222,517						13,222,517
Net loss for year																				(27,134,865	)		(27,134,865	)
Balances, December 31, 2005 (restated)		65,215,121		$	65,215			—		$	—		$	57,773,506		$	(5,079,071	)	$	(57,433,679	)	$	(4,674,029	)

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)

FROM INCEPTION TO MARCH 31, 2008

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

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENT OF STOCKHOLDERS' DEFICIT (CONTINUED)

FROM INCEPTION TO MARCH 31, 2008

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

Issued shares on January 7, 2008 for services		2,000		2						248								250
Issued shares on January 15, 2008 for cash		231,250		231						18,269								18,500
Issued shares on January 23, 2008 for cash		105,000		105						8,295								8,400
Issued shares on January 25, 2008 for cash		287,500		288						22,712								23,000
Issued shares on January 28, 2008 for cash		2,255,125		2,255						178,155								180,410
Issued shares on January 29, 2008 for cash		886,250		886						70,014								70,900
Issued shares on February 5, 2008 for cash		1,000,000		1,000						99,000								100,000
Issued shares on February 7, 2008 for cash		37,500		38						2,962								3,000
Issued shares on February 8, 2008 for cash		200,000		200						19,800								20,000
Issued shares on February 8, 2008 for conversion		5,706,667		5,707						336,693								342,400
Issued shares on February 12, 2008 for cash		415,250		415						40,285								40,700
Issued shares on February 13, 2008 for cash		100,000		100						9,900								10,000
Issued shares on February 15, 2008 for cash		50,000		50						4,950								5,000
Issued shares on March 17, 2008 for cash		100,000		100						9,900								10,000
Issued shares on March 25, 2008 for lawsuit settlement		325,000		325						30,550								30,875
Deemed dividend										12,071					(12,071	)
Net gain for year															1,221,182			1,221,182
Balances, March 31, 2008		120,054,178	$	120,055		—	$	—	$	61,054,908		$	—	$	(67,874,460	)	$	(6,699,497	)

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

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

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

(unaudited)

	March 31, 2008			March 31, 2007 Restated			Period from May 18, 2004 through March 31, 2008
Operating activities:
Net gain (loss)	$	1,221,182		$	(6,725,805	)	$	(52,782,281	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on conversion of financial instruments		—			(137,041	)		(1,544,574	)
Gain on legal settlement		(17,875	)		—			(17,875	)
Impairment of goodwill		—			—			13,371,776
Impairment of intangible assets		—			—			179,788
Loss on previously capitalized lease		—			—			34,243
Amortization of debt discounts and deferred finance costs		327,200			192,065			2,853,942
Change in derivative liability, net of bifurcation		(2,168,616	)		6,372,367			(3,622,578	)
Stock based compensation		250			55,000			32,656,295
Stock issued for settlement of lawsuit		30,875			—			30,875
Depreciation expense		548			6,888			99,508
Other non cash items		—			—			(34,933	)
Changes in operating assets and liabilities:
Accounts receivable		—			(89,224	)		—
Prepaid expenses and other current assets		2,793			550			172,730
Accounts payable and other liabilities		4,577			10,043			2,601,510
Net cash used in operating activities		(599,066	)		(315,157	)		(5,983,699	)

Investing Activities:

Capital expenditures, net		(2,798	)		—			(141,800	)

Increase in other assets		—			—			(179,786	)

Net cash used in investing activities		(2,798	)		—			(321,586	)

Financing Activities:

Proceeds from borrowings under notes payable, net		—			409,000			3,028,430
Proceeds from sale of common stock		489,910			—			2,106,677

Principal payments on long term debt		—			—			(32,478	)
Borrowing on debt related party		—			94,862			30,376
Principal payments on notes payable related party		—			(11,500	)		(17,300	)
Proceeds from CD, warrants and rights net of issuance cost		—			—			1,200,709
Net cash provided by financing activities		489,910			492,362			6,316,414

Net change in cash and cash equivalents		(111,954	)		177,205			11,129

Cash and cash equivalents, beginning of period		125,679			40,602			2,596
Cash and cash equivalents, end of period	$	13,725		$	217,807		$	13,725

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

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

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

(unaudited)

	2008		2007 Restated		Period from May 18, 2004 through March 31, 2008
Supplemental disclosures of cash flow information
Cash paid for:
Interest	$	—	$	—	$	59,840
Income taxes	$	—	$	—	$	—

Non-cash transactions:
Restatement of notes payable to notes payable related parties		—		1,201,346		1,393,346
Exchange of convertible notes for stock		342,400		357,041		1,902,204
Stock Issued for Settlement of Payables		—		—		6,697
Deemed dividend		12,071		—		29,706
Exchange of convertible preferred stock for common stock 3,000,324 shares		—		—		3,380,975
Stock held in escrow		120,000		—		120,000

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

POWER3 MEDICAL PRODUCTS, INC.

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

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

Restatements

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

Earnings Per Share

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

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

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

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

Exercise Price		Number Of Shares Issuable		Proceeds
$	.06		2,333,333	$	140,000
$	.08		12,845,829		1,027,666
$	.09		833,333		75,000
$	.10		13,557,833		1,355,784
			29,570,328	$	2,598,450

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

NOTE 2. GOING CONCERN

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

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

NOTE 3. FINANCING ARRANGEMENTS

Securities Purchase Agreement—Convertible Debentures

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

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

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

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

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

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

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

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

Deemed Dividend

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

Convertible Debentures, Warrants and Additional Investment Rights:

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

Convertible Debentures:	As of March 31, 2008			As of December 31. 2007
Securities Purchase Agreement Holders	$	515,010		$	515,010
Discount		—			(86,844	)

Note 3:
Chosid		—			200,000
Wood		—			120,000
Seyburn		100,000			100,000
Discount on Note 3		—			(210,417	)

Note 4:
NeoGenomics		200,000			200,000
Discount on Note 4		(185,688	)		(192,559	)
Totals	$	629,322		$	645,190

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

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

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

Other Notes, Preferred Stock and Warrants:

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

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

Notes Payable in Default and to Related Parties

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

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

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

	As of March 31, 2008		As of December 31. 2007
Notes payable in default:
Cordillera I	$	251,000	$	251,000
Cordillera II	$	200,000	$	200,000
Totals	$	451,000	$	451,000

Notes payable:
Kazanowski	$	50,000	$	50,000
	$	50,000	$	50,000

Notes payable - related parties:
Rash	$	924,456	$	924,456
Goldknopf	$	975,360	$	975,360
Rosinski	$	35,000	$	35,000
Totals	$	1,934,816	$	1,934,816

NOTE 4. OTHER SIGNIFICANT EQUITY TRANSACTIONS

Deemed distribution:

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

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

Deemed dividend:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

None.

NOTE 5. COMMITMENTS AND CONTINGENCES

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

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

NOTE 6. SUBSEQUENT EVENTS

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

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

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

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

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

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

NOTE 7. RESTATEMENT

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

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

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

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

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

Following is a summary of the unaudited restatement adjustments:

As of March 31, 2007

SUMMARY BALANCE SHEET

(unaudited)

	As Reported (unaudited)			Adjustment				As Restated (unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents	$	217,808		$	—			$	217,808
Accounts Receivable		123,335			(34,111	)	(a)		89,224
TOTAL CURRENT ASSETS		341,143			(34,111	)			307,032

OTHER ASSETS
Deferred Finance Costs, net of amortization		233,817			(195	)	(b)		233,622
Intellectual Property		179,786			2				179,788
Goodwill		11,583,431			(11,583,431	)	(c)		—
Stock Held In Escrow		120,000			—				120,000
Furniture, Fixtures and Equipment, net of accumulated depreciation		9,485			—				9,485
Deposits		5,350			—				5,350
TOTAL ASSETS	$	12,473,012		$	(11,617,735	)		$	855,277

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts Payable	$	917,724		$	30,157		(d)	$	947,881
Notes Payable – in default, net of amortization		672,527			(160,705	)	(e)		511,822
Notes Payable to Related Parties		1,511,708			—				1,511,708
Liquidated Damages on Convertible Debt		21,000			3,000		(b)		24,000
Convertible Debentures-in default, net of amortization		394,996			27,750		(b)		422,746
Other Current Liabilities		1,343,022			(317,671	)	(f)		1,025,351
Derivative Liabilities		5,391,023			3,120,471		(b)		8,511,494
TOTAL LIABILITIES		10,252,000			2,703,002				12,955,002

STOCKHOLDERS’ DEFICIT
Preferred Stock		—			—				—
Common Stock		76,970			5		(g)		76,975
Additional Paid-In Capital		62,402,938			(4,004,185	)	(g)		58,398,753
Deferred Compensation Expense		(2,986,053	)		2,986,053		(h)		—
Deficit Accumulated Before Entering Development Stage		(11,681,500	)		—				(11,681,500	)
Deficit Accumulated During Development Stage		(45,591,343	)		(13,302,610	)	(i)		(58,893,953	)
TOTAL STOCKHOLDERS’ DEFICIT		2,221,012			(14,320,737	)			(12,099,725	)

TOTAL LIABILITIES AND STOCKHOLDERS’
DEFICIT	$	12,473,012		$	(11,617,735	)		$	855,277

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

For the three months ended March 31, 2007

SUMMARY STATEMENT OF OPERATIONS

	As Reported			Adjustments				As Restated
REVENUES:
Sales	$	121,724		$	—			$	121,724
TOTAL REVENUE		121,724			—				121,724

OPERATING EXPENSES:
Stock based compensation		186,387			(186,387	)	(a)		—
Employee compensation and benefits		264,826			—				264,826
Professional and consulting fees		204,445			(112,000	)	(b)		92,445
Occupancy and equipment		32,972			(10,429	)	(c)		22,543
Travel and entertainment		17,810			—				17,810
Other selling, general and administrative expenses		49,072			(14,408	)	(d)		34,664
TOTAL OPERATING EXPENSES		755,512			(323,224	)			432,288

LOSS FROM OPERATIONS		(633,788	)		323,224				(310,564	)

OTHER INCOME AND (EXPENSE):
Derivative gain(loss)		(2,879,169	)		(3,493,198	)	(e)		(6,372,367	)
Interest income		1,020			—				1,020
Gain(loss) on conversion of financial instruments		—			137,041		(e)		137,041
Interest expense		(456,498	)		275,563		(f)		(180,935	)
TOTAL OTHER INCOME (EXPENSE)		(3,334,647	)		(3,080,564	)			(6,415,241	)

NET LOSS	$	(3,968,435	)	$	(2,757,370	)		$	(6,725,805	)

NET LOSS PER SHARE BASIC AND DILUTED	$	(0.05	)	$	(0.04	)		$	(0.09	)

Weighted average number of shares outstanding		73,014,288			103,829				73,118,117

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

Item 2. Management’s Discussion and Analysis

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

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

Series B Preferred Stock

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

SCIENTIFIC DEVELOPMENTS

CLIA Certification

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

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

PRODUCT CANDIDATES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How BC-SeraPro^™ Works

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

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

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

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

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

How NuroPro^®Works

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

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

NEURODEGENERATIVE RESEARCH/CLINICAL VALIDATION STUDIES

University of Thessaly School of Medicine / Dr. Katerina Markopoulou

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

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

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

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

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

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

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

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

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

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

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

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

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

Publications

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

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

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

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

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

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

Intellectual Property

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

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

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

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

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

	o	Early vs. more advanced neurodegenerative diseases

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

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

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

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

Qty			Type of Patent
1			Breast Cancer
8			Neurodegenerative
1			Drug Resistance

Liquidity and Capital Resources

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

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

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

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

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

Plan of Operation and Cash Requirements

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

Absent a source of revenues, the Company will require funding in order to carry out its business plan until such time as it is able to generate sustained revenues. The Company’s current cash requirements are approximately $180,000 per month and the Company anticipates that it will require approximately $2,150,000 for the twelve months ended December 31, 2008, to continue its development activities, undertake and perform clinical validation studies, continue its marketing efforts and maintain its administrative infrastructure, as follows:

Estimated Expenditures Required

During Next Twelve Months

General and administrative	$	1,800,000
Patent filings and intellectual property		100,000
Capital expenditures and research agreements		250,000
Total	$	2,150,000

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

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

Deemed Dividend

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

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

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

Off-Balance Sheet Arrangements

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

Accounting for Derivative Instruments

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

Lattice Valuation Model

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

Black−Scholes Valuation Model

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

None.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

Management’s Report on Internal Control Over Financial Reporting

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

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

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

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

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

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

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

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

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

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

Changes in Internal Control Over Financial Reporting

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

Cautionary Statement Regarding Forward-Looking Statements

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

The Company’s history of operating losses;

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

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

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

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

Development by competitors of new or competitive products or services;

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

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

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

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

PART II

Item 1. Legal Proceedings

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

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

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

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

Item 1A. Risk Factors

None.

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

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

Item 3. Defaults Upon Senior Securities

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

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

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.		INDEX
31.1*		Certification of Power3 Medical Products, Inc. Chief Executive Officer, Steven B. Rash, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Power3 Medical Products, Inc. Chief Accounting Officer, Marion J. McCormick, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Power3 Medical Products, Inc. Chief Executive Officer, Steven B. Rash, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Power3 Medical Products, Inc. Chief Accounting Officer, Marion J. McCormick, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

Signature	Title	Date

/s/ Steven B. Rash	Chairman and	May 15, 2008
Steven B. Rash	Chief Executive Officer

/s/ Marion J. McCormick	Chief Accounting Officer	May 15, 2008
Marion J. McCormick