U.S.
SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549








Annual
Report under Section 13 or 15(d) of the Securities Exchange Act of
1934


for the
fiscal year ended December 31, 2007





0-49764


(Commission
File No.)





SINOFRESH
HEALTHCARE, INC.


(Name of
Small Business Issuer in Its Charter)





FLORIDA
            
            65
      – 1082270(State
      or other jurisdiction of incorporation or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)





787COMMERCE
      DRIVE
              VENICE,
      FLORIDA
            
            34292(Address
      of principal executive offices)
            
            (Zip
      Code)





Issuer's
Telephone Number, including area code: (941) 488-6464


Securities
registered under Section 12(b)


of the
Securities Exchange Act of 1934:


NONE





Securities
registered under Section 12(g)


of the
Securities Exchange Act of 1934:


COMMON
STOCK, NO PAR VALUE





Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.  Yes x No o





Check if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB.  o





Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b2
of the Exchange Act).  Yes  o No x




Issuer's
revenues for its most recent fiscal year were $343,789.





The
aggregate market value of the common stock held by non-affiliates computed by
reference to the last sale price of such stock as of May 13, 2008 was
approximately $912,000.





As of May
13, 2008, there were 25,641,110 shares of the issuer's common stock
outstanding.


-1-








Table
of Contents




PagePART
      IITEM
      1.
              DESCRIPTION OF BUSINESS
              4ITEM
      2.
              DESCRIPTION OF PROPERTY
              8ITEM
      3.
              LEGAL PROCEEDINGS
              8ITEM
      4.
              SUBMISSION OF MATTERS TO A VOTE BY SECURITY
      HOLDERS
              8PART
      IIITEM
      5.
              MARKET FOR COMMON EQUITY AND  RELATED STOCKHOLDER
      MATTERS
              9ITEM
      6.
              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS
              10ITEM
      7.
              FINANCIAL STATEMENTS
              19ITEM
      8.
              CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE
              19ITEM
      8A.
              CONTROLS AND PROCEDURES
              19ITEM
      8B.
              OTHER INFORMATION
              20PART
      IIIITEM
      9.
              DIRECTORS AND EXECUTIVE OFFICERS
              21ITEM
      10.
              EXECUTIVE COMPENSATION
              23ITEM
      11.
              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
      AND RELATED STOCKHOLDER MATTERS
              27ITEM
      12.
              CERTAIN RELATIONSHIPS AND RELATED
    TRANSACTIONS
              28ITEM
      13.
              EXHIBITS AND REPORTS ON FORM 8-K
              29ITEM
      14.
              PRINCIPAL ACCOUNTANT FEES AND SERVICES
              29


Unless
otherwise indicated in this Form 10-KSB, "SinoFresh," the "Company" and similar
terms refer to SinoFresh HealthCare, Inc. and its
subsidiary.  "SinoFreshTM" is a registered trademark of SinoFresh
HealthCare, Inc., and the SinoFresh name and logo are trademarks of the
Company.


-2-




DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS





This
annual report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. When used in this annual report, the words
"may," "will," "expect," "anticipate," "continue," "estimate," "project" or
"intend" and similar expressions identify forward-looking statements regarding
events, conditions and financial trends in connection with the Company's future
plan of operations, business strategy, operating results and financial position.
Discussions containing such forward-looking statements may be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this report.  Current
shareholders and prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance.  Such
forward-looking statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and actual
results for future periods could differ materially from those discussed in this
annual report, depending on a variety of important factors, among which are the
Company's ability to implement its business strategy, its ability to compete
with major established companies, the outcome of litigation, its ability to
attract and retain qualified personnel, its ability to obtain financing, its
ability to continue as a going concern, and other risks some of which are
described under "Risk Factors" and elsewhere in this report and which may also
be described from time to time in future filings with the Securities and
Exchange Commission. Forward-looking statements contained in this report speak
only as of the date of this report.  Future events and actual results
could differ materially from the forward-looking statements.  You
should read this report completely and with the understanding that actual future
results may be materially different from what the Company
expects.  The Company will not update forward-looking statements even
though its situation may change in the future.




-3-


PART
I






ITEM
1.                      DESCRIPTION
OF BUSINESS




Company
History




SinoFresh
HealthCare, Inc., a Florida corporation (“Sinofresh”, “we” “our” or the
“Company“) was incorporated on January 31, 2001 under the name
e-Book.  E-Book operated initially as a division of e-Miracle, Inc.,
which was incorporated in July 1999.  Due to undercapitalization and
credit problems, e-Miracle filed a Chapter 11 Bankruptcy proceeding in the
United States Bankruptcy Court.  As part of the Chapter 11 Plan of
Reorganization of e-Miracle, e-Book was re-incorporated as a Florida corporation
on January 31, 2001.  We acquired SinoFresh Healthcare, Inc., a
Delaware corporation on September 8, 2003 through a merger with our subsidiary
SinoFresh Acquisition Corp., a Florida corporation, whereby SinoFresh
Healthcare, Inc. became our wholly owned subsidiary.  As a result of
the merger, we changed our name to SinoFresh Healthcare,
Inc.  Subsequent to the merger, SinoFresh Healthcare, Inc., changed
its name to SinoFresh Corporation and remains the operating subsidiary of the
Company.




The
Company's corporate headquarters are located at 767 Commerce Drive, Suite 6,
Venice, Florida 34223.  Our website address is http://www.sinofresh.com.




The
Company and its Business




OVERVIEW




We are a
pharmaceutical company engaged in the research, development and marketing of
novel therapies to treat inflammatory and infectious diseases and disorders of
the upper respiratory system.  Our principal product is SinoFreshTM
Nasal & Sinus Care, which we market through national drug and food chain
stores, including CVS, Osco Drug, Publix Super Markets, Rite Aid, Sav-on Drugs,
and Duane Reade.  We are seeking to expand our retail distribution
network to include the remainder of the chain stores we are already servicing,
other national food and drug chain stores and independent
pharmacies.




Charles
Fust, the inventor of the SinoFreshTM products, transferred to the Company his
three U.S. patents issued by the U.S. Patent & Trademark Office for the
Company's proprietary composition for freshening the nostrils and sinus
cavities.  He has also transferred to the Company various foreign
patents and patent applications relating to that proprietary
composition.  The Company also has a patent pending on a new
proprietary over-the-counter (“OTC”) product for the treatment of
otitis.  Currently, the Company has under development several
promising new products for upper respiratory disorders and related
diseases.




Prior to
June 2005, the Company's principal product was SinoFreshTM Nasal & Sinus
Care, which was originally marketed under the oral antiseptic monograph system
of the U.S. Food and Drug Administration (FDA) applicable to certain OTC
drugs.  On April 21, 2005, the FDA issued a letter to the Company
indicating that it could no longer market its nasal spray under this monograph
system.




The
Company immediately reformulated its nasal spray as a health and beauty aid
product, emphasizing the nasal spray's many non-therapeutic cleansing and
moisturizing benefits.  The product’s name was changed to SinoFreshTM
Nasal Mist.   In mid-2006, the nasal product was reformulated a
third time based on homeopathic ingredients designed to provide an antiseptic
solution targeting relief of sinus pain, pressure and
inflammation.  The product was then renamed back to SinoFreshTM Nasal
& Sinus Care.




The
Company intends to continue the New Drug Application (NDA) process for a
therapeutic nasal spray, requesting the FDA to approve a nasal spray indicated
for treatment of and/or reduction in the symptoms of certain
diseases.  In August 2005, the Company held a meeting with the FDA to
discuss an Investigational New Drug Application (INDA) for a nasal spray – a
prerequisite to the conduct of the clinical investigations necessary to support
a NDA.  Assuming that the safety and efficacy of the nasal spray is
demonstrated in these clinical studies, the Company will seek FDA approval of
the nasal spray under an NDA.  Conducting the clinical trials and
obtaining FDA approval for any pharmaceutical product requires substantial
resources (including a substantial amount of additional capital) and may take
several years.  There is no assurance that FDA will approve an NDA for
the Company's therapeutic nasal spray or any other Company product or that the
Company can obtain sufficient funding to underwrite the cost of obtaining FDA
approval.


-4-




In April
2005 we entered into an agreement with the Lovelace Respiratory Research
Institute (LRRI) to conduct mammalian-based studies of the anti-infective
properties of SinoFreshTM Nasal & Sinus Care. The results of these studies
are very encouraging and will lead into more advanced studies as funding becomes
available to the Company.  The new agreement was prompted by
preliminary in-vitro study results demonstrating strong evidence that this
product can reduce the infectivity of common respiratory viruses including
adenovirus and respiratory syncytial virus (RSV). Our original collaboration
with LRRI, initiated in May of 2004, was designed to assess the virucidal
properties of SinoFreshTM. Viruses are widely recognized as the most frequent
cause of acute respiratory infections and are a leading cause of child mortality
worldwide.




PRODUCTS




Non-Ethical
Pharmaceutical Products




SinoFreshTM
Nasal and Sinus Care is the Company’s principal product is formulated to kill
mold, bacteria and certain viruses that reside in the nose and sinus passages,
and to remove dust, pollen and other irritants.  This product is a
nasal spray which contains two active homeopathic ingredients.  In
addition, this formulation is designed to relieve sinus pain, pressure and
inflammation.     SinoFreshTM Nasal & Sinus Care
generally retails between $13.49 and $15.99 before rebates for a 1-fluid ounce
bottle (approximately a 30-day supply).




SinoFreshTM
Daily Throat Spray is an OTC antiseptic product formulated to kill bacteria and
other pathogens colonizing in the mouth and back of the throat.  The
key ingredient is cetylpyridinium chloride (CPC), a surface-active antiseptic.
CPC is a common ingredient in OTC oral hygiene products.  Daily use is
encouraged in order to eliminate pathogens that can lead to infection and
illness and prevent them from re-colonizing in the throat.  The
product may also be used at the first sign of a sore throat in order to thwart
further spread of an infection. Like our nasal spray, Daily Throat Spray is
recommended especially for people who are frequently in crowded, poorly
ventilated environments such as airplanes, schools and offices where airborne
organisms easily spread from one person to another. The Daily Throat Spray
formula is augmented with xylitol, a natural antibacterial ingredient, and mint
flavors that cool and freshen the breath while it protects the oral-throat
cavity.  SinoFreshTM Daily Throat Spray comes in a 2-fluid ounce
bottle.  When used twice daily as directed, one bottle lasts
approximately 3-4 weeks. The suggested retail price per bottle is
$9.99.  SinoFreshTM Daily Throat Spray was removed from the market in
late 2006 because of  the Company’s inability to provide proper
marketing support.




Ethical
Pharmaceutical Products




The
Company has plans to continue development of a nasal spray product
(preliminarily called "Rhinox") for the prevention of Antibiotic Resistant Staph
(MRSA).  The Company is seeking funding in order to continue with
clinical studies.Assuming the efficacy of
the Company's clinical studies, management would seek FDA approval of the new
product as an NDA.  The Company may develop new drugs in the
prescription drug category.  Obtaining FDA regulatory approval for
these pharmaceutical products will require substantial resources and may take
several years.  The length of this process will depend upon the method
of administration, pharmaceutical complexity, novelty of the product, the nature
of the disease or ailment, and the indications to be treated.  If the
Company is not granted regulatory approval for these new products in a timely
manner, or if the patents sought are not granted, or if the patents granted are
subsequently challenged, these events could have a material effect on the
business and financial condition of the Company.




RESEARCH
AND DEVELOPMENT




Research
and development activities are identified and planned by in-house staff
members.  Because of limited personnel and facility resources, the
Company relies primarily on external sources for conducting its research and
development activities.  Research and development costs for the years
ended December 31, 2007 and 2006 were approximately $0 and $1,000,
respectively.  The Company has a pipeline of several new products
based on its current product platform.  Assuming that the Company can
obtain sufficient financing or other support, the Company plans to establish the
protocols and file an INDA with the FDA geared toward the use of antiseptic
therapies in the upper respiratory system and to undertake the clinical studies
necessary for the FDA approval of a nasal spray product for the prescription
drug market.   Additionally, extensive clinical and developmental
testing is anticipated in connection with the Company's development of other new
ethical drug products related to the treatment of various upper respiratory
disorders and related diseases.  Many of these new products are
expected to lead to applications for new patents in the United States as well as
abroad.  Additionally, the Company is pursuing partnering and
collaborative arrangements with several third parties in order to further
enhance the Company's research and development activity.


-5-




REGULATORY
MATTERS




The
Company's business is subject to federal and state laws and regulations adopted
for the health and safety of consumers and users of its products.  The
Company's  Nasal & Sinus Care & Daily Throat Spray products
are subject to regulation by various federal, state and foreign agencies, and
the Company is subject to regulatory and legislative changes that can affect the
economics of both the Company and the industry by requiring changes in operating
practices and protocols or by influencing the demand for, and the costs of,
production and distribution of SinoFreshTM products.  Management
believes that the Company is in compliance with all applicable laws, regulations
and standards currently in effect, including the Food, Drug and Cosmetics Act of
1938 and amendments thereto. However, any future changes in such regulations
could result in a cost of compliance that may have a material adverse effect on
either the Company's financial position or competitive position.




The costs
and length of time required to develop and obtain regulatory (and patent)
approval for future products and extensions of current products are subject to
several uncertainties and risks, among them, legal, administrative and
regulatory risks, inflation, market conditions, consumer demand, and the
Company's ability to protect its patents against infringement and its products
against duplication by others.




FDA
CLASSIFICATION OF DRUG PRODUCTS




Products
that are labeled and marketed as drug products are approved and regulated by the
FDA.  Implied in this registration is the adherence to very strict
quality standards known as current Good Manufacturing Practices, which govern
the manufacture of these products.




Entry
into this category of drugs is usually accomplished by one of two
routes.  The first and least burdensome process is through the OTC
drug monograph system, which is based on a pharmacology/physiology category.
This allows the Company to make only claims related to the pharmacology of the
active ingredients.  Currently, SinoFreshTM Daily Throat Spray is
encompassed in the monograph system which provides regulatory cover for
marketing the product.




The next
and more arduous process is the NDA system, which is based on the
treatment/prevention of a disease or condition.  This allows the
Company to make treatment or prevention claims related to a disease or
condition.  Also required for this process is the successful
completion of two controlled clinical studies.




SinoFreshTM
Nasal & Sinus Care is being marketed as a Homeopathic Drug product. This
approach allows for statements regarding the proper use of the product based on
the active ingredients.  This enables the Company to emphasize not
only that it is an antiseptic nasal product but also that it is specifically
designed to address particular sinusitis conditions.




PATENTS
AND TRADEMARKS




The
Company currently owns three U.S. patents under which it has the exclusive right
to manufacture, market and distribute in the United States a proprietary
composition for freshening the nostrils and sinus cavities.  United
States Patent No. 5,785,988 (issued July 28, 1998) pertains to a composition for
freshening the nostrils and sinus cavities; Patent No. 6,083,525 (issued July 4,
2000) pertains to a composition for freshening sinus cavities and includes a
carrier for a masking agent that conceals and eliminates odors emanating from
the sinus cavities, and also includes an anti-septic or anti-infective
constituent; and Patent No. 6,344,210 (issued February 5, 2002) is a
continuation-in-part patent related to the freshening of the sinus
cavities.  All three patents were issued to Charles Fust, the
principal of SinoFresh Laboratories, Inc., who subsequently assigned them to the
Company. All of the assignments have been recorded and filed with the United
States Patent and Trademark Office.




In July,
2005, a utility patent filing, Serial Number 11/187,575 was submitted entitled,
Methods And Compositions For
Inhibiting, Destroying, And/or, Inactivating Viruses (Antiseptics). This
application claims priority to co-pending U.S. provisional application with the
same title having Serial Number 60/590/781, which is entirely incorporated in
the later filing. This invention represents a collaboration between Charles
Fust, The Lovelace Respiratory Institute (LRRI), Kevin Harrod and Adriana Kajon.
The embodiment of this patent has been filed on a timely basis in numerous
foreign countries. Foreign filing status, by country, is available upon
request.  This patent is currently pending.


-6-




The
Company has patents or patent applications pending for the Company's proprietary
composition in Canada and various other foreign countries located in Europe,
Eastern Europe, Asia, Latin America and the Middle East.  The strength
of the Company's patent position is important to the long-term success of the
Company.  There can be no assurance that these patents and the patent
applications made in the United States and abroad will effectively protect the
Company's products from infringement or from duplication by others.




The
Company currently has trademark rights and/or trademark registrations on the
"SINO-FRESH" and "SinoFresh" names in the United States and several foreign
countries.  The Company is currently in the process of registering
these trademarks in 61countries that are parties to the Madrid
Protocol.




PRODUCT
DISTRIBUTION AND CUSTOMERS




The
Company's products are marketed and sold through various brokers, distributors
and independent sales representatives.  The Company pays commissions
based on sales volumes.




The
Company's products are retailed through numerous food and chain drug stores
throughout the United States, including Osco Drug, Publix Super Markets, Rite
Aid, Sav-on Drugs, and Duane Reade.  The Company plans to continue
expanding its retail distribution network to other food and drug chain stores
and independent pharmacies as well as the chain stores the Company is currently
servicing.  In addition, the Company is exploring the possibilities of
developing alliances with other entities for the purpose of manufacturing,
distributing, marketing and regulatory compliance of its products in certain
foreign countries.




The
Company's primary customers in 2007 were, CVS, Publix and Essex which accounted
for more than 67% of the Company's annual gross sales volume in
2007.  The Company had 4 customers that accounted for over 72% of
gross accounts receivable at December 31, 2007.  The loss of any one
of these customers could adversely impact the Company's future
revenue.




COMPETITION




There are
a variety of competitors in both the OTC and prescription “Rx” marketplace for
SinoFreshTM Nasal & Sinus Care and Daily Throat Spray.  Generally,
our competitors can be segmented into three types:




·            large,
well-resourced pharmaceutical companies with established prescription brands
such as GlaxoSmithkline (Flonase) and Pfizer (Zithromax);


·           
small to mid-size companies with an OTC focus such as Matrixx Initiatives (Zicam
brand), BF Ascher (Ayr brand), Prestige Brands (Chloraseptic), and Combe, Inc.
(Cepacol brand); and


·            large
pharmaceutical companies with an OTC focus such as Schering-Plough (Afrin &
Claritin), Bristol Myers (4-Way Nasal Spray), and Wyeth (Alavert).





Our nasal
spray also competes in the OTC and Rx markets.  Competitive therapies
for nasal-sinus ailments primarily provide symptomatic relief without addressing
underlying causes of the condition.  Additionally, nasal-sinus
symptoms can have several origins (e.g. bacterial infection, viral infection,
allergens, mold, other airborne contaminants) but very similar outward signs
which has led to misdiagnosis by the medical community as well as confusion
among self-medicating consumers.  The result of these dynamics is a
variety of nasal therapies competing for both the acute and chronic sinus
sufferer.  Examples of products in the OTC market that compete with
our nasal spray are decongestant nasal sprays (Afrin, Dristan, 4-Way), saline
nasal rinses (Ocean, Ayr), homeopathic remedies (Zicam), antihistamines
(Claritin, Alavert), and decongestant tablets.





In the Rx
market, our nasal spray primarily competes with nasal corticosteroids and
antibiotics/antibacterials manufactured and marketed by large pharmaceutical
companies.  Nasal corticosteroids are formulated to shrink sinus
inflammation and includes brands such as Flonase, Nasonex, and
RhinocortAQ.  Antibiotics/antibacterials are intended to eliminate
bacterial organisms and include brands such as Zithromax, Augmentin, and
Bactroban.





At first
glance the competitive landscape appears crowded, in particular for our nasal
spray. However, we believe that if properly marketed, the versatility of our
products should enable us to effectively gain share across many product
segments.  SinoFreshTM Nasal & Sinus Care is an effective nasal
cleanser and moisturizer in competition with saline rinses, and rinses away
allergens, which can help eliminate the need for
antihistamines.  SinoFresh also targets the underlying causes of
chronic sinus ailments, such as mold, bacteria and viruses.  Chronic
sufferers are most likely to use OTC products such as decongestant nasal sprays,
or to receive prescriptions from their physician for corticosteroids and
antibiotics.


-7-




EMPLOYEES




As of May
5, 2008, the Company had three (3) full-time employees.  None of the
Company's employees are subject to collective bargaining
agreements.  The Company periodically engages independent contractors
to fulfill certain sales, marketing and business development needs.




SUPPLIERS




The
Company has one qualified third-party (contract) manufacturer, who has multiple
manufacturing facilities.  The contract manufacturer operates FDA
approved manufacturing facilities to manufacture its products.  The
Company believes that this manufacturer is capable of sustaining and providing
its production needs.




Raw
materials used in the production of the SinoFreshTM Nasal & Sinus Care and
SinoFreshTM Daily Throat Spray are readily available from numerous
sources.  Should any vendor be unable or unwilling to supply the
Company's manufacturer with an ingredient, other sources have been
identified.  However, any situation where the vendor is not able to
supply the contract manufacturer with the ingredients may result in a temporary
delay in production until replacement supplies are obtained.




SALES AND
MARKETING




SinoFresh
is aided in its sales and marketing efforts through various individual broker
arrangements which provide the Company with sales support in retail accounts
throughout the United States and Canada.  The Company pays these
brokers a percentage of net revenue attributable to their
sales.  Management believes that these arrangements are cost-effective
and, as such, saves valuable resources that can otherwise be expended in its
marketing and product branding efforts




The
Company anticipates that drug stores will continue to provide a significant
portion of its revenue from product sales.  We are focusing our sales
efforts on the large chain drugstore companies.  Small local
pharmacies are generally serviced through large national independent
distributors.  There are more than 45,000 pharmacies in the United
States of which approximately 25,000 are independent.  Large grocery
store chains are also targeted as they account for more than 7,000
outlets.  The Company estimates that its products are available in
more than 20,000 retail outlets.




SinoFresh
is currently exploring the possibility of launching the SinoFreshTM brand in
markets in Europe, Asia and elsewhere around the world through licensing
arrangements with joint ventures or partnerships.




ITEM
2.                      DESCRIPTION
OF PROPERTY




The
Company's executive offices are located at 767 Commerce Drive, Suite 6, Venice,
Florida  34223.  This facility consists of approximately
2,500 square feet of office and warehouse space.  Base lease payments
are $2,268 per month, including sales tax.  The lease has a six-month
term with rights to renew.  The Company believes that the existing
facility is adequate to meet its current and anticipated needs.




ITEM
3.                      LEGAL
PROCEEDINGS




From time
to time, the Company is a party to other litigation or proceedings in connection
with its business, as either a plaintiff or defendant.  There are no
such pending legal proceedings to which the Company is a party that, in the
opinion of management, is likely to have a material adverse effect on the
Company's business, financial condition or results of operations.




ITEM
4.                      SUBMISSION
OF MATTERS TO A VOTE BY SECURITY HOLDERS




Not
applicable.


-8-




PART
II






ITEM
      5.
            MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS




Market
Information




Our
common stock is traded in the OTC market and is quoted on the OTC Electronic
Bulletin Board (“OTCBB”) under the symbol "SFSH.OB."  The following
table represents the range of the high and the low closing bid prices, as quoted
on the OTCBB, for each calendar quarter during the last two fiscal
years.  These quotations represent prices between dealers, may not
include retail mark-ups, markdowns or commissions, and may not necessarily
represent actual transactions.




Fiscal Quarter
      Ended
            
            Low
            
            
            HighDecember
      31, 2007
            
            $
            0.13
            
            
            $
            0.23September
      30, 2007
            
            $
            0.07
            
            
            $
            0.28June
      30, 2007
            
            $
            0.07
            
            
            $
            0.15March
      31, 2007
            
            $
            0.06
            
            
            $
            0.13December
      31, 2006
            
            $
            0.06
            
            
            $
            0.21September
      30, 2006
            
            $
            0.05
            
            
            $
            0.12June
      30, 2006
            
            $
            0.10
            
            
            $
            0.25March
      31, 2006
            
            $
            0.19
            
            
            $
            0.33







There are
approximately 719 shareholders of the Company's common stock as of May 14,
2008.




Dividends
and Dividend Policy




The
Company has not paid any cash dividends on its common or preferred stock during
the last two fiscal years, and it does not anticipate paying any cash dividends
in the foreseeable future.  The Company currently intends to retain
any future earnings for reinvestment in its business.  Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent on the Company's financial condition, results of
operations, capital requirements and other relevant factors.




Equity
Compensation Plan Information




The
following table sets forth information about the Company's equity compensation
plans, including the Company's 2002 Stock Option Plan (the Plan) and non-plan
equity compensation agreements as of December 31, 2007.




-9-


Number
      of Securities to be
      Issued Upon Exercise
      of Outstanding
      Options, Warrants
      and Rights
            
            
            
            
            Number
      of Securities Remaining
      Available For
      Future Issuance Under
      Equity Compensation
      PlansWeighted-Average
      Exercise
      Price of Outstanding
      Options, Warrants
      and RightsPlan
      CategoryEquity
      Compensation Plans Approved By Shareholders
            
            
            806,000
            (1)
            
            $
            0.44
            
            
            
            2,194,000
            (2)Equity
      Compensation Plans Not Approved by Shareholders
            
            
            7,580,899
            (3)
            
            $
            0.69
            
            
            
            N/ATotal
            
            
            8,386,899
            
            
            $
            0.67
            
            
            
            2,194,000


___________________


(1)
Represents shares subject to outstanding options under the Plan.


(2)
Represents shares available for option grants under the Plan.


(3)
Represents non-plan options and warrants.





Charles
Fust is employed as the Company's Chief Executive Officer and was subject to an
employment agreement dated December 1, 2002. The employment agreement provided,
among other things, that the Company and Mr. Fust enter into a stock option
agreement under which he would be provided anti-dilution rights so that Mr.
Fust's equity ownership of the Company, on a fully diluted basis, will be no
less than 15% so long as the total outstanding shares on a fully diluted basis
are less than 100,000,000.  This agreement expired on December 1, 2007
and has not been renewed or renegotiated as of December 31, 2007.




In 2007,
the Company did not grant any options to employees.





Equity
Compensation Plans Not Approved by Shareholders




In March
2007, a 5-year warrant for 100,000 shares was issued in connection with a
convertible note financing arrangement.  The warrant vested on the
date of grant.  In addition, 320,000 previously issued warrants
expired unconverted.




In
connection with a debenture financing in 2004, we issued to the debenture
holders and a placement agent warrants to purchase shares of common
stock.  The warrants, which expire on December 6, 2009, contain
anti-dilution provisions under which the number of shares issuable upon exercise
of the warrants and the exercise price will be adjusted upon the issuance of
common stock or securities convertible into or exercisable for common stock at
prices lower than the then effective exercise price of the warrants, the
occurrence of stock splits, stock distributions, and certain other
events.  As a result of dilutive issuances during 2007, outstanding
warrants connected with this financing increased from 4,626,348 warrants, as of
December 31, 2006 to 5,984,773 warrants, as of December 31, 2007 and
exercise prices decreased from $0.25 per share, as of December 31, 2006 to
$0.1933 per share, as of December 31, 2007.




ITEM
6.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




The
following information and analysis of SinoFresh's financial condition and
results of operations for the fiscal years ended December 31, 2007 and December
31, 2006 should be read in conjunction with the consolidated financial
statements of SinoFresh and the notes thereto appearing elsewhere in this
report.  Statements in this section and elsewhere in this report that
are not statements of historical or current fact constitute "forward-looking
statements."  Such statements are subject to certain risks and
uncertainties, which could cause results to differ materially from those
projected, including, but not limited to, those set forth below under "Risk
Factors" and elsewhere in this report.


-10-




Summary
Financial Information





The
following table provides selected consolidated financial and operating data for
the years ended December 31, 2007 and 2006.




Statement
of Operations Data





Year
      Ended
              December
      31,
              2007
            
            
            Year
      Ended
              December
      31,
              2006Revenue,
      net
            
            $
            331,288
            
            
            $
            1,083,576Gross
      Profit
            
            
            179,250
            
            
            
            546,371Loss
      From Operations
            
            
            (972,058
            )
            
            
            (1,583,592
            )Net
      Loss
            
            
            (1,233,880
            )
            
            
            (4,963,031
            )




Balance
Sheet Data





December
      312007
            
            
            2006Current
      Assets
            
            $
            121,304
            
            
            $
            233,796Current
      Liabilities
            
            
            4,211,710
            
            
            
            4,537,152Total
      Assets
            
            
            1,969,852
            
            
            
            2,346,062Long
      Term Debt
            
            
            --
            
            
            
            14,260Stockholders'
      (Deficit)
            
            
            (2,241,858
            )
            
            
            (2,205,350
            )




Results
of Operations




Revenues
for 2007 were $331,288 representing a decrease of $752,288 from revenues of
$1,083,576 in 2006.  The Company believes that the decrease was a
combination of the lack of marketing and advertising activities and the
elimination of incentive programs such as rebates that were offered in
2006.  In addition, the Company ceased distribution to Wal-Mart in the
third quarter of 2006 and distribution to Walgreens in the third quarter of
2007.





Gross
profit for 2007 was $179,250, compared to $546,371 for 2006 a decrease of
$367,121.  This decrease is directly related to the loss of
distribution at Wal-Mart and Walgreens over the past eighteen
months.





Salaries
and related expenses decreased $728,847, from $906,227 to $177,380, for the
years ended December 31, 2006 and 2007, respectively.  This decrease
is a result of reduced stock-based compensation related to employee options
cancelled due to resignations or terminations, plus reductions in personnel in
order to streamline its organization and to reduce administrative
costs.




Professional
fees decreased $125,492, from $519,983 to $394,491 for the years ended December
31, 2006 and 2007, respectively.  This decrease is a result of reduced
levels of litigation during 2007 compared to 2006, thus requiring less legal
expenditures, plus a focused reduction on all other professional fee activities,
including investor relations and accounting.




Other
general and administrative expenses decreased $66,277, from $383,913 to $317,636
for the years ended December 31, 2006 and 2007, respectively. This decrease was
primarily due to a reduction in certain insurance premiums and other
costs.


-11-





Marketing
and advertising expenses decreased $56,866, from $56,866 to $-0- for the years
ended December 31, 2006 and 2007, respectively.  The Company's
marketing and advertising activities were eliminated in 2007 due to the lack of
working capital.





Research
and development expenditures reflect the costs associated with basic research,
product development, clinical testing, regulatory compliance, product
enhancement and the development of new products related and unrelated to our
current product line. Research and development expenses were $1,172 and $0 for
the years ended December 31, 2006 and 2007.  The Company's research and
development activities were eliminated in 2007 due to the lack of working
capital.





Depreciation
and amortization totaled $261,802 and $261,801 for the years ended December 31,
2006 and 2007, respectively.  These expenses principally consist of
amortization of patent costs.





Total net
interest expense was $312,387 in 2007 compared to $584,387 in
2006.  The reduction in net interest expense relates the elimination
of the amortization of debt issuance and debt discount expenses in December
2006, offset by higher interest rate on the defaulted convertible debentures
during 2007.





Total
other income was $50,565 in 2007 compared to other expense of $385,651 in
2006.  The 2007 income relates to a deposit from a potential buyer
which was forfeited during the year.  The 2006 expense relates
primarily to a default penalty incurred when the Company failed to repay its
debenture debt due in December.





We
assessed the carrying value of recorded goodwill as of December 31, 2006 and
determined that the entire amount of recorded goodwill was
impaired.





As a
result of the factors discussed above, we had a net loss of $1,233,880 ($0.06
per share) compared to a net loss of $4,963,031 ($0.31 per share) for the years
ended December 31, 2007 and 2006, respectively.





As of
December 31, 2007, we had total assets of $1.97 million, liabilities of $4.21
million and stockholders' deficit of $2.24 million.  Working capital
deficit totaled approximately $4.09 million as of December 31,
2007.





Taxes




At
December 31, 2007, SinoFresh had a net operating loss carry forward (NOL) for
federal income tax purposes of approximately $13.1 million.  The NOL
expires at various dates through the year 2027.  Utilization of
SinoFresh's net operating loss may be limited in the event of significant
changes in ownership of Sinofresh under the regulations of the Internal Revenue
Code.




Inflation
and Currency Fluctuation




Inflation
and currency fluctuations have not previously had a material impact upon the
results of operations and are not expected to have a material impact in the near
future.




Cash
and Sources of Liquidity




The
Company historically has satisfied its operating cash requirements primarily
through cash flow from operations, from borrowings and equity financings. At
December 31, 2007, the Company had approximately $1,000 in cash and
approximately $13,000 in net accounts receivable.




On
June 9, 2006, the Company entered into an unsecured loan agreement with a
non-affiliated third party in the amount of $100,000.  According to
the loan provisions, the principal and interest totaling $120,000 was due on
July 31, 2006.  The Company is currently in default on the repayment
of this loan and intends to enter into negotiations with the note holder to
redefine the repayment provisions.


-12-




During
2007, the Company obtained financing in the total amount of $220,000 through the
sale of 18-month Unsecured 10% Convertible Debentures.  The Debentures
are convertible into common shares at prices ranging from $.04 to $.08 per
share.  There are 4,387,500 total shares issuable pursuant to these
Debentures. During 2007, $195,000 of these notes, plus related accrued
interest, has been converted into 4,075,000 common shares. Interest is
payable annually in arrears in cash.  The Company reserved the right
to require conversion of the Debentures and outstanding interest, at any time,
if the closing bid price of the Company’s stock equals or exceeds $0.10 for a
period of 20 consecutive trading days.  The Company also reserved the
right to redeem the Debentures, in whole, at any time or times, not less than
thirteen (13) months after execution of the Agreement, upon payment of one
hundred ten percent (110%) of the principal, due thereunder.




In May
2007 the Company entered into a Memorandum of Understanding (“MOU”) with
Beneficial Healthcare (“Investors”) that provided for an equity investment of up
to $5.0 million in exchange for 25,000,000 common shares of the
Company.  Razek Azizi, a director of our Company, is the President of
Beneficial Healthcare and has sole voting and dispositive power over Beneficial
Healthcare.  The MOU further provided for:


1.
              Investors
      to be granted a 50% interest in profits generated from all sales outside
      of North America, including but not limited to technology transfer fees,
      royalties, and licensing fees upon the Company’s receipt of the full
      $5,000,000.2.
              Investors
      to be granted private licensing and distribution rights to sell the
      Company’s products in all territories outside of North America upon their
      infusion of the full $5,000,000 investment.3.
              Settlement
      and retirement of outstanding convertible debentures.4.
              Completion
      of the Phase II components of drug development for Antibiotic Resistant
      Staphylococcus Aureus (MRSA).
 5.
              Sales
      and marketing budget.6.
              Product
      manufacturing and operations for national
  distribution.
 7.
              Settlement
      and payoff of unsecured debt.8.
              Grant
      of three (3) board seats of a five(5)-member board seat of the
      Company.
 
 Investment
thereto is subject to mutual agreement among the parties as to the form and
content of the final documentation with respect to any such
investment.  The total investments contemplated by the MOU were to
occur not later than July 9, 2007.  However, by verbal agreement
between the Investors and the Company, the MOU was effectively extended through
the end of the 2007 and the Investors continued to invest into the Company, and
the Company continued to accept the investments, under the same terms and
conditions contained within the MOU.
 
 In
February 2008 the Company formally terminated the existing language of the MOU
for the purpose of re-negotiating the terms of the original MOU agreement. Since
the termination, the Investors have invested an additional $280,000, and the
Company accepted such investments, under the terms of the original
MOU.  The Company and the Investors are currently continuing
negotiations towards drafting the new language underlying the terms of the
agreement between the parties.
 
 The
Company received cash investments totaling $200,500 from the Investors during
the year ended December 31, 2007 in exchange for 1,002,500 issuable common
shares.  The shares were recorded at their market price on the date of
investment and the difference between the market price and the $0.20 issuance
rate agreed to in the MOU has been treated as a deposit towards the sale of
licensing and distribution rights.
 
 In August
2007, the Investors acquired certain outstanding convertible debentures issued
by the Company having a face value of $1,255,000 plus accrued interest
approximating $528,000, directly from third party debenture holders through a
private sale.  Such debentures matured on December 6, 2006 and are
currently in default.  As part of the MOU agreement, the Company and
the Investors agreed to convert $855,000 of the debentures, plus accrued
penalties and interest into 3,333,750 shares of common stock. The issuable
shares were recorded at the conversion rate prescribed by the underlying
convertible debenture agreements with the difference from the converted
debentures’ face value, plus related accrued interest and penalties, being
recorded as a deposit towards the sale of licensing and distribution rights. The
deposit will be recognized as revenue upon the Company’s receipt of the full $5
million anticipated by the MOU and the transfer of the rights. At December 31,
2007, 836,680 of these common shares have been issued and 3,499,750 are pending
issuance, which will occur upon direction from the
Investors.
 As of
December 31, 2007 the Investors have a remaining balance of convertible
debentures with a face value of $400,000, plus previously accrued interest and
penalties that, will entitle them to convert the debentures at $0.20 per
share.




On
December 31, 2007, the Company had current assets of approximately $121,000,
including cash of approximately $1,000, and current liabilities of
$4,211,710.  As a result, the Company's current liquidity is extremely
limited and the Company will require a significant amount of additional working
capital in order to meet its short and long term working capital requirements
and implement its business plan.  In order to address these issues,
the Company is seeking to raise additional working capital through the issuance
of debt and equity securities.  The Company is also seeking to enter
into strategic alliances with third parties to support its research and
development activities and the marketing of its products.  Although
the Company believes that it will be able to obtain additional working capital
and financial support, there can be no assurance that the Company's efforts will
be successful.




Significant
Events Subsequent to Year End




Effective
February 5, 2008, Bruce Simpson resigned from his position as a member of the
Board of Directors.  Razek Azizi was appointed to the Board on
February 5, 2008 to replace Mr. Simpson.  Mr. Azizi is the
representative of the Investors, with whom the Company has executed the MOU in
May 2007.  In February 2008, the Company terminated the MOU with the
Investors.  The Company and the Investors are negotiating a new
agreement.  Subsequent to year end, the Investors invested an additional
$280,000 directly into the Company.  Additionally, in March 2008, the
Investors purchased from a third party, convertible debentures having a face
value of $305,000.  The Investors now own 100% of the 2004 convertible
debentures.  Such debentures matured on December 6, 2006 and are
currently in default.  As a result of such transaction, the Investors
are a senior secured debt holder of the Company with a lien on all assets of the
Company.  The Investors are controlled by Razek Azizi, one of our
directors.  Accordingly, Mr. Azizi has the ability to enforce the
terms of the 2004 debentures and take possession of all collateral, including
intellectual property, securing such notes.
 In
February 2008, the Company terminated the MOU with the Investors.  The
Company and the Investors are negotiating a new agreement.  As a
result of the termination, the Investors will not have the right to distribute
our products and have no interest in any profits from foreign
sales.  However, the Investor are continuing to make cash investments
into the Company on a good faith basis, as negotiation continue toward a new
agreement.


-13-





Critical
Accounting Policies




Revenue Recognition:
The Company recognizes revenue on its products in accordance with the Securities
Exchange Commission (the “SEC”) Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements."  Under these guidelines,
SinoFresh defers revenue recognition on transactions if any of the following
existed: persuasive evidence of an arrangement did not exist, title had not
transferred, product payment was contingent, the price was not fixed or
determinable, or payment was not reasonably assured. The Company accrues a
provision for estimated returns concurrent with revenue
recognition.




SinoFresh
has adopted Emerging Issues Task Force Issue 01-9, "Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)"
(EITF 01-9), which became effective for fiscal years beginning after December
15, 2001. Management has concluded that EITF 01-9 is applicable to the
accounting for its cooperative agreements with certain customers, as the
benefits received from consideration given to those customers are not
sufficiently separable from the revenue derived. Accordingly, all such
cooperative expenses are recorded as reductions to revenues.




Asset Impairments:
The Company has adopted Statement of Financial Accounting Standards No. 141,
"Business Combinations," (FAS 141) and Statement of Accounting Standards No.
142, "Goodwill and Other Intangible Assets" (FAS 142). FAS 141 requires business
combinations completed after June 30, 2001 to be accounted for using the
purchase method of accounting. It also specifies the types of acquired
intangible assets that are required to be recognized and reported separately
from goodwill. Under FAS 142, goodwill and other intangible assets (with
indefinite lives) will not be amortized but will be tested for impairment at
least annually. The Company completed its transitional impairment test of
existing patents as of December 31, 2007. This test was performed internally and
consisted of evaluating potential future revenue streams, current market
capitalization, shareholder equity values and the estimated market value of such
assets in a liquidation of the Company.  As a result of the Company’s
evaluation, the stated value of the patents appear reasonable as of December 31,
2007.




Recent
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS
No. 157 establishes a common definition for fair value to be applied to US
GAAP guidance requiring use of fair value, establishes a framework for measuring
fair value, and expands disclosure about such fair value measurements. SFAS
No. 157 is effective for fiscal years beginning after November 15,
2007. We are currently assessing the impact of SFAS No. 157 but do not
believe the adoption will have a significant impact on our financial position
and results of operations.




On
February 15, 2007, the FASB, issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities.” Under SFAS No. 159,
we may elect to report financial instruments and certain other items at fair
value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS No. 159 provides an
opportunity to mitigate volatility in reported earnings caused by measuring
hedged assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex hedge
accounting provisions of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, are not met. SFAS No. 159 is effective
for years beginning after November 15, 2007. If we adopt this standard, we
do not expect it to have a material effect on our financial
statements.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51, which changes
the accounting and reporting for minority interests. Minority interests will be
recharacterized as non-controlling interests and will be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for as
equity transactions. In addition, net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any
interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for us beginning
January 1, 2009 and will apply prospectively, except for the presentation
and disclosure requirements, which will apply retrospectively. We do not expect
it to have a material effect on our financial statements.




In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised
2007), Business
Combinations, which replaces SFAS No 141. The statement retains the
purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for us
beginning January 1, 2009. We do not expect it to have a material effect on
our financial statements.


-14-


Off
Balance Sheet Arrangements
  We are not a party to any
off balance sheet arrangements.




Risk
Factors




SinoFresh operates in a rapidly
changing environment that involves numerous risks, some of which are beyond our
control. The following discussion highlights some of these
risks.




Risks
Related to the Business




We will need significant additional
financing to implement our business plan.We need additional financing to
meet our working capital requirements and to implement our business objectives
including marketing and research and development on new products and clinical
trials.  There is no assurance that we will succeed in obtaining
additional financing or if additional financing is available, that it will be on
terms favorable to us.




We have incurred substantial losses
and we have a negative cash flow from operations and negative working
capital.We have incurred substantial losses since
inception.  We have also incurred negative cash flow from operations
during each of the last five years.  We had negative working capital
of approximately $4,090,000, including cash of $1,000, as of December 31,
2007.  As a result, our auditors have qualified their report on our
financial statements for the year ended December 31, 2007 with respect to our
ability to continue as a going concern.  In light of the foregoing, we
need to obtain additional external financing in order to continue as a going
concern.  There can be no assurance that any additional financing will
be available, or if available, that it will be on terms and conditions favorable
to us.




We have a limited relevant operating
history, and we may not be able to achieve profitability.Our
company has had a cumulative net loss since inception.  While we have
reduced expenditures for administrative costs, product research and development,
among other things, it will be difficult for us to continue to significantly
reduce our operating expenses in order to deal with lack of sales growth or
unanticipated reductions in existing sales.  Our failure to balance
expenditures with sales in any period could have an adverse effect on results of
operations.




We have a limited relevant operating
history upon which an evaluation of our prospects can be
made.  Such prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in the establishment of a new
company and the development of new products in established and crowded markets
in a highly-competitive consumer industry, such as the U.S. pharmaceutical
industry.  There are also risks, expenses and difficulties encountered
in the shift from development to commercialization of new
products.  There can be no assurance that we will be able to implement
successfully our development, manufacturing, and marketing strategies, generate
meaningful revenues, or attain or maintain profitable operations.  The
possibility of our future success must be considered relative to the problems,
challenges, complications and delays frequently encountered in connection with
the development and operation of a new business, and the development and
marketing of relatively new health care products such as the SinoFresh
products.




Substantially all of our assets,
including U.S. patents, are collateral for loans to SinoFresh by third parties,
and such loans are currently in default.Debentures currently
outstanding are collateralized by substantially all of our assets, including our
patents.  The debentures are convertible into common stock, contain
anti-dilution provisions and until the debentures are paid in full, prohibit us
from incurring other indebtedness without the consent of the debenture holders
except for indebtedness to trade creditors or financial institutions incurred in
the ordinary course of business.  The maturity date of the debentures
was December 6, 2006.  We are currently in default on the payment of
these debentures.  We do not have the capital necessary to pay the
outstanding amount due and are working with the debenture holders to renegotiate
the terms.  There is no assurance that we will be able to successfully
negotiate new terms favorable to all parties.  In that event, the
lenders may elect to exercise their right against our collateral, including our
patents, which would have material adverse consequences to our business and
operations.




We may not be able to off-set all of
our net operating loss carry-forwards against future
income.  At December 31, 2007, net operating losses available
to be carried forward for federal income tax purposes were approximately $13.1
million expiring in various amounts through 2027.  Utilization of our
net operating losses may be subject to substantial limitations due to the
ownership changes under regulations of the Internal Revenue Code and similar
state provisions.  Such annual limitation could result in the
expiration of the net operating loss before utilization, which would subject the
Company to have more tax liability than if it had been able to off-set the net
operating losses against income.




Our ability to implement our business
plan depends on our ability to attract and retain key
personnel.Our future success will depend to a significant
extent on the continued services of the current officers and other necessary
personnel, particularly Mr. Fust, the Chief Executive Officer and Chairman and
Mr. Wilferth, the Director of Research and Development.  The loss of
either of these personnel would likely have a significantly detrimental effect
on our business.  We have obtained key man life insurance policies on
the life of Mr. Fust in the amount of $400,000.


-15-




Our
prospects will also depend on our ability to attract and retain highly qualified
research and development, sales, marketing, and managerial
personnel.  Competition for such personnel is intense, and there can
be no assurance we will be able to employ or retain such personnel.




We have lost a significant amount of
our retail distribution network.Many of the retail chains
that previously sold our products are no longer making our products available in
their stores.  There is no assurance that we will be able to regain
any or all of these customers.  The absence of a strong distribution
network or alternative distribution method can be expected to  have a
material adverse effect on our operations.




If the SinoFresh products do not gain
widespread market acceptance, results of operations will
suffer.Even if the Company becomes successful at
reestablishing any or all of its prior distribution network or establishing
alternative distribution channels, there is no assurance its products will
achieve widespread acceptance by the market.  If one or more of these
products fails to achieve widespread market acceptance for any reason, our
operating results and prospects would be materially adversely
affected.




Unanticipated problems associated
with product development and commercialization could adversely affect our
operating results.  The successful development of our existing
and new products is subject to the risks of failure and delay inherent in the
development and commercialization of products based on innovative
technologies.  These risks include the possibilities
that:




·
            we
      may experience unanticipated or otherwise negative research and
      development results;




·
            existing
      or proposed products may be found to be ineffective or unsafe, or may
      otherwise fail to receive required regulatory clearances or
      approvals;




·
            we
      may find that existing or proposed products, while effective, are
      uneconomical to commercialize or
market;




·
            existing
      or proposed products may not achieve broad market acceptance;
      or




·
            proprietary
      rights held by third parties preclude us from developing or marketing
      existing or proposed products.




Our
inability to develop and commercialize our existing products or any new products
on a timely basis and within our financial budgets could have a material adverse
effect on operating results and future prospects.




FDA and other government regulation
may restrict our ability to sell our products.We are subject
to various federal, state and local laws and regulations affecting our
business.  Our products are subject to regulation by the FDA,
including regulations with respect to labeling of products, approval of
ingredients in products, claims made regarding the products, and disclosure of
product ingredients.  If we do not comply with these regulations, the
FDA could force us to stop selling the affected products or require us to incur
substantial costs in adopting measures to maintain compliance with these
regulations.  Our advertising claims regarding our products are
subject to the jurisdiction of the FTC as well as the FDA.  In both
cases we are required to obtain scientific data to support any advertising or
labeling health claims we make concerning our products.  If we are
unable to provide the required support for such claims, the FTC may stop us from
making such claims or require us to stop selling the affected
products.




We may fail to compete effectively
against larger companies.  The consumer health products
industry is highly competitive.  We compete with companies in the
United States and abroad that are engaged in the development of both traditional
and innovative health care products, including sinus products.  Many
of these companies have much greater financial and technical resources and
production and marketing capabilities than we do.  Further, many of
these companies have already achieved significant product acceptance and brand
recognition with respect to products that compete directly with the SinoFresh
products.  Our competitors may successfully develop and market
superior or less expensive products, which could render the current SinoFresh
products and other future SinoFresh products less valuable or
unmarketable.


-16-




If we are unable to protect our
intellectual property or if we infringe on the intellectual property of others,
our financial condition and future prospects could be materially
harmed.  We rely significantly on the protections afforded by
patent and trademark registrations that we routinely seek from the U.S. Patent
and Trademark Office (USPTO) and from similar agencies in foreign
countries.  We cannot be certain that any patent or trademark
application that is filed will be approved by the USPTO or other foreign
agencies.  In addition, we cannot be certain that we will be able to
successfully defend any trademark, trade name or patent that we hold against
claims from, or use by, competitors or other third parties.  No
consistent policy has emerged from the USPTO or the courts regarding the breadth
of claims allowed or the degree of protection afforded under biotechnology and
similar patents.  Our future success will depend on our ability to
prevent others from infringing on our proprietary rights, as well as our ability
to operate without infringing upon the proprietary rights of
others.  We may be required at times to take legal action to protect
our proprietary rights and, despite our best efforts, we may be sued for
infringing on the patent rights of others.  Patent litigation is
costly and, even if we prevail, the cost of such litigation could adversely
affect our financial condition.  If we do not prevail, in addition to
any damages we might have to pay, we could be required to stop the infringing
activity or obtain a license.  We cannot be certain that any required
license would be available on acceptable terms, or at all.  If we fail
to obtain a license, our business might be materially adversely
affected.  In addition to seeking patent protection, we rely upon a
combination of non-disclosure agreements, other contractual restrictions and
trade secrecy laws to protect proprietary information.  There can be
no assurance that these steps will be adequate to prevent misappropriation of
our proprietary information or that our competitors will not independently
develop technology or trade secrets that compete with our proprietary
information.




We may incur significant costs
resulting from product liability claims.We would be subject
to significant liability should use or consumption of our products cause injury,
illness or death.  Although we carry product liability insurance,
there can be no assurance that our insurance will be adequate to protect us
against product liability claims or that insurance coverage will continue to be
available on reasonable terms.  A product liability claim, even one
without merit or for which we have substantial coverage, could result in
significant legal defense costs, thereby increasing our expenses and lowering
earnings.  Such a claim, whether or not proven to be valid, could have
a material adverse effect on product branding and goodwill, resulting in reduced
market acceptance of our products.  This in turn could materially
adversely affect our results of operations and financial condition.




We do not have manufacturing
capabilities.We currently do not have the physical or
personnel resources to independently manufacture our products or any other
products that we may develop.  We currently outsource all of our
product manufacturing and packaging operations and intend to continue this
outsourcing for the foreseeable future.  If we are unable to maintain
suitable arrangements for manufacturing of our SinoFresh products or any other
products, or if our third party contractors fail to adequately perform their
manufacturing operations, our sales and related financial results could be
materially adversely affected.  If, in the future, we decide to
establish our own manufacturing facilities, we will require substantial
additional funds and significant additional personnel to undertake such
operations.  We cannot be certain that such funding or a sufficient
number of such qualified persons will be available.




Return of a significant amount of
product could harm our business.Our product has a 30-day,
unconditional, money back guarantee.  Any consumer, who is not
satisfied with our product within this time period for any reason, or no reason
at all, may return it or any unused portion for a full refund.  Most
large retail chains have their own established policies for product returns and
we intend to fully comply with these policies as well.




We
believe product returns under normal circumstances will be less than one percent
(1%) of sales, but there can be no assurance that actual levels of returns will
not significantly exceed normal expectations.  Should an adverse
reaction to any of our products occur affecting a significant number of
customers, a product "recall" could occur which could materially impact our
financial condition and our ability to successfully re-enter the market
following the recall.  Additionally, although we will not directly
engage in the manufacture of any product we market and sell, we could be exposed
to product liability claims from faulty manufacture.




We may be required to indemnify our
directors and officers.  We have authority under Section
607.0850 of the Florida Business Corporation Act to indemnify our directors and
officers to the extent provided in that statute.  Our Articles of
Incorporation require SinoFresh to indemnify each of our directors and officers
against liabilities imposed upon them (including reasonable amounts paid in
settlement) and expenses incurred by them in connection with any claim made
against them or any action, suit or proceeding to which they may be a party by
reason of their being or having been a director or officer of the
company.  A material liability requiring our indemnification could
have a serious financial impact on our company.  We currently do not
maintain officers and directors liability insurance coverage, which if acquired,
could minimize the financial impact of an indemnification.  Although
we may wish to acquire this type of an insurance policy in the future, there can
be no assurance that such insurance will be available, or that if available, it
will be available on terms that are acceptable to us.  Furthermore,
there can be no assurance that any potential insurance coverage provided will be
sufficient to cover the amount of any judgment awarded against an officer or
director (either individually or in the aggregate).  Consequently, if
such judgment exceeds the coverage under the policy, SinoFresh may be forced to
pay such difference.


-17-




Risks
Related to Our Common Stock




The large number of shares eligible
for immediate and future sales may depress the price of our
stock.Our Articles of Incorporation authorize the issuance of
500,000,000, shares of common stock, no par value per share, and 200,000,000
shares of preferred stock, no par value per share.  As of December 31,
2007, we had outstanding 24,916,110 shares of common stock.  Also as
of December 31, 2007, we had outstanding a total of 3,062,377 shares of Series
A, B and C Preferred Stock which are convertible into a total of 5,355,377
shares of common stock.  We have reserved 3,000,000 shares of common
stock for issuance in respect of option grants under our stock option
plan.  From those available shares, outstanding options have been
granted for 806,000 shares of common stock, and there remain available for
issuance under the plan 2,194,000 shares of common stock.  In
addition, there are 357,681 shares of common stock that are issuable upon
exercise of stock options issued to independent consultants.  There
are 7,223,218
shares that are issuable upon exercise of outstanding warrants, and 3,959,681
shares issuable upon conversion of currently outstanding
debentures.  The outstanding warrants and options contain exercise
prices ranging from $0.04 to $7.00.  Therefore, the desire of the
holders of those warrants and options to sell will depend on the market price of
our common stock at any given time.   Further, we may be required
to issue additional common stock to the debenture holders if we fail to make the
default payment stated in the debentures.  Sales of substantial
amounts of our common stock in the open market, could adversely affect the
market price of our common stock.




Our board
of directors has the authority to issue additional shares of common stock and
preferred stock up to the authorized amount stated in our Articles of
Incorporation.  Our board of directors may choose to issue some or all
of such shares to acquire one or more businesses or other types of property, or
to provide additional financing in the future or in an attempt to prevent a
change of control.  The issuance of any such shares may result in a
reduction of the book value or market price of the outstanding shares of our
common stock.  If we do issue any such additional shares, such
issuance also will cause a reduction in the proportionate ownership and voting
power of all other stockholders.  Further, any such issuance may
result in a change of control of SinoFresh.




The price of our common stock may
continue to be volatile.The market price of our common stock,
which is quoted for trading on the OTC Bulletin Board, has been highly volatile
and may continue to be volatile in the future.  Any or a combination
of the following factors could cause the market value of our common stock to
decline quickly:




·
            operating
      results that differ from market
expectations;




·
            negative
      or other unanticipated results of clinical trials or other
      testing;




·
            delays
      in product development;




·
            technological
      innovations or commercial product introductions by our
      competitors;




·
            changes
      in government regulations;




·
            developments
      concerning proprietary rights, including pending or threatened patent
      litigation;




·
            public
      concerns regarding the safety of any of our products;
  and




·
            general
      economic and stock market
conditions.




Since the
inception of trading activities in September 2003, the stock market has
experienced, and it may continue to experience, significant price and volume
fluctuations.  These fluctuations have particularly affected the
market prices of equity securities of many small capitalization companies that
are not yet profitable or that experience low or inconsistent
earnings.  Often, the effect on the price of such securities is
disproportionate to the operating performance of such companies.  In
our case, such broad market fluctuations may adversely affect your ability to
dispose of your shares at a price equal to or above the price at which you
purchased such shares.


-18-




Our common stock may be subject to
penny stock regulation, which may make it difficult for investors to sell our
common stock.The SEC has adopted rules that regulate broker/dealer
practices in connection with transactions in penny stocks.  Penny
stocks generally are equity securities with a price of less than $5.00 per share
(other than securities registered on certain national securities exchanges or
quoted on the NASDAQ Stock Market, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange system).  The penny stock rules require a broker/dealer,
prior to completing a transaction in a penny stock not otherwise exempt from the
rules, to deliver a standardized risk disclosure document prepared by the SEC
that provides information about penny stocks and the nature and level of risks
in the penny stock market.  The broker/dealer also must provide the
customer with bid and offer quotations for the penny stock, the compensation of
the broker/dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account.  In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from such rules the
broker/dealer must make a special written determination that a penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction.  Our common stock will likely be subject
to the penny stock rules.  These disclosure requirements may have the
effect of reducing the level of trading activity in any secondary market for our
common stock.  Accordingly, holders of our common stock may find it
difficult to sell their shares, if they are able to do so at all.




We do not expect to pay dividends for
the foreseeable future.For the foreseeable future, we intend
to retain any earnings to finance the development and expansion of our business,
and we do not anticipate paying any cash dividends on our common
stock.  Any future determination to pay dividends will be at the
discretion of our board of directors and will be dependent upon then existing
conditions, including our financial condition and results of operations, capital
requirements, contractual restrictions, business prospects, and other factors
that the board of directors considers relevant.




Our preferred stock may cause
dilution.Our Articles of Incorporation authorize the issuance
of up to 200,000,000 shares of "blank check" Preferred Stock with such rights
and preferences as our board of directors, without further shareholder approval,
may determine from time to time.  Of these preferred shares, 858,170
shares are designated as Series A Preferred Stock, 1,500,000 shares are
designated as Series B Preferred Stock, and 1,250,000 shares are designated as
Series C Preferred Stock.  As of December 31, 2007, we had 769,377
shares of outstanding Series A Preferred Stock; 1,500,000 shares of outstanding
Series B Preferred Stock; and 793,000 shares of outstanding Series C Preferred
Stock.  Series A Preferred Stock is convertible into common and has
voting rights with the common, on a one-for one basis.  The Series B
and Series C Preferred Stock are convertible into common stock and have voting
rights with the common stock, on a one for two basis.  As of December
31, 2007, a total of 5,355,377 shares of common stock issuable upon conversion
of all of our outstanding preferred stock are eligible for public resale under
Rule 144.  Furthermore, each share of Series A, Series B and Series C
Preferred Stock has a liquidation preference of $2.00 per share on an as
converted basis before any holders of common would be entitled to receive
payment for their shares or dividends upon a liquidation of
SinoFresh.  As of December 31, 2007, there remained 196,937,623 shares
of authorized but undesignated and unissued shares of preferred stock that may
be sold in the future and that can, at the discretion of our board of directors,
be designated as another series of preferred stock with dividend, liquidation,
conversion, voting or other rights and preferences that are senior, and not
available, to the holders of our common stock.  Thus, issuances of new
series of preferred stock could adversely affect the relative voting power,
distributions and other rights of the common stock.  Holders of our
common stock could realize less than the amount of dividends and/or
distributions to which they would otherwise be entitled.




Further,
preferred stock could be used as a method of discouraging, delaying, or
preventing a take-over of SinoFresh.  If we issue "blank check"
preferred stock, it could have a dilutive effect upon our common
stock.  This would decrease the chance that our stockholders would
realize a premium over market price for their shares of common stock as a result
of a takeover bid.




ITEM
7.                      FINANCIAL STATEMENTS




Our Consolidated Financial Statements and Notes thereto
and the report of Moore Stephens Lovelace, P.A., our independent registered
public accounting firm, are set forth on pages F-1 through F-27 of this
Report.




ITEM
8.                      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE




None.


ITEM
8A.      
CONTROLS AND PROCEDURES
  The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)
  Internal
control over financial reporting is promulgated under the Exchange Act as a
process designed by, or under the supervision of, our management and effected by
our board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures
that:
  ·Pertain to the maintenance of records that in reasonable detail
      accurately and fairly reflect the transactions and dispositions of our
      assets;
  ·Provide reasonable
      assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being
      made only in accordance with authorizations of our management and
      directors; and
  ·Provide reasonable
      assurance regarding prevention or timely detection of unauthorized
      acquisition or disposition of our assets that could have a material effect
      on the financial statements.
  -19-
 Readers
are cautioned that internal control over financial reporting, no matter how well
designed, has inherent limitations and may not prevent or detect misstatements.
Therefore, even effective internal control over financial reporting can only
provide reasonable assurance with respect to the financial statement preparation
and presentation.
  Our CEO
has not evaluated the effectiveness of our disclosure controls and procedures as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e) as of the end of the
period covered by this Report based upon the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) due to the fact that the Company does not have
the personnel resources nor technological infrastructure in place to perform
this evaluation.  Based upon our CEO’s discussions with our auditors
and other advisors, the CEO believes that, during the period covered by this
report, such internal controls and procedures were not effective to detect the
inappropriate application of US GAAP rules as more fully described below. This
was due to deficiencies that existed in the design or operation of our internal
control over financial reporting that adversely affected our internal controls
and that may be considered to be material weaknesses.
  The
matters involving internal controls and procedures that the Company's CEO
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) inadequate segregation of duties consistent
with control objectives and (2) ineffective controls over period end financial
disclosure and reporting processes. The aforementioned material weaknesses were
identified by the Company's Chief Executive Officer in connection with the audit
of our financial statements as of December 31, 2007.  Management
believes that the material weaknesses set forth in items (1) and (2) above did
not have an affect on the Company's financial results.
  The
Company has begun to take appropriate steps to remediate the material weakness
described above.  The Company will create a position and hire personnel to
strengthen internal controls over financial reporting.  The Company will
initiate these remediation efforts as soon as funds allow.  The
effectiveness of our internal controls following our remediation efforts will
not be known until we test those controls in connection with management’s tests
of internal control over financial reporting that will be performed as soon as
funds are available.
  This
Report does not include an attestation report of our registered public
accounting firm regarding our internal controls over financial reporting. The
disclosure contained under this Item 8A was not subject to attestation by
our registered public accounting firm pursuant to temporary rules of the SEC
that permit us to provide only the disclosure under this Item 8A in this
Report.
  ITEM
8B.                      OTHER INFORMATION




None




-20-


PART
III




ITEM 9.
            DIRECTORS
      AND EXECUTIVE OFFICERS




SinoFresh's
directors and executive officers are as follows:




Name
            Position
            AppointmentCharles
      A. Fust
            Chairman,
      Chief Executive Officer, Director
            November,
      2002David
      Otto
            Director
            October,
      2002Thomas
      Fitzgerald
            Director
            February,
      2007Razek
      Azizi
            Director
            February,
      2008Terry
      Ritter
            Director
            March,
      2008







Charles A. Fust,
Chief Executive Officer (CEO) and Chairman of the Board of
Directors.Mr. Fust, age 64, is a chemical engineer, whose
research has resulted in various domestic and international patents, including
the patents underlying the SinoFresh nasal product.  Mr. Fust began
the development of SinoFresh's first product in 1989.  His expertise
in the health care community has provided him with the opportunity to chair
various health care boards, mainly Otorhinolaryngology related.  Mr.
Fust's business background covers ownership and management in international
companies.  Mr. Fust has been the Chief Executive Officer and Chairman
of SinoFresh Laboratories, LLC from 1999 until acquired in 2002 and Chief
Executive Officer and Chairman of SinoFresh from November 2002 to the
present.  He holds a bachelor degree in Chemical Engineering from
Auburn University and has a professional affiliation with the American
Association of Pharmaceutical Scientists.




David Otto,
Director.Mr. Otto, age 49, has been a director of SinoFresh
since September 2003. In July of 1999, Mr. Otto founded The Otto Law Group,
PLLC, in Seattle, Washington. Mr. Otto is currently a member of the Board of
Directors of Veritas Solutions, Inc., Vocalscape Networks, Inc., Renaissance
Window Fashions, Inc., Avisere, Inc., TechAlt, Inc., Saratoga Capital Partners,
Inc., Itec Environmental Group, Inc. and Cambridge Partners, LLC.  Mr. Otto
is admitted to practice law in New York and Washington.  Mr. Otto graduated
from Harvard University in 1981 with his B.A. in Government and was the
recipient of the Harvard-Shrewsbury Fellowship, and his J.D. from Fordham
University School of Law in 1987.




Thomas Fitzgerald, Director.Mr.
Fitzgerald, age 54, has been a director since January 2007. Mr. Fitzgerald has
been directly involved in the development of biopharmaceuticals,
over-the-counter medicines and drug delivery systems for more than 25 years. Mr.
Fitzgerald has held senior management positions with a number of companies,
including Glaxo/SmithKlien (GSK), Fisons and Rhone Poulenc Rorer, now part of
Aventis-Sanofi.  Presently, Mr. Fitzgerald is engaged by the
University of Rochester Medical Center in a technology transfer related project.
Mr. Fitzgerald is a graduate of Boston College and the St. John’s University
School of Law where he received the Distinguished Alumni medal. He is admitted
to practice law in New York, and Connecticut State and Federal
Courts.





Razek Azizi, Director.Mr.
Azizi, age 37, has been a director of SinoFresh since February 2008. Mr. Aziz
founded Beneficial HealthCare, Inc. in June 2007 and serves as Chief Executive
Officer and Chairman of the Board. Beneficial HealthCare, Inc. is a California
based company established to explore international marketing opportunities for
SinoFresh products, as well as, out-licensing of other health related products
for export. Mr. Azizi also serves as President of Reliance Solar Inc. and has
been instrumental in alternative energy projects located in Dubai, UAE and The
Peoples Republic of China. Mr. Azizi is the sole owner of U.S. First Trading
Company specializing in oil, sugar and heavy equipment. Mr. Azizi’s family
emigrated from Afghanistan in 1983 and has lived in the San Francisco Bay area
since.





Terry Ritter,
Director.Mr.
Ritter’s background encompasses a wide variety of business interest ranging from
mid-management in the technology industry to high level consultancy with the
United States Government. In the mid-1990’s, Mr. Ritter changed professional
direction emerging into the area of consumer products. As the President of
Experimental and Applied Sciences, Inc. he was responsible for turning the
company from insolvency to a very high level of sales in less than six months.
Later, in the late 1990’s he founded Med-Pro Industries, another consumer
product company, that was generating in excess of $4.0M weekly prior to the
company being sold in 2002. From 2002 through 2005, Mr. Ritter partnered with
MoneyLine America and acquired more than $100MM in funding as a mortgage lender.
That company was sold in 2005, and Mr. Ritter has been retired since that
time.  Mr. Ritter was recurited for his executive leadership skills
assisting SinoFresh as Director of Marketing and Director.


-21-




Our directors are elected at the annual meeting of the
shareholders and serve until their successors are elected and qualified, or
their earlier resignation or removal.  Officers are appointed by the
board of directors and serve at the discretion of the board of directors or
until their earlier resignation or removal.




To the knowledge of the Company, our directors,
executive officers and control persons have not been involved in any of the
following events during the past five years:




1.
            any bankruptcy petition filed by or against any
      business of which such person was a general partner or executive officer
      either at the time of the bankruptcy or within two years prior to that
      time;2.
            any conviction in a criminal proceeding or being
      subject to a pending criminal proceeding (excluding traffic violations and
      other minor offenses);3.
            being subject to any order, judgment, or decree,
      not subsequently reversed, suspended or vacated, of any court of competent
      jurisdiction, permanently or temporarily enjoining, barring, suspending or
      otherwise limiting his involvement in any type of business, securities or
      banking activities; or4.
            being found by a court of competent jurisdiction
      (in a civil action), the Securities and Exchange Commission or the
      Commodity Futures Trading Commission to have violated a federal or state
      securities or commodities law, and the judgment has not been reversed,
      suspended, or vacated.




Director's
Compensation




The
Company does not currently have a compensation plan for persons serving as
directors of the Company.




Section 16(a) Beneficial Ownership Reporting Compliance




Section 16(a) of the Exchange Act requires directors and
executive officers, and persons who own 10% or more of SinoFresh common stock,
to file reports of ownership and changes in ownership with the SEC. Officers,
directors and greater than 10% stockholders are required to furnish the Company
with copies of all Section 16(a) forms they file.  Based solely on a
review of the copies of such forms furnished to the Company, SinoFresh has
determined that a Form 3 had not been filed by either Mr. SimpsonorMr. Zipperich
(former Directors), or Mr. Fitzgerald upon their appointment to the
Board.  In addition, a Form 5 was not filed by Mr. Otto, nor was a Form 4 filed by Mr. Fust upon the issuance
of 2,250,000 shares of common stock to Sta-car Enterprises.




Code of Ethics for Chief Executive Officer and Senior
Financial Officers




The Company has adopted a code of ethics for the CEO,
CFOandcontroller (the “Code of Ethics”) which is required to
be signed by each such officer, and is maintained on file by the
Company.  A copy of the Code of Ethics will be provided toSinofresh stockholders free of charge,
uponwritten request to the Company sent to
the attention of Investor Relations, SinoFresh HealthCare, Inc.,787 Commerce Drive,Venice,Florida34223.




If the Company makes any substantive amendments to the
Code of Ethics, or grants any waiver, including any implicit waiver, from a
provision of the Code of Ethics to theCEO,
CFO or controller, the Company will
disclose the nature of such amendment or waiver in a report on Form 8-K.




Audit Committee and Audit Committee Financial Expert




One member of the Company's Board of Directors, Charles
Fust, currently servesas the audit
committee.  The Audit Committee does not currently have a financial
expert.  It is theCompany’s goal to
add at least one director who is a financial expert.


-22-


ITEM
10.                   EXECUTIVECOMPENSATION




The
following table sets forth all the compensation earned by the Company's Chief
Executive Officer and each other officer who earned greater than $100,000 in
total salary and bonuses during the 2007 fiscal year (collectively, the "Named
Executive Officers").







SUMMARY
COMPENSATION TABLE





Name
      and Principal
              Position
            Fiscal
      Year
            Salary
            Bonus
            Stock
      Awards
            Option
      Awards
            Non-Equity
      Incentive Plan Compensation
            Change
      in Pension Value and Nonqualified Deferred Compensation
      Earnings
            All
      other Compensation
            TotalCharles
      A. Fust CEO and Chairman
            2007
              2006
              2005
            $180,000(1)
              $180,000(1)
              $180,000
            $0
              $0
              $100,000(2)
            $0
              $0
              $0
            $21,750(3a)
              $16,791(3b)
              $8,706(4)
            N/A
            N/A
            $0
              $7,796(5)
              $14,160(5)
            $201,750
              $204,587
              $302,866Scott
      M. Klein Former CFO and Secretary (6)
            2007
              2006
              2005
            $
      57,249(7)
              $120,000(7)
              $110,000
            $0
              $0
              $25,000(2)
            $0
              $0
              $0
            $0
              $44,932(8)
              $41,183(9)
            N/A
            N/A
            $0
              $0
              $0
            $  57,149
              $164,932
              $176,193


___________________________





(1)
            Includes
      $90,000 and $42,500 accrued for 2007 and 2006, respectively, but not
      paid.


(2)
            This
      amount was accrued for 2005, but not paid as of December 31,
      2006.


(3)


a.
            The
      Company recorded compensation expense of 21,750 during 2007 related to
      options issued in prior years, based on the fair value as determined by
      the Black-Scholes valuation model as of the date of the grant and
      amortized over the life of the
grants.


b.
            Stock
      options to purchase 125,000 common shares were issued in 2006 to Mr.
      Fust.  These options vest over three years and are exercisable
      at a price of $0.25 per share.  The options expire five years
      from the date of grant.  The Company recorded compensation
      expense of $7,294 related to these options and $9,497 related to options
      issued in prior years based on the fair value as determined by the
      Black-Scholes valuation model as of the date of the grant and amortized
      over the life of the grants.


(4)
            Stock
      options to purchase 75,000 common shares were issued in 2005 to Mr.
      Fust.  These options vest over three years and are exercisable
      at a price of $0.25 per share.  The options expire five years
      from the date of grant.  The Company recorded compensation
      expense of $8,706 related to these options based on the fair value as
      determined by the Black-Scholes valuation model as of the date of the
      grant and amortized over the life of the
grant.


(5)
            Other
      compensation consists of car allowance and club dues in accordance with
      Mr. Fust’s employment agreement as described below in “Description of
      Additional Material Factors”.


(6)
            Mr.
      Klein resigned in May 2007.


(7)
            Includes
      $14,583 and $11,333 accrued for 2007 and 2006, respectively, but not
      paid.


(8)
            Stock
      options to purchase 50,000 common shares were issued in 2006 to Mr.
      Klein.  These options vest over three years and are exercisable
      at a price of $0.25 per share.  The options expire five years
      from the date of grant.  The Company recorded compensation
      expense of $476 related to these options and $44,456 related to options
      issued in prior years based on the fair value as determined by the
      Black-Scholes valuation model as of the date of the grant and amortized
      over the life of the grants.  These options have expired as a
      result of Mr. Klein’s departure from the
Company


(9)
            Stock
      options to purchase 50,000 common shares were issued in 2005 to Mr.
      Klein.  These options vest over three years and are exercisable
      at a price of $0.25 per share.  The options expire five years
      from the date of grant.  The Company recorded compensation
      expense of $655 related to these options and $40,528 related to options
      issued in prior years based on the fair value as determined by the
      Black-Scholes valuation model as of the date of the grant and amortized
      over the life of the grants.  These options have expired as a
      result of Mr. Klein’s departure from the
  Company.





-23-





Grants
of Plan Based Awards





The
Company's Compensation Committee and the Board of Directors currently administer
the 2002 Stock Option Plan (Plan). The Plan provides for the grant of options
(incentive and non-statutory), to officers, employees and independent
contractors capable of contributing to the Company's performance.  The
Company has reserved  for issuance an aggregate of 3,000,000 shares of
common stock for grants under the Plan.  Incentive stock options may
be granted only to employees eligible to receive them under the Internal Revenue
Code of 1986, as amended.  As of December 31, 2007, the Company had
outstanding non-statutory options for 806,000 shares of the Company's
common stock. These options have a term of five years from the date of grant,
unless earlier terminated in accordance with the provisions of the Plan and
applicable stock option agreements.  The exercise prices of all of the
options granted as of December 31, 2007 range from $0.25 to $1.00 per share. The
options generally have scheduled vesting except for options for 321,000 shares,
which either vested immediately upon grant or were subsequently accelerated by
the Board. Upon expiration or termination of unexercised options, the
unpurchased shares subject to such options will again be available for issuance
under the Plan.




Description
of Additional Material Factors




Charles
Fust is employed as the Company's Chief Executive Officer and was subject to an
employment agreement dated December 1, 2002. The employment agreement had a term
of five years and is renewable upon mutual agreement of the
parties.  Under that agreement, he is entitled to a base salary, as
adjusted, of $180,000 annually and 5.0% of net earnings before
taxes.  In addition, Mr. Fust is entitled to receive a car allowance
of $1,000 per month and certain club membership dues. The agreement also
provides that the Company and Mr. Fust enter into a stock option agreement under
which he would be provided anti-dilution rights so that Mr. Fust's equity
ownership of the Company, on a fully diluted basis, will be no less than 15% so
long as the total outstanding shares on a fully diluted basis are less than
100,000,000.  The agreement also prohibits Mr. Fust from competing
with the Company for a period of three years upon cancellation of the employment
agreement.  The Company has not entered into a renewal of this
agreement or any other employment agreement with Mr. Fust subsequent to this
agreement’s termination on December 1, 2007.




The
Company had an employment agreement with Scott M. Klein, the former Chief
Financial Officer and Secretary, which provided for a 3-year term commencing as
of November 1, 2004 with an annual salary of $110,000, increasing to $120,000 on
January 1, 2006 and $135,000 on January 1, 2007. In connection with the
employment agreement, Mr. Klein was granted a 5-year option for 150,000 shares
of common stock with an exercise price of $.75 per share (which was the closing
sale price of the stock on November 1, 2004), vesting immediately as to 75,000
shares and the remaining 75,000 shares will vest ratably over 3 years commencing
on November 1, 2005.  In addition, the agreement provided for Mr.
Klein to be granted additional 5-year options for 50,000 shares on November 1,
2005 and on November 1, 2006, each at an exercise price that is the closing sale
price of the Company's common stock on such dates, and these additional options
will vest ratably over three years commencing on the date of
grant.  Mr. Klein resigned in May 2007, and his options have expired
as a result of his departure from the Company.  He continues to
provide consulting advice on an as needed basis.




Director's
Compensation




There was
no compensation plan approved for Directors for either 2007 or
2006.  Directors may also serve the Company in other capacities as an
officer, agent or otherwise, and may receive compensation for their services in
such other capacity.  Board members are reimbursed for reasonable
travel expenses.




Outstanding
Equity Awards at Fiscal Year-End




The
Company did not offer equity awards during fiscal year 2007.




Aggregate
Stock Option Exercises and Year-End Option Value Table




The
following table sets forth certain information concerning option exercises in
fiscal 2007, the number of stock options held by the Named Executive Officers as
of December 31, 2007 and the value (based on the fair market value of a share of
stock at fiscal year-end) of in-the-money options outstanding as of such
date.


-24-




Number
      of Shares Acquired on
            
            
            Value
            
            
            Number
      of Unexercised
              Options
      Held at Fiscal Year-End(#)
            
            
            Value
      of Unexercised
              In-the-Money
      Options at Fiscal Year-End(1)Name
            
            Exercise
      (#)
            
            
            Realized
      ($)(1)
            
            
            Exercisable
            
            
            Unexercisable
            
            
            Exercisable
            
            
            UnexercisableCharles
      A. Fust
            
            
            -0-
            
            
            
            N/A
            
            
            
            91,667
            
            
            
            108,333
            
            
            
            N/A
            
            
            
            N/A


___________________________





(1)
            Options
      are in-the-money if the fair market value of the common stock exceeds the
      exercise price of the option.  The closing sale price for the
      Company's common stock as reported by the NASDAQ Trading and Market
      Services on December 31, 2007 was $0.14 per
  share.




Option
Exercises and Stock Vested Table




The
following table sets forth certain information concerning grants of options made
during fiscal 2007 to the Named Executive Officers.




Name
            
            Number of Securities Underlying
      Options Granted(#)
            
            
            Percent
      of Total Options Granted to Employees in 2007
            
            
            Exercise
      or Base Price ($/SH)
            
            
            Grant
      Value Based on Black-Scholes Valuation Method
            
            
            Expiration
      DateCharles
      A. Fust
            
            
            0
            
            
            
            0
            %
            
            
            N/A
            
            
            
            N/A
            
            
            
            N/AScott
      M. Klein
            
            
            0
            
            
            
            0
            %
            
            
            N/A
            
            
            
            N/A
            
            
            
            N/A




-25-


REPORT
OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION





General




During
fiscal year 2007, Charles Fust, former Director P. Robert DuPont and former
Director Stacey Maloney-Fust constituted the Compensation
Committee.  Mr. Fust is an employee-director of the Company and is
currently the only active Director on this Committee until such time as other
members are appointed by the Board of Directors.




The Board
of Directors, upon recommendations made by the Compensation Committee,
determines option grants.  The Board monitors corporate performance
and its relationship to compensation for executive officers and makes
determinations concerning matters of executive compensation.  The
Compensation Committee determines salaries and incentive cash bonuses for
non-executive employees.





Compensation
Philosophy




The
Company has developed and implemented a compensation program that is designed to
attract, motivate, reward and retain the broad-based management talent required
to achieve the Company's business objectives and increase stockholder
value.  There are two major components of the Company's compensation
program: base salary and incentives, each of which is intended to serve the
overall compensation philosophy.




Base
Salary




The
Company's salary levels for executive officers, including its Chief Executive
Officer, are intended to be consistent with competitive pay practices of
similarly-sized companies within the industry.  In determining
executive officers' salaries, the board considers level of responsibility,
competitive trends, the financial performance and resources of the Company,
general economic conditions, as well as factors relating to the particular
individual, including overall job performance, level of experience and prior
service, ability, and knowledge of the job.




Incentives




Incentives
consist of stock options and performance bonuses paid in cash. The board
strongly believes that the compensation program should provide employees with an
opportunity to increase their ownership and potential for financial gain from
increases in the Company's stock price.  This approach closely aligns
the best interests of stockholders and, executives and
employees.  Therefore, executives and other employees are eligible to
receive stock options, giving them the right to purchase shares of the Company's
common stock at a specified price in the future.  Currently, upon
recommendations made by the Compensation Committee, the Board determines stock
option grants.  The grant of options is based primarily on an
individual's past performance and potential future contribution to the Company's
growth and profitability.




-26-






ITEM
      11.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS




The
following table sets forth certain information regarding the beneficial
ownership of our shares of voting stock as of May 13 by: (i) each person who is
known by us to beneficially own more than 5% of the issued and outstanding
shares of common stock; (ii) the Chairman and Chief Executive Officer; (iii) the
directors; and (iv) all of the executive officers and directors as a
group.  For purposes of the beneficial ownership calculations below,
the Series A preferred stock, which is convertible into common stock on a
1-for-1 basis, and the Series B and Series C preferred stock, which are
convertible into common stock on a 2-for-1 basis are included on an as converted
basis, such that the total issued and outstanding voting stock becomes
22,329,807.  Unless otherwise indicated, the persons named below have
sole voting and investment power with respect to all shares beneficially owned
by them, subject to community property laws where
applicable.  Ownership information obtained, where necessary, through
a combination of a review of previous SEC filings, review of stockholder records
or discussions with expected owners of greater than 5% of our
stock.




Name
      of Beneficial Owner(1)(2)
            
            No.
      of shares
            
            
            PercentageCharles
      A. Fust, Chairman and Chief Executive Officer
            
            
            10,767,809
            (3)
            
            
            42.06
            %Charles
      Fust Family LTD
      Partnership
            
            
            6,621,677
            (4)
            
            
            26.03
            %David
      Otto,
      Director(5)
            
            
            -0-
            
            
            
            *Thomas
      Fitzgerald,
      Director(6)
            
            
            -0-
            
            
            
            *Stacey
      Maloney-Fust, Former Sr Vice President and a Director
            
            
            10,767,809
            (7)
            
            
            42.06
            %Sta-car
      Enterprises
            
            
            2,250,000
            (8)
            
            
            8.84
            %Moty
      Hermon
            
            
            1,229,723
            (9)
            
            
            4.83
            %Razik
      Azizi, Director
            
            
            3,647,181
            (10)
            
            
            11.94
            %Terry
      Ritter, Director and Director of Marketing
            
            
            7,576
            
            
            
            0.03
            %All
      current officers and directors as a group (6 persons)
            
            
            14,414,990
            
            
            
            49.29
            %


_____________________


*Represents
less than 1% of all issued and outstanding voting stock of
SinoFresh.




(1)
            Unless
      otherwise noted, the address of each person or entity listed is c/o
      SinoFresh HealthCare, Inc., 767 Commerce Drive, Suite 6, Englewood, FL
      34223.




(2)
            Beneficial
      ownership is determined in accordance with the rules of the SEC and
      generally includes voting or investment power with respect to
      securities.  Shares of common stock subject to options, warrants
      or convertible securities that are currently exercisable or exercisable
      within 60 days of April 23, 2008, are deemed outstanding for computing the
      percentage of the person holding such options, warrants or convertible
      securities but are not deemed outstanding for computing the percentage of
      any other person.  Except as indicated by footnote and subject
      to community property laws where applicable, the persons named in the
      table have sole voting and investment power with respect to all shares of
      common stock shown as beneficially owned by
  them.




(3)
            Represents
      3,621,677 shares of common stock owned by the Charles Fust Family Limited
      Partnership, for which, a corporation owned by Mr. Fust’s spouse, is the
      general partner; 1,229,723 shares of common stock held in escrow for the
      benefit of Moty Herman, for which Mr. Fust holds voting rights; 103,076
      shares of common stock held by the Company’s 401(K) Plan, for which Mr.
      Fust is a Trustee; 3,000,000 shares of common stock issuable upon
      conversion of 1,500,000 shares of Series B preferred stock held by the
      Charles Fust Family Limited Partnership, which shares of Series B
      preferred stock vote on an as converted basis; 158,333 shares of common
      stock issuable pursuant to options exercisable within the next 60 days;
      5,000 shares of common stock owned by his spouseand
      2,250,000 shares of common stock owned by Sta-car Enterprises, which is
      owned and controlled by his
spouse.




-27-


(4)
            Represents
      3,621,677 shares of common stock and 3,000,000 shares of common stock
      issuable upon conversion of 1,500,000 shares of Series B preferred which
      shares of Series B preferred stock vote on an as converted
      basis.




(5)
            Mr. Otto's
      address is 601 Union Street, Suite 4500, Seattle, WA
      98101.




(6)
            Mr.
      Fitzgerald’s address is 4 St. Andrew’s Hill, Pittsford,
      NY  14534.




(7)
            Represents
      5,000 shares of common stock.  Includes 10,609,476 shares
      beneficially owned by her spouse, Charles Fust, an executive officer and
      director of the Company.




(8)
            Sta-car
      Enterprises is an entity established February 24, 2003.  The
      Company granted the shares to Sta-Car Enterprises for settlement of a
      legal matter from Sta-Car resources.  These shares are
      considered to be beneficially owned by Charles Fust and Stacey
      Maloney-Fust.




(9)
            Represents
      1,229,723 shares of common stock Mr. Moty Hermon has a right to acquire
      from Mr. Fust pursuant to a put option, which shares of stock have been
      deposited into escrow by Mr. Fust for the benefit of Mr. Hermon. Mr. Fust
      holds a proxy to vote the escrowed
shares.




(10)
            Mr.
      Azizi was appointed to the Board on February 5, 2008.  Mr. Azizi
      is the President of and has sole dispositive power of an investment firm
      which directly owns all of the 2004 convertible debentures of the
      Company.  These convertible debentures were purchased from third
      parties by Mr. Azizi’s firm in September 2007 and March
    2008.




ITEM
12.                      CERTAIN RELATIONSHIPS ANDRELATEDTRANSACTIONS




Certain Relationships and Related Transactions




Our director and stockholder, David Otto, is the
principal owner of a law firm that provided services to the Company through
early 2007.  Expenses incurred to that law firm were approximately
$101,000 and $74,000 for the years ended December 31, 2007 and 2006,
respectively.  As of December 31, 2007, the Company had $92,000
recorded in accrued liabilities due to this firm.




The Companyleased
its former facility from an entitycurrently controlled by Stacey Maloney-Fust, a former
officer and director of the Company and the spouse of our current
CEO.  Rent related to this facility totaled $ $71,000 and $77,000 for
the years ended December 31, 2007 and 2006,
respectively.The lease had a
5-year term at a base rent of $5,998 per month (plus sales tax).The
lease provided for two additional five-year terms at the option of
SinoFresh.  By mutual agreement, the lease was terminated and the
Company relocated in December 2007.  No penalties were incurred as a
result of the lease termination.




The Company has an employment agreement with Charles
Fust to act as the Chief Executive Officer dated December 1, 2002. The
employment agreement had a term of five years and was renewable upon mutual
agreement of the parties.  Under that agreement, he is entitled to a
base salary, as adjusted, of $180,000 annually and 5.0% of net earnings before
taxes.  In addition, Mr. Fust is entitled to receive a car allowance
of $1,000 per month and certain club membership dues. The agreement also
provides that the Company and Mr. Fust enter into a stock option agreement under
which he would be provided anti-dilution rights so that Mr. Fust's equity
ownership of the Company, on a fully diluted basis, will be no less than 15% so
long as the total outstanding shares on a fully diluted basis are less than
100,000,000.  The agreement also prohibits Mr. Fust from competing
with the Company for a period of three years upon cancellation be of the
employment agreement.  The Company has not entered into a renewal of
this agreement or any other employment agreement with Mr. Fust subsequent to the
expiration of this agreement on December 1, 2007.


-28-




The Company had an employment agreement with Scott M.
Klein, the former Chief Financial Officer and Secretary, which provided for a
3-year term commencing as of November 1, 2004 with an annual salary of $110,000,
increasing to $120,000 on January 1, 2006 and $135,000 on January 1, 2007. In
connection with the employment agreement, Mr. Klein was granted a 5-year option
for 150,000 shares of common stock with an exercise price of $0.75 per share,
vesting immediately as to 75,000 shares and the remaining 75,000 shares will
vest ratably over 3 years commencing on November 1, 2005.  In
addition, the agreement provided for Mr. Klein to be granted additional 5-year
options for 50,000 shares on November 1, 2005 and on November 1, 2006, each at
an exercise price equal tothe closing sale
price of theCompany's common stock on such
dates, and these additional options will vest ratably over three years
commencing on the date of grant.  Mr. Klein resigned in May
2007.  He continues to provide consulting advice on an as needed
basis. [status of options?]




DirectorIndependence




Although the Company’s securities are listed on the
Over-the-Counter Bulletin Board, we apply the AMEX standard for independent
directors.  The AMEX requires that a majority of our board must be
composed of “independent directors,” which is defined generally as a person
other than an officer or employee of the company or its subsidiaries, or any
other individual having a relationship, which, in the opinion of the company’s
board of directors would interfere with the director’s exercise of independent
judgment in carrying out the responsibilities of a director.





The Company has determined that our board does not
consist of a majority of independent directors as defined under the AMEX’s
listing standards and Rule 10A-3 promulgated under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”).





Any affiliated transactions will be on terms no less
favorable to us than could be obtained from independent parties. Any affiliated
transactions must be approved by a majority of our independent and disinterested
directors.




ITEM
13.                      EXHIBITS




The exhibits in the accompanying Exhibit Index are filed
as part of this Report on Form 10-KSB or are incorporated by reference.






ITEM
14.                      PRINCIPAL ACCOUNTANT FEES AND
SERVICES




Audit Fees




The Company was billed by its accountants approximately$72,500and $92,000forthe years ended
December 31, 2007 and 2006, respectively for fees and expenses related to
professional services rendered in connection with the year end audits of the
consolidated financial statements and reviews of the quarterly consolidated
financial statements.


Audit-Related Fees




The Company was not billed any additional fees that are
not disclosed under audit fees in each of the last two calendar years for
assurance and related services that are reasonably related to the performance of
the audit or review of the Company's consolidated financial
statements.




-29-


Tax Fees




Fees for tax compliance, tax advice and tax planning,
including the preparation of certain tax returns in the years ended
December 31, 2007 and 2006 were approximately $0and $9,000, respectively.   Tax services
in  2006 were performed by a firm other than the Company’s principal
auditors.




All Other Fees




There have been no other material fees charged for
accounting products or services other than those described above for the years
ended December 31, 2007 and 2006.




Audit Committee Pre-Approval Process, Policies and
Procedures




The appointment of Moore Stephens Lovelace, P.A. was
approved by the Board of Directors as the principal auditors for the Company.
Charles Fust is currently the only member of the Company's Board of Directors
that has been appointed to serve on the Audit Committee.  There are no
board members that are considered to have significant financial
experience.  When independent directors with the appropriate financial
background join the board, the board plans to establish a new audit committee,
which will then adopt an appropriate charter and pre-approval policies and
procedures in connection with services to be rendered by the independent
auditors.




Exhibit Index





Number
            Description3.1
            Articles of Incorporation
    (1)3.1.1
            Amendment to Articles of Incorporation
      (2)3.2
            Bylaws (1)3.2.1
            Amendment to Bylaws(3)10.1
            Contract Manufacturing Agreement between SinoFresh
      HealthCare, Inc. and AccuMed, Inc. (2)10.2
            Proprietary Development, Right of First Refusal
      and Acquisition Agreement with SinoFresh Research Laboratories, LLC
      (2)10.3
            Accounts Receivable Financing Agreement withAllianceFinancial Capital, Inc. (2)10.4
            Form of Non-Plan Option Agreement
      (3)10.5
            Consulting Agreement with Dane Solomon
      (4)10.6
            Consulting Agreement with David Coloris
      (4)10.7
            Agreement
      with Moty Herman dated October 21, 2003 (5)14.1
            Code of Ethics
      (6)21.1
            Subsidiaries of the
      Registrant31.1
            Certification of Chief
      Executive Officer/Principal Accounting Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200232.1
            Certification of Chief
      Executive Officer/Principal Accounting Officer pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002




(1)   Incorporated by reference to
      Registrant's Form 10-SB, filed on April 29,2002, File No. 0-49764.




(2)   Incorporated by reference to
      Registrant's Form 10-QSB for the fiscal quarter ended September 30, 2003,
      filed    on November 17, 2003, File No.
      0-49764.




(3)  Incorporated by reference to
      Registrant's Form 10-KSB for the fiscal year ended December 31, 2004,
      filed on March 31, 2005, File No.
  0-49764.





(4)
      Incorporated by reference to Registrant's Form S-8 Registration Statement
      filed on February 7, 2006, File No.
  333-131646.


(5) Incorporated
      by reference to Registrant's Form 10-KSB for the fiscal year ended
      December 31, 2003, filed on April 14, 2004, File No.
      0-49764.
 (6) As disclosed in Item 9, a Code of Ethics will be
      provided to stockholders upon
  request.


-30-


SINOFRESH HEALTHCARE, INC.


(a corporation)




FINANCIAL STATEMENTS




as of December 31, 2007




In U.S. Dollars




INDEX









PageReport of Independent Registered
      Public Accounting Firm
            
            F-2Consolidated BalanceSheet as of December 31,
      2007
            
            F-3Consolidated Statements of Operations for the
      years ended December 31, 2007 and 2006
            
            F-4Consolidated Statements of Changes in
      Stockholders’ Deficit for the years ended December 31, 2007 and
      2006
            
            F-5Consolidated Statements of Cash Flows for the
      years ended December 31, 2007 and 2006
            
            F-7Notes to Financial
      Statements
            
            F-8







F-1




REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM




Board of
Directors


SinoFresh
HealthCare, Inc.


Venice,
Florida





We have
audited the accompanying consolidated balance sheet of SinoFresh HealthCare,
Inc. and subsidiary (the “Company”) as of December 31, 2007 and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for each of the two years in the period ended December 31, 2007.
These consolidated financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America).  Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of SinoFresh HealthCare, Inc.
and subsidiary at December 31, 2007, and the results of their operations and
their cash flows for each of the two years in the period ended December 31, 2007
in conformity with accounting principles generally accepted in the United States
of America.
  The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  As discussed in Note 1 of
the consolidated financial statements, the Company is in default on its
debenture obligations, has incurred substantial losses since its inception, has
a working capital deficiency at December 31, 2007, and has incurred negative
cash flow from operations.  These factors, among others, raise
substantial doubt about its ability to continue as a going
concern.  Management's plans related to these matters are also
described in Note 1.  The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.




/s/
Moore Stephens Lovelace, P.A.


Certified
Public Accountants


Orlando,
Florida


Dated  May
15, 2008


F-2





SINOFRESHHEALTHCARE, INC.


CONSOLIDATED
BALANCE SHEET


As of
December 31, 2007




ASSETSCURRENT
      ASSETS:Cash
              
              $
              919Accounts
      receivable, net of allowances of $7,426
              
              
              12,796Inventory
              
              
              7,656Prepaid
      Expenses
              
              
              99,933TOTAL
      CURRENT ASSETS
              
              
              121,304FURNITURE
      AND EQUIPMENT, NET
              
              
              17,109PATENTS,
      NET
              
              
              1,826,939OTHER
      ASSETS
              
              
              4,500$
              1,969,852LIABILITIES
      AND STOCKHOLDERS’ DEFICITCURRENT
      LIABILITIESConvertible
      debentures
              
              $
              730,000Short-term
      note payable
              
              
              100,000Current
      portion of  capital leases
              
              
              14,260Accounts
      payable (including amounts due to related parties of $
      127,213)
              
              
              1,609,365Deposit
      on sale of licensing and distribution rights
              
              
              661,240Accrued
      expenses (including amounts due to related parties of $
      92,146)
              
              
              1,096,845TOTAL
      CURRENT LIABILITIES
              
              
              4,211,710COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      EQUITY (DEFICIT):Preferred
      Stock, no par value; $2 liquidation value per share;
      200,000,000shares
      authorized:Series
      A convertible preferred stock, voting; 858,170 shares
      authorized,
              
              
              1,538,753769,377
      shares issued and outstandingSeries
      B convertible preferred stock, voting; 1,500,000 shares authorized,
      issued
              
              
              3,000,000and
      outstandingSeries
      C convertible preferred stock, voting; 1,250,000 shares
      authorized;
              
              
              1,423,301793,000
      shares issued and outstandingCommon
      stock, no par value; 500,000,000 shares authorized;
    24,916,110
              
              
              7,028,774shares  issued
      and outstandingCommon
      stock issuable:  4,239,570 shares
              
              
              800,254Accumulated
      deficit
              
              
              (16,017,876
              )Deferred
      stock-based compensation
              
              
              (15,064
              )TOTAL
      STOCKHOLDERS’ DEFICIT
              
              
              (2,241,858
              )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              1,969,852See
      notes to consolidated financial statements.





F-3




SINOFRESH
HEALTHCARE, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS





Year
      Ended
            
            
            Year
      EndedDecember
      31, 2007
            
            
            December
      31, 2006REVENUE,
      net
            
            $
            331,288
            
            
            $
            1,083,576COST
      OF REVENUE
            
            
            152,038
            
            
            
            537,205GROSS
      PROFIT
            
            
            179,250
            
            
            
            546,371OPERATING
      EXPENSESSalaries
      and other compensation expenses
            
            
            177,380
            
            
            
            906,227Professional
      fees
            
            
            394,491
            
            
            
            519,983Other
      general and administrative expenses
            
            
            317,636
            
            
            
            383,913Marketing
      and advertising expenses
            
            
            -
            
            
            
            56,866Research
      and development expenses
            
            
            -
            
            
            
            1,172Depreciation
      and amortization
            
            
            261,801
            
            
            
            261,802TOTAL
      OPERATING EXPENSES
            
            
            1,151,308
            
            
            
            2,129,963LOSS
      FROM OPERATIONS
            
            
            (972,058
            )
            
            
            (1,583,592
            )OTHER
      INCOME (EXPENSE):Interest,
      net
            
            
            (312,387
            )
            
            
            (584,387
            )Goodwill
      impairment charge
            
            
            -
            
            
            
            (2,409,401
            )Other
      income (expense)
            
            
            50,565
            
            
            
            (385,651
            )TOTAL
      OTHER EXPENSE
            
            
            (261,822
            )
            
            
            (3,379,439
            )LOSS
      BEFORE INCOME TAXES
            
            
            (1,233,880
            )
            
            
            (4,963,031
            )PROVISION
      FOR INCOME TAXES
            
            
            -
            
            
            
            -NET
      LOSS
            
            $
            (1,233,880
            )
            
            $
            (4,963,031
            )NET
      LOSS PER COMMON SHARE-Basic
      and diluted
            
            $
            (0.06
            )
            
            $
            (0.31
            )WEIGHTED
      AVERAGE COMMON SHARES OUTSTANDING-Basic
      and diluted
            
            
            19,243,118
            
            
            
            15,804,742See
      notes to consolidated financial statements.




F-4









SINOFRESH HEALTHCARE, INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT







Preferred
      StockCommon
      Stock
              
              
              Series
      A
              
              
              Series
      B
              
              
              Series
      C
              
              
              
              
              
              
              
              
              TotalNumber
              
              
              
              
              
              Number
              
              
              
              
              
              Number
              
              
              
              
              
              Number
              
              
              
              
              
              Deferred
      stock-
              
              
              Accumulated
              
              
              Stockholders'of
      Shares
              
              
              Amount
              
              
              of
      Shares
              
              
              Amount
              
              
              of
      Shares
              
              
              Amount
              
              
              of
      Shares
              
              
              Amount
              
              
              based
      compensation
              
              
              Deficit
              
              
              DeficitBalance
      at December 31, 2005
              
              
              14,505,229
              
              
              $
              5,823,421
              
              
              
              810,002
              
              
              $
              1,620,003
              
              
              
              1,500,000
              
              
              $
              3,000,000
              
              
              
              863,250
              
              
              $
              1,549,556
              
              
              $
              (63,761
              )
              
              $
              (9,820,965
              )
              
              $
              2,108,254Conversion
      of Series A preferredto
      common
              
              
              31,250
              
              
              
              62,500
              
              
              
              (31,250
              )
              
              
              (62,500
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Conversion
      of Series C preferredto
      common
              
              
              65,000
              
              
              
              58,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (32,500
              )
              
              
              (58,500
              )
              
              
              -
              
              
              
              -
              
              
              
              -Issuance
      of options to employees
              
              
              
              
              
              
              304,763
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (304,763
              )
              
              
              
              
              
              
              -Issuance
      of shares and optionsfor
      services
              
              
              870,000
              
              
              
              217,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              217,500Amortization
      of unearned stockbased
      compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              192,981
              
              
              
              -
              
              
              
              192,981Issuance
      of shares to theCompany's
      401(K) plan
              
              
              103,076
              
              
              
              25,769
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              25,769Conversion
      of debentures to equity
              
              
              680,000
              
              
              
              170,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              170,000Issuance
      of shares and optionsto
      settle lawsuit
              
              
              135,000
              
              
              
              43,177
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              43,177Net
      loss,  year endedDecember
      31, 2006
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,963,031
              )
              
              
              (4,963,031
              )





F-5








SINOFRESH
HEALTHCARE, INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (CONTINUED)


Preferred
      StockCommon
      Stock
              
              
              Common
      Stock Issuable
              
              
              Series
      A
              
              
              Series
      B
              
              
              Series
      C
              
              
              
              
              
              
              
              
              TotalNumber
              
              
              
              
              
              Number
              
              
              
              
              
              Number
              
              
              
              
              
              Number
              
              
              
              
              
              Number
              
              
              
              
              
              Deferred
      stock-
              
              
              Accumulated
              
              
              Stockholders'of
      Shares
              
              
              Amount
              
              
              of
      Shares
              
              
              Amount
              
              
              of
      Shares
              
              
              Amount
              
              
              of
      Shares
              
              
              Amount
              
              
              of
      Shares
              
              
              Amount
              
              
              based
      compensation
              
              
              Deficit
              
              
              DeficitBalance
      at December 31, 2006
              
              
              16,389,555
              
              
              $
              6,705,630
              
              
              
              -
              
              
              $
              -
              
              
              
              778,752
              
              
              $
              1,557,503
              
              
              
              1,500,000
              
              
              $
              3,000,000
              
              
              
              830,750
              
              
              $
              1,491,056
              
              
              $
              (175,543
              )
              
              $
              (14,783,996
              )
              
              $
              (2,205,350
              )Conversion
      of Series A preferredto
      common
              
              
              9,375
              
              
              
              18,750
              
              
              
              -
              
              
              
              -
              
              
              
              (9,375
              )
              
              
              (18,750
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              -Conversion
      of Series C preferredto
      common
              
              
              75,500
              
              
              
              67,755
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (37,750
              )
              
              
              (67,755
              )
              
              
              -
              
              
              
              -
              
              
              $
              -Issuance
      of shares and optionsfor
      services and liabilities
              
              
              1,250,000
              
              
              
              117,500
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              117,500Sale
      of unregistered common stock and conversion of debentures plus accrued
      interest
              
              
              836,680
              
              
              
              147,096
              
              
              
              3,499,570
              
              
              
              615,254
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              762,350Amortization
      of unearned stockbased
      compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              111,187
              
              
              
              -
              
              
              $
              111,187Shares
      issuable to employees as bonus
              
              
              -
              
              
              
              -
              
              
              
              740,000
              
              
              
              185,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              185,000Cancellation
      of options
              
              
              -
              
              
              
              (451,983
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              49,293
              
              
              
              -
              
              
              $
              (402,690
              )Warrants
      issued to debt holder
              
              
              -
              
              
              
              8,147
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              8,147Conversion
      of debentures to equity
              
              
              4,075,000
              
              
              
              211,979
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              211,979Issuance
      of shares and optionsto
      settle lawsuit
              
              
              2,280,000
              
              
              
              203,900
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              $
              203,900Net
      loss,  year endedDecember
      31, 2007
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,233,880
              )
              
              $
              (1,233,880
              )Balance
      at December 31, 2007
              
              
              24,916,110
              
              
              $
              7,028,774
              
              
              
              4,239,570
              
              
              $
              800,254
              
              
              
              769,377
              
              
              $
              1,538,753
              
              
              
              1,500,000
              
              
              $
              3,000,000
              
              
              
              793,000
              
              
              $
              1,423,301
              
              
              $
              (15,064
              )
              
              $
              (16,017,876
              )
              
              $
              (2,241,858
              )







See Notes
to Consolidated Financial Statements


F-6


SINOFRESH
HEALTHCARE, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS









Year
      Ended
              
              
              Year
      EndedDecember
      31, 2007
              
              
              December
      31, 2006CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (1,233,880
              )
              
              $
              (4,963,031
              )Adjustments
      to reconcile net loss to net cashused
      in operations:Amortization
      of stock, options and warrants issued for services, net of
      recaptures
              
              
              (291,504
              )
              
              
              242,981Amortization
      and depreciation
              
              
              261,800
              
              
              
              261,802Stock
      issued as settlement cost
              
              
              3,900
              
              
              
              -Stock
      issued as payment for services
              
              
              24,167
              
              
              
              -Goodwill
      impairment charge
              
              
              -
              
              
              
              2,409,401Provision
      for bad debts
              
              
              -
              
              
              
              22,360Provision
      for excess inventory
              
              
              -
              
              
              
              95,380Amortization
      of debt discount
              
              
              -
              
              
              
              264,306Amortization
      of deferred debt issuance costs
              
              
              -
              
              
              
              177,713Warrants
      issued to debt holders
              
              
              8,147
              
              
              
              -Changes
      in assets and liabilities:
              
              
              
              
              
              
              -Accounts
      receivable
              
              
              146,369
              
              
              
              92,901Inventory
              
              
              17,979
              
              
              
              (8,014
              )Other
      current assets
              
              
              (3,491
              )
              
              
              144,821Other
      assets
              
              
              1,918
              
              
              
              -Accounts
      payable
              
              
              229,546
              
              
              
              159,162Accrued
      expenses
              
              
              438,111
              
              
              
              876,938Deposit
      on sale of licensing and distribution rights
              
              
              82,500
              
              
              
              -NET
      CASH USED IN OPERATING ACTIVITIES
              
              
              (314,438
              )
              
              
              (223,280
              )FINANCING
      ACTIVITIES:Proceeds
      from short-term notes payable
              
              
              220,000
              
              
              
              100,000Proceeds
      from sale of unregistered common stock
              
              
              50,500
              
              
              
              -Proceeds
      from sale of common stock issuable
              
              
              67,500
              
              
              
              -Payments
      on debt and capital leases
              
              
              (23,530
              )
              
              
              (23,870
              )NET
      CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
              
              
              314,470
              
              
              
              76,130INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
              
              
              32
              
              
              
              (147,150
              )CASH
      AND CASH EQUIVALENTS - beginning of year
              
              
              887
              
              
              
              148,037CASH
      AND CASH EQUIVALENTS - end of year
              
              $
              919
              
              
              $
              887SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for interest
              
              $
              19,821
              
              
              $
              78,223NON-CASH
      ACTIVITY:Reduction
      of accounts payable and accrued liabilites through the
      issuanceof
      common stock and stock options
              
              $
              245,000
              
              
              $
              236,446Conversion
      of 2007 convertible debentures and related accrued interest into common
      stock
              
              $
              211,979
              
              
              $
              170,000Conversion
      of 2004 convertible debentures and related accrued interest into common
      stock issuable and a deposit on licensing and distribution
      rights
              
              $
              1,223,090
              
              
              $
              -See
      notes to consolidated financial statements.


F-7


SINOFRESH
HEALTHCARE, INC.




Notes to
Consolidated Financial Statements


For the
years ended December 31, 2007 and 2006





NOTE
1: Nature of Business and Summary of Significant Accounting
Policies




ORGANIZATION:  SinoFresh
HealthCare, Inc., a Florida Corporation (“SinoFresh” or the “Company”) came into
existence as a result of a series of events.  The Company's
predecessor, SinoFresh HealthCare, Inc. ("SinoFresh – Delaware") was
incorporated in the state of Delaware on October 15, 2002. In November 2002
SinoFresh - Delaware entered into an asset purchase agreement (the "Asset
Purchase Agreement") whereby it received certain assets and liabilities of
SinoFresh Laboratories, Inc. effective at the close of business on November 15,
2002 in exchange for 808,170 shares of its Series A preferred
stock.




On
September 8, 2003 (the "Merger Date"), SinoFresh  - Delaware,
SinoFresh Acquisition Corp. (Acquisition), SinoFresh Corp., formerly known as
e-Book Network, Inc., a Florida corporation, and the sole director and majority
stockholder of SinoFresh Corp. entered into a Merger Agreement.  In
addition, SinoFresh Corp. changed its name to SinoFresh HealthCare,
Inc.




Under the
Merger Agreement, SinoFresh Corp. acquired all of the outstanding capital stock
of SinoFresh – Delaware.




Subsequent
to the merger, Acquisition, which changed its name to SinoFresh Corporation,
remains the operating subsidiary of the Company.  Since the former
shareholders of SinoFresh - Delaware also obtained management control of
SinoFresh, the merger transaction was treated as a recapitalization of the
Company, with SinoFresh - Delaware as the acquirer for financial accounting
purposes.




GOING
CONCERN:  The Company's ability to continue as a going concern is
subject to substantial doubt and uncertainty due to the Company’s history of
losses, current default status on the repayment of debentures (see note 5),
significant loss of distribution network, limited financial resources and need
for additional working capital to implement the Company's business
plan.  In this connection, the Company requires additional funding in
order to repay its debentures and to market and distribute its products, exploit
the technology underlying its patents, further develop existing and new
products, and pay its existing accounts payable.  As a result of the
Company being in default on its debenture obligations, substantially all of the
Company’s assets are subject to foreclosure by the debenture
holders.  On December 31, 2007, the Company had current assets of
approximately $121,000 (including cash of approximately $1,000 and current
liabilities of approximately $4,211,000.  As a result, the Company's
current liquidity is extremely limited and the Company will require a
significant amount of additional funding in order to meet its current working
capital requirements, including repayment of its debentures.  In order
to address these issues, the Company is seeking to raise additional funding
through the issuance of debt and equity securities, joint ventures or other
arrangements.  Although the Company believes that it will be able to
obtain additional funding, there can be no assurance that the Company's efforts
will be successful.  The accompanying statements do not include any
adjustments that might be necessary if the Company were unable to continue as a
going concern.




NATURE OF
BUSINESS:  The Company is engaged in the research, development, and
marketing of novel therapies to treat inflammatory and infectious diseases and
disorders of the upper respiratory system.




ACCOUNTING
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
Company's significant estimates and assumptions includes, among other things,
significant risks and uncertainties associated with the valuation and the
ultimate realizability of its patents carrying value.




CONCENTRATION
OF RISK: Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist primarily of cash and cash
equivalents and accounts receivable. The Company's investment policy is to
invest in low risk, highly liquid investments. At December 31, 2007,
approximately seventy-six percent (76%) of gross accounts receivable were due
from 4 customers.  Additionally, approximately sixty-seven percent
(67%) of the Company's revenues during 2007 were derived from three
customers.  In 2006, approximately sixty-eight percent (68%) of the
Company’s revenues were derived from four customers.


F-8




The
Company's business is dependent on its ability to utilize the underlying patents
and a third party manufacturer provides all of the Company's manufacturing
capacity.  The Company is also dependent on the revenue from the sale
of SinoFreshTM Nasal & Sinus Care, its primary product available for sale,
which accounted for approximately ninety-nine percent (99%) of its revenues for
each of the years ended December 31, 2007 and 2006, respectively.




CASH AND
CASH EQUIVALENTS: The Company considers all highly liquid investments with
maturity of three months or less when purchased to be cash
equivalents.




FAIR
VALUE OF FINANCIAL INSTRUMENTS: All financial instruments are carried at amounts
that approximate fair value.




ACCOUNTS
RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS:  Accounts receivable
results from the sale of the Company's products at sales prices, net of
estimated allowances. The Company estimates an allowance for doubtful accounts
based on a specific identification basis and additional allowances based on
historical collections experience.  Accounts are considered past due
when outstanding beyond the stated payment terms.  The Company does
not remove from its records any account receivable until all reasonable means of
collection have been exhausted and collection does not appear
probable.




INVENTORIES:
Inventories are valued at the lower of cost (determined on a first-in, first-out
basis) or market and are evaluated for product obsolescence on a periodic basis
(see note 2).




FURNITURE
AND EQUIPMENT:  Furniture and equipment is stated at cost and is
depreciated using the straight-line method over five to seven years (see note
3).




PATENTS:
Patents are stated at cost and are amortized over thirteen years (the
approximate life of the patents on the date of purchase) using the straight-line
method (see note 4).  Intangible assets, such as patents, are subject
annually, to an impairment evaluation, or interim impairment evaluation if an
interim triggering event occurs which indicates that the carrying amount of the
patents may not be recoverable.  The Company completed its impairment
test of its current patents as of December 31, 2007.  This test was
performed internally and consisted of evaluating potential future revenue
streams, current market capitalization, shareholder equity values and the
estimated market value of such assets.  As a result of the Company’s
evaluation, no impairment of the Company’s patents was recognized during 2006
and 2007.




LONG-LIVED
ASSETS: The Company reviews long-lived assets, including intangible assets, for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of long-lived
assets is measured by comparison of its carrying amount to the undiscounted cash
flows that the asset or asset group is expected to generate. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the property, if any, exceeds its fair
market value.




GOODWILL:
Goodwill represents the excess purchase price and related costs over the fair
value assigned to the net tangible and identifiable intangible assets of
businesses acquired.  Goodwill is carried at lower of cost or market
and is subject annually to an impairment evaluation, or interim impairment
evaluation if an interim triggering event occurs which indicates that the
carrying amount of goodwill may not be recoverable.  The Company
completed its impairment test of existing goodwill as of December 31, 2006. This
test was performed internally and consisted of evaluating potential future
revenue streams, current market capitalization, shareholder equity values and
the estimated market value of such assets.  As a result of the
Company’s evaluation, an impairment of goodwill was recognized in the amount of
$2,409,401 during 2006.  This amount represented all of the Company’s
recorded goodwill.




REVENUE
RECOGNITION: In general, revenue from sales is recognized at the time products
are shipped less estimated sales returns, certain vendor cooperative promotional
costs and other allowances.




MARKETING
AND ADVERTISING EXPENSES:Marketing and advertising expenses were limited in the
years ended December 31, 2007 and 2006 due to the lack of working
capital.  There were no such activities in 2007.  Expenses
in 2006 consisted of product promotion costs of $47,927, public relations costs
of $2,700 and other internal related marketing costs of $6,239.  All
costs for advertising media are expensed in the period in which such media has
been presented to its targeted audience.


F-9




RESEARCH
AND DEVELOPMENT COSTS:  SinoFresh's policy is to expense all research
and development expenses as incurred.  Research and development
expenses during the years ended December 31, 2007 and 2006 totaled approximately
$0 and $1,000, respectively.  Future research and development will be
focused on advancing scientific research on existing products as well as planned
new product offerings in the health care industry, in general, and in the
respiratory and infectious disease category, in particular.  These
product offerings may include both over-the-counter and ethical
products.  However, substantial research and development costs are not
anticipated until outside funding is received for such projects or cash flow
from operations is sufficient to support continued programs.  New
product development will be supported by clinical studies to ensure the safety
and efficaciousness of the Company's products, as well as for line extension
derivatives of current and future products.




SALES
INCENTIVES AND CONSIDERATION PAID TO RETAILERS: The Company accounts for certain
promotional costs such as sales incentives, promotional funds, cooperative
advertising, rebates and consumer coupon redemptions as a reduction of net
sales. For the years ended December 31, 2007 and 2006, the Company had recorded
approximately $168,000 and $501,000, respectively, as a reduction of revenue
related to these costs.




SHIPPING
AND HANDLING COSTS: Shipping and handling costs are classified as a cost of
sales and those billed to customers are recorded as revenue on the consolidated
statements of operations.




STOCK-BASED
COMPENSATION: Effective January 1, 2006, the Company has transitioned from
Accounting Principles Board Opinion (APB) No. 25 “Accounting for Stock Issued to
Employees”, to Statement of Financial Accounting Standards No. 123R, “Accounting
for Stock-Based Compensation” (SFAS No. 123R).  Using the prospective
method under SFAS No. 123R, the Company recorded in the year ended December 31,
2006, approximately $247,000 of deferred stock-based compensation relating to
the unamortized balance of options issued prior to 2006.




In
addition, the Company recognized an additional amount of compensation expense,
using the Black-Scholes valuation model, of approximately $58,000 in deferred
stock-based compensation related to options awarded in 2006.  In
determining fair market value for options granted during 2006, the Company
assumed a risk-free rate of 3%, an expected life of 5 years, volatility ranging
from 1.49 to 1.60 and no expected dividends.  The weighted average
option grant fair value in 2006 was $0.17 per share.  There were no
stock options granted to employees in 2007.




During
2007, 1,067,750 employee stock options were forfeited as a result of the
employees’ termination or resignation from the Company.  As a result,
per SFAS 123R, the Company recaptured approximately $403,000 of previously
recognized stock option compensation expense.  During 2007 and 2006,
the Company recognized stock compensation expense of approximately $111,000 and
$193,000 for active employees, respectively, relating to the amortization of
deferred stock-based compensation.




The fair
value of each stock option or warrant granted to non-employees is estimated on
the measurement date using the fair value method of SFAS 123R.




INCOME
TAXES: Deferred tax assets and liabilities and the resultant provision for
income taxes are determined based on the difference between the financial
statements and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse. Deferred
tax assets are recognized when management determines that it is more likely than
not that the asset will be realized (see note 10).




NET
INCOME (LOSS) PER SHARE: Basic net income (loss) per share and diluted net
income (loss) per share have been computed based upon the weighted average
number of common shares outstanding during the year. Assumed common stock
equivalents were excluded from the net loss per share computations, as their
effect is antidilutive. Common stock equivalents could potentially dilute basic
earnings per share in future periods if the Company generates net
income.  At December 31, 2007 and 2006, there were 4,239,570 and -0-
shares of common stock issuable.  At December 31, 2007 and 2006, there
were 7,223,218 and 6,084,793 warrants issued, respectively, to purchase common
stock.  At December 31, 2007 and 2006, there were 1,163,681 and
2,231,431 options issued, respectively, to purchase common stock.  At
December 31, 2007 and 2006, there were 3,062,377and 3,109,502 preferred shares,
respectively, convertible to 5,355,377and 5,440,252 common shares.  At
December 31, 2007 and 2006, there were outstanding debentures convertible into
3,959,681 and 6,240,000 common shares.  These equity and debt
instruments may dilute future EPS (see note 11).


PRINCIPLES
OF CONSOLIDATION:  The consolidated financial statements include the
accounts of the Company and its wholly owned operating subsidiary, SinoFresh
Corporation. All inter-company balances and transactions have been eliminated in
consolidation.


F-10




RECLASSIFICATIONS:  Certain
amounts in the 2006 financial statements have been reclassified to conform to
the 2007 presentation.




Recent
Accounting Pronouncements




In
September 2006, the Financial Accounting Standards Board, or FASB, issued
SFAS No. 157, “Fair Value Measurements” (SFAS No. 157). SFAS
No. 157 establishes a common definition for fair value to be applied to US
GAAP guidance requiring use of fair value, establishes a framework for measuring
fair value, and expands disclosure about such fair value measurements. SFAS
No. 157 is effective for fiscal years beginning after November 15,
2007. We are currently assessing the impact of SFAS No. 157 but do not
believe the adoption will have a significant impact on our financial position
and results of operations.




On
February 15, 2007, the FASB, issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities.” Under SFAS No. 159,
we may elect to report financial instruments and certain other items at fair
value on a contract-by-contract basis with changes in value reported in
earnings. This election is irrevocable. SFAS No. 159 provides an
opportunity to mitigate volatility in reported earnings caused by measuring
hedged assets and liabilities that were previously required to use a different
accounting method than the related hedging contracts when the complex hedge
accounting provisions of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, are not met. SFAS No. 159 is effective
for years beginning after November 15, 2007. If we adopt this standard, we
do not expect it to have a material effect on our financial
statements.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51, which changes
the accounting and reporting for minority interests. Minority interests will be
recharacterized as non-controlling interests and will be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for as
equity transactions. In addition, net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any
interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for us beginning
January 1, 2009 and will apply prospectively, except for the presentation
and disclosure requirements, which will apply retrospectively. We do not expect
it to have a material effect on our financial statements.




In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised
2007), Business
Combinations, which replaces SFAS No 141. The statement retains the
purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for us
beginning January 1, 2009. We do not expect it to have a material effect on
our financial statements.




NOTE
2: Inventories




Inventories
at December 31, 2007 consisted of the following:




Finished
      Product – nasal spray
            
            $
            7,656Less:  Allowance
      for excess inventory
            
            
            (-0-
            )Net
      inventory
            
            $
            7,656







The
Company has an agreement with a third party, who is a registered Federal Drug
Administration and a cGMP (current Good Manufacturing Practices) qualified
manufacturer, to manufacture its products.  This agreement expires in
August 2008 unless terminated earlier by either party with 90 days
notice.


F-11




NOTE
3: Furniture and Equipment




Furniture
and equipment at December 31, 2007 summarized by major classification is as
follows:




Furniture
      and Fixtures
            
            $
            75,485Computer
      Equipment
            
            
            73,055Warehouse
      Equipment
            
            
            9,267Less:
      Accumulated Depreciation
            
            
            (140,698
            )$
            17,109




Furniture
and equipment included computer and warehouse equipment of approximately
$115,000 acquired under capital lease arrangements at December 31, 2007.
Depreciation expense for furniture and equipment acquired under capitalized
lease arrangements was approximately $23,000 for each of the years ended
December 31, 2007 and 2006, respectively.   Total depreciation
expense was approximately $31,000 for each of the years ended December 31, 2007
and 2006, respectively.




NOTE
4: Patents




Patents
as of December 31, 2007 consist of the following:




Patents
            
            $
            3,000,000Less:
      Accumulated Amortization
            
            
            (1,173,061
            )$
            1,826,939




Patents
are being amortized over 13 years based on the estimated remaining legal life as
of the date of the acquisition of such patents. Amortization expense was
approximately $231,000 for each of the years ended December 31, 2007 and 2006,
respectively.




The
estimated aggregate amortization expense for patents for each of the succeeding
five calendar years is approximately as follows:




2008
            $
      231,0002009
            $
      231,0002010
            $
      231,0002011
            $
      231,0002012
            $
      231,000







F-12


The
original valuation of the Company's patents was preformed by an independent
valuation specialist and involved the use of estimates related to the fair value
of the patents.  As of December 31, 2007, the Company has evaluated it
patents and has determined that there is no impairment in such asset value.




NOTE
5: Convertible Debentures, Short-term Notes Payable and Capital
Leases




On
December 7, 2004, the Company obtained financing in the total amount of
$1,830,000 through the sale of two-year Senior Secured 6% Convertible Debentures
(the "Debentures") to various institutional and private
investors.  The Debentures, which matured on December 6, 2006, are
collateralized by all of the assets of the Company and its operating subsidiary,
SinoFresh Corporation (including the Company's patents and trademarks); and, the
Debentures are currently convertible at a conversion price of $.1933 per share,
subject to certain anti-dilution provisions contained in the terms of the
Debentures.  The Company reserves the right to require conversion of
the Debentures at any time after an effective registration statement if the
closing bid price of the Company's stock exceeds 300% of the conversion price
then in effect for a period of 20 consecutive trading days.  Interest
is payable quarterly in arrears in cash; however, the Company may make interest
payments with common stock so long as the market price of the common stock at
such time is at least 115% of the then effective conversion
price.  The Company's subsidiary, SinoFresh Corporation, entered into
a guaranty agreement with the investors, guaranteeing the Company's performance
under the financing documents.




As an
inducement to the Debenture holders, 1,663,645 warrants were issued and are
currently exercisable at a price of $0.1933, subject to certain anti-dilution
provisions contained in the terms of the Debentures.  Debenture
proceeds allocated to these warrants totaled $610,000 and were reflected as a
debt discount against the value of the total Debenture proceeds.  The
debt discount was amortized to interest expense over the original 24-month term
of the Debentures.




In
connection with the debentures, the Company issued 320,000 warrants to a
placement agent.  These warrants were valued at approximately $268,000
and were amortized to interest expense over the original 24-month term of the
debentures.  The Company also paid approximately $142,000 for
placement agent and other closing costs related to the
Debentures.  These costs were recorded as deferred debt issuance costs
and were amortized to interest expense over the original 24 month term of the
Debentures.




In
accordance with Emerging Issues Task Force Issue Nos. 98-5 and 00-27, the
convertible debentures were deemed to contain a beneficial conversion
feature.  The beneficial conversion feature for the debenture
transaction was estimated to be approximately $1,600,000; however, the recorded
amount was limited to the proceeds of the issuance, less the allocated value of
warrants, or $1,220,000.  Due to the Debentures being immediately
convertible, the beneficial conversion feature was fully expensed to interest
expense as of the date of issuance.




Under the
debentures, we are prohibited from taking certain corporate actions without the
written consent of the holders of the debentures, including the making of
distributions on our capital stock; the redemption or repurchase of our
securities; the creation of any liability or lien on our assets except
borrowings existing or committed on December 6, 2004, obligations to trade
creditors or financial institutions incurred in the ordinary course of business,
and loans to repay the debentures; the sale or other disposition of any
significant portion of our assets outside of the ordinary course of business;
the loaning or the advancing of any funds or credit, except in connection with
any such items in existence or committed on December 6, 2004, or made in the
ordinary course of business, or that are not in excess of $50,000 if made
outside the ordinary course of business; and create any contingent liabilities
except those that are in existence on December 6, 2004 or are made in the
ordinary course of business.




On
December 6, 2006 the Company defaulted on its principal and interest obligations
due under the debenture agreement.  In accordance with the debenture
agreement, upon default, the interest rate increased to 15% as of the default
date and the Company also incurred a penalty of $397,490 which equated to 25% of
the outstanding principal and interest as of the default date.  The
penalty was recorded as a liability under accrued expenses.




On June
9, 2006, the Company entered into an unsecured loan agreement with a
non-affiliated third party in the amount of $100,000.  According to
the loan provisions, the principal and interest totaling $120,000 was due on
July 31, 2006.  The Company is currently in default on the repayment
of this loan.




During
the year ended December 31, 2007, the Company obtained financing in the total
amount of $220,000 through the sale of 18-month Unsecured 10% Convertible
Debentures.  The Debentures are convertible into common shares at
prices ranging from $.04 to $.08 per share.  Total common shares
issuable pursuant to these Debentures are 4,387,500 shares.  As of
December 31, 2007, $195,000 plus accrued interest has been converted into
4,075,000 shares of common stock which have been
issued.   Interest is payable annually in arrears in
cash.  The Company reserved the right to require conversion of the
Debentures and outstanding interest, at any time, if the closing bid price of
the Company’s stock equals or exceeds $0.10 for a period of 20 consecutive
trading days.  The Company also reserved the right to redeem the
Debentures, in whole, at any time or times, on not less than thirteen (13)
months after execution of the Agreement, upon payment of one hundred ten percent
(110%) of the principal.


F-13




At
December 31, 2007, debt obligations consisted of the following:




Secured
      convertible debentures
            
            $
            705,000Convertible
      debentures
            
            
            25,000Short-term
      note payable
            
            
            100,000Capital
      lease obligations
            
            
            14,260$
            844,260Less
      current portion
            
            
            844,260Long-term
      debt
            
            $
            -0-





NOTE
6:  Deposit on Sale of Licensing and Distribution Rights




In May
2007 the Company entered into a Memorandum of Understanding (“MOU”) with
Beneficial Healthcare (“Investors”) that provided for an equity investment of up
to $5.0 million in exchange for 25,000,000 common shares of the
Company.  Razek Azizi, a director of our Company, is the President of
Beneficial Healthcare and has sole voting and dispositive power over Beneficial
Healthcare.  The MOU further provided for:


1.
            Investors
      to be granted a 50% interest in profits generated from all sales outside
      of North America, including but not limited to technology transfer fees,
      royalties, and licensing fees upon the Company’s receipt of the full
      $5,000,000.2.
            Investors
      to be granted private licensing and distribution rights to sell the
      Company’s products in all territories outside of North America upon their
      infusion of the full $5,000,000 investment.3.
            Settlement
      and retirement of outstanding convertible debentures.4.
            Completion
      of the Phase II components of drug development for Antibiotic Resistant
      Staphylococcus Aureus (MRSA).


5.
            Sales
      and marketing budget.6.
            Product
      manufacturing and operations for national
  distribution.


7.
            Settlement
      and payoff of unsecured debt.8.
            Grant
      of three (3) board seats of a (5)-member board seat of the
      Company.


Investment
thereto is subject to mutual agreement among the parties as to the form and
content of the final documentation with respect to any such
investment.  The total investments contemplated by the MOU were to
occur not later than July 9, 2007.  However, by verbal agreement
between the Investors and the Company, the MOU was effectively extended through
the end of the 2007 and the Investors continued to invest into the Company, and
the Company continued to accept the investments, under the same terms and
conditions contained within the MOU.
 
 The
Company received an initial investment of $200,500 during the year ended
December 31, 2007 in exchange for 1,002,500 issuable common
shares.  The shares were recorded at their market price on the date of
investment and the difference between the market price and the $0.20 issuance
rate agreed to in the MOU has been treated as a deposit towards the sale of
licensing and distribution rights.
 
 In August
2007, the Investors acquired certain outstanding convertible debentures issued
by the Company having a face value of $1,255,000 plus accrued interest
approximating $528,000, directly from third party debenture holders through a
private sale. Such debentures matured on December 6, 2007 and are currently in
default.  As part of the MOU agreement, the Company and the Investors
agreed to convert $855,000 of the debentures, plus accrued penalties and
interest into 3,333,750 shares of common stock. The issuable shares were
recorded at the conversion rate prescribed by the underlying convertible
debenture agreements with the difference from the converted debentures’ face
value, plus related accrued interest and penalties, being recorded as a deposit
towards the sale of licensing and distribution rights. The deposit will be
recognized as revenue upon the Company’s receipt of the full $5 million
anticipated by the MOU and the transfer of the rights. At December 31, 2007,
836,680 of these common shares have been issued and 3,499,750 are pending
issuance, which will occur upon direction from the investors.
 
 As of
December 31, 2007 the Investors have a remaining balance of convertible
debentures with a face value of $400,000, plus previously accrued interest and
penalties that, will entitle them to convert the debentures at $0.20 per
share.
 F-14





NOTE
7: Stockholders' Equity




Common
Stock




The
holders of SinoFresh's common stock are entitled to equal dividends and
distributions per share with respect to the common stock when, as and if,
declared by the board of directors from funds legally available
therefore.  No holders of common stock have a pre-emptive right to
subscribe for any of our securities, nor are any common shares subject to
redemption or convertible into other securities.  Upon our
liquidation, dissolution or winding-up, and after payment of creditors and
preferred shareholders, if any, our assets will be divided pro rata on a
share-for-share basis among the holders of the shares of common
stock.  Each share of the common stock is entitled to one vote with
respect to the election of any director or any other matter upon which
shareholders are required or permitted to vote.  We have authorized
500,000,000 shares of no par value common stock.




During
2007, 1,250,000 common shares were issued in exchange for various services and
liabilities, 2,280,000 common shares were issued to resolve legal matters and
836,680 common shares were issued as part of a sale of common
stock.  In addition, 9,375 Series A preferred shares were converted
into 9,375 shares of common stock, 37,750 Series C preferred shares were
converted into 75,500 shares of common stock and $195,000 in convertible
debentures plus related accrued interest were converted into 4,075,000 shares of
common stock.


Preferred
Stock




Our
Articles of Incorporation authorize the issuance of up to 200,000,000 shares of
"blank check" preferred stock with such rights and preferences as our board of
directors, without further shareholder approval, may determine from time to
time.  Of these authorized preferred shares, SinoFresh has designated
858,170 shares as Series A preferred stock, 1,500,000 shares as Series B
preferred stock, and 1,250,000 shares as Series C preferred
stock.  All preferred stock ranks senior to common stock as to payment
of dividends and distribution of assets.  Series A and B preferred
stock ranks junior to Series C preferred stock, and Series A preferred stock
ranks junior to Series B preferred stock, as to payment of dividends and
distribution of assets.  All three series of preferred stock have a
liquidation value of $2.00 per share.  Series A preferred shares are
convertible into common stock on a one-for-one basis, while Series B and C
preferred shares are convertible on a two-for-one basis, and, all have voting
rights equivalent to the common stock into which they are
convertible.  In September 2004, the shares of common stock underlying
the outstanding preferred stock became eligible for resale under Rule
144.




Convertible
Debentures




As of
December 31, 2007, the Company had $730,000 outstanding principal in connection
with convertible debenture agreements which are eligible for conversion into
3,959,681 shares of common stock (see notes 5).




Warrants
and Stock Options




Warrants




In
connection with the December 2004 debenture financing, we issued to the
debenture holders and a placement agent warrants to purchase shares of our
common stock.  The warrants, which expire on December 6, 2009, contain
anti-dilution provisions under which the number of shares issuable upon exercise
of the warrants and the exercise price will be adjusted upon the issuance of
common stock or securities convertible into or exercisable for common stock at
prices lower than the then effective exercise price of the warrants, the
occurrence of stock splits, stock distributions, and other corporate
events.  As a result of dilutive issuances during 2006 and 2007,
outstanding warrants connected with this financing increased from 1,951,645
warrants to 5,984,773 as of December 31, 2007 and had exercise prices decrease
from $0.25 per share, as of December 31, 2006 to $0.1933 per share.


F-15




We
have outstanding additional warrants to purchase a total of 1,238,445 shares of
common stock.  The warrants were issued in private placements and to
consultants and vendors in respect of services.  The warrants have
exercise prices ranging from $0.09 to $7.00 per share, and expire at varying
times from September 2008 through January 2012.  The warrants contain
registration rights.
  The
weighted average exercise price of the Company’s 7,223,218 outstanding warrants
as of December 31, 2007 is $0.68.




Non-Plan Stock
Options




We have
additional outstanding options to purchase 357,681 shares of common stock to
independent consultants and other service providers at exercise prices ranging
from $0.25 to $1.50 per share.  All of these options are currently
exercisable and expire at varying times between September 2008 and September
2011.




The
weighted average exercise price of the Company’s 357,681 outstanding non-plan
stock options as of December 31, 2007 is $0.84.




Plan Stock
Options




We have
reserved for options under our 2002 Stock Option Plan 3,000,000 shares of common
stock.  As of December 31, 2007, there were outstanding options under
the Plan for 806,000 shares of common stock, at exercise prices ranging from
$0.25 to $1.00 per share.  Stock options issued to employees are
valued based on the Black-Scholes method and are expensed over the vesting
period of the option.




Plan
stock option activity was as follows during the years ended December 31, 2007
and 2006.




Options
            
            
            Weighted
      Average
              Exercise
      PriceOutstanding
      at December 31, 2005
            
            
            1,528,750
            
            
            $
            0.92Options
      granted
            
            
            345,000
            
            
            $
            0.25Exercised
            
            
            --
            
            
            
            --Expired
      or cancelled
            
            
            --
            
            
            
            --Outstanding
      – December 31, 2006
            
            
            1,873,750
            
            
            $
            0.33Options
      granted
            
            
            --
            
            
            
            --Exercised
            
            
            --
            
            
            
            --Expired
      or cancelled
            
            
            (1,067,750
            )
            
            $
            0.26Outstanding
      – at December 31, 2007
            
            
            806,000
            
            
            $
            0.44Exercisable
      as of December 31, 2007
            
            
            615,168
            
            
            $
            0.49





F-16





No
options were issued in 2007.  There was no intrinsic value associated
with outstanding plan options as of December 31, 2007.





The
following table summarizes information about options outstanding at December 31,
2007:





Exercise
              Price
            
            
            Number
      of Shares
            
            
            Weighted
      Average Contractual Life (in years)
            
            
            Exercisable
      Options$
            0.25
            
            
            
            606,000
            
            
            
            1.91
            
            
            
            415,168$
            1.00
            
            
            
            200,000
            
            
            
            2.62
            
            
            
            200,000806,000
            
            
            
            2.08
            
            
            
            615,168





As of
December 31, 2007, compensation costs related to unvested plan options totaled
approximately $15,000.  The weighted average period over which the
total compensation cost related to unvested plan options is expected to be
recognized is 0.72 years.





NOTE
8: Related Party Information




A
director of the Company is the principal owner of a law firm that provided
services to the Company through early 2007.  The expenses incurred to
that law firm were approximately $101,000 and $74,000 for the years ended
December 31, 2007 and 2006, respectively.  As of December 31, 2007,
the Company had $92,000 recorded in accrued liabilities due to this
firm.




The
Company leased its former facility from an entity currently controlled by one of
the Company's former officers, and spouse of the CEO.  Rent related to
this facility totaled $71,000 and $77,000 for the years ended December 31, 2007
and 2006, respectively (see note 9).  As of December 31, 2007, the
Company had approximately $93,000 recorded in accounts payable due to this
entity.  This lease agreement was cancelled by mutual agreement in
2007.




NOTE
9: Commitments and Contingencies




The
Company is subject to operating leases for the use of certain office
equipment.  Rental expense under these leases, amounted to
approximately $7,000 and $7,000 for the years ended December 31, 2007 and 2006,
respectively.   Future minimum noncancellable lease payments
under the Company’s operating leases are as follows:




The
Company leases its current office space under a six month lease
agreement.  Monthly rent is $2,268, including taxes.




The
Company has an employment agreement with its Chief Executive Officer (CEO),
which provides, among other things, that if the Company issues additional
shares, the CEO shall receive options for the purchase of shares of the Company
such that the CEO shall maintain no less than 15% ownership of the Company.
This
agreement expired on December 1, 2007 and has not been renewed or renegotiated
as of December 31, 2007.




From time
to time, the Company is subjected to other disputes, litigation or proceedings
in connection with its business, as either a plaintiff or
defendant.  There are no such pending legal proceedings to which the
Company is a party that, in the opinion of management, is likely to have a
material adverse effect on the Company's business, financial condition or
results of operations.




The
Company has a retirement plan, which management believes qualifies as a deferred
compensation plan (the “Plan”) under Section 401(k) of the Internal Revenue
Code.  All employees over the age of 18 are eligible to participate in the
Plan once they have been employed for a minimum of 90 days.  The Company
contributes 3% of the eligible participant’s W-2 wages in the form of either
cash or Company stock.  Company contributions charged to wages and related
expenses for the year ended December 31, 2007 and 2006 approximated $9,000 and
$16,000, respectively.


F-17




NOTE
10: Income Taxes




At
December 31, 2007, net operating losses available to be carried forward for
federal income tax purposes are approximately $13.1 million expiring in various
amounts through 2027.  Utilization of SinoFresh's net operating losses
may be subject to substantial annual limitation in the event of ownership
changes under the provisions of the Internal Revenue Code and similar state
provisions.  Such annual limitation could result in the expiration of
the net operating loss before utilization.




The
following table is a reconciliation of the estimated U.S. statutory income tax
rate and the effective income tax rate included in the accompanying financial
statements for the years ended December 31, 2007 and 2006:




2007
              
              
              2006Estimated
      statutory tax rate
              
              
              (37.6
              %)
              
              
              (37.6
              %)Increase
      (reduction) in rates resulting from:Other
    non-deductible
              
              
              1.3
              
              
              
              0.3Losses for which no benefit is
      recorded
              
              
              36.3
              
              
              
              37.3Effective
      tax rate
              
              
              0.0
              %
              
              
              0.0
              %





The
Company had a deferred tax asset of approximately $5.5 million and $5.1 million
as of December 31, 2007 and 2006, respectively, which primarily consisted of the
potential benefit related to its net operating loss carryforwards. A valuation
allowance is provided to reduce the deferred tax asset to the amount that is
estimated more likely than not to be realized. The Company has established a
valuation allowance for the entire deferred tax asset due to its recurring
losses since the Company’s inception. The Company’s valuation allowance
increased approximately $400K during the year ended December 31,
2007.





No income
taxes were paid during 2007 or 2006.




NOTE
11: Fourth Quarter Adjustment
  During
the third quarter of the year ended December 31, 2007, the Company recorded a
deposit on sale of licensing and distribution rights of $1,229,997 and common
shares issuable of $200,850 resulting from its MOU with the Investors(see Note
6).  This amount consisted of (1) funds received in excess of the fair
market value of common stock issued and (2) the benefit obtained from the
conversion of debentures into common stock at a conversion rate in excess
of the conversion rate determined by the debenture agreement (the Debenture
Agreement Conversion Rate).  The Company has determined it utilized an
inaccurate Debenture Agreement Conversion Rate at that point in
time.  The effect of this adjustment as of September 30, 2007 would be
to increase common stock issuable to $769,607 and to decrease deposit on sale of
licensing and distribution rights to $661,240.  There was no effect on the
number of shares issuable, or on net loss or net loss per common share as a
result of this adjustment..


NOTE
12: Subsequent Events




Effective
February 5, 2008, Bruce Simpson resigned from his position as a member of the
Board of Directors.  Razek Azizi was appointed to the Board on
February 5, 2008 to replace Mr. Simpson.  Mr. Azizi is the
representative of the Investors, with whom the Company has executed the MOU in
May 2007.  In February 2008, the Company terminated the MOU with the
Investors.  The Company and the Investors are negotiating a new
agreement. Subsequent to year end,
the Investors invested an additional $280,000 directly into the
Company.  Additionally, in March 2008, the Investors purchased from a
third party, convertible debentures having a face value of
$305,000.  The Investors now own 100% of the Company’s outstanding
secured convertible debentures.  Such debentures matured on December
6, 2006 and are currently in default.  As a result of such
transaction, the Investors are a senior secured debt holder of the Company with
a lien on all assets of the Company.






F-18







SIGNATURES





Pursuant
to the requirements of the Securities and Exchange Act of 1934, as amended,
SinoFresh HealthCare, Inc. has duly caused this annual report to be signed on
its behalf by the undersigned thereunto duly authorized.




SINOFRESH
      HEALTHCARE, INC.Date:
      May 15,2008
              By:
              /s/ Charles
      A. FustCharles
      A. FustChairman
      of the Board and Chief Executive Officer (principal executive
      officer)










Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed by the following persons on its behalf of SinoFresh
HealthCare, Inc. and in the capacities indicated.




Signature
            Title
            Date/s/
      Charles A. Fust
            Chairman
      of the Board and Chief Executive Officer
            May 15,2008Charles
      A. Fust
            (Principal
      Executive Officer and Principal Accounting Officer)/s/
      Thomas Fitzgerald
            Director
            May 15,2008Thomas
      Fitzgerald/s/
      David Otto
            Director
            May 15,2008David
      Otto/s/ Razik Azizi
            Director
            May 15,2008Terry Ritter
            Director




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