10-Q 1 sinofresh10qmarch2008.htm P.E. 3/31/2008 sinofresh10qmarch2008.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.  20549
 
FORM 10-Q

þ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2008
or
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ______ to ______

0-49764
(Commission File No.)

SINOFRESH HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)

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

787 Commerce Drive
Venice, Florida 34292
 (Address of principal executive offices)

 (Issuer's telephone number, including area code)


Indicate by mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ  Noo
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer o     Accelerated filer o     Non-accelerated filer o     Smaller Reporting Company  þ

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

As of June 16, 2008 there were 25,541,110 shares of the Company’s common stock outstanding.
-1-
 
Table of Contents


SINOFRESH HEALTHCARE, INC.


Index
  
Page
     
 
     
   
     
 
3
     
 
4
     
 
5
     
 
6
     
 
9
     
 
11
 
    
 
11
     
13
     
 
13
     
 
13
     
 
13
     
 
13
     
 
14
     
Certifications
  


-2-



           
             
SINOFRESH HEALTHCARE, INC.
      
CONDENSED BALANCE SHEETS
      
(unaudited)
      
   
 
        
   
March 31, 2008
    
December 31, 2007
  
             
ASSETS
      
CURRENT ASSETS:
            
   Cash and cash equivalents
   $ 18,657     $ 919  
   Accounts receivable, net of allowances of $7,426 and $7,426
     1,689       12,796  
   Inventory, net
     -       7,656  
   Prepaid expenses
     33,600       99,933  
TOTAL CURRENT ASSETS
     53,946       121,304  
                 
FURNITURE AND EQUIPMENT, NET
     11,600       17,109  
PATENTS, NET
     1,769,247       1,826,939  
OTHER ASSETS
     4,500       4,500  
TOTAL ASSETS
   $ 1,839,293     $ 1,969,852  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
        
CURRENT LIABILITIES:
                
   Current portion of capital leases
   $ 8,220     $ 14,260  
   Short-term note payable and advances
     100,000       100,000  
   Convertible debentures, net of unamortized debt discounts
     730,000       730,000  
    Accounts payable (including amounts due to related parties of $127,213 and $127,213)
     1,601,335       1,609,365  
    Accrued expenses (including amounts due to related parties of $92,146 and $92,146)
     1,097,770       1,096,845  
 Deposit on sale on licensing and distribution rights
     705,990       661,240  
TOTAL CURRENT LIABILITIES
     4,243,315       4,211,710  
                 
                 
COMMITMENTS AND CONTINGENCIES
     -       -  
                 
STOCKHOLDERS’ EQUITY:
                
Common stock, no par value; 500,000,000 shares authorized; 25,441,110 and 24,916,110
                
    shares issued and outstanding
     7,102,774       7,028,774  
Common stock issuable 4,789,570 and 4,239,570 shares
     865,504       800,254  
Preferred stock, no par value; $2 liquidation value per share 200,000,000 shares authorized:
                
    Series A convertible preferred stock, voting; 858,170 shares authorized, 769,377
                
        shares issued and outstanding
     1,538,753       1,538,753  
    Series B convertible preferred stock, voting; 1,500,000 shares authorized, issued
                
        and outstanding
     3,000,000       3,000,000  
    Series C convertible preferred stock, voting; 1,250,000 shares authorized; 799,500 shares
                
        issued and outstanding
     1,423,301       1,423,301  
   Accumulated deficit
     (16,323,741 )     (16,017,876 )
   Deferred stock-based compensation
     (10,613 )     (15,064 )
TOTAL STOCKHOLDERS’ DEFICIT
     (2,404,022 )     (2,241,858 )
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
   $ 1,839,293     $ 1,969,852  
                 
See notes to condensed financial statements.
        

-3-
SINOFRESH HEALTHCARE, INC.
  
CONDENSED STATEMENTS OF OPERATIONS (unaudited)
  
             
             
   
Three Months Ended March 31,
  
   
2008
    
2007
  
             
REVENUE, net
   $ 49,276     $ 189,516  
                 
COST OF REVENUE
     9,284       61,255  
                 
GROSS PROFIT
     39,992       128,261  
OPERATING EXPENSES
                
  Salaries and other compensation expense
     74,749       182,304  
  Professional fees
     145,941       192,166  
  Other general and administrative expenses
     25,016       81,197  
  Depreciation and amortization
     63,201       65,450  
                 
TOTAL OPERATING EXPENSES
     308,907       521,117  
                 
INCOME (LOSS) FROM OPERATIONS
     (268,915 )     (392,856 )
                 
OTHER INCOME (EXPENSE):
                
   Interest, net
     (39,145 )     (86,146 )
   Other income (expense)
     2,301       50,005  
                 
TOTAL OTHER INCOME (EXPENSE)
     (36,844 )     (36,141 )
                 
NET INCOME (LOSS)
                
     BEFORE INCOME TAXES
     (305,759 )     (428,997 )
                 
PROVISION FOR INCOME TAXES
     -       -  
                 
NET INCOME (LOSS)
   $ (305,759 )   $ (428,997 )
                 
NET INCOME (LOSS)
                
     PER COMMON SHARE
                
-basic and diluted
   $ (0.01 )   $ (0.03 )
                 
                 
WEIGHTED AVERAGE COMMON
                
     SHARES OUTSTANDING
                
-basic and diluted
     25,291,110       16,581,777  
                 
                 
See notes to condensed financial statements.
  


-4-


  SINOFRESH HEALTHCARE, INC.
  CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
             
   
Three Months Ended
    
Three Months Ended
  
   
March 31, 2008
    
March 31, 2007
  
CASH FLOWS FROM OPERATING ACTIVITIES:
            
Net loss   $ (305,864 )   $ (428,997 )
Adjustments to reconcile net loss to net cash
                
used in operations:
                
Stock, options and warrants issued for services
     60,451       32,248  
Amortization and depreciation
     63,201       65,450  
Stock issued as payment for interest
     18,000       -  
Warrants issued as discount on advances
     -       8,147  
Changes in assets and liabilities:
                
Accounts receivable
     11,107       134,387  
Inventory
     7,656       24,488  
Other current assets
     66,333       (31,079 )
Accounts payable
     (8,031 )     39,219  
Accrued expenses
     925       36,028  
NET CASH USED IN OPERATING ACTIVITIES
     (86,222 )     (120,109 )
                 
                 
FINANCING ACTIVITIES:
                
Proceeds from short-term notes payable
     -       195,000  
Proceeds from common stock issuable
     110,000       -  
Payments on long-term debt and capital leases
     (6,040 )     (6,027 )
NET CASH PROVIDED BY FINANCING ACTIVITIES
     103,960       188,973  
                 
NET INCREASE IN CASH
     17,738       68,864  
                 
CASH AND CASH EQUIVALENTS - beginning of period
     919       887  
CASH AND CASH EQUIVALENTS - end of period
   $ 18,657     $ 69,751  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                
Cash paid during the period for interest
   $ -     $ 12,694  
                 
NON-CASH ACTIVITY:
                
Reduction of accounts payable and accrued expenses through the
                
      issuance of common stock.
   $ 35,000     $ 45,000  
                 
See notes to condensed financial statements.

-5-
 
Note 1. Basis of Presentation
 
The accompanying unaudited financial statements of SinoFresh HealthCare, Inc. (the “Company") have been prepared in accordance with accounting principles generally accepted in the United States and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes necessary for a comprehensive presentation of financial position and results of operation.

The Company's ability to continue as a going concern is subject to uncertainty due to the Company’s history of losses, current default status on the repayment of debentures, significant loss of distribution network, limited financial resources and need for additional working capital to implement the Company's business plan.  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 other existing current liabilities.

On March 31, 2008, the Company had current assets of approximately $54,000 (including cash and cash equivalents of approximately $19,000) and current liabilities of approximately $4,243,000.  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 attempting to acquire 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.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, have been made in the March 31, 2008 and 2007 financial statements, which are necessary for a fair financial statement presentation. The results for the three months ended March 31, 2008 and 2007 are not necessarily indicative of financial operations for the full year.

For further information, refer to the financial statements and footnotes included in the Company’s Annual Report on Form 10-KSB as filed with the Securities and Exchange Commission for the year ended December 31, 2007.

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 condensed 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 include, but are not limited to, uncertainties associated with potential future product returns, the uncollectibility of accounts and other receivables, inventory obsolescence, valuation of acquired assets for purposes of allocating the purchase price, including patents and goodwill, subsequent recoverability analysis, and estimated accruals relating to legal contingencies.
 
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.  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.
 
Note 2. Notes Payable

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 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 March 31, 2008, holders converted $195,000 of the Debentures 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 common 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 the date of the Debenture, upon payment of one hundred ten percent (110%) of the principal.
-6-

Note 3. Shareholders’ Equity (Deficit)

During the first three months of 2008, the Company issued 400,000 shares of the Company’s common stock as payment for consulting services.  Additionally, the Company issued 125,000 shares of the Company’s common stock as payment of interest to two unrelated parties.
 
Note 4.  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 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 2007 and the Investors continued to make investments in 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 terminated the MOU with the Investors.  The Company and the Investors are negotiating a new agreement.

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.  During the three months ended March 31, 2008, the Company received additional investments of $110,000, in exchange for 550,000 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 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, 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 March 31, 2008, 836,680 of these common shares have been issued and 4,049,570 are pending issuance, which will occur upon direction from the investors.
-7-

As of December 31, 2007, the Investors held remaining 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.  In March 2008, the Investors purchased from a third party, additional convertible debentures having a face value of $305,000.  As of March 31, 2008, 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 the sole senior secured debt holders of the Company with a lien on all assets of the Company.

Note 5. Stock-Based Compensation
 
Effective January 1, 2006, the Company 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).
 
The Company recognized stock compensation expense related to previously issued employee stock options of approximately $4,000 and $32,000 for the three months ended March 31, 2008 and 2007, respectively.
 
For the three months ended March 31, 2008, the Company issued 400,000 shares as compensation to two consultants.  These shares had a market value of approximately $56,000 as of the date of issuance.
 
There have been no options issued to employees in 2008 or 2007.
 
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.
 
Note 6. Related Party Information
 
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 $0 and $19,000 for the three months ended March 31, 2008 and 2007, respectively.  As of March 31, 2008, the Company had approximately $127,000 recorded in accounts payable due to this entity.  This lease agreement was cancelled by mutual agreement in 2007.
 
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 $0 and $68,000 for the three months ended March 31, 2008 and 2007, respectively.  As of March 31, 2008, the Company had approximately $92,000 recorded in accrued liabilities due to this firm.
-8-
 
Item 2. Management’s Discussion and Analysis or Plan of Operations

Forward-Looking Statements and Associated Risks

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT HAVE BEEN MADE PURSUANT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON MANAGEMENT’S CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS, BELIEFS AND ASSUMPTIONS. WORDS SUCH AS “ANTICIPATES,"   "EXPECTS,"   "INTENDS,"   "PLANS,"  "BELIEVES,"  "SEEKS," "ESTIMATES,” VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS THAT ARE DIFFICULT TO PREDICT; THEREFORE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR FORECASTED IN ANY SUCH FORWARD-LOOKING STATEMENTS. THESE RISKS AND UNCERTAINTIES INCLUDE THOSE DISCUSSED IN “PART II - ITEM 6 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS – RISK FACTORS” CONTAINED IN THE COMPANY’S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 2007, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. UNLESS REQUIRED BY LAW, THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.  INVESTORS SHOULD REVIEW THIS QUARTERLY REPORT IN COMBINATION WITH THE COMPANY’S ANNUAL REPORT ON FORM 10-KSB IN ORDER TO HAVE A MORE COMPLETE UNDERSTANDING OF THE PRINCIPAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY’S STOCK.

Overview

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.
 
We are a pharmaceutical company engaged in the research, development and marketing of novel therapies to treat diseases and other conditions of the upper respiratory system.  Our revenues were derived primarily from the sale of SinoFresh™ Nasal and Sinus, through our existing distribution network in the United States.
 
The principal outlets for our products are national drug and food retailers, including CVS, Osco Drug, Publix Super Markets, Rite Aid, and Sav-on Drugs.
 
The Company initiated the New Drug Application (NDA) process for a therapeutic nasal spray based upon SinoFresh TM Nasal & Sinus Care.  The Company is seeking Food and Drug Administration (FDA) approval on its nasal spray for treatment of and/or reduction in the symptoms of certain diseases.  The Company held its initial meeting with the FDA in 2005 to discuss an Investigational New Drug Application (an “INDA”) for the nasal spray and will next seek to gain FDA approval of the required protocol prior to initiating clinical work.  Assuming that the safety and efficacy of the nasal spray are demonstrated in these clinical studies, the Company would seek FDA approval of the nasal spray under an NDA.  The Company anticipates that conducting the clinical trials and obtaining FDA approval for the nasal spray will require substantial resources (including 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 that the Company can obtain sufficient funding to underwrite the cost of obtaining FDA approval.
 
The Company currently outsources the manufacturing of its products to an FDA approved contract-manufacturing facility.
 
Our shares are traded on the Over-the-Counter-Bulletin Board under the symbol “SFSH.OB.”
-9-

Results of Operations for the three month period ended March 31, 2008 and March 31, 2007.

Revenues decreased from $189,516 to $49,276 for the three months ended March 31, 2008 and 2007, respectively.  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 lost distribution to Walgreens in the third quarter of 2007.

Gross profit for the first quarter of 2008 was $39,992 (or 81%), compared to $128,261 (or 68%) for the first quarter of 2007.  The higher gross profit percentage in 2008 is primarily due to lower product returns and broker fees.

Salaries and other compensation expenses decreased from $182,304 to $74,749 for the three months ended March 31, 2008 and 2007, respectively.  These decreases are a result of reduced stock-based compensation and also specific reductions in personnel in order to streamline its organization and to reduce administrative costs.

Professional fees were $144,703 and $192,166 for the three months ended March 31, 2008 and 2007.

Other general and administrative expenses decreased from $81,197 to $26,145 for the three months ended March 31, 2008 and 2007, respectively, due to a reduction in certain insurance premiums and other costs.

Depreciation and amortization totaled $63,201 and $65,450 for the three months ended March 31, 2008 and 2007, respectively.  These expenses principally consist of amortization of patent costs.

Net interest expense decreased from $86,146 to $39,359 for the three months ended March 31, 2008 and 2007, respectively.  The decrease is attributable to lower levels of interest bearing debentures outstanding in 2008 versus 2007.

Other income totaled $2,301 and $50,005 for the three months ended March 31, 2008 and 2007.  Other income in 2007 consisted primarily of a non-refundable deposit that was forfeited by a party interested in acquiring certain assets of the Company.

As a result of the factors discussed above, we had a net loss of $305,864 ($0.01 per basic share) compared to net loss of $428,997 ($0.03 per share) for the three months ended March 31, 2008 and 2007, respectively.

As of March 31, 2008, we had total assets of $1.8 million, liabilities of $4.2 million and stockholders’ deficit of $2.4 million.  Our working capital deficit was approximately $4.1 million as of March 31, 2008.

Inflation and currency fluctuations have not previously had a material impact upon our results of operations and are not expected to have a material impact in the near future.
 
Liquidity and Capital Resources
 
During the first three months of 2008, the Company's cash and cash equivalents increased approximately $17,000, to $18,657 at March 31, 2008. 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 attempting to obtain 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.
 
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.
-10-

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”).  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 March 31, 2008, holders converted $195,000 of the Debentures 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 common 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 of the Debenture, upon payment of one hundred ten percent (110%) of the principal.

Pursuant to a Memorandum of Understanding (the “MOU”) that was terminated in February 2008, the terms of which are more fully described in Note 4 to the Financial Statements contained in this Form 10-QSB, the Company received an initial investment of $200,500 during the year ended December 31, 2007 in exchange for 1,002,500 common shares.  During the three months ended March 31, 2008, the Company received additional investments of $110,000, in exchange for 550,000 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 has been treated as a deposit towards the sale of licensing and distribution rights to sell the Company’s products in all territories in North America upon the infusion of a total of $5 million.

In August 2007, a group of new investors (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, 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 to the Company’s products in all territories outside of North America. 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 March 31, 2008, 836,680 of these common shares have been issued and 4,049,570 are pending conversion, which will occur upon direction from the investors.

As of December 31, 2007, the Investors held remaining 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.  In March 2008, the Investors purchased from a third party, additional convertible debentures having a face value of $305,000.  At March 31, 2008, 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 the sole senior secured debt holders of the Company with a lien on all assets of the Company.
 
Item 3.   Qualitative and Quantitative Disclosures about Market Risk
 
Not applicable to smaller reporting companies
 
Item 4T.  Controls and Procedures
 
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting.  As defined under Sections 13a – 15(e) and 15d –15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officer, to allow timely decisions regarding required disclosures.
-11-
 
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.
 
Changes in Internal Controls Over Financial Reporting
 

During the quarterly period covered by this report, there were no changes in the Company's internal controls over financial reporting that materially affected, or are reasonable likely to materially affect, the Company's internal controls over financial reporting.
-12-



Item 1.  Legal Proceedings

From time to time, the Company may be a party to litigation or proceedings in connection with its business, as either a plaintiff or defendant. As of the date of this report, there were no such pending legal proceeding to which the Company is a party that, in the opinion of management, is likely to have a materially adverse effect on the Company’s business, financial condition or results of operations.

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

During the first quarter of 2008, the Company issued 400,000 shares of common stock to a consultant in payment for consulting services provided to the Company.  Additionally, the Company issued 125,000 shares of common stock as interest payment to two unrelated parties. The issuance of shares of common stock was not registered under the Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the exemptions from the registration requirements of the Securities Act set forth in Section 4(2).

Item 3.  Defaults on Senior Securities

The Company is in default on its principal and interest obligations due under a senior secured debenture agreement as a result of its failure to repay the debenture on its maturity date of December 6, 2006.  The total amount due as of March 31, 2008 including principal, interest and penalties was approximately $1,075,000.  The debentures are collateralized by all of the Company’s assets.    The notification gives the debenture holders the right to sell the Company’s assets if a suitable buyer is found.  The Company will continue to work amicably with the debenture holders in order to either obtain a modification of the debenture terms or secure additional capital in order to satisfy the debenture obligation.  However, no assurance can be made that the Company will be successful in this effort.
 
Item 6.  Exhibits

 
(a)
Exhibits


-13-
 



In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


  SINOFRESH HEALTHCARE, INC.  
       
June 18, 2008
By:
/s/ Charles A. Fust  
    Charles A. Fust  
    Chairman of the Board,  Chief Executive Officer (principal executive officer), Acting Chief Financial Officer (principal financial officer)  
       
 
-14-