##### 



U.S. Securities and Exchange Commission Washington, D.C. 20549
 Form 10-QSB þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended June 30, 2004 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 For the transition period from __________ to __________ Commission file number 0-49764 SinoFresh HealthCare, Inc.  Florida
    
    65-1082270(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification Number)
 516 Paul Morris Drive
Englewood, Florida 34223
(Address of principal executive offices) 941-681-3100
(Issuers telephone number) Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x  No o The number of shares outstanding of each of the issuers classes of common
equity as of July 1, 2004: Common Stock, No Par Value 13,314,323 shares Transitional Small Business Disclosure Format (check one): Yes o  No x




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Table of Contents SINOFRESH HEALTHCARE, INC.  Index
    
    
    
    
    
    

    PagePart I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2004 (unaudited)
and December 31, 2003
    
    
    
    
    2Condensed Consolidated Statements of Operations  for the three and six
months ended June 30, 2004 and 2003 (unaudited)
    
    
    
    
    3Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2004 and 2003 (unaudited)
    
    
    
    
    4Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    
    
    9Item 3. Controls and Procedures
    
    
    
    
    12Part II. Other Information
    
    
    
    13Item 1. Legal Proceedings
    
    
    
    
    13Item 2. Changes in Securities
    
    
    
    
    14Item 3. Defaults Upon Senior Securities
    
    
    
    
    14Item 4. Submission of Matters to a Vote of Security Holder
    
    
    
    
    14Item 5. Other Information
    
    
    
    
    14Item 6. Exhibits and Reports on Form 8-K
    
    
    
    
    15Signatures
    
    
    
    
    
    
    16Certifications
    
    
    
    
    
    
    17
 i




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PART I  FINANCIAL STATEMENTS 
 SINOFRESH HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2004
    
    December 31, 2003(Unaudited)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    158,810
    
    
    $
    368,394Accounts receivable, net of allowances of $15,000
    
    
    106,343
    
    
    
    645,969Inventory
    
    
    29,638
    
    
    
    172,007Other current assets
    
    
    103,481
    
    
    
    174,283TOTAL CURRENT ASSETS
    
    
    398,272
    
    
    
    1,360,653FURNITURE AND EQUIPMENT, NET
    
    
    125,720
    
    
    
    138,191PATENTS, NET
    
    
    2,634,627
    
    
    
    2,750,010GOODWILL
    
    
    2,409,401
    
    
    
    2,409,401OTHER ASSETS
    
    
    6,418
    
    
    
    7,218TOTAL ASSETS
    
    $
    5,574,438
    
    
    $
    6,665,473LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of notes payable and capital leases
    
    $
    219,448
    
    
    $
    584,826Accounts payable, including $195,280 and $102,866 due to related parties
    
    
    1,530,915
    
    
    
    693,258Accrued expenses, including $172,875 and $245,889 due to related parties
    
    
    462,765
    
    
    
    679,124TOTAL CURRENT LIABILITIES
    
    
    2,213,128
    
    
    
    1,957,208CAPITAL LEASES, NET OF CURRENT MATURITIES
    
    
    72,957
    
    
    
    83,851TOTAL LIABILITIES
    
    
    2,286,085
    
    
    
    2,041,059COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYCommon stock, no par value; 500,000,000 shares authorized; 12,075,573 shares
issued and outstanding and 1,238,750 shares issuable at June 30, 2004;
10,280,083 shares issued and outstanding and 3,021,740 shares issuable
at December 31, 2003
    
    
    2,273,866
    
    
    
    2,251,991Preferred stock, no par value; 200,000,000 shares authorized:Series A convertible preferred stock, voting; 858,170 shares authorized, issued
and outstanding (aggregate liquidation value of $1,716,339
at June 30, 2004)
    
    
    1,716,339
    
    
    
    1,716,339Series B convertible preferred stock, voting; 1,500,000 shares authorized, issued
and outstanding (aggregate liquidation value of $3,000,000
at June 30, 2004)
    
    
    3,000,000
    
    
    
    3,000,000Series C convertible preferred stock, voting; 1,250,000 shares authorized;
1,218,711 shares issued and outstanding (aggregate liquidation value
of $2,437,422 at June 30, 2004)
    
    
    2,189,261
    
    
    
    2,189,261Accumulated deficit
    
    
    (5,759,113
    )
    
    
    (4,281,177
    )Warrant subscriptions receivable
    
    
    (132,000
    )
    
    
    (252,000
    )TOTAL STOCKHOLDERS EQUITY
    
    
    3,288,353
    
    
    
    4,624,414TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    5,574,438
    
    
    $
    6,665,473
 See notes to condensed
consolidated financial statements. 2




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SINOFRESH HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended June 30,
    
    Six Months Ended June 30,2004
    
    2003
    
    2004
    
    2003REVENUE
    
    $
    183,863
    
    
    $
    221,526
    
    
    $
    2,115,432
    
    
    $
    351,725COST OF REVENUE
    
    
    81,803
    
    
    
    49,004
    
    
    
    490,359
    
    
    
    92,792GROSS PROFIT
    
    
    102,060
    
    
    
    172,522
    
    
    
    1,625,073
    
    
    
    258,933OPERATING EXPENSESSalaries and related expense
    
    
    312,957
    
    
    
    124,515
    
    
    
    620,437
    
    
    
    281,508Professional fees
    
    
    444,768
    
    
    
    284,175
    
    
    
    841,323
    
    
    
    568,112Other general and administrative
    
    
    156,829
    
    
    
    134,197
    
    
    
    290,453
    
    
    
    237,745Marketing and advertising expenses
    
    
    664,673
    
    
    
    203,939
    
    
    
    973,615
    
    
    
    298,217Research and development expenses
    
    
    173,632
    
    
    
    21,961
    
    
    
    264,249
    
    
    
    55,935Depreciation and amortization
    
    
    65,449
    
    
    
    78,060
    
    
    
    130,801
    
    
    
    124,410TOTAL OPERATING EXPENSES
    
    
    1,818,308
    
    
    
    846,847
    
    
    
    3,120,878
    
    
    
    1,565,927LOSS FROM OPERATIONS
    
    
    (1,716,248
    )
    
    
    (674,325
    )
    
    
    (1,495,805
    )
    
    
    (1,306,994
    )OTHER INCOME (EXPENSE):Interest, net
    
    
    (12,015
    )
    
    
    (20,112
    )
    
    
    (27,544
    )
    
    
    (41,997
    )Other income (expense)
    
    
    5,000
    
    
    
    (1,924
    )
    
    
    45,413
    
    
    
    410TOTAL OTHER INCOME (EXPENSE)
    
    
    (7,015
    )
    
    
    (22,036
    )
    
    
    17,869
    
    
    
    (41,587
    )NET LOSSBEFORE INCOME TAXES
    
    
    (1,723,263
    )
    
    
    (696,361
    )
    
    
    (1,477,936
    )
    
    
    (1,348,581
    )PROVISION FOR INCOME TAXES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS
    
    $
    (1,723,263
    )
    
    $
    (696,361
    )
    
    $
    (1,477,936
    )
    
    $
    (1,348,581
    )NET LOSSPER COMMON SHARE-basic
    
    $
    (0.13
    )
    
    $
    (0.06
    )
    
    $
    (0.11
    )
    
    $
    (0.13
    )-diluted
    
    $
    (0.13
    )
    
    $
    (0.06
    )
    
    $
    (0.11
    )
    
    $
    (0.13
    )WEIGHTED AVERAGE COMMONSHARES OUTSTANDING-basic
    
    
    13,314,323
    
    
    
    10,768,490
    
    
    
    13,313,293
    
    
    
    10,768,490-diluted
    
    
    13,314,323
    
    
    
    10,768,490
    
    
    
    13,313,293
    
    
    
    10,768,490
 See notes to condensed consolidated financial statements. 3




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SINOFRESH HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,477,936
    )
    
    $
    (1,348,581
    )Adjustments to reconcile net loss to net cash
provided by (used in) operations:Stock issued for services
    
    
    21,875
    
    
    
    Stock issued for as settlement cost and to consultant
    
    
    
    
    
    
    123,000Amortization and depreciation
    
    
    130,801
    
    
    
    124,410Changes in assets and liabilities:Accounts receivable
    
    
    539,626
    
    
    
    (28,554
    )Inventory
    
    
    142,369
    
    
    
    (102,738
    )Other current assets
    
    
    70,802
    
    
    
    (154,915
    )Other assets
    
    
    800
    
    
    
    4,004Accounts payable
    
    
    837,657
    
    
    
    123,308Accrued expenses
    
    
    (216,359
    )
    
    
    326,313Deferred revenue
    
    
    
    
    
    
    (17,678
    )NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    49,635
    
    
    
    (951,431
    )INVESTING ACTIVITIESAcquisition of SinoFresh Laboratories, Inc., net of cash
    
    
    
    
    
    
    (72,605
    )Payments for furniture and equipment
    
    
    (2,947
    )
    
    
    (10,171
    )NET CASH USED IN INVESTING ACTIVITIES
    
    
    (2,947
    )
    
    
    (82,776
    )FINANCING ACTIVITIESNet proceeds from issuance of stock and warrants
    
    
    
    
    
    
    1,219,787Payments received on warrant subscriptions receivable
    
    
    120,000
    
    
    
    Proceeds from short-term notes payable
    
    
    
    
    
    
    300,000Payments on short-term notes payable
    
    
    
    
    
    
    (10,500
    )Payments on long-term debt and capital leases
    
    
    (376,272
    )
    
    
    (90,829
    )NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
    
    
    (256,272
    )
    
    
    1,418,458NET INCREASE (DECREASE) IN CASH
    
    
    (209,584
    )
    
    
    384,251CASH AND CASH EQUIVALENTS  beginning of period
    
    
    368,394
    
    
    
    245,685CASH AND CASH EQUIVALENTS  end of period
    
    $
    158,810
    
    
    $
    629,936SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    57,510
    
    
    $
    12,603
 See notes to condensed consolidated financial statements. 4




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SinoFresh HealthCare, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements Note 1. Basis of Presentation The accompanying unaudited financial statements of SinoFresh HealthCare,
Inc. (the Company) have been prepared in accordance with generally accepted
accounting principles 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 business is subject to various risks and uncertainties. The
Companys ability to continue, as a going concern is dependent on its ability
to market and distribute its products, utilize the technology underlying its
patents, and further develop existing and new products. All of these
activities are capital intensive and will be dependent on cash flow from
operations and/or additional outside funding. While the Company has a working
capital deficit at June 30, 2004 of $1,814,856, management believes that it can
secure additional outside funding. The rate of the Companys future growth and
success will be dependent on its ability to generate the necessary resources
through product sales or otherwise. The accompanying statements do not include
any adjustments that might be necessary if the Company is unable to continue as
a going concern. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, have been made in the June 30, 2004 and 2003 financial
statements, which are necessary for a fair financial statement presentation.
The results for the three and six months ended June 30, 2004 and 2003 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, 2003. 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 primarily arise
from risks and 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. Note 2. Shareholders Equity During the six months ended June 30, 2004, the Company granted 105,000
stock options to employees. The exercise prices range from $1.00 to $1.70 and
are equal to the market prices as of the date of grants. The options expire in
five years and vest ratably over a three-year period. 5




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Note 3. Stock-based Compensation The Company accounts for employee stock-based compensation arrangements
in accordance with the provisions of Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and complies with the
disclosure provisions of Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). Under APB
No. 25, compensation cost is determined based on the difference, if any, on
the measurement date, which is generally the grant date, between the fair
value of the Company stock and the amount an employee must pay to acquire the
stock. The fair value of each stock option or warrant grant issued to
non-employees is estimated on the measurement date using the fair value
method of SFAS 123. The following table reflects proforma supplemental financial information related to stock-based
employee compensation, as required by SFAS No. 123 and SFAS 148 for the three months ended June
30,: 2004
    
    2003Net loss, as reported
    
    $
    (1,723,263
    )
    
    $
    (696,361
    )Additional stock-based employee compensation costs that would
have been included in the determination of net loss if the
fair value method (SFAS No. 123) had been applied to all awards
    
    
    (79,834
    )
    
    
    Pro forma net loss, as if the fair value method had
been applied to all awards
    
    $
    (1,803,097
    )
    
    $
    (696,361
    )Net loss per common share, as reported-basic
    
    $
    (0.13
    )
    
    $
    (0.06
    )-diluted
    
    $
    (0.13
    )
    
    $
    (0.06
    )Pro forma net loss per common share, as if the fair
value method had been applied to all awards-basic
    
    $
    (0.14
    )
    
    $
    (0.06
    )-diluted
    
    $
    (0.14
    )
    
    $
    (0.06
    )
 The following table reflects proforma supplemental financial information related to stock-based
employee compensation, as required by SFAS No. 123 and SFAS 148 for the six months ended June
30,: 2004
    
    2003Net loss, as reported
    
    $
    (1,477,936
    )
    
    $
    (1,348,581
    )Additional stock-based employee compensation costs that would
have been included in the determination of net loss if the
fair value method (SFAS No. 123) had been applied to all awards
    
    
    (151,501
    )
    
    
    Pro forma net loss, as if the fair value method had
been applied to all awards
    
    $
    (1,629,437
    )
    
    $
    (1,348,581
    )Net loss per common share, as reported-basic
    
    $
    (0.11
    )
    
    $
    (0.13
    )-diluted
    
    $
    (0.11
    )
    
    $
    (0.13
    )Pro forma net loss per common share, as if the fair
value method had been applied to all awards-basic
    
    $
    (0.12
    )
    
    $
    (0.13
    )-diluted
    
    $
    (0.12
    )
    
    $
    (0.13
    )
 6




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Note 4:Related Party Information One of the Companys attorneys served as Secretary until April 2003. The
Company had incurred legal fees with this law firm through April 2003 of
approximately $13,000 and $44,000 for the three and six months ended June 30,
2003, respectively. A director of the Company is the principal owner of a law firm that
provided services to the Company. The expenses incurred to that law firm were
approximately $1,000 and $16,000 for the three and six months ended June 30,
2004, respectively. The company incurred expenses to this law firm of
approximately $28,000 and $105,000 for the three and six months ended June 30,
2003. A former director of the Company provided consulting services to the
Company directly and through his affiliate. Consulting expenses for this
consultant while serving as a director were approximately $18,000 and
$54,000 for the three and six months ended June 30, 2003. The consultant
did not serve as a director in 2004. The Company incurred consulting fees for the three and six months ended
June 30, 2003 of approximately $24,000 and $48,000 to an entity affiliated
with a former director/principal stockholder. There were no such fees
incurred in 2004. The Company leases its current facility from an entity controlled by two
of the Companys officers and directors and has contractual arrangements with
other related parties. Rent paid to these parties during the three and six
months ended June 30, 2004 was approximately $19,000 and $39,000. No rent was
paid to these parties during the three and six months ended June 30, 2003. The Company rents on a month to month basis from an officer and director
at the sum of $1,250 per month a condominium apartment owned by the officer and
director and which is used as corporate housing by the Company. Total rent
expensed for the three and six months ended June 30, 2004 was $2,500 and
$6,250. There was no rent paid on this facility during the first half of 2003.
This arrangement was terminated in June 2004. Note 5:Contingencies As disclosed in the Companys Form 10-KSB filed for the year ended
December 31, 2003, the Company is involved in various litigation with two of
its current directors and other former consultants to the Company. In April 2004, a lawsuit was filed alleging that the Company breached an
agreement by failing to pay fees for a broker financing arrangement. The
complaint seeks damages of $120,000 plus interest and attorneys fees. The
Company denies the allegations and intends to vigorously defend the suit. As of June 30, 2004, the Company is not in compliance with its notes
payable principal reduction requirements and as a result, is in technical
default. As of June 30, 2004, approximately $197,000 of principal was
outstanding on these convertible notes. In July 2004, a lawsuit was filed alleging that the Company breached an
agreement, dated September 1, 2002 by failing to pay for certain executive
search fees. The complaint seeks damages of $14,400. The Company, which was
not incorporated until October 15, 2002 and did not have any assets or
operations until November 2002, contests the validity of the contract and
intends to vigorously defend the suit. In September 2003, the Company issued 10,768,490 shares of common stock,
858,170 shares of Series A preferred stock, 1,500,000 shares of Series B
preferred stock, and 1,218,711 shares of Series C preferred stock in exchange
for the outstanding shares of common stock and preferred stock held by
shareholders of the Companys predecessor, SinoFresh HealthCare, Inc., a
Delaware corporation (HealthCare). That transaction resulted in HealthCare
merging into a wholly-owned subsidiary of the Company, which subsidiary is now
known as SinoFresh Corporation. In connection with that transaction, the
Company has been unable to obtain from either former counsel to the Company or
former counsel to HealthCare (Mr. David Otto, a director of the Company), who
were counsel to the Company and HealthCare, respectively, at the time of the
merger, information the Company presently believes is sufficient to
indisputably support one or more exemption(s) from registration that were
relied upon in connection with the issuance of the merger shares. If such
information is not available, the issuance of the shares of the 7




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Company in respect of the merger may not have been in compliance with the
registration provisions of the federal and state securities laws. There may
have been a violation of Section 5 of the Securities Act of 1933, as amended
due to the unavailability of an exemption from registration. As a result, the
Company may be exposed to claims for rescission by shareholders who received
shares in the merger. Although the Company would vigorously defend against any
such actions, litigation may be costly and there is no assurance of the
outcome. If the Company lost its defense in any such litigation, the cost of
repurchasing the shares could be material to the Company. 8




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Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations Forward-Looking Statements and Associated Risks THIS QUARTERLY REPORT ON FORM 10-QSB 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 I  ITEM 1  DESCRIPTION OF BUSINESS  RISK FACTORS AND
PART II  ITEM 6  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS CONTAINED IN THE COMPANYS FORM 10-KSB FOR THE YEAR ENDED DECEMBER
31, 2003, 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 The Company is a pharmaceutical company engaged in the research,
development, and marketing of proprietary products for the prevention and
treatment of upper respiratory disorders. The Companys nasal product, for
which it holds U.S. and international patents, has undergone more than five
years of development and clinical development, and has been proven to be
effective in killing molds and bacteria that colonize in the nose, throat and
sinuses causing non-allergic reactions and symptoms of sinusitis. SinoFresh
Nasal & Sinus Care was distributed by the Company in a limited geographical
area in Florida until May 2003 at which time the Company entered into an
agreement to obtain national distribution through various drug and grocery
store chains. The Company outsources the manufacturing of its current product
to an FDA approved contract-manufacturing facility that also produces
private-label drugs for a number of major U.S. retail chains, including
Wal-Mart. In 2003, all of the Companys revenues were derived from the sale of the
SinoFresh Nasal & Sinus Care product in the United States. The principal
outlets for this product currently include approximately 17,000 national drug
and food chain stores, mainly CVS, Eckerd, Osco Drug, Publix Super Markets,
Rite Aid, Sav-on Drugs and Walgreens. At year-end 2003, the nasal product was
on the shelf in approximately 80% of these stores. In 2004, the Company has
expanded its retail distribution network to include Wal-Mart and continues to
pursue other national food and drug chain stores and a significant number of
independent pharmacies (about 45,000 in all) which the Company is endeavoring
to reach through sales brokers. Additionally, the Company will continue its
expansion into the remainder of the chain stores that are already being
serviced. Within the next six to twelve months, the Company plans to launch
Laryn-X, a product designed for oral and throat care. Before the launch, the
Company must conduct focus group research to verify market positioning. The
Company also has a patent pending on a new proprietary over-the-counter (OTC)
product for the treatment of otitis (swimmers ear). 9




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Currently, the Company has under development several promising new
products for upper respiratory disorders and related diseases. The Company
is in the early stages of developing a medical device and
pharmaceutical-dosing system in collaboration with the Silverstein Institute
of Sarasota, Florida, a world renowned medical institute specializing in ear,
nose and throat medicine. In May 2004, the Company entered into a Research and Development Agreement
with the Lovelace Respiratory Research Institute of Albuquerque, New Mexico.
The effort is focused on joint-sponsored programs designed to find new
therapeutic uses for SinoFreshs popular antiseptic nasal spray product in the
respiratory arena. Initial testing, focused on possible anti-infective uses
for the product, has shown strong anti-viral activity against common viral
pathogens including Respiratory Syncytial Virus (RSV) and Adenovirus. In assessing the feedback from the Companys test market and initial
product launch for its nasal product, the Company recognized that most OTC drug
products in the sinus category today (primarily antihistamines and
decongestants) treat the symptoms rather than the causes of sinusitis, a
disease that newer developments in the science have determined to be a
non-allergic reaction to a buildup of molds and bacteria in the nostrils and
sinus cavities. The Company is in the process of establishing the protocols
for filing an Investigative New Drug (IND) application with the FDA geared to
non-allergic inflammatory rhinitis and chronic sinusitis and to undertake the
clinical studies necessary to the reclassification and FDA approval of
SinoFresh Nasal & Sinus Care to a New Drug Application (NDA) approved product
for the OTC market. Management believes that the achievement of this
reclassification would set SinoFresh Nasal & Sinus Care apart from the
competition as the only FDA-approved drug for the treatment of chronic
sinusitis in the OTC drug category. According to reports from the Center for
Disease Control, approximately 37 million Americans suffer the debilitating
effects of chronic sinusitis. This end result of the IND process will be to allow the Company to expand
the number of on-label claims for its current nasal product. This process,
however, will require additional capital. If the Company is successful in
securing such capital, it plans to commence Phase III pivotal clinical trials
(multi-site, double blinded studies) in conjunction with leading research
institutions in the United States. The Company expects that these efforts will
be successful; ultimately leading to an FDA approved NDA on SinoFresh Nasal &
Sinus Care within 18 to 24 months. Company shares are traded on the Over-the-Counter-Bulletin Board under the
symbol, SFSH.OB. Results of Operations and Financial Position Revenues decreased $37,663 from $221,526 to $183,863 for the three months
ended June 30, 2003 and 2004, respectively. The decrease is a result of an
excess market supply which occurred in the first quarter of 2004, thus slowing
down shipments in the second quarter. This over-supply appears to have been
exhausted towards the end of the second quarter as evidenced by an increase in
customer orders shipped in early July. However, revenues increased $1,763,707
from $351,725 to $2,115,432 for the six months ended June 30, 2003 and 2004,
respectively. The increase is a result of an expansion of marketing efforts
from alpha and beta testing in southwest Florida during the first half of 2003
to nationwide accounts during the first half of 2004. Additionally, revenues
for the first half of 2004 were affected by the recognition of approximately
$800,000 in pay-to-scan type sales. Shipments for these products took place
primarily in the last quarter of 2003, but the sales recognition process had
not been completed until 2004. The Company is no longer subject to these
contingent sales arrangements. Gross profit for the quarter ended June 30, 2004 were $102,060 (or 56%),
compared to $172,522 (or 78%) for the corresponding period in 2003. The
percentage decrease relates to co-op charges which were offset against revenues
in 2004. Co-op fees are generally associated with large national retailers and
accordingly were minimal in the second quarter of 2003 because the Companys
customer base was primarily independent pharmacies. Gross profit for the six
months ended June 30, 2004 was $1,625,073 (or 77%), compared to $258,933 (74%)
for the six months ended June 30, 2003. The increase in percentage relates to
obsolete inventory written off in 2003 offset by higher average pricing in 2003
due to the shift in customer base in the first half of 2003 versus 2004. In
2003, a significant portion of sales were to individual consumers as opposed to
retail outlets in 2004. Sales to retail outlets are priced less than sales to
individual consumers. The Companys primary focus going forward will be on
retail outlets. 10




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Salaries and other compensation expenses increased $188,442, from $124,515
to $312,957 for the three months ended June 30, 2003 and 2004, respectively and
increased $338,929, from $281,508 to $620,437 for the six months ended June 30,
2003 and 2004, respectively. These increases are a result of an increase in
personnel in order to support the growing organization. Professional fees
increased $160,593, from $284,175 to $444,768 for the three months ended June
30, 2003 and 2004, respectively and increased $273,211, from $568,112 to
$841,323 for the six months ended June 30, 2003 and 2004, respectively. This
increase is primarily related to an increase in accounting fees associated with
filing the 2003 10-KSB, legal expenses associated with defending corporate
patents and other litigation issues. Other general and administrative expenses
increased $22,632, from $134,197 to $156,829 for the three months ended June
30, 2003 and 2004, respectively and increased $52,708, from $237,745 to
$290,453 for the six months ended June 30, 2003 and 2004, respectively. These
increases were due to the growing nature of the business. Marketing and advertising expenses increased $460,734 from $203,939 to
$664,673, for the quarters ended June 30, 2003 and 2004, respectively. For the
six months ended June 30, 2003 and 2004, marketing and advertising expenses
increased $675,398, from $298,217 to $973,615, respectively. These increases
reflect the Companys strategy of marketing its product nationwide. The
Company uses radio advertising and endorsements as a primary means of its
marketing activities. These efforts are necessary in order to continue to
attract consumer interest. Research and development expenditures reflect the costs associated with
basic research, product development, clinical testing, and the costs associated
with regulatory compliance, patent applications and maintenance, trademark
registration, product enhancement and the development of new products related
and unrelated to our current product line. For the quarters ended June 30, 2004
and 2003, the companys R&D expenditures amounted to $173,632 and $21,961,
respectively. For the six months ended June 30, 2004 and 2003, these
expenditures were $264,249 and $55,935, respectively. R&D expenditures are
expected to continue to increase over the next several years, both in absolute
terms and as a percentage of all spending. These increases are reflective of
the companys commitment to market only the best-in-breed, to advance the
science of upper respiratory health, and to stay ahead of the competition in
its field and on the leading edge in the science. With the emergence of several lawsuits during 2004, management made a
conscious decision to defer certain research, development and marketing
activities during the six months ended June 30, 2004. Such activities may be
accelerated in future quarters in order to make up for lost efforts over the
last two quarters. Depreciation and amortization totaled $65,449 and $78,060 for the quarters
ended June 30, 2004 and 2003, respectively. For the six months ended June 30,
2004 and 2003, these expenses were $130,801 and $124,410, respectively. The Company had net losses of $1,723,263 ($0.13 per share) and $696,361
($0.06 per share) for the quarters ended June 30, 2004 and 2003, respectively.
Net losses for the six months ended June 30, 2004 and 2003 were $1,477,936
($0.11 per share) and $1,348,581 ($0.13 per share), respectively. As of June 30, 2004, the Company had total assets of $5.6 million,
compared to $6.7 million at December 31, 2003. The decrease of $1.1 million in
total assets relates primarily to a decrease in cash and cash equivalents and
accounts receivable. Decreases in these assets are attributable to strong
sales volume in the fourth quarter of 2003 versus a weaker sales volume in the
second quarter of 2004. Total liabilities were $2.3 million at June 30, 2004,
compared to $2.0 million at December 31, 2003. Working capital (deficit) was
($1,814,856) and ($596,555) as of June 30, 2004 and December 31, 2003,
respectively. Stockholders equity amounted to $3.3 million at June 30, 2004, as
compared with $4.6 million at December 31, 2003. 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 11




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The Company historically has satisfied its operating cash requirements
primarily through cash flow from operations, from borrowings and from trade and
equity financings. At June 30, 2004, the Company had $158,810 in cash and cash
equivalents, $106,343 in net accounts receivable, and $132,000 in subscriptions
receivable from equity financings. The Company will continue to explore additional opportunities for
long-term debt and equity financing. Funds received from these financings, if
and when available, will be used as working capital to finance the growth of
the Company, and to provide financing for future research and development
programs. 
 Item 3. Controls and Procedures The Companys Chief Executive Officer and Chief Financial Officer
evaluated the Companys disclosure controls and procedures within 90 days of
the filing date of this quarterly report. Based upon the evaluation, the
Companys Chief Executive Officer and Chief Financial Officer concluded that
the Companys disclosure controls and procedures are effective in ensuring that
material information required to be disclosed is included in the reports that
it files with the Securities and Exchange Commission. There were no significant changes in the Companys internal controls or,
to the knowledge of the management of the Company, in other factors that could
significantly affect internal controls subsequent to the evaluation date. 12




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PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings Certain shareholders of the Company, including Charles Fust, Stacey
Maloney-Fust and P. Robert DuPont who are also officers and directors of the
Company, voted by written consent to remove Messrs. Bannon and Otto as
directors and officers of the Company (which attempt was unsuccessful as
discussed below). The decision to remove Messrs. Bannon and Otto was made
after it became apparent that they were not investigating certain improprieties
that may have occurred as a result of actions of Sargon Capital, Inc. and
Andrew Badolato, a former officer and director of the Companys predecessor and
a consultant to the Company. (Upon the request of Messrs. Fust, DuPont and Ms.
Maloney-Fust, the Board earlier had formed a committee comprised of Messrs.
Otto, Bannon and DuPont to investigate the matters regarding Sargon Capital,
Inc. and Andrew Badolato.) Messrs. Bannon and Otto were notified by letter
dated January 30, 2004 that they had been removed as directors. On February 9,
2004, Messrs. Fust, DuPont, Otto, Bannon and Ms. Maloney-Fust received a letter
from an attorney representing Andrew Badolato, Sargon Capital, Inc. and four
shareholders (including Michael Hawkins, a director or other affiliate of
Sargon Capital, Inc.) alleging various breaches of fiduciary duty and
self-dealing purportedly committed by Messrs. Fust, DuPont and Ms.
Maloney-Fust, and demanding an investigation and a report within 30 days. On February 20, 2004, a law suit was filed in the U.S. District Court,
Middle District of Florida, Ft. Myers Division, Case No. 04-CV-95-FTM-29 SPC,
styled Hawkins, et al. vs. Charles Fust, et al., and an amended complaint was
filed on March 3, 2004 which merely changed allegations directed toward the
location where the action may be heard and noted that the Company is a Florida
corporation. This legal proceeding was moved to the U.S. District Court
located in Tampa, Florida. The plaintiffs include Stephen Bannon and David
Otto, directors of the Company, as well as other purported shareholders of the
Company. The defendants are Charles Fust, Stacey Maloney Fust, Robert DuPont,
Russell R. Lee, III, and SinoFresh HealthCare, Inc. The complaint alleges
that it is a class action suit claiming federal securities law violations,
breach of fiduciary duty, rescission of certain acts and contracts of the
Company, and an accounting and constructive trust, being brought by the lead
plaintiffs on behalf of themselves and all persons in a class (other than the
defendants) who purchased the Companys publicly traded shares between January
1, 2003 and February 19, 2004; however, the lawsuit was not certified as a
class action suit. The complaint essentially contained the same allegations as
in the above-described demand letter. In June 2004, the plaintiffs filed a corrected second amended complaint in
the U.S. District Court, Middle District of Florida, Tampa Division, Case No.
8:04-CV-490-T-30MSS. This complaint notes the Company as a nominal defendant
and adds the Companys corporate counsel as additional defendants (seeking
compensatory damages, including reimbursement of legal fees paid by the
Company). The complaint alleges that it is a derivative suit, includes the
same allegations as in the original complaint, and also alleges, among other
things, inadequate disclosure by the defendants in SEC filings regarding
related party transactions and regarding Mr. Fusts beneficial ownership
(wherein Mr. Fust reported ownership of an additional 1,000,000 shares Crown IV
Holdings portends to own), all for the alleged purpose of the defendants
maintaining control of the Company. In this complaint the plaintiffs request,
among other things, that the Court appoint a special monitor during the
pendency of the litigation with authority to conduct investigations and issue a
report to the Court; that the Court enjoin the defendant directors from
committing certain violations of Federal securities laws, and from taking
certain actions, including using corporate funds for the defense of the
directors in the suit, conducting transactions in the Companys stock and
soliciting proxies for a 2004 annual meeting. In June 2004, the Company filed a motion with the Court (a) requesting the
Court to appoint an independent person to make a good faith determination,
after conducting a reasonable investigation, as to whether it is in the best
interests of the Company to maintain the shareholder derivative suit, and (b)
requesting a stay of all proceedings in the case until the results of the
investigation are provided to the Court. The interim stay has been
granted.  The Company is confident that if the
Court grants the motion for appointment of an independent
investigator, that the lawsuit will be shown to lack merit. In March 2004, the Company declared null and void two contracts entered
into with Sargon Capital, Inc., a shareholder and an affiliate of a former
director and officer, to-wit: an Investment Banking Services Agreement dated
October 24, 2002, and a Financial Consulting Services Agreement originally
dated in November 2002 which monthly payments under this consulting agreement
approximate $8,000 with $96,000 due for the years 2003 and 13




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2004, and $80,000 due for 2005. The consulting agreement was revised
September 8, 2003 extending the term of September 2006 and increasing
compensation to include 0.5% of gross revenue and 0.6% of net income before
taxes, interest and amortization. Sargon claimed that the Company owes
approximately $173,000 for these services. In April 2004, a lawsuit was filed in Circuit Court for the 12th Judicial
Circuit in and for Sarasota County, Florida, styled Sargon Capital, Inc. and
Andrew Badolato vs. SinoFresh HealthCare, Inc., Charles Fust and John Hallman,
Case No. 2004 CA3732SC. The complaint alleges a breach of the financial
consulting services agreement by failing to pay certain fees to Sargon Capital,
Inc. The complaint also alleges defamation of the principal of Sargon Capital,
inc. and a civil conspiracy to prevent Sargon Capital, Inc. from doing business
in the State of Florida. The Company believes that the agreements were
improperly approved, were breached by Sargon, and are illegal because of the
lack of appropriate licensure of Sargon. The Company, on behalf of itself and
its officers and directors, intends to vigorously defend the suit. In July 2004, a lawsuit was filed against the Company by Russell
Waggoneer, d/b/a Reach Consultants, in the County Court in and for Sarasota
County, Florida, Case No. 2004CC3501NC alleging that the Company breached an agreement, dated September 1,
2002 by failing to pay for certain executive search fees. The complaint seeks
damages of $14,400. The Company, which was not incorporated until October 15,
2002 and did not have any assets or operations until November 2002, contests
the validity of the contract and intends to vigorously defend the suit. The condensed consolidated financial statements include accruals for fees
owed to Sargon with respect to the financial consulting services agreement.
However, no adjustment or provision has been made related to the other
foregoing matters, the ultimate outcome of which cannot be presently
determined. 
 Item 2. Changes in Securities. Not applicable 
 Item 3. Defaults upon Senior Securities The Company has not complied with certain principal reduction requirements
under its amended agreements on two secured convertible notes. As of June 30,
2004, a total of $197,061 in principal was outstanding on these convertible
notes. The note holder is also a shareholder of the Company. 
 Item 4. Submission of Matters to a Vote of Security Holders. Not applicable 
 Item 5. Other Information In September 2003, the Company issued 10,768,490 shares of common stock,
858,170 shares of Series A preferred stock, 1,500,000 shares of Series B
preferred stock, and 1,218,711 shares of Series C preferred stock in exchange
for the outstanding shares of common stock and preferred stock held by
shareholders of the Companys predecessor, SinoFresh HealthCare, Inc., a
Delaware corporation (HealthCare). That transaction resulted in HealthCare
merging into a wholly-owned subsidiary of the Company, which subsidiary is now
known as SinoFresh Corporation. In connection with that transaction, the
Company has been unable to obtain from either former counsel to the Company or
former counsel to HealthCare (Mr. David Otto, a director of the Company), who
were counsel to the Company and HealthCare, respectively, at the time of the
merger, information the Company presently believes is sufficient to
indisputably support one or more exemption(s) from registration that were
relied upon in connection with the issuance of the merger shares. If such
information is not available, the issuance of the shares of the Company in
respect of the merger may not have been in compliance with the registration
provisions of the federal and state securities laws. There may have been a
violation of Section 5 of the Securities Act of 1933, as amended due to the
unavailability of an exemption from registration. As a result, the Company may
be exposed to claims for rescission by shareholders who received shares in the
merger. Although the Company would vigorously defend against any such actions,
litigation may be costly and there is no assurance of the outcome. If the
Company lost its defense in any such litigation, the cost of repurchasing the
shares could be material to the Company. 14




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Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibits
    
    Description
    
    Filing Date31.1
    
    Certifications of CEO Pursuant to
Section 302 of the Sarbanes-Oxley Act
    
    Filed Herewith31.2
    
    Certifications of CFO Pursuant to
Section 302 of the Sarbanes-Oxley Act
    
    Filed Herewith32
    
    Certifications of CEO and CFO Pursuant to
Section 906 of the Sarbanes-Oxley Act
    
    Filed Herewith
 (b) Reports on Form 8-K. Form
    
    Description
    
    Filing Date8-K
    
    Results of Operations and Financial Condition
    
    4/16/048-K/A
    
    Changes in Registrants Certifying Accountant
    
    4/12/04
 15




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. SINOFRESH HEALTHCARE, INC.August 13, 2004
    
    By /s/ Charles A. Fust
Charles A. Fust, Chief Executive OfficerAugust 13, 2004
    
    By /s/ Russell R. Lee III
Russell R. Lee III, Chief Financial Officer
 16